SSR Mining Inc (SSRM) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Silver Standard Resources second quarter financial results and project update. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, August 11, 2008. It is now my pleasure to introduce your host, Mr. Robert Quartermain, President and CEO. Please go ahead, sir.

Thank you, Jennifer. Good morning, ladies and gentlemen, and welcome to Silver Standard's second quarter conference call, updating you on our projects and reviewing our financial results. On the call with me in Vancouver this morning, I have George Paspalas, our Senior Vice President of Operations; Joe Ovsenek, our Senior Vice President of Corporate; Tom Yip, our Vice President of Finance and Chief Financial Officer; and Paul LaFontaine, Director of Investor Relations in Toronto.

Our financial statements as well as our management discussion with project updates have been filed with SEDAR and are available on our website. We have a visual presentation that will accompany our comments today, which can be found at the SNwebcaster.com location referenced in our press release. We continue to expand on the advances we made in the first quarter with Pirquitas as our first priority. Before updating you on our many project activities, I would first like to turn the call over to Tom Yip, our Chief Financial Officer, to speak to our solid balance sheet and run you through our financial performance. Tom?

Thanks. During the second quarter, we continue to make excellent progress on our projects. As we are a developing company, we have no operating income. So for the P&L, we have a net loss of C$5.5 million or C$0.09 a share, similar to the net loss of C$5 million or C$0.08 a share in the second quarter of 2007. This year's quarter's results include three significant items. Employee compensation of C$3 million versus C$4.6 million in 2007. This includes a noncash stock-based compensation expense of C$2.4 million this year versus C$4 million last year. Stock based compensation is based on the Black Shoals valuation of stock options granted and advertised over the vesting period. General administration including professional fees was C$1.6 million versus C$1.8 in 2007 and interest expense on the new convertible debt issued in February of this year accounted for C$1.4 million.

In terms of cash flow, during the first quarter, we increased our financial resources through the proceeds of the convertible debt issue and sale of silver bullion and began the second quarter with C$229 million. As we continue to execute our plans during the quarter, we spent C$43 million on our projects, the bulk of which -- C$31 million -- was spent on Pirquitas. To date we have occurred approximately $104 million of the estimated $220 million total construction costs to build the Pirquitas mine. We ended the quarter with C$185 million in cash.

With respect to working capital, we ended the quarter with C$195 million, of which C$185 was in cash. This excludes our asset backed commercial paper which we have reclassed as a long-term asset. In addition, at the quarter end, we closed on the sale of the Shafter property located in Texas. The cash component of the consideration was C$23 million. So, in summary, with our current liquidity, we're well positioned to complete this construction of Pirquitas as well as the planned activity at our other key projects. Back to you, Bob.

Great, thank you, Tom. I would now like to turn the call over to George Paspalas, Senior Vice President of Operations. George will take us through the advances that we're making at the Pirquitas project as we move to plant commissioning in the fourth quarter of this year. George?

Thanks, Bob. I'll commence talking to slide five for those following on the webcast. We are going well at the end of the project. We are on track for quarter four commissioning. In fact, we have started to commission infrastructure and support systems as they become completed. Our budget of C$220 million is still an achievable target for us. All of our critical pieces of equipment is now in country and equipment installation will be the focus area moving forward now. The water and gas pipelines are in the ground. Their installation is complete. The truck shop, warehouse, along with maintenance offices are complete and the mine operations teams have moved into continuous shift prestripping mining operations after completing all of the construction bulk earthworks. We've hired about 35 process plant operators at the moment and they're now undergoing intensive process commissioning training. Our largest single concrete pour on the project was conducted last month when the ball mill foundations were cut.

Moving on to slide six, here we see the final pit straddling the Pirquitas Gorge in the upper right corner of the slide. This pit is pushed out from the original pit, given the November 2007 and May 2008 reserve increases. And the average strip ratio has come down from an original 4.8 to 1 to 3.4 to 1 -- a nice outcome.

As slide seven shows, we have fully advanced on continuous shift mining operations now, free stripping the pit. The initial [pit] will be used in conjunction with pilings from the old jig circuit located adjacent to the process facility. This material runs at least the average silver and tin grade to the open pit, providing for very cheap mining cost initially being next to the plant and removes the potential metal bearing material from the Pirquitas River Basin, which is a great outcome from both a cash flow and a long-term environmental perspective.

Slide eight shows a three dimensional model of the processed facility we're constructing. The large building in the center of the model is the process, building which is a critical path item to projection execution. The power station is in the left foreground and the crushing and screening plant piling storage and process water in the background.

Moving on to slide nine, here we see the progress we've made since our last quarterly call. The civil and foundation works have been completed and the structural steel erection is progressing very well. Here, you can see the primary and secondary crush of buildings in the foreground, the process facility in the background. The crushing equipment is on site and will be installed over the next quarter.

Slide ten shows the process building. The structural steel erection is nearing completion and work has commenced on cutting the building and installing the process equipment internally within the building.

Moving to slide 11, here we see the power station going up with the process facility structure in the background. We're in good shape on power. The gas pipeline as I said is already in the ground. But the primary and secondary generators are ready for installation, and commissioning of the power system will commence mid September.

Slide 12 shows the heavy equipment workshop warehouse and maintenance offices. These are completed and ready for use.

So, wrapping up on slide 13, we made good progress out of the quarter and we're still on target for quarter four this year for commissioning. This coming quarter will see us fully commission the water supply and power systems, install and commission the front end crushing systems, and see significant progress on the installation of the silver flotation circuit. Operations will continue open pit prestripping and commissioning training and actually get their hands dirty and do some commissioning. That's it for the quarter. We made good progress. Back to you.

Great, George. Thanks very much for an excellent update on the status of Pirquitas. I would like to run you through our other project developments.

I'll start with slide 14 on the webcast. At Pitarrilla in Mexico, we completed a resource update in July, increasing overall resources by 14%. Measured resources now total 148 million ounces of silver, indicated resources total 452.5 million ounces, and inferred resources totaling 61 million ounces, placing Pitarrilla among the largest of recent silver discoveries. Through the first part of this year, we were successful in moving a large number of resources from inferred into measured and indicated categories.

Infill and exploration drilling of the Breccia Ridge Zone is ongoing as we extend this zone to the east and to the north. Work on a 2.5 kilometer long decline to provide underground drilling stations for the higher grade silver and base metal mineralization of the Breccia Ridge Zone is ongoing. The portal and more than 700 meters of ramp excavation have been completed to date. An engineering prefeasibility study is in progress and has focused on the economics developing the underground sulfide associated higher grade silver and base mineralization beneath Breccia Ridge, with a study on the open pit mining phase of Breccia Ridge and the other four zones to follow. Over 50% of the Pitarrilla resource is within the BreccIa Ridge Zone. Pitarrilla is owned 100% by Silver Standard.

At the San Luis joint venture in Peru, we're focused on two areas -- the Ayelen Vein and the BP Zone. To date, we've undertaken approximately 3,000 meters of diamond drilling and nine holes in the BP Zone, where brecciated volcanic rocks host copper sulfide/lead sulfide mineralization. Permits have been received for underground exploration, and tunneling on the Ayelen Vein is scheduled to begin in the third quarter of this year, followed by feasibility study on developing the Ayelen vein. Additionally, we're in the process of preparing a resource estimate for the Ayelen vein which will incorporate all available data, including additional data not included in the previous resource estimate. We expect this update in the third quarter this year.

We're also targeting additional high grade vein systems elsewhere in the [976] square mile property where channeling property has showed structures enriched in gold and silver. Silver Standard presently holds a 55% interest in the San Luis Project and has elected to increase its interest to 70% by completing its feasibility study. Silver Standard has the right to increase its interest in the San Luis project to 80% by placing the project in production.

At Diablillos in Argentina, we're undertaking a second round of infill and exploration drilling ahead of completing an updated resource estimate. This will be followed by a prefeasibility engineering study to estimate the economics of placing the Diablillos project into production. Because of its proximity to Pirquitas, we can use our in country expertise and project synergies to continue to advance this project.

During the first quarter of 2008, Silver Standard reported a significant increase in gold resources at the Snowfield project in northern British Columbia. During the second quarter, we commenced a major drill program and currently have four drills in the property with 15,000 meters of exploration drilling planned for this season. The drilling is primarily focused on the Mitchell East Zone where hole MZ-1 intersected 259 meters, grading 0.71 grams of gold per ton or 850 feet of 0.02 ounce of gold per ton and 0.14% copper. This hole ended mineralization. MZ-1 is located approximately 550 meters east of Seabridge's Gold Mitchell deposit and has been interpreted as a potential continuation of the zone. The objective of the diamond drilling program is to outline the potential continuation of the Mitchell zone, which contains indicated resources of 16 million ounces of gold and inferred resources of 13 million ounces of gold mineralization on the Seabridge property.

In addition to these projects, we have a number of other properties that will be advancing through the remainder of the year. With respect to our nonprincipal silver assets, we'll continue to monetize these on a project by project basis. We currently closed the sale of the Shafter project in Texas with Aurcana, as Tom mentioned. Aurcana paid Silver Standard approximately C$1 per ounce, or C$43 million in cash and stock for this resource.

We've had a successful second quarter with a strong balance sheet and significant advances on our many projects. The tempo of these activities will increase throughout the rest of the year, culminating with transition to producer status with the commission in Pirquitas later this year. Those are the formal remarks. Please note our cautionary comments and forward-looking statements. We'll be pleased to answer any questions which you may have. Jennifer?

(OPERATOR INSTRUCTIONS) The first question comes from Trevor Turnbull from Scotia Capital. Please go ahead.

Hey, Bob, how are you?

Fine, thank you.

Good. I just wondered, George may have actually covered it, his presentation just went by pretty fast. And I was curious, in addition obviously to the power being commissioned, you said mid September, the process building is part of the critical path. Can you get a little more detailed as to when you think you might start wet commissioning with some of the jig tails material? And then over kind of what period of time would you anticipate running that before you would actually start sending primary ore in through the circuits?

Ok. Thanks, Trevor. Fourth quarter is when we're going to be in full swing commissioning. We're still saying we'll be making concentrated first quarter of 2009. We haven't seen anything that will change that for now. That's our guidance at the moment. Full commissioning in the fourth quarter, production fourth quarter '08, production first quarter of '09.

Okay. And as we're getting closer, we've asked this a couple of times. I've just kind of lost track where all of the negotiations are. But in terms of offtake agreements, is everything finalized at this point, Bob, in terms of where the ore is headed? And has there been any change in terms of like credits for indium and such as that?

I'll speak to just to the general comment, then I'll turn it over to George and the fact that we're still in discussions with the offtake agreements. But we're shortlisted and down to final negotiations. George if you want to take that, please.

Thanks, Bob. Trevor, with all of the concentrates, we're dealing principally with smelters and also with some metal traders in intermediate. We haven't finalized any the agreements yet. They're well advanced in particular to silver. That's the first one we want to get out of the gate. That's where 75% of the revenue is.

Okay. And then finally, just I guess a more general question -- in Argentina, there's been some changes politically, just in terms of how effectual the government's been. And some people have interpreted this to mean that perhaps there's going to be more concessions made toward the mining industry or perhaps less pressure on the mining sector. Do you have any general comments just on the political situation down in Argentina and what recent events might mean for the sector and yourselves?

I think, Trevor, we're just focusing on getting our project built -- over the last few years, we've had support at all levels of government. Both federally, provincially and locally. We currently have over 100 people employed from five local communities on site, and it is that local participation and support for the project which continues to be positive for us. We of course continue to monitor other aspects of the project, but right now, as George pointed out, we're busy constructing and we monitor that, but we're fortunate to have the local support and the provincial support in advancing the project.

Great. That's all for me. Thank you.

Great, thank you.

The next question comes from [Rahim Sati] from UBS. Please go ahead.

Gentlemen, good morning. Just a quick question regarding working capital needs. As the working capital needs increase with continued construction in -- at the mine in Argentina, do you see yourself needing to potentially raise cash? And if so, is there a timeline on that and would that be through asset sales or through increasing debt and/or any project specific [sale]?

Thanks, Rahim. As per our guidance, at the end of the quarter, we had C$185 million in cash. That's exclusive of our investments and exclusive of our asset backed commercial paper. To that point in time, we spent $104 million of the $220 million that we expect to expend on construction at Pirquitas. So, we have all of the capital that's needed there. We continue, as I say, to look at different assets we have that we may sale. So, there is no current plan that we would envision going back into the marketplace, but using our available cash in advancing the project, the project forward, and that's where we currently are and that's been our guidance.

Okay, thanks.

(OPERATOR INSTRUCTIONS) The next question comes from Craig West from GMP Securities. Please go ahead.

Hi, Bob. Just one thing I wanted to touch on a little bit more was at Pitarrilla. Obviously you had some very positive news come out there this quarter. Just wondering if you could give us a little bit more details on what the time line looks like going forward. You mentioned how far you were on the underground drifting that had occurred there. But really can you give us any more details on what the schedule looks like for Pitarrilla over the next two, maybe three quarters?

Yes, I think, Craig, the main focus we have now is we have this prefeasibility study which we're currently looking at the underground component as well as the open pit component in and around the Breccia Ridge Zone. We would hope to have some commentary on that. That study completed through the end of the third quarter or very close into the start of the fourth quarter. You'll be able to get some data you would be able to model with respect to Pitarrilla. We have three drills on the go, so we continue to drill it and no doubt expand the resource there. We're using the drills to do condemnation drilling. The ramp going underground -- we're about one third of the way down on it and we would expect to have it completed sometime in the fourth quarter, at which time we would do some detailed drilling of the underground at Pitarrilla, particularly at the sediment volcanic interface where we seem to have a bit of a concentration of the base metal as well as silver rich areas. Pitarrilla will move along with a pretty good tempo. With the drilling rate now ongoing, it will be a while before we will be able to incorporate that into further resource updates. We will be focused on getting the prefeasibility study completed over the next number of weeks.

It seems like eventually, Pitarrilla could end up being your largest asset. And yet you were pretty clear on your capital standing as it is right now and requirements at Pirquitas. But would you see maybe a year or two years down the road, capital requirements at Pitarrilla increasing substantially -- how would you fund that? It would end up being entirely from cash flows at Pirquitas? And maybe just talk a little bit about some of the other assets that you have there that that could monetized with going on at [Bodins], for example.

Right. That's a big question.

Sorry. About four questions in there.

I'll start with the [big]. We'll continue to monetize assets as they become available. In light of the current markets, it's a matter of getting individuals who may want to purchase them, have to be able to fund them, or finance any kind of purchase. We continue to have discussions with parties on some of our other assets. There's nothing I can advance with that now. As you validly point out, the Pirquitas project, we expect a boost in between 10 million and 11 million ounces of silver a year once we're up and running next year. So, we will be receiving cash flow from that operation and that cash flow will be directed toward paying debt and also being able to be applied to advancing our other projects such as the Pitarrilla project. I think one thing that Pitarrilla lends itself due to the fact that it is on a hill and we can access the higher grade first, we can do it as a stage development. So that we don't have some of these very large capital outlays we would have to have if we were sitting with a flat project as opposed to one which is in some topographic favorable relief. So, our plan is to get in underground with the prefeasibility study, frame out what kind of capital we would look at. So, I might suggest, not to be glib -- probably at the next quarter conference call, once we have framed out the prefeas numbers for Pitarrilla, we would be in a better position to give you a more solid answer to your questions.

Great. Thank you, Bob.

Thank you.

Gentlemen, there are no further questions. Please continue.

Well, thank you, Jennifer. If there are no further questions, I thank you all for attending the call this morning and wish you a good day. Thank you very much.

Ladies and gentlemen, this does conclude today's conference calls. Thank you very much for your participation, and have a nice day.