Primero Mining expects to keep production levels steady with 2011 this year

TORONTO - Primero Mining Corp. shares fell 15 per cent on Tuesday after the gold miner reported disappointing 2011 production results and said this year's output will be about the same, blaming low-quality ore bodies for the cautious outlook.

The company (TSX:P), which owns the San Dimas gold-silver mine in Mexico, targets production of between 100,000 and 110,000 gold equivalent ounces for 2012 — about the same as last year.

Cash costs are targeted from $630 to $660 per gold-equivalent ounce.

President and chief executive Joseph Conway said Primero's operating results fell short of expectations for 2011.

"The principal reason we did not meet original production guidance was due to the lack of grade predictability which impacted our production," Conway said

"As a result, we are initiating a number of operational improvements as well as a review of our current reserve and resource estimation methods."

The outlook for 2012 was based on the lower ore grades recently encountered.

"We remain focused on growing production at San Dimas by continuing to optimize mine planning and still expect to complete a mine expansion within the next 24 months," Conway said.

UBS analyst Dan Rollins cut his price target on the stock to $4.50 from $5.25, but maintained a "buy" rating on the company.

"Although Primero remains confident in the mineral potential of San Dimas, there remains a chance the new estimation technique could result in lower reserves/resources," Rollins wrote in a note to clients.

For 2011, Primero produced 102,224 gold equivalent ounces, up from 100,266 gold equivalent ounces in 2010. Total cash costs averaged $640 per ounce, up from $584.

Included in the production 2011 was 77,490 ounces of gold and 4.63 million ounces of silver, while the company produced 85,429 ounces of gold and $4.37 million ounces of silver in 2010.

The average realized gold price was $1,561 per ounce, up from $1,234.

In its outlook for 2012, gold production is expected between 80,000 and 90,000 ounces, while silver production is forecast between 4.5 million and five million ounces.

Primero said it expects $30 million in capital spending.

Primero had signed a deal last year to be bought by Northgate, but that fell apart after gold and silver producer AuRico Gold Inc. (TSX:AUQ) reached a friendly agreement to acquire Northgate in a stock swap valued at $1.46 billion.

In addition to the San Dimas mine, Primero owns the Ventanas property in Mexico. Ventanas includes 28 mining concessions covering about 35 square kilometres and 17 old mines and workings.

Shares in the company were down 57 cents at $3.17 on the Toronto Stock Exchange.