Mr. Joseph Conway reports
PRIMERO REPORTS FOURTH QUARTER AND FULL-YEAR 2016 RESULTS
Primero Mining Corp. has released its financial results for the fourth quarter and full year ended Dec. 31, 2016 (all amounts are in U.S. dollars). The company previously reported operating results for the fourth quarter and full-year 2016 on Jan. 18, 2017.
Highlights
- Revised production guidance achieved: Fourth quarter production of 45,794 gold equivalent ounces resulted in annual 2016 production of 176,139 gold equivalent ounces within the company's 2016 revised production guidance range of 170,000 to 190,000 gold equivalent ounces. Annual production totalled 156,052 ounces of gold and 5.32 million ounces of silver combined from the San Dimas and Black Fox mines.
- Cash costs within revised guidance range: Consolidated 2016 total cash costs were $865 per gold equivalent ounce, with consolidated all-in sustaining costs of $1,333 per gold ounce slightly below the company's revised 2016 guidance range.
- Financial results impacted by lower production: Lower production at both mines resulted in reduced revenue, earnings and cash flows in 2016 compared with 2015. The company incurred a net loss of $234.4-million ($1.32 per share) including $228.0-million ($188.9-million net of tax) in impairment charges in 2016, and an adjusted net loss of $22.1-million (12 cents per share) for 2016.
- San Dimas operations being reset to increase profitability: Primero is reducing the complexity and scale of San Dimas operations in 2017. This is expected to result in significant decreases to the San Dimas work force and other overhead costs which will enable the return to profitability and long-term sustainability of the mine.
- Reduced general and administrative costs: Primero has initiated actions to significantly reduce its general and administrative costs in 2017. The company has already reduced its corporate office head count by 30 per cent and will be downsizing its corporate office space and reducing directors' expenses.
"Although Primero faced significant challenges in 2016, we entered 2017 with renewed motivation to address these challenges and deliver meaningful returns to our shareholders," said Joseph F. Conway, interim president and chief executive officer. "We have started by strengthening our management team in late 2016, reducing our corporate G&A and refinancing our revolving credit facility, terming out our debt to better match our asset's cash flow profile. Our next focus is resetting the San Dimas operation and bringing the mine back to profitability so it can once again deliver on its world-class potential. We have also renewed our commitment to exploration at both of our mines in order to continue growing their reserve and resource base and fully realize on their significant mineral endowments."
Fourth quarter and full-year 2016 production results
Primero produced 45,794 gold equivalent ounces during the fourth quarter of 2016, at total cash costs of $777 per gold equivalent ounce and all-in sustaining costs of $1,159 per ounce. This resulted in annual production of 176,139 gold equivalent ounces at total cash costs of $865 per gold equivalent ounce and AISCs of $1,333 per ounce.
San Dimas produced 28,286 gold equivalent ounces (23,163 ounces of gold and 1.42 million ounces of silver) during the fourth quarter at total cash costs of $746 per gold equivalent ounce and AISCs of $994 per gold ounce. This resulted in full-year 2016 production of 113,968 gold equivalent ounces at cash costs of $856 per gold equivalent ounce and AISCs of $1,117 per gold ounce, slightly below the revised 2016 guidance range of $1,125 to $1,175 per ounce. Production at San Dimas was impacted by the implementation of enhanced ground support in early 2016 and later by high unplanned worker absences and lack of compliance to the mine plans. This resulted in reduced underground development rates and ventilation restrictions which reduced mine productivity. In late 2016, San Dimas began to reduce the complexity of the mining operation by prioritizing work in the higher productivity areas. Mining development during the fourth quarter of 2016 was the highest quarterly total since the second quarter of 2015, an indication that stopes will begin to be scheduled in an improved manner. For the year, San Dimas mill throughput averaged 2,074 tonnes per day (based on 366 days of availability).
Black Fox produced 17,512 ounces of gold during the fourth quarter of 2016 at cash costs of $828 per ounce and AISCs of $1,101 per ounce. For full-year 2016, the mine produced 62,171 ounces at cash costs of $881 per ounce and AISCs of $1,291 per ounce, in line with the 2016 revised cost guidance range. The Black Fox underground mine achieved increased production rates averaging 641 tpd in 2016 at an average grade of 5.0 grams per tonne, representing 66-per-cent and 4-per-cent improvements, respectively, over 2015. Black Fox increased gold production in each quarter of 2016, and mining operations will continue to focus on the higher-quality, more predictable Deep Central and Central zones of the mine, with less reliance on the upper remnant areas. Production from the Deep Central zone has ramped up since initial stoping activities began in September and mining is now progressing on multiple levels. Black Fox delivered 800 tonnes per day of ore production during the fourth quarter of 2016. The Black Fox mill throughput in 2016 established a new record averaging 2,495 tpd (based on 366 days of availability). Management will closely monitor the short-term operating results and cash flow to ensure the Black Fox mine delivers as planned, including possible care and maintenance, and will take necessary corrective actions if required.
Fourth quarter and full-year 2016 financial results
Primero generated $52.2-million of revenue in Q4 2016, compared with $71.4-million Q4 2015 as a result of lower gold equivalent ounces sold partially offset by a higher realized gold price. In Q4 2016, the company sold 43,925 ounces of gold at an average realized price of $1,182 per ounce and 1.58 million ounces of silver at an average realized price of $4.34 per ounce. Q4 2015 sales totalled 57,770 ounces of gold at an average realized price of $1,081 per ounce and 2.10 million ounces of silver at an average realized price of $4.24 per ounce.
Silver produced at San Dimas is subject to a silver purchase agreement and as a result 1.57 million ounces of silver were sold to Silver Wheaton Ltd. at a fixed price of $4.28 per ounce during the fourth quarter. As of Dec. 31, 2016, the company has delivered 2.12 million ounces of silver under the San Dimas silver purchase agreement's 6.0-million-ounce annual contract year threshold (which runs from Aug. 6 to the following Aug. 5), after which the company will begin selling 50 per cent of the silver produced at San Dimas at spot market prices until Aug. 5, 2016, when the annual threshold is reset. Gold produced at Black Fox is subject to a gold purchase agreement and as a result 1,214 ounces were sold to Sandstorm Gold Ltd. at a fixed price of $524 per ounce in fourth quarter 2016.
The company incurred a net loss of $190.1-million ($1.01 per share) in Q4 2016 compared with a net loss of $98.3-million (60 cents per share) for the fourth quarter of 2015. These figures include impairment charges against the San Dimas mine and Black Fox complex of $228.0-million in Q4 2016 and impairment charges against the Black Fox complex and Cerro del Gallo development project of $104.0-million in Q4 2015.
Impairment charges of $228.0-million include $111.0-million at the San Dimas mine and $117.0-million at Black Fox complex. The San Dimas impairment was driven by a decrease in reserves, revisions in the mining cut-off grade methodology and the application of higher discount rates in the discounted cash flow valuation. The Black Fox complex impairment charges resulted from decreases in reserves and the resultant shortened mine life. In 2015, impairment charges included $82.0-million at the Black Fox complex resulting from declining metal prices, the decision to temporarily defer Grey Fox development and changes in the Black Fox mine plan to focus primarily on higher grade underground ore, plus $22.0-million at Cerro del Gallo resulting from declining metal prices and the decision to further defer development.
Adjusted net loss for Q4 2016 was $1.8-million (one cent per share) compared with an adjusted loss of $38,000 (nil per share) in Q4 2015. Adjusted net loss primarily excludes the impact of impairment charges as described above, foreign exchange rate changes on deferred tax balances and the mark-to-market gain on the 5.75 per cent convertible debentures.
Operating cash flow before working capital changes in Q4 2016 was $7.0-million (four cents per share), compared with $20.7-million (13 cents per share) in Q4 2015.
For full-year 2016, Primero generated revenue of $219.2-million, 25 per cent below 2015 due to lower gold and silver ounces produced and sold at both San Dimas and Black Fox. Sales volumes totalled 158,028 ounces of gold at an average realized price of $1,221 per ounce and 5.56 million ounces of silver at an average realized price of $4.68 per ounce. A total of 5,097 ounces of gold were sold to Sandstorm at a fixed price of $523 per ounce and 5.41 million ounces of silver were sold to Silver Wheaton at a fixed price of $4.26 per ounce. The company also sold 160,000 ounces of silver at an average spot price of $19.32 per ounce in 2016.
For 2016, the company incurred a net loss of $234.4-million ($1.32 per share) including $228.0-million in impairment charges, compared with a net loss of $106.9-million (66 cents per share) including $104.0-million in impairment charges in 2015.
Adjusted net loss for 2016 was $22.1-million (12 cents per share) compared with adjusted net income of $6.6-million (four cents per share) in 2015. Adjusted net loss and adjusted net income primarily exclude the impact of impairment charges as described above, foreign exchange rate changes on deferred tax balances and the mark-to-market gain on the convertible debenture.
Operating cash flow before working capital changes was $15.3-million (nine cents per share) in 2016, compared with $83.2-million (51 cents per share) in 2015.
Credit facility refinanced
The company's cash position at Dec. 31, 2016, was $20-million. On Feb. 27, 2017, the company announced that it has entered into a binding term sheet with Sprott Resource Lending Partnership for a $75-million three-year term loan. The debt facility is intended to refinance the company's existing $75-million RCF, of which $50-million is currently drawn, and will be used partly for general corporate purposes. Sprott has concluded technical due diligence and the binding term sheet is subject to execution of definitive transaction documents, all regulatory and other third party approvals, and satisfaction of other customary conditions precedent.
San Dimas strike update
On Feb. 15, 2017, the company announced that unionized employees at its San Dimas mine in Mexico had initiated a strike action, resulting in the complete stoppage of mining and milling activities at the site.
Primero continues negotiations with the National Union of Mine, Metal, Steel and Allied Workers of the Mexican Republic (Sindicato Nacional de Trabajadores Mineros, Metalurgicos, Siderurgicos y Similares de la Republica Mexicana) sections 21 and 22. The company is not seeking a reduction in individual worker compensation, although the total work force at San Dimas including contractors is being reduced, a process that has already commenced. Primero needs to reduce the scale and complexity of the San Dimas operation in order to increase productivity and improve the mine's cash flow. Primero's key focus in these negotiations has been to better align the short-term bonus structure with overall mine site performance and profitability, to move the labour force onto a more continuous shift cycle to improve productivity, and to achieve the necessary reductions to the unionized work force. Primero has identified these as critical changes required to return the San Dimas operation to profitability.
Conference call details
The company's senior management will host a conference call today, Wednesday, March 15, 2017, at 10 a.m. ET to discuss fourth quarter and full-year 2016 operating and financial results.
Participants may join the call by dialling North America toll-free 1-888-789-9572 or 416-695-7806 for calls outside Canada and the United States and entering the participant passcode 1092106.
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 fourth quarter and full-year 2016 results call will be available until July 1, 2017, by dialling 1-800-408-3053 or 905-694-9451 and entering the call-back passcode 5641196.
This release should be read in conjunction with Primero's audited year-end 2016 financial statements and MD&A report on the company's website in the financial reports section under investors, or on SEDAR or EDGAR.
About Primero
Mining Corp.
Primero Mining is a Canadian-based precious metals producer that owns 100 per cent of the San Dimas gold-silver mine and the Cerro del Gallo gold-silver-copper development project in Mexico, and 100 per cent of the Black Fox mine and adjoining properties in the township of Black River-Matheson near Timmins, Ont., Canada.
SUMMARIZED FINANCIAL AND OPERATING RESULTS
(in thousands, except per share and per ounce)
Three months ended Dec. 31, 12 months ended Dec. 31,
2016 2015 2016 2015 2014
Tonnes of ore milled 417,528 480,025 1,672,322 1,868,926 1,593,005
Produced
Gold equivalent (ounces) 45,794 68,155 176,139 259,474 225,054
Gold (ounces) 40,674 59,156 156,052 221,060 189,943
Silver (million ounces) 1.42 2.32 5.32 8.30 6.15
Sold
Gold equivalent (ounces) 43,925 65,915 178,918 255,951 220,067
Gold (ounces) 38,255 57,770 158,028 218,194 185,286
Silver (million ounces) 1.58 2.10 5.56 8.12 5.94
Average realized prices
Gold ($/ounce) $1,182 $1,081 $1,221 $1,136 $1,243
Silver ($/ounce) $4.34 $4.24 $4.68 $5.34 $7.46
Total cash costs (per gold ounce)
Gold equivalent basis $777 $613 $865 $637 $687
Byproduct basis $723 $540 $817 $548 $579
All-in sustaining costs (per gold ounce) $1,159 $985 $1,333 $960 $1,222
Financial data (in thousands, except
per share)
Revenues $52,181 $71,404 $219,176 $291,304 $274,612
Earnings from mine operations 1,818 10,100 580 50,473 52,663
Net (loss) (190,083) (98,347) (234,420) (106,910) (224,384)
Adjusted net income (1,765) (38) (22,139) 6,556 5,365
Adjusted EBITDA 11,729 21,636 41,385 100,882 78,673
Basic (loss) per share (1.01) (0.60) (1.32) (0.66) (1.48)
Diluted (loss) per share (1.01) (0.60) (1.32) (0.66) (1.48)
Adjusted net income (loss) per share (0.01) (0.00) (0.12) 0.04 0.04
Operating cash flows before working
capital changes 6,984 20,682 15,267 83,165 73,658
Operating cash flows before working
capital changes per share 0.04 0.13 0.09 0.51 0.48
SUMMARIZED OPERATING DATA
Three months ended
12 months ended Dec. 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
2016 2015 2016 2016 2016 2016 2015
San Dimas
Tonnes of ore mined 762,167 988,168 194,670 185,080 231,224 151,193 228,539
Tonnes of ore milled 759,087 993,093 191,925 193,553 224,427 149,182 250,796
Tonnes of ore milled per day 2,074 2,721 2,086 2,104 2,466 1,639 2,726
Average mill head grade (grams/tonne)
Gold 3.94 4.90 3.87 3.69 4.10 4.13 5.23
Silver 228 274 245 232 231 198 300
Average gold recovery rate (%)
Gold 98% 97% 97% 97% 98% 99% 98%
Silver 96% 95% 94% 95% 96% 97% 96%
Produced
Gold equivalent (ounces) 113,968 189,769 28,286 28,454 34,327 22,901 50,370
Gold (ounces) 93,881 151,355 23,163 22,162 28,978 19,578 41,371
Silver (million ounces) 5.32 8.30 1.42 1.37 1.60 0.92 2.32
Sold
Gold equivalent (ounces) 118,450 185,463 28,252 27,405 33,653 29,140 48,466
Gold (ounces) 97,560 147,706 22,547 21,840 28,873 24,300 40,320
Silver at fixed price (million ounces) 5.41 7.27 1.57 1.06 1.43 1.35 2.10
Silver at spot (million ounces) 0.16 0.85 0.01 0.15 - -
Average realized price (per ounce)
Gold $1,246 $1,150 $1,208 $1,335 $1,265 $1,178 $1,092
Silver $4.68 $5.34 $4.34 $6.12 $4.24 $4.24 $4.24
Total cash costs (per gold ounce)
Gold equivalent basis $856 $559 $746 $865 $843 $998 $535
By product basis $774 $409 $643 $731 $765 $968 $414
All in sustaining costs (per ounce) $1,117 $680 $994 $1,080 $1,063 $1,362 $753
Revenue ($000) $147,581 $213,191 $34,089 $36,581 $42,578 $34,333 $52,960
Earnings from mine operations ($000) $145 $53,717 $1,780 $407 $4,348 ($6,390) $11,408
Black Fox
Open-pit mining
Tonnes of ore mined - 849,668 - - - - -
Strip ratio - 4.71 - - - - -
Average gold grade (grams/tonne) - 2.09 - - - - -
Underground mining
Tonnes of ore mined 234,518 140,836 73,597 64,522 57,898 38,501 57,041
Average gold grade (grams/tonne) 4.98 4.81 5.21 5.18 4.46 4.99 5.80
Tonnes increase (decrease) in stockpile (678,717) 114,671 (152,005) (168,996) (171,764) (185,952) (172,188)
Tonnes processed
Tonnes of ore milled 913,235 875,833 225,602 233,518 229,662 224,453 229,229
Tonnes of ore milled per day 2,495 2,400 2,452 2,538 2,524 2,467 2,492
Average mill head grade (grams/tonne) 2.22 2.60 2.49 2.29 2.14 1.94 2.51
Average gold recovery rate (%) 96% 96% 97% 95% 96% 95% 96%
Produced
Gold (ounces) 62,171 69,705 17,512 16,230 15,172 13,257 17,785
Sold
Gold at spot price (ounces) 55,371 64,597 14,494 14,735 12,996 13,146 16,434
Gold at fixed price (ounces) 5,097 5,891 1,214 1,409 1,138 1,336 1,015
Average realized gold price (per ounce) $1,181 $1,108 $1,145 $1,264 $1,192 $1,118 $1,059
Total cash costs (per gold ounce) $881 $850 $828 $926 $870 $851 $834
All-in sustaining costs (per ounce) $1,291 $1,163 $1,101 $1,286 $1,362 $1,404 $1,104
Revenue ($000) $71,595 $78,112 $18,092 $20,431 $16,861 $16,211 $18,444
Earnings (loss) from mine operations (000) $649 ($3,011) $85 ($422) $328 $658 ($1,075)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share)
Three months ended Dec. 31, 12 months ended Dec. 31,
2016 2015 2016 2015
Revenue $52,181 $71,404 $219,176 $291,304
Operating expenses (34,860) (42,555) (155,267) (163,593)
Depreciation and depletion (15,503) (18,749) (63,329) (77,238)
Total cost of sales (50,363) (61,304) (218,596) (240,831)
Earnings from mine operations 1,818 10,100 580 50,473
Mining interest impairment charge (228,000) (104,000) (228,000) (104,000)
Exploration expenses (2,262) (599) (3,414) (1,690)
Share-based compensation (1,466) (2,045) (7,049) (7,144)
General and administrative expenses (3,160) (5,589) (14,802) (20,044)
Other charges (548) (845) (4,725) (2,702)
(Loss) from operations (233,618) (102,978) (257,410) (85,107)
Transaction costs and other expenses - (510) (1,214) (4,416)
Interest and finance expense (1,845) (3,654) (9,299) (11,514)
Mark-to-market gain on convertible debentures 12,507 - 12,610 13,500
Other income (expense) 269 3,283 (571) 1,024
Earnings (loss) before income taxes (222,687) (103,859) (255,884) (86,513)
Income tax (expense) recovery 32,604 5,512 21,464 (20,397)
Net (loss) for the period ($190,083) ($98,347) ($234,420) ($106,910)
Other comprehensive income (loss), net
of tax
Items that may be subsequently reclassified
toprofit or (loss)
Exchange differences on translation of
foreign operations, net of tax of nil (129) 860 (102) (5)
Unrealized gain (loss) on investment in
Fortune Bay, net of tax of nil - - 1,058 60
Reclassification of unrealized (loss) on
investment in Fortune Bay to impairment,
net of tax of nil - - - 456
Total comprehensive (loss) for the period ($190,212) ($97,487) ($233,464) ($106,399)
Basic (loss) per share ($1.01) ($0.60) ($1.32) ($0.66)
Diluted (loss) per share ($1.01) ($0.60) ($1.32) ($0.66)We seek Safe Harbor.
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