TORONTO Aug 5, 2015 (Thomson StreetEvents) -- Edited Transcript of Primero Mining Corp earnings conference call or presentation Wednesday, August 5, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Joseph Conway Primero Mining Corp. - CEO * Ernie Mast Primero Mining Corp. - President & COO * Tamara Brown Primero Mining Corp. - VP, IR * Wendy Kaufman Primero Mining Corp. - CFO ================================================================================ Conference Call Participants ================================================================================ * Rahul Paul Canaccord Genuity - Analyst * Ovais Habib Scotiabank - Analyst * Jeff Killeen CIBC - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen. Welcome to the Second Quarter 2015 Operating Financial Results Conference Call for Primero Mining. After the completion of management's presentation, we will open the lines for Q&A. Questions will be fielded from the phone lines first and then from participants connected via the webcast. I will now like to turn the meeting over to Mr. Joseph Conway, Chief Executive Officer. -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [2] -------------------------------------------------------------------------------- Thank you Mary. Good morning everyone and welcome to Primero's second quarter conference call. In general, I would say we were quite pleased. It was a solid quarter. Operations are doing well and we expect a strong second half along with that. I think the exploration results we put out earlier in July, certainly give us a lot more confidence about our future, particularly when we look at things like Black Fox in the Deep Central Zone and the Jessica vein in particular, at San Dimas. As well, in our mind, the turnaround at Black Fox is certainly becoming evident and we're quite pleased with that and as we had mentioned earlier, third quarter and fourth quarter this year at Black Fox is going to be the stronger quarters, if you like, in terms of production and grade. And we continue to see that and have confidence that's going to happen. We were impacted by one thing in particular, certainly was the loss of our export registry and that's had an impact on our revenue and our ounces of production on a gold equivalent basis, because we weren't able to complete spot sales during the quarter. However, it is more of a timing issue in many respects and we anticipate that the registry will be reinstated, in fact, very shortly, likely this week. Subsequent to the end of the quarter, unfortunately we did have a fatality and we are very marked by that and we are definitely refocusing our efforts to improve our safety practices and our safety culture overall. The cautionary statement, read that at your leisure. While I'll be dealing with most of the call itself, obviously my colleagues are all available to take questions in the Q&A session. To look at Q2 on a quick review, really certainly we had strong results from an operations point of view. Near record production at San Dimas. That was certainly driven a lot by the fact that we made the discovery of Jessica. And in fact, because it was near infrastructure, we were mining it during the period and we will continue to do that. It will have some impact on the rest of the year, but we really anticipate much larger mining from that in 2016 and beyond. Black Fox; 27% increase in production, significant and importantly, at almost 30% lower costs. I'd like to congratulate the teams at both Black Fox and San Dimas for their efforts during the last six months and they've certainly done a great job in terms of the production and cost side of the business. In terms of our costs, if you look at our blended costs, if you like, it's about $654 per ounce. That's certainly well below the industry average and we're continuing to work on costs, as you'll see during this presentation. We've got a number of initiatives at both mines that we expect will definitely have an impact on cost in 2015 and 2016 in particular. In terms of our financial position, it remains strong. We've got $40 million in cash; $75 million undrawn line of credit. We do have a convertible debenture due in March of next year, but again, we're very comfortable with sources of cash, line of credit and our cash flow, we'll be able to fund that debenture, even at a lower prices than where we are today in terms of commodities. If we look at our debt to equity structure, it certainly continues to remain conservative and we're very mindful of that. We're definitely seeing in this marketplace that companies that have a conservative balance sheet are more rewarded than they are with those who do not. Looking at our financial results in particular, again, just to remind people, if you look at the revenue line, the impact of the loss of the export registry takes most of that difference when we look at Q2; between Q2 2015 and Q2 2014. There was about a $100 difference in the price, however, really it was the ability to sell spot silver that impacted us during that period of time. Again, a timing issue. When we look at our earnings and cash flow, earnings, we believe was right around what the market was expecting on an adjusted earnings basis of $0.01 versus $0.03 for last year, the same period. And yet operating cash flow is almost $23 million, so we're happy with that, particularly when we look at it from a Q1 to Q2 basis, up almost 20%. In terms of production on the gold and silver side, for Q2 about 62,000 ounces. Year to date about 124,000 ounces and our guidance is 250,000 to 270,000 ounces, so as I mentioned earlier, we are expecting a stronger second half, so we're very comfortable in terms of guidance, on an equivalent basis, for that matter, in all bases. In particular, if you look at gold, we're about 109,000 ounces for the year to date; 55,000 ounces for the quarter, if you'd like and we're guiding 220,000 to 240,000 ounces. The real winner though has certainly been the silver side; a little over 2 million ounces for the quarter; over 4 million for the year to date and in terms of our guidance, we're at 6.5 million to 7.5 million ounces for the year. So we're very comfortable in terms of where we are with respect to guidance. And on the cost side of it, you'll note that our costs for the quarter were about 654 overall; year to date 676 and within guidance of 650 to 700. In terms of specific mines, certainly when we look at San Dimas, to start with, continues to exceed expectations. Then the story here has always been throughput and productivity. For example, if you look at the mill throughput, nameplate capacity of about 2,500; we've been able to achieve 2,816 and 2,839 for the year to date. That's certainly been an important part of it. When we look at our gold production, 36,000 ounces for the quarter; 76,000 for the year to date and again, well within where we expect our guidance to be of 145,000 to 155,000 ounces. Looking down at the cost side of it, 608 for the quarter; 595 year to date and again, within our guidance of 590 to 640, in terms of our cash costs. Our all-in sustaining costs are within our guidance as well. They have gone up a little bit and I will talk to that in a moment. Looking at Black Fox, really, here the mill throughput has been pretty steady. If you look at last year versus this year, 2,300 versus 2,400. We did 18,000 ounces for the quarter, about 33,000 year to date. But as I remind people, the second half of the year is when we expect the improved results in terms of ounces and grade and our guidance for the year is 75,000 to 85,000 and we're comfortable we'll be within that range. But when we look at our cost side of the business, we're particularly happy with Q2 costs of 762. Year to date we're at 900. So the trend is going in the right direction. And credit to the team there in terms of getting the production going and moving forward. In the quarter, in terms of the underground, as we've always said, the underground would remain relatively modest, but in July, we were able to do 700 tonnes a day and we're moving forward quite well. But as we talk about this in a moment, we did have a delay with a rock fall in the ramp, which put us back a few weeks. But in terms of where we're going with the mine, it's going very well. In terms of our guidance, the only change from the most recent guidance that we've given is certainly in the all-in sustaining costs and that's largely been a function of the exploration budget. During the start of the year, we took a very prudent approach to it. We said look, we're basically only going to the Board with a half-year budget and depending on results from that expenditure, then we would decide, in July, where we're going to go from there in terms of our capital expenditures, with respect to exploration. We've had very good success on the exploration front and then relative to that, we've actually increased our exploration budget at both mines, so that's been the reason why the all-in sustaining cost has gone up slightly. Looking at Mexico, it is definitely a platform area where we want to be. It continues to be a favorable district for mining and we do have essentially three projects here. San Dimas, which I'll go into greater detail in a moment. Cerro del Gallo is really a very modest expenditure, joined this year. Largely, we've acquired the bulk of the land that we need. But in this commodity price environment, it is not a project that we would be prepared to invest the roughly $160 million to build it. So we're going to continue to work on the project. We're going to do some modest exploration as well and just see where we go from here. Where we're starting to get a little bit more interested in, is in fact, our project called Ventanas. Ventanas is something we've had since the start of the company and we really didn't pay a lot of attention to it, because our focus was really on turning around San Dimas. But as we start to look at it now, it's really an early stage exploration/development play, but it could be very important to us on a strategic basis going forward. When we look at San Dimas, if you look at the map on the right, one thing to point out is if you look at the difference between Ventanas and San Dimas, it's about 30 kilometers as the crow flies, so it is relatively proximal to us. But certainly San Dimas has been the driver for the last five years of this company and we're very pleased with where we've been able to keep the costs. The costs have essentially been quite flat over that same period of time, in an industry where costs have gone up dramatically over the same period. The exploration side of it, we already expect our reserves and resources to grow here, because as I mentioned, the exploration expenditures that we made in the first half have already replaced what we expect to the mine in the entire year of 2015. So that's a very solid result and we're going to continue to fund that and obviously focus on higher grade material near infrastructure as much as possible. In terms of our expansion, everyone knows we are looking at 2016 to be a big year, but that plant, that 3,000 tonne a day expansion is well ahead of schedule. It's been interesting to note that year to date, in terms of the mill as it stands, without that full expenditure, we've been actually able to do more than 2,800 tonnes a day on a year to date basis; actually, about 2,840. So that's a very strong part of it. But the productivity side of the business is still very important. An example here, when we look at our tonnes per man shift, which is one of the key measures for productivity, in 2014 we were 2 tonnes per man shift; in 2015 we're 2.5 tonnes per man shift. And that's going to continue to improve as we work with more long-hole stoping and some of the other productivity improvements like the tunnel development, etc. That's going to help us in terms of moving people and equipment around, lower our costs and improve our ventilation and working conditions in general. In terms of the optimization side, we've touched on the long-hole and that's going to continue to be a part of our cost reduction optimization program, but the interesting one has certainly been the tailings washing, which is optimized recoveries, particularly on the silver side. For example, if we look at our silver recovery, it's up 2% from Q1 to Q2 and up 3% on a year-over-year basis. A 2% to 3% increase in recovery is essentially a no cost pick up on ounces, so it sounds modest, but it's an important part of our business. And likewise with the gold year-over-year, up about 2% on the recovery there as well. So that's been an important part of it. Certainly with the expansion of the hydro plant, that's a significant milestone as well. It already had a solid impact on us in the rainy season in early July. If we look at it on an annualized basis, it's probably in the order of at least $6 million of cost savings, if you like, relative to buying power off the grid, which in terms of an ounce basis, is probably $30 or more. All of those things are going to continue to help us during 2015 and certainly in 2016, when the plant itself is done. When we look at the expansion, probably the keynote on this particular part of it is the fact that the capital has gone down from 26 million, down to just under 18 million. What we found, as we go through it, is that we had overestimated or perhaps been conservative on what we needed in terms of automation, crushing and what the contingency was in terms of the cost side of it. So all of those factors, we've reviewed them and we've been able to look at it and save ourselves almost $9 million. And we expect by next year's production, we should be at least 30% higher than where we were in 2014, so 215,000 ounces and perhaps better, depending on how much mining we do from some of the high grade areas, such as Victoria and Jessica in particular. And last but not least, certainly is the cost structure. With this expansion, not only will we get more ounces, but we expect our costs will drop, so we should be well below $600 in 2016 and beyond. Looking at the exploration potential, exploration upside, basically, to put it in context here, the bulk of the mining at this operation for the last 10 years has been from Roberta and Robertita, which those areas of the mine are starting to become smaller and smaller in terms of ounces. But thankfully, we've been able to make discoveries over the last five-year period and notably, over the last two to three-year period, where we're starting to get some very high grade mineralization, such as Victoria and at Jessica so far. If we look at Jessica, 10 grams of gold and 1,500 grams of silver, with good widths and good strike lanes, that's going to be an important part. And certainly Perez, which is in very early stages, well above reserve and resource grade of 6 and 6.5 grams respectively, both Perez and Jessica, and for that matter, Victoria. We've always been very happy with our exploration activity here and as we expand it underneath the known [righ-lights], that's going to be an important part of where we go for the future. Looking at Ventanas, Ventanas may well be part of that future as well. It's still very early stages, but it is something that we've owned for a while, as I mentioned earlier. It does have about 17 old workings and we are rehabilitating those workings. And we are doing an internal scoping study to look at whether that could be a source of feed to the San Demas operation. And if we look at the overall gold equivalent basis of greater than 6 grams and are looking at our operating costs that we have at San Demas, if we apply even a portion of those, there is an opportunity here that we could have extra feed in this sort of two to three-year time horizon from here. Moving on to Canada, we have a portfolio here. Right now we have the Black Fox mine in production and we're expecting 75,000 to 85,000 ounces for the year. The open pit portion of it will be exhausted shortly, but the underground is starting to come on quite well, as I mentioned earlier. In terms of the development side of things, another source of feed after the stockpile is gone, in mid-2017, could well be the Grey Fox operation. We're doing a scoping study on that and we'll put those numbers out in the marketplace in early Q1 of next year. And related to it is the Pike River property. This is an area where we do have some drill holes into the area. It's certainly very prospective and it's still exploration, but it definitely gives us confidence in the district and the camp that we're in here, that we will find more mineralization as we continue to explore in the future. Looking at Black Fox itself, certainly the reason why we came here is definitely starting to show up for us and that's the depth potential. We'll come to that in a moment, but just to remind people that the pit will be closed probably in September and the underground will offset that and we will have a 1 gram stockpile that should last us literally two years. And we should be able to keep that mill full for that period of time. I would note that the average grade on the resource here is about 5.3 grams. That's an important thing to remember, particularly when you look at the coming slides at the Deep Zone. In the Deep Zone, when we started here, there was a very modest level of ounces, maybe 20,000 to 30,000. That's continuing to grow, literally quarter-over-quarter. We have made the decision, to this year accelerate our development and get down to the top of what we call the Deep Central Zone and be in production from that in Q1 of next year. So not only is the importance here the fact that it's gone from 20,000 to 30,000 ounces to at least 160 and we continue to spend, but the grade; that's the critical thing here. When we look at a little over 5 gram grade in the resource and when we look at the above, if you liken the established infrastructure and an 8.5 gram grade in the deeper portion of the mine, that's going to change the economics of this mine completely. We are also looking at the depth potential as we see it here. We are down. We've proven that the mineralization goes down to 800 meters. We are going to be putting two to three holes down to the 1,000 meter level before yearend. And that's certainly going to be a big part of our future. But when we look at the budget for the remainder of the year, another $5 million; 30,000 meters of drilling and 100 meters of drifting, in addition to the development that we'll be doing to build a ramp. And we will be using that ramp for drilling days to go forward and drill holes. So we'll be able to drill shorter holes and get more information quicker. Beyond 2017, certainly Grey Fox could play a part in that. We expect it will. And really where we are, with respect to a raise-bore and a shaft scenario is we really need to demonstrate, obviously, the potential of the mine at the 1,000 meters level or below. When we look at the Deep Central Zone, certainly an important part here is it's very different from what we see above. It's more continuous. It's higher grade and it continues to get larger. If you look at the table on the right, you see some holes with evidence of very spectacular grades. And yet it still remains open at depth and laterally and we continue to drill on the east and west side of the central zone, as well as infilling between the existing infrastructure on both sides of the mine. Looking at Grey Fox, the scoping study as we mentioned earlier, 66,000 meters of drilling planned for this year and we do see definitely the potential to increase it, testing the down dip in the strike extensions here. We have kicked off the permitting process. Based on what we see here conceptually, this may be able to contribute up to 40,000 ounces a year of low-cost ounces to feed the mill, assuming we don't do any expansion of the mill going forward. So certainly when we look at the outlook for the Black Fox complex, whether it's the existing infrastructure, the Deep Central Zone, Grey Fox, we definitely expect production to expand here in 2016 and beyond, above the 75,000 to 85,000 ounces we're guiding for 2015. In terms of catalyst and news flow, certainly I think the one critical step that we see is in July at Black Fox, we've gotten to 700 tonnes a day. We were marked back a little bit in the first part of August and late July, because of the ramp, but that will be fixed, literally, in the next couple of days. So we definitely expect that within the next seven weeks, we'll be averaging 1,000 tonnes a day or more. That will be certainly a big milestone for this operation going forward. In terms of the expansion at San Dimas, going very well and we expect it to be completed Q1 of next year and we'll be looking to -- if we can accelerate that, we certainly will. And on the exploration front, whether it's at San Dimas or Black Fox, we expect we'll update the market in terms of that side of the business. But really the critical one, from where Black Fox stands, is certainly this drilling that we expect to do in the fourth quarter, to the 1,000 meter level and what the results of that will be. That could be quite a significant game changer at Black Fox, if we have the confidence that the mineralization extends that far. To wrap up really, what we see is definitely that we are positioned to outperform. We certainly see that Black Fox is demonstrating its potential as a turnaround and as an exploration project. We see San Demas is poised for more ounces at lower cost in the future. Our production base is solid at 250 to 270 for this year and will continue to grow in next year. Our cost structure remains in good shape and our financial position is strong. When we look at our track record over the last three to five years, we definitely outperformed our peers and with our approach to business development, we expect to do the same in the future. With that, I will turn it over to Mary, the operator, and open it up for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Rahul Paul, Canaccord Genuity. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [2] -------------------------------------------------------------------------------- You indicated in the MD&A that Silver Wheaton has extended the deadline under the agreement from August 5th to August 20th. I just wanted to clarify that this would only apply to silver produced prior to August 5th and not to any silver produced from August 6th to the 20th? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [3] -------------------------------------------------------------------------------- You're correct, Rahul. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [4] -------------------------------------------------------------------------------- Then just moving on to Black Fox, Black Fox had a good Q2, but it looks like that was mostly due to good grades from the open pit, good throughput as well. The one thing I wanted to touch on was underground grades. It has been declining from 5.9 in Q4 of last year, to 4.8 in Q1 and now 4 in Q2. If I look at the 2015 mine plan, you indicated that it calls for mining down to the 560 meter level, with an average grade of 6 grams. So, why are the underground grades so low year to date and when would you expect it to pick up to the 5 to 6 gram range? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [5] -------------------------------------------------------------------------------- That's a good question, Rahul. (Inaudible) is that, bare in mind there's a lot of the tons and I'll have a earning comment on it, as I'm just making a remark here. But we were doing a lot of tons on a daily basis anyway, so I wouldn't necessarily suggest to you that the historical quarters, from an underground perspective, are representative of where we are. But obviously we are focused on getting better grades. Ernie, if you'd like to make some comments? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [6] -------------------------------------------------------------------------------- Also it's very specific to the stokes that we mined during the quarter, where the first stokes accessed weren't the highest grades available. So we do expect to see a pick up during the rest of the year. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [7] -------------------------------------------------------------------------------- But in terms of reconciliation and that sort of thing, with the stuff that you're mining underground, everything has been favorable so far? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [8] -------------------------------------------------------------------------------- So far, yes. We're obviously mindful of that, but yes, so far we're okay. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [9] -------------------------------------------------------------------------------- Question on the underground throughput at Black Fox. You indicated that you were at 700 tonnes a day in July, some setbacks in August. I thought the original plan was to average 1,000 tonnes a day for the quarter. It's not a meaningful delay, but I'm just wondering if the small delay is also partly because of the excavation success that you've had that you decided to extend the ramp down to the 640 level? Is the slight delay in the production ramp up also maybe in part due to the reallocation of some resources towards development? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [10] -------------------------------------------------------------------------------- Not a lot, Rahul, to be honest with you. I thought we were saying to folks that we would be there by the end of the quarter. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [11] -------------------------------------------------------------------------------- Last question. With respect to the recent accident announced on July 28th at San Dimas, wonder if you can tell us where the incident happened in terms of location in the mine and at this stage, are there any areas specifically that you do not have access to? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [12] -------------------------------------------------------------------------------- This was in the Graben. In terms of what had happened there was really, to be honest, the guys should have locked -- they didn't scale in front of themselves and they should have and unfortunately, their hesitancy or I should say their hastiness created a problem for them. It created a fatality, not a problem. -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [13] -------------------------------------------------------------------------------- Rahul, just to add. The rest of the mine, we reviewed and we did identify some areas that need some work, but it's not affecting production. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [14] -------------------------------------------------------------------------------- So you pretty much have access to every area that is planned for this year? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [15] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- (Operator Instructions) Ovais Habib, Scotiabank. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [17] -------------------------------------------------------------------------------- Congrats on the quarter. Joe, in terms of San Dimas mill, it's great to see the mill at 2,800 tonnes per day, but importantly, the mine is also around the 2,800 to 2,900 tonnes per day. Can you tell us how much long-hole scoping you're currently doing? I think I missed that part. And which area is the ore being sourced out of right now? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [18] -------------------------------------------------------------------------------- I believe we're at about 40% in terms of the long-hole, Ovais. The mine is still largely coming out of Roberta/Robertita, but you're certainly seeing, I think for example, Jessica is about 5% of the ounces. Then the rest would be the Graben, basically. Ernie, anything you'd like to add to that? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [19] -------------------------------------------------------------------------------- Yes. We have the three areas; the Central Block, Graben and Tayoltita and percentages that we're mining similar to what we would have done in previous quarters, just as Joe mentioned. We mined more from the Jessica vein, which is why we had record silver production for the quarter than we had previously. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [20] -------------------------------------------------------------------------------- And on the Jessica site, I'm assuming you guys are planning to ramp up, because Joe, you mentioned that it's going to have a major impact in 2016. But are you planning to ramp up Jessica as well then, in 2015? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [21] -------------------------------------------------------------------------------- Yes. We'll be doing more development and more exploration on it, making sure that we've got access, absolutely. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [22] -------------------------------------------------------------------------------- Moving on to Ventanas, you're talking about 500 to 1,000 tonnes per day scoping study. Are you looking to replace from San Dimas or are you looking at any sort of expansion at San Dimas? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [23] -------------------------------------------------------------------------------- We haven't made the call on that, to be honest. I think right now we're assuming that it would essentially replace ore. When we look at it on a grade equivalent basis, particularly because of our streaming arrangement, the challenge will be or the decision will be what's more economic for the mine. So it's still early days, but at this point we haven't really talked much about the idea, for example, of expanding the plant any further. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [24] -------------------------------------------------------------------------------- Last question, just moving on to Black Fox. You guys currently have, I believe it's 1.1 million tonnes per gram, gram per tonne materials, stockpile materials at site. Taking it from the open pit to the mill, is there a significant trucking cost or anything like that or what should we expect on the cost side of those tonnes? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [25] -------------------------------------------------------------------------------- I think it's $5.00 a ton, but I'm going to have Ernie maybe -- Ernie, what is the trucking; is it about $5.00? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [26] -------------------------------------------------------------------------------- What we have to do with that ore is we do have to crush it. We crush it to about 6 millimeters and then haul it to the site and then mill it. We've gone through our whole cost profile and we have healthy margins at current prices, treating that material through the Black Fox mill. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [27] -------------------------------------------------------------------------------- So it's not going to be onerous on the underground material then, going forward? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [28] -------------------------------------------------------------------------------- No, not at all. But it is lower grade than what we're currently putting through from the open pit, but as we discussed a little earlier, we are expecting an uptick in the grade from underground to compensate. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Jeff Killeen, CIBC. -------------------------------------------------------------------------------- Jeff Killeen, CIBC - Analyst [30] -------------------------------------------------------------------------------- Just wondering if you could comment, you have mentioned the fall of ground in the ramp up at Black Fox; just wondering if you could give us a sense of where in the ramp that occurred and if you have an understanding of what caused that event? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [31] -------------------------------------------------------------------------------- By the way, I'm calling from the Black Fox site, so I'm in a different location. The area where it occurred was the 390 level and so for a period of three weeks, we only had access to the mining areas above 390. As Joe mentioned during the call, in the next couple of days, we'll open up the ramp again. It occurred in a specific area and we rehabilitated a distance of about 60 meters and it occurred because the ramp was parallel to a fault and the ground control wasn't done to the floor. So we had a little bit of sloughing on the lower part of the wall and we thought it would be prudent just to repair it all. -------------------------------------------------------------------------------- Jeff Killeen, CIBC - Analyst [32] -------------------------------------------------------------------------------- And in that sense, is this a structure that the ramp comes by at any point deeper or something you've got to look at going forward? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [33] -------------------------------------------------------------------------------- No. It's really a one-off area, where this ramp was built in 2012 and the ramp was built parallel to the structure. But we don't have any other locations similar to that in the mine. -------------------------------------------------------------------------------- Jeff Killeen, CIBC - Analyst [34] -------------------------------------------------------------------------------- Switching to San Dimas, Joe, you've always commented how extraction rate at the mine is really going to be the ultimate bottleneck and not necessarily the mill. It seems like you're kind of pushing up to that 2,800, 2,900 tonnes a day extraction rate from underground. You were saying about 60/40 split between cut and fill and long-hole. That seemed to be what you were targeting. So just wondering where do you go from here to get that consistent extra 100 or 200 tonnes a day and what's going to be driving that extras production? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [35] -------------------------------------------------------------------------------- Part of it is going to be, Jeff, as you know, the haulage through that mine has been a challenge. With this new access that we've got, where we connect Central Block and Sinaloa Graben, that's certainly going to help us. Ernie, could you add some comments on that question as well? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [36] -------------------------------------------------------------------------------- The new tunnel connection saved us 4 kilometers per trip, so we're definitely not going to be crusher limited. There is also starting to look at a shift change. Right now we don't run operations on Sundays and if we add the Sunday, we're adding another 13% capacity. So, we feel quite confident that the mine will be able to match the mill throughput. -------------------------------------------------------------------------------- Jeff Killeen, CIBC - Analyst [37] -------------------------------------------------------------------------------- Will you be able to comment on those union discussions, how they're going? Is it to a point now where it's just a matter of working out details? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [38] -------------------------------------------------------------------------------- We've agreed to do some test areas. As you know, our mine is divided into distinct, different areas and we take a mining team in a test area and run it for few months and then go back and discuss with the union. -------------------------------------------------------------------------------- Jeff Killeen, CIBC - Analyst [39] -------------------------------------------------------------------------------- Maybe lastly, on the idea of Ventanas being a potential satellite operation, what, if any, infrastructure exists between the two at this point in time? Would you actually be able to truck material as the roadways are today or is that something that would have to be developed? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [40] -------------------------------------------------------------------------------- You'd have to fix the roads, but you could truck it. -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [41] -------------------------------------------------------------------------------- There is an existing road between the two, but as Joe mentioned, it needs some repairs. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [43] -------------------------------------------------------------------------------- Just a follow-up question from me on Black Fox, Q3 versus Q4. Going into Q3, you still have the open pit, which seems to be a bit higher grade than the stockpile. Then the offset was that your underground throughput was impacted in August and that sort of thing. But going into Q4, you've got the underground ramping up, but at the same time, you've only got the stockpile material 1.1 gram. So from a seasonality standpoint, should I still expect Q4 to be stronger than Q3 or somewhat similar? -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [44] -------------------------------------------------------------------------------- It would probably be about the same, I think. Ernie? -------------------------------------------------------------------------------- Ernie Mast, Primero Mining Corp. - President & COO [45] -------------------------------------------------------------------------------- I think they would be about the same. The higher underground grade should compensate for the lower grade coming from the surface material. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- We now have a question from the web portion. -------------------------------------------------------------------------------- Tamara Brown, Primero Mining Corp. - VP, IR [47] -------------------------------------------------------------------------------- Wendy, I have a question here from Howard. He asks, is the 5.75% convertible debenture posted solely in the long-term liabilities or is the credit account between equities on your balance sheet? -------------------------------------------------------------------------------- Wendy Kaufman, Primero Mining Corp. - CFO [48] -------------------------------------------------------------------------------- Thanks Tamara. It's just included in long-term liabilities. -------------------------------------------------------------------------------- Tamara Brown, Primero Mining Corp. - VP, IR [49] -------------------------------------------------------------------------------- Thanks and that's the last question, actually, from the web. -------------------------------------------------------------------------------- Joseph Conway, Primero Mining Corp. - CEO [50] -------------------------------------------------------------------------------- Well, thank you, for those who are on the line and on the web, for participating and we look forward to updating you in early November on our third quarter results. Thank you. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.
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