Old San Dimas District Shows Modern Profitability

Canadian-based Primero Mining has positioned itself as a reference in technological innovation, safety standards, social responsibility, and clean energy use in Mexico, particularly in the state of Durango. The company only has operations in Canada and Mexico, where it seeks to become a leading intermediate gold producer. It is well on the way to achieving this goal as it produced a total of 185,000-205,000oz of gold in 2014, of which 120,000- 130,000oz were produced in Mexico. Similarly, Primero Mining’s Mexican operations produced 6.1-6.3 million ounces of silver for the same period. This success stems from Primero Mining’s San Dimas gold and silver deposit, which is one of Mexico’s most important precious metal deposits. Historical production from the San Dimas district, which measures 15km2, has reached an estimate of 11 million ounces of gold and 582 million ounces of silver since the first mining efforts in 1757. The district has passed through a number of hands before Primero took it over. San Luis Mining first carried out exploration activities before the company was acquired by Wheaton River, which was in turn absorbed by Goldcorp before Primero Mining finally acquired the San Dimas mines in 2010. However, the influence of past owners lingers. In 2004, Goldcorp brokered a silver purchase agreement with Silver Wheaton, which would see the latter buy 100% of silver produced there for 25 years. Upon buying San Dimas in 2010, Primero looked to reshape the agreement. As it stands, Primero sold the first 3.5 million ounces of payable silver produced per year plus 50% of the rest to Silver Wheaton at US$4.04 per ounce. This lasted until August 2014 when the deal was changed to the sale of the first 6 million ounces of silver produced per year plus 50% of the rest at US$4.20 per ounce.

San Dimas is divided into five mining blocks: San Antonio West, Sinaloa Graben, Central Block, Tayoltita, and Arana Hanging Wall. All of these mining sites are underground operations that use mechanized cut-and-fill methods. The Tayoltita mine is the oldest operating mine in San Dimas, and all production is processed at the Tayoltita mill, where cyanidation and zinc precipitation is used for the recovery of gold and silver. Fine crushing and single stage ball milling are employed before the materials enter the leach circuit. After 72 hours of leaching, the pregnant solution is recovered in a counter current decantation circuit and the gold and silver are recovered in a zinc precipitation circuit. The gold and silver precipitate is refined using an induction furnace, producing 1,000oz gold and silver doré bars that are sent to the US. In order to increase its capacity and to be up to date with processing technologies, the mill has undergone regular expansions. An optimization and expansion program started when Primero Mining first acquired San Dimas in 2010. The first phase was completed in the first quarter of 2014, increasing its capacity to the current level of 2,500 t/d, and a second phase will bring capacity up to 3,000 t/d by the second quarter of 2016. The company expects that this will increase annual production to around 215,000oz of gold equivalent.

Exploration activities are also an important component of current operations at the San Dimas district. In its program for San Dimas, Primero Mining covers approximately 35,000m of diamond drilling and more than 20km of drifting, including exploration, preparation and infrastructure, per year. The silver and gold mineralization of the San Dimas district has a favorable vertical zone that measures 300-600m and is consistent across veins and blocks. So far, exploration activities have focused on the high grade area of the Central Block and the western extension of the veins through the Sinaloa Graben Block. In 2010, a tunnel that connects the Central Block and the Sinaloa Graben was completed, enabling more detailed exploration and providing the infrastructure to develop more than 20 new high grade veins.

Even though San Dimas is a resource rich site, Primero Mining is not placing all its Mexican eggs into one basket. In 2013, Primero Mining acquired 69% of the Cerro del Gallo project in Guanajuato from Cerro Resources NL and 30% from Goldcorp Cerro del Gallo is located within the San Antón property, which covers 25,269 hectares and consists of 12 granted mining concessions owned by San Antón de las Minas. Surrounding urban centers can provide the services necessary to support a mining exploration program, and while certain permits are still being awaited, basic engineering and land acquisition have been completed. Further developments should start in early 2015, but construction is being delayed in order to focus on metallurgical testing and exploration drilling activities. The Cerro del Gallo metallurgical testing program intends to confirm and optimize gold and silver recoveries, categorize the transition ore with increased detail, and confirm leach pad stability and percolation. Exploration operations so far have identified high-grade mineralization with the Carmen Providencia epithermal vein, returning 4.6 g/t of gold equivalent. So far, of its 2014 Cerro del Gallo budget of US$12.9 million, US$3.9 million has already been spent and a further US$2.5 million has been earmarked for a further 10,000m of exploration drilling. Should this phase confirm significant gold and silver reserves, 2015 is set to be a happy year indeed for Primero Mining.