An anonymous director reports
PRIMERO REPORTS THIRD QUARTER 2017 RESULTS
Primero Mining Corp. has released its operating and financial results for the third quarter ended Sept. 30, 2017.
Highlights
- Financial results: The company recognized a net loss of $7.6-million in Q3 2017 compared with a net loss of $11.7-million in Q3 2016. Adjusted net income was $1.8-million (one cent per share) for Q3 2017, compared with adjusted net loss of $7.9-million (four cents per share) for Q3 2016. Primero generated operating cash flow before working capital changes during Q3 2017 of $13.5-million (seven cents per share).
- Q3 2017 production: Total production was 36,602 gold equivalent ounces, comprising 20,537 gold equivalent ounces ounces from San Dimas and 16,065 gold ounces from Black Fox, compared with 35,965 gold equivalent ounces in Q2 2017 and 44,684 gold equivalent ounces in Q3 2016. Consolidated Q3 2017 total cash costs were $857 per gold equivalent ounce, with consolidated all-in sustaining costs (AISC) of $1,235 per gold ounce.
- San Dimas operations: San Dimas produced 17,070 ounces of gold and 1.05 million ounces of produced silver compared with 11,903 ounces of gold and 970,000 ounces in Q2 2017. San Dimas continued to implement its phased restart throughout the quarter, despite delays early in the quarter related to the 2016 annual workers' bonus negotiations, underground mining rates increased month over month during the quarter.
- Black Fox sale complete: Black Fox produced 16,065 ounces of gold in Q3 2017 (all attributable to Primero), compared with 16,230 ounces in Q3 2016. Primero closed the sale of the Black Fox complex on Oct. 6, 2017. After closing net working capital adjustments and release of cash collateral previously securing environmental closure liabilities, Primero expects to receive total consideration of $32.5-million. The net amount received is being applied to the company's revolving credit facility (RCF) with all amounts other than the cash collateral amount being a permanent reduction of the RCF.
- Valued-added tax refunds add to cash position: The company continued a dialogue with the the Servicio de Administracion Tributaria (SAT) during the quarter to seek to a resolution of its tax matters in Mexico. The company received VAT refunds from the SAT of $4.6-million during Q3 2017. In October, 2017, a further $10.6-million of VAT refunds was received. The company's cash position as of Sept. 30, 2017, was $14.9-million, and as of Oct. 31, 2017, was approximately $22-million.
- Strategic process continuing: The company continues to explore alternatives to maximize stakeholder value related to its San Dimas mine in Mexico. Primero has received proposals from interested parties regarding a potential acquisition of the San Dimas operation. All proposals received require a revision of the silver purchase agreement (SPA) with Wheaton Precious Metals Corp. (WPM), formerly Silver Wheaton Corp. Discussions are now focused on the distribution of potential proceeds among stakeholders. The company's RCF matures on Nov. 23, 2017, and any extension will likely require the consent of WPM as guarantor of the RCF. There can be no certainty that these discussions will result in a resolution acceptable to all stakeholders.
Third quarter 2017 operating and financial results
Primero produced a total of 36,602 gold equivalent ounces in Q3 2017, which compares with 44,684 gold equivalent ounces produced in Q3 2016. Gold and silver production was 33,135 ounces and 1.05 million ounces respectively in Q3 2017. The company incurred total cash costs per gold equivalent ounce of $857 during the quarter with AISC of $1,235 per gold ounce.
During the third quarter of 2017 San Dimas continued to implement its production ramp-up plan following the strike action taken by unionized employees which concluded in Q2 2017. The production ramp-up experienced significant delays due to persistent issues with underground equipment reliability, which impacted development rates and underground stoping activities. Further, production in July, 2017, was limited due to periods of inactivity during the negotiation of the 2016 annual workers' bonus (PTU bonus). Since the conclusion of these negotiations, the site has experienced an improvement in worker alignment.
San Dimas underground mining rates increased month over month in the third quarter of 2017, with the site meeting its target of nearly 2,000 tonnes per day run-of-mine ore in September -- the highest monthly average achieved in 2017.
Gold equivalent production in the third quarter of 2017 totalled 20,537 ounces which consisted of 17,070 gold ounces and 1.05 million silver ounces. This compares with 28,454 gold equivalent ounces produced in Q3 2016. Realized head grades in the third quarter of 2017 were 4.78 grams per tonne of gold and 301 grams per tonne of silver, approximately 30 per cent higher for both than in the third quarter of 2016. The increased head grades were the result of a specific mining focus on production from the high-quality veins at San Dimas. However, this did not fully offset the lower availability of run-of-mine ore during Q3 2017 resulting from reduced equipment reliability and low worker motivation during the negotiations for the annual bonus. Mill throughput was also negatively impacted by plant reliability issues at the end of the quarter which saw a buildup of run-of-mine ore stockpiles ahead of the crushing plant. This material will be consumed in Q4 2017. The San Dimas plant milled an average of 1,246 tonnes per day throughput in Q3 2017, compared with 2,104 tonnes per day in Q3 2016.
Total cash costs on a gold equivalent and byproduct basis in the third quarter of 2017 were $884 and $799 per ounce, respectively, compared with $865 and $731 per ounce, respectively, in the third quarter of 2016. The increased unit costs were a result of the lower production rates in the current quarter and higher operating costs incurred during the ramp-up of the San Dimas operations. All-in sustaining costs per gold ounce were $1,117 per ounce in the third quarter of 2017, compared with $1,080 per ounce in the third quarter of 2016, higher mainly as a result of lower production levels. Sustaining capital expenditures were focused on underground development ($3.6-million) and drilling ($1.1-million).
The Black Fox mine produced 16,065 ounces of gold in the third quarter of 2017 compared with 16,230 ounces in the third quarter of 2016. Underground mining in Q3 2017 remained focused on production from the Deep Central zone, with underground gold grades averaging 5.84 grams per tonne, a 13-per-cent increase from third quarter of 2016. The Black Fox underground mine averaged 681 tonnes per day of high-grade ore production in Q3 2017.
During the quarter, 119,862 tonnes from the low-grade stockpile were processed through the mill. The low-grade stockpile was fully depleted in September and the Black Fox operations successfully transitioned to underground only production. Concurrently, the Black Fox mill implemented a reduced milling schedule to operate on a seven-day-on, seven-day-off basis.
Mill throughput averaged 1,984 tonnes per day in the third quarter of 2017, compared with 2,538 tonnes per day in the third quarter of 2016. Mill throughput in Q3 2017 was affected by the depletion of the low-grade stockpile and the subsequent implementation of the reduced milling schedule. Improved head grade of 2.85 grams per tonne, compared with 2.29 grams per tonne in the third quarter of 2016, was driven by an increased contribution of high-grade underground ore which helped to offset the reduced throughput rates.
Total cash cost per gold ounce was $797 in the third quarter of 2017, 14 per cent lower than the $926 per ounce achieved in the third quarter of 2016. Total operating costs were lower in the third quarter of 2017 compared with the same period in 2016 due to lower labour, contractor and consumable costs associated with lower volumes. These cost reductions drove the decreased total cash costs on a per-gold-ounce basis, despite similar production levels achieved in the third quarters of 2017 and 2016. All-in sustaining costs of $1,099 per ounce in Q3 2017 were 15 per cent lower than the $1,286 per ounce in the third quarter of 2016 due to reduced capital and operating expenditures, despite similar gold production. Capital expenditures were lower in Q3 2017 mainly due to lower underground development rates and other sustaining capital costs. Significant development costs were incurred in the third quarter of 2016 as Black Fox worked to complete the access ramp to the Deep Central zone.
On Aug. 10, 2017, Primero announced the sale of the Black Fox complex and associated assets to McEwen Mining Inc. The transaction was completed on Oct. 6, 2017, for total consideration of approximately $32.5-million following a closing net working capital adjustment of $2.5-million. This includes approximately $27.5-million in cash proceeds and the pending release of $5.0-million from restricted cash that was pledged toward environmental closure liabilities, which were assumed by McEwen. The full proceeds, net of amounts to cover closing costs, from the sale of the Black Fox complex will be applied to the outstanding balance on the company's RCF with the $27.5-million being a permanent reduction to the available credit under the RCF.
As part of the sale agreement, Primero retained ownership of all dore poured prior to the end of Sept. 30, 2017. Therefore, the year-to-date production represents the full metal attributable to Primero from the Black Fox mine.
Primero generated $23.6-million of revenue in Q3 2017, 35 per cent lower than in Q3 2016 as a result selling 33 per cent less gold equivalent ounces from San Dimas, noting that Black Fox has been classified as discontinued operations under international financial reporting standards (as a result of it being classified as held for sale). In Q3 2017, the company sold 15,127 ounces of gold from San Dimas at an average realized price of $1,288 per ounce and 960,000 ounces of silver at an average realized price of $4.32 per ounce. Revenue in Q3 2016 totalled $36.6-million from selling 21,840 ounces of gold from San Dimas at an average realized price of $1,335 per ounce and 1.21 million ounces of silver at an average realized price of $6.12 per ounce.
All silver sold was delivered to Wheaton Precious Metals International Ltd. (WPMI) under the silver purchase agreement. The threshold limit under the silver purchase agreement for the 2017 contract year (Aug. 6 of a year to Aug. 5 of the following year) is 6.0 million ounces of silver. The threshold was not exceeded for the year ended Aug. 5, 2017. As of Sept. 30, 2017, the company has delivered 640,000 ounces of silver toward the current annual threshold.
The company recognized a net loss of $7.6-million in Q3 2017 compared with a net loss of $11.7-million in Q3 2016. Impairment charges of $5.0-million for the Black Fox complex were associated with the terms of the definitive sales agreement and impact of changes in the carrying value of the Black Fox business segment during the quarter. Adjusted net income was $1.8-million (one cent per share) for Q3 2017, compared with adjusted net loss of $7.9-million (four cents per share) for Q3 2016. Adjusted net income primarily excludes the asset impairments, net tax impact of foreign exchange rate changes on deferred tax balances, and the mark-to-market gain/loss on the convertible debenture and warrants.
Primero generated operating cash flow before working capital changes during Q3 2017 of $13.5-million (seven cents per share). This compares with operating cash flow of $5.5-million (three cents per share) in Q3 2016.
Liquidity update
The company's cash position as of Sept. 30, 2017, was $14.9-million, and as of Oct. 31, 2017, was approximately $22-million.
As at Sept. 30, 2017, the company's RCF was fully drawn down by $75-million. The total proceeds from the sale of the Black Fox complex are being applied to the RCF. Of the $27.5-million in cash proceeds, $25.0-million was applied to the outstanding balance on the RCF upon closing of the Black Fox sale, permanently reducing the RCF. The remaining $2.5-million was retained to cover transaction costs, and once all transaction costs have been settled, the unused portion will also be applied to the RCF, also permanently reducing the RCF. The $5.0-million of restricted cash pledged toward environmental closure liabilities once released will be applied to pay down the outstanding balance of the RCF, but will not permanently reduce the available credit.
The company received VAT refunds from the SAT of $4.6-million during Q3 2017. In October, 2017, a further $10.6-million of VAT refunds was received. As at Sept. 30, 2017, there were $30.9-million in VAT and $22.3-million in income tax receivables outstanding relating to Primero Empresa Minera SA de CV.
Despite efforts to reduce costs and sell non-core assets, there is no certainty that Primero will have sufficient funds to repay the full outstanding obligation under the RCF on Nov. 23, 2017. If needed to allow a strategic solution to be completed, the company would seek to extend the RCF maturity date. Any extension will likely require the consent of WPM as guarantor of the RCF. As there can be no certainty that this extension will be granted, the company is considering available alternatives to protect value and sustain operations while enabling the company to restructure its affairs.
Strategic review update
As previously announced, the company's board of directors initiated a strategic review process in early 2017 to explore alternatives to improve shareholder value. As part of this process the company completed the sale of the Black Fox complex on Oct. 6, 2017. After closing net working capital adjustments and release of cash collateral previously securing environmental closure liabilities, Primero expects to receive total consideration of $32.5-million. The net amount received is being applied to the company's RCF with all amounts other than the cash collateral amount being a permanent reduction of the RCF.
Primero has received proposals from interested parties regarding a potential acquisition of the San Dimas operation. All proposals received require a revision of the SPA with WPM. Discussions are now focused on the distribution of potential proceeds among stakeholders. The company's RCF matures on Nov. 23, 2017, and any extension will likely require the consent of WPM as guarantor of the RCF. There can be no certainty that these discussions will result in a resolution acceptable to all stakeholders.
Conference call cancelled
The company has cancelled the conference call previously scheduled for today.
This release should be read in conjunction with Primero's third quarter 2017 financial statements and management's discussion and analysis report on the company's website in the financial reports section under investors, or on SEDAR or EDGAR.
About Primero
Mining Corp.
Primero Mining is a Canadian-based precious metals producer that owns 100 per cent of the San Dimas gold-silver mine and the Cerro del Gallo gold-silver-copper development project in Mexico.
SUMMARIZED FINANCIAL AND OPERATING RESULTS
(in thousands, except per share and per ounce)
Three months ended Sept. 30 Nine months ended Sept. 30
2017 2016 2017 2016
Tonnes of ore milled 297,198 427,070 883,775 1,254,794
Produced
Gold equivalent (ounces) 36,602 44,684 99,300 130,345
Gold (ounces) 33,135 38,392 90,300 115,377
Silver (million ounces) 1.05 1.37 2.64 3.89
Sold
Gold equivalent (ounces) 38,100 43,549 100,181 135,027
Gold (ounces) 34,763 37,984 91,146 119,773
Silver (million ounces) 0.96 1.21 2.60 3.99
Average realized prices
Gold ($/ounce) $1,263 $1,305 $1,225 $1,234
Silver ($/ounce) $4.32 $6.12 $4.29 $4.81
Total cash costs (per gold ounce)
Gold equivalent basis $857 $887 $843 $889
Byproduct basis $811 $813 $802 $843
All-in sustaining costs (per gold ounce) $1,235 $1,350 $1,268 $1,397
Financial data (in thousands,
except per share)
Revenues $23,636 $36,581 $59,237 $113,492
Earnings (loss) from mine operations 1,173 357 (2,269) (1,802)
Net (loss) (7,576) (11,733) (294,472) (44,333)
Adjusted net earnings (loss) 1,820 (7,853) (1,079) (21,798)
Adjusted EBITDA 11,822 10,516 17,278 28,860
Basic net (loss) per share from
continuing operations (0.06) (0.06) (1.39) (0.26)
Diluted net (loss) per share from
continuing operations (0.06) (0.06) (1.39) (0.26)
Adjusted net earnings (loss) per share 0.01 (0.04) (0.01) (0.13)
Operating cash flows before working
capital changes 13,516 5,539 19,892 8,283
Operating cash flows before working
capital changes per share 0.07 0.03 0.10 0.05
SUMMARIZED OPERATING DATA
Three months ended
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
2017 2017 2017 2016 2016
San Dimas
Key performance data
Tonnes of ore mined 110,207 90,648 81,321 194,670 185,080
Tonnes of ore milled 114,657 80,281 82,587 191,925 193,553
Tonnes of ore milled per day 1,246 1,408 1,835 2,086 2,104
Average mill head grade (grams/tonne)
Gold 4.78 4.81 3.87 3.87 3.69
Silver 301 407 238 245 232
Average gold recovery rate (%)
Gold 97% 96% 98% 97% 97%
Silver 94% 93% 98% 94% 95%
Produced
Gold equivalent (ounces) 20,537 15,234 12,320 28,286 28,454
Gold (ounces) 17,070 11,903 10,118 23,163 22,162
Silver (million ounces) 1.05 0.97 0.62 1.42 1.37
Sold
Gold equivalent (ounces) 18,464 12,880 16,009 28,252 27,405
Gold (ounces) 15,127 9,997 13,195 22,547 21,840
Silver at fixed price (million ounces) 0.96 0.85 0.80 1.57 1.06
Silver at spot (million ounces) - 0.01 0.15
Average realized price (per ounce)
Gold $1,288 $1,262 $1,210 $1,208 $1,335
Silver $4.32 $4.28 $4.28 $4.34 $6.12
Total cash costs (per gold ounce)
Gold equivalent basis $884 $1,144 $790 $746 $865
Byproduct basis $799 $1,115 $698 $643 $731
All-in sustaining costs (per ounce) $1,117 $1,650 $975 $994 $1,080
Revenue ($000) $23,636 $16,232 $19,369 $34,089 $36,581
Earnings (loss) from mine operations ($000) $1,213 ($2,765) ($591) $1,780 $407
SUMMARIZED OPERATING DATA
Three months ended
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
2017 2017 2017 2016 2016
Key performance data
Underground mining
Tonnes of ore mined 62,679 67,993 52,217 73,597 64,522
Average gold grade (grams/tonne) 5.84 7.09 5.47 5.21 5.18
Tonnes increase (decrease) in stockpile 119,862 (150,084) (153,415) (152,005) (168,996)
Tonnes processed
Tonnes of ore milled 182,541 218,077 205,632 225,602 233,518
Tonnes of ore milled per day 1,984 2,396 2,285 2,452 2,538
Average mill head grade (grams/tonne) 2.85 3.04 2.28 2.49 2.29
Average gold recovery rate (%) 96% 97% 96% 97% 95%
Produced
Gold (ounces) 16,065 20,731 14,413 17,512 16,230
Sold
Gold at spot price (ounces) 18,506 15,938 14,581 14,494 14,735
Gold at fixed price (ounces) 1,130 1,472 1,202 1,214 1,409
Average realized gold price (per ounce) $1,230 $1,198 $1,159 $1,145 $1,264
Total cash costs (per gold ounce) $797 $637 $859 $828 $926
All-in sustaining costs (per ounce) $1,099 $827 $1,233 $1,101 $1,286
Revenue ($000) $24,424 $20,865 $18,318 $18,092 $20,431
Earnings (loss) from mine operations (000) $9,027 $6,374 $2,305 $85 ($422)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share)
Three months ended Sept. 30 Nine months ended Sept. 30
2017 2016 2017 2016
Revenue $23,636 $36,581 $59,237 $113,492
Operating expenses (17,003) (25,251) (44,036) (79,578)
Depreciation and depletion (5,460) (10,973) (17,470) (35,716)
Total cost of sales (22,463) (36,224) (61,506) (115,294)
Earnings (loss) from mine operations 1,173 357 (2,269) (1,802)
Mining interest impairment charge - - (245,000) -
Exploration expenses (642) (206) (1,856) (1,152)
Share-based compensation (972) (2,268) (3,680) (5,583)
General and administrative expenses (2,541) (3,416) (8,396) (10,966)
Other charges (1,116) (2,284) (10,629) (4,131)
(Loss) from operations (4,098) (7,817) (271,830) (23,634)
Transaction costs - - - (1,214)
Mark-to-market gain on
convertible debentures
Interest and finance expenses (3,282) (2,180) (8,556) (6,991)
Mark-to-market (loss) gain
on debentures and warrants (624) 2,756 6,272 103
Other (expenses) income (972) (841) 1,102 (203)
(Loss) before income taxes (8,976) (8,082) (273,012) (31,939)
Income tax (expense) recovery (1,817) (3,376) 7,485 (12,161)
Net (loss) from continuing operations (10,793) (11,458) (265,527) (44,100)
Net earnings (loss) from discontinued
operations, net of income taxes 3,217 (275) (28,945) (233)
Net (los)s for the period ($7,576) ($11,733) ($294,472) ($44,333)
Other comprehensive income
(loss), net of tax
Items that may be subsequently
reclassified to profit or loss
Exchange differences on translation of
foreign operations, net of tax of nil 27 17 27 27
Unrealized gain (loss) on investment
in Fortune Bay, net of tax of nil - 835 - 1,058
Total comprehensive (loss) for
the period ($7,549) ($10,881) ($294,445) ($43,248)
Basic and diluted (loss) per share
from continuing operations ($0.06) ($0.06) ($1.39) ($0.26)
Basic and diluted (loss) per share
from discontinued operations $0.02 ($0.00) ($0.15) ($0.00)
Basic and diluted (loss) per share
including discontinued operations ($0.04) ($0.06) ($1.54) ($0.26)
We seek Safe Harbor.
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