Consolidation could cut costs for Primero Mining

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Thursday, May 18, 2017

A merger or takeover could benefit Primero Mining by lowering costs, Scotia Capital's Trevor Turnbull told BNamericas.

Primero, with the San Dimas gold-silver operation in Mexico and Black Fox in Canada, is carrying a lot of overhead, Scotia's director of gold and precious metals said in a telephone interview.

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"If the company were consolidated and you could spread the general and administrative costs of managing their assets over other mines, it would probably lower all-in sustaining costs (AISCs), and that would be a win," he said.

In recent years, consolidation of Mexico's gold mining sector has included the US$1.5bn merger of Alamos Gold and AuRico Gold in 2015.

Primero has suffered a string of setbacks including a strike at San Dimas in February-April, which followed a challenging 2016 when output fell and costs soared, partly due to worker absences which hampered development.

The company has begun a phased restart aimed at turning the asset back to profits, with operations pared back to five main veins, compared to 28 veins previously in 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 gold, down from US$1,362/oz, as capex was limited as a result of the stoppage.

San Dimas is expected to produce 75-90,000oz gold and 4.5-5.5Moz silver in 2017, with AISCs at US$1,100-1,300/oz. Primero also has the Cerro del Gallo project in Mexico.