(Please note that all dollar amounts in this
news release are expressed in U.S. dollars unless otherwise
indicated. Refer to the year-end 2017 management’s discussion
and analysis (“MD&A”) and audited financial statements for more
information.)
Primero Mining Corp. (“Primero” or the “Company”)
(TSX:P) today reported financial and operating results for the
fourth quarter and full-year ended December 31, 2017.
Primero commenced a strategic review process in
early 2017 that resulted in the sale of the Black Fox Complex in
October 2017 and the sale of the Cerro del Gallo development
project in November 2017. In January 2018 the Company also
announced that it had entered into the Arrangement Agreement
whereby First Majestic will acquire all of the issued and
outstanding common shares of Primero. The transaction is expected
to close in or around April 2018, subject to applicable regulatory
approvals and the satisfaction of other customary conditions.
Fourth Quarter and Full-Year 2017
Production Results
Primero produced 25,574 gold equivalent ounces1
during the fourth quarter of 2017, at total cash costs of $933 per
gold equivalent ounce2 and all-in sustaining costs (“AISC”)3 of
$1,344 per ounce. Gold production was 21,076 ounces in Q4 2017
compared to 40,675 ounces in Q4 2016, and silver production was
1.32 million ounces from San Dimas in Q4 2017 compared to 1.42
million ounces in Q4 2016. The decreased gold production was driven
by the sale of Black Fox and lower throughput at San Dimas.
This resulted in full-year 2017 consolidated
production of 124,874 gold equivalent ounces at total cash costs of
$862 per gold equivalent ounce and AISC of $1,282 per ounce. Gold
production was 111,376 ounces in 2017 compared to 156,052 ounces in
2016, and silver production was 3.96 million ounces from San Dimas
in 2017 compared to 5.32 million ounces in 2016.
San Dimas’ 2017 gold production of 60,167 ounces
was at the bottom end of the guidance range of 60,000 to 70,000
ounces for the year. San Dimas’ gold equivalent production of
73,665 ounces was just below the guidance range of 75,000 to 85,000
ounces for 2017.
A strike action by unionized employees resulted
in a complete stoppage of mining and milling activities at San
Dimas from February 15, 2017 to April 22, 2017, which significantly
impacted 2017 production levels.
The Black Fox mine produced 51,209 ounces of
gold in the first nine-months of 2017, the production period
attributable to Primero, with underground mining focused on the
Deep Central Zone. On October 6, 2017, the
Black Fox Complex was sold to McEwen Mining Inc.
("McEwen") and all metal production subsequent to September 30,
2017 is attributable to McEwen.
Fourth Quarter and Full-Year 2017
Financial Results
Primero generated $34.8 million of revenue in Q4
2017 from the sale of 23,229 ounces of gold at an average realized
price of $1,255 per ounce and 1.29 million ounces of silver at an
average realized price of $4.32 per ounce. This resulted in
Primero generating $157.6 million of revenue in full-year 2017 from
the sale of 114,377 ounces of gold at an average realized price of
$1,231 per ounce and 3.90 million ounces of silver at an average
realized price of $4.30 per ounce. Due to the sale of the Black Fox
Complex during 2017, its revenue is included in discontinued
operations in Primero’s financial statements.
Silver produced at San Dimas is subject to a
silver purchase agreement4 and as a result all silver sold during
2017 was delivered to Wheaton Precious Metals International Ltd.
(“WPMI”), under the silver purchase agreement. The annual
threshold limit under the silver purchase agreement for the 2017
contract year (August 6 of a year to August 5 of the following
year) was 6.0 million ounces of silver. The annual threshold
was not exceeded for the year-ended August 5, 2017. As of
December 31, 2017, the Company has delivered 2.3 million ounces of
silver towards the current annual threshold.
The Company incurred a net loss of $409.7
million ($2.14 per share) in 2017 including $398.8 million in
non-cash impairment charges in 2017, compared to a net loss of
$234.4 million ($1.32 per share) in 2016 which included $228.0
million in non-cash impairment charges in 2016.
As part of the strategic review process carried
out in 2017, the Company received several proposals during the
second quarter of 2017 that identified that the carrying value of
its cash generating units exceeded their fair value. During
the second quarter of 2017, the Company recorded an impairment of
$285 million, which comprised impairments of $195 million for the
San Dimas mine, $40 million for the Black Fox Complex and $50
million for the Cerro del Gallo project. During the third quarter
of 2017, an additional impairment of $5 million was recorded for
the Black Fox Complex to align with the actual net proceeds from
its disposition during the fourth quarter of 2017. As at December
31, 2017, the consideration under the Arrangement Agreement
identified that the carrying value of the San Dimas mine exceeded
the fair value. The Company recorded an additional impairment of
$109 million relating to San Dimas.
Operating cash flows before changes in working
capital was $22.6 million ($0.12 per share) in 2017, compared to
$15.3 million ($0.09 per share) in 2016 mainly due to higher
earnings from mine operations and lower taxes paid in Mexico.
Working capital outflows were lower in 2017 at $0.1 million
compared to $2.2 million in 2016.
This release should be read in conjunction with
Primero’s audited year-end 2017 financial statements and MD&A
report on the Company's website, www.primeromining.com, in the
“Financial Reports” section under “Investors”, or on the SEDAR
website at www.sedar.com.
(1) “Gold equivalent ounces” include silver
ounces produced, 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 2017 for San Dimas
was based on realized prices of $1,272 per ounce of gold and $4.32
per ounce of silver. The ratio for the full-year 2017 for San
Dimas was based on realized prices of $1,261 per ounce of gold and
$4.30 per ounce of silver.
(2) Total cash costs per gold equivalent ounce
and total cash costs on a by-product basis are non-GAAP
measures. Total cash costs per gold equivalent ounce are
defined as cost of production (including refining costs) divided by
the total number of gold equivalent ounces produced. Total
cash costs on a by-product basis are calculated by deducting the
by-product silver credits from operating costs. 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. The Company
follows the recommendations of the Gold Institute standard. 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. See the fourth quarter full-year 2017 MD&A for
a reconciliation of total cash costs to reported operating expenses
(the nearest GAAP measure).
(3) 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. For the purposes of calculating all-in sustaining
costs at individual mine sites, the Company does not include
corporate general and administrative expenses. Corporate
general and administrative expenses are included in the computation
of all-in sustaining costs per consolidated gold ounce. Refer to
the Company’s fourth quarter and full-year 2017 MD&A for a
reconciliation of all-in sustaining costs per gold ounce.
(4) According to the silver purchase agreement
between the Company and Wheaton Precious Metals Corp. (“WPM”),
until August 6, 2015 Primero delivered to WPM a per annum amount
equal to the first 3.5 million ounces of silver produced at San
Dimas and 50% of any excess at $4.12 per ounce (increasing by 1%
per year). Thereafter Primero will deliver to WPM a per annum
amount equal to the first 6.0 million ounces of silver produced at
San Dimas and 50% of any excess at $4.20 per ounce (increasing by
1% per year). The Company will receive silver spot prices
only after the annual threshold amount has been delivered.
About Primero
Primero Mining Corp. is a Canadian-based
precious metals producer that owns 100% of the San Dimas
gold-silver mine in Mexico.
Primero’s website is
www.primeromining.com.
For further information, please contact:
Investor RelationsTel: (416)
814-3160info@primeromining.com
CAUTIONARY NOTE ON FORWARD-LOOKING
INFORMATION
This news release contains “forward-looking
statements”, within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and applicable Canadian
securities legislation, concerning the business and operations of
Primero Mining Corp. and its consolidated subsidiaries
(collectively, “Primero” or the “Company”). All statements,
other than statements of historical fact, are forward-looking
statements. Generally, forward-looking statements can be
identified by the use of forward-looking terminology such as
“plans”, “expects”, “is expected”, “if approved”, “forecasts”,
“intends”, “anticipates”, “believes”, “in order to” or variations
of such words and phrases or statements that certain actions,
events or results “are anticipated”, “may”, “could”, “would”,
“might” or “will” or similar statements or the negative connotation
thereof. Forward-looking information is also identifiable in
statements of currently occurring matters which will continue in
future, or other statements that may be stated in the present tense
and are not historical facts.
Forward-looking statements in this news release
include, but are not limited to, the expected timing to closed the
transaction whereby First Majestic will acquire all of the issued
and outstanding common shares of the Company, the ability to
generate significant free cash flow; statements regarding the APA
and the Company's ability to defend its validity, the Company's
ability to pay taxes in Mexico on realized silver prices; the
Company’s negotiations with the union at its San Dimas mine.
The assumptions made by the Company in preparing
the forward-looking information contained in this news release,
which may prove to be incorrect, include, but are not limited to:
the expectations and beliefs of management; the specific
assumptions set forth above in this news release; that the
transaction with First Majestic will be approved by the Company’s
shareholders and that all regulatory approvals will be timely
received, that there are no significant disruptions affecting
operations; that the exchange rate between the Canadian dollar,
Mexican peso and the United States dollar remain consistent with
current levels or as set out in this news release; that prices for
gold and silver remain consistent with the Company's expectations;
that production meets expectations; that there are no material
variations in the current tax and regulatory environment; that the
political environment within Mexico and Canada will continue to
support the development of environmentally safe mining
projects.
Forward-looking statements are subject to known
and unknown risks, uncertainties and other important factors that
may cause the actual results, performance or achievements of
Primero to be materially different from those expressed or implied
by such forward-looking statements, including: regulatory approvals
may be delayed or denied, the Company may not be able to achieve
planned production levels; the Company may not be able to generate
significant free cash flow; the Company may be required to change
its development and exploration plans with a negative impact on
production; the Company may not discover mineralization in minable
quantities; and the exchange rate between the Canadian dollar, the
Mexican peso and the United States dollar may change with an
adverse impact on the Company’s financial results. Certain of these
factors are discussed in greater detail in Primero’s registration
statement on Form 40-F on file with the U.S. Securities and
Exchange Commission, and its most recent Annual Information Form on
file with the Canadian provincial securities regulatory authorities
and available at www.sedar.com.
Should one or more of these risks and
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described
in forward-looking statements. In addition, although Primero has
attempted to identify important factors that could cause actual
actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors
that cause actions, events or results not to be as anticipated,
estimated or intended. There can be no assurance that such
statements will prove to be accurate, as actual results and future
events could differ materially from those anticipated in such
statements. Accordingly, readers should not place undue
reliance on forward-looking statements.
Forward-looking statements are made as of the
date hereof and accordingly are subject to change after such
date. Forward-looking statements are provided for the purpose
of providing information about management’s current expectations
and plans and allowing investors and others to get a better
understanding of our operating environment. Primero does not
undertake to update any forward-looking statements that are
included in this document, except in accordance with applicable
securities laws.