On October 15, 2004, the previous owner of the San Dimas mine, entered into a silver purchase agreement to sell 100% of the payable silver produced for a period of 25 years to a subsidiary of Silver Wheaton Corp.

On August 6, 2010, upon Primero’s acquisition of the San Dimas mine, the silver purchase agreement was amended. Primero assumed the obligation to sell Silver Wheaton the first 3.5 million ounces of payable silver produced per year plus 50% of any excess at $4.04 per ounce (plus 1% inflation) until 2014. From 2015 until the end of the mine life Primero will sell Silver Wheaton the first 6 million ounces of payable silver produced per year plus 50% of any excess at $4.20 (plus 1% inflation) per ounce. Primero sells the remainder of the silver produced at spot market prices, considerably increasing revenues. The silver purchase agreement provides that a minimum of 215 million cumulative silver ounces must be delivered to Silver Wheaton by the end of 2031and any shortfall is the obligation of Goldcorp Inc., which will be required to make a payment of $0.50 per ounce below 215 million ounces.

While silver sales under the silver purchase agreement realize approximately $4 per ounce, the Company’s income taxes are currently assessed based on all silver sales at spot market prices. In October 2011, Primero filed a formal application to the Mexican tax authorities for an advance tax ruling on a restructuring plan that, if successful, would result in Primero paying income taxes in Mexico based on revenue from actual realized prices rather than theoretical spot prices.

Primero utilizes on-going silver call options to limit the tax liability associated with its silver purchase agreement. In September 2011 the Company purchased call options on 1,489,400 ounces of silver at a strike price of US$49 on 30% of silver production expected to be sold under its silver purchase agreement over the period from October 1, 2011 to September 30, 2012. By covering 30% of expected sales under the silver purchase agreement, these call options were designed to offset the incremental income tax that would be payable by the Company if spot prices exceed the strike price.