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This Golden Rooster Crows for Primero Mining

By Christopher Barker - Dec 13, 2012 at 2:32PM

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Primero refuels for the next round of production growth

Roosters have a way of commanding your attention. To the delight of this long-standing Primero Mining (PPP) shareholder, one rooster in particular caught the ear of Primero's celebrated CEO Joe Conway.

Primero announced Thursday it will acquire Australian junior Cerro Resources (NASDAQOTH: CRRRF) in a friendly, all-stock transaction valued at $119 million. The targeted asset here is Cerro's 69% interest in the Cerro del Gallo ("Rooster Hill") gold project in the Mexican state of Guanajuato. The holder of the remaining 31% interest in Cerro del Gallo is none other than Goldcorp (GG); the former operator of Primero's flagship San Dimas mine, and still Primero's largest shareholder with a 32.2% stake in Primero's shares. During a conference call Thursday morning, Conway explained that Goldcorp is likely to view its 31% stake in the project as one of insufficient scale to warrant its direct involvement as a joint venture partner. The resulting inference, then, is that Goldcorp will permit Primero to consolidate its interest in the property to 100%, while still basking in upside exposure to the property through its major equity stake in Primero.

Foolish readers will recognize Guanajuato as the ancient mining jurisdiction best known for bonanza silver-gold deposits like those currently operated by Endeavour Silver (EXK 6.97%) and Great Panther Silver (GPL -0.73%). But Primero's new prize in Guanajuato is an entirely different animal, featuring lower concentrations of gold, silver, and copper that are best suited to open pit mining. Because mineralization begins right at the surface of Rooster Hill, the resulting lack of overburden presents very favorable economics (with a projected cash cost of $549 gold-equivalent ounce over a 15-year mine life). Primero sees construction getting under way during 2014, with first production expected early in 2015.

By scoring a 261% increase in measured and indicated resources (inclusive of reserves) with the addition of 2.3 million gold-equivalent ounces, Conway is well on his way toward building his second mid-tier gold producer. With an acquisition cost of just $52 for each of those ounces in the ground -- or $92 per recoverable gold-equivalent ounce per the existing 2-phase mine plan -- Conway is building upon the considerable acquisitive success he enjoyed while building IAMGOLD (IAG 2.73%) into a mid-cap powerhouse.

And speaking of success, Primero has already delivered an astounding rally; advancing by nearly 180% since I dubbed Primero "The Greatest Gold Stock in the World" just 15 short months ago! By selecting an attractive gold project that Primero will be able to finance internally from the company's expanding cash flow position, I have every confidence that Conway will continue to drive meaningful outperformance of his gold-mining peers. Over the next four years, Primero's pro forma production is expected to grow at a CAGR of 24% to reach at least 260,000 gold-equivalent ounces by 2016! That's a journey I definitely do not want to miss, so Primero will remain a core position in my personal stock portfolio for some time to come.

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Stocks Mentioned

Primero Mining Corp. Stock Quote
Primero Mining Corp.
PPP
Goldcorp Inc. Stock Quote
Goldcorp Inc.
GG
IAMGOLD Corporation Stock Quote
IAMGOLD Corporation
IAG
$1.88 (2.73%) $0.05
Endeavour Silver Corp. Stock Quote
Endeavour Silver Corp.
EXK
$3.53 (6.97%) $0.23
Great Panther Mining Limited Stock Quote
Great Panther Mining Limited
GPL
$0.14 (-0.73%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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