SSR Mining Inc (SSRM) 2009 Q2 法說會逐字稿

Good day everyone, and welcome to the second quarter 2009 financial results and project update conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Silver Standard's President and CEO, Mr. Robert Quartermain. Mr. Quartermain, please go ahead sir.

Thank you. Good morning ladies and gentlemen, welcome to Silver Standard's second quarter conference call reviewing our financial performance and updating our projects. On the call with me this morning we have George Paspalas, Senior Vice President Operations; Joe Ovsenek, Senior Vice President Corporate Development; 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 a management discussion with project updates, have been filed on SEDAR and are available on our website. We have a visual presentation accompanying our comments today, and it can be found at the web location referenced in our press release of yesterday. We will be making forward-looking-statements in the call today, and I advise you to refer to our forward-looking disclosure on this web cast, and the disclosure on our website.

Our focus in the second quarter was ramping up the Pirquitas mine and mill complex. Bringing a mine and mill the scope of Pirquitas to production status requires integration and optimization of a number of systems. This integration can exceed time estimates, and that has been the case in the second quarter for us as we ramped up the plant. We were fortunate that most of the final construction work for the plant was completed during our first quarter, the Argentine summer and fall. this, however, meant that we were ramping up the plant in the silver circuit at the coldest time of the year. In so far as various components of the mill complex, we're working to spec independently.

Unseasonably cold weather at the start of the second quarter slowed the integration of all mill systems and impacted productivity and efficiency. This slower than anticipated ramp up has correspondingly resulted in the delay of concentrate production and shipment, which in turn has reduced our guidance on expected silver production to 3 million ounces in 2009.

Since the last estimate of capital cost to complete, announced in February, there have been incremental price escalations and a requirement for some additional capital for minor plant optimizations. A revised capital complete has increased another $3 million to an estimated $233 million.

We know that shareholders are focused on our ability to deliver projects as advertised. We met our Pirquitas milestones through to the first quarter, we have suffered some weather related and ramp up delays at Pirquitas, and we now are employing all of our corporate resources to optimize the project to its operational design. In a moment George Paspalas, our Senior VP of Operations, will provide a more detailed update on Pirquitas as well as our engineering efforts this last quarter at the San Luis joint venture project approve, and our wholly owned Pitarilla project in Mexico. First, Tom Yip, our Vice President of Finance and Chief Financial Officer, will speak to our second quarter financial results. Tom.

Thanks Bob. As we transition to producer status, we have changed our functional and reporting currency to US dollars, effective at the beginning of this year. As Bob has mentioned, during the second quarter we focused on completing the construction and began commissioning the Pirquitas line.

For the P&L we had a net loss of $1.4 million or $0.02 per share, compared to a net loss of $5.9 million or $0.09 per share in the second quarter of 2008. This year's quarter's results include G&A costs of $2.6 million, slightly higher than other quarters, as we have added senior staff as we transition to a metals producer.

Stock based compensation was $1.6 million as we continue to amortize the actual value of previously granted options. This charge is less than in prior quarters, as we have less options outstanding, and newer options are issued at lower market prices than in the past.

We had a net write down of $1.4 million of other investments; this consisted of two items; we assessed and wrote down our carrying value of the convertible debenture receivable by $2 million. This debenture was part of the consideration from the sale of the Shafter property completed in July of 2008. This was offset by $624,000 of retroactive interest received from our ABCP holdings. At the end of January 2009 we did receive new notes replacing the notes that were frozen in July of 2007. We have a book value of $21 million and continue to wait for a market to develop for these new notes. During the quarter we disposed of a portion of our marketable securities portfolio, and realized a gain of $1.8 million.

And finally, we had a foreign exchange gain of $2.7 million, resulting from the impact of the strengthening of the Canadian dollar on our net Canadian monetary assets.

In terms of cash flow, we began the second quarter with $107 million, and during the quarter we had a net decrease of $55 million in our cash balance. We used $9 million in operating activities, and this was primarily resulted from the payment of taxes on the gain from the disposition of Shafter, which occurred in 2008. For financing activities we see proceeds of $1.2 million from stock options that were exercised. For investing activities we spent $43 million on our projects, of which the majority was at Pirquitas. To date, we have incurred $221 of the estimated $233 million construction cost to build the mine.

In addition to these construction costs, to date we have incurred approximately $47 million of pre-operating costs as we continue to ramp up our operations workforce to begin commissioning and operating the facilities, as well as waste stripping. Of the $47 million, $30 million have been incurred so far in 2009, and $17.8 million was incurred in 2008, which we have previously included in construction costs. Related to the construction, we spent $7.5 million for refundable value added taxes. And as previously mentioned, we sold a portion of our marketable securities for cash proceeds of $3.8 million.

We ended the quarter with $53 million in cash. So in summary, with our working capital position we will complete the construction commissioning of the Pirquitas mine, and begin seeing revenues from the production and sale of [conch] chips in the third quarter. Back to you, Bob.

Great. Thank you Tom. George Paspalas, our Senior Vice President Operations will now walk you through the operational progress for Pirquitas, and also describe our engineering progress at San Luis and Pitarilla. George?

Thanks Bob. We have mentioned steady progress at Pirquitas, the pit continues to perform well, shown here in slide 7, and we have now mined a total of 11.2 million ounces of material, 277,000 tonnes of which is stockpiled ore. Both of our larger mine waste dumps are fully developed and well positioned for the future of the pit.

I know I've said this before, but our strategy to recruit local people early, and to invest resources in training and developing them, is paying us many times over now. We have a fully Argentinean open pit mining operations team, and our employment of locals is very comprehensive. We are now removing the historical mining infrastructure in the bottom of the Pirquitas Valley as the pit heads toward the valley floor.

Moving over to the process plant, and slide 8, we encountered some issues during the quarter in the plant as we started to process ore. Most of the issues were minor in nature, typical of a plant start up, involving quick piping or chute modifications. However in May we lost the bore mill girth gear lubrication seal, while not a major issue in itself, we made a choice to wait until the vendor representative traveled to site from Germany to supervise the installation of the new seal to preserve warranty conditions. Then as we attempted to start the plant up again, continuous operations were hampered by unseasonably cold weather, as Bob has described earlier. A number of protective and heat tracing systems were installed into the plant and ancillary infrastructure to permit sustained operations. Slide 9 gives some idea of the effect of the conditions on the facility, specifically our water systems.

With all of the protective measures in place, we commenced ramping up production late in June. Now I'm now pleased to report that the plant is running continuously. Week on week we are seeing improving operating time, tonnage rates, and silver recovery. With the plant now operating in a continuous manner, we can take advantage of the opportunity to start to optimize process parameters, to maximize silver recovery and concentrate grade. Slide 10 shows views of the silver circuit in operation.

We're just completing the first historical jig tailings stockpile. This pile is the lowest grade material of the jig tailings, and was deliberately selected as the initial mill feed to enable the plant to be tested and deep bottlenecked, without great risk of metal loss during the start up and early processing stage. Slide 11 shows the initial concentrate ready for shipment. Our first 100 tonne concentrate shipment, late July, went well. Transport from site across the border and through to Antofagasta Chile was executed without an issue. The initial six months of production is being shipped to a blending facility in Peru.

The construction team is now demobilizing in stages from the site. Erection and pre-commissioning of the gravity pre-concentration process has been completed. This is the large building shown in the background center of slide 12. Primary and secondary crusher installation is progressing well, and commissioning of it is targeted for the third quarter of 2009. The [inaudible] crusher is shown on the far left hand side of slide 12, with the conveyer feeding the secondary building, center of the photo, and transfer tower, out to the right.

So we have proven the operation of the silver circuit at Pirquitas now. Our focus is to optimize the silver circuit and improve the concentrate silver grade from our initial start up levels. At the same time, we have made good progress on the crushing circuit and tin circuits, and we intend to commission these during the third quarter.

Turning to our other advanced stage projects, we are expecting the completed feasibility study for the San Luis project in this quarter. Work on the project has been confined to baseline environmental data collection for the environmental impact study, and progressing lane access agreements.

On the Pitarilla project, metallurgical investigations of the open pit deposits have been initiated to fully evaluate the total property potential and provide input into the recently completed Breccia Ridge underground pre-feasibility study to determine the best overall site development methodology. So that's where we're at, Bob, back to you.

Great, thank you George. I would now like to run you through our progress in our other project activities. Complimenting our production focus, exploration remains a value creation proposition for our shareholders, and a key focus of ours, as it enables us to enhance our project pipeline. We have a number of programs in progress, as I will run you through. At our Snowfield project in northern British Columbia, we announced a five-fold increase in total gold resources in January. Snowfield, along with the adjacent Mitchell zone of Seabridge Gold, boasts a world-class gold mineralized system. We have substantially increase our budget for the Snowfield project in 2009 over 2008, and expect to drill in excess of 20,000 meters. We have crews on site and four drills operating to the Snowfield zone. We also have two drills exploring the Bruce jack zone to the south, where we have completed a number of holes.

Our program is designed to upgrade a significant portion of inferred gold resources to measures indicated at the Snowfield zone, and add resources at other known gold mineralized areas in the property. Our Snowfield press release of a few days ago speaks to progress on both fronts, hole MZ-32 from Snowfield is an in field hole which intersected 523 meters creating 0.73 grams per tonne gold, and 0.16% copper. And it confirms the continuity of the long intersections of gold grade encountered in adjacent holes.

Preliminary hole from Brucejack have identified some higher grade mineralized areas within larger low grade mineralized halos. This program is anticipated to add additional new gold mineralization resources to that already identified at Snowfield.

In June we announced an updated resource for Diablillos, the resource was based on 15,000 meters of in field drilling at a spacing of approximately 50 meters. We converted 70% of the silver and gold resources to indicate it with a slight reduction in overall resources from the previous inferred only resource base.

Metallurgical test work for Diablillos demonstrated sulfide recoveries of 87% for gold and silver [inaudible] tests gave recoveries of 65% for gold and 42% for silver, and proving the economic viability of the property. As a consequence we are continuing with our engineering studies.

At the San Agustin project, which we returned to the company in February, we're also interested in the opportunity to depth of our classic replace meso sulfide mineralization as well as additional surface mineralization. Both of these opportunities are being reviewed.

We continue investing fundings on our Berenguela, Veta Colorada and Maverick Springs projects in resource an engineering studies, to better understand how these projects will fit in our long-term development strategy. We are also reviewing our other blue sky opportunities, which may selectively advance or sell.

With the Snowfield, San Agustin and Diablillos projects, we have significant exposure to gold, and one of our objectives continues to be how best to capture the value of this gold exposure for the company and for our shareholders.

Ramping up to achieve commercial production at Pirquitas is our current priority, as it provides the foundation from which to develop our extensive asset base. These are the formal remarks we wish to make this morning, and we will now be pleased to answer any questions which you may have.

(Operator Instructions) And we'll go first today to Layli Omumi of Scotia Capital.

Hi there, I have a question about the tin concentrate production, I'm just wondering when that might begin and also once it reaches commercial production, how much should we expect on a yearly base?

Hi Layli, I didn't hear you clearly. You asked about tin production, is that correct?

Correct, about the tin production and when it might begin and how much should we expect once it reaches commercial production?

We're anticipating bringing up the tin circuit commissioning in the third quarter and the production into the fourth quarter.

Running into 2010, we'll be ramping up towards full [scar] production, which is about 3,000 tonnes of tin a year.

3,000 --?

Tonnes of tin per annum is the average tin production right to the (inaudible) of the mine.

Right. And, in terms of credits, do you have any sense of how much per ounce you would expect from the tin production?

The tin, at current metal prices, the tin is representing on the order of 20% of the revenue of Pirquitas.

Okay. But you don't really have any numbers on a per ounce basis?

No. We're mainly focused on the tonne basis we've given you.

Okay, okay. And the 20% that you just mentioned, what tin price would you be using for that?

Current [LME] prices.

Okay. Just one other question about the zinc circuit. Would you know what prices you might -- what price of zinc would, I guess, get you interested in the zinc circuit again?

The zinc circuit is probably more strategic than price related because we're seeing now significant zinc mineralization in the areas. It's a matter of understanding the zinc mineralization fully and then strategically making the decision on the zinc circuit.

Okay. Thank you; that's all.

And our next question today comes from Phil Green of Mountain Capital Management.

Hi guys, a couple of questions. In regards to the San Luis project, the feasibility study you mention is going to be within the quarter. Is that early in the quarter, late in the quarter? And then, additionally, can you give some kind of a timeline or a schedule as to what you expect post that feasibility study as well?

Thanks, Phil. The feasibility study will be -- okay, you said earlier. That is probably the middle of the quarter. It needs to be reviewed. Following a review, in concert with our joint venture, a decision will be made on how to move the project forward.

Okay. So, in terms of moving it forward, when do you expect and how do you expect that that will go? I mean, is that 2010 that you're going to start deciding on that?

No but it's a bit premature to perhaps give you any hard guidance on that because the feasibility study needs to be reviewed by (inaudible) partners and then a decision made on how to move that forward.

Okay. As far as Pirquitas, what is the silver concentrate grade? And how does it compare to the [Flot] test?

Well, the sliver concentrate grade at the moment reflects, you know, the first few weeks of start up. We're seeing good progress there and we're heading up. Our objective is to take it up towards the feasibility grade.

Right. And, as far as the crushing plants, are the tin concentration circuits fully installed? And if not, when do you --? I'm sorry?

Sorry, I cut across you. Yes, the equipment's in. There's still some minor plumbing, final electrical ties to be done on that circuit. But it's essentially in.

Okay. And I think you might've answered this but when are you anticipating shipment on the tin concentrates?

Well, we're intending to ramp up the tin production in the fourth quarter. So, as soon as we get that process into good shape, we'll be shipping out.

Great, okay guys. Thanks very much.

Thanks, Phil.

And our next question today comes from Richard Gray of Blackmont Capital.

Hi guys; got a couple questions. Your 3 million ounces for the year, I mean, just what's the break down of that on say --? Is most of that going to be in Q4, is it safe to say? Like, how much in the second half of Q3 and how much in Q4?

That's right. Some in the tail of Q3 but most of it's Ql4, Richard.

Okay. Good and just, I don't know if you -- I didn't find this in the documents. What's the spending plan for all of the other projects in the second half of the year? Is that out there? I mean, what's a round number for all the other assets for the second half?

Richard, it's Bob. I don't think we have a specific number up there. What we want to do is certainly take advantage of the current price environment. Case in point, most of our expenditures, right now, are going on, let's see, the Snowfields project just because of the drilling we're doing up there.

The San Luis project, as well as the Pitarrilla project, involve a lot of in-house engineering. And so, there's not a substantial amount of cost to that. It's basically using our in-house expertise, now, to be able to able to advance those forward. So, I think you'll see the larger costs are going on in the Snowfields projects and other augmentation of drill projects we might do.

So, part of our exploration budget in the past, we've often spent on the order of about $20 million on exploration. And we're halfway through the year, so expenditures towards the ends of this year would probably be in line with that. But we've given no specific guidance on those because we do modify programs from time to time.

Okay. That's very helpful and just lastly, you piqued my interest a little bit with your comment on the gold. I mean, what kind of opportunities are you looking at to, I guess, crystallize some value on the three gold projects? Is there anything specific there?

Well, it's certainly a focus of mine, Richard. And we'll be looking at it over the next few months. I think, with the drilling, which we're doing up at Snowfields, we fully want to understand that project, not only from the fact of the Snowfields zone but, certainly, this new area that we're currently drill testing to the south. I think we want to see what the total potential for that can be.

And then, in light of the enhanced interest in gold in the current precious metal environment, to make sure that the gold is fully recognized within the company. Or if not, then how do we go about doing it? And so, that will be a focus of mine over the next few months.

Okay. All right, thanks; that's good.

Thank you.

And our next question comes from Chris Lichtenheldt, of UBS.

Good morning. First, I just had a question on CapEx and how maybe the accounting around it works. Just because, at the end of Q1, I think you had said you'd spent around $213 million at Pirquitas. And if I'm reading it properly, it says this quarter you're around $221 million of the $230 million. But I know during he quarter, you spent almost $26 million on construction and another $17 million on pre-operating. So, I'm just wondering how those numbers all compare to the $230 million, if you know what I mean?

Right, Chris. The $233 million is purely construction costs of the plant and facilities. Last year, we also had $17.8 million of pre-operating costs. This year, we had a further $30 million of pre-operating costs. So, to conform with this year's presentation, we classified the $17 million and grouped it with the $30 million that we incurred for pre-operating costs this year.

So, construction is now pure construction type of costs for the capital facilities. And the pre-operating is what we term soft costs.

Okay, okay; I think I understand that. But then, from having spent $213 million at the end of Q1, to $221 million now, that's $8 million of additional construction. But during the quarter, I think you said you spent $25.5 million on construction expenditures. So, are some of those construction expenditures being lumped in with pre-operating?

No, it was just a re-class from prior year. So last year, we would've disclosed $193 million, of which $17 million was pre-operating costs.

Okay. Okay, good enough. Do you know how much, then, during the second quarter, or even the second half of the year, you anticipate you will be spending, you'll be outlaying at Pirquitas, including all the pre-operating to go? Do you have a number for that?

Well, the construction will be complete at $233 million.

Yes.

We'll have another $12 million to go.

Yes.

And the pre-operating cost well, it just depends on when we will recognize commercial production. And at our current rate, you see, our current rates, that we're running at about $15 million a quarter, so far.

Oh, of operating expenditures, is that what you're saying?

Yes.

Okay. And actually, that was my next question. Do you now anticipate, given the slight delays in that commercial production, or the commencement of expensing these costs will occur, now, maybe in the fourth quarter, rather than the third? Or are we looking at next year?

Well, it's certain it will be in the fourth quarter that we will produce the bulk of our concentrates in [seller] silver. So it really depends on how quickly we can get ourselves ramped up to produce the concentrates.

Right, okay. So, you're still hoping for the fourth quarter, potentially, on commercial? Or, just kind of wait and see?

Yes.

Okay. And just lastly, as it relates to the weather issues, are these -- are problems with weather something that could be a problem with operations, you know, next year? Or is this, you view as sort of a unique situation, given that you're in the midst of a ramp up? Or, could you clarify a bit on that?

You've hit the nail on the head, Chris. The weather was unseasonably cold, in particular. Not just the temperature but the wind chill factor; 120 kilometer an hour average wind.

We were ramping up whilst that hit us. So, we hadn't built up any thermal inertia in the plant. It was a very awkward time for operating. So, it was a bit of a timing issue.

We certainly have the plant in good shape to run now. We can withstand any conditions that have been thrown at us in the last six weeks. We're pretty confident that we might have the weather issues like we just had, moving forward on the project. It was just a timing thing.

Got you; okay. Thanks a lot. That's all for me.

We'll go next to Ian Howat, of National Bank Financial.

Yes, good morning. Two things; just on, if you'd refresh my memory on what the feasibility grade of the silver concentrate was going to be?

Sure, Ian. It's about 20,000 grams per tonne.

20 kilos per tonne.

Okay. And also, you were saying that the silver concentrate is currently going to prove to be blended. Is it going to be processed in Peru?

No. We don't know. We're selling to a trading company and that's the extent of our relationship.

Okay, so it's a trading company issue, not your issue? Okay. Thanks very much. That's it.

Thanks, Ian.

(OPERATOR INSTRUCTIONS)

And our next question comes from Haytham Hodaly, of Salman Partners.

Good morning, Bob, George. How are you?

Good.

Good, Haytham

You know, most of my questions have been answered. I just want to touch on the 3 million ounces that was projected for this year. That's not necessarily commercial ounces, is that correct?

Sorry; I don't understand that, Haytham.

That's not ounces that would necessarily be declared commercial production ounces. In other words, some of the revenue from those ounces may be offset against cost.

I think, in the initial part of that 3 million, yes, but we, as Tom alluded, we were expecting commercial production in the fourth quarter and some of that will be commercial production.

But that 3 million ounces is commercial and pre-commercial production ounces. Is that correct?

A combination of both.

Okay and then, just in terms of your -- I think your concentrate grades, it was, you said, 20,000 grams?

That's right, per tonne.

Okay, perfect. That's all I need to know. Thank you.

Thanks, Haytham.

And at this time, we have no further questions in queue.

Well ladies and gentlemen, we want to thank you for attending our conference call. We look forward to giving you positive updates on our Pirquitas project when we next speak to you in November. Thank you and have a nice day.

With that, that does conclude today's conference ladies and gentlemen. Again, we appreciate everyone's participation today.