There's no holding back silver miner Primero Mining (PPP +0.00%), which is transforming itself into a storehouse of wealth that will enrich investors over the long haul.
Source: Primero Mining.
The miner said last week it had crossed the annual threshold of producing 3.5 million ounces of silver at its San Dimas project in Mexico that it is required to deliver to Silver Wheaton (SLW +5.92%), and did so six weeks ahead of schedule. That's significant because, between now and August the rest of the output from the mine is available for Primero to begin selling at spot prices for its own account. Silver was last priced at around $21.24 per ounce, and the miner estimates it will sell between 1.25 million and 1.5 million ounces by Aug. 5, when the annual threshold jumps to 6 million ounces and remains there for the life of the mine.
Investors need to go back to 2010, when Primero bought San Dimas from Goldcorp (GG +0.00%) for $500 million. At the time, silver streamer Silver Wheaton had in place a purchase agreement with the gold miner that had higher annual thresholds but which expired in 2029. When Primero took over, the agreement was renegotiated, lowering the thresholds for the first four years (but bumping them up thereafter) and extending the time frame to cover the life of the mine.
The arrangement was a win-win-win deal for all parties involved, despite the seemingly low price Primero paid for the project, because in return Goldcorp had received a 30% equity stake in the junior miner. Earlier this month Goldcorp entered into an offering to sell all 31.15 million shares it owned at a price of $224 million Canadian, the same day Primero announced it had completed the acquisition of another junior miner, Brigus Gold.
The cash flows from San Dimas are what's transforming this junior miner into a mid-tier precious metals powerhouse. Recently it purchased from Goldcorp the remaining 30.8% interest in its Cerro del Gallo development project that it acquired last year, and it followed that with the Brigus acquisition. With the proceeds from the sale of half of the San Dimas production filling its coffers and the promise held by Cerro del Gallo, Primero is ready to build on its successes.
Its shares surged 11% yesterday on the news it reached the milestone early and are up 50% over the past three months. But with significantly larger bases of reserves and resources, greater production potential, and a higher cash-flow profile, Primero Mining looks like it's golden.
