TORONTO (miningweekly.com) – Silver producer Primero Mining on Monday announced it had produced the yearly threshold of 3.5-million ounces of silver and will begin selling 50% of the silver produced at San Dimas at spot prices for its own account until August 5.

Primero said it expected to sell between 900 000 oz and one-million ounces of silver at spot realised prices during this period. Silver traded at $23.43/oz on Monday on the spot market.

The company assumed the silver purchase agreement with streaming firm Silver Wheaton when it bought the San Dimas mine from Goldcorp in 2010, and the agreement was renegotiated in order for Primero to participate in the silver produced above the yearly threshold amount.

"We expect the increased silver revenue derived from our increasing production to improve our profitability and leverage to precious metals. This, combined with the positive tax ruling that was obtained in October 2012, which confirmed that Primero should pay taxes based on realised prices of silver sales, has significantly increased expected free cash flow," president and CEO Joseph Conway said in a statement.

The metals-streaming agreement, which initially involved the sale of all of the payable silver produced for the mine’s first 25 years, was amended when Primero acquired the mine, to an obligation to sell Silver Wheaton the first 3.5-million ounces of payable silver produced a year, including half of any excess production at $4.04/oz, which is provided with a 1% yearly increase to cover inflation, until August 5, 2014.

Thereafter, Silver Wheaton would benefit from the sale of the first six-million ounces of payable silver produced a year, including half of any excess at the higher price of $4.20, plus the 1% to cover inflation.

The silver purchase agreement stipulated that at least 215-million cumulative silver ounces had to be delivered to Silver Wheaton by the end of 2031.

Primero in March said the probable gold mineral reserves for its San Dimas mine, in Mexico, increased by 31% to 660 400 oz and indicated gold resources also increased by 35% to 779 600 oz, which included mineral reserves.

Primero’s Toronto-listed stock on Monday traded at C$5.38 a share.