SSR Mining Inc (SSRM) 2011 Q2 法說會逐字稿

Good day, everybody and welcome to the second quarter 2011 financial results and operations update conference call. This call is being recorded. At this time, for opening remarks and introduction, I would I like to turn the call over to John Smith, President and CEO of Silver Standard.

Thank you. Good morning, ladies and gentlemen. Welcome to Silver Standard's second quarter 2011 conference call, where we'll review our financial performance and give you an update on our business.

On the call this morning, we've got Joe Phillips, our Senior Vice-President, Operations and Development, also on the call we've got Tom Yip, our Vice-President, Finance and CFO, and Ron Burk, our Chief Geologist. We also have here Ian Chadsey, our new Director of Investor Relations, who will no doubt help when he can with information and understanding of Silver Standard going forward.

Our financial statements, Management discussion and analysis, and business update have been filed on SEDAR and are available also on our web site. We have a webcast accompanying our comments today, and that 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 to you refer to the disclosure accompanying our news release, and also on SEDAR

So I am pleased today to be reporting our second quarter results. We produced 2 million ounces of silver this quarter, a 16% increase over the last quarter, and another important step towards our goal of 8.5 million ounces for the full year. We also produced 2.8 million pounds of zinc.

We generated revenue of $47.3 million during the quarter, making a total of $107 million so far this year. Our direct mining costs are down by 6% over last quarter, and while our costs are moving in the right direction, we intend to focus our attention on getting our total costs lower in the second half of 2011.

As we completed the second quarter, we have made strong progress on our objectives for the full year. The 4 elements we continue to focus on are the same as we discussed on the last call. Firstly, to improve the predictability and performance of Pirquitas. Secondly, moving San Luis into construction decision once we complete our negotiations with local communities and have approval for our EIS, Thirdly, we want to provide clarification and advance the development of Pittarrilla's radius resource opportunities. And to do all these things, we need to, fourthly, continue to build our capability to deliver on our strategy through the hiring and developing of the right people to ensure success.

Pirquitas continues to be more reliable and predictable. We increased production in the second quarter, notwithstanding a 13-day shutdown to work on the Ball Mill gearbox. Going forward, we are holding guidance, while recognizing the risk we have until a full new gearbox is on site towards the end of this year.

Regarding our sales contract for silver concentrate, we are currently soliciting advice from various traders and refiners, as we continue to focus on the cost of the service, and Tom will provide an update on this in a few minutes. Importantly, the Board of Silver Standard committed a total of $25 million to accelerate the advancement of the combined Pitarrilla oxide and sulfide project in Mexico. The oxide open pit and sulfide underground deposits will be simultaneously. The oxide zones near the surface will develop first, to bring in early cash flow, followed by the sulfide deposit, which will require more time for underground development.

Now, we are working to a schedule, submitting to the Silver Standard Board a feasibility in the first half of 2012, and if approved, we will complete detail design and construction, that after leading to production within 2 years. The $25 million approved by the board includes an allowance for critical path items, as well, and Joe will provide you with more technical and commercial information on this later on in the call. But let me say, this makes a significant step forward for us in the development of Pittarrilla, and it is also significant for Silver Standard.

The 2 final comments on our project portfolios -- In the second quarter, we took the opportunity to sell 11.5 million units of Pretium Resources. We did this in conjunction with Pretium Management, and it leaves with us a much more comfortable investment to market cap position going forward.

We also announced the sale of the Bowdens project down in Australia for AUS75 million, and this is good value, and another example of our strategy in action, which underlies our commitment to effectively build out production base for Silver Standard. And finally, we've been getting successful in recruiting senior technical managers, and again, Joe will talk about this as he goes into his presentation.

But with that, I'd like to turn the call over to Tom Yip, and Tom will provide you with an update on our financials. Tom?

Thanks John, and good morning everyone.

We are reporting under IFRS as of the beginning of this year, and our 2010 comparative results have been restated as well. I refer you to note 2 and note 17 of our financial statement, as well as the MD&A, which contains disclosures and a reconciliation of the impact of IFRS on our previously reported results. These financial statements and MD&A are found on SEDAR and at our website.

In the second quarter, we produced 2 million ounces of silver, compared to a total of 1.7 million ounces in the first quart of this year. This higher production level is in lines with our expectations, and is a result of improved plant operations, despite our 2-week mill maintenance shutdown.

During the quarter, we adopted the Silver Institute guidance on reporting production costs. On this slide, we show direct mining costs, which is the costs incurred at the site of $11.57 per ounce. This reported cost per ounce is better than the first quarter, as total silver production is 16% higher in the second quarter. Our dollar spending at the mine is very consistent at $7 million to $8 million per month over the first half of this year, and is in line with our expectations.

Looking at the breakdown of our cost structure on a unit basis, our direct mining costs have been $12 per ounce in the first half of the year. Including third-party charges and depreciation and amortization, total production costs were $26 per ounce. The $14 per ounce increment consists of royalties and export axes of $3, TCRCs of $7, and depreciation and amortization of $4 per ounce.

We are maintaining our guidance of 8.5 million ounces of silver production, at approximately $11 per ounce for direct mining cost, however, driven by the increase of the market price in silver, we are increasing our total cash guidance by $1 to $20 per ounce. The $9 per ounce increment reflects third-party costs of royalties and export taxes of $3 per ounce, TCRCs of $7, and these are offset by a $1 per ounce for zinc byproduct revenue. [And will support for us] non-cash depreciation and amortization, total production cost guidance for the year is $24 per ounce.

With these high third-party charges, we have set up to establish more competitive concentrated sales terms, and to better understand the issues driving the silver concentrate market dynamics. To date, we have contacted more than a dozen smelters and metal traders to establish new contractual relationships. We anticipate completing our negotiations by the end of the third quarter.

In terms of revenue, we are totally leveraged to the market price of silver. During the quarter, we realized an average of $38 per ounce on 1.6 million ounces sold. Sales of silver were approximately 400,000 ounces lower than our production, which is strictly a timing issue, as delivery over the last shipment from the mine in June was delayed from excessive snowfall along our truck route. For the first half of the year, we realized $36 per ounce on silver on 3.6 million ounces sold.

Turning to the total company P&L. For the second quarter 2011, we reported net earnings or $45.8 million, or $0.57 per share, versus a net loss of $9.4 million, or $0.12 per share for the second quarter of 2010. The main components of the second quarter results are shown on this slide. At Perquitas we sold 1.6 million ounces of silver, and after transportation, treatment and refining costs, revenues were $47.3 million. Cost of sales was $20.6 million, depreciation and amortization was $5.2 million, and export duties were $5.6 million resulting in earnings from mine operations of $15.8 million dollars.

We recorded a gain of $39.3 million on the partial disposition of our Petrium investment, which we see as part of the proceeds of the sale of Snowfield and Brucejack in December of last year. We had an unrealized gain of $10.9 million, primarily related to fair value adjustments on the conversion option of our 4.5% convertible debentures. These are offset by general and administrative costs for the quarter of $7 million, which includes stock-based compensation of $1.9 million, as we continue to amortized the black shoals value of previously granted options. Interest and other finance costs of $4.2 million relate primarily to our convertible debenture. We also incurred expiration expense [of titus] of $2.6 million, and income tax expense of $6.6 million, which relate to the earnings from the mine operations and the sale of Petrium shares.

In terms of cash flow, we ended the first quarter with $260.7 million, and during the quarter we had an increase of $108 million. We generated $6.9 million from operating activities, which is the mine operations plus G&A costs and convertible debt interest. We received $6.7 million from stock options that were exercised.

Our investing activities in for the quarter include receiving a further $113 million from the secondary offerings of 11.5 million units of Pretium resources. We spent $6.2 million for sustaining capital at Perquitas, which includes the beginning of the next phase of tailings, [power and load], an additional 4 new haul trucks. We also spent $7.9 million on our expiration and development projects, as well as $4.4 million on refundable value after taxes mainly [for keeps].

We ended the quarter with $369 million in cash. Not included in the balance, and as substantive in the quarter, as John has mentioned, we agreed to sell the Bowdens project for AUD75 million. So in summary, with the cash flows from Pirquitas and our significant cash resources, we are well positioned to advance our portfolio of project opportunities.

Now over to Joe, who will provide an update on our operations and development projects.

Thanks, Tom and good morning, everyone. The second quarter was a quarter of advancement at our operation at Pirquitas as well as progress at our development projects at Pittarrilla and San Luis.

Before starting, I'd lick to take a moment to introduce 3 new members to our senior Management team. First, Andrew Sharp, our new Vice-President of Technical Services, is a mining engineer with over 25 years of experience and who joins us from Great Panther. In addition, he has held senior management roles at mines such as Ok Tedi, and worked with me in the construction and start-up of 4 mines.

Bob Byrd, our new Country and General Manager for Pittarrilla, is a 40-year veteran with multiple successful assignments at the general management level in Europe and South America. Most recently the general manager at Iberian Minerals in Spain.

[Augustine Platus] is our new Operations Manager for the Pitarrilla project. He helped me with the construction and start-up of a mine in Sonora. The addition of these new members to our team demonstrates our commitment to our operations and projects.

At Pirquitas, over a continuous 10-week period in the second quarter, the mine ran at a rate 26,000 ounces per day. Silver recoveries were 80%, which is 2% over design, and 6% better than the previous quarter. This shows what we can achieve at our goals at Pirquitas with the right capability.

Having Trevor Yeomans, our Director of Metallurgy and Bruce Kennedy, our new General Manager at Perquitas, in place has made a big difference. Total at production at Perquitas was 2 million ounces, which is 16% ahead of the previous quarter. Zinc production was 2.8 million pounds year-to-date, 1 million pounds ahead of guidance. The crushing plant operated at an average of 4700 tons per with day and the mill at 3900 tons per day, both of which are mine records. Silver recovery averaged 80% for the quarter, which was a product of flotation plant improvements and, most significantly, having uniform optimum feed to the plant available on a continuous basis.

Another significant development during the quarter was our decision to take the Ball Mill down for major maintenance, as a result of increasing vibrations in its gearbox. The vibrations were causing us to back off of the full capacity of the mill, and we made the decision to do a major repair. Earlier in the year, when we identified the vibrations, we immediately ordered a complete set of internal components for the existing gearbox, and a complete new backup gearbox, which will be delivered in November.

Our plan at Pirquitas has 2 pieces of second-hand equipment when it was built. First was a used crusher in our tertiary crushing circuit, which you may remember was replaced in the first quarter. Its replacement is now enabling to us significantly exceed our crushing requirements. The second piece of used equipment was our Ball Mill. It's a good quality polysius mill, which was acquired in 2006 from a mine in Asia. Its acquisition enabled Silver Standard to significantly shorten the delivery time of this most critical lead-time piece of equipment.

In the first 2 weeks of April, we refurbished the shaft, replaced bearings, and re aligned the mill prior to starting up and running for 10 weeks. Early in July, in a separate incident, the bearings on the inching drive shaft failed, and we experienced a second shutdown for 17 days. The mill has been operating at capacity since then. Now that we have a complete set of spare parts for the gearbox on site, if the problem recurs, the gearbox will be rebuilt like new.

We will be staying with our guidance of 8.5 million ounces for the full year. We base this on our expanded mining capacity with the arrival of our 4 new haul trucks at the mine, which will enable us to deliver higher grade ore to the plant. We also have about 1.5 million ounces of high-grade silver finds that have settled in our processed water pond, and will be reintroduced into the plant over the coming months. A final item worth noting is that in the second quarter, we crushed more tons, milled and processed as many tons in 10 weeks as we did in 12 weeks in the first quarter.

Now let's move onto Pitarrilla. The $25 million recently approved by the Board of Directors will be used over the coming 6 months to fast-track Pitarrilla. This approval means that we will be advancing the development of the project on a time line to deliver a bankable feasible study to the Board of Directors by the first half of 2012.

The Pitarrilla mining complex combines the surface mine and leech plant with the underground sulphide mine and flotation plant, which was evaluated in our June sulfide study. This is a more robust project, which can be brought into production a year earlier. The $25 million will also enable us to accelerate critical lead time activities during the coming 6 months. Assuming a positive construction decision by our Board of Directors in 2012, we will have advanced the engineering, prepared critical construction infrastructure, completed REIA, received our critical mining permits, and be ready to break ground on construction later in 2012.

The Pitarrilla mining complex involves the commencement of surface mining on a portion of our significant oxide resource a year earlier than production would have commenced on the sulfide project. The development of the underground mine and flotation plant will advance in parallel with the oxide plant. We anticipate that the Pitarrilla mining complex will be 1 of the largest silver mines in Mexico. We have now staffed most of the principal management positions for the project.

M3 Engineers, which has built over 10 successful mining operations in Mexico, and which led our sulfide feasibility study will lead the design in preparation of our bankable feasibility study. The combined project includes, among its benefits, the acceleration by 1 year of construction and production, build the larger and more robust mine, share its infrastructure between the 2 mining operations, and finally, provides the upside of expanding the reserve and mine life on our resource as prices increase.

Now onto San Luis, where we have been attentively watching the outcome of the Peruvian presidential elections and steadily moving our project forward. 2 items of note from my report on San Luis are the following. Our EIA is in final review with the Ministry of Mines. All comments have been answered, and we are advised that EIA is on a normal track for approval in the coming months.

The good news is that the angst about dramatic changes in government, and particularly the Ministry of Mines, seems unfounded at this point. President Humala has appointed Carlos Herrera, a well-known and respected engineer and former Dean of the College of Engineers of Peru, as the new minister of mines. Mr. Herrera is well known to the Peruvian mine industry, and his appointment is generally considered by observers to be an indication that President Humala intends to continue to support the development of Peru's mining sector.

The second good news is that the entire technical section of the Ministry of Mines will remain in tact. So the teams reviewing and approving our EIA will be the same.

Not wanting to sound repetitive, I must report that we continue advancing negotiations with the 2 communities over our mining claims. I know it's hard to gauge our progress on the basis of that type of statement, but I would be remiss in giving a precise forecast for completion. Active negotiations are taking place in both communities, and there is support for the project. Now that we have clarity of the path forward and know the ground rules, I expect the coming months to be productive in negotiating our rights to construct and operate San Luis.

On that note, I'll turn the call over to Ron Burk, our Chief Geologist.

Thank you, Joe.

During the second quarter, we completed major drilling campaigns at our Pirquitas mine in Argentina and at the advanced Pitarrilla project in Durango, Mexico. The goal of the 17,550 meters of drilling done at Pirquitas to improve the definition of the mines reserves and resources, particularly below the planned bottom of the open pit. In addition, approximately 1,800 meters were drilled to define the zone as silver zinc timerization that has been identified some 500 meters north of the active mining. The new resource estimate is expected by year end.

At Pitarrilla, approximately 13,700 meters were drilled to better delineate near-surface resources of oxide silver mineralization for the viability of an open pit cyanide leech operation. Such an operation, as Joe has already described,, would enhance the overall value of the Pitarrilla mining complex, and complement our plans for the underground mining of the sulfide-associated silver, lead, zinc reserves.

A third major drilling campaign is nearing completion on our Nazas property, which covers 236 square kilometers, and is located just 16 kilometers east of the Pitarrilla project, in North Central Mexico. When complete, approximately 9,500 meters will have been drilled there. The Nazas property covers a large epithermal system, and our drilling program is testing what we believe to be high potential targets for precious metal-rich, quartz-low deposits, as well as silver-rich polymetalic mineral mineralization. Assay results for these drill holes are still being received. Once all of the assays have been compiled and verified, we will, be publicly releasing the relevant results.

In addition to carrying out these 3 drilling programs, we've been conducting generative exploration programs in the Southwestern United States, in Mexico, Northern Argentina, and Peru. With new properties being acquired, and new targets being identified on existing Silver Standard properties. We will be able to provide an update on these activities later this year.

Back to you, John.

Thanks, Ron.

That concludes the formal part of the session. I want to end with this -- we will get Pirquitas' performing, and significantly, we are off and running at Pitarrilla. Silver Standard's on the cusp of change moving forward into a new development, with a substantially more experienced team, and that is critical. The future for us is strong and exciting, and we're really proud to be a part of it.

So with that, I'd like to go to questions now, and maybe, operator, you'll take over from there.

Thank you. (Operator Instructions) Our first question comes from Ralph Profiti with Credit Suisse.

Good afternoon. Thanks for taking my question.

Thanks, Ralph.

Presumably, the original source of these gear box issues, and correct me if I'm wrong, is sort of ore hardness. Are you encountering sort of more challenging conditions, or are we at a level where this new equipment, plus the tertiary crushing, will sort of stabilize operations?

Ralph, this is Joe Phillips. Actually, the issues we have had with the gear box are not related to ore hardness. Unfortunately, when we took it apart the first time, we found that it had been assembled incorrectly and some of the lubrication lines were not properly installed. So, the ore hardness is pretty much as predicted, and I don't think it'll be an issue.

Okay. Great, thanks for that. John, what can we expect for Q3 sales, given this transition in the customer base? Can we expect a fairly low level, and just to add onto that, are you particularly looking at 1 customer, or are you going to kind of diversify that risk in looking at many?

Ralph, it's a good question. At the moment, when I am speaking to various people that have expressed interest, from refiners to traders, and by the end of third quarter we will be, hopefully, able to conclude that. We are at the moment, out. We're waiting on formal propositions coming back, and it is like everything. In the negotiation we will see what we have and the level of interest, and we'll hopefully get that wrapped up in the third quarter.

I see, but are you not able to give us sort of a Q3 sales figure, just in terms of either proportion to production, or on an absolute basis?

No I cannot do that. I mean, we're clearly building stock at this point in time, but we have a process whereby we're getting to conclusion on sales contracts, and really it's a matter of timing and what we can do. But I cannot comment any more until we get more substantively through that process, Ralph.

Understood, and just last question. Do you have a target in mind on where you think, the TCRCs could pan out under this new contract? Is this sort of a frame of reference we can look to?

Yes. I think we entered this process because we wanted to test our cost structure, and I cannot really tell you just now whether it will be better, worse, or whatever, but we are out there actively speaking to a number of parties. That's really going to be the most, that will give us a true market representation of what we can get. So be assured, we know what we're after to try and do in this process, and actively at it.

I understand. Thank you very much. That's it for me.

Thanks, Ralph.

Our next question comes from Adam Graf with Dahlman Rose.

Hey, guys. Thanks for taking my call. Just a quick question regarding Pirquitas and the ultimate through-put ramp capacity there. Just a little confused on how things are going to be developing going forward, as you're able to potentially ramp up the through-put there. Perhaps you could give some clarity over where you see things, just on a volume basis over the next few years.

Adam, this is Joe. I think over the second quarter, we got a good demonstration of what the capacity as far as tonnage, throughput, and recoveries are for the plant. Over the remaining life of the deposit, our grades will go up and down in different years, depending, up on what part of the pit we are in. So, while I think our results, hopefully, are representative in the second quarter, there's going to be up and down years, but in that general range of what we have demonstrated.

I think I would say that what has been good, and what Joe has been able to do, is show that the processing facility is capable of doing that 8 million to 10 million reach. It is really a matter of, as we go through the ore body, what we get to recover and process. [Despite] the issues that we had with the ball mill, are one-off issues, but the substantive underlying capability of the processing system makes us very confident going forward. So, we don't want the ball mill issue, clearly, but we've addressed that. The good thing is, I think we've got a real good sense of what the processing facility can do going forward.

So, looking just to Q1, Q2 numbers 3,400, 3,500 tonnes a day is your max capacity?

No I believe we did 3,900.

On an average over the full quarter?

On an average over the quarter with a 2-week shutdown, it was 3,400 but during the 10-week consecutive period, it was 3,900. That ball mill can do 3,900 to 4,000 comfortably.

And that's the bottleneck? Yes. That's an actual bottleneck for the facility. Clearly once we get all the, we get more run time into more consistent feeds, we'll keep pushing what we can in terms of hosing, but that's our natural bottleneck, Adam. And any view towards trying to alleviate that bottleneck to push through more material, and where's the next bottleneck?

1 of the nice things about installing excess capacity in the crushing plant is we can now look at that, as we have the potential with our extra horsepower there, to actually put smaller feed into the mill. I wouldn't be surprised if we cannot find a way to incrementally increase the capacity of that mill by more effectively using the horsepower in the crushing plant.

And what's your vision there as far as what you can get up to on a tonnes per day basis?

I can't go there yet.

Actively studying the potential?

Absolutely, and it's not rocket science. We have these large crushers. We can tune down the closed-side setting on them, and we just have to do some testing to see where we can go with it.

Very good, and do you have any targets on when you're going to release the results of some of that testing?

No, not at this time.

I think the benefit that we've got is we've got Director of Metallurgy and we have a new GM on board, and they're already making substantive improvements. We just got to go through this ball mill issue, get ourself through the year, but these are the areas whereby we can clearly improve things.

1 other, I think significant item there, is I had a longer list of new people, but one significant member to our team is our new Process Manager at Perquitas, Daniel [Cabrera], who comes to use from Cerro Vanguardia and Alumbrera, a very solid operator and another significant contributor to our results.

Thanks, Adam.

Thank you.

Operator. Our next question comes from Jack [Tindall] with Trade World Consultants.

I have no questions at this time. Thank you, but I sure appreciate this conference.

No problem at all. Glad to be of help.

And next on the line we have John [Waters], private investor.

Hello there, guys. I see you sawed a big chunk off your Pretium share in the last quarter, and I was wondering if you could give us a bit color on your decision making process behind that, and also if what your plans are going forward with your holding of Pretium share.

Thanks, John. The Pretium, we were more than happy in holding onto Pretium as an investment, but what we had was a large piece of our exposure, and what we did with the sell down was basically take a [better] position where our residual investment, relative to our overall market cap and [needs]. It is much more balanced now going forward. What that is, is code for saying we are happy with our investment. We don't need the cash just now, and if you look at our cash position, we've got about $370 million on the balance sheet. If you start to deck out what we've got to do, in terms of like San Luis build and Pitarrilla. It's going to be a few years before we need to substantially [eat] into that stuff. So, we are very happy where we are in Pretium just now. I do not see anything immediately necessitating us to change that.

Okay. Maybe you could let us know whether it is the same thinking as like selling any other of your projects, that you don't have immediate plans.

Well, our projects, in terms of our expiration projects, we're always looking at what do we hold and what works for us. We go through a fairly regular process here of deciding what are the logical ones that we'll take through into development of production, such like San Luis and Pitarrilla. There are others, like Bowdens, that within Australia, would not have made sense much, strategically, to go ahead and build. Still, commercially it had a lot of value, and that is the reason we sold it. We managed to get AUS75 million for it. So, Ron and John continue to look at the expiration portfolio, and make decisions around what are the right ones to hold and what are the right ones are others are there to develop. We'll use that money to help us reinvest to continue to do that work.

Absolutely. Okay. Thanks.

Thanks, John.

(Operator Instructions) I'm show nothing further questions in the queue, sir.

That's fine. So thanks, everybody, for being on the call. Appreciate you taking the time to do that, and the fact that we changed the times to kind of accommodate all of the other things. But if no other questions, I'd just like to thank you again. We look forward to a good third quarter. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.