SSR Mining Inc (SSRM) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Silver Standard fourth quarter and year-end financial results and project update. (Operator Instructions) As a reminder, note that today's conference is being recorded, March 12, 2009.

It is now my pleasure to introduce you host, Mr. Robert Quartermain.

Thank you, good morning. Welcome to Silver Standard's fourth quarter and year-end conference call reviewing our financial performance and updating our projects. On the call with me in Vancouver this morning, I have George Paspalas, Senior Vice President Operations, Joe Ovsenek, Senior Vice President Corporate, Tom Yip, Vice President Finance and Chief Financial Officer, and Ken McNaughton, Vice President Exploration, and Paul LaFontaine, Director of Investor Relations. Our financial statement as well as our management discussion with project updates have been filed on SEDAR and are available on our web site. We have a visual presentation that will accompany our comments today, and it can be found at the SN Webcaster Center, location referenced in our press release. I would advise that we will be making forward-looking statements today, and advise you to refer to our forward-looking disclosure on this webcast and on our web site.

2008 was a milestone year for the Company, as we made substantial progress in our transition from an exploration company to a development company. This transition will culminate in a few weeks as we deliver ore to the mill at Pirquitas. This is an exciting achievement for Silver Standard. We have also been focusing our engineering efforts on advancing the San Luis joint venture project in Peru, and our wholly-owned Pitarrilla project in Mexico. George Paspalas, our Senior Vice President Operations will update you on these activities in a few moments. First, I would ask Tom Yip, our Vice President Finance and CFO, to speak to our fourth quarter and year-end financial results. Tom?

Thanks, Bob. During the fourth quarter, we continued to make excellent progress on all our projects. For the P&L, we had a net loss of CAD17.4 million or CAD0.28 per share, compared to a net loss of CAD14.2 million or CAD0.23 per share in the fourth quarter of 2007. This year's fourth quarter results include general and administrative expenses of CAD3.2 million, which include salaries, professional fees, and office costs. Stock-based compensation was CAD2.6 million as we continued to amortize the Black-Scholes value of previously granted options. We had a foreign exchange loss of CAD3.8 million, resulting from our net liability exposure to the US Dollar and the weakening of the Canadian Dollar. In addition, during the fourth quarter with a significant downward pressure on resource equities, we recorded a CAD6 million mark-to-market adjustment to our share investment portfolio.

Turning to the year's result, we had a net loss of CAD10.5 million, or CAD0.17 per share compared to a net loss of CAD35.2 million, or CAD0.57 per share in 2007. The major items are G&A costs of CAD9.4 million, stock-based compensation of CAD10.2 million, financing fees and interest expense of CAD6.4 million relate to our convertible debt issued last February. In March, we sold silver bullion at CAD20.30 US per ounce for a net gain of CAD23.5 million. In July, we completed the sale of the Shafter project in Texas for an after-tax gain of CAD18.2 million. We rolled down our asset-backed commercial paper investments in the first quarter by CAD18.4 million. And as previously mentioned in the fourth quarter, we rolled down our share investments by CAD6 million.

In terms of cash flow during the fourth quarter, we had a net decrease of CADCAD56 million. As part of operating activities, we saw the Canadian Dollar weaken, and as a consequence of holding a large portion of our funds in US Dollars, we had a significant foreign exchange gain on the cash line which accounts for most of the CAD21 million. We continue to execute our plans, spending CAD62 million on our projects, the majority of which was building Pirquitas. And related to this construction, we spent CAD17 million for refundable value-added taxes. We ended the quarter and year with CAD88 million in cash.

To summarize the year's cash flow, we began the year with CAD80 million. From operating activities, we generated CAD18 million, primarily due to the foreign exchange gain on the US funds held. From financing activities in February, we completed the sale of our convertible notes for a net proceeds of CAD133 million. In investing activities, we sold our silver bullion for CAD39 million. The Shafter project we sold, of which the cash component was CAD22.5 million. We continued on our projects spending CAD183 million, of which the majority was building Pirquitas, and to date, we have incurred US $194 million of the estimated US $230 million total construction cost to build the mine. Related to the construction, we spent CAD27 million for refundable debt. We ended the year with CAD88 million. Our working capital was CAD50 million, This excludes our asset-backed commercial paper which we have reclassed to a long-term asset as we await for our market to return.

Subsequent to the year-end, we sold 5.45 million common shares for net proceeds of US $88 million or CAD110 million. So in summary, with our current liquidity and cash flow for the production of [concentrate] at Pirquitas, we are well-positioned to continue advancing our principal projects. Back to you, Bob.

Great. Thank you, Tom. I will now ask George Paspalas, our Senior Vice President Operations to walk you through the progress at Pirquitas and our production plans for this year. George will also describe our ongoing engineering studies at San Luis and Pitarrilla. George?

Thanks, Bob. For today's presentation, I will provide an update on the Pirquitas project, talking to the three key areas of infrastructure, construction, and net operations. Firstly, infrastructure. Slide Nine shows an overview of the process and camp facilities. The camp handles the peak manning load of over 1,400 people well. It has been down-sized for the smaller operational requirements of less than 500 people. In the middle of the slide, you can see the historical jig tailings adjacent to the process facility, which will provide the initial mill feed. Our water supply comes from a river, seven kilometers away. Tracing the road, you can see going off to the left of the picture.

Now, gas supply comes in via our 42 kilometer pipeline, running down the valley coming in on the right of the photo. Talking to Slide Ten, our water supply system has been operating for a while now and is proven and reliable. Slide Eleven, we have commissioned the gas pipeline and have proven the heating pressure reduction in measuring installations. Excuse me. Slide Twelve shows the generating units inside the power station. The gas-fired [wardsillers] units are the primary power-generating devices. These are proven, V20 configured reciprocating generators greater than 5.8 megaWatts per unit -- downgraded for this altitude to 5.8. The [wardsillers] are backed up with three Cummings diesel-powered reciprocating generators. Everything is enclosed in buildings now, so it is difficult to show the details of some of the installations effectively. Slide Thirteen, from some months ago, shows one of the [ward siller] generators before we enclosed them. And hopefully gives you a feel for their size, as well as the professionalism at the installation.

Slide Fourteen shows a panorama of the power station, with the cooling towers on the left. And then, moving to the right.we see the loose tanks, the generator exhausts, and the generator building. And finally, the main electrical distribution center. Technical representatives from [Ward Siller] have been on site for three months now commissioning and preparing the power system for operation. Slide Fifteen shows the assay laboratory, which is now fully functional for open pit operation support and getting ready for process analytical requirements. The assay laboratory is operated by SDS for an initial three-year contract period.

Moving on to the construction of the process facility now, Slide Sixteen shows a panorama of the process facility. The focus areas for us right now are the two buildings on the right of the shot. The process building -- that's the big silver one -- and, the power station, Obviously, the one with the stacks coming out of it. Slide Seventeen shows how it will bring the jig tailings into the process facility. The jig tailings will be fed by our temporary bin system on to this conveyer, up into the mill. The temporary feeding system will be decommissioned once the jig tails are done and the open pit ore starts coming through.

Slide Eighteen is a shot from a little while ago showing the individual units comprising the grinding circuit, prior to cladding everything in the building. The mill is currently being lined, getting ready for the ore feed. Slide Nineteen shows the silver flotation circuit, which is the first production line we will start up. The [pink] circuit will follow in the second quarter once we have the silver circuit bedded in. Slide Twenty shows the final phase being cleaned up on the tailing dam wall, and it is ready for operation.

Turning now to operations, Slide 21 shows a panorama of the open pit. The four key development requirements for all production with pre-stripping of the open pit, establishment of two waste dump areas, and construction of the seven kilometer-long whole road to the process facility. All of these components have been achieved within the required schedule. We have removed approximately 5.2 million tons of material from the pit, and we have exposed the first main ore bench at the top of the [potocy] vein area. Over 70,000 tons of ore have been stockpiled already. Ore grade control has been in operation for some time now, and the percentage of ore stock piling will increase significantly over the next few months. We are very pleased with the development of the open pit and the performance of our operating team in achieving this pit development.

Slide Twenty shows the two waste dump areas that have been developed, and they are now operating very well. The principal waste dump is the [Cordedera] Gorge shown on the larger photo. With the second area, the [Curcas] Gorge being the small one. So, to summarize at Pirquitas -- Slide 23 -- we have built solid, project development and operating teams. The employment of locals is working really well for us. We are looking forward to conveying ore into the mill by month-end.

Moving on to Slide 24, now we are expecting the feasibility study for the San Luis joint venture project in Peru to be completed very soon. The feasibility is being conducted by Visa Engineering, a company very experienced in both Peruvian project engineering and design, as well as operations. Our expectations are that the San Luis project will be a typical, Peruvian, small volume, high grade, narrow vein mining operation. Turning to our other advanced project and Slide 25, Pitarrilla in Mexico. Our drilling to date at this property has outlined a very large resource which can be categorized into five separate ore zones. Our strategy for development of this project has been to adopt a stage-wise development protocol, due to both a desire to many to do a development risk on the property, and also the maturity of technical data available for each ore zone. Our development focus has been on the higher grade, underground sulfide replacement mineralization along the sediment volcanic contact. The zone represents about 30% of the total Pitarrilla resource and has the potential to be able to support bulk tonnage mining techniques.

We are currently concluding a pre-feasibility study to determine the optimal development methodologies for this zone. This will be completed early in the second quarter 2009. The remaining four separate areas of surface mineralization are undergoing various degrees of test work and evaluation at the moment, as part of pre-feasibility studies on these zones once we continue to develop underground to the sediment volcanic contact area. Thank you for your time everyone, and back to you, Bob.

Great. Thank you, George. I would now like to run through our progress and other project activities, and I will start with Slide 26 on the webcast. Exploration continues to be a focus for the Company as a value creation proposition for our shareholders. Accordingly in 2008, we invested over CAD40 million in our exploration activities with advances in all projects. We also anticipate having a robust exploration budget this year as well. In addition to the development advances we have been making at Pirquitas as described by George, we have also been drill testing areas outside the known pit reserve with good success. These results, over time, will contribute to the mine life at Pirquitas. At our Snowfield project in northern British Columbia, we announced a five-fold increase in our total resources in January. With the resource increase announced by Seabridge yesterday on their adjacent Mitchell zone, it demonstrates that the Mitchell-Snowfield zone is host to a world class mineralized gold system. We have substantially increased our budget for the Snowfield project in 2009 over 2008. This will enable us to upgrade a significant portion of inferred gold resources and also test numerous known gold mineralized areas on the property.

The San Agustin project was returned to the Company in February, 2009. We are in the process of reviewing the project data and are also completing an updated 43101 resource for Silver Standard. Our initial data reviewed demonstrates the project has significant additional resource potential at surface. We are also interested in the opportunity that depth per classic replace and mass of sulfide mineralization. We have budgeted funds this year that will test both the surface and depth potential later this year.

With the Snowfield and San Agustin projects, we have significantly increased our exposure to gold. One of our objectives this year will be to determine how best to capture the value of this gold exposure for the Company and our shareholders. We will also be investing exploration funds on our Diablillos, Berenguela, Veta Colorada, and Maverick Spring projects in resource and engineering studies to better understand how these projects will fit in our long-term development strategy.

With the delivery of ore to the Pirquitas mill in the next few weeks, Silver Standard will have completed the first phase of transitioning to a mining company. Pirquitas will be the foundation for the development of our silver assets, and we are now excited about the organic growth opportunities that we have before us. Those are the formal remarks we wish to make, and we will now be pleased to answer any questions you may have.

Thank you, sir. (Operator Instructions). Our first question will be from [Layli Omumi] of Scotia Capital. Please go ahead.

Hi there. I just have a question about recovering of the silver and the tin circuit at Pirquitas? I know that the circuits will be optimized. Just wondering what kind of recovery we should expect initially and once the circuits are optimized?

Thanks, Layli. Average recoveries for the silver circuit is 78%, and the tin is just under 50%. So, they're the recoveries that we're seeing now -- conservatory test work, so I think they're good numbers to go with.

And, you expect these numbers to increase over time?

We are doing some test work right now on the silver circuit. There is a potential for that to increase, but I think it is premature to actually say that now. So, I think the numbers I gave you are the best numbers to use moving forward right now.

Okay. Thank you.

Okay. Thank you.

Thank you. Our next question will be from George Bernstein of Deutsche Bank. Please go ahead.

Hi, Bob, Jorge Bernstein with Deutsche Bank. I was wondering if you could comment -- we have noticed quite a few silver companies recently take advantage of the capital markets to either place stock or convertibles. Could you talk a little bit about your recent placement? And, what you see the use of cash? And, what you are seeing, in general, for financing in the sector right now?

Thank you, Jorge. Our reason for looking at the market at this point in time, I think was to be opportunistic. Certainly, the markets were available with the cash, and we have a number of projects that we want to be developing. And so through the course of the year, we will determine how to deploy the funds that we have raised. With respect to the silver market in general, we continue to be very positive on the commodity itself. There has been this renewed investor interest, certainly, in the gold, and we are seeing silver track along with it. So, we wanted to make sure that we had a strong balance sheet both for own projects and any potential opportunities which may be out there in the space as well.

Thanks. And as of March, what is your current net cash balance?

Well, as of February, we have approximately CAD150 million, which is inclusive of the funds we just raised. That's Canadian.

Thank you. And sorry, just to clarify, the mark-to-market that you did on your investments? Is this now fully mark-to-market in terms of -- I think, this is on some fixed income securities you had in Canada?

They're on equity investments that we have and mainly in the resource sector. So, as you have seen the markets come down, we have taken the mark-to-market at the end of the year.

Okay. And then I'm confused. What I was making reference to -- I know a few quarters back you had some issue on some mark-to-market on some Canadian fixed income securities. Is that also now done?

That would be our asset-backed commercial paper that we took the CAD18 million in the first quarter of '08. And we have -- I believe that the CAD26 million that we have on our books is a fairly good number at this point in time, waiting for our market to return to the asset-backed securities.

So no further write-downs from there?

Not at this point in time.

Thank you.

Thank you. Our next question will be from [Rahim Savi] of UBS. Please go ahead.

Gentlemen, good morning. In your fourth quarter release, you had mentioned that you expect production at Pirquitas to total about six, seven million ounces in the 2009 fiscal year. Just wondering if you can give an update on your estimated variable cost to extract that silver? And, given that you don't hedge your silver production, is it fair to say that your margin will be very close to the current market price less those variable costs?

Thanks, Rahim. We are still forecasting the six million ounce number for production. Our average cost of production over the life of the mine is CAD26 per ton mill. Obviously during the start-up phase, we are going to be ramping up toward that tonnage. So, that number will be slightly higher, but I think CAD26 per ton is a good number to use for the operating costs at Pirquitas. Yes, we don't hedge. So, we expect our silver price to be close to what the price is on the day.

Thank you.

Thank you. Our next question will be from [Hassan Axle] of GMP Securities. Please go ahead.

Hi, Bob.

Good morning.

With PIrquitas near completion, do you see your attention -- where do you see your attention moving to? And especially, with your impressive results at Snowfield. Has that changed at all?

I think this year, Pirquitas of course, is going to continue to be a main focus for the management group as we need to get it up and running and continued events. So, Pirquitas will certainly be a focus. With respect to other activities, as we discussed, both the San Luis as well as Pitarrilla projects will continue to take a strong management focus. Because of the results that we have had at the Snowfield project, as I said, we are going to have a substantial increase in our budget activities up there. This year we won't be able to get back into the Snowfield property until some time in June, but Snowfield will certainly be a focus of our exploration dollars this year as well.

Do you ever see yourself developing Snowfield on you own? Or, is that still looking to monetize that one? What is your stance there?

I say that's very premature at this point in time. We need to get up there and fully understand the project. From the work we did last year, we know that the exploration potential still exists on the project to expand the resource. I think we want to fully understand it before we make any determinations on how best to advance the project for our shareholders.

Okay. Thank you.

Thank you. (Operator Instructions). Our next question will be from Ian Howat of National Bank Financial.

Morning. A couple ones. Just back on Snowfield again. The adjacent property is being exported by another company at the moment. Are they being very active out there as well? Or, are they finished their drilling off, Bob?

Ian, I couldn't answer that. I think you'd have to check with them. We saw drills up there last year, but I think best to probably talk to -- .

That was more for perspective. So, you are still seeing activity up there from drills and stuff?

Yes. From a distance.

Okay. And then just on, when you are selling your silver concentrate, what is the time between producing it, and it is actually sold? And when you actually get the final pricing?

There are two parts to that, Ian. In the first few months of production -- in the start-up phase -- we are selling to people who are giving us a a 30-day turnaround. As we get into a more mature operation, we are delivering consistent concentrate quality. That will go to a longer turn. Probably somewhere between 30 days and up to three months.

Okay. Alright. That was it for me, thank you.

Thank you.

Thank you. (Operator Instructions). Currently, Mr. Quartermain, we have no other questions registered.

Great. Well, thank you very much, ladies and gentlemen for the call this morning, and we look forward to updating you on our first quarter call which will occur in mid-May. Have a nice day.

Thank you, sir. Ladies and gentlemen, this does conclude your conference call for today. Once again thank you for participating, and at this time we ask you please disconnect your lines. Enjoy the rest of your day.