Mr. Joseph Conway reports
PRIMERO REPORTS FOURTH QUARTER AND FULL-YEAR 2014 RESULTS; RECORD PRODUCTION AND STRONG OPERATING CASH FLOW
Primero Mining Corp. today released financial and operational results for the fourth quarter and year ended Dec. 31, 2014. On Jan. 20, 2015, the company reported record production of 225,100 gold equivalent ounces (1), a 57-per-cent increase over 2013, at low cash costs (2) of $687 per gold equivalent ounce. Today the company reports record revenues in 2014 of $274.6-million; operating cash flow before changes in working capital (3) of $73.7-million (48 cents per share); a net loss of $224.4-million ($1.48 per share), including $209.0-million ($1.37 per share) in non-cash impairment charges (4); and adjusted net income (5) of $5.4-million (four cents per share). (Please note that all dollar amounts in this news release are expressed in United States dollars unless otherwise indicated. Refer to the company's 2014 year-end management discussion and analysis and audited financial statements for more information.)
Fourth-quarter and full-year 2014 highlights:
- Record annual production:
- Strong fourth-quarter performance included 62,200 gold equivalent ounces from San Dimas and Black Fox combined, resulting in record 2014 production of 225,100 gold equivalent ounces, 57 per cent higher than 2013 and within the company's guidance range.
- Disciplined cost management:
- Fourth-quarter cash costs of $701 per gold equivalent ounce resulted in 2014 cash costs of $687 per gold equivalent ounce and all-in sustaining costs (6) of $1,222 per ounce, within the company's guidance range, and these are expected to decline in 2015.
- Balance sheet strengthened:
- Total liquidity position of $62.4-million as at Dec. 31, 2014, which has been boosted following the recent addition of $75-million of convertible unsecured subordinated debentures, maturing on Feb. 28, 2020.
- Record revenues and strong operating cash flow:
- Primero generated record annual revenues of $274.6-million in 2014 and strong operating cash flow before working capital changes of $73.7-million (48 cents per share).
- Further production growth in 2015:
- Production is expected to increase further in 2015, by up to 20 per cent over 2014, to between 250,000 gold equivalent ounces and 270,000 gold equivalent ounces.
- Strengthening the company's management team:
- Primero has increased the experience depth of the management team, most recently with the addition of Ernest Mast as president and chief operating officer, as well as by the addition of Wendy Kaufman as chief financial officer in 2014.
"In 2014, Primero continued to deliver on its commitment to build a strong intermediate gold producer with a portfolio of high-quality, low-cost precious metals assets in the Americas," stated Joseph Conway, chief executive officer. "The company now has diversified cash flow from two high-grade gold mines in top mining jurisdictions of North America. It also has a pipeline of organic growth poised to deliver increased production at competitive cash costs as the company moves forward. Our operating teams excelled in 2014 by delivering record production at first quartile all-in sustaining costs at our platform San Dimas mine in Mexico. They also began the optimization of the Black Fox mine in Canada, with aims to improve productivity, reduce costs, and increase reserves and resources, just as they did with San Dimas over the last few years. At a corporate level, we are focused on managing costs and will be closing our Mexico City and Vancouver offices early in 2015. We have also strengthened our management team with the addition of a seasoned COO to complement our new CFO, who also brings a depth of experience in mining. Combined, these efforts have created a strong foundation that will allow Primero to complete the organic growth planned in 2015 and beyond, positioning the company for a period of strong cash flows and value creation for our shareholders."
High-grade production from top jurisdictions in the Americas
Primero produced 62,200 gold equivalent ounces during the fourth quarter of 2014, at cash costs of $701 per gold equivalent ounce and all-in sustaining costs of $1,196 per ounce. This resulted in record 2014 production of 225,100 gold equivalent ounces at cash costs of $687 per gold equivalent ounce and all-in sustaining costs of $1,222 per ounce, representing a 57-per-cent increase in production over 2013 and within the company's guidance range.
San Dimas produced 41,900 gold equivalent ounces (35,800 ounces of gold and 1.74 million ounces of silver) during the fourth quarter at cash costs of $654 per gold equivalent ounce and all-in sustaining costs of $897 per ounce. This resulted in full-year 2014 production of 161,200 gold equivalent ounces (126,100 ounces of gold and 6.15 million ounces of silver from San Dimas) at cash costs of $628 per gold equivalent ounce and all-in sustaining costs of $826 per ounce. Production at San Dimas in 2014 was higher than 2013 as a result of higher throughput with the completion of the expansion of the mill to 2,500 tonnes per day. Average throughput in 2014 increased by approximately 17 per cent over 2013 to 2,463 tonnes per day (based on 365-day availability). The expansion of the mill, combined with an increase in long-hole mining, allowed the San Dimas mine and mill to operate more efficiently. The optimization program at San Dimas was also successful at further improving mining dilution and reducing process inefficiencies.
Black Fox produced 20,300 ounces of gold during the fourth quarter at cash costs of $799 per ounce and all-in sustaining costs of $1,374 per ounce. This resulted in 2014 production, from the March 5, 2014, acquisition date, of 63,900 ounces of gold at cash costs of $837 per ounce and all-in sustaining costs of $1,428 per ounce. The company initiated an optimization program at Black Fox following its acquisition, increasing underground exploration and development throughout the year. The Black Fox mill operated at approximately 2,300 tonnes per day in 2014, with over 70 per cent of the ore coming from the open pit and only 30 per cent coming from the underground, according to plan, as the company focuses on building its underground stope inventory.
Strong financial results
Revenue in the fourth quarter of 2014 was $71.2-million, 49 per cent higher than the $47.7-million in the fourth-quarter 2013, as a result of the addition of the Black Fox complex and the completion of the San Dimas mill expansion to 2,500 tonnes per day. The company sold 54,406 ounces of gold at an average realized price of $1,188 per ounce and 1.56 million ounces of silver at an average realized price of $4.20 per ounce in the fourth quarter of 2014, in accordance with the San Dimas silver purchase agreement (7) and the Black Fox gold stream agreement (8).
Gold produced at Black Fox is subject to a gold purchase agreement, and as a result 1,148 ounces were sold to Sandstorm Gold Ltd. at a fixed price of $509 per ounce in the fourth quarter of 2014. Silver produced at San Dimas is subject to a silver purchase agreement, and as a result 1.56 million ounces of silver were sold to Silver Wheaton Caymans at a fixed price of $4.20 per ounce. As of Dec. 31, 2014, the company has delivered 2.44 million ounces of silver into the San Dimas silver purchase agreement's 6.0-million-ounce annual threshold, after which the company will begin selling 50 per cent of the silver produced at San Dimas at spot market prices.
The company incurred a net loss of $110.0-million (69 cents per share) for the fourth quarter of 2014 compared with a net loss of $35.9-million (31 cents per share) for the fourth quarter of 2013, mainly due to certain developments that the company announced in its guidance news release on Jan. 20, 2015, that required non-cash impairment charges against the carrying amount of the Black Fox mine and the Cerro del Gallo project. The non-cash charges against the Black Fox mine were primarily due to the early depletion of the open pit, as disclosed in the 2015 guidance, and the non-cash charges against the Cerro del Gallo project were primarily due to current economic conditions and the subsequent deferral of a construction decision, as also disclosed in the 2015 guidance. The adjusted net loss for the fourth quarter was $5.1-million (three cents per share), compared with adjusted net income of $1.6-million (one cent per share) in the fourth quarter of 2013. Adjusted net loss/income primarily excludes the impact of impairment charges and prior-quarter depletion adjustment related to the finalization of the Brigus purchase price allocation in 2014, deferred taxes due to foreign exchange rate changes on deferred tax balances in both periods, and deferred taxes recorded on the enactment of a new royalty tax in Mexico in 2013.
Operating cash flow before working capital changes in the fourth quarter of 2014 was $18.2-million (11 cents per share), compared with $14.0-million (12 cents per share) in the fourth quarter of 2013.
For the 12 months ended Dec. 31, 2014, revenue was a record $274.6-million compared with $200.3-million in 2013 as a result of selling 64 per cent more gold ounces at an 11-per-cent-lower average realized gold price and 4 per cent less silver ounces at a 7-per-cent-higher average realized silver price. In 2014 Primero sold 185,286 ounces of gold at an average realized price of $1,243 per ounce and 5.94 million ounces of silver at an average realized price of $7.46 per ounce. In 2014 the company sold 4,353 ounces of gold to Sandstorm at a fixed price of $509 per ounce and 4.70
million ounces of silver to Silver Wheaton at a fixed price of $4.18 per ounce. The company sold 1.24 million ounces of silver at spot prices in 2014, 24 per cent more than the 1.0 million ounces sold in 2013.
The company incurred a net loss of $224.4-million ($1.48 per share) in 2014, mainly due to certain developments that the company disclosed in the 2015 guidance and other developments that the company had disclosed earlier, that required $209.0-million ($1.37 per share) in non-cash impairment charges, compared with a net loss of $4.3-million (four cents per share) in 2013. The non-cash impairment charges include a $99.0-million goodwill impairment as a result of share price appreciation from the announcement date of the Brigus acquisition to the close date, plus a further $75.0-million impairment of Black Fox due to the early depletion of the open pit, as disclosed in the 2015 guidance, and a $35.0-million impairment of the Cerro del Gallo development project as a result of current economic conditions and the subsequent deferral of a construction decision, as also disclosed in the 2015 guidance.
Adjusted net income for 2014 was $5.4-million (four cents per share) compared with adjusted net income of $38.7-million (36 cents per share) in 2013. Adjusted net income primarily excludes the impact of impairment charges in 2014 on the Black Fox complex and the Cerro del Gallo project, foreign exchange rate changes on deferred tax balances in both periods, and deferred taxes resulting from the introduction of the new royalty tax in Mexico in 2013.
Operating cash flow before working capital changes was $73.7-million (48 cents per share) in 2014, compared with $72.4-million (67 cents per share) in 2013.
Balance sheet strengthened
The company's liquidity position at Dec. 31, 2014, was $62.4-million, comprising cash of $27.4-million, up from the Sept. 30, 2014, balance of $22.1-million, plus $35.0-million of undrawn credit facility.
On Feb. 9, 2015, the company closed a $75-million offering of 5.75-per-cent convertible unsecured subordinated debentures, maturing on Feb. 28, 2020. This has improved the company's current liquidity position to $134.0-million.
The company generated strong operating cash flow in 2014 and has continued to invest in its operations with total capital expenditures of $112.3-million spent during the year. The company also repaid $63.3-million of debt and interest in 2014, including repaying the remaining $27.2-million of the promissory note previously held by Goldcorp Inc., plus $20.9-million in senior secured notes and $1.9-million of convertible debentures, both assumed upon the acquisition of Brigus.
Production growth continues in 2015
In 2015 Primero expects to increase production to between 250,000 gold equivalent ounces and 270,000 gold equivalent ounces, up to 20 per cent higher than 2014, due to increased production from both San Dimas and Black Fox. Cash costs for 2015 are expected to be in the range of $650 per gold equivalent ounce to $700 per gold equivalent ounce, or between $1,000 per ounce and $1,100 per ounce on an all-in sustaining cost basis.
Total capital expenditures during 2015 are expected to be approximately $66.7-million, excluding capitalized exploration costs of $18.6-million. Primero's 2015 production outlook is summarized in the table.
Production outlook Black Fox San Dimas Estimated 2015
Attributable gold
equivalent production (1)
(gold equivalent ounces) 75,000-85,000 175,000-185,000 250,000-270,000
Gold production
(ounces) 75,000-85,000 145,000-155,000 220,000-240,000
Silver production (7)
(million ounces) 6.5-7.5 6.5-7.5
Total cash costs (2)
(per gold equivalent
ounce) $820-$870 $590-$640 $650-$700
All-in sustaining
costs (6)
(per gold ounce) $1,075-$1,125 $840-$890 $1,000-$1,100
Material assumptions used to forecast total cash costs for 2015 include an average gold price of $1,200 per ounce, an average silver price of $5.21 per ounce (calculated using the silver purchase agreement contract price of $4.20 per ounce and assuming excess silver beyond contract requirements is sold at an average silver price of $18 per ounce), and conservative foreign exchange rates of $1.10 (Canadian) and 13 Mexican pesos to the U.S. dollar.
Strengthened management team
In September, 2014, the company announced the intended closure of the Vancouver office and the appointment of Wendy Kaufman as chief financial officer. Ms. Kaufman is a chartered professional accountant with 20 years of financial management experience in the mining sector. She has served in a variety of senior executive positions, most recently as vice-president, finance and treasury, at Inmet Mining.
On Feb. 2, 2015, the company also announced the appointment of Ernest Mast as president and chief operating officer. Mr. Mast is a metallurgical engineer with over 25 years of international mining experience. He previously held leadership positions with Copper Mountain Mining, New Gold Inc., Minera Panama (subsidiary of Inmet Mining) and Xstrata. Mr. Mast has a master's degree in metallurgical engineering from McGill University, is a registered professional engineer, and is fluent in English, Spanish and French.
The company has also appointed Maria-Luisa Sinclair as vice-president, human resources, effective Jan. 2, 2015. Ms. Sinclair has supported Primero for nearly two years, initially as a consultant and then as director, human resources. She brings close to 25 years of international human resources experience in the mining sector, with particular expertise in Latin America. Ms. Sinclair previously held key human resource positions with Placer Dome Inc., Pan American Silver Corp., Baja Mining Corp. and Skye Resources Inc.
The company is confident that the addition of these experienced executives will enhance its ability to further optimize and expand its existing mines, improving its profitability and strengthening Primero into a leading intermediate gold producer with a portfolio of high-quality, low-cost precious metals assets in the Americas.
Commitment to corporate responsibility and the safety of its workers
Primero is committed to the safety, health and well-being of its workers and their families. The company is pleased with its year-on-year reduction in the all-injury frequency rate, down a further 40 per cent at San Dimas in 2014 -- representing the 9th consecutive year of AIFR reductions (5th consecutive year with Primero as the operator), and down 34 per cent at Black Fox in 2014.
Primero's safety culture continues to develop, as exemplified at the Black Fox mine, which celebrated more than one year without any lost-time injury in June, 2014. San Dimas employees are also particularly proud of the special recognition presented to them by the Durango state Secretary of Labor and Social Welfare regarding the safety performance at the San Dimas mine. Primero employees also achieved first-place standing in regional mine rescue and first aid competitions in Mexico and Ontario respectively.
Primero is committed to maintaining a vibrant, economically diverse local community through programs such as the Activa Tayoltita cultural and recreational activities, which included education and sporting events and the construction of three new recreation parks in Tayoltita. Additionally, the company works with local ejidos in Mexico and first nations in Canada, generating employment and business opportunities within their respective communities.
The company strives at all times to act with responsibility and transparency in its actions and its sustainability reporting practices, providing accurate comparison and intensity measurements of its environmental performance. Primero continuously reviews its environmental performance and is on track to renew its clean industry certification (certificacion empresa limpia) at the San Dimas mine in 2015.
Conference call and webcast details
The company's senior management will host a conference call today, Thursday, Feb. 12, 2015, at 10 a.m. (ET), to discuss these results. Participants may join the call by dialling North America toll-free 1-888-789-9572 or 1-416-695-7806 for calls outside Canada and the U.S. and entering the participant passcode 5259185 followed by the pound sign.
A live and archived webcast of the conference call will also be available at the company's website under the news and events section.
A recorded playback of the call will be available until May 19, 2015, by dialling North America toll-free 1-800-408-3053 or 1-905-694-9451 for calls outside Canada and the U.S. and entering the callback passcode 5259185 followed by the pound sign.
This release should be read in conjunction with Primero's audited year-end 2014 financial statements and management's discussion and analysis report on the company's website or on the SEDAR website.
(1) Gold equivalent ounces include silver ounces produced at San Dimas and converted to a gold equivalent based on a ratio of the average commodity prices realized for each period. The ratio for the fourth quarter 2014 was 287:1 based on the average realized prices of $1,207 per ounce of gold and $4.20 per ounce of silver. The ratio for full-year 2014 was 170:1 based on the average realized prices of $1,265 per ounce of gold and $7.46 per ounce of silver. The ratio used for the 2015 guidance projection is 230:1 based on estimated average prices of $1,200 per ounce of gold and $5.21 per ounce of silver.
(2) Total cash costs per gold equivalent ounce and total cash costs per gold ounce on a byproduct basis are non-GAAP (generally accepted accounting principles) measures. Total cash costs per gold equivalent ounce are defined as costs of production (including refining costs) divided by the total number of gold equivalent ounces produced. Total cash costs per gold ounce on a byproduct basis are calculated by deducting the byproduct silver credits from operating costs and dividing by the total number of gold ounces produced. The company reports total cash costs on a production basis. In the gold mining industry, these are common performance measures but do not have any standardized meaning and are non-GAAP measures. As such, they are unlikely to be comparable with similar measures presented by other issuers. In reporting total cash costs per gold equivalent and total cash costs per gold ounce on a byproduct basis, the company follows the recommendations of the Gold Standard Institute. The company believes that, in addition to conventional measures, prepared in accordance with GAAP, certain investors use this information to evaluate the company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Refer to the company's 2014 annual management's discussion and analysis for a reconciliation of cash costs per gold ounce on both a byproduct and gold equivalent basis to reported operating expenses (the most directly comparable GAAP measure).
(3) Operating cash flow is operating cash flow before working capital changes. This and operating cash flows before working capital changes per share are non-GAAP measures, which the company believes provides a better indicator of the company's ability to generate cash flow from its mining operations. See the company's 2014 annual audited financial statements and management's discussion and analysis for a reconciliation of operating cash flows to GAAP.
(4) The non-cash impairment charges in the fourth quarter of 2014 were against the carrying amount of the Black Fox mine and the Cerro del Gallo project and were the consequence of certain developments that the company announced in its guidance news release on Jan. 20, 2015. The non-cash charges against the Black Fox mine were primarily due to the early depletion of the open pit, as disclosed in the 2015 guidance, and the non-cash charges against the Cerro del Gallo project were primarily due to current economic conditions and the subsequent deferral of a construction decision, as also disclosed in the 2015 guidance.
(5) Adjusted net income/loss and adjusted net income/loss per share are non-GAAP measures. Neither of these non-GAAP performance measures has any standardized meaning and they are therefore unlikely to be comparable with other measures presented by other issuers. The company believes that, in addition to conventional measures prepared in accordance with GAAP, the company and certain investors use this information to evaluate the company's performance. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Refer to the company's 2014 management's discussion and analysis for a reconciliation of adjusted net income/loss to reported net income.
(6) The company, in conjunction with an initiative undertaken within the gold mining industry, has adopted an all-in sustaining cost non-GAAP performance measure that the company believes more fully defines the total cost associated with producing gold; however, this performance measure has no standardized meaning. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The company reports this measure on a gold ounces produced basis. Refer to the company's 2014 annual audited financial statements and management's discussion and analysis for a reconciliation of all-in sustaining costs per gold ounce.
(7) Upon the acquisition of the San Dimas mine, the company was required to assume a silver purchase agreement with Silver Wheaton. According to the silver purchase agreement, until Aug. 6, 2014, Primero will deliver to Silver Wheaton a per-annum amount equal to the first 3.5 million ounces of silver produced at San Dimas and 50 per cent of any excess at $4.04 per ounce (increasing by 1 per cent per year). Thereafter Primero will deliver to Silver Wheaton a per-annum amount equal to the first 6.0 million ounces of silver produced at San Dimas and 50 per cent of any excess at $4.20 per ounce (increasing by 1 per cent per year). The company will receive silver spot prices only after the annual threshold amount has been delivered.
(8) Upon the acquisition of the Black Fox mine, the company was required to assume a gold purchase agreement with Sandstorm. According to the gold purchase agreement, Sandstorm is entitled to acquire 8 per cent of production at the Black Fox mine and 6.3 per cent at the Black Fox Extension for a fixed price of $509 per ounce (subject to an inflationary adjustment, not to exceed 2 per cent per year).
SUMMARIZED FINANCIAL AND OPERATING RESULTS
(in thousands of United States dollars,
except per-share and per-ounce amounts)
Three months Years ended
ended Dec. 31,
Dec. 31, 2014 2014 (1) 2013 2012
Key performance data
Tonnes of ore milled 482,922 1,593,005 766,930 721,264
Produced
Gold equivalent (ounces) 62,209 225,054 143,114 111,132
Gold (ounces) 56,140 189,943 111,983 87,900
Silver (million ounces) 1.74 6.15 6.05 5.13
Sold
Gold equivalent (ounces) 59,817 220,067 143,972 110,078
Gold (ounces) 54,406 185,286 112,846 87,384
Silver (million ounces) 1.56 5.94 6.17 5.02
Average realized prices
Gold ($/ounce) (2) $1,188 $1,243 $1,394 $1,662
Silver ($/ounce) (2) $4.20 $7.46 $6.97 $7.52
Average gold London p.m. fix $1,201 $1,266 $1,411 $1,669
Total cash costs (per gold
ounce)
Gold equivalent basis $701 $687 $599 $636
Byproduct basis $657 $579 $389 $366
All-in sustaining costs
(per gold ounce) $1,196 $1,222 $1,077 $1,134
Financial data
(in thousands of U.S. dollars
except per-share amounts)
Revenues 71,171 274,612 200,326 182,939
Earnings from mine
operations 18,537 52,663 76,004 79,389
Net (loss) income (109,964) (224,384) (4,250) 49,553
Adjusted net (loss) income (5,054) 5,365 38,668 41,292
Basic (loss) income per
share (0.69) (1.48) (0.04) 0.54
Diluted (loss) income per
share (0.69) (1.48) (0.04) 0.54
Adjusted net (loss) income
per share (0.03) 0.04 0.36 0.45
Operating cash flows before
working capital changes 18,209 73,658 72,396 88,808
Assets
Mining interests 881,480 881,480 636,253 496,132
Total assets 1,002,820 1,002,820 800,822 670,506
Liabilities
Long-term liabilities 190,213 190,213 94,039 47,253
Total liabilities 254,835 254,835 139,732 98,768
Equity 747,985 747,985 661,090 574,738
(1) Includes the results for the period for which the Black Fox complex
assets, acquired on March 5, 2014, were owned by Primero (March 5, 2014,
to Dec. 31, 2014).
(2) Average realized gold and silver prices reflect the impact of the gold
purchase agreement with Sandstorm at the Black Fox mine and the silver
purchase agreement with Silver Wheaton Caymans at the San Dimas mine
(see other liquidity considerations in the company's 2014 year-end
management's discussion and analysis).
We seek Safe Harbor.
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