SSR Mining Inc (SSRM) 2010 Q2 法說會逐字稿

Good day everyone, and welcome to the second-quarter 2010 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, Mr. Michael Anglin. Mr. Anglin, please go ahead sir.

Thank you.

Good morning, ladies and gentlemen. Welcome to Silver Standard's second quarter 2010 conference call reviewing our financial performance and updating our projects.

On the call this morning we have George Paspalas, Chief Operating Officer; Joe Ovsenek, Senior Vice President, Corporate Development; Tom Yip, Vice President, Finance and Chief Financial Officer; Kristen Riddell, Vice President, Corporate Secretary and General Counsel; Ken McNaughton, Senior Vice President, Exploration; and Paul LaFontaine, Director of Investor Relations

Also on the call with us this morning is John Smith, the new President and CEO of Silver Standard effective today. Welcome John. Would you like to say a few words?

Thanks Mike, and hello everybody.

I would just like to say how pleased I am about the opportunity to join Silver Standard at this time, and I'm really looking forward to working with the team here in Vancouver.

I'd also like thank Mike for acting as Interim President these past several months. He will be returning to his role on the Board, and we will continue to benefit from his service there.

I will be meeting with shareholders and other market participants in the coming quarter to discuss our activities as we move ahead with our projects. I look forward to hosting the third-quarter call in November.

On that note, I'm going to turn things back over to Mike and the management group here to discuss the second quarter and take your questions.

Thanks John.

So we'll give John a chance to get his feet under the desk over the next 90 days, and for this call I will be leading the prepared remarks and moderating the Q&A which follows.

Our financial statements as well as our management discussion and analysis, together with project updates, have been filed on SEDAR and are available on our website. We have a webcast accompanying our comments today, and it can be found at the web location referenced in the news release.

We will be making forward-looking statements on the call today, and I advise you to refer to our forward-looking disclosure accompanying our news release and on SEDAR.

Our focus in the second quarter was the optimization of the Pirquitas mill complex, where we achieved commercial production on December the 1st, 2009. We have made a significant process for the metallurgy of the transitional sulphide ores, resulting in the improvement of both recoveries and production costs. George Paspalas, our Chief Operating Officer, will describe Pirquitas in more detail in his presentation.

Returning to the primary purpose of this call, our second-quarter 2010 results, I'd like to turn the call over to Tom Yip, our Vice President, Finance and Chief Financial Officer, who will speak to our second-quarter financial results. Tom?

Thanks Mike. And good morning everyone.

As mentioned, we continued to optimize our Pirquitas mine and have significantly better production during the second quarter versus the first quarter. For the second quarter the P&L we recorded a net loss of $15.2 million or $0.19 a share, versus a loss of $1.4 million or $0.02 a share for the second quarter of 2009.

The main components of the $15 million loss are shown on this slide.

During the quarter we sold 1.092 million ounces of silver and at an average realized price of $18.12 per ounce. And after transportation deductions and refining costs, revenues were $14.1 million.

Cost of sales was $10.6 million, and depreciation and amortization was $5.1 million, resulting in the loss from mine operations of $1.6 million. This was a significant improvement over the first quarter, where we reported a loss from mine operations of $16.7 million.

G&A costs for the quarter were $4.4 million. The increase over the prior year relates to additional employee, as we transitioned to a producer, as well as to develop and advance our project pipeline.

Stock-based compensation was $2 million, which is similar to the first-quarter costs, as we continue to amortize the Black-Scholes value of previously granted options.

Interest expense of $3.4 million relates to the convertible debenture which was previously capitalized to the Pirquitas construction that is now charged to the P&L.

We recorded a foreign exchange loss of $2.3 million, primarily related to the effects of the weakening of the peso on our net monetary assets in Argentina.

And lastly, we incurred a $1 million for export taxes related to our Pirquitas mine.

In terms of cash flow, we began the quarter with $103 million, after completing our equity financing in February. And during the quarter we had a net decrease of $45 million. We used $9.6 million for operating activities, which was primarily mine operations of $5 million and G&A costs of $4.4 million.

Investing activities include exploration and project spending of $[10.2] million at our various properties.

At Pirquitas we spent $21 million, of which $19 million was used to pay construction liabilities recorded in 2009. The remainder $2 million was [of course] sustaining capital.

In addition, we spent $4.4 million on refundable value-added tax.

We ended the quarter with $[58] million in cash. And as we continue optimizing our Pirquitas mine, we expect the mine to be cash-positive in the fourth quarter. And we are well positioned to advance our other key projects.

Back to you, Mike.

Thank you, Tom.

George Paspalas, our Chief Operating Officer, will walk you through the operational progress at Pirquitas and also describe the work underway at our development projects in San Luis and Pitarilla. George?

Thanks Mike, and good morning everyone.

Operations are progressing well at Pirquitas. The open pit continues to perform strongly at the designed rate and is beating our unit cost expectations.

A photo of the pit taken last week, is shown here on slide six. Here we can see the north wall of the pit from the right-hand side of the photo, coming down and into the valley floor.

We will be mining through the valley floor over the next six weeks. Once through the floor, we will then be into the San Miguel system totally and have achieved access to the sulphides and the ore body.

In the background is the porphyry waste dump, which has been taking the majority of the waste mined this year.

Once through the valley floor and the sub level oxidation zone, mining will be predominantly sulphide ore for the rest of the mine life.

So the pit is operating well, at design rates, and delivering sub-$2.00 per tonne mining cash operating costs. These costs are all-in mining costs and include the 7 km haul to the process facility.

We have made good progress in the process facility as well over the quarter. As we see in the graph on slide eight, silver production is significantly up from Q1. At just over 1.7 million ounces, Q2 silver production is significantly higher than Q1. This is driven primarily from improvements in the metallurgical response to the transition ore and increased mill tonnage, once the screen beam failure from Q1 was fixed. This was a once-off failure, and we don't expect it to be repeated.

Significant metallurgical test work was conducted on the transition material during Q1, resulting in the selection of specific flotation reagents that have now permitted good silver concentrate grades and recoveries.

The application of these reagents within the process circuit were optimized during Q2, and flotation recoveries in the mid to high 60 percentiles are now achievable on the transitional material, and recoveries over 70% have been obtained when predominantly sulphide ore has been fed to the facility. This bodes very well for the future for us.

As the silver recovery comparison shows on slide eight, in percentage terms Q2 recovery was almost 20% better than Q1.

Having achieved a consistently improved metallurgical performance on the transition ore, high-grade material was then fed to the plant, which again contributed to the increased quarterly production. Q2 silver head grade, shown here on slide eight, was 86% higher than Q1.

We are still expecting full-year silver production at 7 million ounces. As we head into the second half of 2010, the sulphide ore contribution in the feed increases, and a commensurate increase in silver recovery is expected. Some higher-grade ore becomes available in the second half of the year, and this will be fed into the plant to achieve the guidance production.

There are still some silver-zinc separation issues in the silver flotation circuit, and our metallurgical test work is now focused on achieving a cleaner separation. However, we do have a concentrate sales contract that realizes full payment terms of the silver content, while recognizing payment from most of the zinc as well.

The zinc flotation circuit has proven it runs well and produces a saleable zinc concentrate at designed recoveries. When now have issued guidance that we expect to make 3 million pounds of zinc in 2010.

Tin grades continue to be low, as we open up into the top of the sulphides. We have been operating the tin gravity circuit and have seen some good upgrading. However, tin production now is expected to be 600,000 pounds in 2010.

Operating cost control has been a feature of the mine performance, with total monthly expenditures holding around the $6 million mark.

As production increases, unit costs on a per-ounce basis will continue to fall, and hence, we maintain our cash operating cost guidance at $10.00 per ounce, net of byproduct credits for the year.

So a great improvement this quarter at Pirquitas, and further improvement expected for the balance of the year.

Turning now to the San Luis project in Peru, the feasibility study for the project is being completed, and we are progressing through a number of approvals and agreement processes in order to prepare for a development decision.

At Pitarilla in Mexico, we are on schedule to complete the feasibility for the end of 2010 on the Breccia Ridge underground, and look forward to releasing these results once available.

So that's it for Pirquitas and the advanced-stage projects. Back to you, Mike.

Thank you, George.

I would now like to talk about our progress on other project activities, in particular the Snowfield and Brucejack exploration projects in northern British Columbia.

In early June we announced the completion of a 43-101 compliant preliminary assessment for the Snowfield project, which outlined the scope of a 120,000 tonne per day open pit mine producing an annual average of 607,000 ounces of gold, plus copper, silver and molybdenum.

An updated study is underway which will include the project's rhenium resources, as well as the gold and silver resources from our December 1, 2009, resource estimate for our neighboring Brucejack project. The results of the updated preliminary assessment are expected later this quarter.

An 18,000 meter diameter drill program at Snowfield is well underway, the primary focus in upgrading the project's known gold resource. We have started compiling the assay data and will release the results on completion.

At the adjacent Brucejack project, drilling results to date have been successful at demonstrating consistency of the high-grade gold-silver intersections first encountered in last year's program in the Galena Hill and West Zones. Results have also expanded to the newly discovered Bridge Zone, which interpretation suggests may have the potential to be a gold-silver porphyry.

We will continue to release assay results from these programs as they are received.

At Berenguela, a 5,000 meter diamond drill program is underway to test for the source of depth of the silver-copper resource at the surface.

To conclude, achieving full production and efficiencies at Pirquitas remains our corporate priority. We have made solid progress during the quarter. The advancement of our two development projects, San Luis and Pitarilla, are on track, and we are maintaining the tempo of exploration activities at our key programs, which are continuing to deliver significant results.

These are the formal remarks we wished to make this morning, and we'll now respond to questions you may have.

Thank you. (Operator Instructions)

Haytham Hodaly, Salman Partners.

A question for George. George, with regards to throughput and grades here in this quarter that you've seeing so far, what are you getting up to at this point?

We are hitting the designed throughput, 4,000 tonnes per day through the plant. Grades are running roughly around the 240 g per tonne, and yes, we expect that to ramp up as we go into the second quarter and ramp up more so in the fourth quarter than the third quarter.

So sorry, George, if you had to give me an average for the throughput for the quarter, you'd' think it would be, what, 4,000?

Yes.

And then you said average grade would be what?

Average grade moving forward with -- will be higher than what we've seen in the second quarter and probably up about 30% on that.

So giving you what type of gram per tonne?

We are going to come in around the 300 g per tonne mark.

300 g per tonne, okay.

And for the full year, I saw your forecasts were for cash production cost. Was it of $10.00 per ounce?

That's correct.

What cost per tonne are you assuming in the second half of the year? I guess it's easy to figure out costs per unit in the second half of the year -- what type of transition from third to fourth quarter is what I'm trying to determine.

On the operating-cost side, the best way to look at it is we are consistently putting in $6 million a month for the operating costs. So given that throughput data, I think you can work that out.

Okay, so $6 million a month -- that hasn't really changed from before?

No, it has been consistent. It has been a reflection of the focus and the achievements of the people (inaudible) controlling those costs.

Okay. And when do you think you'll get up to a throughput of around 5,000 tonnes a day?

Oh, the plant was only ever designed for 3,800. You know, it's a crushing circuit that's a 6,000, and as we get into the sulphides, we will start to look at the overall performance of the facility. But we won't exceed 4,000 tonnes per day on the milling circuit, as that is the capacity of the circuit.

Okay. Okay, thanks George.

[Quanwan Anchanglo], Scotia Capital.

I just wanted to reconcile the operating costs for the quarter. I see you sold 1.1 million ounces, and I guess at $15 an ounce that is $16.5 million. But you have $10.6 million for Pirquitas for the quarter. So what else is in there? Is that export duty and the like?

Let me hand over to Tom Yip, Chief Financial Officer, to answer that. Tom?

Well, thanks for the question.

The operating costs we have on the P&L reflect the 1.1 million total ounces that we sold.

Yes, okay. And then is that at the $10.00 an ounce cost or $15.00 per ounce? And what's the difference between those two?

Well, what happens is that we had written down our opening inventories at the end of March to net realizable value. So we would have recognized certain costs from our opening inventory down to net realizable totals that would've fallen through in the second quarter. That's why it is slightly lower than our reported cost per ounce on a production basis.

I see. All right. And going forward it will be as expected?

Yes.

Okay, thanks.

Secondly, I was just sort of -- to get a breakdown of the exploration and CapEx schedule for the rest of 2010 and for 2011 -- just overall.

I mean, at this point we -- I'll work backwards. The 2011 numbers still haven't been submitted or reviewed by the Board, so it's impossible to speculate what they may be.

And then basically as far as the rest of this year, we are on track. All the programs are going. You know, yesterday for instance, we decided to approve additional funding to continue with the Brucejack work.

So we are in pretty good shape, and then we will finish off the year as we thought we would.

All right, thanks a lot, guys.

(Operator Instructions) Heather Taylor, BMO Capital Markets.

I just noticed that you produced 1.7 million ounces, but you only sold 1.1 million ounces, so I'm wondering if you can address the missing 600,000 ounces.

Sure. Let me hand that over to George to talk about that.

Sure, Heather, thank you.

Yes, we did produce 1.7 million ounces. The differential between the production and the sales is purely a timing issue with the port in Antofagasta. The boat didn't leave at the end of the month; it left in early July, so we couldn't actually book the revenue until that boat left the port. So it will be coming in July rather than June.

And -- well, can we expect to see the same sort of thing for the next coming quarters?

No. In fact we are changing the recognition of revenue at that port. So we won't be linked into the departures of the boat from the port.

Okay, thanks.

Chris Lichtenheldt, UBS.

First, the $6 million a month site cost, does that include everything, treatment charges and everything?

Let me hand that over to Tom, Chris.

Chris, [was] that just some -- or production costs, direct costs at the mine site. And beyond that we have the -- that's the PCR fees outside the mine.

So if you look at our definition, when we say "cash production costs," that is mine costs less any byproduct credits. Then we add the PCR fees and the royalties and export taxes to get to our cash operating cost, which report this quarter as $14.98, which is similar to the guidance of $14.00 per ounce for the year.

Right, okay, yes.

Second question, can you just walk us through the CapEx from the quarter? I'm still a little bit confused exactly what the $21.5 million was for.

Chris, the $21.5 million, the real spending for additional capital is around $2 million, and that's for some minor sustaining capital. The remainder, which is $19 million, is primarily the paydown of construction liabilities that related to the construction which were basically complete at the end of last year, but because of time lags in getting the bills from the various contractors, we settled during the quarter. So it's related to past liabilities.

So it's really a payment of payables?

It's a timing difference.

Okay. So will there be any more of that? Like I would've thought maybe that would be an operating item like a working-capital sort of thing, rather than CapEx.

It's just the way that the definition of where we put investing versus operating activity, and we started the process as investing, just by accounting definition, if nothing else.

Okay.

There's just a little bit left to be settled on that account, and that is just primarily the last settlements.

How much is left?

Approximately $5 million to $6 million.

$5 million to $6 million. And that's probably next quarter? Or --?

Yes. Third quarter.

Third quarter, right. Okay, thanks.

And then, probably just a question for George. On the availability of sulphide ore, I know it seems that that's now a mid-Q4 event, and I think in the last quarter it was sort of a Q -- end of Q2 event. Can you describe what has happened that that's been delayed a bit?

Yes Chris, just the -- because of the vein nature of the deposit, it's very difficult to predict the actual extent of the weathered profile from the surface. And as we mine down the side of the valley and get into the valley floor, that oxidation zone is a little deeper in some areas than we thought. So there's just a little bit more of that than anticipated, but that transition being a mixture of oxidized material and sulphide, the deeper you get, even within that oxidized horizon, the more sulfidic it gets.

So, mid-Q4 is like for on sulphide-only ore.

Okay. So [heading] to that Q3, the transition will be more sulfidic than Q2 (multiple speakers) and do you expect -- do you have some gauge yet of what you think recoveries might look like then if -- in the third quarter?

You know, when we see sulphide ore in the plant -- and we've done that in the second quarter, we've had complete days of sulphide -- we see pretty good response. We've seen the feasibility study recoveries. So we are having to trim that weigh as that percentage of sulphide increases in the 3 -- Q3 and then into Q4.

Okay. And then, like you said, it's difficult to gauge exactly when it will happen, so is your comfort on mid-Q4 now better than your comfort was last quarter, as you are deeper now? Could you have pretty good sense that that will be the case?

It is more finite from an area point of view. There's just some interpretation on how deep it goes, and we are being conservative on this. We are hoping it will be earlier than what we are saying. But you know what? If it's not, it's not exactly the end of the world, because we're starting to get pretty good numbers even on the transition material.

Okay. And do you think the pure sulphide will help with the zinc separation? Do you expect that to occur?

We are hoping that. Actually some of the test work in the lab is indicating that, so hopefully that's then reflected in the plant.

Okay, that's it for me. Thanks a lot.

(Operator Instructions) I am not showing any questions at this time.

Well, thanks very much. This concludes the call then.

Ladies and gentlemen, this does conclude today's program. You may now disconnect. And have a wonderful day.