VANCOUVER — After snapping up Brigus Gold and its Black Fox mine for $220 million in late 2013, Primero Mining (TSX: P; NYSE: PPP) pledged it would turn operations around and realize the project’s dormant underground potential. On July 9 the company released the results of its early efforts, which include an updated reserve and resource statement, as well as initial assays from a $16.8-million exploration program.
In updating Black Fox’s resource numbers, Primero took a more conservative approach to the underground portion than did Brigus. Primero president and CEO Joseph Conway noted that the new resource parameters were “appropriate” as the company moves to optimize operations.
Primero increased cut-off grades, reduced the area of influence around drill holes, used more detailed domaining and conservative capping, and did not include any drilling from 2014. As a result contained gold reserves at Black Fox fell 19% based on 14% less tonnes and a 6% lower grade.
The underground caught the brunt of the reserve drop, with contained gold ounces declining 25%. Black Fox’s underground reserves now sit at 1.7 million tonnes grading 6.3 grams gold per tonne for 339,000 contained oz., while measured and indicated resources total 1.8 million tonnes grading 7.5 grams gold for 445,000 contained oz. All underground resources and reserves assume a 3-gram-gold cut-off grade.
Meanwhile, open-pit reserves decreased 4% to 1.5 million tonnes averaging 3.7 grams gold for 174,000 contained oz., while measured and indicated resources total 1.4 million tonnes of 4 grams gold for 183,000 oz. gold.
Inferred resources jumped 280% to 690,000 tonnes of 7.6 grams gold for 168,000 contained oz.
Primero sees potential in expanding the Black Fox complex. The company is carrying out an exploration and delineation drilling program that includes 132,100 metres split between 55,700 metres at Black Fox and 76,400 metres at the satellite Grey Fox discovery. Approximately 8,300 metres and 22,800 metres have been drilled at each property to date.
In October 2013 Brigus announced two high-grade gold intercepts located 720 metres below surface and 240 metres below current mining operations in Black Fox’s lower central zone. Primero has aimed to increase its confidence in Black Fox’s depth extension, and appears to have succeeded with six more high-grade hits.
The Black Fox underground program was highlighted by 24.4 grams gold over 4.7 metres from 213 metres depth in hole 440-16-EB and 9.9 grams gold over 32 metres from 222 metres depth in hole 440-23-EB, while holes holes 440-24-E, 440-25-E and 645-02-W also returned promising gold values. The lower central zone will remain a focus for Primero, as better drilling angles become available due to a 520-level exploration drift.
The company reported that a mineralized area was discovered in the lower west zone at Black Fox, where stepout hole 345-23-W cut 3.5 grams gold over 5 metres. Though the intercept is relatively low grade for Black Fox, Primero suggests that the drill hit could expand known mineralization at depth by up to 425 metres laterally to the west.
Meanwhile, the company is bolstering the near-term production potential at Grey Fox, which lies 4 km southeast of the Black Fox mill. Primero’s most recent release is highlighted by seven holes with assays from the Contact and Grey Fox South zones.
The Contact drill results show continuation of the newly identified hangingwall zone to the north and east, with hole 14-862 cutting 36 metres of 4.4 grams gold from 289 metres depth and hole 13-810 returning 22 metres of 7 grams gold from 19 metres depth.
Results at Grey Fox South show the zone is wider than anticipated, with consistent grades. Highlights include: 13 metres of 11.4 grams gold from 155 metres depth in hole 14-852, and 21 metres of 9.4 grams gold from 215 metres depth in hole 14-857
“The reserve and resource update was conservative, as expected,” BMO Capital Markets analyst Brian Quast noted, who has an “outperform” rating on Primero and a $9.25-per-share target price. “On the bright side, inferred resources reported significant increases in grade and contained gold for both the open pit and underground. Considering the sizeable 2014 drilling and underground development plan, BMO Research sees a meaningful increase in reserves as likely in the year-end update.”
Primero was up 6%, or 47¢, on 1.2 million shares traded after the news, en route to an $8.72-per-share close at press time.
The company has traded within a 52-week window of $4.37 and $9.04, and has 160 million shares outstanding for a $1.4-billion market capitalization.
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