SSR Mining Inc (SSRM) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Silver Standard third 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 Wednesday, November 5, 2008. It is now my pleasure to introduce your host, Mr. Robert Quartermain. Please go ahead, sir.

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

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, and this can be found at the snwebcastcenter location referenced in our press release.

In the third quarter we continued with advances on a number of projects and achieving commercial production from Pirquitas remains our big priority. We will update you on our project activities, but first I would like to turn the call over to Tom Yip, our Vice President, Chief Financial Officer, to present our financial performance. Tom?

Thanks, Rob. During the quarter we continue to make excellent progress on our projects and for the P&L we had net income of $11.2 million or $0.18 per share, compared to a net loss of $13.4 million or $0.21 a share in the third quarter of 2007.

This year's quarter's results include the following significant items. In July we completed the sale of the Shafter silver project in Texas. We received $23 million in cash, $15 million in Aurcana shares and a $10 million convertible debenture. This resulted in a gain of $31.5 million or an after-tax gain of $18.2 million. We also had a foreign exchange gain of $1.7 million, primarily due to our net exposure to US dollars and the weakening of the Canadian dollar.

These gains were offset by employee compensation of $3.5 million, which includes the non-cash stock-based compensation expense of $2.7 million. Stock-based compensation is based on the Black Shoals valuation of our stock options previously granted to our staff and amortized over the vesting period.

General administration including professional fees was $1.2 million. And during the quarter we adopted new accounting rules for the tax effect of carry-forward losses related to unrealized gains or losses on our portfolio on marketable securities. The effect during the quarter was a non-cash charge of $3 million.

In terms of cash flow, during the quarter we continued executing our plans, spending $54 million on our projects, of which the majority was spent on Pirquitas. To date we have incurred approximately US$148 million of the estimated $220 million construction costs to build the Pirquitas mine. Related to the construction, we spent an additional $5.2 million for refundable value added taxes. And as previously mentioned, we received $22.5 million as the cash component from the sale of Shafter. We ended the quarter with $145 million in cash.

Our working capital at the end of the quarter was $130 million, which excludes our asset backed commercial paper which we have re-classed as a long-term asset and we await for the restructuring plan to be implemented.

In summary, with our current liquidity we are well positioned to complete the construction of Pirquitas as well as the planned activity at our other key projects. Back to you, Bob.

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 development progress at the Pirquitas project as we move to plant commissioning next month. George?

Thanks, Bob. I will start my presentation talking to slide five for those following on the webcast. This shot shows a general area overview of the completed construction camp in the foreground, the stockpiles of historical jig tailings behind the camp and then the process facility and associated infrastructure in the middle of the slide.

Moving on to slide six, one of the great achievements of the past quarter for us was the successful transportation of the three Wartsila generators and ball mill shell to site, without any incident. These were by far the largest and most challenging items to be transported to site and are now being installed and prepared for commissioning.

Slide seven shows a three-dimensional model of the process facility. From the run of mine stockpile in the background, the ore passes through the primary and secondary crushes onto the course ore stockpile, depicted by the cone towards the center rear of the slide. The ore is then reclaimed from the stockpile and passes through the pre-concentration stage and then ground in the ball mill, prior to entering the large complex shown here at the center of the slide, which is the process building where concentrates are extracted. The larger building to the left of the slide is the power station.

Slide eight shows what it looks like in real life. Looking out from the run of mine stockpile area, with the primary and secondary crushing buildings on the left and the process building and power station in the top right-hand corner. The crushing facility shown on the left of this slide are not critical path items on this project, and in fact are not required until the processing of the historical jig tailings is completed.

Slide nine shows the historical jig tailings, which contain at least 400,000 tonnes of crushed and concentrated ore, averaging 234 grams per tonne of silver and 0.37% tin. The zinc grades are low in this material.

Slide 10 shows the nature of this initial mill feed material. The ore is generally less than half an inch in size, shows minimal surface oxidation and will represent an ideal initial mill feed. The jig tails will provide at least the first three months of the mill feed and will be fed directly into the ball pit and ball mill bypassing all of the front-end infrastructure.

Slide 11 shows the process building and power station. These are the critical path items for our construction team at the moment, preparing for production in quarter one 2009. Slide 12 shows the ball mill being lifted into position. The mill is being installed by the original equipment manufacturer, [Kalesius], from Germany and that installation is progressing well.

Slide 13 shows the floatation circuits inside the process facility. Our focus here is to prioritize the commissioning and startup of the silver circuit, which is shown in these photos. Moving to slide 14, we have commissioned a number of systems; the process water extraction; pumping and receiving systems are all operational; the assay laboratory has been handed to operations; and we have vendor representatives on site readying the ball mill and power stations to start up.

We are experiencing significant cost escalation in some areas of the project (inaudible) and this has caused us to remove some nonessential elements to achieve our $220 million target. We are still on target for production in quarter one 2009.

Slide 15 is a recent shot of the open pit. We have moved just over 2 million tonnes of waste to date and have established efficient, continuous shift operations. As slide 16 shows, we are now through the weathered horizon and into hard rock mining. Turning to slide 17, we are currently logging and assaying our (inaudible) holes for grade control, but we will be going to a dedicated angled drilling grade control program as we get closer to ore. This is scheduled to commence next month.

Slide 18 shows our waste disposal in the [Cortidera] Gorge. This is our major waste storage facility for the project. So summarizing operations, on slide 19, we are now mining on a continuous shift cycle. Our local hiring and training is working really well and our relationships with the local communities is supportive. We are utilizing an experienced commissioning company to assist us with the commissioning of the process and we are now pushing aggressively to build depth and fill out our operating teams.

That's it from me. Back to you, Bob.

Great. Thank you very much, George, for an excellent synopsis of Pirquitas.

I would now like to run through our progress on our other project activities. In addition to the engineering construction advances we have been making at Pirquitas, we have also been drill testing areas outside the pit. Two recent angled drill holes, one east and one north of the pit, have returned significant values and these are being followed up. RC Hole 315, which is located just outside the eastern pit envelope, intersected 12 meters grading 684 grams per tonne silver and 5% zinc. While drill hole 99, north of the pit intersected 64 meters grading 223 grams of silver per tonne and 8% zinc, including 33 meters grading 322 grams per tonne silver and 11% zinc. These holes demonstrate the robustness of the Pirquitas mineralizing system.

At Pitarrilla in Mexico, we completed a resource update during the quarter, using a 65 gram per tonne silver equivalent cutoff, the overall project resource has increased by 25% so far in 2008. Measured resources now total 159 million ounces of silver, indicated resources total 484 million ounces, and inferred resources total 82 million ounces, making Pitarrilla amongst the largest of recent silver discoveries.

Infill and exploration drilling of the Breccia Ridge Zone is concluding as we now focus on completing a pre-feasibility study for the underground component of the Breccia Ridge Zone. A decline to provide underground drilling stations and access to the high grade silver and base metal mineralization of the Breccia Ridge Zone is in progress.

At the San Luis joint venture in Peru, we are focused on two areas; the Ayelen Vein and the BP Zone. To date, we have undertaken approximately 4,800 meters of drilling and 12 holes on the BP Zone, where brecciated volcanic rocks host copper-zinc-lead sulfide mineralization. A feasibility study on developing the Ayelen Vein has commenced, which will be followed by underground at its exploration of the veins leading to development. This study is expected to be completed in Q1 2009. Silver Standard presently holds a 55% interest in the San Luis joint venture and will increase its interest to 70% upon completion of the feasibility study.

At Diablillos in Argentina, we completed a second round of infill and exploration drilling and will update the resource estimate in Q1 2009. A pre-feasibility study engineering to estimate the economics of placing the Diablillos project in production will also be undertaken in 2009.

During the second and third quarters we undertook a 16,000 meter drill program at Snowfield in northern British Columbia. The drilling has outlined a new zone with long intersections of gold mineralization with some holes in excess of 600 meters. Results of this program were described in our press release of October 22nd. The diamond drilling program demonstrated the potential continuation of the Snowfield zone to the north. Our resource estimate will be undertaken.

At Maverick Springs we commenced a five-hole RC program with our joint venture partner Allied Nevada to follow-up on some high-grade silver intersections encountered a few years ago.

Since our last call in August, the precious metals market, along with the general markets, have seen considerable price retrenchment. It is difficult to determine how long this will last. We are focusing our balance sheet on production at Pirquitas, yet keeping up with our engineering studies at San Luis and Pitarrilla. The milestones for the company will be commissioning the Pirquitas mill in the plans later this quarter, with commercial production commencing in Q1 2009. This will be the final step in our transition to producer status and the first step in becoming a significant primary silver producer.

Those were our formal remarks. Please note our cautionary comments and forward-looking statements. We'll be pleased now to answer any questions which you may have.

(OPERATOR INSTRUCTIONS) Haytham Hodaly with Salman Partners.

One quick question. You said you spent $148 million of the 220. How much of the remainder of the difference there will be spent in the fourth quarter and how much will be carried into -- after commercial productions is attained? Actually, what's the date again on the commercial production attainment?

We're looking in the first quarter of 2009 and perhaps I'll let George speak to that question.

As you can appreciate, the actual timing of expenditures and invoicing doesn't really match up. The balance of the expenditure will flow through fourth quarter this year, first quarter of next year and probably into the second quarter of next year as well. For some of our vendors there's a 90-day delay on payment and some it's 30, so it spreads the payment out over a much longer schedule than the actual project.

Okay. So in terms of what you actually think it would be cash out in the fourth quarter roughly, I mean if you had to throw a number out there, just a range, what would it be?

Probably on the order of what we've been spending the last quarter, $30 to $40 million.

Okay. And then probably the rest split up over the next couple of quarters?

Yes, that's a fair estimate. Most of it's all in labor now, labor and erection. All the equipment charges have gone through.

Okay. And in order to achieve commercial production you have to be operating at what, greater than 70% capacity for a certain period of days, is that correct?

Our internal definition of this hasn't been defined as specific as that, but to get somewhere of 60% of nameplate.

Craig West from GMP Securities.

Just maybe to follow up on Haytham's question with respect to the timing of other parts of the startup at Pirquitas. Any estimates on the first shipment of concentrate and maybe remind us where that concentrate is going and do you have any contracts or arrangements in place there?

We're hoping to be shipping in the first quarter for sure. Our primary focus is the silver circuit. At today's metal prices, silver is generating three quarters of the revenue as a project total, so we want to get that one bedded in first and working well. We've been in final negotiations now with a number of people to sell that concentrate. There's a good chance it will head out to the East, but there's a good chance it may head to the North as well. And we have to finalize those over the next few weeks.

If that's going to be the case then, realistically would you expect any cash in from that within Q1 at all or are we really looking here at sort of a mid Q2 to actually be receiving cash from those shipments?

That's part of our negotiating strategy at the moment and why there will probably be a number of customers in this first instance trading off payments terms to bring some cash forward from a more typical payment of a concentrate.

Okay. And I guess maybe just finally, have you done any updating in terms of expected costs, if you will, just given the changes that we've seen in metal prices and as well changes we've seen in other components affecting costs; inflation of fuel prices, that sort of thing? Do you have any sort of guidance you can provide on updated costs that we could expect to see maybe at Pirquitas or is it too early to say?

We're working it out now with new metal prices and seeing what efficiencies there are to be gained in running some new mine plans, so we don't have those available yet. One of the advantages in Argentina in (inaudible) is that the energy prices are fixed or trade within a narrow band, so that's sort of (inaudible) whole up and down on the oil price for us. And on the CapEx side, we're still aiming for that number 220 and we've taken a few cosmetic things out just to make sure that any escalations we've got are compensated for.

George [Bernstein] from Deutsche Bank.

Maybe Bob, just talking about the big cash flow picture for your company, could you walk us through your sources and uses in the next 12 to 15 months? It seems that you do handily have enough cash on balance sheet right now to see us through to full project launch, but after that's launched, what do you kind of see your residual CapEx being for 2009 and do you see the sources of cash -- will the company head to sort of a steady state cash flow into the second half?

As you know, in Silver Standard, besides the cash which we currently are carrying on our balance sheet, we have the asset-backed commercial paper, which we're looking for resolution of as well as we have the San Agustin option, which is out, which is a potential source for us as well for next year. So we're currently working through our mine plan for next year. As George pointed out, we are shooting for our target of the 220 and finding efficiencies around that. And I think once we have got a revised mine plan in hand, looking at some of the current metal prices, we'll be in a better position to come back and talk to how that cash will be looking over the next 15 to 18 months. It's something we're currently working on right now.

Okay. That commercial paper, is that reflected in your other marketable securities?

No, that's a separate line item, the asset-backed commercial paper. We've written it down to $26 million.

Where is that on your balance sheet?

It's underneath current assets on other investments.

And that's now written down to 26 million?

Right.

The original cost or the value of the paper was $57 million and we're currently waiting for the committee in Canada to get some resolution with that and getting up and running and after that we'll see what we want to do with that paper. But it's something that's outside our current working capital but could be added back in.

Okay. And my other question was just related to the recent reduction that we've seen in the market price of silver. Is that going to have any knock on affect on your current cutoffs for proven and probable under the current environment or have you been conservative enough that you don't have to have any changes given the new metals floors we're seeing?

We'll be doing our reserves calculations again at the year-end in light of the industry, so I think that's a question that we'd be addressing at our year-end conference call. But we'll certainly be always looking at our resources and particularly the reserves in light of the current market price conditions.

Trevor Turnbull from Scotia Capital.

I had a question, I guess, relative to sensitivities. In looking at some of the early work that was done in terms of the feasibility study, I don't recall being able to work out the sensitivities too well. Could you give us just maybe a rank order of where the greatest sensitivity is, whether it be to currency, maybe give us a sense of what proportion of ongoing costs are, are sensitive to the local currency? And I realize you're powered by natural gas, but obviously the trucks run diesel, maybe give us a sensitivity or a sense of it for the diesel relative to the currency impact as well?

Thanks, Trevor. I'm going to turn that over to George to respond to.

As I said before, one of the advantages, if you want to call it that, of being in Argentina is the price controls, particularly on energy. And so our exposure to higher oil prices isn't that great. Now, our gas supply for the first five years of the project is locked in at well below industry standard price. So it's a matter for what happens with the currency. A lot of our labor is local derived. Some of the consumables that we need come from offshore. Our local currency exposure to operating costs is probably on the order of 70 to 75%.

And so you're saying for say the natural gas, while the price is locked in for five years, is it denominated in local currency, so it actually changes as the currency floats?

Yes, it's denominated in Argentinean pesos.

Okay. And then you said about 75% of your costs are related to the peso, so that would include obviously the natural gas?

That's right.

Okay. Now is diesel price controlled as well in Argentina?

Yes and it's trading in a very narrow band over the last 18 months we've been down there.

Okay. And then just moving on maybe to the off take agreements, you just mentioned the silver tonnes, the priority and it may be headed East, it may be headed North. It sounds like it's destined to be in South America. Are the other concentrate streams likely to end up in South America or are you looking more overseas for those?

We're looking for what's the best commercial outcome for us. Our silver concentrate is readily marketable because it's relatively high grade silver and it comes with a very low level of impurities. Our tin concentrate is highly marketable and there's a lot of aggression out there to procuring our tin concentrate, because of the supply situation globally. So we don't have a preferred destination. It's about what works best for our project.

Okay. And then just one last thing. You begged the question when you mentioned the nonessential, even cosmetic changes to the plans in terms of CapEx spending. Can you give us any examples of what that might be?

Oh yes. Footpaths, paving of roads, architectural features at the entry, those sort of things that don't add as much to the bottom line, so we've taken those out. We've kept the ball mill in there, Trevor.

(OPERATOR INSTRUCTIONS) Richard Gray from Blackmont Capital.

A lot of good questions here, but just one last one for you. Those drill holes you talked about outside the pit envelope at Pirquitas, are these accessible by a layback or are they more longer-term underground targets for you?

I'll let George answer that, but the one certainly east of the pit is probably quite accessible by layback and the other one we're just trying to get a little more information. But George can take that as well.

Actually, that's about my answer. Certainly one of those is very accessible to us and the other one we just need to get a greater surety of knowledge of what it is and how it occurs before we determine how we would access that.

Okay, so the one in the east is, and the one in the north, probably not.

The one to the east is, the one to the north we're not sure yet.

Mr. Quartermain, there are no further questions at this time. Please continue.

Well, thank you very much ladies and gentlemen and we look forward to updating you in our year-end conference call. Have a nice day.

Ladies and gentlemen, this concludes the conference call for today. You may now disconnect your line and have a great day.