September 8, 2011 / 5:08 PM / 7 years ago

UPDATE 2-Primero cuts output forecast, shares sink

* Production hurt by strike, low gold grades

* To produce 80,000-85,000 oz gold in 2011

* Shares fall 16 pct (Adds details in paragraphs 2-5, background in paragraph 6, updates share movement)

Sept 8 (Reuters) - Primero Mining Corp cut its production outlook for 2011, hit by a month-long strike at a Mexico mine and lower-than-expected gold grades, sending its shares down to their lowest in about 17 months.

The Canadian miner now expects to produce 80,000-85,000 ounces of gold this year, lower than the 90,000-100,000 ounces it forecast earlier. It maintained its silver production forecast at 4.5-5 million ounces.

Primero, which owns the San Dimas gold-silver mine in Mexico, said a mill workers’ strike in April and lower ore grades in the mine’s central block also means it might have to spend more for every ounce of metal extracted from the ground.

Cash costs for 2011 are now expected to be $610-$630 per gold equivalent ounce, up 10 percent from its earlier budget.

“During the mill worker strike, we continued to mine ore and had hoped to meet original guidance by processing the stockpiled ore in addition to daily production,” CEO Joseph Conway said in a statement.

Last month, bigger rival Northgate Minerals’ C$370 million bid for Primero fell through, after Northgate itself received a C$1.46 billion buyout offer from Mexico-focused miner AuRico Gold .

Shares of the company fell 16 percent to C$3.00, before recouping some losses to trade down 12 percent at C$3.14, in afternoon trade on the Toronto Stock Exchange. (Reporting by Abhiram Nandakumar in Bangalore; Editing by Sayantani Ghosh)

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