Throughout most of the 250-plus years that Mexico's San Dimas gold and silver mine has been in production, the tools needed to precisely model the underground resource simply did not exist. Instead, mining activity principally followed the trajectory of the known epithermal veins as they wind and pinch their way through the host rock.
When you have shareholders to answer to, and modern exploration equipment at your disposal, the artisanal approach is clearly no longer viable. Prior operator Goldcorp
In fact, during the years preceding the 2010 sale of the San Dimas mine to Primero Mining
Primero CEO Joseph Conway -- who was instrumental in building gold miner IAMGOLD
Guided by a new resource model that did -- at least temporarily -- substantially reduce the scale of 43-101-compliant resources, the company is now poised to approach its looming decision on an expansion of operations with far more reliable and conservative data. Furthermore, with 36% stakeholder Goldcorp still effectively on the hook for cumulative silver production well in excess of presently stated resources, I remain fully convinced that Primero retains the golden promise of meaningful, long-term organic resource growth with this newly honed operation at its core.
With a careful look at the financials, I can't see how investors will fail to see the value here. Primero's cash balance of $80 million is a healthy chunk of change for a company with a total market capitalization of $217 million! Primero produced cash flow of $80.2 million in 2011 and booked an adjusted net profit of $28.3 million on production of 102,220 gold-equivalent ounces. Co-product costs of $640 per ounce came in below the industry average, and the byproduct cost of $384 per ounce places the company among the industry's top cash-margin operators. Even after accounting for the retroactive tax accounting that presupposes a favorable outcome of a pending decision from Mexico's tax authorities, Primero is trading at less than eight times 2011 earnings. Fools who take the time to study and understand this company will, I am convinced, agree that it is brimming with golden promise.