During the financial year ended
December 31, 2017, Primero issued or granted the following Common Shares or
securities convertible into Common Shares:
Date of Issuance
|
Number and Type
of Securities Issued
|
Issue or Exercise
Price Per Security
(CDN$)
|
February 17, 2017
|
57,207 Common
Shares
(2)
|
$1.00
|
February 23, 2017
|
11,300 Common
Shares
(2)
|
$0.89
|
March 2, 2017
|
590,657 Common
Shares
(3)
|
$0.82
|
March 6, 2017
|
762,454 Common
Shares
(2)
|
$0.74
|
March 24, 2017
|
2,771,877 PSUs
|
$0.75
|
March 24, 2017
|
2,057,589 Stock Options
|
$0.76
|
March 27, 2017
|
259,041 Common
Shares
(2)
|
$0.76
|
March 27, 2017
|
95,395 PSUs
|
$0.76
|
March 28, 2017
|
80,217 Common
Shares
(2)
|
$0.74
|
March 28, 2017
|
46,474 PSUs
|
$0.78
|
March 29, 2017
|
49,658 Common
Shares
(2)
|
$0.73
|
March 29, 2017
|
49,658 PSUs
|
$0.73
|
March 31, 2017
|
304,574 Common
Shares
(2)
|
$0.75
|
April 3, 2017
|
30,987 Common
Shares
(2)
|
$0.74
|
April 3, 2017
|
30,987 PSUs
|
$0.74
|
April 4, 2017
|
46,875 PSUs
|
$0.74
|
April 4, 2017
|
46,875 Common Shares
(2)
|
$0.73
|
April 5, 2017
|
46,246 Common Shares
(2)
|
$0.73
|
April 5, 2017
|
46,246 PSUs
|
$0.73
|
April 6, 2017
|
42,852 PSUs
|
$0.73
|
April 6, 2017
|
42,852 Common Shares
(2)
|
$0.73
|
April 7, 2017
|
44,540 PSUs
|
$0.74
|
April 7, 2017
|
44,540 Common Shares
(2)
|
$0.73
|
May 11, 2017
|
633,329 PSUs
|
$0.75
(4)
|
May 12, 2017
|
202,608 Common Shares
(2)
|
$0.72
|
May 15, 2017
|
39,661 Common Shares
(2)
|
$0.68
|
May 29, 2017
|
12,231 Common Shares
(2)
|
$0.60
|
May 31, 2017
|
13,258 Common Shares
(2)
|
$0.51
|
June 16, 2017
|
4,721 Common Shares
(2)
|
$0.46
|
August 14, 2017
|
602,579 PSUs
|
$0.75
(4)
|
August 21, 2017
|
161,521 Common Shares
(2)
|
$0.13
|
October 3, 2017
|
506,551 Common Shares
(2)
|
$0.09
|
November 16, 2017
|
46,297 Common Shares
(2)
|
$0.09
|
November 30, 2017
|
219,598 Common Shares
(2)
|
$0.09
|
December 13, 2017
|
4,943 Common Shares
(2)
|
$0.09
|
86
Notes:
|
|
(1)
|
Price per Security refers to the share price at the closing of the
day before the date of grant in the case of Primero options and Primero
PSUs and the market price at the time of issuance in the case of Primero
shares.
|
|
(2)
|
Issuance of Primero shares in connection with vested Primero PSUs.
|
|
(3)
|
Issuance of Primero shares in connection with severance entitlement of
former President and Chief Executive Officer Ernest Mast.
|
|
(4)
|
Reflects the price utilized by the Primero Board to determine the
quantity of units issued.
|
Not applicable.
Not applicable.
Not applicable.
ITEM 10.
|
ADDITIONAL
INFORMATION
|
Not applicable.
B.
|
Memorandum and Articles of Association
|
Articles of Association
87
Primero Mining Corp. is
incorporated under the Act. Effective January 1, 2015, Primero Mining Corp. and
Primero Gold Canada Inc. amalgamated under the name of Primero Mining Corp.
under Incorporation No. BC1023633. The Companys articles of association (the
Companys Articles) were last amended by shareholder resolution passed at the
Annual General and Special Meeting held on May 6, 2015. The Companys Articles
do not contain a description or place any restrictions on the Companys objects
and purposes. For more information, see the Consolidated Articles filed as
Exhibit 1.1 to this Form 20-F.
Disclosure of Interest of Directors
The Companys Articles provide
that a director or senior officer who holds a disclosable interest (as that term
is used in the Act) in a contract or transaction into which the Company has
entered or proposes to enter is liable to account to the Company for any profit
that accrues to the director or senior officer under or as a result of the
contract or transaction only if and to the extent provided in the Act.
Further, a director who holds a
disclosable interest in a contract or transaction into which the Company has
entered or proposes to enter is not entitled to vote on any directors
resolution to approve that contract or transaction, unless all the directors
have a disclosable interest in that contract or transaction, in which case any
or all of those directors may vote on such resolution. Such director who is
present at the meeting of directors at which the contract or transaction is
considered for approval may be counted in the quorum at the meeting whether or
not the director votes on any or all of the resolutions considered at the
meeting.
The Companys Articles provide
that a director or senior officer who holds any office or possesses any
property, right or interest that could result, directly or indirectly, in the
creation of a duty or interest that materially conflicts with that individuals
duty or interest as a director or senior officer, must disclose the nature and
extent of the conflict as required by the Act.
Remuneration of Directors
The Companys Articles provide
that the Board will from time to time determine the remuneration to be paid to
the directors. The Company must reimburse each director for the reasonable
expenses that he or she may incur in and about the business of the Company. The
Board may also by resolution, award special remuneration to any director for
undertaking any professional or other services on Companys behalf that in the
opinion of the Board are outside the ordinary duties of a director, Borrowing
Powers of Directors The Companys Articles provide that the directors may: (a)
borrow money in the manner and amount, on the security, from the sources and on
the terms and conditions that they consider appropriate; (b) issue bonds,
debentures and debt obligations either outright or as security for any liability
or obligation of the Company or any other person and at such discounts or
premiums and on such other terms as they consider appropriate; (c) guarantee the
repayment of money by any other person or the performance of any obligation of
any other person; and (d) mortgage, charge, whether by way of specific or
floating charge, grant a security interest in, or give other security on, the
whole or any part of the present and future assets and undertaking of the
Company. Alteration to the Articles can be carried out in accordance with the
Act by way of passing resolutions.
Retirement/Age Limit of Directors
The Company does not have a
retirement age policy for its directors. The Company believes that imposing term
limits on its directors would be unduly restrictive and not in the best
interests of the Company, and could become an arbitrary mechanism for removing
directors which could result in valuable and experienced directors being forced
to leave the Board solely because of length of service. Therefore, the Company
has decided not to adopt specific term limits for the directors on its Board,
but rely instead upon effective annual assessments to ensure the ongoing
efficacy of individual directors and the Board and its committees as a whole.
Qualification Shares
A director is not required to
hold a share in the capital of the Company as qualification for his or her
office but must be qualified as required by the Act to become, act or continue
to act as a director.
88
Shares and Shareholders
The Companys Articles provide
that no share may be issued until it is fully paid. Subject to the rights of the
holders of the preferred shares of the Company, holders of Common Shares of the
Company are entitled to dividends if, as and when declared by the directors.
Holders of Common Shares of the Company are entitled to one vote per Common
Share at meetings of shareholders except at meetings at which only holders of a
specified class of shares are entitled to vote. Upon liquidation, dissolution or
winding-up of the Company, subject to the rights of holders of preferred shares,
holders of Common Shares of the Company are to share rateably in the remaining
assets of the Company as are distributable to holders of Common Shares. The
Common Shares are not subject to call or assessment rights, redemption rights,
rights regarding purchase for cancellation or surrender, or any pre-emptive or
conversion rights. Preferred shares may be issued from time to time in one or
more series, ranking equally on winding-up, to repayment of the amount paid up
on such shares, and to carry and be subject to, as a class, the following
special rights and restrictions pertaining to (but not limited to) dividends,
redemption or purchase rights, rights of retraction, rights of conversion, terms
and conditions of any share purchase plan or sinking fund, rights upon
dissolution of the Company, and voting, as the directors of the Company may,
from time to time, determine by resolution. Currently the preferred shares rank
in priority over Common Shares as to dividends and return of paid up capital
upon dissolution or winding up of the Company. Holders of preferred shares are
not entitled to notice or to vote at meetings of shareholders (except where
holders of a specified class or series are entitled to a separate vote in
accordance with the Act. The Company may at any time purchase for cancellation
or redeem the preferred shares that may be issued and holders of preferred
shares may require the Company to retract such shares in accordance with the
terms upon which such have been issued. The special rights and restrictions
attaching to the Common shares and the Preferred shares are set forth in Part 27
of the Articles.
Majority Voting Policy for Directors
Companys Board has adopted a
policy stipulating that if the votes in favour of the election of a nominee
director at a shareholders meeting represent less than a majority of the shares
voted and withheld, the nominee will submit his or her resignation promptly
after the meeting to the Board, to be effective upon acceptance by the Board.
The Governance and Nominating Committee will review the circumstances of the
election and make a recommendation to the Board as to whether or not to accept
the tendered resignation. The Board will determine whether or not to accept the
tendered resignation as soon as reasonably possible and in any event within 90
days of the election. Subject to any corporate law restrictions, the Board may
fill any resulting vacancy through the appointment of a new director. The
nominee will not participate in any Governance and Nominating Committee or Board
deliberations on the offered resignation. This policy does not apply in
circumstances involving contested director elections.
Meetings of Shareholders
The Act requires the Company to
call an annual shareholders meeting not later than 15 months after holding the
last preceding annual meeting and permits the Company to call a special
shareholders meeting at any time. Further, in accordance with the Act, the
holders of not less than 5% of the Companys shares carrying the right to vote
at a meeting sought to be held may requisition the directors to call a special
shareholders meeting for the purpose stated in the requisition. The Company is
required to mail a notice of the date, time and location of any meeting of
shareholders, including proxy related materials in the manner provided in the
Articles, the Act and applicable securities legislations. The directors set a
date as the record date for the purpose of determining shareholders entitled to
receive notices of any meeting of shareholders and to vote at any such meetings.
The Companys Articles provide that a quorum of two shareholders in person or
represented by proxy holding or representing, in the aggregate, at least 5% of
the Companys issued shares entitled to be voted at the meeting. In addition to
shareholders and their duly appointed proxies and corporate representatives, the
Companys directors, president, secretary, lawyers, auditors and invitees of
directors, are entitled to be admitted to the Companys annual and special
shareholders meetings, provided that any such person is not be counted in the
quorum and is not entitled to vote at the meeting unless that person is a
shareholder or proxy holder entitled to vote at the meeting.
Disclosure of Share Ownership and Changes in Capital
The Company complies with insider
transaction reporting obligations required under the Canadian Securities
legislation. In addition, the Company has adopted share ownership guidelines
setting minimum shareholding requirements for its directors and officers. The
policy also disallows directors and officers from engaging in hedging against
declines in value of the Companys equity securities. Directors share ownership
information is disclosed in Companys management information circular sent out
to shareholders prior to holding annual and special shareholder meetings.
89
Provisions concerning the
alteration of authorized share structure is set forth in Article 9.1.
There are no limitations on the
rights to own securities, including the rights of non-resident or foreign
shareholders to hold or exercise voting rights on the securities imposed by the
Act or by the constating document of the Company.
There is no provision in the
Company's Articles that would have an effect of delaying, deferring or
preventing a change in control of the Company and that would operate only with
respect to a merger, acquisition or corporate restructuring involving the
Company (or any of its subsidiaries).
The material contracts, other
than contracts entered into in the ordinary course of business, to which the
Company is a party, for the two years immediately preceding publication of this
annual report, are the following:
|
(a)
|
Credit Agreement, dated May 23, 2014, between the Company
and a syndicate of lenders led by Bank of Montreal as Administrative Agent
(as amended pursuant to a first amending agreement dated December 22,
2014, a second amending agreement dated February 5, 2015, a third amending
agreement dated December 31, 2015, a fourth amending agreement dated
December 28, 2016, a fifth amending agreement dated March 30, 2017, a
sixth amending agreement dated October 2, 2017, a seventh amending
agreement dated November 23, 2017, an eighth amending agreement dated
November 23, 2017, a ninth amending agreement dated November 30, 2017, a
tenth amending agreement dated December 15, 2017, an eleventh amending
agreement dated December 22, 2017 and a twelfth amending agreement dated
January 11, 2018). See Item 3. Key Information D. Risk Factors
Financial Risks Indebtedness.
|
|
|
|
|
(b)
|
Trust Indenture, dated February 9, 2015, between the
Company and Computershare Trust Company of Canada. See Item 4.
Information on the Company A. History and Development of the Company
3. Three Year History Recent Developments 2015 Convertible Debenture
Prospectus Offering.
|
|
|
|
|
(c)
|
Second amended and restated silver purchase agreement
among Silver Trading, SW Caymans, the Company and Silver Wheaton dated as
of August 6, 2010. See Item 3. Key Information D. Risk Factors
Financial Risks Challenges to the 2012 APA and Item 4. Information on
the Company B. Business Overview Mining Activities San Dimas Mine
Amended and Restated Silver Purchase Agreement.
|
|
|
|
|
(d)
|
Deed of indemnity among Silver Trading, the Company and
Goldcorp, dated as of August 6, 2010 entered into in connection with the
Amended and Restated Silver Purchase Agreement pursuant to which the
Company agreed to (i) reimburse Goldcorp for certain amounts paid or
payable by Goldcorp to SW Caymans pursuant to Goldcorps guarantee and
(ii) indemnify and save harmless Goldcorp from and against certain losses
of Goldcorp that arise out of or relate to SW Caymans pursuant to
Goldcorps guarantee. See Item 3. Key Information D. Risk Factors
Financial Risks Challenges to the 2012 APA and Item 4. Information on
the Company B. Business Overview Mining Activities San Dimas Mine
Amended and Restated Silver Purchase Agreement.
|
|
|
|
|
(e)
|
Asset Purchase Agreement dated August 25, 2017, between
the Company and McEwen Mining Inc. See Item 4. Information on the Company
A. History and Development of the Company 3. Three Year History
Recent Developments 2017 Sale of Black Fox Mine and Complex.
|
90
|
(f)
|
Arrangement Agreement dated January 11, 2018 between the
Company and First Majestic Silver Corp. See Item 4. Information on the
Company A. History and Development of the Company 3. Three Year
History Recent Developments 2018 Friendly Acquisition of Primero
Mining and Restructured Stream with Wheaton Precious Metals.
|
See Item 3. Key Information - A.
Selected Consolidated Income Statement Data - Exchange Rates.
Certain Canadian Federal Income Tax Consequences
The following summarizes the
principal Canadian federal income tax consequences applicable to the holding and
disposition of common shares in the capital of the Company by a holder who, for
purposes of the Income Tax Act (Canada) (the Tax Act) and the Canada United
States Income Tax Convention, 1980, as amended (the Canada-U.S. Tax
Convention), is resident in the United States, beneficially holds the common
shares as capital property and does not use or hold the common shares in the
course of carrying on a business in Canada (a U.S. Holder). The common shares
will generally be considered to be capital property unless the U.S. Holder holds
the common shares in the course of carrying on a business, or acquires the
common shares in a transaction or transactions considered to be an adventure in
the nature of trade.
This summary is based on the
current provisions of the Tax Act, the regulations thereunder, all amendments
thereto publicly proposed by the government of Canada, the published
administrative practices of the Canada Revenue Agency and the current provisions
of the Canada-U.S. Tax Convention. This summary does not otherwise take into
account or anticipate any changes in law, whether by way of legislative,
judicial or administrative action or interpretation, nor does it address any
provincial, territorial or foreign (including without limitation, any United
States) tax considerations.
This summary is of a general
nature only and it is not intended to be, nor should it be construed to be,
legal or tax advice to any particular U.S. Holder. Accordingly, U.S. Holders are
urged to consult with their own tax advisors about the specific tax consequences
of acquiring, holding and disposing of common shares.
Disposition of Common Shares and Capital Gains:
A U.S. Holder will generally not
be subject to tax under the Tax Act in respect of a capital gain realized on the
disposition or deemed disposition of a common share, unless the common share
constitutes taxable Canadian property to the U.S. Holder for purposes of the
Tax Act. Provided that the common shares are listed on a designated stock
exchange for purposes of the Tax Act (which includes the TSX) at the time of
disposition, the common shares will generally not constitute taxable Canadian
property to a U.S. Holder unless, at any time during the 60-month period
immediately preceding the disposition (i) the U.S. Holder, together with persons
with whom the U.S. Holder does not deal at arms length for the purposes of
the Tax Act, owned 25% or more of the issued shares of any class of shares of
the Company and (ii) more than 50% of the fair market value of the common shares
was derived directly or indirectly from one or a combination of real or
immovable property situated in Canada, Canadian resource properties or timber
resource properties (as such terms are defined in the Tax Act), or options or
interests in respect of any such properties.
Provided the common shares are
listed at the time of disposition on the TSX or other recognized stock
exchange (which includes the TSX) for purposes of the Tax Act, a U.S. Holder
who disposes of common shares will not be required to satisfy the obligations
imposed under Section 116 of the Tax Act and, as such, the purchaser of such
shares will not be required to withhold any amount on the purchase price paid
and the US Holder will not have to apply to obtain a certificate of compliance
related to the disposition of the common shares.
91
U.S. Holders whose common shares may constitute taxable
Canadian property should consult their own tax advisors.
Certain United States Federal Income Tax Consequences:
The following is a general
summary of certain material U.S. federal income tax considerations applicable to
a U.S. Holder (as defined below) arising from and relating to the acquisition,
ownership and disposition of common shares.
This summary is for general
information purposes only and does not purport to be a complete analysis or
listing of all potential U.S. federal income tax considerations that may apply
to a U.S. Holder arising from and relating to the acquisition, ownership, and
disposition of common shares. In addition, this summary does not take into
account the individual facts and circumstances of any particular U.S. Holder
that may affect the U.S. federal income tax consequences to such U.S. Holder,
including, without limitation, specific tax consequences to a U.S. Holder under
an applicable income tax treaty. Accordingly, this summary is not intended to
be, and should not be construed as, legal or U.S. federal income tax advice with
respect to any U.S. Holder. This summary does not address the U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and
non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and
disposition of common shares. In addition, except as specifically set forth
below, this summary does not discuss applicable tax reporting requirements. Each
prospective U.S. Holder should consult its own tax advisors regarding the U.S.
federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and non-U.S. tax consequences relating to the acquisition,
ownership and disposition of common shares.
Reporting Obligations for Certain U.S. Holders
Certain U.S. holders that hold
certain specified foreign financial assets, including stock in a foreign
corporation, with values in excess of certain thresholds are required to file
IRS Form 8938 with their federal income tax return. Such form requires
disclosure of information concerning such foreign assets, including the value of
the assets. Failure to file the form when required is subject to penalties. An
exemption from reporting applies to foreign assets held through a U.S. financial
institution, generally including a non-U.S. branch or subsidiary of a U.S.
institution and a U.S. branch of a non-U.S. institution. U.S. holders are
encouraged to consult their tax advisors regarding the possible application of
this disclosure requirement to their investment in our common shares.
THE PRECEDING DISCUSSION OF U.S.
FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF PRIMERO
COMMON SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS AND OF ANY PROPOSED CHANGES IN APPLICABLE LAW.
F.
|
Dividends and Paying Agents
|
Not applicable.
Not applicable.
We are subject to the
informational requirements of the U.S. Securities Exchange Act of 1934.
Accordingly, we are required to file reports and other information with the SEC,
including annual reports on Form 20-F and certain other reports on Form 6-K
containing the information that we make public under Canadian law, file with the
Canadian stock exchanges or distribute to shareholders. You may inspect and copy
reports and other information to be filed with the SEC at the public reference
facilities maintained by the SEC at 100 F Street, N.W., Washington D.C. 20549
and at the SECs regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 233 Broadway, New York, New York 10279. Copies of
the materials may be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The public may obtain information on the operation of
the SECs Public Reference Room by calling the SEC in the United States at
1-800-SEC-0330. In addition, the SEC maintains an Internet website at
http://www.sec.gov
, from which you can electronically access the
registration statement and its materials.
92
As a foreign private issuer, we
are exempt from the rules under the Exchange Act prescribing the furnishing and
content of proxy statements and will not be required to file proxy statements
with the SEC, and its officers, directors and principal shareholders will be
exempt from the reporting and short swing profit recovery provisions contained
in Section 16 of the Exchange Act.
You may obtain documents from us
by requesting them in writing, at the following electronic mailing address or by
telephone:
|
Investor Relations
|
|
|
|
Telephone: (416) 814-3160
|
|
|
|
Email: info@primeromining.com
|
I.
|
Subsidiary Information
|
Not applicable.
ITEM 11.
|
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Please see Item 5. Operating and
Financial Review and Prospects B. Liquidity and Capital Resources Financial
Instruments Risk Market Risks.
ITEM 12.
|
DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
|
Not applicable
PART II
ITEM 13.
|
DEFAULTS, DIVIDEND
ARREARAGES AND DELINQUENCIES
|
Primero is in compliance with all contracts and agreements. The
Company does not currently pay dividends.
ITEM 14.
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF
SECURITY HOLDERS AND USE OF
PROCEEDS
|
14.
A.-B.
|
Modifications to the Rights of Security Holders
|
Holders of the Primero Debentures
at a special meeting held on March 13, 2018 approved the proposed amendment of
the Trust Indenture to accelerate the maturity date of the Primero Debentures to
the next Business Day (as defined in the Trust Indenture) following the
effective date of the Arrangement involving, among other things, the acquisition
by First Majestic of all of the outstanding shares of Primero.
Furthermore, each Primero option
which is outstanding and has not been duly exercised prior to the effective date
of the Arrangement (whether vested or unvested), notwithstanding the terms of
the Primero options, shall be unconditionally vested and exercisable in full,
and such Primero option will be exchanged for a replacement option to purchase
from First Majestic under the same exchange ratio as First Majestic shares are
entitled to.
Each holder of a Primero warrant
outstanding immediately prior to the effective date of the Arrangement shall
receive (and such holder shall accept), upon the exercise of such holders
Primero warrant, in lieu of each Primero share to which such holder was
theretofore entitled, such number of First Majestic shares as is equal to the
exchange ratio (and when aggregated with an exercise of other similar Primero
warrants resulting in a fraction of a First Majestic share, they all shall be
rounded down to nearest whole number of First Majestic shares) provided, however, the exercise price per First Majestic share shall be
equal to the current exercise price per Primero share divided by the exchange
ratio. Each Primero warrant shall continue to be governed by and be subject to
the terms of the Primero warrant indenture and any applicable supplemental
indenture executed thereunder.
93
Pursuant to the Arrangement
Agreement, each Directors PSU outstanding immediately before completion of the
arrangement shall be deemed to be fully vested and each holder thereof shall be
paid a cash payment in an amount equal to $0.30 per Directors PSU. In addition,
each DSU outstanding immediately before completion of the arrangement shall be
deemed to be fully vested and each holder thereof shall be paid a cash payment
in an amount equal to $0.30 per DSU.
Not applicable.
Not applicable.
Not applicable.
ITEM 15.
|
CONTROLS AND PROCEDURES
|
|
(a)
|
Disclosure Controls and Procedures
.
|
Disclosure controls and
procedures form a framework designed to provide reasonable assurance that
information disclosed publicly fairly presents in all material respects the
financial condition, results of operations, and cash flows of the Company for
the periods presented in this annual report. The Companys disclosure controls
and procedures framework includes processes designed to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to management by others within those entities to allow timely
decisions regarding required disclosure.
The Companys management, with
the participation of its CEO and CFO, has evaluated the design, operation and
effectiveness of the Companys disclosure controls and procedures. Based on the
results of that evaluation, the Companys CEO and CFO have concluded that, as of
the end of the period covered by this report, the Companys disclosure controls
and procedures were effective to provide reasonable assurance that the
information required to be disclosed by the Company in its annual filings,
interim filings or other reports filed or submitted by it under securities
legislation is recorded, processed, summarized and reported, within the time
periods specified in the securities legislation, and is accumulated and
communicated to the Companys management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure.
|
(b)
|
Managements Report on Internal Control over Financial
Reporting
.
|
The Companys management, with
the participation of its CEO and CFO, is responsible for establishing and
maintaining adequate internal control over financial reporting. The Companys
internal control over financial reporting is a process designed or under the
supervision of, the CEO and CFO, and effected by the Companys Board of
Directors, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. The Companys internal control over financial
reporting includes policies and procedures that:
pertain to the maintenance of records that accurately and fairly reflect,
in reasonable detail, the transactions and dispositions of assets of the
Company;
|
|
provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with IFRS and
that the Companys receipts and expenditures are made only in accordance
with authorizations of management and the Companys directors; and
|
94
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Companys assets that
could have a material effect on the Companys consolidated financial
statements.
|
Management assessed the
effectiveness of Primeros internal control over financial reporting as of
December 31, 2017, based on the criteria set forth in Internal Control
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on its assessment, management concluded
that the Companys internal control over financial reporting was effective as of
December 31, 2017.
Readers are cautioned that any
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Due to the inherent limitations in all controls systems, they
cannot provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been prevented or detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by unauthorized override of the
control. The design of any control system also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Accordingly, because of the inherent limitations in a cost
effective control system, misstatements due to error or fraud may occur and not
be detected.
|
(c)
|
Attestation Report of the Independent Registered Public Accounting
Firm
.
|
The effectiveness of Primeros
internal control over financial reporting as of December 31, 2017 has been
audited by KPMG LLP, Primeros independent registered public accounting
firm.
|
(d)
|
Changes in Internal Control over Financial Reporting
.
|
During the year ended December
31, 2017, there were no changes in the Companys internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
ITEM 16A.
|
Audit Committee Financial
Expert
|
The Audit Committee is currently
comprised of three directors, Michael Riley, Grant Edey and Brad Marchant, all
of whom are both independent and financially literate according to the Boards
independence standards as set out in the Companys Board Guidelines and
applicable Canadian and U.S. securities laws and regulations. Michael Riley, the
Chair of the Audit Committee, is also an audit committee financial expert
under the U.S. Securities and Exchange Act regulations.
Our Board has adopted a Code of
Ethics applicable to our directors, officers and employees, including our
principal executive officer and principal financial officer. The Code of Ethics
can be found at www.primeromining.com. Information found at this website is not
incorporated by reference into this document.
ITEM 16C.
|
Principal Accountant Fees and Services
|
Audit Fees
For the financial years ended
December 31, 2017 and 2016, the Company paid the external auditor,
CDN$832,999
and CDN$839,575, respectively, as detailed below:
95
|
|
Year Ended December
31
|
|
Nature of Services
|
|
2017
|
(1)
|
|
2016
|
(1)
|
Audit Fees
(2)
|
$
|
670,762
|
|
|
761,142
|
|
Audit-Related Fees
|
|
-
|
|
|
-
|
|
Tax Fees
|
|
162,237
|
|
|
78,433
|
|
All
Other Fees
|
|
-
|
|
|
-
|
|
Total
|
$
|
832,999
|
|
$
|
839,575
|
|
Notes:
|
(1)
|
All amounts in Canadian dollars.
|
|
(2)
|
Audit fees represent the aggregate fees billed for each
of the last two fiscal years for professional services rendered by the
principal accountant for the review and audit of the Companys interim and
annual financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or
engagements for those fiscal years.
|
Audit-Related Fees
Audit-related fees represent the
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit or review of the Companys financial statements and are
not reported under Audit Fees above.
Tax Fees
Tax fees represent
the
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning.
All Other Fees
Other fees would include
transaction related services.
Pre-Approval Policies and Procedures
The Audit Committees charter
sets out responsibilities regarding the provision of non-audit services by the
Companys external auditor. This policy encourages consideration of whether the
provision of services other than audit services is compatible with maintaining
the auditors independence and requires Audit Committee pre-approval of
permitted audit and audit-related services.
ITEM 16D.
|
Exemptions from the Listing Standards
for Audit Committees
|
Not applicable.
ITEM 16E.
|
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
|
There were no purchases of
Primeros securities by the Company or any affiliated purchasers during
2017.
ITEM 16F.
|
Change in Registrants Certifying
Accountant
|
None.
ITEM 16G. Corporate Governance
|
Not applicable.
96
ITEM 16H.
|
Mine Safety Disclosure
|
Not applicable.
PART III
ITEM 17.
|
FINANCIAL STATEMENTS
|
See Item 18. Financial
Statements.
ITEM 18.
|
FINANCIAL STATEMENTS
|
See our audited consolidated
financial statements beginning on Page F-1.
1.1
|
Primero Mining Corp. Articles of Incorporation
|
|
|
2.1
|
Trust Indenture, dated February 9, 2015, between the
Company and Computershare Trust Company of Canada for the 5.75%
Convertible Debentures
|
|
|
4.1
|
Credit Agreement, dated May 23, 2014, between the Company
and a syndicate of lenders led by Bank of Montreal as Administrative Agent
(as amended pursuant to a first amending agreement dated December 22,
2014, a second amending agreement dated February 5, 2015, a third amending
agreement dated December 31, 2015, a fourth amending agreement dated
December 28, 2016, a fifth amending agreement dated March 30, 2017, a
sixth amending agreement dated October 2, 2017, a seventh amending
agreement dated November 23, 2017, an eighth amending agreement dated
November 23, 2017, a ninth amending agreement dated November 30, 2017, a
tenth amending agreement dated December 15, 2017, an eleventh amending
agreement dated December 22, 2017 and a twelfth amending agreement dated
January 11, 2018)
|
|
|
4.2
|
Arrangement Agreement, dated January 11, 2018, between
the Company and First Majestic Silver Corp.
|
|
|
4.3
|
Second Amended and Restated Silver Purchase Agreement
among Silver Trading (Barbados), SW Caymans (now Wheaton Precious Metals
International), the Company and Silver Wheaton (now Wheaton Precious
Metals) dated August 6, 2010 (previously filed as an exhibit to the
Companys Form 40-F filed August 11, 2011)
|
|
|
4.4
|
Deed of Indemnity among Silver Trading (Barbados), the
Company and Goldcorp Inc., dated August 6, 2010 (previously filed as an
exhibit to the Companys Form 40-F filed August 11, 2011)
|
|
|
4.5
|
Asset Purchase Agreement for the Black Fox Complex with
McEwen Mining Inc., dated August 25, 2017
|
|
|
4.6
|
Primero DSU Plan (previously filed as an exhibit to the Company's Form 6-K
filed March 27,2015)
|
|
|
4.7
|
Primero PSU Plan (previously filed as an exhibit to the
Companys Form 6-K filed April 19, 2016)
|
|
|
4.8
|
Primero Stock Option Plan (previously filed as an exhibit
to the Companys Form 6-K filed April 5, 2016)
|
|
|
8.1
|
List of Material Subsidiaries
|
97
98
SIGNATURE
The Company hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on Form 20-F on its behalf.
PRIMERO MINING CORP.
|
|
|
By:
|
/s/ Joseph Conway
|
Name:
|
Joseph Conway
|
Title:
|
Interim President and Chief Executive
Officer
|
Dated: April 20, 2018
99
TABLE OF CONTENTS
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
Managements Report on Financial Statements
The consolidated financial statements of Primero Mining Corp.
have been prepared by, and are the responsibility of the Companys management.
The consolidated financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) and reflect managements best
estimates and judgments based on information currently available. In the opinion
of management, the accounting practices utilized are appropriate in the
circumstances and the consolidated financial statements fairly reflect the
financial position and results of operations of the Company.
The Board of Directors is responsible for ensuring management
fulfills its financial reporting responsibilities. The Audit Committee meets
with the Companys management and external auditors to discuss the results of
the audit and to review the consolidated financial statements prior to the Audit
Committees submission to the Board of Directors for approval. The Audit
Committee also reviews the quarterly financial statements and recommends them
for approval to the Board of Directors, reviews with management the Companys
systems of internal control, and reviews the scope of the external auditors
audit and non-audit work. The Audit Committee is composed entirely of directors
not involved in the daily operations of the Company who are thus considered to
be free from any relationship that could interfere with their exercise of
independent judgment as a committee member.
The consolidated financial statements have been audited by KPMG
LLP and their report outlines the scope of their examination and gives their
opinion on the consolidated financial statements.
/s/ Joseph F. Conway
|
|
/s/ Ryan Snyder
|
Joseph F. Conway
|
|
Ryan
Snyder
|
President and Chief Executive Officer
|
|
Chief Financial Officer
|
April 19, 2018
|
|
April 19, 2018
|
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Primero
Mining Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of
financial position of Primero Mining Corp. (the "Company") as of December 31,
2017, and 2016, the related consolidated statements of operations and
comprehensive loss, changes in equity and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes (collectively
referred to as the " consolidated financial statements").
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 2017, and 2016, and its financial performance and its cash flows
for each of the three years in the period ended December 31, 2017, in conformity
with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Material Uncertainty Related to Going Concern
Without qualifying our opinion on the financial statements, we
draw attention to Note 2 b) to the financial statements, which indicates that
the Company`s cash and liquidity position may not be sufficient to meet its
obligations as they become due. This condition, along with other matters as set
forth in Note 2 b), indicate the existence of material uncertainties that cast
substantial doubt on the Companys ability to continue as a going concern.
Report on Internal Control over Financial Reporting
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of December 31, 2017, based on the
criteria established in Internal Control Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated April 19, 2018 expressed an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits.
We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
2
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Chartered Professional Accountants, Licensed Public Accountants
We have served as Companys auditor since 2015.
Toronto, Canada
April 19, 2018
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Primero
Mining Corp.
Opinion on Internal Control Over Financial
Reporting
We have audited Primero Mining Corp.s (the Company) internal
control over financial reporting as of December 31, 2017, based on the criteria
established in
Internal Control Integrated Framework (2013)
issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2017, based on the criteria established in
Internal Control Integrated
Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Report on the Financial Statements
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated statements of financial position of the Company as of December 31,
2017, and 2016, the related consolidated statements of operations and
comprehensive loss, changes in equity and cash flows for each of the three years
in the period ended December 31, 2017, and the related notes (collectively
referred to as the "consolidated financial statements") and our report dated
April 19, 2018 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included under
item 15 in the Company`s Annual Report on Form 20-F for the year ended December
31, 2017. Our responsibility is to express an opinion on the Companys internal
control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control
over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over
Financial Reporting
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements.
4
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
April 19, 2018
5
PRIMERO MINING CORP.
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND
|
COMPREHENSIVE LOSS
|
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
|
(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT FOR SHARE
AND PER SHARE AMOUNTS)
|
|
|
|
|
|
Year ended
December 31
|
|
|
|
Notes
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
7
|
|
$
|
91,769
|
|
$
|
147,581
|
|
$
|
213,192
|
|
Operating expenses
|
|
|
|
|
(67,280
|
)
|
|
(100,452
|
)
|
|
(103,782
|
)
|
Depreciation and depletion
|
|
|
|
|
(22,433
|
)
|
|
(47,116
|
)
|
|
(55,836
|
)
|
Total cost of sales
|
|
|
|
|
(89,713
|
)
|
|
(147,568
|
)
|
|
(159,618
|
)
|
Earnings from mine operations
|
|
|
|
|
2,056
|
|
|
13
|
|
|
53,574
|
|
Mining interest impairment charge
|
|
4
|
|
|
(303,858
|
)
|
|
(111,000
|
)
|
|
-
|
|
Exploration expenses
|
|
|
|
|
(1,345
|
)
|
|
(1,885
|
)
|
|
(1,690
|
)
|
Share-based compensation
|
|
|
|
|
(4,149
|
)
|
|
(7,049
|
)
|
|
(7,144
|
)
|
General and administrative
expenses
|
|
11
|
|
|
(11,479
|
)
|
|
(13,529
|
)
|
|
(19,021
|
)
|
Idle and restart costs incurred during strike
at San Dimas
|
|
|
|
|
(6,207
|
)
|
|
-
|
|
|
-
|
|
Other charges
|
|
12
|
|
|
(7,044
|
)
|
|
(4,725
|
)
|
|
(2,702
|
)
|
Loss from operations
|
|
|
|
|
(332,026
|
)
|
|
(138,175
|
)
|
|
23,017
|
|
Transaction costs
|
|
|
|
|
-
|
|
|
(679
|
)
|
|
(4,416
|
)
|
Interest and finance expenses
|
|
13
|
|
|
(11,285
|
)
|
|
(8,761
|
)
|
|
(11,498
|
)
|
Mark-to-market gain on
debentures & warrants
|
|
|
|
|
5,897
|
|
|
12,610
|
|
|
13,500
|
|
Other expenses
|
|
14
|
|
|
(355
|
)
|
|
(427
|
)
|
|
(1,869
|
)
|
Loss before income taxes
|
|
|
|
|
(337,769
|
)
|
|
(135,432
|
)
|
|
18,734
|
|
Income tax recovery (expense)
|
|
15
|
|
|
4,393
|
|
|
19,938
|
|
|
(27,991
|
)
|
Net loss from continuing operations
|
|
|
|
|
(333,376
|
)
|
|
(115,494
|
)
|
|
(9,257
|
)
|
Net
loss from discontinued operations, net of income taxes
|
|
5
|
|
|
(76,309
|
)
|
|
(118,926
|
)
|
|
(97,653
|
)
|
Net loss for the year
|
|
|
|
|
($409,685
|
)
|
|
($234,420
|
)
|
|
($106,910
|
)
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be
subsequently reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translation of
foreign operations, net of tax of $nil
|
|
|
|
|
3,099
|
|
|
(102
|
)
|
|
(5
|
)
|
Unrealized (loss) gain on investment in
Fortune Bay, net of tax of $nil
|
|
|
(250
|
)
|
|
1,058
|
|
|
516
|
|
Total comprehensive loss for the year
|
|
|
|
|
($406,836
|
)
|
|
($233,464
|
)
|
|
($106,399
|
)
|
Basic and diluted loss per
share from continuing operations
|
|
|
|
|
($1.74
|
)
|
|
($0.65
|
)
|
|
($0.06
|
)
|
Basic and diluted loss per share from
discontinued operations
|
|
|
|
|
($0.40
|
)
|
|
($0.67
|
)
|
|
($0.60
|
)
|
Basic and diluted loss per share including discontinued
operations
|
|
|
|
|
($2.14
|
)
|
|
($1.32
|
)
|
|
($0.66
|
)
|
Weighted average number of common shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
191,738,274
|
|
|
177,569,024
|
|
|
162,340,566
|
|
Diluted
|
|
|
|
|
191,738,274
|
|
|
177,569,024
|
|
|
162,340,566
|
|
See accompanying notes to the consolidated financial statements.
6
PRIMERO MINING CORP.
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
(IN THOUSANDS OF UNITED STATES DOLLARS)
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
Notes
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
19
|
|
$
|
20,966
|
|
$
|
19,875
|
|
Trade and other receivables
|
|
|
|
|
1,241
|
|
|
1,962
|
|
Value added and income
taxes receivable
|
|
|
|
|
40,789
|
|
|
34,494
|
|
Prepaid expenses
|
|
|
|
|
2,642
|
|
|
3,893
|
|
Inventories
|
|
8
|
|
|
13,668
|
|
|
22,829
|
|
Total current assets
|
|
|
|
|
79,306
|
|
|
83,053
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
-
|
|
|
4,577
|
|
Mining interests
|
|
4,9
|
|
|
125,050
|
|
|
577,920
|
|
Deferred tax asset
|
|
|
|
|
-
|
|
|
3,763
|
|
Long term stock pile
|
|
8
|
|
|
-
|
|
|
-
|
|
Value added tax receivable
|
|
|
|
|
-
|
|
|
7,344
|
|
Other non-current assets
|
|
|
|
|
910
|
|
|
1,160
|
|
Total assets
|
|
|
|
$
|
205,266
|
|
$
|
677,817
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
$
|
19,593
|
|
$
|
31,781
|
|
Income tax payable
|
|
|
|
|
3,298
|
|
|
1,558
|
|
Other taxes payable
|
|
|
|
|
1,200
|
|
|
2,035
|
|
Current portion of long-term debt
|
|
10
|
|
|
30,310
|
|
|
50,841
|
|
Total current liabilities
|
|
|
|
|
54,401
|
|
|
86,215
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
Other taxes payable
|
|
|
|
|
18,805
|
|
|
14,120
|
|
Deferred tax liability
|
|
|
|
|
7,457
|
|
|
28,428
|
|
Decommissioning liability
|
|
20
|
|
|
11,646
|
|
|
29,790
|
|
Long-term debt
|
|
10
|
|
|
47,625
|
|
|
52,906
|
|
Warrant liability
|
|
17 (a)
|
|
|
44
|
|
|
1,066
|
|
Other long-term liabilities
|
|
|
|
|
5,557
|
|
|
4,162
|
|
Total liabilities
|
|
|
|
$
|
145,535
|
|
$
|
216,687
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
17 (a)
|
|
$
|
915,641
|
|
$
|
908,923
|
|
Shares reserved for future issuance
|
|
17 (a)
|
|
|
243
|
|
|
297
|
|
Contributed surplus
|
|
17 (b)
|
|
|
57,630
|
|
|
58,857
|
|
Accumulated other comprehensive loss
|
|
|
|
|
(845
|
)
|
|
(3,694
|
)
|
Deficit
|
|
|
|
|
(912,938
|
)
|
|
(503,253
|
)
|
Total shareholders' equity
|
|
|
|
$
|
59,731
|
|
$
|
461,130
|
|
Total liabilities and shareholders' equity
|
|
|
|
$
|
205,266
|
|
$
|
677,817
|
|
Basis of Presentation and Going concern (Note 2 b))
Commitments and contingencies (Note 24)
Subsequent events (Note 25)
See accompanying notes to the consolidated financial
statements.
Approved on behalf of the Board of Directors
/s/ Joseph F. Conway
|
|
/s/ Michael E. Riley
|
Joseph F. Conway,
Director
|
|
Michael E. Riley, Director
|
7
PRIMERO MINING CORP.
|
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT FOR NUMBER
OF COMMON SHARES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
Shares reserved
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for future
|
|
|
Warrants
|
|
|
Contributed
|
|
|
comprehensive
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Shares
|
|
|
Amount
|
|
|
issuance
|
|
|
reserve
|
|
|
surplus
|
|
|
loss
|
|
|
Deficit
|
|
|
Total equity
|
|
Balance, January 1,
2015
|
|
|
|
|
161,555,875
|
|
$
|
858,761
|
|
$
|
-
|
|
$
|
34,782
|
|
$
|
21,526
|
|
|
($5,161
|
)
|
|
($161,923
|
)
|
$
|
747,985
|
|
Shares issued for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options
|
|
|
|
|
300,000
|
|
|
1,120
|
|
|
-
|
|
|
-
|
|
|
(294
|
)
|
|
-
|
|
|
-
|
|
|
826
|
|
PSUs settled in shares
|
|
|
|
|
963,164
|
|
|
4,364
|
|
|
-
|
|
|
-
|
|
|
(4,404
|
)
|
|
-
|
|
|
-
|
|
|
(40
|
)
|
Flow-through agreement
|
|
|
|
|
1,366,768
|
|
|
3,130
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,130
|
|
Expiry of warrants, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(34,782
|
)
|
|
30,046
|
|
|
-
|
|
|
-
|
|
|
(4,736
|
)
|
Reclassification of
unrealized loss on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment in Fortune Bay
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
456
|
|
|
-
|
|
|
456
|
|
Foreign currency translation
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5
|
)
|
|
-
|
|
|
(5
|
)
|
Unrealized gain on investment in Fortune Bay
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60
|
|
|
-
|
|
|
60
|
|
Share-based compensation
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,110
|
|
|
-
|
|
|
-
|
|
|
8,110
|
|
Loss
for the period
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(106,910
|
)
|
|
(106,910
|
)
|
Balance, December 31, 2015
|
|
|
|
|
164,185,807
|
|
$
|
867,375
|
|
$
|
-
|
|
$
|
-
|
|
$
|
54,984
|
|
|
($4,650
|
)
|
|
($268,833
|
)
|
$
|
648,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2016
|
|
|
|
|
164,185,807
|
|
$
|
867,375
|
|
$
|
-
|
|
$
|
-
|
|
$
|
54,984
|
|
|
($4,650
|
)
|
|
($268,833
|
)
|
$
|
648,876
|
|
Shares issued for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public equity offering
|
|
|
|
|
22,022,500
|
|
|
33,047
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,047
|
|
Acquisition of mining concessions
|
|
|
|
|
1,854,271
|
|
|
3,540
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,540
|
|
PSUs settled in shares
|
|
|
|
|
1,445,787
|
|
|
4,961
|
|
|
-
|
|
|
-
|
|
|
(4,851
|
)
|
|
-
|
|
|
-
|
|
|
110
|
|
Common shares reserved for future issuance
|
|
|
|
|
-
|
|
|
-
|
|
|
297
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
297
|
|
Other comprehensive income,
net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
956
|
|
|
-
|
|
|
956
|
|
Share-based compensation
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,724
|
|
|
-
|
|
|
-
|
|
|
8,724
|
|
Loss for the year
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(234,420
|
)
|
|
(234,420
|
)
|
Balance, December 31, 2016
|
|
|
|
|
189,508,365
|
|
$
|
908,923
|
|
$
|
297
|
|
$
|
-
|
|
$
|
58,857
|
|
|
($3,694
|
)
|
|
($503,253
|
)
|
$
|
461,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017
|
|
|
|
|
189,508,365
|
|
$
|
908,923
|
|
$
|
297
|
|
$
|
-
|
|
$
|
58,857
|
|
|
($3,694
|
)
|
|
($503,253
|
)
|
$
|
461,130
|
|
Shares issued for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs settled in shares
|
|
17 (a)
|
|
|
2,543,773
|
|
|
6,117
|
|
|
-
|
|
|
-
|
|
|
(6,117
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Severance and other
employee payments
|
|
17 (a)
|
|
|
993,684
|
|
|
601
|
|
|
-
|
|
|
-
|
|
|
(5
|
)
|
|
-
|
|
|
-
|
|
|
596
|
|
Release of common shares reserved for future
issuance
|
|
|
|
|
-
|
|
|
-
|
|
|
(54
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(54
|
)
|
Other comprehensive income,
net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,849
|
|
|
-
|
|
|
2,849
|
|
Share-based compensation
|
|
17 (c)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,895
|
|
|
-
|
|
|
-
|
|
|
4,895
|
|
Loss for the year
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(409,685
|
)
|
|
(409,685
|
)
|
Balance, December 31, 2017
|
|
|
|
|
193,045,822
|
|
$
|
915,641
|
|
$
|
243
|
|
$
|
-
|
|
$
|
57,630
|
|
|
($845
|
)
|
|
($912,938
|
)
|
$
|
59,731
|
|
Total comprehensive loss was $406.8 million for the year ended
December 31, 2017 (December 31, 2016 loss of $233.5 million, December 31, 2015
- $106.4 million) .
See accompanying notes to the consolidated financial
statements.
8
PRIMERO MINING CORP.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
|
(IN THOUSANDS OF UNITED STATES DOLLARS)
|
|
|
|
|
|
Year ended December 31
|
|
|
|
Notes
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
($337,769
|
)
|
|
($135,432
|
)
|
$
|
18,734
|
|
Loss before income taxes,
from discontinued operations
|
|
5
|
|
|
(82,020
|
)
|
|
(120,452
|
)
|
|
(105,247
|
)
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining
interests impairment charge
|
|
4
|
|
|
398,821
|
|
|
228,000
|
|
|
104,000
|
|
Depreciation and
depletion
|
|
|
|
|
29,703
|
|
|
63,329
|
|
|
77,238
|
|
Share-based compensation expense
|
|
|
|
|
4,875
|
|
|
8,586
|
|
|
8,938
|
|
Payments made under the
Phantom Share Unit Plan
|
|
|
|
|
-
|
|
|
(377
|
)
|
|
(4,245
|
)
|
Mark-to-market gain on convertible debentures
|
|
|
|
|
(4,875
|
)
|
|
(9,000
|
)
|
|
(13,500
|
)
|
Mark-to-market gain on
warrant liability
|
|
|
|
|
(1,022
|
)
|
|
(3,610
|
)
|
|
-
|
|
Write-down of inventory
|
|
|
|
|
-
|
|
|
1,040
|
|
|
3,048
|
|
Unrealized foreign
exchange loss (gain)
|
|
|
|
|
5,329
|
|
|
2,390
|
|
|
(4,743
|
)
|
Taxes
paid
|
|
|
|
|
(4,027
|
)
|
|
(29,625
|
)
|
|
(15,104
|
)
|
Other
|
|
|
|
|
2,199
|
|
|
975
|
|
|
(1,007
|
)
|
Other adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs (disclosed in financing
activities)
|
|
|
|
|
-
|
|
|
232
|
|
|
3,651
|
|
Finance income (disclosed in
investing activities)
|
|
|
|
|
(41
|
)
|
|
(88
|
)
|
|
(111
|
)
|
Finance expense
|
|
|
|
|
11,460
|
|
|
9,299
|
|
|
11,514
|
|
Operating cash flow before
working capital changes
|
|
|
|
|
22,633
|
|
|
15,267
|
|
|
83,166
|
|
Changes in non-cash working capital
|
|
16
|
|
|
(82
|
)
|
|
(2,158
|
)
|
|
(1,537
|
)
|
Cash provided by operating activities
|
|
|
|
$
|
22,551
|
|
$
|
13,109
|
|
$
|
81,629
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures on mining
interests - San Dimas
|
|
|
|
|
($22,410
|
)
|
|
($37,446
|
)
|
|
($62,695
|
)
|
Expenditures on mining interests - Black Fox
|
|
|
|
|
(13,235
|
)
|
|
(29,956
|
)
|
|
(33,880
|
)
|
Expenditures on mining
interests - Other
|
|
|
|
|
(206
|
)
|
|
(271
|
)
|
|
(3,147
|
)
|
Proceeds from dispositions, net
|
|
|
|
|
40,369
|
|
|
-
|
|
|
-
|
|
Cash provided by (used in) investing activities
|
|
|
|
$
|
4,518
|
|
|
($67,673
|
)
|
|
($99,722
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from equity offering
|
|
17 (a)
|
|
$
|
-
|
|
$
|
39,958
|
|
$
|
-
|
|
Transaction costs on equity offering
|
|
17 (a)
|
|
|
-
|
|
|
(2,464
|
)
|
|
-
|
|
Net (repayment)/drawdown on
revolving credit facility
|
|
10 (a)
|
|
|
(19,799
|
)
|
|
50,000
|
|
|
-
|
|
Repayment of convertible debenture
|
|
10 (c)
|
|
|
-
|
|
|
(48,116
|
)
|
|
-
|
|
Repayment of revolving credit
facility
|
|
|
|
|
-
|
|
|
-
|
|
|
(40,000
|
)
|
Payments on capital leases
|
|
|
|
|
(1,116
|
)
|
|
(4,497
|
)
|
|
(5,715
|
)
|
Funds released from
reclamation bond
|
|
|
|
|
4,799
|
|
|
1,564
|
|
|
9,846
|
|
Interest paid
|
|
|
|
|
(9,954
|
)
|
|
(7,493
|
)
|
|
(6,267
|
)
|
Proceeds from exercise of
options
|
|
|
|
|
-
|
|
|
-
|
|
|
828
|
|
Proceeds from issuance of flow-through shares
|
|
|
|
|
-
|
|
|
-
|
|
|
4,340
|
|
Issuance of convertible debt
|
|
|
|
|
-
|
|
|
-
|
|
|
75,000
|
|
Transaction costs on issuance of convertible debt
|
|
|
|
|
-
|
|
|
-
|
|
|
(3,651
|
)
|
Cash (used in) provided by financing activities
|
|
|
|
|
($26,070
|
)
|
$
|
28,952
|
|
$
|
34,381
|
|
Effect of foreign exchange rate changes on cash
|
|
|
|
$
|
92
|
|
|
($114
|
)
|
$
|
1,924
|
|
Increase (decrease) in cash
|
|
|
|
$
|
1,091
|
|
|
($25,726
|
)
|
$
|
18,212
|
|
Cash, beginning of year
|
|
|
|
|
19,875
|
|
|
45,601
|
|
|
27,389
|
|
Cash, end of year
|
|
|
|
$
|
20,966
|
|
$
|
19,875
|
|
$
|
45,601
|
|
See accompanying notes to the consolidated financial
statements.
9
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Primero Mining Corp. (Primero or the Company) is a publicly
traded company, listed on the Toronto Stock Exchange and previously listed on
the New York Stock Exchange until August 14, 2017. Its registered office is
Suite 1500, 1055 West Georgia Street, Vancouver, British Columbia. The Corporate
address is Suite 2100, 79 Wellington Street West, Toronto, Ontario. The Company
owns one producing property, the San Dimas gold-silver mine in the San Dimas
district of Mexico, and previously owned a second producing property, the Black
Fox gold mine and adjoining properties in Timmins, Ontario, Canada (the Black
Fox Complex) which was sold in 2017 and has been reported as discontinued
operations in these consolidated financial statements. The Company also has one
project in the exploration stage, Ventanas located in Mexico. The Company
previously owned a property in the development stage, the Cerro del Gallo
project in Mexico which was sold in 2017 and has been reported as discontinued
operations in these consolidated financial statements.
2.
|
Basis of preparation and summary of significant
accounting policies
|
a) Statement of compliance
These consolidated financial statements, as at and for the
years ended December 31, 2017, 2016 and 2015, of the Company have been prepared
in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB).
These consolidated financial statements were approved by the
Companys Board of Directors on April 19, 2018.
b) Basis of presentation and going concern
These consolidated financial statements have been prepared on a
going concern basis, under the historical cost basis, except for the certain
financial instruments which are presented at fair value. Certain prior year
balances have been reclassified to conform with the current year presentation.
In 2017, the Companys Board of Directors commenced a strategic
review process to explore alternatives to improve shareholder value. This
process ultimately resulted in the sale of the Black Fox Complex in October
2017, the sale of the Cerro del Gallo project in November 2017, and a definitive
arrangement agreement (the "Arrangement Agreement") to sell Primero to First
Majestic Silver Corp. (First Majestic), announced on January 12, 2018. Refer
to note 25 for additional details.
On March 13, 2018, the Arrangement was approved by Primero
shareholders. On March 13, 2018, the holders of the 5.75% convertible debentures
voted to approve an amendment to the maturity date of the debentures to the day
following the closing date of the Arrangement with full principal paid on this
date. The Company is awaiting anti-trust clearance in Mexico. The Arrangement is
expected to close in late April or early May 2018, subject to applicable
regulatory approvals and the satisfaction of other customary conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the revolving credit facility ("RCF").
Primero did not generate enough cash from operations to support
its investing activities during 2017. The Company has sufficient cash on hand to
support the business through to the expected close of the Arrangement with First
Majestic. If the transaction closes as planned, management believes First Majestic will have sufficient funding
to satisfy all commitments of Primero and its subsidiaries.
10
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
If the Arrangement Agreement with First Majestic is terminated
for any reason, there is significant uncertainty that Primero will have
sufficient funds to repay the full outstanding obligation under the RCF upon maturity, which would allow the lenders to exercise
their rights under the RCF (see notes 9 and 10). An Event of Default under the
RCF, unless waived, would trigger cross default provisions under the convertible
debentures and the Silver Purchase Agreement.
The above noted factors represent a material uncertainty that
casts substantial doubt on the ability of the Company to continue as a going
concern. These financial statements do not include the adjustments to the
amounts and classification of assets and liabilities that would be necessary
should the Company be unable to continue as a going concern. These adjustments
may be material.
These consolidated financial statements include the accounts of
the Company and its subsidiaries from their respective dates of acquisition. All
intragroup balances and transactions between entities of the group have been
eliminated in full. The Companys significant subsidiaries, which are all wholly
owned, are:
Subsidiary
|
Location
|
Property
|
Primero Empresa Minera, S.A. de C.V. ("PEM ")
|
Mexico
|
San Dimas Mine and Ventanas
|
Silver Trading (Barbados) Limited ("STB")
|
Barbados
|
-
|
Primero Mining
Luxem bourg S.a.r.l.
|
Luxembourg
|
-
|
|
|
|
Subsidiary
Disposed of in 2017
|
Location
|
Property
|
San Anton de las Minas, S.A. de C.V.
|
Mexico
|
Cerro
del Gallo Project
|
The results of discontinued operations, comprising the Black
Fox Complex and Cerro del Gallo, included in the consolidated statement of
operations and comprehensive loss for the years ended December 31, 2017, 2016
and 2015 are disclosed in note 5. The comparative periods have been recast
accordingly.
c) Functional and presentation currency
The functional and presentation currency of the Company is the
U.S. dollar. The functional currency of PEM and STB is the U.S. dollar. The
functional currency of San Anton de las Minas S.A. de C.V. prior to its
disposition was the U.S. dollar. The functional currency of Primero Mining
Luxembourg S.a.r.l. is the Mexican peso.
For entities using U.S. dollars as the functional currency, all
monetary assets and liabilities denominated in a currency other than the U.S.
dollar are translated at current exchange rates at each balance sheet date and
the resulting adjustments are included in a separate line item under other
income (expenses). Revenue and expense in foreign currencies are translated
using the exchange rates at the date of the transaction.
The accounts of Primero Mining Luxembourg S.a.r.l. are
translated into the U.S. dollar presentation currency as follows: all assets and
liabilities are translated at the exchange rate prevailing at the statement of
financial position date; equity balances are translated at the rates of exchange
at the transaction dates, and all items included in the statement of operations
are translated using the annual average exchange rates unless there
are significant fluctuations in the exchange rate, in which case the rate at the
date of transaction is used. All differences arising upon the translation to the
presentation currency are recorded in the foreign currency translation reserve
within accumulated other comprehensive loss; there is no tax impact of this
translation.
11
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
d) Revenue recognition
Revenue is derived from the sale of gold and silver. Revenue is
recognized on individual contracts when there is persuasive evidence that all of
the following criteria are met:
|
the significant risks and rewards of ownership
have been transferred to the buyer;
|
|
neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods
sold have been retained;
|
|
the amount of revenue and costs to sell can be
measured reliably;
|
|
it is probable that the economic benefits associated with
the transaction will flow to the Company and collectability of proceeds is
reasonably assured.
|
All of these criteria are met based on the contract with the
respective buyers which generally coincides with the receipt of the sales
proceeds. Sales prices are based on the terms of the contract or at spot
prices.
e) Inventories
Inventories including finished goods (gold and silver),
work-in-progress, and stockpiled ore are valued at the lower of average
production cost and net realizable value. Net realizable value is calculated as
the estimated price at the time of sale less estimated future production costs
to convert the inventories into saleable form.
Ore extracted from a mine is stockpiled and subsequently
processed into finished goods. Production costs including mining and milling
costs, applicable overhead costs, depreciation and depletion are capitalized to
inventory depending on its current location and condition. Inventories of
stockpiled ore that are not expected to be processed in the next year are
classified as non-current inventories.
Inventories also include supplies, which are valued at the
lower of average cost or replacement cost.
f) Financial instruments
All financial instruments are required to be measured at fair
value on initial recognition. Measurement in subsequent periods depends upon
whether the financial instrument is classified as fair value through profit or
loss (FVTPL), available-for-sale, held-to-maturity, loans and receivables, or
other liabilities.
Financial instruments classified as FVTPL are measured at fair
value with gains and losses recognized in the statement of operations and
comprehensive loss. The 5.75% convertible debentures and warrant liability are
classified as FVTPL and measured at fair value based on their trading price.
Financial assets classified as held-to-maturity, loans and receivables, and
financial liabilities classified as other liabilities, are measured at amortized
cost. Trade and other receivables, cash and cash equivalents, and restricted
cash are classified as loans and receivables, and are measured at amortized cost. Trade and
other payables, and the RCF are classified as other financial liabilities, and
are also measured at amortized cost.
12
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Transaction costs in respect of financial assets and
liabilities which are measured at FVTPL are recognized in the statement of
operations and comprehensive loss immediately. Transaction costs in respect of
other financial instruments are included in the initial carrying value of the
financial instrument.
A financial asset is classified as available-for-sale when: (i)
it is not classified as a loan and receivable, a held-to-maturity investment or
at FVTPL; or (ii) it is designated as available-for-sale on initial recognition.
The Companys equity investment in Fortune Bay (included in other non-current
assets) is classified as available-for-sale and is measured at fair value with
mark-to-market gains and losses recognized in other comprehensive income (OCI).
When available-for-sale investments in marketable securities and equity
securities are derecognized, the cumulative mark-to-market gains or losses that
had been previously recognized in OCI are reclassified to earnings for the
period. When there is objective evidence that an available-for-sale financial
asset is impaired, the cumulative loss that had been previously recognized in
OCI is reclassified to earnings for the period.
The Company may enter into derivative contracts or financial
instruments and non-financial contracts containing embedded derivatives.
Embedded derivatives are required to be accounted for separately at fair value
as derivatives when the risks and characteristics of the embedded derivatives
are not closely related to those of their host contract, and the host contract
is not designated as FVTPL. These embedded derivatives are measured at fair
value with changes in fair value recognized in earnings for the period.
Derecognition
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is derecognized when:
|
The rights to receive cash flows from the asset
have expired, or
|
|
The Company has transferred its rights to receive cash
flows from the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a
pass-through arrangement; and either (a) the Company has transferred
substantially all the risks and rewards of the asset, or (b) the Company
has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
|
Continuing involvement that takes the form of a guarantee over
the transferred asset is measured at the lower of the original carrying amount
of the asset and the maximum amount of consideration that the Company could be
required to pay under the guarantee.
g) Mining interests
The Company categorizes mining interests based on the type of
asset and/or the stage of operation, development or exploration of the
property.
Land, buildings, plant and equipment includes land, mobile and
stationary equipment, and refining and processing facilities for all properties
regardless of their stage of development or operation.
13
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Mineral properties include:
|
|
Development and operating properties which include
capitalized development and stripping costs, cost of assets under
construction, capitalized exploration and evaluation costs and mineral
interests for those properties currently in operation for which
development has commenced or for which technical feasibility and
commercial viability have been determined; and
|
|
|
Pre-development properties which include exploration and
evaluation costs and mineral interests for those properties for which
development has not commenced.
|
Land, buildings, plant and equipment
Upon initial acquisition, land, buildings, plant and equipment
are valued at cost, being the purchase price and the directly attributable costs
of acquisition or construction required to bring the asset to the location and
condition necessary for the asset to be capable of operating in the manner
intended by management.
In subsequent periods, buildings, plant and equipment are
stated at cost less accumulated depreciation and accumulated impairment charges.
Land is stated at cost less any impairment in value and is not depreciated.
Buildings, plant and equipment are depreciated (net of residual
value) using the straight-line method based on estimated useful lives.
Where significant components of an asset have differing useful
lives, depreciation is calculated on each separate component. The estimated
useful life of each item or part has due regard to both its own physical life
limitations and the present assessment of economically recoverable reserves of
the mine property at which the item is located, and to possible future
variations in those assessments. Estimates of remaining useful lives and
residual values are reviewed annually. Changes in estimates which affect
depreciation are accounted for prospectively.
The expected useful lives are as follows:
Plant and buildings
|
5 years to life of mine
|
Equipment and vehicles
|
4 years to life of mine
|
Computer equipment
|
3 to 5 years
|
Mining properties
The cost of acquiring mineral reserves and mineral resources is
capitalized in the statement of financial position as incurred.
Mine development costs incurred to develop areas of the mine
which will be mined in future periods are capitalized and depleted when the
related mining area is mined. Mine development costs incurred to prepare current
production areas are considered operating expenses and expensed in the year as
incurred.
Mining properties are depleted using the units-of-production
method over the mines estimated proven and probable reserves and, if
appropriate, an estimate of the portion of resources expected to be classified
as reserves. Depletion is calculated on a mine-by-mine basis.
14
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
The Companys depletion estimation methodology allocates mining
properties from operating mines into a depletable component and a non-depletable
component upon initial acquisition. The value assigned to the depletable
component is equal to the value assigned to the proven and probable reserves and
a portion of resources of the asset. The value assigned to the non-depletable
component is the value assigned to the exploration potential of the asset and
the remaining resources not included in the depletable component. Values
allocated to both the depletable and non-depletable components may be adjusted
prospectively when there has been a significant change in the reserves,
resources and/or exploration potential or when impairment charges have been
recorded.
The allocation of values to the proven and probable reserves,
resources and exploration potential of the asset are based on the discounted
cash flow analysis of the Companys future expected cash flows at each operating
mine. The depletable component is depleted over 100% of reserves and a portion
of resources included in the Companys discounted cash flow analysis. The
non-depletable component is not depleted but, in combination with the depletable
component, is evaluated for impairment when events and changes in circumstances
indicate that the carrying amount may not be recoverable.
Reserves (including proven and probable) and resources
(including measured, indicated and inferred) are based on the definitions in
National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI
43-101). Exploration potential is the mineralization quantified by the
Companys geologists with a sufficient degree of confidence to include in the
Companys fair value determination, but without the necessary level of
measurement precision to enable it to be classified as a resource as defined by
NI 43-101.
Each year, coincident with the updated reserve and resource
estimates, the Company expects that a portion of resources will be transferred
to reserves and a portion of exploration potential will be transferred to
resources. As a result, the category of non-depletable mineralization is
expected to reduce and, in the absence of further additions to exploration
potential, eventually be fully classified within the depletable component over
the life of mine.
When considering the portion of resources to include in the
depletion base of the depletable component, management considers the resources
which are believed to have the probability of eventually being classified as
proven and probable reserves, which includes:
|
resources that can be economically mined and are
therefore commercially viable, considering managements assumptions on cut
off grades, long-term gold and silver prices and exchange rates,
|
|
historical experience and available geological and
drilling information of the area under consideration.
|
Development costs incurred during a period are added to the
total mining property capitalized at the commencement of the period in
calculating the depletion expense. Future development costs necessary to access
resources, have been taken into account when determining the pattern of
depletion for the Companys mining properties; such costs are included in the
discounted cash flow analysis and are determined by the Companys geologists and
engineers based on an in-depth knowledge of the mine and planned development
work to access resources.
15
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Exploration and evaluation expenditures
Exploration and evaluation expenditures are charged to the
statement of operations and comprehensive loss in the period incurred unless
management determines that probable future economic benefits will be generated
as a result of the expenditures.
Once a project has been established as technically feasible and
commercially viable, the capitalized expenditures are tested for impairment and
transferred from exploration and evaluation costs to development costs within
mining properties. If events take place subsequently and such project is no
longer considered commercially viable it would be transferred back from
development costs to exploration and evaluation expenditures.
Major maintenance and repairs
Expenditure on major maintenance and repairs includes the cost
of replacement parts of assets and overhaul costs. Where an asset or part of an
asset is replaced and it is probable that future economic benefits associated
with the item will be available to the Company, that expenditure is capitalized
and the carrying amount of the item replaced derecognized. Similarly, overhaul
costs associated with major maintenance are capitalized when it is probable that
future economic benefits will be available and any remaining carrying amounts of
the cost of previous overhauls are derecognized. All other maintenance and
repair costs are expensed as incurred.
Borrowing costs
Borrowing costs directly relating to the financing of
qualifying assets are added to the capitalized cost of those projects until such
time as the assets are substantially ready for their intended use or sale which,
in the case of mining properties, is when they are capable of commercial
production. Where funds have been borrowed specifically to finance a project,
the amount capitalized represents the actual borrowing costs incurred. Where the
funds used to finance a project form part of general borrowings, the amount
capitalized is calculated using a weighted average of rates applicable to
relevant general borrowings of the Company during the period.
All other borrowing costs are recognized in the statement of
operations and comprehensive loss in the year in which they are incurred.
Borrowing costs are included as part of interest paid in the statement of cash
flows.
Leases
The Company holds leases for office space and equipment. Leases
are classified as either finance or operating leases.
Assets held under finance leases, where substantially all of
the risks and rewards of ownership have passed to the Company, are capitalized
in the statement of financial position at the lower of the fair value of the
leased property and the present value of the minimum lease payments during the
lease term calculated using the interest rate implicit in the lease agreement.
The corresponding liability to the lessor is included in the statement of
financial position as a finance lease obligation. Capitalized amounts are
determined at the inception of the lease and are depreciated over the shorter of
their useful economic lives or the lease term. Lease payments are apportioned
between finance charges and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance
charges are recognized in the statement of operations and comprehensive loss as
finance expense unless they are directly attributable to qualifying assets, in which
case they are capitalized in accordance with the Companys accounting policy on
borrowing costs.
16
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Leases where substantially all of the risks and rewards of
ownership have not passed to the Company are classified as operating leases.
Rentals payable under operating leases are charged to the statement of
operations and comprehensive loss as operating expenses or general and
administrative expenses on a straight-line basis over the lease term.
Impairment of non-current assets
The carrying amounts of assets included in mining interests are
reviewed for impairment when events and changes in circumstances indicate that
the related carrying amounts may not be recoverable. In addition, capitalized
exploration and evaluation costs are assessed for impairment upon demonstrating
commercial viability of a project. The carrying amounts of the assets are
compared to the recoverable amount of the assets whenever events or changes in
circumstances indicate that their carrying value may not be recoverable. The
recoverable amount is the higher of value-in-use and fair value less cost of
disposal (FVLCD).
For mining assets, when a binding sale agreement and observable
market prices are not readily available, FVLCD is estimated using a discounted
cash flow approach for each of the Companys cash generating units (CGUs) to
which the individual assets are allocated. The assumptions used in determining
the FVLCD for the CGUs include long-term mining plans, long-term commodity
prices, discount rates, foreign exchange rates and values of un-modeled
mineralization.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount is reduced to its
recoverable amount. An impairment is recognized immediately as an expense.
Where an impairment subsequently reverses, the carrying amount
of the asset (or CGU) is increased to the revised estimate of its recoverable
amount, subject to the amount not exceeding the carrying amount that would have
been determined had no impairment been recognized for the asset (or CGU) in
prior periods. A reversal of impairment is recognized during the period in the
statement of operations and comprehensive loss.
Disposal
Upon disposition, an item within mining interests is
derecognized, and the difference between its carrying value and net sales
proceeds is disclosed as a gain or loss on disposal in the statement of
operations and comprehensive loss.
h) Income taxes
Income tax expense (recovery) comprises current and deferred
tax. Current tax and deferred tax are recognized in the statement of operations
and comprehensive loss except to the extent they relate to items recognized
directly in equity or in OCI, in which case the related taxes are recognized in
equity or OCI.
Current income tax is the expected cash tax payable or
receivable on the local taxable income or loss for the year for each taxable
entity using tax rates enacted or substantively enacted at the reporting date.
This may differ from earnings reported in the statement of operations and comprehensive loss due to income or expense items that are not
currently taxable or deductible for tax purposes, and any adjustment to income
taxes in respect of previous years.
17
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Deferred income tax is recognized in respect of unused tax
losses, tax credits and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is measured at the tax rates that are expected
to be applied to temporary differences when they reverse, based on the tax rates
that have been substantively enacted at the reporting date. Deferred tax assets
and liabilities are offset if there is a legally enforceable right to offset
current tax liabilities and assets, and they relate to income taxes levied by
the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or
their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is
probable that future taxable profits will be available against which the asset
can be utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit
will be realized.
The Company records foreign exchange gains and losses
representing the impacts of movements in foreign exchange rates on the tax bases
of non-monetary assets and liabilities which are denominated in foreign
currencies. Foreign exchange gains and losses relating to the translation of the
deferred income tax balance from local statutory accounts to functional currency
accounts are included in deferred income tax expense or recovery in the
statements of operations and comprehensive loss.
Uncertain income tax positions are recorded in the consolidated
financial statements when probable and measured at the amount expected to be
paid to (recovered from) the taxation authority using the Companys best
estimate of the amount.
i) Sharebased compensation
Equity-settled awards to employees and others providing
similar services
For equity-settled awards, the fair value of the award is
charged to the statement of operations and comprehensive loss and credited to
share-based compensation reserve (within equity in the consolidated statement of
financial position) ratably over the vesting period, after adjusting for the
number of awards that are expected to vest. The fair value of the awards is
determined at the date of grant using the Black-Scholes option pricing model. At
each statement of financial position date prior to vesting, the cumulative
expense representing the extent to which the vesting period has expired and
managements best estimate of the awards that are ultimately expected to vest,
is computed and charged to the statement of operations and comprehensive loss.
Expenses recognized for forfeited awards are reversed. For
awards that are cancelled, any expense not yet recognized is recognized
immediately in the statement of operations and comprehensive loss.
Where the terms of an equity-settled award are modified, as a
minimum an expense is recognized as if the terms had not been modified over the
original vesting period. In addition, an expense is recognized for any
modification which increases the total fair value of the share-based payment arrangement as measured at the date of
modification, over the remainder of the vesting period.
18
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Cash-settled awards to employees and others providing
similar services
For cash-settled awards, the fair value is re-calculated at
each statement of financial position date until the awards are settled, using
the Companys share price (with any changes in fair value recognized in the
statement of operations and comprehensive loss). During the vesting period, a
liability is recognized representing the portion of the vesting period which has
expired at the statement of financial position date multiplied by the fair value
of the awards expected to vest at that date. After vesting, the full fair value
of the unsettled awards at each statement of financial position date is
recognized as a liability. Movements in value are recognized in the statement of
operations and comprehensive loss.
Equity or cash-settled awards to employees and others
providing similar
services
The Company accounts for awards issued under the 2013 Phantom
Share Unit Plan as equity-settled. For equity-settled awards, the fair value of
the award is charged to the statement of operations and comprehensive loss and
credited to share-based compensation reserve (within equity in the consolidated
statement of financial position) ratably over the vesting period. The fair value
of the awards is determined at the date of grant using the closing market price
of the Companys shares. At each statement of financial position date prior to
vesting, the cumulative expense representing the extent to which the vesting
period has expired and managements best estimate of the awards that are
ultimately expected to vest, is computed and charged to the statement of
operations and comprehensive loss.
No expense is recognized for awards that ultimately do not
vest. For any awards that are cancelled, any expense not yet recognized is
recognized immediately in the statement of operations and comprehensive
loss.
Where the terms of an equity-settled award are modified, as a
minimum an expense is recognized as if the terms had not been modified over the
original vesting period. In addition, an expense is recognized for any
modification which increases the total fair value of the share-based
compensation arrangement as measured at the date of modification, over the
remainder of the vesting period.
j) Provisions
General
Provisions are recognized when the Company has a present
obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the Company expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is
recognized as a separate asset, but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the statement of
operations and comprehensive loss net of any reimbursement. If the effect of the
time value of money is material, provisions are discounted using a current
pre-tax rate that reflects where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as finance expense in the statement of operations
and comprehensive loss.
19
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Decommissioning liability
The Company records a liability for the estimated reclamation
and closure of a mine, including site rehabilitation and long-term treatment and
monitoring costs, discounted to net present value; this liability is then
accreted to full value over the life of the mine with the accretion charge being
recorded as a finance expense. The net present value is determined using the
liability-specific risk-free interest rate. The estimated net present value of
reclamation and closure cost obligations is re-measured each reporting period or
when changes in circumstances occur and/or new material information becomes
available. Increases or decreases to the obligations arise due to changes in
legal or regulatory requirements, the extent of environmental remediation
required, cost estimates and the discount rate applied to the obligation. The
net present value of the estimated cost of these changes is recorded in the
period in which the change is identified and quantifiable. Reclamation and
closure cost obligations relating to operating mines and development projects
are recorded with a corresponding increase to the carrying amounts of related
assets and the adjusted cost is depreciated on a prospective basis.
k) Loss per share
Basic loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. The
computation of diluted loss per share assumes the conversion, exercise or
contingent issuance of securities only when such conversion, exercise or
issuance would have a dilutive effect on loss per share. For this purpose, the
treasury stock method is used for the assumed proceeds upon the exercise of
stock options and warrants that are used to purchase common shares at the
average market price during the period.
l) Segmented reporting
The Company operated in one geographic area, Mexico, with
corporate activities occurring in a second geographic area, Canada. Prior to the
disposition of the Black Fox Complex, the Company operated in two geographic
areas; Mexico and Canada. The Companys operating segments reflect the Companys
different mining interests and are reported in a manner consistent with the
internal reporting to the chief operating decision maker, used to assess each
segments performance. Primero currently has one reportable segment, the San
Dimas mine (which currently includes the Ventanas property and Coral Silver
concessions). During 2017 and prior to the dispositions of the Black Fox Complex
and the Cerro del Gallo project, Primero had three reportable segments: the San
Dimas mine, the Black Fox Complex and the Cerro del Gallo project.
m) Assets held for sale and discontinued operations
Assets or disposal groups are classified as held for sale if
their carrying amount will be recovered principally through a sale transaction
rather than through continuing use and measured at the lower of carrying amount
or FVLCD. The assets or disposal groups must be available for immediate sale and
the sale must be highly probable within one year. Impairment losses on initial
classification as held for sale and gains or losses on subsequent remeasurement
are included in the statements of operations and comprehensive loss. No
depreciation is charged on assets or disposals groups classified as held for
sale.
20
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
A discontinued operation is a component of an entity that
either has been disposed of, abandoned or that is classified as held for sale.
Discontinued operations are presented on the statements of
operations and comprehensive loss as a separate line.
n) Recent pronouncements issued
The Company has reviewed new and revised accounting
pronouncements that have been issued but are not yet effective and determined
the following will have potential future impact on the Company.
In May 2014, the IASB issued IFRS 15,
Revenue from Contracts
with Customers
which supersedes existing standards and interpretations
including IAS 18,
Revenue
. IFRS 15 establishes a single five-step model
framework for determining the nature, amount, timing and uncertainty of revenue
and cash flows arising from a contract with a customer. The standard is
currently effective for annual periods beginning on or after January 1, 2018,
with early adoption permitted. The Company does not expect the impact of
adopting this standard to be material to its consolidated financial statements.
In July 2014, the IASB issued the final version of IFRS 9,
Financial Instruments
(IFRS 9). This standard is effective for annual
periods beginning on or after January 1, 2018, and permits early adoption. IFRS
9 provides a revised model for recognition, measurement and impairment of
financial instruments and includes a substantially reformed approach to hedge
accounting. The Company does not expect the impact of adopting this standard to
be material on its consolidated financial statements.
In January 2016, the IASB issued IFRS 16, Leases (IFRS 16).
IFRS 16 is effective for periods beginning on or after January 1, 2019, with
early adoption permitted, provided IFRS 15 has been adopted. IFRS 16 eliminates
the current dual model for lessees, which distinguishes between on-balance sheet
finance leases and off-balance sheet operating leases. Instead, there is a
single, on-balance sheet accounting model that is similar to current finance
lease accounting for lessees. The Company is currently evaluating the impact the
standard is expected to have on its consolidated financial statements.
3.
|
Critical Accounting Estimates and
Judgments
|
The preparation of these financial statements requires
management to make judgments, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets, and liabilities at the date of the
financial statements. If in the future such judgements, estimates and
assumptions, which are based on managements experience and knowledge of the
relevant facts and circumstances at the date of the financial statements,
deviate materially from actual circumstances, the original judgements, estimates
and assumptions will be modified as appropriate in the period in which the
circumstances change.
a) Accounting estimates
The significant assumptions about the future and other major
sources of estimation uncertainty as at the end of the reporting period that
have a significant risk of resulting in a material adjustment to the carrying
amounts of the Companys assets and liabilities are as follows:
21
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
(i) Estimated recoverable reserves and resources
The Company estimates its proven and probable mineral reserves
and measured and indicated and inferred mineral resources based on information
compiled by appropriately qualified persons. Estimated ounces from mineral
reserves and resources as well as estimates for exploration potential are
included in the Companys estimation of future cash flows. These cash flows are
based on factors such as estimates of foreign exchange rates, commodity prices,
future capital requirements and production costs along with geological
assumptions and judgments made in estimating the size and grade of the ore body.
Changes in estimated ounces may impact the carrying value of assets, reclamation
and remediation obligations, recognition of deferred tax amounts, depreciation
and depletion, and impairment charges.
22
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
(ii) Determination of useful lives of property, plant and
equipment
Property, plant and equipment are depreciated to their
estimated residual value over the estimated useful life of the asset. Should the
actual useful life of the property, plant or equipment vary, future depreciation
charges may change.
(iii) Impairment charges
Non-current assets are tested for impairment if there is an
indicator of impairment. The impairment analysis generally requires the use of
estimates and assumptions, including amongst others, long-term commodity prices,
discount rates, length of mine life, future production levels, future operating
costs, future capital expenditures and tax estimates. The estimates and
assumptions are subject to risk and uncertainty; hence, there is the possibility
that changes in circumstances will alter these projections, which may impact the
recoverable amount of the assets. In such circumstances the carrying value of
the assets may be impaired or a prior periods impairment charge reversed with
the impact recorded in the statements of operations and comprehensive loss.
(iv) Decommissioning liability
The Companys accounting policy for the recognition of accrued
site closure costs requires significant estimates and assumptions such as the
requirements of the relevant legal and regulatory framework, the magnitude of
possible disturbance and the timing, extent and costs of required closure,
rehabilitation activity and applicable discount rates. Changes to these
estimates and assumptions may result in actual expenditures in the future
differing from the amounts currently provided. The decommissioning liability is
periodically reviewed and updated based on the available facts and
circumstances.
(v) Income taxes
The Company is periodically required to estimate the tax basis
of assets and liabilities. Where applicable tax laws and regulations are either
unclear or subject to varying interpretations, it is possible that changes in
these estimates could occur that materially affect the amounts of deferred
income tax assets and liabilities recorded in the financial statements. Changes
in deferred tax assets and liabilities generally have a direct impact on
earnings in the period of change. Each period, the Company evaluates the
likelihood of whether some portion or all of each deferred tax asset will not be
realized. This evaluation is based on historic and future expected levels of
taxable income, the pattern and timing of reversals of taxable temporary
differences that give rise to deferred tax liabilities, and tax planning
initiatives. Levels of future taxable income are affected by, among other
things, the market price for gold and silver, production costs, quantities of
proven and probable reserves, interest rates and foreign currency exchange
rates.
23
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
(vi) Valuation of inventory
All inventory, other than supplies, is valued at the lower of
average cost or net realizable value. Management is required to make various
estimates and assumptions to determine the value of stockpiled ore, in-circuit
inventories and doré inventories. The estimates and assumptions include surveyed
quantities of stockpiled ore, in-circuit process volumes, gold and silver
contents of both, costs to recover saleable ounces, recoverable ounces once
processed and the price per ounce of gold or silver when ounces of gold and
silver are expected to be recovered and sold.
24
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
(vii) Share-based compensation
The Company makes certain estimates and assumptions when
calculating the fair values of share-based compensation granted. The significant
estimations and assumptions include expected volatility, expected life, expected
dividend rate and risk-free rate of return.
b) Accounting judgments
The critical judgments that the Companys management have made
that have the most significant effect on the amounts recognized in the Companys
consolidated financial statements are as follows:
(i) Functional currency
The determination of a subsidiarys functional currency often
requires significant judgment where the primary economic environment in which an
entity operates may not be clear. This can have a significant impact on the
consolidated results of the Company.
(ii) Tax ruling in Mexico
On October 4, 2012, PEM received a ruling (the APA Ruling)
from the Mexican tax authority, Servicio de Administración Tributaria (SAT),
which confirmed the appropriate price for sales of silver under the Amended and
Restated Silver Purchase Agreement (see note 15 c) for further information).
Under Mexican tax law, an advance pricing agreement (APA) ruling is generally
applicable for up to a five year period (which in the Companys case, covered
the year in which the ruling application was filed, the immediately preceding
year and the three subsequent years). The Companys APA Ruling covered the five
years ended December 31, 2014.
In February 2016, PEM received a legal claim from the Mexican
tax authority seeking to nullify the APA. The legal claim initiated does not
identify any different basis for paying taxes, nor have any tax reassessments
been received from the SAT. The Company intends to vigorously defend the
validity of its APA. The Company has filed procedural and substantive responses
to the claim. The procedural response is a challenge against the admission of
the SATs claim. The substantive response contains the Companys response to the
SATs claim. If the SAT is successful in retroactively nullifying the APA, the
SAT may seek to audit and reassess PEM in respect of its sales of silver in
connection with the Silver Purchase Agreement for 2010 through 2014. If the SAT
is successful in retroactively nullifying the APA and issuing reassessments, it
would likely have a material adverse effect on the Companys results of
operations, financial condition and cash flows. PEM would have rights of appeal
in connection with any reassessments.
In June 2017, as part of the ongoing annual audits of the PEM
tax returns, the SAT issued an observations letter for the 2010 tax year. An
observations letter is issued to a taxpayer in advance of a reassessment being
issued, provides an outline of the SATs position on matters under audit, and
affords the taxpayer an opportunity to respond to such position in advance of
the reassessment being issued. In this observations letter issued to PEM, the
SAT made explicit its view that PEM should pay taxes based on the market price
of silver which, if successfully applied to its 2010 taxation year, would make
PEM liable for an additional $8.5 million of taxes before penalties or interest.
As the Company continues to defend the APA in the Mexican legal proceeding, the
APA remains valid and the Company will vigorously dispute any reassessment that
may be issued in the future on a basis that assesses taxes on its silver revenues that is inconsistent with the APA. The observations
letter does not represent a tax reassessment and no liability has been
recognized in the financial statements.
25
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
In October 2017, the SAT issued an observations letter for the
2011 tax year, with the same explicit view that PEM should pay taxes on the
market price of silver, which if successfully applied to its 2011 taxation year,
would make PEM liable for an additional $23.4 million of taxes before penalties
or interest. The Company has submitted its formal response to both the 2010 and
the 2011 observations letters.
While the Company continues to believe its tax filing position
based upon the APA is correct, should the Company ultimately be required to pay
tax on its silver revenues based on market prices without any mitigating
adjustments, the incremental income tax for the years 2012-2017 would be in the
range of $130 - $145 million, before interest or penalties.
While the Company continues to vigorously defend the validity
of the APA and its transfer pricing position, it is also engaging in dialogue
with the SAT seeking to resolve matters and bring tax certainty through a
negotiated solution. Primero has also had constructive dialogue with the SAT in
relation to outstanding value-added tax (VAT) receivables and has received
$15.2 million of VAT refunds since July 2017.
Since January 1, 2015, the Company has continued to record its
revenue from the sale of silver for purposes of Mexican tax accounting in a
manner consistent with the APA, on the basis that the applicable facts and laws
have not changed. The Companys legal and financial advisors continue to believe
that the Company has filed its tax returns compliant with applicable Mexican
law. To the extent the SAT determines that the appropriate price of silver sales
under the Silver Purchase Agreement is significantly different from the realized
price and while PEM would have rights of appeal in connection with any
reassessments, it is likely to have a material adverse effect on the Companys
business, financial condition and results of operations.
|
|
Year ended
December 31
|
|
(in thousands of U.S. dollars)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
San Dimas
|
$
|
303,858
|
|
$
|
111,000
|
|
$
|
-
|
|
Black Fox Complex
|
|
44,963
|
|
|
117,000
|
|
|
82,000
|
|
Cerro del Gallo
|
|
50,000
|
|
|
-
|
|
|
22,000
|
|
|
$
|
398,821
|
|
$
|
228,000
|
|
$
|
104,000
|
|
In accordance with IFRS, non-current assets are tested for
impairment when events or changes in circumstances suggest that their carrying
amount may not be recoverable. When there is an indicator of impairment, the
impacted CGU is tested for impairment.
2017
As part of the strategic review process discussed in note 1 the
Company received several proposals during the second quarter of 2017 which
provided evidence the carrying value of its CGUs exceeded their fair value.
During the second quarter of 2017, the Company recorded an impairment of $285.0
million, which comprised impairments of $195.0 million for the San Dimas mine,
$40.0 million for the Black Fox Complex and $50.0 million for the Cerro del
Gallo project (note 5). During the third quarter of 2017, an additional
impairment of $5.0 million was recorded for the Black Fox Complex to align with
the net proceeds received from the disposition during the fourth quarter of
2018. During the fourth quarter, the Company recorded an additional impairment
of $109 million relating to the San Dimas mine as the negotiation process that
led to the Arrangement Agreement identified that the carrying value of the San
Dimas mine exceeded the recoverable amount. The carrying value of the San Dimas
CGU as at December 31, 2017 is now aligned to the approximate value implied in
the Arrangement Agreement.
26
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
The difference between the final net proceeds from disposition
and the carrying values of the CGUs immediately prior to the disposition have
been recognized as a loss on disposition, for the CGUs disposed of during 2017.
2016
In 2016, the Companys share price declined such that the
carrying value of its net assets exceeded its market capitalization. In
addition, during the fourth quarter, the Company identified impairment
indicators at the San Dimas mine and Black Fox Complex and as a result, recorded
non-cash impairment charges of $111.0 million and $117.0 million, respectively
based on their FVLCD, which exceeds the value in use for both CGUs.
2015
The Company identified impairment indicators at Black Fox
Complex and Cerro del Gallo Project as at December 31, 2015, and as a result,
recorded non-cash impairment charges aggregating $104.0 million comprised of
$82.0 million relating to the Black Fox Complex CGU and $22.0 million relating
to the Cerro del Gallo project CGU, based on their FVLCD, which have been
determined to be greater than their value in use.
The recoverable amount was determined as the FVLCD for each
CGU. FVLCD was determined based on the net present value of the future estimated
cash flows expected to be generated from the continued use of the CGUs, using
assumptions derived from from observable market indicators and the current
life-ofmines plans for each operation. The mine plans are typically developed
annually and are based on managements current best estimates of optimized mine
and processing plans, future operating costs and the assessment of capital
expenditure at the mine site. The determination of the FVLCD used Level 3
valuation techniques. Key assumptions used in the fair value models include:
Assumptions
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
6.5%
- 8.5%
|
|
|
5% - 7%
|
|
Gold price
|
|
|
|
|
|
|
Short term
|
|
$1,250
|
|
|
$1,100
|
|
Long term
|
|
$1,300
|
|
|
$1,200
|
|
Foreign exchange
|
|
|
|
|
|
|
Mexican peso (MXN)
|
|
|
|
|
|
|
Short term
|
|
MXN 18
|
|
|
n.a.
|
|
Long term
|
|
MXN 20
|
|
|
n.a.
|
|
Canadian Dollar
(CAD)
|
|
|
|
|
|
|
Short term/long
term
|
|
CAD 1.30
|
|
|
CAD 1.40
|
|
Market value per gold ounce
|
|
n.a.
|
|
|
$25
|
|
Life
of mine (in years)
(1)
|
|
5 & 17
|
|
|
11
|
|
(1)
For purposes of assessing asset impairment, the
Company used an estimated life of mine of 5 years for Black Fox and 17 years for
San Dimas as of December 31, 2016, and 11 years for Black Fox as of December 31,
2015.
27
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
San Dimas Mine
The impairment test for the San Dimas mine was based on the
updated life-of-mine plan, which incorporated updated reserves and resources,
discount rate factors to account for the underlying risks and managements view
of the exploration potential of the mine site. The resulting non-cash impairment
charge for the San Dimas mine was driven by decrease in reserves, revisions in
the mining cut-off methodology and the application of higher discount rates in
the net present value of future estimated cash flows.
Black Fox Complex
The impairment test for the Black Fox Complex was based on the
the updated life-of-mine plan. In 2016, the resulting non-cash impairment charge
for the Black Fox Complex derived from decreases in reserves and shortened mine
life. In 2015, the charge was derived from the declining metal prices, the
temporary decision to defer Grey Fox development and changes in the Black Fox
mine plan.
Cerro del Gallo Project
In 2015, the Company decided not to construct the project under
the economic environment and as such as at December 31, 2015 the CGU was
reclassified as an exploration and evaluation asset. The commercial viability of
this project will depend on market conditions. The impairment value of $22
million in 2015 in relation to the Cerro del Gallo was as a result of a lower
market value per gold ounce and low cash flows projections.
Sensitivities
The impairment charges are highly sensitive to discount rates,
gold prices and foreign exchange rates used in the cash flow projection. The
table below summarizes the impact on the recognized impairment charges with all
the variables held constant except as follows:
|
|
|
|
|
San Dimas Mine
|
|
|
Black Fox Complex
|
|
|
|
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
+/-1%
|
|
$
|
29,000
|
|
$
|
2,000
|
|
$
|
12,000
|
|
Gold price
|
|
+/-10%
|
|
$
|
88,000
|
|
$
|
39,000
|
|
$
|
70,000
|
|
Foreign exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
MXN
|
|
+/-10%
|
|
$
|
46,000
|
|
|
n.a.
|
|
|
n.a.
|
|
CAD
|
|
+/-10%
|
|
|
n.a.
|
|
$
|
37,000
|
|
$
|
55,000
|
|
5.
|
Discontinued operations
|
On October 6, 2017, the Company sold the Black Fox Complex for
total consideration of $32.3 million including cash proceeds of $27.5 million
and the release of $4.8 million from restricted cash that was pledged towards
environmental closure liabilities. The Black Fox Complex comprises the Black Fox
mine and adjacent properties, Grey Fox and Pike River.
On November 27, 2017, the Company sold the Cerro del Gallo
project, via the sale of all of the issued and outstanding shares of San Anton
Resource Corporation, the indirect owner of the Cerro del Gallo project to Argonaut Gold Inc for cash proceeds
of $15 million resulting in a loss on disposition of $1,151.
28
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
Cerro del
|
|
|
Black Fox
|
|
|
Discontinued
|
|
|
|
Gallo
|
|
|
Complex
|
|
|
operations
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
65,828
|
|
$
|
65,828
|
|
Operating expenses
|
|
-
|
|
|
39,982
|
|
|
39,982
|
|
Depreciation and depletion
|
|
44
|
|
|
7,269
|
|
|
7,313
|
|
Total cost of sales
|
|
44
|
|
|
47,251
|
|
|
47,295
|
|
(Loss) earnings from mine
operations
|
|
(44
|
)
|
|
18,577
|
|
|
18,533
|
|
Mining interest impairment charge
|
|
(50,000
|
)
|
|
(44,963
|
)
|
|
(94,963
|
)
|
Exploration expenses
|
|
(830
|
)
|
|
-
|
|
|
(830
|
)
|
General and administrative expenses
|
|
(3
|
)
|
|
(252
|
)
|
|
(255
|
)
|
Other charges
|
|
-
|
|
|
(51
|
)
|
|
(51
|
)
|
Loss from operations
|
|
(50,877
|
)
|
|
(26,689
|
)
|
|
(77,566
|
)
|
Other expense items
|
|
(3,069
|
)
|
|
(1,385
|
)
|
|
(4,454
|
)
|
Loss before income taxes
|
|
(53,946
|
)
|
|
(28,074
|
)
|
|
(82,020
|
)
|
Income tax recovery
|
|
5,711
|
|
|
-
|
|
|
5,711
|
|
Net
loss
|
|
($48,235
|
)
|
|
($28,074
|
)
|
|
($76,309
|
)
|
|
|
Cerro del
|
|
|
Black Fox
|
|
|
Discontinued
|
|
|
|
Gallo
|
|
|
Complex
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
71,595
|
|
$
|
71,595
|
|
Operating expenses
|
|
-
|
|
|
54,815
|
|
|
54,815
|
|
Depreciation and depletion
|
|
82
|
|
|
16,131
|
|
|
16,213
|
|
Total cost of sales
|
|
82
|
|
|
70,946
|
|
|
71,028
|
|
(Loss) earnings from mine
operations
|
|
(82
|
)
|
|
649
|
|
|
567
|
|
Mining interest impairment charge
|
|
-
|
|
|
(117,000
|
)
|
|
(117,000
|
)
|
Exploration expenses
|
|
(1,529
|
)
|
|
-
|
|
|
(1,529
|
)
|
General and administrative expenses
|
|
(164
|
)
|
|
(1,109
|
)
|
|
(1,273
|
)
|
Loss from operations
|
|
(1,775
|
)
|
|
(117,460
|
)
|
|
(119,235
|
)
|
Other expense items
|
|
(315
|
)
|
|
(902
|
)
|
|
(1,217
|
)
|
Loss before income taxes
|
|
(2,090
|
)
|
|
(118,362
|
)
|
|
(120,452
|
)
|
Income tax recovery
|
|
326
|
|
|
1,200
|
|
|
1,526
|
|
Net loss
|
|
($1,764
|
)
|
|
($117,162
|
)
|
|
($118,926
|
)
|
29
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
Cerro del
|
|
|
Black Fox
|
|
|
Discontinued
|
|
|
|
Gallo
|
|
|
Complex
|
|
|
operations
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
78,112
|
|
$
|
78,112
|
|
Operating expenses
|
|
-
|
|
|
59,811
|
|
|
59,811
|
|
Depreciation and depletion
|
|
90
|
|
|
21,312
|
|
|
21,402
|
|
Total cost of sales
|
|
90
|
|
|
81,123
|
|
|
81,213
|
|
Earnings (loss) from mine
operations
|
|
(90
|
)
|
|
(3,011
|
)
|
|
(3,101
|
)
|
Mining interest impairment charge
|
|
(22,000
|
)
|
|
(82,000
|
)
|
|
(104,000
|
)
|
Exploration expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
Share-based compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
General and administrative
expenses
|
|
(21
|
)
|
|
(1,002
|
)
|
|
(1,023
|
)
|
Other charges
|
|
-
|
|
|
-
|
|
|
-
|
|
Earnings (loss) from
operations
|
|
(22,111
|
)
|
|
(86,013
|
)
|
|
(108,124
|
)
|
Other income (expense) items
|
|
41
|
|
|
2,836
|
|
|
2,877
|
|
Earnings (loss) before income
taxes
|
|
(22,070
|
)
|
|
(83,177
|
)
|
|
(105,247
|
)
|
Income tax recovery (expense)
|
|
(323
|
)
|
|
7,917
|
|
|
7,594
|
|
Net income (loss)
|
|
($22,393
|
)
|
|
($75,260
|
)
|
|
($97,653
|
)
|
The results of discontinued operations included in the
consolidated statement of cash flows, excluding the cash flows arising from the
dispositions, for the years ended December 31, 2017, 2016 and 2015 are presented
below; the comparative periods have been recast accordingly.
|
|
Years ended
December 31
|
|
Cash flow from (used in):
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities before
working capital changes
|
$
|
16,077
|
|
$
|
21,170
|
|
$
|
21,058
|
|
Changes in non-cash working capital
|
|
($2,637
|
)
|
$
|
7,704
|
|
|
($8,478
|
)
|
Operating activities
|
$
|
13,440
|
|
$
|
28,874
|
|
$
|
12,580
|
|
Investing activities
|
|
($13,387
|
)
|
|
($30,879
|
)
|
|
($36,784
|
)
|
Financing activities and effect of foreign exchange rates
|
|
($1,033
|
)
|
|
($4,582
|
)
|
|
($5,715
|
)
|
Net
cash flow from (used in) discontinued operations
|
|
($980
|
)
|
|
($6,587
|
)
|
|
($29,919
|
)
|
The Companys operating segments reflect its different mining
interests and are reported in a manner consistent with the internal reporting
used to assess each segments performance. Significant information relating to
reportable operating segments is summarized below:
30
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
San Dimas
|
|
|
Corporate
|
|
|
Total
|
|
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
72,026
|
|
$
|
7,280
|
|
$
|
79,306
|
|
Mining interests
|
|
124,835
|
|
|
215
|
|
|
125,050
|
|
Other non-current assets
|
|
-
|
|
|
910
|
|
|
910
|
|
Total assets
|
$
|
196,861
|
|
$
|
8,405
|
|
$
|
205,266
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
19,242
|
|
$
|
35,159
|
|
$
|
54,401
|
|
Non-current liabilities
|
|
42,428
|
|
|
48,706
|
|
|
91,134
|
|
Total liabilities
|
$
|
61,670
|
|
$
|
83,865
|
|
$
|
145,535
|
|
|
|
|
|
|
|
|
|
Black Fox
|
|
|
|
|
|
|
|
As at December 31, 2016
|
|
San Dimas
|
|
|
Corporate
|
|
|
Complex
|
|
|
Cerro del Gallo
|
|
|
Total
|
|
Current assets
|
$
|
60,604
|
|
$
|
4,209
|
|
$
|
16,761
|
|
$
|
1,479
|
|
$
|
83,053
|
|
Mining interests
|
|
428,251
|
|
|
330
|
|
$
|
85,680
|
|
|
63,659
|
|
|
577,920
|
|
Other non-current assets
|
|
11,107
|
|
|
1,160
|
|
$
|
4,577
|
|
|
-
|
|
|
16,844
|
|
Total assets
|
$
|
499,962
|
|
$
|
5,699
|
|
$
|
107,018
|
|
$
|
65,138
|
|
$
|
677,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
20,373
|
|
$
|
54,836
|
|
$
|
10,988
|
|
$
|
18
|
|
$
|
86,215
|
|
Non-current liabilities
|
|
50,585
|
|
|
53,861
|
|
$
|
20,315
|
|
|
5,711
|
|
|
130,472
|
|
Total liabilities
|
$
|
70,958
|
|
$
|
108,697
|
|
$
|
31,303
|
|
$
|
5,729
|
|
$
|
216,687
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
Cerro del
|
|
|
Black Fox
|
|
|
Discontinued
|
|
|
|
|
|
|
San Dimas
|
|
|
Corporate
|
|
|
Operations
|
|
|
Gallo
|
|
|
Complex
|
|
|
operations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
91,769
|
|
$
|
-
|
|
$
|
91,769
|
|
$
|
-
|
|
$
|
65,828
|
|
$
|
65,828
|
|
$
|
157,597
|
|
Operating expenses
|
|
67,280
|
|
|
-
|
|
|
67,280
|
|
|
-
|
|
|
39,982
|
|
|
39,982
|
|
|
107,262
|
|
Depreciation and depletion
|
|
22,320
|
|
|
113
|
|
|
22,433
|
|
|
44
|
|
|
7,269
|
|
|
7,313
|
|
|
29,746
|
|
Total cost of sales
|
|
89,600
|
|
|
113
|
|
|
89,713
|
|
|
44
|
|
|
47,251
|
|
|
47,295
|
|
|
137,008
|
|
Earnings (loss) from mine
operations
|
|
2,169
|
|
|
(113
|
)
|
|
2,056
|
|
|
(44
|
)
|
|
18,577
|
|
|
18,533
|
|
|
20,589
|
|
Mining interest impairment charge
|
|
(303,858
|
)
|
|
-
|
|
|
(303,858
|
)
|
|
(50,000
|
)
|
|
(44,963
|
)
|
|
(94,963
|
)
|
|
(398,821
|
)
|
Exploration expenses
|
|
(1,345
|
)
|
|
-
|
|
|
(1,345
|
)
|
|
(830
|
)
|
|
-
|
|
|
(830
|
)
|
|
(2,175
|
)
|
Share-based compensation
|
|
-
|
|
|
(4,149
|
)
|
|
(4,149
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,149
|
)
|
General and administrative
expenses
|
|
(2,242
|
)
|
|
(9,237
|
)
|
|
(11,479
|
)
|
|
(3
|
)
|
|
(252
|
)
|
|
(255
|
)
|
|
(11,734
|
)
|
Idle and restart costs incurred during strike
at San Dimas
|
|
(6,207
|
)
|
|
-
|
|
|
(6,207
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,207
|
)
|
Other charges
|
|
(1,356
|
)
|
|
(5,688
|
)
|
|
(7,044
|
)
|
|
-
|
|
|
(51
|
)
|
|
(51
|
)
|
|
(7,095
|
)
|
Loss from operations
|
|
(312,839
|
)
|
|
(19,187
|
)
|
|
(332,026
|
)
|
|
(50,877
|
)
|
|
(26,689
|
)
|
|
(77,566
|
)
|
|
(409,592
|
)
|
Other expense items
|
|
(1,025
|
)
|
|
(4,718
|
)
|
|
(5,743
|
)
|
|
(3,069
|
)
|
|
(1,385
|
)
|
|
(4,454
|
)
|
|
(10,197
|
)
|
Loss before income taxes
|
|
(313,864
|
)
|
|
(23,905
|
)
|
|
(337,769
|
)
|
|
(53,946
|
)
|
|
(28,074
|
)
|
|
(82,020
|
)
|
|
(419,789
|
)
|
Income tax recovery (expense)
|
|
4,819
|
|
|
(426
|
)
|
|
4,393
|
|
|
5,711
|
|
|
-
|
|
|
5,711
|
|
|
10,104
|
|
Net
loss
|
|
($309,045
|
)
|
|
($24,331
|
)
|
|
($333,376
|
)
|
|
($48,235
|
)
|
|
($28,074
|
)
|
|
($76,309
|
)
|
|
($409,685
|
)
|
31
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
Cerro del
|
|
|
Black Fox
|
|
|
Discontinued
|
|
|
|
|
|
|
San Dimas
|
|
|
Corporate
|
|
|
Operations
|
|
|
Gallo
|
|
|
Complex
|
|
|
operations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
147,581
|
|
$
|
-
|
|
$
|
147,581
|
|
$
|
-
|
|
$
|
71,595
|
|
$
|
71,595
|
|
$
|
219,176
|
|
Operating expenses
|
|
100,452
|
|
|
-
|
|
|
100,452
|
|
|
-
|
|
|
54,815
|
|
|
54,815
|
|
|
155,267
|
|
Depreciation and depletion
|
|
46,984
|
|
|
132
|
|
|
47,116
|
|
|
82
|
|
|
16,131
|
|
|
16,213
|
|
|
63,329
|
|
Total cost of sales
|
|
147,436
|
|
|
132
|
|
|
147,568
|
|
|
82
|
|
|
70,946
|
|
|
71,028
|
|
|
218,596
|
|
Earnings (loss) from mine
operations
|
|
145
|
|
|
(132
|
)
|
|
13
|
|
|
(82
|
)
|
|
649
|
|
|
567
|
|
|
580
|
|
Mining interest impairment charge
|
|
(111,000
|
)
|
|
-
|
|
|
(111,000
|
)
|
|
-
|
|
|
(117,000
|
)
|
|
(117,000
|
)
|
|
(228,000
|
)
|
Exploration expenses
|
|
(1,885
|
)
|
|
-
|
|
|
(1,885
|
)
|
|
(1,529
|
)
|
|
-
|
|
|
(1,529
|
)
|
|
(3,414
|
)
|
Share-based compensation
|
|
-
|
|
|
(7,049
|
)
|
|
(7,049
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,049
|
)
|
General and administrative
expenses
|
|
(5,419
|
)
|
|
(8,110
|
)
|
|
(13,529
|
)
|
|
(164
|
)
|
|
(1,109
|
)
|
|
(1,273
|
)
|
|
(14,802
|
)
|
Other charges
|
|
(2,327
|
)
|
|
(2,398
|
)
|
|
(4,725
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,725
|
)
|
Loss from operations
|
|
(120,486
|
)
|
|
(17,689
|
)
|
|
(138,175
|
)
|
|
(1,775
|
)
|
|
(117,460
|
)
|
|
(119,235
|
)
|
|
(257,410
|
)
|
Other expense items
|
|
(1,494
|
)
|
|
4,237
|
|
|
2,743
|
|
|
(315
|
)
|
|
(902
|
)
|
|
(1,217
|
)
|
|
1,526
|
|
Loss before income taxes
|
|
(121,980
|
)
|
|
(13,452
|
)
|
|
(135,432
|
)
|
|
(2,090
|
)
|
|
(118,362
|
)
|
|
(120,452
|
)
|
|
(255,884
|
)
|
Income tax recovery
|
|
19,938
|
|
|
-
|
|
|
19,938
|
|
|
326
|
|
|
1,200
|
|
|
1,526
|
|
|
21,464
|
|
Net loss
|
|
($102,042
|
)
|
|
($13,452
|
)
|
|
($115,494
|
)
|
|
($1,764
|
)
|
|
($117,162
|
)
|
|
($118,926
|
)
|
|
($234,420
|
)
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
Cerro del
|
|
|
Black Fox
|
|
|
Discontinued
|
|
|
|
|
|
|
San Dimas
|
|
|
Corporate
|
|
|
Operations
|
|
|
Gallo
|
|
|
Complex
|
|
|
operations
|
|
|
Total
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
213,192
|
|
$
|
-
|
|
$
|
213,192
|
|
$
|
-
|
|
$
|
78,112
|
|
$
|
78,112
|
|
$
|
291,304
|
|
Operating expenses
|
|
103,782
|
|
|
-
|
|
|
103,782
|
|
|
-
|
|
|
59,811
|
|
|
59,811
|
|
|
163,593
|
|
Depreciation and depletion
|
|
55,693
|
|
|
143
|
|
|
55,836
|
|
|
90
|
|
|
21,312
|
|
|
21,402
|
|
|
77,238
|
|
Total cost of sales
|
|
159,475
|
|
|
143
|
|
|
159,618
|
|
|
90
|
|
|
81,123
|
|
|
81,213
|
|
|
240,831
|
|
Earnings (loss) from mine
operations
|
|
53,717
|
|
|
(143
|
)
|
|
53,574
|
|
|
(90
|
)
|
|
(3,011
|
)
|
|
(3,101
|
)
|
|
50,473
|
|
Mining interest impairment charge
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(22,000
|
)
|
|
(82,000
|
)
|
|
(104,000
|
)
|
|
(104,000
|
)
|
Exploration expenses
|
|
(1,690
|
)
|
|
-
|
|
|
(1,690
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,690
|
)
|
Share-based compensation
|
|
-
|
|
|
(7,144
|
)
|
|
(7,144
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,144
|
)
|
General and administrative
expenses
|
|
(2,546
|
)
|
|
(16,475
|
)
|
|
(19,021
|
)
|
|
(21
|
)
|
|
(1,002
|
)
|
|
(1,023
|
)
|
|
(20,044
|
)
|
Other charges
|
|
(694
|
)
|
|
(2,008
|
)
|
|
(2,702
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,702
|
)
|
Earnings (loss) from
operations
|
|
48,787
|
|
|
(25,770
|
)
|
|
23,017
|
|
|
(22,111
|
)
|
|
(86,013
|
)
|
|
(108,124
|
)
|
|
(85,107
|
)
|
Other income (expense) items
|
|
(4,225
|
)
|
|
(58
|
)
|
|
(4,283
|
)
|
|
41
|
|
|
2,836
|
|
|
2,877
|
|
|
(1,406
|
)
|
Earnings (loss) before income
taxes
|
|
44,562
|
|
|
(25,828
|
)
|
|
18,734
|
|
|
(22,070
|
)
|
|
(83,177
|
)
|
|
(105,247
|
)
|
|
(86,513
|
)
|
Income tax recovery (expense)
|
|
(32,536
|
)
|
|
4,545
|
|
|
(27,991
|
)
|
|
(323
|
)
|
|
7,917
|
|
|
7,594
|
|
|
(20,397
|
)
|
Net income (loss)
|
$
|
12,026
|
|
|
($21,283
|
)
|
|
($9,257
|
)
|
|
($22,393
|
)
|
|
($75,260
|
)
|
|
($97,653
|
)
|
|
($106,910
|
)
|
|
|
Year ended
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
$
|
74,979
|
|
$
|
121,553
|
|
$
|
169,790
|
|
Silver
|
|
16,790
|
|
$
|
26,028
|
|
$
|
43,402
|
|
|
$
|
91,769
|
|
$
|
147,581
|
|
$
|
213,192
|
|
32
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
a) Silver Purchase
Agreement
The Silver Purchase Agreement provides that for the life of the
mine, the first 6.0 million ounces of silver produced per annum by the San Dimas
mine, plus 50% of the excess silver produced above this amount, must be sold to
Wheaton Precious Metals International Ltd. (WPMI), formerly Silver Wheaton
Caymans (SWC), at the lesser of $4.32 per ounce (adjusted by 1% per year) and
market prices. All silver not sold to WPMI is available to be sold by the
Company at market prices.
The contract year for purposes of the threshold runs from
August 6 of a year to August 5 of the following year. The threshold for the year
ended August 5, 2017 was not exceeded (4.3 million ounces were delivered under
the contract), while the threshold for the year ended August 5, 2016 was
exceeded in July 2016 and the threshold for August 5, 2015 was met in July 2015.
During the year ended December 31, 2017 the Company did not sell any silver at
market prices (year ended December 31, 2016 - 0.2 million ounces and year ended
December 31, 2015 0.8 million ounces were sold at market prices).
In connection with the Arrangement Agreement, First Majestic
has entered into agreements with WPMI, whereby, following closing of the
Arrangement, the Silver Purchase Agreement will be terminated and replaced with
a new stream which will provide for a reduction in the amount of payable metal
content.
b) Gold Purchase
Agreement
The Company had a gold purchase agreement related to the Black
Fox Mine, which was disposed of in October 2017. Under the agreement, the
Company was obligated to sell 8% of the gold production at the Black Fox Mine
and 6.3% at the adjoining Pike River property (Black Fox Extension).
During the year ended December 31, 2017, the Company recorded
revenue classified as discontinued operations of $2.5 million (2016 - $2.7
million and 2015 - $3.0 million) under the contract terms.
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Gold and silver
|
$
|
5,848
|
|
$
|
5,827
|
|
Stock piled ore
|
|
175
|
|
|
5,285
|
|
Work-in-progress
|
|
2,444
|
|
|
5,771
|
|
Supplies
|
|
5,201
|
|
|
5,946
|
|
|
$
|
13,668
|
|
$
|
22,829
|
|
33
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
Mining
|
|
|
|
|
|
Plant,
|
|
|
|
|
|
|
|
|
|
properties
|
|
|
Land and
|
|
|
equipment and
|
|
|
Construction
|
|
|
|
|
|
|
and leases
|
|
|
buildings
|
|
|
vehicles
|
|
|
in progress
|
|
|
Total
|
|
At January 1, 2016
|
|
948,182
|
|
|
78,198
|
|
|
191,825
|
|
|
35,949
|
|
|
1,254,154
|
|
Additions
|
|
55,788
|
|
|
8,256
|
|
|
30,536
|
|
|
(21,218
|
)
|
|
73,362
|
|
Reclassifications
|
|
1,086
|
|
|
3,948
|
|
|
(5,279
|
)
|
|
239
|
|
|
(6
|
)
|
Assets derecognized
|
|
-
|
|
|
-
|
|
|
(5,021
|
)
|
|
-
|
|
|
(5,021
|
)
|
At December 31, 2016
|
|
1,005,056
|
|
|
90,402
|
|
|
212,061
|
|
|
14,970
|
|
|
1,322,489
|
|
Additions
|
|
32,876
|
|
|
4,409
|
|
|
6,332
|
|
|
(8,093
|
)
|
|
35,524
|
|
Assets derecognized
|
|
-
|
|
|
-
|
|
|
(8,180
|
)
|
|
-
|
|
|
(8,180
|
)
|
Disposition of Black Fox Complex and Cerro del Gallo project
|
|
(456,856
|
)
|
|
(18,579
|
)
|
|
(68,012
|
)
|
|
(926
|
)
|
|
(544,373
|
)
|
At December 31, 2017
|
$
|
581,076
|
|
$
|
76,232
|
|
$
|
142,201
|
|
$
|
5,951
|
|
$
|
805,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
and depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2016
|
|
355,893
|
|
|
16,945
|
|
|
91,198
|
|
|
-
|
|
|
464,036
|
|
Depreciation and depletion
|
|
31,046
|
|
|
3,247
|
|
|
22,942
|
|
|
-
|
|
|
57,235
|
|
Impairment charge
|
|
228,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
228,000
|
|
Reclassifications
|
|
1,487
|
|
|
4,768
|
|
|
(6,261
|
)
|
|
-
|
|
|
(6
|
)
|
Assets derecognized
|
|
-
|
|
|
-
|
|
|
(4,696
|
)
|
|
-
|
|
|
(4,696
|
)
|
At December 31, 2016
|
|
616,426
|
|
|
24,960
|
|
|
103,183
|
|
|
-
|
|
|
744,569
|
|
Depreciation and depletion
|
|
7,162
|
|
|
1,999
|
|
|
19,257
|
|
|
-
|
|
|
28,418
|
|
Impairment charge
|
|
284,972
|
|
|
48,311
|
|
|
65,538
|
|
|
-
|
|
|
398,821
|
|
Assets derecognized
|
|
-
|
|
|
-
|
|
|
(7,233
|
)
|
|
-
|
|
|
(7,233
|
)
|
Disposition of Black Fox Complex and Cerro del Gallo
project
|
|
(412,926
|
)
|
|
(15,504
|
)
|
|
(55,735
|
)
|
|
-
|
|
|
(484,165
|
)
|
At December 31, 2017
|
$
|
495,634
|
|
$
|
59,766
|
|
$
|
125,010
|
|
$
|
-
|
|
$
|
680,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
$
|
388,630
|
|
$
|
65,442
|
|
$
|
108,878
|
|
$
|
14,970
|
|
$
|
577,920
|
|
At December 31, 2017
|
$
|
85,442
|
|
$
|
16,466
|
|
$
|
17,191
|
|
$
|
5,951
|
|
$
|
125,050
|
|
A summary of mining interest by property is as follows:
|
|
Mining
|
|
|
|
|
|
Plant,
|
|
|
|
|
|
|
|
|
|
|
|
|
properties
|
|
|
Land and
|
|
|
equipment
|
|
|
Construction
|
|
|
December 31
|
|
|
December 31
|
|
|
|
and leases
|
|
|
buildings
|
|
|
and vehicles
|
|
|
in progress
|
|
|
2017
|
|
|
2016
|
|
San Dimas Mine
|
$
|
85,442
|
|
$
|
16,466
|
|
$
|
16,976
|
|
$
|
5,951
|
|
$
|
124,835
|
|
$
|
428,251
|
|
Black Fox Complex
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
85,680
|
|
Cerro Del Gallo Project
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
63,659
|
|
Corporate
|
|
-
|
|
|
-
|
|
|
215
|
|
|
-
|
|
|
215
|
|
|
330
|
|
Total
|
$
|
85,442
|
|
$
|
16,466
|
|
$
|
17,191
|
|
$
|
5,951
|
|
$
|
125,050
|
|
$
|
577,920
|
|
All property of the San Dimas mine is pledged as security for
the Companys obligations under the Silver Purchase Agreement (Notes 7 a)).
Substantially all of the Companys assets are pledged as security under the
revolving credit facility (Note 10 a)).
34
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
The carrying value of property, plant and equipment under
finance leases at December 31, 2017 was $0.4 million (December 31, 2016 - $8.0
million). The lessors hold first security rights over the leased assets.
Depreciation and depletion recognized for the year ended
December 31, 2017 was $28.4 million (2016 - $57.2 million and 2015 - $80.4
million). As at December 31, 2017, the non-cash component in the inventories
balance was $1.4 million (2016 $5.8 million and 2015 - $12.5 million).
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Current debt
|
|
|
|
|
|
|
Revolving credit facility (RCF)
(a)
|
$
|
30,201
|
|
$
|
49,639
|
|
Finance lease liabilities
(b)
|
|
109
|
|
|
1,202
|
|
|
|
30,310
|
|
|
50,841
|
|
Long-term debt
|
|
|
|
|
|
|
5.75% convertible debentures
(c)
|
$
|
47,625
|
|
$
|
52,500
|
|
Finance lease liabilities
(b)
|
|
-
|
|
|
406
|
|
|
|
47,625
|
|
|
52,906
|
|
|
$
|
77,935
|
|
$
|
103,747
|
|
(a) The Company has a RCF, which bears interest at a floating
interest rate equal to LIBOR or the prime rate of Canada or the bankers
acceptance rate (depending on the choice of credit availment by the Company)
plus an applicable margin. In March 2016, the Company drew down $50 million
under the RCF to repay the 6.5% convertible debentures, assumed as part of the
acquisition of Brigus Gold Corp. An additional $10 million was drawn down in
March 2017, $5 million was drawn in May 2017 and $10 million was drawn in July
2017, fully drawing the RCF and bringing the outstanding balance under the RCF
to $75.0 million. On March 30, 2017, the Company amended the terms of the RCF to
extend its maturity date from May 23, 2017 to November 23, 2017 and exclude all
financial covenants until the extended maturity date. The RCF with its amended
terms was guaranteed by WPM and a fee of $2.7 million was paid in 2017. This fee
was accreted over the new term of the RCF as additional interest cost. The net
proceeds from the sale of the Black Fox Complex and Cerro del Gallo were used to
reduce the outstanding balance of the RCF. The RCF was subsequently extended
multiple times from November 2017 to January 2018 in connection with the
Companys strategic review process resulting in the current maturity date being
the earlier of (i) April 30, 2018, (ii) the closing of the business combination
with First Majestic, and (iii) the seventh business day following termination of
the proposed business combination. WPM continues to provide a guarantee for the
RCF.
Total unamortized transaction costs of $0.1 million relating to
the original term of the RCF have been expensed. The revolving credit facility
is secured by substantially all of the Companys assets and contains customary
covenants and default clauses typical for this type of facility.
(b) The Company is obligated under various finance leases for
equipment. All finance lease agreements provide that the Company can purchase
the leased equipment at the end of the lease term for a nominal amount. There are no restrictions
placed on the Company as a result of these leases, however, the lessors hold
first security rights over the leased assets.
35
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
(c) On February 9, 2015, the Company issued $75 million of
5.75% convertible unsecured subordinated debentures (the 5.75% convertible
debentures) maturing on February 28, 2020. The 5.75% convertible debentures bear
interest at a rate of 5.75% per annum, payable in U.S. dollars semi-annually on
August 28 and February 28 each year, commencing on August 28, 2015. The 5.75%
convertible debentures are convertible into the Companys common shares at a
conversion price of approximately $6.55 per share, representing a conversion
rate of 152.6718 common shares per $1,000 principal amount of the debentures.
Upon conversion, holders will be entitled to receive accrued and unpaid interest
up to, but excluding, the date of conversion. The 5.75% convertible debentures
have a cross-default provision that would be triggered by any default on the
RCF.
The 5.75% convertible debentures are not redeemable prior to
February 28, 2018. On and after February 28, 2018 and prior to February 28,
2020, the 5.75% convertible debentures may be redeemed by the Company, in whole
or in part from time to time, on not more than 60 days and not less than 30 days
prior notice, at a redemption price equal to their principal amount plus accrued
and unpaid interest, if any, up to but excluding the date set for redemption,
provided the simple average of the daily volume-weighted average trading price
of the common shares for the 20 consecutive trading days ending five trading
days prior to the date on which notice of redemption is provided is at least
125% of the conversion price.
On March 13, 2018, holders of the 5.75% convertible debentures
voted to amend the terms of the securities (refer to note 25).
11.
|
General and administrative
expenses
|
|
|
Year ended
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Salaries and wages
|
$
|
5,053
|
|
$
|
5,778
|
|
$
|
10,967
|
|
Rent and office costs
|
|
792
|
|
|
828
|
|
|
1,232
|
|
Legal, accounting, consulting
and professional fees
|
|
2,369
|
|
|
2,547
|
|
|
2,830
|
|
Directors fees and expenses
|
|
1,357
|
|
|
935
|
|
|
922
|
|
Other general and administrative expenses
|
|
1,908
|
|
|
3,441
|
|
|
3,070
|
|
|
$
|
11,479
|
|
$
|
13,529
|
|
$
|
19,021
|
|
|
|
Year ended
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Legal expenses associated
with proceedings in Mexico
|
$
|
1,103
|
|
$
|
3,254
|
|
$
|
694
|
|
Office closure costs and severance payments
|
|
2,120
|
|
|
1,171
|
|
|
2,008
|
|
Legal and advisory costs
relating to financing initiatives
|
|
647
|
|
|
300
|
|
|
-
|
|
Advisory fees associated with strategic
review process
|
|
2,023
|
|
|
-
|
|
|
-
|
|
Loss on disposition of Cerro del Gallo
|
|
1,151
|
|
|
-
|
|
|
-
|
|
|
$
|
7,044
|
|
$
|
4,725
|
|
$
|
2,702
|
|
36
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
13.
|
Interest and finance
expenses
|
|
|
|
|
|
Year ended
December 31
|
|
|
|
Notes
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on 5.75% convertible
debentures
|
|
10
|
|
$
|
4,312
|
|
$
|
4,313
|
|
$
|
3,381
|
|
Interest on 6.5%
convertible debentures
|
|
|
|
|
-
|
|
|
775
|
|
|
3,123
|
|
Interest on revolving credit facility
|
|
10
|
|
|
2,792
|
|
|
1,577
|
|
|
925
|
|
|
|
|
|
|
7,104
|
|
|
6,665
|
|
|
7,429
|
|
Finance expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on 6.5%
convertible debentures
|
|
|
|
$
|
-
|
|
$
|
365
|
|
$
|
1,436
|
|
Accretion on asset retirement
obligation
|
|
|
|
|
766
|
|
|
723
|
|
|
1,472
|
|
Revolving credit
facility guarantee fee
|
|
10
|
|
|
2,646
|
|
|
-
|
|
|
-
|
|
Amortization of revolving credit
facility transaction costs
|
|
|
|
|
481
|
|
|
870
|
|
|
877
|
|
Others
|
|
|
|
|
288
|
|
|
138
|
|
|
284
|
|
|
|
|
|
|
4,181
|
|
|
2,096
|
|
|
4,069
|
|
|
|
|
|
$
|
11,285
|
|
$
|
8,761
|
|
$
|
11,498
|
|
|
|
Year ended
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Foreign exchange gain
|
$
|
76
|
|
$
|
155
|
|
|
($2,772
|
)
|
Gain on derivative liability
|
|
-
|
|
|
5
|
|
|
1,478
|
|
Finance income
|
|
41
|
|
|
88
|
|
|
229
|
|
Royalty and other
|
|
(472
|
)
|
|
(675
|
)
|
|
(804
|
)
|
|
|
($355
|
)
|
|
($427
|
)
|
|
($1,869
|
)
|
a) Tax expense
Tax expense comprises the following:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current income tax expense
|
$
|
3,298
|
|
$
|
1,089
|
|
$
|
23,365
|
|
Deferred income tax recovery
|
|
(7,691
|
)
|
|
(21,027
|
)
|
|
4,626
|
|
Income tax (recovery)
|
|
($4,393
|
)
|
|
($19,938
|
)
|
$
|
27,991
|
|
Income tax expense differs from the amount that would result
from applying the Canadian federal and provincial income tax rates to earnings
from continuing operations before taxes. These differences result from the
following items:
37
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Loss before income taxes
|
|
($337,769
|
)
|
|
($135,432
|
)
|
$
|
18,734
|
|
Canadian federal and provincial income tax
rate
|
|
26.5%
|
|
|
26.5%
|
|
|
26.5%
|
|
Expected income tax
(recovery)
|
|
(89,509
|
)
|
|
(35,889
|
)
|
|
4,965
|
|
(Increase) decrease attributable to:
|
|
|
|
|
|
|
|
|
|
Effect of different
foreign statutory rates on earnings of subsidiaries
|
|
(11,416
|
)
|
|
(2,930
|
)
|
|
998
|
|
Share-based payments
|
|
1,148
|
|
|
1,986
|
|
|
1,882
|
|
Amounts allowable for
tax purposes
|
|
(6,290
|
)
|
|
(9,592
|
)
|
|
(10,357
|
)
|
Impact of foreign exchange and
inflation
|
|
(7,709
|
)
|
|
27,180
|
|
|
24,595
|
|
Withholding taxes on
intercompany interest
|
|
3,800
|
|
|
3,308
|
|
|
2,614
|
|
Royalty taxes in Mexico
|
|
(149
|
)
|
|
115
|
|
|
769
|
|
Impairment of mining
interest
|
|
79,069
|
|
|
(5,827
|
)
|
|
-
|
|
Benefit of tax losses and temporary differences not
recognized
|
|
26,663
|
|
|
1,711
|
|
|
2,525
|
|
Income tax (recovery)
|
|
($4,393
|
)
|
|
($19,938
|
)
|
$
|
27,991
|
|
b) Deferred tax liabilities and assets
The significant components of the Companys deferred tax
liabilities and assets are as follows:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
Non-capital losses
|
$
|
-
|
|
$
|
8,183
|
|
Decommissioning
liability to be recovered
|
|
472
|
|
|
1,315
|
|
Deduction for Mexican royalty
taxes
|
|
-
|
|
|
9,565
|
|
Accruals and other
|
|
-
|
|
|
2,338
|
|
|
$
|
472
|
|
$
|
21,401
|
|
Deferred tax liability
|
|
|
|
|
|
|
Accruals and other
|
|
(26
|
)
|
|
-
|
|
Mining interests
|
|
(7,903
|
)
|
|
($46,066
|
)
|
Net
deferred tax liability
|
|
($7,457
|
)
|
|
($24,665
|
)
|
A reconciliation of net deferred tax liability to the amounts
presented in the consolidated statements of financial position follows:
|
|
2017
|
|
|
2016
|
|
Deferred tax asset
|
$
|
-
|
|
$
|
3,763
|
|
Deferred tax liability
|
|
(7,457
|
)
|
|
(28,428
|
)
|
Net deferred tax liability
|
|
($7,457
|
)
|
|
($24,665
|
)
|
38
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
The movement in deferred income tax balances is explained as
follows:
|
|
2017
|
|
|
2016
|
|
As at January 1
|
|
($24,665
|
)
|
|
($49,326
|
)
|
Deferred tax recovery
|
|
13,408
|
|
|
22,553
|
|
Flow through share premium
credit charged to deferred tax expense
|
|
-
|
|
|
(1,200
|
)
|
With holding expense accrued as tax payable
|
|
3,800
|
|
|
3,308
|
|
Warrant expiry
|
|
-
|
|
|
-
|
|
As
at December 31
|
|
($7,457
|
)
|
|
($24,665
|
)
|
Given recent San Dimas performance, the Company deteremined
that it could not deem future taxable income to be probable under current
operating conditions. Therefore, no deferred tax assets have been recognized. Of
the Companys total deferred tax liability of $7.5 million (2016 - $28.4
million), $0.6 million (2016 - $5.2 million) is expected to reverse within
twelve months of the statement of financial position date and the remainder
after twelve months of the statement of financial position date.
The Company has total unused Canadian losses of $235.4 million
(2016 - $221.0 million) that are available to be applied against future taxable
income. These losses expire from 2025 to 2037. Of these losses, $122 million
(2016 - $132 million) are restricted to use only against income from the same or
similar business that created these losses.
Deductible temporary differences, unused tax losses and their
tax effect for which no deferred tax assets have been recognized are
attributable to the following:
|
|
Temporary
Differences
|
|
|
Tax effect
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Non-capital losses
|
$
|
210,071
|
|
$
|
203,529
|
|
$
|
53,360
|
|
$
|
51,885
|
|
Capital losses
|
|
130,612
|
|
|
2,555
|
|
|
17,306
|
|
|
339
|
|
Share issuance costs
|
|
3,878
|
|
|
5,906
|
|
|
1,028
|
|
|
1,565
|
|
Accrued liabilities and other
|
|
1,669
|
|
|
1,138
|
|
|
442
|
|
|
302
|
|
Resource and equipment tax
pools
|
|
-
|
|
|
162,143
|
|
|
-
|
|
|
44,442
|
|
Ontario mining tax
|
|
-
|
|
|
122,796
|
|
|
-
|
|
|
10,438
|
|
|
$
|
346,230
|
|
$
|
498,067
|
|
$
|
72,136
|
|
$
|
108,971
|
|
Following the completion of the Arrangement, the capital losses
are expected to expire, and there is uncertainty over whether the non-capital
losses can be utilized after the completion of the Arrangement.
c) Challenge to the 2012 APA
Overview
In February 2016 the Mexican tax authority, the SAT, initiated
a proceeding seeking to nullify the APA which it issued to the Company in 2012.
The APA confirmed the Companys basis for paying taxes on the price it realized
for certain silver sales between 2010 to 2014. If the SATs challenge is
successful it is likely to have a material adverse effect on the Companys
business, financial condition and results of operations.
39
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Background
In 2004, affiliates of Goldcorp Inc. (Goldcorp) entered into
a Silver Purchase Agreement with WPM in connection with the San Dimas mine and
two other mines in Mexico. Under the Silver Purchase Agreement, Goldcorp
received cash and securities in exchange for an obligation to sell the amount of
silver extracted from the mines at a price set forth in the Silver Purchase
Agreement. In order to satisfy its obligations under the Silver Purchase
Agreement, sales were made by Goldcorp through a non-Mexican subsidiary to a WPM
subsidiary in the Cayman Islands. Upon Primeros acquisition of the San Dimas
Mine, the Silver Purchase Agreement was amended and restated and Primero assumed
all of Goldcorps obligations with respect to the San Dimas concession under the
Silver Purchase Agreement. Primero did not receive any of the initial
consideration that was paid to Goldcorp under the Silver Purchase Agreement.
As amended and restated, the provisions of the Silver Purchase
Agreement require that, on a consolidated basis, the Company sell to WPM 100% of
silver produced from the San Dimas concessions during a contract year (August
6th to the following August 5th), up to 6 million ounces and 50% of silver
produced thereafter, at the lower of (i) the current market price and (ii) $4.04
per ounce plus an annual increase of 1% (the PEM Realized Price). From August 6,
2016 to August 5, 2017, the contract price was $4.28 per ounce (August 6, 2015
to August 5, 2016 - $4.24) . From August 6, 2017 the contract price is $4.32 per
ounce. The price paid by WPM under the Silver Purchase Agreement represents the
total value that the Company and its affiliates receive for the sale of silver
to WPM. The Silver Purchase Agreement continues indefinitely in respect of any
silver produced from the San Dimas concessions.
The specific terms of the Silver Purchase Agreement require
that the Company sell the silver through one of its non-Mexican subsidiaries,
STB, to WPMs subsidiary, WPMI. As a result, the Companys Mexican subsidiary
that holds the San Dimas concessions, PEM, sells the required amount of silver
produced from the San Dimas concessions to STB to allow it to fulfill its
obligations under the Silver Purchase Agreement.
When the Company initially acquired the San Dimas mine, the
sales from PEM to STB were made at the spot market price while the sales by STB
to WPMI were at the contracted PEM Realized Price, which at that time was $4.04
per ounce. In order to reflect commercial realities and the effects of the
Silver Purchase Agreement on the Company on a consolidated basis, PEM amended
the terms of sales of silver between itself and STB and commenced to sell the
amount of silver due under the Silver Purchase Agreement to STB at the PEM
Realized Price. For Mexican income tax purposes PEM then recognized the revenue
on these silver sales on the basis of its actual realized revenue, which was the
PEM Realized Price.
APA
In order to provide the Company with stability and assurances
that the SAT would accept the PEM Realized Price as the proper price to use to
calculate Mexican income taxes, the Company applied for and received the APA
from the SAT. The APA confirmed the PEM Realized Price would be used as the
Companys basis for calculating taxes owed by the Company on the silver sold
under the Silver Purchase Agreement. The Company believed that the function of
an APA was to provide tax certainty and as a result made significant investments
in Mexico based on that certainty. Under Mexican law, an advanced pricing
agreement is valid for five years and therefore the APA represented the SATs
agreement to accept the PEM Realized Price as the basis for calculating taxes
for the tax years 2010 through 2014.
40
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Challenge to APA for 2010 2014 tax years
In February 2016, the SAT initiated a legal proceeding seeking
to nullify the APA, however, the SAT has not identified an alternative basis in
the legal claim for calculating taxes on the silver sold by PEM for which it
receives the PEM Realized Price. The Company is an interested party in this
proceeding. If the SAT is successful in retroactively nullifying the APA, the
SAT may seek to audit and reassess PEM in respect of its sales of silver in
connection with the Silver Purchase Agreement for 2010 through 2014.
In June 2017, as part of the ongoing annual audits of the PEM
tax returns, the SAT issued an observations letter for the 2010 tax year. An
observations letter is issued to a taxpayer in advance of a reassessment being
issued, provides an outline of the SATs position on matters under audit, and
affords the taxpayer an opportunity to respond to such position in advance of
the reassessment being issued. In this observations letter issued to PEM, the
SAT made explicit its view that PEM should pay taxes based on the market price
of silver which, if successfully applied to its 2010 taxation year, would make
PEM liable for an additional $8.5 million of taxes before penalties or interest.
As the Company continues to defend the APA in the Mexican legal proceeding, the
APA remains valid and the Company will vigorously dispute any reassessment that
may be issued in the future on a basis that assesses taxes on its silver
revenues that is inconsistent with the APA. The observations letter does not
represent a tax reassessment and no liability has been recognized in the
financial statements.
In October 2017, the SAT issued an observations letter for the
2011 tax year, with the same explicit view that PEM should pay taxes based on
the market price of silver, which if successfully applied to its 2011 taxation
year, would make PEM liable for an additional $23.4 million of taxes before
penalties or interest. The Company has submitted formal responses to both the
2010 and 2011 observation letters.
While the Company continues to believe its tax filing position
based upon the APA is correct, should the Company ultimately be required to pay
tax on its silver revenues based on market prices without any mitigating
adjustments, the incremental income tax for the years 2012-2017 would be in the
range of $130 - $145 million, before interest or penalties.
The Company vigorously defends the validity of the APA and has
filed procedural and substantive responses to the claim. In addition, the
Company intends to explore opportunities to minimize the potential impact on the
Company in the event that the SAT is successful in its legal claim to nullify
the APA, but there is no assurance that the Company will find or be able to
implement a reasonable solution.
While the Company continues to vigorously defend the validity
of the APA and its transfer pricing position, it is also engaging in dialogue
with the SAT seeking to resolve matters and bring tax certainty through a
negotiated solution. Primero has also had constructive dialogue with the SAT in
relation to outstanding VAT receivables and has received $15.2 million of VAT
refunds since July 2017.
Primero Mining Corp.s claim against the Mexican Government
On June 2, 2016, the Company notified the Mexican Government
that the measures taken by the SAT against PEM in connection with the judicial
proceeding seeking to retroactively nullify the APA, breached several provisions
of Chapter 11 of the North American Free Trade Agreement (NAFTA) because these
measures are arbitrary, discriminatory, unfair and inequitable. As at December 31, 2017, the Company has the
option to commence international arbitration proceedings pursuant to Article
1119 of the NAFTA at a time of its choosing. As Primero is continuing its
dialogue with the Mexican Government regarding the Mexican tax authoritys legal
claim against the APA, it has temporarily suspended its advancement of
international arbitration proceedings against the Mexican Government.
41
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Tax treatment for tax years following 2014
Since January 1, 2015, the Company has continued to record its
revenue from the sale of silver for purposes of Mexican tax accounting in a
manner consistent with the APA on the basis that the applicable facts and laws
have not changed. The Companys legal and financial advisors continue to believe
that the Company has filed its tax returns compliant with applicable Mexican
law. Given the legal challenge by the SAT against the APA for the 2010-2014 tax
years, the Company currently believes it is unlikely the SAT will agree to an
Advance Pricing Agreement for the 2015-2019 tax years on terms similar to the
challenged APA. To the extent the SAT determines that the appropriate price of
silver sales under the Silver Purchase Agreement, for tax purposes, is
significantly different from the PEM Realized Price and, while PEM would have
rights of appeal in connection with any reassessments, it is likely to have a
material adverse effect on the Companys business, financial condition and
results of operations.
Other
In the observations letters for both the 2010 and 2011 tax
years the SAT raised some queries with respect to certain intercompany
transactions, and the Company has provided the pertinent information. The
observations letters do not represent a tax reassessment and no liability has
been recognized in the financial statements related to these queries.
16.
|
Supplementary cash flow
information
|
Changes in non-cash working capital comprise the following:
|
|
Year ended
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Trade and other receivables
|
$
|
391
|
|
|
($169
|
)
|
|
($638
|
)
|
Value added and income taxes receivable
|
|
3,464
|
|
|
1,980
|
|
|
243
|
|
Prepaid expenses
|
|
866
|
|
|
3,232
|
|
|
(850
|
)
|
Inventories
|
|
(1,800
|
)
|
|
6,382
|
|
|
(4,318
|
)
|
Trade and other payables
|
|
(4,637
|
)
|
|
(12,652
|
)
|
|
4,734
|
|
Other taxes payable
|
|
1,634
|
|
|
(931
|
)
|
|
(708
|
)
|
|
|
($82
|
)
|
|
($2,158
|
)
|
|
($1,537
|
)
|
a) Share capital
The authorized share capital consists of unlimited common
shares without par value and unlimited preferred shares, issuable in series with
special rights and restrictions attached.
42
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
On June 9, 2016, PEM completed an acquisition of certain
concessions adjacent to its San Dimas mine. The initial consideration comprised
a cash payment of $1.0 million and the issuance of 2,010,050 of Primeros common
shares. As of December 31, 2017, 1,854,271 common shares were issued (2016
1,854,271 and 2015 - nil), 28,342 shares were replaced with cash consideration
(2016 nil and 2015- nil), with the remaining 127,437 common shares expected to
be issued. The price per common share was $1.91 based on the NYSE trading price
at the closing date. The Company has recognized an equity reserve in
shareholders equity for the unissued common shares for concessions that have
not yet been transferred. During 2017, one concession was transferred, resulting
in the release of $54 from the equity reserve.
On June 24, 2016, the Company completed a public equity
offering, raising gross proceeds of $40.0 million (C$51.8 million) through the
issuance of 22,022,500 units (Unit) of the Company at a price of C$2.35 per Unit
(the equity offering). Each Unit consists of one common share of Primero and
one-half of one common share purchase warrant (each whole common share purchase
warrant is a Warrant) of the Company. Each whole Warrant entitles the holder
to acquire one common share of the Company at a price of C$3.35 per Common share
until June 25, 2018.
Out of the gross proceeds from the equity offering, $4.7
million was allocated to the common share purchase warrants based on their fair
value determined using the trading price at the date of closing of the
transaction, and the remaining $35.3 million was allocated to the common shares
and recorded as share capital. The common share purchase warrants are classified
as a financial liability in the statement of financial position. Fair value
changes of the common share purchase warrants are recognized in the statement of
operations and comprehensive loss. During the year ended December 31, 2017 a
mark to market gain of $0.2 million (2016 gain of $3.6 million and 2015 - nil)
was recognized in relation to the common share purchase warrants.
Transaction costs relating to the equity offering amounted to
$2.5 million, of which $0.2 million was allocated to the common share purchase
warrants and was recognized as an expense in the statement of operations and
comprehensive loss for the year ended December 31, 2016. The balance of $2.3
million was allocated to share capital.
In December 2015, the Company received $4.3 million (net of
transaction costs) from the issuance of 1,366,768 flow-through shares to be used
to fund the exploration at the Froome Zone within the Black Fox Complex. The
proceeds were fully spent during 2016.
During the year ended December 31, 2017, the Company issued a
total of 993,684 common shares, valued at $0.6 million, for severance and other
payments to former employees.
b) Warrants
As at January 1, 2015, the Company had 20.8 million warrants
outstanding which were exercisable to purchase 20.8 million common shares at a
price of C$8.00 until July 20, 2015. On July 21, 2015, these warrants expired
unexercised. Accordingly, the carrying value of $34.8 million was reclassified
to contributed surplus net of income taxes on the expired warrants of $4.7
million.
43
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
c) Share-based compensation
The movement in contributed surplus and phantom share liability
related to share-based compensation during the years ended December 31, 2017,
2016 and 2015 are as follows:
|
|
Contributed
Surplus
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred share
|
|
|
|
|
|
|
|
|
Phantom share
|
|
|
|
2013 Plan PSUs
|
|
|
Stock options
|
|
|
units
|
|
|
Others
|
|
|
Total
|
|
|
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2015
|
$
|
3,020
|
|
$
|
18,539
|
|
$
|
-
|
|
|
($33
|
)
|
$
|
21,526
|
|
$
|
4,037
|
|
Expercise of stock options
|
|
-
|
|
|
(294
|
)
|
|
-
|
|
|
-
|
|
|
(294
|
)
|
|
-
|
|
PSUs settled in shares
|
|
(4,404
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,404
|
)
|
|
-
|
|
PSUs settled in cash
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,205
|
)
|
Expiry of warrants
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,046
|
|
|
30,046
|
|
|
-
|
|
Share-based compensation expense
|
|
5,769
|
|
|
1,964
|
|
|
377
|
|
|
-
|
|
|
8,110
|
|
|
829
|
|
At December 31, 2015
|
$
|
4,385
|
|
$
|
20,209
|
|
$
|
377
|
|
$
|
30,013
|
|
$
|
54,984
|
|
$
|
661
|
|
PSUs settled in shares
|
|
(4,851
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,851
|
)
|
|
(110
|
)
|
PSUs settled in cash
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(377
|
)
|
Share-based compensation expense
|
|
6,420
|
|
|
1,897
|
|
|
407
|
|
|
-
|
|
|
8,724
|
|
|
(131
|
)
|
At December 31, 2016
|
$
|
5,954
|
|
$
|
22,106
|
|
$
|
784
|
|
$
|
30,013
|
|
$
|
58,857
|
|
$
|
43
|
|
PSUs settled in shares
|
|
(6,117
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,117
|
)
|
|
-
|
|
Severance payments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5
|
)
|
|
(5
|
)
|
|
-
|
|
Share-based compensation expense
|
|
3,657
|
|
|
1,002
|
|
|
236
|
|
|
-
|
|
|
4,895
|
|
|
(18
|
)
|
At December 31, 2017
|
$
|
3,494
|
|
$
|
23,108
|
|
$
|
1,020
|
|
$
|
30,008
|
|
$
|
57,630
|
|
$
|
25
|
|
(i) Stock options
Under the Companys stock option plan (the Plan), the number of
common shares that may be issued on the exercise of options granted under the
Plan is equal to 10% of the issued and outstanding shares of the Company at the
time an option is granted (less any common shares reserved for issuance under
other share-based compensation arrangements).
A summary of the Companys stock option activities for the
years ended December 31, 2017, 2016 and 2015 is presented below.
|
|
Options
|
|
|
Weighted average
|
|
|
|
outstanding
|
|
|
exercise price
|
|
Outstanding at January 1,
2015
|
|
9,254,224
|
|
|
C$6.17
|
|
Granted
|
|
1,617,870
|
|
|
4.23
|
|
Exercised
|
|
(300,000
|
)
|
|
3.47
|
|
Cancelled/Forfeited
|
|
(71,875
|
)
|
|
5.68
|
|
Expired
|
|
(6,254,021
|
)
|
|
6.17
|
|
Outstanding at December 31, 2015
|
|
4,246,198
|
|
|
C$5.70
|
|
Granted
|
|
2,782,317
|
|
|
2.68
|
|
Cancelled/Forfeited
|
|
(3,500
|
)
|
|
4.52
|
|
Expired
|
|
(499,771
|
)
|
|
8.78
|
|
Outstanding at December 31, 2016
|
|
6,525,244
|
|
|
C$4.17
|
|
Granted
|
|
2,057,589
|
|
|
0.75
|
|
Cancelled/Forfeited
|
|
(437,084
|
)
|
|
1.57
|
|
Expired
|
|
(1,334,433
|
)
|
|
5.54
|
|
Outstanding at December 31, 2017
|
|
6,811,316
|
|
|
C$3.04
|
|
The following table summarizes the weighted average assumptions
used in the Black-Scholes valuation model for the determination of the cost of
stock options issued during the years ended December 31, 2017, 2016 and 2015.
44
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Risk free interest rate
|
|
0.95%
|
|
|
0.55%
|
|
|
0.95%
|
|
Expected life in years
|
|
3.50
|
|
|
3.50
|
|
|
3.50
|
|
Volatility
|
|
72.90%
|
|
|
63.92%
|
|
|
59.27%
|
|
Expected dividends
|
|
0.00%
|
|
|
0.00%
|
|
|
0.00%
|
|
Forfeiture rate
|
|
5.00%
|
|
|
5.00%
|
|
|
5.00%
|
|
Weighted average fair value of options issued
|
|
C$0.39
|
|
|
C$0.80
|
|
|
C$1.73
|
|
As at December 31, 2017, the following stock options were
outstanding and exercisable:
Awards Outstanding
|
|
|
Awards
Exercisable
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
|
contractual
|
|
|
average
|
|
|
|
|
|
contractual
|
|
|
average
|
|
Range of exercise
|
|
|
|
|
life
|
|
|
exercise
|
|
|
|
|
|
life
|
|
|
exercise
|
|
price per share
|
|
Quantity
|
|
|
(in years)
|
|
|
price
|
|
|
Quantity
|
|
|
(in years)
|
|
|
price
|
|
C$0.75 -C$2.00
|
|
2,165,143
|
|
|
4.17
|
|
|
C$0.84
|
|
|
115,980
|
|
|
3.89
|
|
|
C$1.36
|
|
C$2.01-C$5.00
|
|
3,918,004
|
|
|
2.64
|
|
|
3.46
|
|
|
3,204,048
|
|
|
2.57
|
|
|
3.52
|
|
C$5.01-C$8.00
|
|
728,169
|
|
|
1.23
|
|
|
7.28
|
|
|
728,169
|
|
|
1.23
|
|
|
7.28
|
|
|
|
6,811,316
|
|
|
2.98
|
|
|
C$3.04
|
|
|
4,048,197
|
|
|
2.37
|
|
|
C$4.13
|
|
(ii) Phantom Share Unit Plan (PSUP) and Directors PSU Plan
(Directors PSUP)
PSUP is a cash-settled plan. The amount to be paid for vested
units is based on the volume weighted average price per share of the Company
traded on the Toronto Stock Exchange over the last twenty trading days preceding
the vesting date.
A person holding Director PSUs is entitled to elect to receive
at vesting, either a cash amount equal to the number of Directors PSUs that
vest multiplied by the volume weighted average trading price per common share
over the five preceding trading days, or the number of common shares equal to
the number of Directors PSUs. If no election is made, the Company will pay out
such Directors PSUs in cash.
A summary of the unit activity for the years ended December 31,
2017, 2016 and 2015 under the PSUP and the Directors PSUP is presented below.
|
|
PSUP
|
|
|
Directors PSUP
|
|
Outstanding at January 1,
2015
|
|
1,329,080
|
|
|
186,063
|
|
Redeemed
|
|
(1,088,066
|
)
|
|
(198,575
|
)
|
Granted
|
|
-
|
|
|
223,883
|
|
Cancelled
|
|
(7,437
|
)
|
|
-
|
|
Outstanding at December 31,
2015
|
|
233,577
|
|
|
211,371
|
|
Redeemed
|
|
(189,961
|
)
|
|
(136,744
|
)
|
Cancelled
|
|
(3,896
|
)
|
|
-
|
|
Outstanding at December 31, 2016
|
|
39,720
|
|
|
74,627
|
|
Redeemed
|
|
(36,887
|
)
|
|
-
|
|
Cancelled
|
|
(2,833
|
)
|
|
-
|
|
Outstanding at December 31, 2017
|
|
-
|
|
|
74,627
|
|
Units issued under the PSUP and Directors PSUP are accounted
for as cash-settled awards. All of the units issued under the PSUP and Directors
PSUP have been measured at the reporting date using their fair values. The total
amount recognized in the statement of operations and comprehensive loss during
the year ended December 31, 2017 in relation to the PSUP and Directors PSUP was
an expense of $0.02 million (2016 recovery of $0.1 million and 2015 - $0.8 million expense) recognized under general and
administrative expenses. The total liability recognized at December 31, 2017 in
respect of the PSUP and Directors PSUP was less than $0.1 million (December 31,
2016 less than $0.1 million and December 31, 2015 - $0.7 million) which is
classified as a current liability, reported within trade and other payables.
45
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
(iii) 2013 PSU Plan (2013 PSUP)
A person holding PSUs issued under this plan is entitled to
receive at vesting either a cash amount equal to the number of 2013 PSUs that
vest multiplied by the volume weighted average trading price per common share
over the five preceding trading days, or the number of common shares equal to
the number of PSUs, or a combination of cash and equity. The choice of
settlement is solely at the Companys discretion.
A summary of the unit activity for the years ended December 31,
2017, 2016 and 2015 under the 2013 PSUP is presented below.
|
|
December 31
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Opening balance
|
|
4,670,104
|
|
|
2,088,902
|
|
|
1,152,464
|
|
Redeemed
|
|
(2,946,800
|
)
|
|
(1,324,092
|
)
|
|
(958,515
|
)
|
Granted
|
|
4,410,812
|
|
|
4,046,139
|
|
|
1,960,463
|
|
Cancelled
|
|
(951,495
|
)
|
|
(140,845
|
)
|
|
(65,510
|
)
|
|
|
5,182,621
|
|
|
4,670,104
|
|
|
2,088,902
|
|
The 2013 PSUP is accounted for as an equity-settled plan. All
of the outstanding units have been measured at the reporting date using their
grant date fair value, calculated based on the grant date closing price of
Primero shares on the TSX. The total amount of expense recognized in the
statement of operations and comprehensive loss for the year ended December 31,
2017 in relation to the 2013 PSUP was $2.9 million (2016 - $4.9 million and 2015
- $6.8 million).
(iv) Deferred share units
A person holding deferred share units (DSUs) under this plan is
entitled to receive at vesting, either a cash payment equal to the redemption
value of the DSUs, shares issued from treasury equal to the number of DSUs,
shares purchased on the stock exchange, or any combination of these, such that
the cash payment plus number of shares delivered have a value equal to the
redemption value of the DSUs. The choice of settlement is solely at the
Companys discretion.
The redemption value is calculated by the number of DSUs
redeemed multiplied by the weighted average price per share traded on the TSX
over the last five trading days preceding the redemption date.
As at December 31, 2017, a total of 315,790 DSUs were issued
and outstanding. The DSUP is accounted for as an equity-settled plan. All of the
outstanding units have been measured at the reporting date using their grant
date fair value, calculated based on the grant date closing price of Primero
shares on the TSX. The total amount of expense recognized in the statements of
operations and comprehensive loss for the year ended December 31, 2017 was $0.2
million (2016 - $0.4 million and 2015 - $0.4 million).
46
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Basic loss per share amounts are calculated by dividing the net
loss for the year by the weighted average number of common shares outstanding
during the year.
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net loss attributable to
shareholders
|
|
|
|
|
|
|
|
|
|
Basic
|
|
($409,685
|
)
|
|
($234,420
|
)
|
|
($106,910
|
)
|
Diluted
|
|
(409,685
|
)
|
|
(234,420
|
)
|
|
(106,910
|
)
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
|
Basic
|
|
191,738,274
|
|
|
177,569,024
|
|
|
162,340,566
|
|
Diluted
|
|
191,738,274
|
|
|
177,569,024
|
|
|
162,340,566
|
|
Basic loss per share
|
|
($2.14
|
)
|
|
($1.32
|
)
|
|
($0.66
|
)
|
Diluted loss per share
|
|
($2.14
|
)
|
|
($1.32
|
)
|
|
($0.66
|
)
|
For the year ended December 31, 2017, 28,411,463 common shares
which are issuable from outstanding stock options, 2013 PSUs, DSUs and from the
5.75% convertible debentures (2016 26,928,026 common shares and 2015
32,143,546 common shares ) were excluded from the calculation of diluted loss
per share as they would be considered to be anti-dilutive.
a) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in
banks and highly liquid investments with an original maturity of 90 days or
less.
b) Restricted cash
The Company does not have any restricted cash at December 31,
2017. At December 31, 2016, restricted cash of $4.6 million (C$6.2 million)
represented collateralized cash held for a letter of credit securing C$20.5
million of closure bonds held with the Ontario Ministry of Northern Development
and Mines (MNDM). This was released in 2017, following the sale of the Black
Fox Complex.
20.
|
Decommissioning liability
|
As at December 31, 2017, the decommissioning liability consists
of reclamation and closure costs for the San Dimas mine. As at December 31,
2016, the decommissioning liability consists of reclamation and closure costs
for the San Dimas mine and the Black Fox Complex. The undiscounted cash flow
amount of the total obligation was $30.7 million at December 31, 2017 (2016 -
$59.6 million) and the present value of the obligation was estimated at $11.6
million (2016- $29.8 million).
47
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
San Dimas
|
|
|
Black Fox
|
|
|
Total
|
|
Decommissioning liability,
January 1, 2016
|
|
9,324
|
|
|
18,970
|
|
|
28,294
|
|
Accretion expense
|
|
723
|
|
|
320
|
|
|
1,043
|
|
Change in estimated timing of cash flows
|
|
(167
|
)
|
|
620
|
|
|
453
|
|
At December 31, 2016
|
|
9,880
|
|
|
19,910
|
|
|
29,790
|
|
Accretion expense
|
|
766
|
|
|
208
|
|
|
974
|
|
Foreign exchange, estimated timing and other
adjustments
|
|
1,000
|
|
|
-
|
|
|
1,000
|
|
Disposition
|
|
-
|
|
|
(20,118
|
)
|
|
(20,118
|
)
|
At
December 31, 2017
|
$
|
11,646
|
|
$
|
-
|
|
$
|
11,646
|
|
The discount rates used by the Company in 2017, and 2016 are
based on prevailing risk-free pre-tax rates in Mexico and Canada, respectively,
for periods of time which coincide with the period over which the
decommissioning costs are discounted. The following table summarizes the
assumptions used in provision for the years ended December 31, 2017 and 2016:
|
|
Expected years
|
|
|
Discount rate
|
|
|
Inflation rate
|
|
2017
|
|
|
|
|
|
|
|
|
|
San
Dimas
|
|
16 yrs
|
|
|
7.39%
|
|
|
3.50%
|
|
2016
|
|
|
|
|
|
|
|
|
|
San Dimas
|
|
17 yrs
|
|
|
7.75%
|
|
|
3.40%
|
|
Black Fox Complex
|
|
5 yrs
|
|
|
2.34%
|
|
|
2.00%
|
|
The Companys primary objective in managing capital is to
ensure sufficient liquidity through the conclusion of the Arrangement Agreement
with First Majestic.
The Companys capital items are the following:
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Cash and cash equivalents
|
$
|
20,966
|
|
$
|
19,875
|
|
Undrawn revolving credit facility
|
|
4,799
|
|
|
25,000
|
|
Current debt
|
|
30,310
|
|
|
50,841
|
|
Long-term debt
|
|
47,625
|
|
|
52,906
|
|
Shareholders' equity
|
|
59,731
|
|
|
461,130
|
|
To support the Companys capital management objectives, the
Company manages its capital structure and makes adjustments to it within the
context of the Companys strategy, economic conditions and risk characteristics
of its underlying assets. To maintain or adjust its capital structure, the
Company may attempt to issue shares, adjust the amount of debt or enter into new
debt. The Company does not currently pay out dividends. Utilization of the
undrawn RCF requires consent from WPM.
As at December 31, 2017, the Company was not subject to any
financial covenants and was in compliance with all non-financial covenants.
48
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
22.
|
Financial instruments
|
The Companys financial instruments at December 31, 2017
consist of cash and cash equivalents, trade and other receivables, an equity
investment in Fortune Bay, trade and other payables, and debt.
At December 31, 2017, the carrying amounts of cash and cash
equivalents, trade and other receivables, trade and other payables, and the RCF
are considered to be a reasonable approximation of their fair values due to
their short-term nature. The fair value of the finance lease liabilities
approximate their carrying value as the interest rate implicit in the leases
approximate current market rates.
Derivative instruments - Embedded derivatives
Financial instruments and non-financial contracts may contain
embedded derivatives, which are required to be accounted for separately at fair
value as derivatives when the risks and characteristics of the embedded
derivatives are not closely related to those of their host contract and the host
contract is not carried at fair value. The Company regularly assesses its
financial instruments and non-financial contracts to ensure that any embedded
derivatives are accounted for in accordance with its policy. There were no
material embedded derivatives requiring separate accounting at December 31, 2017
or December 31, 2016 other than those discussed below.
The 5.75% convertible debentures issued by the Company on
February 9, 2015 (Note 10 (c)) are considered to contain multiple embedded
derivatives. These debentures and all related derivatives were accounted for as
one instrument which was initially recognized at fair value and will
subsequently be measured at fair value for each period during the term of the
debentures. During the year ended December 31, 2017 a mark to market gain of
$4.9 million (2016 $9.0 million) was recognized in relation to the debentures.
The common share purchase warrants issued by the Company on
June 24, 2016 (Note 17 a)) are considered derivative liabilities and were
initially recognized at fair value and are subsequently measured at fair value
during the term of the warrants. During the year ended December 31, 2017, a
mark-to-market gain of $1.0 million (2016 - $3.6 million) was recognized in
relation to the common share purchase warrants.
Fair value measurements of financial assets and liabilities
recognized on the Consolidated Statements of Financial Position
The categories of the fair value hierarchy that reflect the
significance of inputs used in making fair value measurements are as follows:
Level 1 quoted prices in active markets for identical assets
or liabilities;
Level 2 inputs other than quoted prices included in Level
1 that are observable for the asset or liability, either directly (i.e., as
prices) or indirectly (i.e., derived from prices); and
Level 3 inputs for
the asset or liability that are not based on observable market data.
49
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
The levels in the fair value hierarchy that the Companys
financial assets and liabilities that are measured and recognized at fair value
on a recurring basis are as follows:
|
|
December 31
|
|
|
December 31
|
|
Level 1
|
|
2017
|
|
|
2016
|
|
Investment in Fortune Bay
(1)
|
$
|
910
|
|
$
|
1,160
|
|
5.75% convertible debentures
(2,3)
|
|
47,625
|
|
|
52,500
|
|
Warrant liability
(2)
|
|
44
|
|
|
1,066
|
|
1.
|
Fortune Bay is a publicly-listed company and the fair
value is based on the trading price of its shares as at the date of the
statement of financial position.
|
2.
|
The fair value of the 5.75% convertible debentures and
the warrant liability are calculated using the respective market prices on
the TSX Exchange as at the date of the statement of financial
position.
|
3.
|
On March 13, 2018, the holders of the 5.75% convertible
debentures voted to approve an amendment to the maturity date of the
debentures to the day following the closing date of the Arrangement with
full principal of $75 million paid on this date.
|
At December 31, 2017, there were no financial assets or
liabilities measured and recognized on the consolidated statements of financial
position at fair value that would be categorized as Level 3 in the fair value
hierarchy (December 31, 2016 $nil).
The following describes the types of financial instrument risks
to which the Company is exposed and its objectives and policies for managing
those risk exposures:
a) Credit risk
Credit risk is the risk that the counterparty to a financial
instrument will cause a financial loss for the Company by failing to discharge
its obligations. Credit risk is primarily associated with trade and other
receivables; however, it also arises on cash and cash equivalents and restricted
cash. To mitigate exposure to credit risk on financial assets, the Company
ensures non-related counterparties demonstrate minimum acceptable credit
worthiness and ensures liquidity of available funds.
The Company closely monitors its financial assets and does not
have any significant concentration of credit risk with non-related parties. The
Company invests its cash and cash equivalents in highly rated financial
institutions and sells its products exclusively to organizations with strong
credit ratings. The credit risk associated with trade receivables at December
31, 2017 is considered to be negligible. The Company expects the outstanding VAT
receivable from the Mexican tax authorities to be refunded or be offset against
future tax payments. Approximately $15.2 million was refunded since July 2017.
The Companys maximum exposure to credit risk at December 31,
2017, and 2016 is as follows:
|
|
2017
|
|
|
2016
|
|
Cash and restricted cash
|
$
|
20,966
|
|
$
|
24,452
|
|
Trade and other receivables
|
|
1,241
|
|
|
1,962
|
|
Current and non-current taxes receivable
|
|
40,789
|
|
|
41,838
|
|
|
$
|
62,996
|
|
$
|
68,252
|
|
b) Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. The Companys objectives and key guidelines for capital
management, including management of long-term debt, are described in note 21.
Further considerations in our liquidity risk are described in note 15 (c).
50
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
If the Arrangement Agreement to sell the Company to First
Majestic is terminated for any reason, there would be significant uncertainy as
to whether the Company could discharge its commitments as they come due from
cash from operations and collection of receivables without an extension of the
RCF maturity date or other form of re-financing.
The table below shows the Companys liquidity risk profile at
December 31, 2017:
|
|
Within 1
|
|
|
2-5
|
|
|
Total
|
|
(in thousands of U.S. dollars)
|
|
year
|
|
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
20,966
|
|
$
|
-
|
|
$
|
20,966
|
|
Trade and other payables
|
|
(19,593
|
)
|
|
-
|
|
|
(19,593
|
)
|
Revolving credit facility
balance and interest
|
|
(30,657
|
)
|
|
-
|
|
|
(30,657
|
)
|
Finance lease liabilities
|
|
(109
|
)
|
|
-
|
|
|
(109
|
)
|
5.75% Convertible debentures and interest
|
|
(4,313
|
)
|
|
(80,010
|
)
|
|
(84,323
|
)
|
Total
|
|
($33,706
|
)
|
|
($80,010
|
)
|
|
($113,716
|
)
|
Refer to note 2 b) for the Companys plans to address liquidity
risk associated with the current working capital deficiency. The Company has
entered into commercial leases on certain types of equipment and office space
which have been classified as operating leases. These leases have terms of
between 1 and 6 years. There are no restrictions placed on the Company as a
result of entering into these leases. Some of the leases contain renewal or
purchase options at the end of the lease. The total operating lease expense from
continuing operations during the year ended December 31, 2017 was $0.9 million
(2016 - $0.8 million and 2015 - $1.2 million).
c) Market risk
(i) Currency risk
Currency risk is the risk that the fair values or future cash
flows of the Companys financial instruments will fluctuate because of changes
in foreign currency exchange rates. Exchange rate fluctuations may affect the
costs incurred in the Companys operations. Gold is sold in US dollars and costs
are incurred principally in US dollars, Canadian dollars and Mexican pesos. The
appreciation of the Mexican peso or the Canadian dollar against the U.S. dollar
can increase the costs of gold production and capital expenditures in US dollar
terms. The Company also holds cash that is denominated in Canadian dollars and
Mexican pesos which are subject to currency risk. The Companys head office
general and administrative expenses are mainly denominated in Canadian dollars
and are translated to US dollars at the average rate during the period, and as
such if the US dollar appreciates as compared to the Canadian dollar, the costs
of the Company would decrease in US dollar terms. The Company is further exposed
to currency risk through non-monetary assets and liabilities of its Mexican
entities whose taxable profit or loss is denominated in a non-US dollar
currency. Changes in exchange rates give rise to temporary differences resulting
in a deferred tax liability or asset with the resulting deferred tax charged or
credited to income tax expense.
During the year ended December 31, 2017, the Company recognized
a loss of $4.5 million on foreign exchange (2016 loss of $1.0 million and 2015
gain of $0.1 million). Based on the above net exposures at December 31, 2017, a 10% depreciation or
appreciation of the Mexican peso against the U.S. dollar would result in a $1.6
million increase or decrease in the Companys before-tax net loss from
continuing operations (2016 - $1.4 million and 2015 - $0.03 million); and a 10%
depreciation or appreciation of the Canadian dollar against the U.S. dollar
would result in a $0.2 million increase or decrease in the Companys before-tax
net loss from continuing operations (2016 - $2.7 million and 2015 - $1.6
million).
51
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
The Company does not currently use derivative instruments to
reduce its exposure to currency risk, however, management monitors its differing
currency needs and tries to reduce its exposure to currency risks through
exchanging currencies at what are considered to be optimal times.
(ii) Interest rate risk
Interest rate risk is the risk that the fair values and future
cash flows of the financial instruments will fluctuate because of changes in
market interest rates. The exposure to interest rates is monitored. The
Companys exposure to interest rate risk is limited to the revolving credit
facility which is subject to a floating interest rate. An increase or decrease
of 100 basis points in the interest rate would result in a decrease or increase
in profit before tax of $0.3 million (assuming $30.2 million drawn on the line
of credit).
(iii) Price risk
Price risk is the risk that the fair value or future cash flows
of the Companys financial instruments will fluctuate because of changes in
commodity prices. Profitability depends on sales prices for gold and silver.
Metal prices are affected by numerous factors such as the sale or purchase of
gold and silver by various central banks and financial institutions, interest
rates, exchange rates, inflation or deflation, fluctuations in the value of the
U.S. dollar and foreign currencies, global and regional supply and demand, and
the political and economic conditions of major producing countries throughout
the world.
The table below summarizes the impact on profit before tax for
a 10% change in the average commodity price achieved by the Company during the
year. The analysis is based on the assumption that the gold and silver prices
move 10% with all other variables held constant.
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Gold price
|
|
|
|
|
|
|
|
|
|
10% increase
|
$
|
14,081
|
|
$
|
14,084
|
|
$
|
18,091
|
|
10% decrease
|
|
(14,081
|
)
|
|
(14,084
|
)
|
|
(18,091
|
)
|
Silver price
|
|
|
|
|
|
|
|
|
|
10% increase
|
$
|
-
|
|
$
|
222
|
|
$
|
938
|
|
10%
decrease
|
|
-
|
|
|
(222
|
)
|
|
(938
|
)
|
23.
|
Related party transactions
|
Compensation of key management personnel of the Company
The key management personnel of the Company are considered to
be all directors, the Chief Executive Officer, the Chief Financial Officer and
the Chief Operating Officer. Aggregate compensation recognized in respect of key management personnel
of the Company including directors is as follows:
52
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Short-term employee benefits
|
$
|
2,418
|
|
$
|
3,122
|
|
$
|
5,198
|
|
Share-based compensation
|
|
2,409
|
|
|
3,879
|
|
|
2,494
|
|
Termination benefits
|
|
1,395
|
|
|
1,172
|
|
|
-
|
|
|
$
|
6,222
|
|
$
|
8,173
|
|
$
|
7,692
|
|
As at December 31, 2017 $0.9 million (2016 - $0.6 million) of
the short-term employee benefits were outstanding. All of the compensation of
key management personnel was equivalent to that which would be incurred in an
arms length transaction.
24.
|
Commitments and
contingencies
|
(a) An Ejido is a communal ownership of land recognized by the
federal laws in Mexico. While mineral rights are administered by the federal
government through federally issued mining concessions, access to surface rights
is also required for mining operations. An Ejido controls surface rights over
its communal property through an assembly where each of the Ejido members has a
voting right. An Ejido may sell or lease lands directly to a private entity and
it may also allow individual members of the Ejido to obtain title to specific
parcels of land and thus the right to sell or lease the land.
The San Dimas mine uses Ejidos lands pursuant to written
agreements with Ejidos. Some of these agreements may be subject to renegotiation
and changes to the existing agreements may increase operating costs or have an
impact on operations. In cases where access to land is required for operations
and an agreement cannot be reached with the land owner, Primero may seek access
under Mexican law which provides for priority rights for mining activities.
Certain of the properties included in the San Dimas mine and
for which Primero holds legal title have been subject to legal proceedings
commenced by Ejidos seeking title to the property. These proceedings were
initiated against previous owners of the properties, either deceased individuals
who, according to certain public deeds, owned the properties more than 80 years
ago, corporate entities that are no longer in existence, or Goldcorp companies.
As such, Primero initially has no standing to participate in them and may not
receive timely notice of such actions brought or decisions rendered.
Since acquiring the San Dimas mine, Primero has been aware of
four such Ejidos actions, three of which have been finally resolved in favour of
Primeros interests. Primero continues to challenge the fourth outstanding
Ejidos legal claim to defend its position as the legitimate owner of the
subject property. If Primero is not successful in its challenge, the San Dimas
mine could face higher costs associated with agreed or mandated payments that
would be payable to the Ejidos for use of the properties. Further, there can be
no assurance that Ejidos will not engage in legal proceedings to claim interests
in properties owned by Primero in future.
(b) The Company has agreed to indemnify its directors and
officers, and the directors and officers of its subsidiaries, to the extent
permitted under corporate law, against costs and damages incurred as a result of
lawsuits or any other judicial, administrative or investigative proceeding in
which said directors or officers are sued as a result of their services. The
directors and officers are covered by directors and officers liability
insurance.
53
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
In July 2016, the Company and certain officers were served with
a class action lawsuit that was filed earlier in the year in federal court in
the State of California seeking to recover damages for investors in the
Companys common shares under the U.S. federal securities laws. The Company
filed a motion to dismiss this action which was granted on January 30, 2017. The
plaintiffs claims were dismissed without prejudice and the plaintiffs filed an
amended complaint on February 27, 2017. On July 14, 2017 the Companys motion to
dismiss the amended complaint was granted and the plaintiffs claims were
dismissed without prejudice. Rather than amend the complaint again, the
plaintiffs asked the federal court to enter final judgment and initiated an
appeal of the dismissal to the Ninth Circuit Court of Appeals on September 8,
2017. The parties have filed their briefs in this appeal and a ruling on the
appeal is expected sometime in 2018. The Company intends to vigorously defend
this class action lawsuit.
(c) As at December 31, 2017, the Company had entered into
commitments to purchase plant and equipment totaling $0.1 million (December 31,
2016 - $0.5 million).
(d) Due to the size, complexity and nature of the Companys
operations, various legal and tax matters arise in the ordinary course of
business. The Company accrues for such items when a liability is both probable
and the amount can be reasonably estimated.
(e) Under the Silver Purchase Agreement, a subsidiary of
Primero has a commitment to deliver 215 million ounces of silver to WPMI by
October 15, 2031 (the Minimum Silver Amount). In the event the Minimum Silver
Amount is not reached, a payment of $0.50 per ounce for the shortfall ounces is
required (the Minimum Silver Payment). Goldcorp has indemnified Primero, and
will ultimately be responsible for, any amount paid in respect of the Minimum
Silver Payment.
On January 12, 2018, the Company announced that it entered into
the Arrangement Agreement whereby First Majestic will acquire all of the issued
and outstanding common shares of Primero (the "Arrangement"). Under the terms of
the Arrangement Agreement, all of Primeros issued and outstanding common shares
will be exchanged for First Majestic common shares on the basis of 0.03325 of a
First Majestic common share for each Primero common share (the "Exchange
Ratio").
Concurrent with execution of the Arrangement Agreement, First
Majestic has entered into agreements with WPMI, a wholly-owned subsidiary of WPM
whereby, following closing of the Arrangement, the current silver streaming
interest at San Dimas held by WPM will be terminated and First Majestic and WPM
will enter into a new stream arrangement based on 25% of the gold equivalent
production at San Dimas (the "New Stream") with ongoing payments of $600 per
gold equivalent ounce delivered under the agreement. As part of the transaction,
WPM will receive 20,914,590 common shares of First Majestic having an aggregate
value of $151 million.
The Arrangement will also provide for the issuance by First
Majestic of an aggregate of approximately 226,476 replacement stock options
(assuming no exercise of existing Primero options) to Primero optionholders who
do not exercise their Primero options prior to the effective time of the
Arrangement, at exercise prices adjusted by the Exchange Ratio. Under the
Arrangement all existing warrants of Primero will become exercisable to acquire
First Majestic common shares at exercise prices adjusted by the Exchange Ratio.
The Arrangement will also provide that upon the Arrangement becoming effective
all existing deferred share units and phantom share units of Primero will be paid out in cash in an
amount equal to C$0.30 per deferred share unit or phantom share unit.
54
PRIMERO MINING CORP.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
(IN THOUSANDS OF
UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
|
Certain additional amounts payable in connection with the
Arrangement, include repayment of all amounts owing under Primero's existing RCF
and the expected repayment of Primero's $75 million of outstanding convertible
debentures.
On March 13, 2018, the Arrangement was approved by Primero
shareholders. The Company is awaiting anti-trust clearance in Mexico. The
Arrangement is expected to close in late April or early May 2018, subject to
applicable regulatory approvals and the satisfaction of other customary
conditions. In the event that the Arrangement does not close by April 30, 2018, the Company will seek an extension of the RCF.
On March 13, 2018, the debentureholders voted to approve an
amendment to the maturity date of the debentures. Upon the closing of the
Arrangement, the amendment of the trust indenture will accelerate the maturity
date of the Primero Debentures to the next Business Day (as defined in the trust
indenture) following the effective date of the Arrangement.
55