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Primero Mining Corp
Symbol C : P
Shares Issued 97,435,622
Close 2013-05-07 C$ 5.43
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Primero earns $17.32-million (U.S.) in fiscal Q1 2013

2013-05-08 08:24 ET - News Release

Mr. Joseph Conway reports

PRIMERO REPORTS FIRST QUARTER 2013 RESULTS; RECORD QUARTERLY PRODUCTION AND EXPANSION ON-TRACK

Primero Mining Corp. has released its financial results for the first quarter ended March 31, 2013 (all amounts are in U.S. dollars). The company reported net earnings of $17.3-million (18 cents per share) with adjusted net earnings of $9.4-million (10 cents per share). Operating cash flows were $19.3-million (20 cents per share). The company also reported a strong cash position of $141.2-million as of March 31, 2013.

"Primero continues to deliver strong operating and financial results," stated Joseph Conway, president and chief executive officer. "During the first quarter we achieved our goal of reaching the mill's throughput capacity of 2,150 tonnes per day, translating into the highest gold and silver production we've reported since acquiring San Dimas. This record production drove our strong earnings and cash flow, and positioned us to take advantage of the silver spot market in April, earlier than last year. We were also focused on ensuring the timely closing of the Cerro del Gallo acquisition and pleased that the Cerro shareholders voted overwhelmingly in favour of the transaction on April 30, 2013. Primero shareholders will benefit with the diversification and increased production profile that the Cerro del Gallo project adds to Primero."

First quarter highlights

  • Strong earnings and cash flow: adjusted net earnings of $9.4-million (10 cents per share) and operating cash flow before working capital changes of $19.3-million (20 cents per share);
  • Record production continues: the highest quarterly gold and silver production since acquiring San Dimas (24,190 ounces of gold and 1.37 million ounces of silver) was achieved;
  • Balance sheet strengthened: cash position increased to $141.2-million at March 31, 2013, from $139.2-million at Dec. 31, 2012, after repaying $7.8-million of debt during the quarter (total debt stands at $32.2-million);
  • Awarded ESR distinction: Primero was again awarded the socially responsible business (ESR) distinction by Mexican Centre for Philanthropy;
  • Positioned to achieve higher annual silver sales at spot prices: silver contract annual threshold achieved earlier than 2012, silver sales at spot market prices expected to be higher in 2013 than 2012;
  • Cerro acquisition on track: transaction expected to close at the end of May, 2013, creating a diversified, high-growth, competitive-cost precious-metals producer in Mexico;
  • Increased reserves and resources: increase of 31 per cent in probable gold mineral reserves and 35-per-cent increase in indicated gold mineral resources at Dec. 31, 2012.

                                 HIGHLIGHTS
       (In thousands of U.S. dollars, except per share and per ounce)

                                                 Three months ended March 31,
                                                            2013        2012
Operating data
Tonnes of ore milled                                     183,811     178,523
Produced
Gold-equivalent (ounces)                                  27,656      25,793
Gold (ounces)                                             24,190      22,588
Silver (million ounces)                                     1.37        1.32
Sold
Gold-equivalent (ounces)                                  28,474      26,229
Gold (ounces)                                             24,736      23,004
Silver (million ounces)                                     1.48        1.33
Average realized prices
Gold ($/ounce)                                       $     1,626 $     1,678
Silver ($/ounce)                                     $      4.12 $      4.08
Total cash costs (per gold ounce)
Gold-equivalant basis                                $       719 $       674
Byproduct basis                                      $       589 $       532
Financial data
Revenues                                             $    46,321 $    44,004
Earnings from mine operations                             15,706      18,662
Net income                                                17,325      30,143
Basic income per share                                      0.18        0.34
Diluted income per share                                    0.18        0.31
Operating cash flows before working capital changes       19,309      20,944

Mill throughput capacity achieved during quarter

Primero produced 27,656 gold-equivalent ounces during the first quarter of 2013, or 24,190 ounces of gold and 1.37 million ounces of silver, 7 per cent more and 4 per cent more, respectively, than the same period in 2012. The increase in gold production was primarily due to 3-per-cent-higher throughput of 183,811 tonnes in 2013, up from 178,523 tonnes in 2012 and 4-per-cent-higher grade when comparing the same periods. The increase in silver production was due to the higher throughput, while the grade remained consistent. Gold and silver grades during the first quarter of 2013 increased by 8 per cent and 6 per cent, respectively, over fourth quarter 2012.

Total cash costs on a gold-equivalent and byproduct basis in the first quarter 2013 were $719 and $589 per ounce, respectively, compared with $674 and $532 per ounce, respectively, in the first quarter 2012. Higher operating costs (mainly due to higher labour costs as a result of the introduction of long-hole mining) were partially offset by a 7-per-cent increase in gold-equivalent ounces produced.

Production drives improved earnings and cash flow

Revenues in the first quarter of 2013 were $46.3-million as a result of selling 24,736 ounces of gold at an average realized price of $1,626 per ounce and 1.48 million ounces of silver at an average realized price of $4.12 per ounce. Revenue was $44.0-million for the same period in 2012 from selling 23,004 ounces of gold at an average realized price of $1,678 per ounce and 1.33 million ounces of silver at an average realized price of $4.08 per ounce. All of the silver ounces in the first quarters of 2013 and 2012 were sold at a fixed price pursuant to the silver purchase agreement.

Operating cash flow before working capital changes in the first quarter of 2013 were $19.3-million (20 cents per share) compared with $20.9-million (24 cents per share) in 2012.

The company earned net income of $17.3-million (18 cents per share) for the three months ended March 31, 2013, compared with net income of $30.1-million (34 cents per share) for the three months ended March 31, 2012. Higher revenue was offset by higher operating expenses, higher general and administrative expenses (due primarily to increased share-based payment expenses), and a foreign exchange loss in the current period as compared with a foreign exchange gain in the prior period.

Adjusted net income, which primarily excludes the impact of foreign exchange rate changes on deferred tax balances, was $9.4-million (10 cents per share) for the first quarter 2013 compared with $18.8-million (21 cents per share) for the same period in 2012.

Cash position continues to grow

The company's cash position increased to $141.2-million at March 31, 2013 (after paying a $7.8-million excess free cash flow payment in relation to the promissory note held by a subsidiary of Goldcorp Inc.), from the Dec. 31, 2012, balance of $139.2-million. The company continues to invest in organic growth while building on its balance sheet strength.

Capital expenditures during the first quarter 2013 totalled $8.7-million. In 2013, capital expenditures are expected to total approximately $42-million, excluding capitalized exploration expenses of $15-million.

With its cash balance and anticipated cash flows, Primero management believes it is fully financed to expand production at San Dimas and build the Cerro del Gallo project, while remaining well positioned to take advantage of strategic growth opportunities.

Outlook for 2013

Primero maintains its production guidance of between 120,000 and 130,000 gold-equivalent ounces, an increase of up to 17 per cent over 2012, based on higher throughput at slightly higher grades. Cash costs for 2013 are expected to be in the range of $620 to $640 per gold-equivalent ounce, or between $280 and $300 per gold ounce on a byproduct basis, similar to or below 2012 cash costs.

Primero's 2013 outlook is summarized in the table.

                                 OUTLOOK 2013

Attributable gold-equivalent production (ounces)             120,000-130,000
Gold production (ounces)                                      90,000-100,000
Silver production (ounces)                               6,000,000-6,500,000
Silver sales at spot prices (ounces)                       900,000-1,000,000
Total cash costs (per gold-equivalent ounce)                       $620-$640
Total cash costs -- byproduct (per gold ounce)                     $280-$300
Capital expenditures ($M)                                                $42
Exploration expenditures ($M)                                            $15

Material assumptions used to forecast total cash costs for 2013 include: an average gold price of $1,700 per ounce; an average silver price of $8.52 per ounce (calculated using the silver agreement contract price of $4.12 per ounce and assuming excess silver beyond contract requirements is sold at an average silver price of $30 per ounce); and foreign exchange rates of $1 and 13 Mexican pesos to the U.S. dollar. Based on current spot prices, the 2013 outlook would not change meaningfully, except byproduct cash costs, which would increase as a result of lower byproduct credits.

Reserves and resources increase

On March 26, 2013, the company announced 2012 year-end mineral reserves and mineral resources for its San Dimas mine. The company reported that probable gold mineral reserves increased 31 per cent over year-end 2011 to 660,400 ounces, or 19 per cent on a per-share basis, and that indicated gold resources increased 35 per cent over year-end 2011 to 779,600 ounces (inclusive of mineral reserves).

                          RESERVES AND RESOURCES                                                                     

                                      Gold  Silver    Contained    Contained
                             Tonnes  grade   grade         gold       silver 
Classification                   (M)  (g/t)   (g/t)        (koz)        (koz)
Mineral reserves                                                            
Probable                      4.579    4.5     267          660       39,377
Mineral resources                                                           
Indicated                     3.748    6.5     389          780       46,877
Inferred                      6.144    3.9     327          762       64,637
                                       
1. Cut-off grade of 2.4 grams per tonne gold-equivalent based on total 
operating cost of $104.73 (U.S.)/tonne. Metal prices assumed are $1,400 
(U.S.) per troy ounce gold and $25 (U.S.) per troy ounce silver. Silver 
supply contract obligations have been referenced in determining overall 
vein reserve estimate viability.                                                 
2. Processing recovery factors for gold and silver of 97 per cent and 94 per 
cent assumed.  
3. Exchange rate assumed is 13 pesos/$1 (U.S.).                               
4. The mineral reserve estimates were prepared by Herbert Smith, PEng,
of AMC Mining Consultants (Canada) Ltd., qualified person for the purposes 
of National Instrument 43-101.
5. Mineral resources are total and include those resources converted to     
mineral reserves.                                                           
6. A two g/t AuEq cut-off grade is applied and the AuEq is calculated at a   
gold price of $1,625 (U.S.) per troy ounce and a silver price of $25 (U.S.)
per troy ounce.                                                                      
7. A constant bulk density of 2.7 tonnes/cubic m has been used.                  
8. The mineral resource estimates were prepared by Rodney Webster, MAusIMM, 
MAIG, and Morton Shannon, PGeo, both of AMC Mining Consultants (Canada), 
qualified persons for the purposes of NI 43-101.

As at Dec. 31, 2012, the company added 246,623 ounces of gold to the probable mineral reserves before depleting 91,697 ounces during the year. This equates to replacing the 12-month gold depletion by 269 per cent.

There is significant exploration potential at San Dimas beyond the stated mineral resources and mineral reserves. The scale of the identified targets was not thoroughly reviewed at Dec. 31, 2012, but is expected to remain in the order of six million to 10 million tonnes at grade ranges of three grams per tonne to five g/t of gold and 200 g/t to 400 g/t of silver, as estimated at Dec. 31, 2011. This potential mineralization has been estimated by Primero from geological and grade modelling. It should be noted that these targets are conceptual in nature. There has been insufficient exploration to define an associated mineral resource and it is uncertain if further exploration will result in the targets being delineated as a mineral resource.

Expansion to 2,500 tonnes per day on track for first quarter 2014

The company's expansion of the San Dimas mill from 2,150 tpd to 2,500 tpd is expected to be completed by the end of fourth quarter 2013. Mine development to feed the mill at the expected capacity remains on track to be complete in first quarter 2014.

The company has successfully increased mill throughput to an average 2,042 tpd in the first quarter of 2013, with the mill operating at 2,169 tpd in March, slightly above its current nameplate capacity of 2,150 tpd.

Construction of the mill circuit expansion began in October, 2012, and is progressing on plan. Key components of the expansion are on-site, including the third ball mill and an additional tailings pump. The company spent $900,000 on the mill circuit expansion during the first quarter of 2013.

Cerro del Gallo acquisition approved by Cerro shareholders

On April 30, 2013, Cerro Resources NL shareholders voted to approve the acquisition of Cerro by the company, resulting in 69.2-per-cent ownership of the Cerro del Gallo project. The scheme of arrangement is expected to close at the end of May, 2013.

The addition of the Cerro del Gallo project is expected to increase the company's near-term production by approximately 95,000 gold-equivalent ounces per year. It will also double Primero's reserves, and triple its measured and indicated resources. The first production from Cerro del Gallo is expected to occur in mid-2015. The company estimates that its production will nearly double to over 250,000 gold-equivalent ounces in 2016.

Assuming the acquisition closes at the end of May, 2013, as expected, Primero estimates 2013 capital expenditures of between $50-million and $60-million on the Cerro del Gallo project.

Social responsibility award

In April, 2013, the company was proud to again be granted the Empresa Socialmente Responsable (ESR) award by the Mexican Centre for Philanthropy (CEMEFI) and the Alliance for Corporate Social Responsibility (AliaRSE). The ESR award is given to companies operating in Mexico that are committed to sustainable economic, social and environmental operations in all areas of corporate life, including business ethics, involvement with the community and preservation of the environment.

Conference call and webcast details

The company's senior management will host a conference call today, Wednesday, May 8, 2013, at 11 a.m. ET to discuss the first quarter operating and financial results.

Participants may join the call by dialling North America toll-free 1-855-410-0553 or 1-646-583-7389 for calls outside Canada and the United States, and entering the participant passcode 956408 followed by the pound key.

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 first quarter 2013 results call will be available until June 8, 2013, by dialling 1-855-410-0556 or 646-583-7395 and entering the passcode 337298 followed by the pound key.

This release should be read in conjunction with Primero's first quarter 2013 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.

                                                                           
                      SUMMARIZED OPERATING DATA

                                       Three months ended March 31,
                                          2013                2012

Tonnes of ore milled                   183,811             178,523
Average millhead grade (g/t)
Gold                                      4.20                4.05
Silver                                     242                 242
Average recovery rate (%)
Gold                                        98                  97
Silver                                      96                  95
Produced
Gold-equivalent (ounces)                27,656              25,793
Gold (ounces)                           24,190              22,588
Silver (million ounces)                   1.37                1.32
Sold
Gold-equivalent (ounces)                28,474              26,229
Gold (ounces)                           24,736              23,004
Silver at fixed price
(million ounces)                          1.48                1.33
Silver at spot (million
ounces)                                      -                   -
Average realized price
(per ounce)
Gold                                 $   1,626           $   1,678
Silver                               $    4.12           $    4.08
Total cash operating
costs (000)                          $  19,873           $  17,381
Total cash costs (per
gold ounce)
Gold-equivalent basis                $     719           $     674
Byproduct basis                      $     589           $     532

      CONDENSED CONSOLIDATED INTERIM STATEMENTS COMPREHENSIVE INCOME
            (In thousands of U.S. dollars, except per share)

                                                Three months ended March 31,
                                                         2013          2012

Revenue                                             $  46,321     $  44,004
Operating (expenses)                                  (22,463)      (18,893)
Depreciation and depletion                             (8,152)       (6,449)
Total cost of sales                                   (30,615)      (25,342)
Earnings from mine operations                          15,706        18,662
General and administrative (expenses)                  (7,796)       (3,515)
Earnings from operations                                7,910        15,147
Other (expense)                                          (327)          (89)
Foreign exchange (loss) gain                           (1,360)        1,484
Finance income                                            111           137
Finance (expense)                                        (509)       (1,147)
(Loss) on derivative contracts                              -           (20)
Earnings before income taxes                            5,825        15,512
Income tax recovery                                    11,500        14,631
Net income for the period                              17,325        30,143
Other comprehensive income
Exchange differences on translation of foreign
operations                                                346           244
Total comprehensive income for the period              17,671        30,387
Basic income per share                                   0.18          0.34
Diluted income per share                                 0.18          0.31

We seek Safe Harbor.

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