SSR Mining Inc (SSRM) 2010 Q3 法說會逐字稿

Good day everyone and welcome to the third-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 President and Chief Executive Officer Mr. John Smith. Mr. Smith, please go ahead, sir.

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

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

Our financial statements, management discussion and analysis and 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 the disclosure accompanying our news release and also on SEDAR.

So this is my first call and marks three months for me with Silver Standard. In that time, I've gotten to know the Board, the staff at Silver Standard, visited Pirquitas, San Luis, and worked on strategy and direction for the Company.

At this point, let me say I'm confident that we can continue to grow Silver Standard as the assets we have and the capability of the team provide a real strong platform for action. We will talk more on Pirquitas and the transaction with Pretium, but these should be seen as enabling Silver Standard to deliver as an operator and strategically position us for future growth.

You can't stand still in this business and people remain the key component to success. We will attract and retain people with the right skill sets to execute our strategy. All in all, I look forward to a strong future for Silver Standard.

(inaudible) business. First, we will provide a review of our third-quarter financial results and provide updates on the Pirquitas mine.

During the third quarter, we achieved significant milestones at Pirquitas which has resulted in improvements to both recoveries and in our production costs. And it has established us with a firm footing for the long-term success of the mine.

George Paspalas our Chief Operating Officer will describe mine operations in more detail and provide an update on our other key development projects. A discussion on Snowfield-Brucejack transaction will follow and we'll take your questions at the end of the presentation.

So, returning to the primary purpose of the call, our third-quarter 2010 results, I'd like to turn the over the call to Tom Yip who will speak to our financial results. Tom?

Thanks, John, and good morning, everybody. As mentioned, we achieved several operating milestones at the Pirquitas mine in the third quarter.

We've had better silver production quarter over quarter since achieving commercial production in December of last year. So in the third quarter, the mine reached a positive operating earnings and cash flow as we sold 2.3 million ounces of silver.

And for the third quarter, total Company P&L reported a net loss of $7.5 million or $0.10 per share versus a loss of $95,000 or $0.00 per share in the third quarter of 2009. The main components of these current quarter's results are shown on this slide.

We saw excellent results for mine operations as we earned $10 million for Pirquitas. During the quarter, we sold 2.3 million ounces of silver at an average realized price of $19.42 per ounce and after transportation deductions and refining costs, revenues were $41.5 million, cost of sales of $24.9 million and depreciation and amortization were $6.6 million resulting in earnings of $10 million.

This was a significant improvement over the second quarter where we reported a loss from mine operations of $1.6 million and in the first quarter reported a loss of $16.7 million. General and administrative costs, stock-based compensation and interest expense were similar to the second quarter results.

We recorded a foreign exchange loss of $3.7 million primarily related to the effects of the weakening of the peso on our net monetary assets in Argentina. And lastly, we incurred $4.1 million primarily for export taxes and future income taxes related to our Pirquitas mine.

In terms of cash flow, we began the quarter with $58 million and during the quarter we had a net decrease of $22 million. We generated $4.9 million from operating activities, which is primarily minor operations less G&A costs and interest costs.

Investing activities included exploration and project spending of $26.4 million under various properties including $12.1 million at the Snowfield and Brucejack projects in Northern British Columbia. At Pirquitas, we spent $5.1 million of which $2.6 million was used to pay construction liabilities recorded in 2009 and the remainder of $2.5 million was for sustaining capital.

In addition, we spent $4.8 million on refundable value added taxes. During the quarter, we sold shares of Silvercorp Metals for proceeds of $8.6 million. These shares were received as part of the sale of the Silvertip property in quarter one.

We ended the quarter with $36 million in cash. So to summarize, we achieved a major milestone at Pirquitas, being cash positive in the third quarter.

As we continue optimizing the Pirquitas plant, we can benefit from these high commodity prices and with the recently announced sale of Snowfield and Brucejack, we are well positioned [to advance for] other developing opportunities. Back to you, John.

Thank you, Tom. George Paspalas will now walk you through the operational progress at Pirquitas and also describe the work underway at our development projects, San Luis and Pitarrilla. George?

Thanks, John, and good morning, everyone. Pirquitas is progressing very well and we have achieved some notable milestones with respect to setting the mid to long-term expectations for the property during the quarter, the principal driver in these achievements being the introduction of sulfide ore to the plant. And, as Tom mentioned earlier, becoming cash flow positive has been a great milestone for us.

If there's one takeaway from the Pirquitas section today, it is this. We have now reached the sulfide ore in the open pit and the processing response is in line with the feasibility study expectations.

The sulfide ore is the life of the mine feed for the project. So this has obviously been very exciting for us.

Firstly, I'll touch on the mine. The open pit continues to perform well. The Phase 2 pushback is shown here on slide seven where we see both the north, the top picture, and the south side of the pit.

Unit mining costs are well controlled and consistently sitting around our $2 per ton mined guidance. The daily mine tonnage is now exceeding the design rate of 43,000 tonnes per day.

Turning now to the process facility where we have seen the most significant gains out of the quarter, we commenced processing sulfide ore from the pit on a continuous basis towards the end of the quarter and the early indications here are positive.

As I mentioned, this is a most significant milestone. The sulfide ore is the future and it works.

The silver recovery we're achieving on the sulfide ore is as per the feasibility study expectations and the initial results coming out of the Gekko InLine Pressure Jigs, what we call the gravity pre-concentration, are also consistent with the feasibility study predictions.

The silver production rate for the third quarter is approximately 2 million ounces. It sets us up for the future and there is some temporary capacity issues that will be relieved associated with the crushing circuit that will see near-term improvement of the production rate.

So the silver circuit is now performing to feasibility study expectations as is the zinc circuit and the processing concept for both of these metals has now been proven. It's now upon us to improve on the processing performance as we ramp up the silver and zinc to determine what the ultimate plant capacity actually is.

We are now making a separate silver and zinc concentrate and the grades of both of these concentrates agree well with what was predicted from the feasibility study for sulfide ore. We have been running the tin gravity circuit for the past five months and we have been achieving a very good final tin grade concentrate, but we have been challenged to achieve recoveries greater than 10%.

We've initiated a suite of metallurgical test work globally to determine the best strategy to increase the tin recovery. So until we determine the best course of action to the tin recovery, we have reduced guidance. However we will be selling the tin concentrates that we have and will continue to produce in the fourth quarter.

The idealized flow sheet from the left of slide nine show our scorecard presently in terms of proof of [nine plate] capacity. As I mentioned earlier, we have some temporary throughput constraints in the crushing circuit and we will finalize our test work and implement a tin gravity enhancement initiative to improve the tin circuit recovery.

The graph on slide 10 shows the improvement in silver recovery quarter on quarter. And given that we only started the processing sulfide ore continuously towards the end of September and there's not a great contribution to the quarterly value from the sulfide, we're seeing sustained improvement. We are now consistently getting feasibility study recoveries here in the mid to high 70% (inaudible)

Slide 11 shows the tailing stockpile coming off the gravity pre-concentration stage. Our initial data shows we are achieving a good level of silver upgrading with good recovery rates of silver into the gravity concentrate which then progresses through the milling circuit.

Slide 12 shows a nice improvement in silver production quarter on quarter and it is worth mentioning here that the strategic decision was taken as the sulfide ore was being introduced to the plant to ensure that all the unit processes were proven and could be relied upon for future sulfide pressing into 2011 and beyond.

Now this resulted in some lost production capacity while the gravity pre-concentration facility was commissioned which flowed over a little into October as well. But we held fast to the decision to prove the processing rather than chase the ounces for 2010 and hence our change to silver guidance for 2010.

So to summarize progress at Pirquitas, the introduction of sulfide ore has proven the processing concept for the gravity pre-concentration stage, the sulfide milling rate and the flotation response for both silver and zinc. Despite being able to produce a high-grade tin concentrate, there are some tin recovery challenges that are being examined to improve the situation. Guidance for tin has been reduced to reflect this.

The potential to maximize the silver production at the moment is being limited due to a temporary crushing restriction which will be relieved in the near term. A strategic decision was made as the sulfides are being processed to prove up the unit operations rather than chase the ounces for the year, and hence there is a revision to the guidance for silver. We now expect to produce between 6.3 and 6.5 million ounces of silver for 2010.

Our operating cost control initiatives continue to work well for us with site operating cost expenditure remaining relatively constant. Our guidance on a unit cost per (inaudible) basis does change to reflect the lower production, the denominator in the calculation. However, total spend is not increasing significantly.

So that's it for Pirquitas. An important quarter for us as we brought the sulfide ore into the processing facility for the first time, but a very exciting quarter.

We proved up the gravity pre-concentration and flotation concepts for both the silver and zinc circuit. This is the most significant milestone we have encountered for the project. The life of mine ore feed, the sulfides are now being processed continuously for the first time and the metallurgical response is meeting the feasibility study already.

Moving on to the advanced stage development projects now, at San Luis in Peru, we continue to conduct some engineering reviews of the feasibility study to identify opportunities to enhance the project and to determine the best execution strategy. The environmental impact statement for the project has been filed with the Ministry and we are continuing to negotiate land use agreements.

At the Pitarrilla project in Mexico, we're currently going through the last stages of the feasibility stage. Now normally feasibility is typically a progression of the pre-feasibility study option, refining the project, the production schedule and project economics.

However in the case of Pitarrilla, we have changed the primary mining method to a bulk mining option in the feasibility study rather than the transverse long-haul stoping methodology as shown in the pre-feasibility.

This necessitates significant engineering and evaluation to ensure we have a robust and well desired development option. We want to be certain we have completely analyzed the alternative mining method and we now estimate we will complete the feasibility study early in 2011. That's it for me. Back to you, John.

Thank you, George. I would now like to talk about our progress in other project utilities, in particular the Snowfield and Brucejack exploration projects in Northern British Columbia.

In September we announced the completion of our 43-101 compliant preliminary assessment of a combined project of Snowfield and Brucejack based on the resource estimates defined in the drilling conducted up to 2009. The report outlined the scope for a 120,000 tonne per day mine, producing an annual average of 700,000 ounces of gold plus copper, silver, moly, rhenium over a 27-year mine life.

In addition, we completed 51,000 meters of drilling program during the quarter which has succeeded in extending the (inaudible) result known mineralization and defining new areas of mineralization for follow-up exploration. Updated resource estimates for our Snowfield and Brucejack are anticipated in the first half of 2011.

Importantly, the 2010 drill results were not included in the PA released and we expect it will only add to the quality and quantity of the resource. On October 29, we announced an agreement to sell the Snowfield and Brucejack projects to Pretium Resources for a total consideration of $450 million consisting of $215 million in cash and a balance in common shares of Pretium valued at the IPO price.

The sale allows Silver Standard to progress our strategy. It's an enabling transaction in that context.

It allows us to focus on the development of our project pipeline and other exploration opportunities. It also allows us to strengthen our balance sheet in support of our objectives. And we retain an interest to maintain exposure to the project and prospects.

We recognize that the shareholders place importance on management focus and project execution and we believe that the benefits of this transaction help to position us to achieve our goals. So to conclude, setting Pirquitas up to consistently deliver maximum production remains our priority and we have significantly moved forward on this in the third quarter.

The advancement of the two development projects, San Luis and Pitarrilla, are progressing well and we continue to maintain the tempo of our exploration activities on our key programs. The Pretium transaction enables us to positively action our strategy.

So these are the formal remarks we wish to make this morning. I will now respond to questions that you may have. Thank you.

(Operator Instructions) Trevor Turnbull, Scotia Capital.

Congratulations on the transaction with Snowfield and Brucejack. I had a quick question on -- regarding the tin concentrates that you're producing at Pirquitas.

I understand that the recoveries are very low, less than 10%. Can you just as background give me a sense, George, of what happens once you create the concentrate, what is the process after that? I realize you're looking for a better one, but doesn't it just go to a smelter at that point? What exactly happens to those gravity cons?

Good morning, Trevor. Our tin circuit comprises two components, the gravity and the flotation circuit.

But in the end, we make one concentrate. The tin market generally will not accept anything below a 50% concentrate and we're producing concentrates at 55, 58, up to 60% which are very high grade.

That's well sought after in the tin market at the moment. There's quite a demand for tin concentrate.

What we're trying to do is just come back, hold our good grade and get our recovery up. And we've done some test work that shows some positive indications around maybe some slight unit operation changes, different pieces of equipment in the front end of the gravity, and we have to be able to bring that recovery up in the future, Trevor.

Sorry, I guess I'm confused. So is it a process you control that you're trying to get the recovery up or is it the smelter recoveries that are having problems?

Yes, it's the process at our mine that's giving the low recoveries.

Even though you're able to get the concentrate grade where you want, it's the recovery part that just isn't there.

Correct, it's fine tin and we just need a couple of units to recover that fine tin, the tin is very fine grained.

I see, okay. And then changing subjects slightly, at Pitarrilla as you look to the feasibility study and the bulk mining options there, can you give me a little color on what you're thinking in terms of the bulk mining, what type of process and so forth?

We've sort of -- the pre-feasibility study was a pretty intense stoping method and we've had to really look at the whole concept and the shape of the orebody and we've come up with more of a multiple level bulk method that certainly brings down our operating costs significantly.

We're still finalizing that. We're in the last throes of it. But it's more of a typical bulk mining method that you see in the industry as opposed to an intense stoping method.

And you say typical in the industry for those manto type deposits?

Yes, correct.

So does that mean it would be analogous to some of the current operations down in Mexico? Do you have a good comparable operation that uses the type of methods you're looking at?

It's something more typical to what you see in the larger -- the higher mantos, something more akin to a sublevel caving type operation.

Right, okay. Thank you very much, George.

Chris Lichtenheldt, UBS Securities.

I apologize, I hopped on a bit late, so I hope I'm not redundant. But I just wanted to confirm, in the press release, it sounds like obviously September you're into sulfide and that's now -- that should now be the case going forward there, there will be really no more transitional work?

Morning, Chris. That's correct. We are into the [top of the part] of the [same old rail] system. It's sulfide all the way to the bottom now.

There's going to be a little bit of transitional oxidized material around the old shaft systems, but it's insignificant. So it's 99% going forward now, good sulfide ore.

Okay, great. And then on the testing test work that you're having done on the tin, did you have preliminary results back? Are you somewhat hopeful? Are they -- is there any encouragement there?

There is encouragement and we're doing work in Bolivia and Canada and Peru all at the same time. It's focused on trying to recover the small gravity tin.

It's not new technology or anything. It's just a matter of finding out what the right configuration of units we need. So there is positive potential there, we just need to get the work done.

And do you have a -- like an ideal timeline would be a couple quarters. Maybe you hear back this quarter and start to implement and maybe in the next couple quarters start to get that recovery rate up, is that kind of what you're hoping?

What we have got to do is finalize the conceptual flow sheet and then just see what equipment leadtimes are like. Most of this stuff is off the shelf.

Not expecting a long time, Chris, but I wouldn't like to give you time right now. We're still trying to just finalize the flow sheet.

Just on the gravity circuit, there was some downtime obviously to begin to commission that. Do you expect any more downtime at the plant in the fourth quarter?

No, now we're towards the end of October. That plant is now up into the plus 95% operating time.

I mean, things like -- just slightly larger size rocks and we expect could plug the system up a lot. We are putting in a scalping screen to take those out [with maybe] some erosion issues and she's running nicely now.

Okay and is the tin circuit there now idled in the fourth quarter or what's going on with that?

(multiple speakers) we are still making tin and we're making as I said a really good grade tin con and we're anticipating sales of that in the fourth quarter.

Okay, so you're making the con it's just you're not making much money on it. Is that fair to say on the tin?

We're making con and we're making good money on the con -- we're not making a lot of it.

Okay, that's a good way to look at it. So you'll have basically (multiple speakers)

(multiple speakers) we're running it because tin is a good price.

Right, right. So you'll make three concentrates in the fourth quarter, is that right?

Correct.

(Operator Instructions) Haytham Hodaly, RBC Capital Markets.

Just a couple -- actually just one simple question. George, when we talked previously, we had said that monthly operating costs were somewhere between 6 and $7 million a month. Is it still in that range?

We're coming in consistently around the 6.5 total spend per month.

Okay, 6.5. And then your tin recoveries, it's difficult to obviously guesstimate or estimate what the problem is at this point in time. When do you think you could have a handle on what's going on? What are they telling you? How much testing are you doing, etc.?

A fair bit of testing because we want to really jump on this quickly, and we've had some good numbers coming out of one laboratory already. I don't think it's going to be a long time, but we just need to get all the results in, analyze the data and just see what is the best approach and then implement that.

It is hard to give you a timeframe at the moment. I know you want one, but we're still just getting data in.

That's good, okay. Thank you, John.

Chris Lichtenheldt, UBS Securities.

Sorry, just had a little follow-up on sort of maybe an accounting question. The cash operating cost per ounce this quarter of $16.94 compared to $14.98 for Q2, it says in the disclosures that it reflects the higher treatment or finding costs due to higher concentrate sales versus produced ounces. I'm just a little bit confused why -- how that all works. Is there some clarity there, just why costs went up even though sales went up at the end of the day?

Thanks, Chris. What's really happened is that our deductions which are our treatment and refining costs, are recorded when we actually sell. And when we do to calculation on a cost per production basis, we actually have a slight mismatch in this quarter, so that your treatment charges are based on sales and our production is based on the same amount.

Okay, I thought that's what you were saying. So it actually doesn't -- if you sell more than you produce (multiple speakers) you're actually behind the game on cost.

Over to longer term, it will work out as we match up our production and our sales.

Do you expect to be more closely matched in Q4?

We hope to as long as we are targeting sales and production to be the same, which we are.

Right, okay, good. Thank you.

Thank you. I show no further questions in the queue and would like to turn the conference back to Mr. Smith for closing remarks.

Thank you very much, everybody, for being on the call and hopefully we've answered your questions. Thank you for your attendance.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.