TORONTO (miningweekly.com) – Precious metals producer Primero Mining has received verbal assurances from the Mexican authorities that its export and import permits will be reinstated at the beginning of this month, pending some additional filings to be submitted by the company.

In reporting its second-quarter results, the Canadian company on Wednesday confirmed that it had now complied with all requirements and expected the reinstatement to follow shortly.

The import and export licences of Primero’s Mexican subsidiary were suspended in May by the Mexican customs authorities, resulting in about 880 000 oz of silver not being sold in the three months ended June. Customs authorities had suspended the licences owing to a discrepancy over Primero Empresa Minera’s address, which was related to its corporate office relocation from Mexico City to Durango.

Primero’s subsidiary was able to source necessary supplies locally so that the San Dimas mine and mill continued to operate uninterrupted.

Primero would immediately sell all inventoried silver upon confirmation of the permit reinstatement. The proceeds from these silver sales were expected to be recorded as third-quarter revenue.

The company delivered a threshold of 3.5-million ounces of silver a year to Silver Wheaton, after which it could sell half of the silver produced at San Dimas at spot prices for its own account until August 5, when the silver purchase agreement threshold reset.

Should the company not be able to sell any silver at spot prices by close of business on Wednesday, it might not realise any spot silver sales for its own account in the third quarter. Should this happen, however, the company could then reach the annual threshold earlier in 2016, providing greater spot price flexibility.

Silver spot prices traded at $14.56/oz on Wednesday afternoon.

Q2 RESULTS
Primero reported a net loss of $6.7-million, or $0.04 a share, for the three months ended June, compared with net income of $5.1-million, or $0.03 a share, in the comparable quarter of 2014.

Adjusted net income, which primarily excluded the impact of the foreign exchange rate, changes on deferred tax balances and the mark-to-market difference on convertible debentures, was $1.1-million, or $0.01 a share, beating analyst forecasts of an adjusted loss of $0.03 a share on revenue of $69.86-million.

Revenues were down 15% year-on-year at $67.4-million in the second quarter, as a result of selling 52 975 oz of gold at an average realised price of $1 171/oz (down 7%), and 1.26-million ounces of silver at an average realised price of $4.20/oz, down from $11.56/oz as no spot sales were recorded in the second quarter.

Gold produced at the Black Fox complex, in Ontario, was subject to a gold purchase agreement and, as a result, 1 378 oz were sold to Sandstorm Gold at a fixed price of $518/oz. Silver produced at San Dimas was subject to the Silver Wheaton silver purchase agreement and, therefore, 1.26-million ounces of silver were sold at a fixed price of $4.20/oz during the quarter.

Primero’s consolidated gold and silver output increased to 54 862 oz and 2.15-million ounces, respectively, in the quarter, up from 50 061 oz and 1.49-million ounces in the same period a year earlier.

The company's combined cash costs a gold equivalent ounce were $654/oz of gold equivalent, compared with $672/oz a year earlier. On a by-product basis, cash costs a gold ounce were negatively impacted by delayed silver sales and were $579/oz. Combined all-in sustaining costs (AISC) an ounce fell to $1 036/oz for the second quarter from $1 228/oz in the same quarter in 2014, mainly owing to less development capital spent at Black Fox and lower project capital spent at San Dimas in 2015 compared with 2014.

San Dimas produced 36 500 oz of gold, 11% up year-on-year, and a record 2.15-million ounces of silver, 45% more over the comparable term in 2014.

Primero reported that the San Dimas expansion from 2 500 t/d to 3 000 t/d was progressing ahead of schedule and at lower cost than previously estimated.

The project was now expected to be complete by April next year, instead of mid-2016.

The company had also reduced the capital required from $26.4-million to $17.7-million, significantly improving the rate of return of the expansion project. The $8.7-million cost reduction was from 2016 planned spending. Yearly output after the project was completed was expected to increase beyond 2015 levels and cash costs were expected to drop from 2015 levels.

Black Fox produced 18 362 oz of gold, compared with 17 166 oz of gold in the second quarter of 2014. This represented a 27% increase in production compared with the first quarter and a 7% increase compared with the second quarter of 2014.

According to plan, the Black Fox mine was in a transitional phase with production shifting from mainly lower-grade openpit to higher-grade underground production, with the Black Fox openpit expected to be depleted in September.

Primero was focused on managing financial risk by maintaining a conservative balance sheet. Liquidity at the end of June included a cash position of $39.8-million and an undrawn amount on its revolving line of credit of $75-million.

The company maintained its full-year production guidance at 250 000 oz to 270 000 oz of gold equivalent at total cash costs of $650/oz to $700/oz of gold equivalent.

The AISC outlook increased by $50/oz to $1 050/oz, owing to higher capital expenditure and exploration budgets, which had increased by $6.1-million and $12.5-million, respectively.