Primero Mining CEO Sees Black Fox Fix Clearing Way for Expansion

Primero Mining Corp. says a fix of its troublesome Black Fox gold mine in Canada is within reach, restoring the miner’s credibility for investors while clearing the way for future expansion through acquisitions.

The Toronto-based company, which has fallen 45 percent in the past year, expects to show signs of improved performance at the northern Ontario mine this year, Chief Executive Officer Joe Conway said. In July, the company cut its gold-reserve estimate at Black Fox, which it acquired in a takeover last year to add to output from its flagship San Dimas gold and silver mine in Mexico.

“The reality is we’re very much focused on demonstrating to the investment community that we’ve turned Black Fox to account,” Conway, 57, said in a phone interview.

Analysts, at least, are giving the former CEO of Iamgold Corp. the benefit of the doubt. With 15 buy, one sell and two hold ratings on Primero, they project the share price will rise at least 50 percent in the next 12 months, based on target prices compiled by Bloomberg. They also estimate the company’s per-share cash flow will expand faster than most of its Canadian peers, according to data compiled by Bloomberg.

“Black Fox really drives the bus” in terms of expectations for the share price, Joe Fazzini, a Toronto-based analyst at Dundee Capital Markets, said by phone. “It looks like the worst has passed.”

Fivefold Expansion

Primero fell 2 percent to C$4.41 at 4 p.m. in Toronto, giving it a market value of C$713.8 million ($568 million).

Conway became CEO of Toronto-based gold miner Iamgold in 2003, when the company bought Repadre Capital Corp., which Conway had led. During his seven-year tenure at Iamgold, the company’s market value expanded more than fivefold to about C$6 billion, as it grew from an investor in mines to an operator with almost 1 million ounces a year of production.

Conway left Iamgold in January 2010, and five months later was hired to lead a company buying San Dimas from Goldcorp Inc. that year. That company, Mala Noche Resources Corp., which means “Bad Night” in Spanish, was renamed Primero, or “First,” that August.

Primero tried unsuccessfully to combine with Northgate Minerals Corp. in 2011. The purchase of Black Fox, acquired in a C$292.5 million deal for Brigus Gold Corp., was Primero’s biggest since then.

Gold Camp

Black Fox is located in northeastern Ontario, about 655 kilometers (407 miles) north of Toronto. The region, known as the Timmins gold camp, has historically been one of Canada’s most prolific in terms of bullion production.

“The question, really, is can they execute there?” John Goldsmith, who helps manage C$5 billion at Montrusco Bolton Investments Inc., including Primero shares, said in a phone interview.

Conway said the company was overly confident about how quickly it could improve Black Fox’s operational performance.

“We thought we could do it in nine to 12 months,” he said. “It’s probably more like 12 to 15.”

The company plans to boost ore output from the underground portion of the mine this year to 1,000 metric tons a day, from about 300 tons now, Conway said. Primero forecasts gold production at Black Fox will rise to the equivalent of about 80,000 ounces this year from 73,000 in 2014, according to Tamara Brown, a spokeswoman.

‘Up and Running’

In comparison, San Dimas is expected to produce 180,000 ounces in 2015 -- though Conway says Black Fox has the potential to become “another San Dimas” as the company explores deeper.

Once Black Fox is running smoothly, Primero will be eyeing potential acquisitions, Conway said.

“We continue to look for opportunities like San Dimas and Black Fox, which are situations that are up and running or very close to up and running and either need some technical expertise or capital,” he said.

Rob Chang, a Toronto-based analyst at Cantor Fitzgerald who rates Primero a buy, said he’s still waiting for more signs that Black Fox’s turnaround is back on track.

“If everything goes according to plan Black Fox will actually operate pretty well,” Chang said Wednesday by phone. “We think it’s manageable, but of course we’re waiting to see if that actually does happen.”

Primero’s 45 percent decline in the past 12 months compares with a 13 percent drop in the Standard & Poor’s/TSX Global Gold Sector Index of 41 companies. The company’s underperformance is “almost entirely based on what’s been happening at Black Fox,” Chang said.

“It has struggled, but fundamentally it still has the quality asset in San Dimas,” he said. “We expect it to bounce back assuming everything goes decently well at Black Fox.”

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