TD UPDATEEvent Primero reported Q1 financial and operating results and provided 2017 guidance for the first time. Impact: NEUTRAL Q1 was a messy quarter, as expected, with the San Dimas miners on strike and the mine only operating for 45 days. The strike officially ended April 13 (previously announced). We have updated our model for the Q1 results and 2017 guidance. Our NAV declines slightly to C$2.11/share (C$2.17/share previously) largely reflecting negative working capital movements. Our worst-case tax scenario NAV is now C$0.66/sh.
Adjusted EPS was $0.00, above our estimated loss and consensus of -$0.05. However, the company's adjusted number excludes $0.02/sh of costs incurred at San Dimas during the strike. CFPS (pre-working capital) of negative $0.01 was effectively in line with our estimate of $0.00.
Production of 26.7k oz Aueq was 9% below our estimate of 29.5k oz, reflecting weaker-than-expected results at Black Fox owing to lower-than-expected u/g throughput.
Costs: $827/oz Aueq were 3% below our estimate of $855/oz Aueq, reflecting lower costs at San Dimas. The company reported AISC of $1,335/oz (again excluding costs at San Dimas).
San Dimas re-start: The company is taking a measured approach to re-start the operation, focusing on long-term profitability. Significant investment is being made to catch up development rates and exploration drilling in 2017 to position the mine for sustainable production of 175k oz Aueq at AISC below $1,000/oz.
2017 guidance; no surprises: The company expects to produce 140-170k oz Aueq at costs of $700-850/oz Aueq with AISC of $1,200-1,400/oz. This is in-line with our estimates. TD Investment Conclusion We are maintaining our HOLD recommendation, but lowering our target price to C$0.80 from C$0.90 previously, reflecting our revised estimates (our target continues to be based on Primero paying the full spot silver price taxes going forward). With operational headwinds, limited liquidity, and the tax dispute with the Mexican government still an overhang, the near-term outlook is highly uncertain.