SSR Mining Inc (SSRM) 2011 Q4 法說會逐字稿

Good day, everyone. Welcome to the fourth quarter and year-end 2011 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 Mr. John Smith, President and CEO of Silver Standard.

Thank you. Good morning, ladies and gentlemen. Welcome to Silver Standard's fourth quarter 2011 conference call, during which we will provide you with a review of our financial performance and give you an update on our Business.

Joining me on the call this morning are Joe Philips, our Senior Vice President, Operations and Development, Greg Martin, our new CFO. Greg joined us at the start of February this year and I would like to welcome him on his first call. Also I want to recognize the work Matt Freeman did for Silver Standard standing in as CFO. John DeCooman, our Vice President of Business Development is also on the call, as is Ron Burk, our Vice President Exploration. Finally, we also have Michael McDonald here standing in as Director of Investor Relations.

Our financial statements, management discussion and analysis, and Business update have been filed on SEDAR and are also available on our website. To accompany our comments today, there is also an online webcast. You'll find information on this in our news release relating to the call today. We will be making forward statements on the call today and I refer you to the disclosure accompanying our slides, news release and also on SEDAR. I'll start with our review of the Company's progress, improving its operations and positioning Silver Standard for future success.

2011 was about getting Pirquitas performing, capitalizing the Business, and bringing on board the right talent, particularly in technical disciplines, development and operations. The recent success we have had in these critical areas represents a turning point for Silver Standard and sets us up strongly for managing Pirquitas and getting our development pipeline moving.

First, in terms of Pirquitas, we are pleased to report we have now resolved technical and operational issues. On November 5 we recommenced production from Pirquitas having sold the issue with the ball mill gearbox with the installation of new original equipment manufacture of parts and have been producing strongly since that date. We have taken delivery of a spare gearbox, which now provides full redundancy for our critical mill components.

In addition to addressing the technical and operating issues at Pirquitas, we also focused on commercial matters and we will provide you with an update on our concentrate sales strategy. You will have seen our operations update on February 14 that underscores the strong progress on rebasing our sales arrangements.

Now, producing for less than 10 months in a year and redesigning our concentrate sales flowed into our P&L and balance sheet. Reviewing production context, we still produced 12% more silver ounces in 2011 than we did in 2010. The actual sales profile resulted in higher year-end inventory, which has worked in our favor in terms of value in this positive price environment.

Pirquitas is one of the world's largest open pit primary silver mines. We have an active exploration program in 2012 focused on adding to the resource in this perspective area following our November 2011 resource and reserves revision. Our management team is focused on producing ounces safely and actively managing costs. This mine has a strong future. It under pins the value of Silver Standard.

Second, in terms of development projects, strong progress has been made at Pitarrilla in Mexico. We have been gearing up engineering and technical work and, importantly, adding people into our organization that have the capability to deliver the project on time and on budget. Along with Robert Bard, who heads up Mexico for us, Bill Speer joined us as project manager with considerable project and construction experience. We are working through the feasibility study process, progressing our preferred design and looking to drive front end value into the schedule. You will have seen our press release from February 27 which identified our approach to developing Pitarrilla and we will keep the market informed as we move forward.

San Louis continues to progress and in February this year we brought on Wade Stogran as General Manager San Louis. Wade joined us with extensive experience in environmental matters and community relations throughout Latin America. By any definition, the strategy of bringing in quality and experienced people into development operations underscores our capability now as mine builders.

Exploration continues at pace with success in 2011 at Pirquitas with the identification of the Cortadera zone that's 250-meters North of our existing pit, and delineation drilling at Pitarrilla to better define known zones of silver mineralization and provide geotechnical and metallurgical information. Both these will continue through 2012, as well as a full program of exploration drilling throughout the Americas.

Financially, we've added to the capital of Silver Standard. The Pretium spin out has resulted in receiving $350 million in cash, while still holding an interest with a market value in excess of $400 million as of February 29, 2012. We sold volumes for some $70 million and in a strong silver price environment at year-end, we have built up approximately $75 million of silver concentrate at the end market prices. This strong balance sheet enables us to execute our significant growth strategy. I'll now hand over the call to the team to provide you with more insight on progress at Silver Standard and I reiterate that 2011 has set us up strongly to perform in 2012, and our team is up for the task. John DeCooman will now provide you with an update on concentrate sales.

Thank you, John. In July 2011, we set out to secure competitive, market based, long term contracts for the Pirquitas silver concentrate. Shortly after our October meetings at the LME conference, we committed 2,000 tonnes of silver concentrate which began shipping in December. At that time, we continued to advance discussions with smelters and traders to commit tonnes for spot and long term sales. These discussions lead to the commitment of an additional 6,000 tonnes and a number of trial shipments to smelters. This was recently announced in February.

As of this February announcement, we have committed approximately 4.2 million ounces of contained silver. Our strategy to place short-term tonnes while securing long term sales agreements with multiple counter parties is executing as planned. We are on track to secure long term agreements during the first half of 2012 and believe this will deliver tremendous value for the silver standard shareholders. Greg, I'll hand it over to you for a discussion about the 2011 financials.

Thanks, Johnny and good morning, everyone. It's certainly a real pleasure to be here on my first conference call with the Silver Standard team. Before I get into the details, let me give you my perspective of joining the Company as CFO and I can really boil it down to three factors. The first was the way John spoke to his vision for the Company. Mining companies can at times be short sighted, but he talked to me about building a Company and team that can deliver sustained success.

The second was the development pipeline with Silver Standard's strong asset base, combined with its track record of exploration success to drive growth. And finally, I liked the value proposition. I think precious metals remain a preferred asset class, and I believe that the operational factors that impacted the share price in late 2011 would reverse if the Company delivers results and attention shifts back to the value of the asset portfolio. Over the month I've been here those expectations have been reinforced and it has become more apparent to me the Company has the opportunities and financial strength to deliver results and build a significant silver mining Company.

Turning to the review of the year, the steps taken to strengthen the Company's liquidity position and asset portfolio were significant. The secondary offering of Pretium shares in April last year raised $113 million and later in the year, we completed the sale of our non-core Bowdens property in Australia for a total consideration of $70 million. We therefore closed 2011 strongly with $329 million in cash and cash equivalents, which is materially all held within Canada. The continued success of Pretium saw our stake double in value during the year.

The Pretium asset is a significant asset for the Company and at the current Pretium share price, the warrants attached to the secondary offering, which expire next month in April, are in the money and we have seen these starting to be exercised. We expect to receive cash of approximately $72 million from the exercised warrants, and assuming all these warrants are exercised, our remaining stake in Pretium will be about 21.5%, which is valued at approximately $330 million based on their current share price of $17.50 per share. The asset portfolio was also simplified and strengthened with the acquisition of the minority interest in San Luis for $30 million in July last year, which consolidated Silver Standard's ownership in this high grade project as we progress it through the development schedule.

Turning to Pirquitas, which Joe will discuss in further detail, the resolution of the technical issues lead to strong fourth quarter production of 1.75 million ounces of silver. Considering that the plant operated for under two months of the quarter, that was a great outcome. Overall, for 2011, production was 7.1 million ounces, 12% above 2010 production levels of 6.3 million ounces, while below initial expectations, a very solid result considering the mill gearbox challenges. As provided in January, silver production guidance for 2012 is for between 8.2 million and 8.5 million ounces, a further 15% to 20% increase over 2011. We're pleased with the favorable trend in silver production, the plant is operating well and we expect consistent quarter-on-quarter production going forward.

Zinc, which is produced as a by-product at Pirquitas, met our 10 million-pound production target 2011. 2012 guidance is for a marginal increase in zinc production to over 10.5 million pounds, which provides a credit to total cash cost of approximately $6 million and greater if the positive move in zinc prices so far in the first quarter are sustained.

As announced in February, during the fourth quarter we built a large saleable silver concentrate inventory of about 5,500 tonnes with a total cost value of over $40 million due to strong December production and the timing of sales contracts. This value is not recognized in the P&L, so fourth quarter revenue of approximately $14 million differed from the value of metals produced.

Despite this, overall revenue for 2011 of $148 million was 32% above 2010. While silver sales were 5.9 million ounces in 2010, compared to 4.8 million ounces in 2011, revenue benefited due to an approximate $13 per ounce improvement in realized silver prices and the commencement of zinc sales.

A benefit of the inventory build is that through the first quarter we have been selling concentrates into a stronger silver price. Year-to-date silver prices have averaged just under $33 per ounce versus December average prices of $30.41 per ounce, so the deferral of sales has given us a financial benefit. For 2011, direct mining costs average $13.65 per ounce, with total cash costs, once by-product credits are deducted and off site costs added, totaling $20.93 per ounce. Operating costs in 2011 were impacted by the operational interruptions. Guidance for 2012 is for direct mining costs below $12 per ounce.

Within Argentina, increased regulatory controls are negatively impacting the mining industry and our operating costs are impacted by high inflation, particularly within the labor components of our cost structure. Local inflation, combined with the Peso exchange rate that has been depreciating at a slower rate than inflation, puts upward pressure on a reported US dollar operating cost.

We have to and we are continuing to improve productivity and performance to offset the real inflationary pressures on our cost structure. While traditionally the Peso revalues periodically to provide a greater offset to inflation, we are not counting on that. As widely reported in February, Argentina imposed further regulatory procedures on the importation of goods across all sectors of the economy. We are fortunate to have an established experience and capable in country team that is able to manage through these issues. We continue to monitor the situation and have developed plans to minimize impacts.

Net income for Silver Standard in both 2010 and 2011 were significantly impacted by the unusual gains related to the divestment of the Brucejack and Snowfield projects to Pretium Resources in late 2010, and the non-cash revaluation of financial instruments that flow through our P&L on an ongoing basis. Reported net income in 2011 was $80 million, or $1 per share, compared to $338 million, or $4.34 per share in 2010.

Importantly, earnings from mine operations improved from $14.1 million in 2010 to $51.9 million in 2011, an increase of 2.7 times. We continue to carefully examine our below the line spend, but our focus is on growing mine operating earnings through improved operating performance, better sales terms and the development of new assets. Mine operating earnings fund our growth activities.

With those comments, I'll now turn it over to Joe to provide more detail on our operations.

Thanks, Greg. I'd like to start with safety, where I'm pleased to report that we had a vastly improved year at Pirquitas in all major safety indicators, reducing high potential incidents by over 60% and experiencing only three loss time incidents during the entire year. As John indicated in his opening remarks, the news on operations at Pirquitas was very positive and I feel we can now say the plant and operating problems at Pirquitas are solved.

Our mine operations, as of this date, have completed a continuous run exceeding four months since the rebuilding of the ball mill gearbox which plagued us in 2011. We also now have a complete new gearbox sitting in the capital spares at the mine. When we restarted the mill on November 5, we ramped up production for two weeks to perform a measured run in of the gears. Since the middle of November, the mine and plant have produced consistently and reliably with no vibrations in the mill.

In the final two months of the fourth quarter and in the first two months of the first quarter this year, the operation has comfortably exceeded plan in all operating parameters, including the production of silver and zinc. For the month of December, high operating rates and high recovery enabled us to produce a record 1.1 million ounces of silver.

Since mid November 2011, milling rates have averaged 4,550 tonnes per day versus the design of 4,000 tonnes per day. Crushing plant delivered an average of 5,500 tonnes per day, enabling us to build our crush store stockpile to over 100,000 tonnes and to provide consistent, blended feed to the mill maximizing our silver recovery and silver production.

Metallurgical recovery of silver during the fourth quarter operating period averaged 78.3%, in line with design. For the final two months of the fourth quarter we focused on maximizing silver production. We were able to close the year with a total of 7.1 million ounces, 12% ahead of 2010 in spite of only operating for 9.5 months. The trend of better than designed plant performance has continued through the first two months of 2012.

During 2011, we undertook several initiatives to control our costs, to offset pressure from Argentine inflation and keep our on site production costs down. Among our successful initiatives were a significant reduction in on site contracting costs, renegotiating most of our long term supply contracts, initiating programs for less costly disposal of tailings, and more efficient design for our overburdened disposal and reclamation.

We are developing metallurgical programs to improve for our by-product revenues such as improved zinc recovery, transfer of silver recovery from zinc to silver, and my favorite project, advancing our thoughts on the tin circuit. Hence at Pirquitas, I'm extremely pleased and feel now with four months of continuous run under our belt that we can look forward to dependable, predictable production results and turn our creative energies to our new Mexican development product, Pitarrilla.

We've continued to build our projects team with the hiring of our project Manager Bill Speer at Pitarrilla and our new General Manager, Wade Stogran at San Luis. We're continuing to strengthen Silver Standard's team with capable, experienced professionals with demonstrated skills in building successful mining operations in Latin America. In Mexico, at our Pitarrilla project, the level of activity is high.

I know there's considerable interest in Pitarrilla and I want to share information on its status. We've contracted with M3 Engineers of Tucson to complete the feasibility study for the project, and we are currently on schedule for a mid 2012 completion. We've also contracted with SRK Clifton for the completion and submittal of our environmental impact statement by mid year.

As we announced in February 27 press release, our updated resource estimate is similar to our previous published resource, with 656 million ounces of measured and indicated and 65 million ounces of inferred resource. Our scoping level evaluation indicates the optimum project for the property will be a large surface mine.

Starting production with a milling and agitated leach, processing ores from the upper and mid level oxide and transitional zones, the pit will then extend into higher grade sulfides in the heart of the deposit in the basal conglomerate and finally bottom out in the upper levels of sulfide mineralization and sedimentary structures below the conglomerate. This mining operation will leave intact mineable resources in the lower zones of the sulfide deposit for subsequent underground mining. This will be a large surface mining operation and likely one of the largest silver mines in Mexico. It will probably have a life in excess of 20 years.

Construction of infrastructure such as camps, roads and water wells has commenced. Our focus now is to drive front end value for the project. Recovery rates and operating schedules are being optimized as a part of the feasibility process. This project will have strong cash flows aided by significant credits for lead and zinc as we mine into the heart of the sulfide body. In the first quarter, we'll commence a new infill and brown fields exploration drilling program. This drilling is targeted towards extending resources in shallow oxide zones of the pit and in transition ores in the heart of the deposit.

At San Luis in Peru, we have good things to report. In December we formally signed our land use agreement with the community of Cochabamba, one of the two communities with land over our project. This completes the negotiation, which lasted nearly a year, and gives us the right to construct our plant and infrastructure for the mine on their lands.

As you may know, the Cochabamba community covers a significant portion of our mineral property at San Luis, as well, and we hope to be drilling some interesting areas later in the year. Our EIA has passed review of all departments at the Ministry of Mines with positive recommendations, and we are optimistic that the formal approval of our environmental impact assessment will be forthcoming in the near future.

Now over to Ron who will report on the status of our exploration activities.

Thank you, Joe. In terms of the Company's exploration activities in 2011, our principal programs were conducted at the Pirquitas mine in Argentina and at the Pitarrilla and Nazas projects in Durango, Mexico. In total, approximately 44,000-meters of diamond drilling was completed last yeast at these three sites. At Pirquitas, the key result of the 17, 550-meter, 79 hole drilling campaign was an enhanced, more accurate estimation of the mines mineral resources and reserve. The new reserve model is now being Incorporated and production planning and operations from the San Miguel open pit.

Another important result of the drilling done at Pirquitas in 2011 was the discovery some 250-meters North of the open pit of the Cortadera Breccia body, which locally contains high grade silver zinc sulfide mineralization. To date, nine relatively closely spaced drill holes define an inferred resource comprising 2 million tonnes, creating an average of 152 grams per tonne silver and 5.4% zinc for 9.9 million ounces of contained silver and 239 million pounds of contained zinc. In addition to the mineralized Breccia body, the Cortadera's target area hosts another 5 million tonnes of inferred resources containing 12.6 million ounces of silver and 121 million pounds of zinc.

The nearly 14,000-meters of drilling completed last year at the advanced Pitarrilla project in Mexico was done to better define the known zones of disseminated and oxidized silver mineralization, which exists within 200-meters of surface. In addition to this in-field drilling, several holes were drilled to obtain geotechnical and metallurgical information which, along with the updated assay database, is being utilized in mining related studies that are currently underway as part of the feasibility study.

The drilling at this impressively large deposit still continues, with another campaign of 8,300-meters of in-field drilling commenced in March of this year. The third major drilling program in 2011 was carried out at our Nazas project located about 16-kilometers East of Pitarrilla. Approximately 14,800-meters were drilled in 22 holes, with the majority of these boreholes testing targets for vein hosted epithermal precious metal mineralization. Silver and gold mineralization was intersected by a number of the drill holes and these mineralized intercepts will be used to guide future drilling at Nazas that will target silver rich poly metallic mineralization similar to that found at Pitarrilla on claims wholly-owned by the Company.

With our three main drilling campaigns completed by the end of the third quarter of last year, the focus of the Company's exploration efforts in the final quarter of 2011 was a definition of drilling targets on several of our properties located in Peru, Argentina, the Southwestern United States and Mexico. Work programs involving rock sampling, mechanical trenching and detailed geological mapping have been successful in providing us with several high potential drill targets.

At our San Luis property in Peru, we will be drilling a pore free copper target less than five kilometers East of our Ayelen gold/silver resource, a high grade epithermal vein deposit that we are advancing towards a production decision. At our Diablillos property in northern Argentina, we will be drill testing for disseminated gold mineralization on several targets that have been identified proximal to our Apalto silver/gold resource. At our Saddleback property in New Mexico, we have epithermal vein type silver targets that are presently being prepared for drilling.

The Company's exploration budget for 2012 is approximately $25 million. The largest of this year's drilling programs, with at least 22,000-meters proposed, will be conducted at Pirquitas where the drilling is designed to expand the inferred resource and the Cortadera's target area and upgrade a good proportion of this into the indicated resource category.

Gravity and induced polarization, geophysical surveys have already been completed at Pirquitas. Zones of an almost geophysical response have been in find, and these will be tested by the drilling campaign that is now underway. Some drilling will also be done immediately outside the limits of the San Miguel open pit, where we believe there is potential for us to outline additional silver zinc mineralization that could be exploited by relatively minor lateral expansion to the open pit.

Finally, I'm pleased to report to our shareholders that besides Pirquitas, 10 other silver standard properties are scheduled for drilling this year, which is a testament to the Company's large and perspective portfolio of exploration projects. I look forward to future conference calls later this year, in which I will be communicating results of these drilling programs.

I'll now hand the call back to CEO, John Smith, for concluding comments.

Thank, Ron. Ladies and gentlemen, I trust we have now given you a clear picture as to the focus and achievement of the team at Silver Standard building real value, underpinned by experience and good process. While 2011 had its challenges, the team responded well to them. Pirquitas is now producing consistently and we are focused on exploring the resource. Pitarrilla offers us the next big significant growth target, with San Luis strongly progressing.

Stepping back to the big picture, I see success in continuing to build the foundation for our future. Our focus remains on three areas, having the right talent that can deliver, having the capital to build the projects, and continuing through exploration and business development to find more opportunities that will build shareholder value.

Now let me pass it over to the Operator and open it up for any questions you may have.

(Operator Instructions). Jeffrey Wright, Global Hunter Securities.

The question is with the inflationary pressures in Argentina and slight improvement in your modeling for cash cost in 2012, what other factors are leading to lower costs in your vision?

Probably the most significant factor in the lower cost is getting our production rate up, which is what brings our unit cost down. Our cost control initiatives have been actually quite effective and a significant balance to the inflationary pressures, but our goal is improving efficiency and getting our production rate up has been exactly that to get our costs down.

Also how many ounces in inventory did you guys have at the end of the year?

We had in the inventory about 3.2 million ounces of silver was contained in what was published at year-end.

Adam Graf, Dahlman Rose.

I apologize for the repetition here, but you gave production volumes in the release. Could you just quickly go over your sales volumes, both for silver and for zinc?

You might notice from that February 14 news release we had about 500 tonnes that were sold that had about 265,000 ounces in it. We've got some miscellaneous zinc sales, but that's what contributed to the bulk of the fourth quarter.

Okay, maybe you'll go over those numbers in particular in detail off the line. The currency transaction fee in Argentina, how is that going to be accounted for going forward in your cash costs?

What do you mean by the currency transaction fee, Adam?

My recollection is that Argentina is now, if you want to get your dollars out, you have to go through the central bank and there's a fee to get them in and take them out.

We get a 0.6% charge going in and a 0.6% charge going out. We're basically working through that just now with our auditors and our financial advisors as the best way to treat it. We get hit with those charges and it's also trying to manage the cash flow to make sure we get it out into US dollars, so that's what our focus is just now.

Before I give up the call, the scoping study that you guys have on Pitarrilla, are you going to release the details of that scoping study or do we have to wait for the full feasibility?

We'll probably wait for feasibility, Adam. We'll try and keep the market informed as we go out to the boundaries and what we find through the scoping, but we're aiming to get our feasibility study done by mid year and then we've got a Board meeting call it Q3 that seems the natural point if we can get things to work to take it forward. That's the intent, but we will keep the market informed as to the more we define through this process intent to build Pitarrilla.

(Operator Instructions). John Tumazos, John Tumazos Very Independent Research.

Concerning the Pretium stake, should we think of this as a long term investment that Silver Standard will hold and enjoy or should we think of it like a line of credit where you'll sell it as you have cash needs?

On Pretium stake, we've always said that the intent of that spin-out was to get us a cash balance and treasury to allow us to develop our projects. We look at it probably more on the second line that you had there which says as and when we need the cash for our growth, we will make the right decisions, but we'll also take account of where the market is and what Pretium is doing. Where we are just now, we've got some warrants out in the market that enact in April and then we're left with about a 21.5% interest in Pretium. We'll continue to have that and manage that and make decisions around it as we go through, but just know that we're very happy with our stake in Pretium.

Do you view that the November 28 release of Pretium where they build up the high grade zone to an estimate of 8.4 million ounces at 20 grams as a significant change where maybe it's so rich, you shouldn't sell it?

John, I think our position hasn't changed for us. It's having an equity, a non-operated equity interest like that really is not a long term position for us. It really is about following through with our development strategy and managing our cash, and the market will appropriately price the asset in stock and we will benefit as a result of that.

Craig West, GMP Securities.

I was wondering if you could give us a little bit more details, if you're willing, on operations at Pirquitas. You mentioned a couple times that the operation is performing very well since mid November and I think you gave some details on how the throughput rates and production was in the month of December. Can you give any details on throughput or what you're seeing or even just on grades through the first quarter so far?

In my report, I mentioned that we're averaging around 4,500 tonnes to 4,600 tonnes per day. I didn't really emphasize the significance of that, but that has really, the ball mill is the bottleneck of the plant, so in essence, we're 10% to 15% over on our throughput and we're holding our recoveries. We expect that trend to continue. We're quite pleased with it. The first quarter this year, we're holding at our design at these rates that I mentioned struggling a little bit with the rainy season, but now hopefully when the rain is stopping we expect to go back to the above designed rates.

We saw the grades tick up a little bit in the fourth quarter there, any kind of trend we can expect to see through 2012 in terms of grades above or below reserve grade?

Our plan is to produce at reserve grade for the year, and at our forecast our guidance is based on that.

[Steve Perlow], PJS Capital Advisors.

Congratulations on the great progress. My question is actually a follow-up on that on the 2012 production guidance. Based on the milling rate that you guys have achieved over the last four months, and the current average grades and recoveries, I'm getting something over 10 million ounces a year but yet your guidance is substantially lower than that. Just wondering what accounts for that difference.

I think you need to be careful on those grades that are reported to make sure whether those are the grades going into the plant or the grades going into the mill. We would hope to improve on our guidance, but 10 million sounds a little high to me.

You said over the last two months of the year, you produced 1.75 million ounces; correct?

That's correct. I'd be a little careful that, that record month we had in December, I don't know that we'll be able to sustain that on a monthly basis for the entire year.

Steve, I think an important thing that we did in the fourth quarter last year was we took a decision that we had to get some production going because we were pretty much out for the year and coming back in the fifth, it was all hands to the pump to maximize production through in that fourth quarter. To that extent, we didn't focus on let's say zinc and we took some maintenance schedule changes. I think at the end of the day you have to see it as a real push to get to the line but as a sustained production, I think go back to our guidance of 8 million, 8.5 million, we are clearly looking to do as many ounces as we can through the year and we'll continue to work hard on that. From an operators point of view, Joe knows where the bottlenecks are, managing it hard, but that's kind of where we are this year.

Well if that's the end of the questions, Operator, I'd just like to thank everybody for participating. We look forward to keeping everybody updated on progress that we make at Pirquitas, as well as our project and exploration portfolio. Have a great day folks. Thank you very much for being on the call.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day.