RE:RE:P and AnalystsEvent We are updating our commodity price forecasts along with our Q3 preview, and suspending the target price for Primero at this time.
Impact: NEGATIVE Strategic process ongoing — outcome remains uncertain: The company continues to advance the strategic process with the objective of obtaining a fair distribution of value for all stakeholders, which include Wheaton Precious Metals (holder of the stream and guarantor of RCF), convertible bond holders, the Mexican Tax Authority, and Primero equity holders. To-date, the parties have not been able to agree on a sale of San Dimas. We continue to believe that an agreement will ultimately be reached to allow the mine to continue operating. However, the value realized for Primero equity holders remains highly uncertain.
Weak balance sheet: As at Q2/17, Primero had $12mm in cash and ~$150mm in debt (RCF of $75mm was fully drawn subsequent to quarter-end, and it has $75mm in convertible debentures outstanding). The sale of Black Fox provided proceeds of $32.5mm, which will reduce the RCF that matures on November 23.
Tax issue remains an overhang: The Mexican Tax Authority continues to maintain that Primero owes taxes based on the spot price of silver, and issued an observations letter for 2010 that would make Primero liable for an additional $9mm in taxes for 2010. In total, it estimates that the additional liability for years 2011-2016 could be $150mm-$170mm. Primero continues to fight these claims in court.
Operations have struggled: The labour issues at San Dimas and the lack of capital have negatively affected Primero's operations and ability to explore for new veins, resulting in lower throughput and higher operating costs. TD Investment Conclusion We are maintaining our HOLD recommendation and suspending our target price. The target-price suspension reflects the significant uncertainties that exist over Primero's sale process, as we believe that determining a defensible target price is no longer possible. With operational headwinds, limited liquidity, and the Mexican tax dispute still an overhang, the near-term outlook is highly uncertain.