Mr. Joseph Conway reports
PRIMERO REPORTS FIRST QUARTER 2015 RESULTS; SAN DIMAS ACHIEVES RECORD QUARTERLY PRODUCTION
Primero Mining Corp. has released its financial and operational results for the first quarter ended March 31, 2015 (all amounts are in U.S. dollars). The company is pleased to report strong production of 61,073 gold-equivalent ounces, a 54-per-cent increase compared with the first quarter of 2014, at total cash costs of $699 per gold-equivalent ounce. Primero also reports first quarter revenues of $73.3-million, operating cash flow before changes in working capital
of $18.8-million (12 cents per share) and net income of $3.6-million (two cents per share).
First quarter highlights:
- Production growth: Strong first quarter performance included 61,073 gold-equivalent ounces (54,365 ounces of gold and 1.93 million ounces of silver) from San Dimas and Black Fox combined, compared with 39,758 gold-equivalent ounces produced in the same period of 2014.
- Record quarter at San Dimas: San Dimas achieved record quarterly production totalling 46,569 gold-equivalent ounces (39,861 ounces of gold and 1.93 million ounces of silver), compared with 35,662 gold-equivalent ounces produced in Q1 2014, representing a 31-per-cent increase. The mine achieved industry lowest quartile total cash costs of $582 per gold-equivalent ounce or $659 on an all-in sustaining cost basis.
- Guidance for 2015 maintained: Primero remains on track to achieve 2015 production guidance of between 250,000 and 270,000 gold-equivalent ounces, at total cash costs in the range of $650 to $700 per gold-equivalent ounce, or between $1,000 and $1,100 per ounce on an all-in sustaining cost basis.
- Strong revenue and operating cash flow generation: Primero generated strong quarterly revenues of $73.3-million and operating cash flow before working capital changes of $18.8-million (12 cents per share). The company reported net income of $3.6-million (two cents per share) and adjusted net income of $1.1-million (one cent per share).
- Balance sheet remains strong: Total liquidity position of $132.6-million as at March 31, 2015, includes the addition of $75-million of convertible unsecured subordinated debentures ($71-million net proceeds), maturing on Feb. 28, 2020.
- Costs managed: First quarter total cash costs of $699 per gold-equivalent ounce and all-in sustaining costs of $1,044 per ounce remain within the company's 2015 guidance range.
- San Dimas mill operating above design: The San Dimas mill achieved an average daily throughput rate of 2,863 tonnes per day during the quarter, well above its nameplate capacity of 2,500 tonnes per day, and setting the stage for timely completion of the planned expansion to 3,000 tonnes per day by mid-2016.
- Black Fox focused on transition to underground: Underground development at Black Fox continues to progress on schedule and the underground mine remains on track to achieve production rates of 1,000 tonnes per day during the third quarter of 2015.
- Improved reserve and resource grades: Primero's focus on delivering high-quality, high-margin underground ounces resulted in a 4-per-cent increase, to 5.7 grams per tonne, in the gold mineral reserve grade at its platform San Dimas mine in Mexico as well as a 19-per-cent increase in the underground gold mineral reserve grade to 7.5 grams per tonne at its Black Fox mine, located near Timmins, Ont.
SUMMARIZED FINANCIAL AND OPERATING RESULTS
(In thousands of U.S. dollars, except per share and per ounce)
Three months ended March 31,
2015 2014
Tonnes of ore milled 448,589 238,566
Produced
Gold-equivalent (ounces) 61,073 39,758
Gold (ounces) 54,365 32,278
Silver (million ounces) 1.93 1.51
Sold
Gold-equivalent (ounces) 61,651 37,249
Gold (ounces) 55,037 30,583
Silver (million ounces) 1.90 1.34
Average realized prices
Gold ($/ounce) $1,186 $1,295
Silver ($/ounce) $4.20 $6.44
Total cash costs (per gold ounce)
Gold-equivalent basis $699 $686
Byproduct basis $639 $543
All-in sustaining costs (per gold ounce) $1,044 $1,381
Revenues 73,310 48,269
Earnings from mine operations 11,470 9,481
Net income (loss) 3,584 (8,253)
Adjusted net income (loss) 1,139 (2,048)
Basic income (loss) per share 0.02 (0.06)
Diluted income (loss) per share 0.02 (0.06)
Adjusted net income (loss) per share 0.01 (0.02)
Operating cash flows before working
capital changes 18,777 6,509
Assets
Mining interests 881,408 1,068,865
Total assets 1,026,559 1,258,647
Liabilities
Long-term liabilities 169,080 134,286
Total liabilities 272,329 303,539
Equity 754,230 955,108
"Primero has delivered a strong start to 2015," stated Joseph F. Conway, chief executive officer. "Our platform San Dimas mine achieved record production levels and continues to exceed operational expectations, delivering significant cash flow for the company. I am extremely proud of our operating team for the success they have achieved at this mine, as it continues to show improved grades, higher throughput, lower costs and more operational flexibility. We are employing the same optimization approach used at San Dimas at the Black Fox mine, which is on track with underground development and is positioned to increase mined grade and improve cash flow from mid-2015 onwards. At a corporate level we successfully completed the convertible debenture financing early in the first quarter, ensuring that we have the financial capacity to invest and expand our assets in a volatile gold price environment. Our strong first quarter performance has positioned us to deliver the 20-per-cent organic growth planned in 2015, creating a period of strong cash flow and value creation for our shareholders."
Production growth
Primero produced 61,073 gold-equivalent ounces (54,365 ounces of gold and 1.93 million ounces of silver) from San Dimas and Black Fox combined during the first quarter of 2015, at total cash costs of $699 per gold-equivalent ounce and all-in sustaining costs of $1,044 per ounce. This compares favourably with Q1 2014 production of 39,758 gold-equivalent ounces, at total cash costs of $686 per gold-equivalent ounce and all-in sustaining costs of $1,381 per ounce. During the first quarter of 2014, Primero only owned the Black Fox mine for 26 days. Quarterly production remains in line with fourth quarter 2014 levels of 62,209 gold-equivalent ounces at total cash costs of $701 per gold-equivalent ounce. The company remains on track to meet 2015 production and cost guidance.
"We have successfully established operations at the San Dimas mine at 2,900 tonnes per day, well ahead of schedule," stated Ernest Mast, president and chief operating officer. "The remaining 100 tonnes per day will require optimizations that we will complete during 2015, with the final tailings belt filter currently scheduled for completion in early 2016. At Black Fox we have continued to drill the central high-grade zone at depth, expanding the known mineralization. We now have 50 intercepts with an average of 12 grams per tonne gold over seven metres. This is materially higher grade than the mineralization above the 550-metre level. For this reason the company is now determining the best ramp route and planning to start the Black Fox ramp down to the 600 m level in 2015. We expect to be in a position to access this higher-grade mineralization in 2016."
San Dimas mine and mill outperform -- both achieve record quarterly production
San Dimas produced 46,569 gold-equivalent ounces (39,861 ounces of gold and 1.93 million ounces of silver) during the first quarter of 2015, 31 per cent more than the same period in 2014, achieving record quarterly production. The increase in production was largely attributable to consistent mill operation above its nameplate capacity of 2,500 tonnes per day (tpd). During the quarter, the San Dimas mill achieved average throughput of 2,863 tpd, a 30-per-cent increase versus Q1 2014. Importantly, the San Dimas mine maintained pace with the mill, achieving record quarterly production of 2,931 tpd, 21 per cent higher than in Q1 2014. Head grades increased as expected and consistent with recent exploration success, averaging 5.01 grams per tonne of gold during the quarter. Metallurgical recoveries also reverted to their historical high levels with the completion of a final leach tank, averaging 96 per cent for gold and 93 per cent for silver in the quarter.
San Dimas total cash costs declined in the first quarter 2015 to $582 per gold-equivalent ounce, down 8 per cent from $632 in the first quarter 2014. All-in sustaining costs at San Dimas declined to the industry's lowest quartile at $659 per ounce in the first quarter 2015, compared with $893 per ounce in the same period of 2014, due to lower sustaining capital expenditures and higher production.
The San Dimas mine and mill are on track to complete the planned expansion to 3,000 tpd of throughput in mid-2016.
Black Fox focused on transition to underground
Black Fox produced 14,504 ounces of gold during the first quarter at total cash costs of $1,077 per ounce and all-in sustaining costs of $1,552 per ounce. As previously announced, the mine is in a transitional phase as production shifts from primarily open-pit production to high-grade underground production. The underground mine remains on schedule to achieve the targeted 1,000 tpd production rate during the third quarter of 2015; thereafter all-in sustaining costs are expected to decrease materially. The Black Fox mill operated at 2,121 tpd in Q1 2015, despite challenging winter conditions. Approximately 94 per cent of the ore was mined from the open pit and the remainder from underground development, according to plan, as the company focuses on building its underground stope inventory. The company will continue producing predominantly from the open pit until mid-2015 when higher-grade production from the underground is expected to increase. As a result, gold production at Black Fox is expected to be weighted toward the second half of the year.
Strong financial results
Revenue in the first quarter of 2015 was $73.3-million, 52 per cent higher than the $48.3-million in the first quarter 2014, as a result of the addition of the Black Fox complex and the expansion of the San Dimas mill (see above). The company sold 55,037 ounces of gold at an average realized price of $1,186 per ounce and 1.9 million ounces of silver at an average realized price of $4.20 per ounce in the first quarter of 2015, in accordance with the San Dimas silver purchase agreement and the Black Fox gold stream agreement.
Gold produced at Black Fox is subject to a gold purchase agreement and as a result 1,858 ounces were sold to Sandstorm Gold Ltd. at a fixed price of $518 per ounce in the first quarter of 2015. Silver produced at San Dimas is subject to a silver purchase agreement and as a result 1.9 million ounces of silver were sold to Silver Wheaton Caymans at a fixed price of $4.20 per ounce during the first quarter 2015. As of March 31, 2015, the company has delivered 4.3 million ounces of silver into the San Dimas silver purchase agreement's six-million-ounce annual threshold (Aug. 5 annual threshold renewal date), after which the company will begin selling 50 per cent of the silver produced at San Dimas at spot market prices until the next threshold renewal date (Aug. 5).
The company realized net income of $3.6-million (two cents per share) for the first quarter of 2015 compared with a net loss of $8.3-million (six-cent-per-share loss) for the first quarter of 2014, mainly as a result of increased gold and silver sales.
The adjusted net income for the first quarter was $1.1-million (one cent per share), compared with an adjusted net loss of $2.0-million (two cents per share loss) in the first quarter of 2014. Adjusted net loss/income primarily excludes the mark to market on the 5.75-per-cent convertible debentures, transaction costs, the impact of impairment charges, the impact of foreign exchange rate changes on deferred tax balances in both periods and the gain on derivative liability.
Operating cash flow before working capital changes in the first quarter of 2015 was $18.8-million (12 cents per share), compared with $6.5-million (five cents per share) in the first quarter of 2014.
Balance sheet strengthened
The company's liquidity position at March 31, 2015, was $132.6-million, comprising $57.6-million in cash, up from the Dec. 31, 2014, balance of $27.4-million, plus $75-million of undrawn revolving credit facility. The notable increase in liquidity is largely attributable to the receipt of net proceeds from the $75-million convertible debenture financing completed during the quarter.
On Feb. 9, 2014, Primero closed a $75-million offering of 5.75-per-cent convertible unsecured subordinated debentures, maturing on Feb. 28, 2020. As previously reported, the company intends to use the proceeds to finance underground development and mill expansion plans at San Dimas, development and capital expenditures at the Black Fox complex, and to repay the indebtedness outstanding under its $75-million revolving credit facility, with the balance to be used for general corporate purposes. In March, 2015, the outstanding amount on the revolving credit facility of $40-million was repaid.
Capital expenditures during the first quarter of 2015 totalled $19.0-million, in line with the $20.3-million spent during the same period in 2014. Total capital expenditures during 2015 are expected to be approximately $66.7-million excluding capitalized exploration costs of $18.6-million.
Guidance for 2015 maintained
Primero maintains its production guidance of between 250,000 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. Total cash costs for 2015 are expected to be in the range of $650 to $700 per gold-equivalent ounce, or between $1,000 and $1,100 per ounce on an all-in sustaining cost basis.
2015 GUIDANCE
Actual
Production outlook Black Fox San Dimas Estimated 2015 2014
Attributable
gold-equivalent
production
(gold-equivalent
ounces) 75,000-85,000 175,000-185,000 250,000-270,000 225,054
Gold production
(ounces) 75,000-85,000 145,000-155,000 220,000-240,000 189,943
Silver
Production (million
ounces) 6.5-7.5 6.5-7.5 6.15
Total cash
costs (per
gold-equivalent ounce) $820-$870 $590-$640 $650-$700 $687
All-in sustaining
costs (per gold
ounce) $1,075-$1,125 $840-$890 $1,000-$1,100 $1,222
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 and 13 Mexican pesos to the U.S. dollar.
Black Fox complex plan
The company is currently filling the 2,200 tpd Black Fox mill with ore from the Black Fox open-pit and underground operations. During the third quarter of 2015 the company will deplete the current open pit and production from the underground mine will increase to approximately 1,000 tpd. The company will then supplement underground production with the Black Fox stockpile, currently estimated to be one million tonnes of 1.1 grams per tonne gold, which is capable of sustaining the mill until late 2017.
As a result of positive exploration results from the central zone at Black Fox, the company is now planning to accelerate the ramp down to the 600 m level during 2015. The company expects to complete an updated internal resource estimate and announce any associated capital requirements for this ramp by the third quarter of 2015.
The company has begun an internal scoping study designed to assess strategies to optimize its Timmins assets. The Black Fox complex scoping study will assess:
- The timing and economic returns of developing an open pit at Grey Fox;
- The timing and economic returns of developing an underground operation at Grey Fox;
- The cost of installing a shaft to access mineralization below 700 metres below surface at Black Fox.
Given the exploration success at Black Fox and Grey Fox, the company is confident that alternative economic ore sources to complement the Black Fox underground operation will be available before the end of 2017.
SUMMARIZED OPERATING DATA
Three months ended March 31,
2015 2014
San dimas
Tonnes of ore mined 263,747 218,032
Tonnes of ore milled 257,670 198,570
Average mill head grade
(grams/tonne)
Gold 5.01 4.76
Silver 250 260
Average recovery rate (%)
Gold 96% 93%
Silver 93% 91%
Produced
Gold-equivalent (ounces) 46,569 35,662
Gold (ounces) 39,861 28,182
Silver (million ounces) 1.93 1.51
Sold
Gold-equivalent (ounces) 45,256 31,926
Gold (ounces) 38,642 25,260
Silver at fixed price
(million ounces) 1.90 1.15
Silver at spot (million
ounces) - 0.19
Average realized price
(per ounce)
Gold $1,207 $1,300
Silver $4.20 $6.44
Total cash costs (per gold
ounce)
Gold-equivalent basis $582 $632
Byproduct basis $479 $455
All-in sustaining costs
(per ounce) $659 $893
Revenue ($000) $54,640 $41,499
Earnings from mine
operations ($000) $14,615 $11,768
Black Fox
Open-pit mining
Tonnes of ore mined 275,865 55,422
Strip ratio 5.87 12.66
Average gold grade
(grams/tonne) 1.99 2.17
Underground mining
Tonnes of ore mined 11,525 8,096
Average gold grade
(grams/tonne) 4.84 5.65
Open pit and underground
Tonnes of ore milled 190,919 39,996
Average mill head grade
(grams/tonne) 2.49 3.36
Average gold recovery rate
(%) 95% 95%
Produced
Gold (ounces) 14,504 4,096
Sold
Gold at spot price
(ounces) 14,537 5,008
Gold at fixed price
(ounces) 1,858 315
Average realized gold
price (per ounce) $1,137 $1,272
Total cash costs (per gold
ounce) 1,077 1,154
All-in sustaining costs
(per ounce) 1,552 1,480
Revenue ($000) 18,670 6,770
Earnings (loss) from mine
operations ($000) (3,145) (2,287)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands of U.S. dollars, except per share)
Three months ended March 31,
2015 2014
Revenue $ 73,310 $ 48,269
Operating expenses (42,767) (27,683)
Depreciation and depletion (19,073) (11,105)
Total cost of sales (61,840) (38,788)
Earnings from mine operations 11,470 9,481
Exploration expenses (121) (17)
General and administrative expenses (8,013) (13,335)
Earnings (loss) from operations 3,336 (3,871)
Transaction costs and other expenses (3,906) (7,267)
Foreign exchange gain (loss) 2,418 (358)
Finance income 167 118
Finance expense (2,870) (524)
Gain on derivative liability 1,329 -
Mark-to-market gain on convertible
debentures 8,205 -
Impairment in value of investment in
Fortune Bay (534) -
Share in results of Santana Minerals (79) (602)
Earnings (loss) before income taxes 8,066 (12,504)
Income tax (expense) recovery (4,482) 4,251
Net income (loss) for the period 3,584 (8,253)
Other comprehensive income (loss), net of
tax
Items that may be subsequently
reclassified to
profit or (loss)
Exchange differences on translation of
oreign operations, net of tax of nil
(2014 -- nil) (514) 204
Reclassification of unrealized loss on
investment in Fortune Bay to
impairment, net of tax of nil 456 -
Total comprehensive income (loss) for the
period 3,526 (8,049)
Basic income (loss) per share 0.02 (0.06)
Diluted income (loss) per share 0.02 (0.06)
We seek Safe Harbor.
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