Primero Mining’s (P-T, PPP-N) first-quarter adjusted net earnings of US$9.4 million, or US10¢ per share, came in lower than the adjusted profit of US21¢ per share a year ago, but beat the street expectations of US6¢ per share.
The beat came on the back of record production levels at the company’s San Dimas gold-silver mine in Durango, Mexico, where it is on track to expand the mill capacity from 2,000 tonnes per day to 2,500 tonnes per day by year end.
“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,” said Joseph Conway, Primero’s president and CEO.
The company’s sole mine, San Dimas, which it has owned for 2.5 years, churned out 27,656 gold equivalent oz., or 24,190 oz. gold and 1.37 million oz. silver, in the first three months of 2013, owing to higher throughput and gold grades.
Elevated production levels led to higher sales in the quarter, boosting revenue by 5% to US$46.3 million. Year-over-year sales increased nearly 8% for gold to total 24,736 oz. and 11% for silver to equal 1.48 million oz.
The averaged realized prices in the quarter were US$1,626 per oz. gold and US$4.12 per oz. silver, compared to US$1,678 per oz. gold and US$4.08 per oz. silver. Primero notes all the silver in the first quarters of 2012 and 2013 were sold at a fixed price under the Silver Wheaton (SLW-T, SLW-N) silver purchase agreement.
Operating cash flow before working capital changes was US$19.3 million sliding nearly 8% from 2012, while net income tumbled 43% to US$17.3 million, or US18¢ per share.
The Toronto-based miner explains profit was hurt by growing operating expense, higher general and administrative expenses and a foreign exchange loss compared to a foreign exchange gain in 2012.
Total cash costs for the quarter on a gold equivalent and by-product basis rose to US$719 per oz. and US$589 per oz. respectively, up from US$674 per oz. and US$532 per oz. a year ago, as the company experienced higher labour costs due to the introduction of long-hole mining.
Primero is reiterating its full-year production of 120,000–130,000 gold equivalent oz., marking a 17% growth over 2012. It expects full-year total cash costs of between US$620 and US$640 per gold equivalent oz. and US$280 to US$300 per oz. on a by-product basis.
Primero ended the March quarter with a cash position of US$141.2 million, up from US$139.2 million in the previous quarter.
It has budgeted US$42 million for capital expenditures in 2013, of which US$8.7 million was spent in the March quarter. Another US$15 million has been slated for exploration.
With its strong cash balance and anticipated cash flows, the miner believes it could internally fund the mill expansion at San Dimas and build the Cerro del Gallo gold-silver project in Guanajuato, Mexico.
It anticipates the Cerro transaction— where it’ll gain a 69.2%-interest in the project— to conclude shortly. Once that happens, Cerro del Gallo should help expand and diversify the company’s profile, with first production slated to occur in mid-2015, adding about 95,000 gold equivalent oz. per year to the company’s near-term production.
On the quarterly news, Primero gained almost 7% to close May 8 at $5.83 in Toronto.
Rob Chang, an analyst at Cantor Fitzgerald, has maintained a “buy” and $8.40 price target on the stock.
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