Exploration key to Primero mine turnaround

Exploration will be key to a successful turnaround at Primero Mining's struggling San Dimas operation in Mexico, COO Damien Marantelli said.

The gold-silver mine was hit by a strike in February-April, following a challenging 2016 when output fell and costs soared partly as a result of worker absences, which hampered development.

Toronto-based Primero has begun a phased restart aimed at returning San Dimas to profits, with operations stripped back to five main veins, compared to 28 veins previously in production.

CAPEX

The company plans to spend US$51.1mn in capex at the mine this year, including US$25mn on exploration and development for the phased restart.

"Our most critical medium-term activity is to get the exploration drifting and drilling done, particularly near the existing infrastructure, and find those next veins that are going to support production levels," Marantelli told Primero's Q1 earnings call.

VEINS

Primero plans to gradually restart operations at the 23 veins where mining has been halted, as productivity improves, the COO added.

Of the 23, the company has prioritized two to be brought back into production, with operations focused around reducing dilution to below previous levels.

"This gives us some material that can supplement operations in the short term, but the key is what we find going forward in that exploration program," Marantelli added.

TURNAROUND

Primero aims to eventually return San Dimas output to 175,000oz/y gold equivalent, with all-in sustaining costs (AISCs) falling below US$1,000/oz gold and capex to about US$40.0mn/y.

In addition to a focus on profitable veins, productivity will be boosted by changes to working practices negotiated with the union in a new collective bargaining agreement (CBA), the company says.

Changes in the working roster will result in an additional 80 days per year of production and reduce the time required to transport workers to active veins.

Changes to the bonus structure will also better align payments to production, development and worker attendance levels, Marantelli told the call.

OUTLOOK

The mine is expected to produce 90-100,000oz gold equivalent in 2017, comprising 75-90,000oz gold and 4.5-5.5Moz silver. AISCs are forecast at US$1,100-1,300/oz.

PRODUCTION

San Dimas produced 10,118oz gold and 620,000oz silver in Q1, down from 19,578oz and 920,000oz, respectively, in the same period last year.

AISCs were US$975/oz, down from US$1,362/oz, mainly due to limited capex as a result of the strike.

EARNINGS

Primero reported net earnings of US$13.5mn, compared to a net loss of US$13.2mn, partly reflecting a US$19.5mn deferred income tax recovery.

Revenue was US$37.7mn, down from US$50.5mn, as gold equivalent sold fell to 31,791oz from 43,622oz.

Companywide AISCs were US$1,335/oz, down from US$1,555/oz. Primero also has the Black Fox mine in Canada, and the Cerro del Gallo project in Mexico.