SSR Mining Inc (SSRM) 2012 Q1 法說會逐字稿

Good day and welcome to the Silver Standard Resources, Inc. first quarter 2012 financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to our host today, Mr. John Smith, President and Chief Executive Officer of Silver Standard. Please go ahead.

Thanks Carleen. Good morning ladies and gentlemen, welcome to Silver Standard's first quarter 2012 conference call, during which we will provide you with a review of our financial performance, and give an update on our business. Joining me on the call this morning are Joe Phillips, our Senior Vice President of Operations and Development, Greg Martin, our CFO, John DeCooman, our Vice President Business Development, and Ron Burk, our Vice President of Exploration. We also have Michael McDonald here standing in as Director of Investor Relations. Our financial statements, management's discussion and analysis, and business update have been filed on SEDAR, and they are also available on our website. To accompany our comments today, there is also an online webcast, and you will find information the information on this in our news release relating to the call today. We will be making forward-looking statements and I will refer you to the disclosure accompanying our slides, news release. and also on SEDAR.

Now we will review the Company's progress on improving our operations and positioning Silver Standard for success. In 2011, as a management team we focused on three things, building a strong cash position, getting the right people on board to help us grow, and thirdly and importantly, sorting out the Pirquitas Mine in Argentina. We achieved what we set out to do, which provides us with a strong foundation as we come into 2012. This year our aim is to deliver to our shareholders continuing progress at Pirquitas, with quarter-in-quarter consistent strong production. To support this, we hosted an Analyst visit in April, with nine analysts attending, where they got to see our open pit operations, walk through our process plant, and met with our management team that turned the operational performance of the mine around. I am proud of what we showed the analysts, and the reports from them underline the strong progress and opportunity that Pirquitas offers. Very importantly, the exploration opportunity of Pirquitas was recognized, and our geophysical and drill programs this year is a step to unlock that volume.

Our management team is focused on producing safely and actively managing costs. The Pirquitas mine has a strong future, underpinning the value at Silver Standard. We are working hard on our development progress moving forward, with Pitarrilla progressing well through the feasibility stage. We aim to have the engineering work and the project reviews completed in the second half of this year, and at San Luis we are making progress on the agreement with the Ecash community, with ultimate project timing remaining dependent on completing this agreement, and the approval of our EIA.

In Exploration, Ron's team has focused to adding resources at Pirquitas, and on unfilled drilling at Pitarrilla. We will also drill out the BP Zone in San Luis in Q2/Q3 of this year. Considerable work is scheduled for the second half of the year and we will cover this in more detail in the exploration section of the call. With the continuing success of Pretium, we have added further to our Treasury, and to-date have $400 million in cash from the investment, $70 million of that being added in 2012. We also still retain a 20.3% interest which gives us exposure to gold and future prospectively with Pretium.

Now let me hand over the call to John DeCooman, who will take us through the sales contracts.

Thank you, John. In the first quarter we sold 1.5 million-ounces of silver from several spot sale contracts. These silver sales are the initial results of our strategy to place tonnage in the short term, while longer term agreements were finalized. In January and February, we announced 8,000-tons of silver concentrate, approximately 4.2 million-ounces of contained silver had been committed in the fourth quarter and the first quarter of this year.

We will continue to realize silver sales under these agreements throughout the next couple of quarters, but the true success of our strategy was announced in late March when two long-term silver concentrate agreements representing more than 1 million ounces of contained silver per quarter were finalized with two smelters. The first shipments of silver concentrate for these agreements are on route now to their respective buyers. Subsequent regular shipments will continue under both of these contracts throughout 2012. We are in the process of projecting our silver concentrate shipments and reviewing each sales agreement for payment terms. When we have an estimate of revenue recognition and anticipated third-party costs later in the second half after all of the sales agreements are in place, we will issue a statement to assist with everyone's 2012 projections. It is also worth noting that based on existing discussions, we are still on track to secure additional long-term silver concentrate agreements during the first half of 2012.

Greg, now I will hand the call over to you.

Thanks, Johnny, and good morning to everyone that is on the call. As previously discussed by John, we are certainly very pleased with the operating performance at the Pirquitas mine as it delivered on budget for production of both silver and zinc, and direct mining costs were consistent with guidance. Financial results reflect a ramp-up in concentrate sales as previously announced. We have resumed spot sales in the quarter with silver sales of 1.5 million-ounces, below production of 2.2 million-ounces as we built concentrate inventory for sales in future periods.

As a result, we recognized $38.4 million of revenue, $6.2 million of mine operating earnings, and had an approximate breakeven quarter. Direct mining costs for the quarter totaled $11.86 per ounce produced, consistent with guidance and 21% below the fourth quarter direct mining costs, largely due to higher production levels while maintaining total site spend. Cost management at the operation remains an important priority as the operating team identifies efficiency improvements to offset the cost pressures from local inflation, and the removal of natural gas subsidies.

It is important to recognize that our forecasted sales greater than production over the coming quarters will result in higher than normal transportation costs, export duties, and offsite refining costs being recognized, in our reported cash cost disclosure under the Silver Institute Standard. We do not expect to have fully sold down our concentrate inventory until towards the end of the year, so we will not report closer to steady state cash cost until then. The full benefit to cash costs for the better sales terms under the long-term sales agreements will not be felt until largely into the fourth quarter, and then subsequently in 2013. We do expect to generate strong cash flow as the inventory is sold.

The Argentine government recently introduced regulations regarding the timing at which export revenues are to be redomiciled. Us and other operating in Argentina are in discussions with the government to understand the situation, and assessing the intents and implementations of these provisions.

We had a net use of cash during the quarter of $36 million, largely due to an increase in working capital of $35 million due to the continued build of concentrate inventory and increase in Accounts Receivable, combined with exploration investments totaling $7.6 million, and capital investments totaling $6.7 million as we continue to invest in Pirquitas, advancing Pitarrilla and our other growth projects.

At quarter end, we had a finished goods inventory with a book value of $55 million, that we expect to significantly reduce through the latter three quarters of the year as sales and excess of production are realized. Our working capital position remained exceptionally strong, in an industry that is currently quite constrained for financing. Working capital at March 31st was about $300 million, despite reclassifying or $138 million of convertible notes to a current liability. Over 95% of our cash remains held in Canada or other AAA rated jurisdictions.

During the quarter, our application for credit of value added taxes were approved from the Argentine government for approximately $20 million. We will be monetizing these credits over the coming periods, and expect to continue to receive further approvals of VAT through the year. Positive steps in the VAT recovery and we are pushing ahead on approvals for the remaining asset balance of approximately $70 million.

Subsequent to quarter end, we received an additional CAD67 million on the exercise of Pretium warrants we had sold in the secondary offering last year. This further strengthens our liquidity and takes our interest in Pretium to about 21.6%, which has a market of about 275 million as of May 6th. As John mentioned, we have realized proceeds from the Pretium spin-out transactions totaling $400 million, while retaining a significant and valuable stake. Pretium announced a financing last week, and with that closing, our ownership interest has declined to approximately 20.3%.

In summary, the first quarter gives us a solid start to achieving our annual guidance. As we get into the latter part of 2012, we expect to move towards a more consistent production in sales relationships, and therefore, a more consistent relationship between direct mining costs and total cash costs. However, over the next couple of quarters we will continue to see volatility in our results, as we reduce inventory levels through spot sales, in addition to delivering into the new long-term agreements. Importantly, our liquidity position remains very strong, and should improve through the years as Pirquitas generates increased cash flow, and VAT credits are realized, in addition to the cash products from the Pretium warrants that will be recorded in the second quarter.

Our cash position is strong, and it enables us to drive ahead hard on our growth projects in a challenging capital markets environment, that is beginning to constrain the activities of others. We will continue to be prudent and disciplined in how we use this strong balance sheet to drive value. With that, I will turn the call over to Joe for a discussion on operations.

Thanks Greg, and good morning everyone.

I am pleased to report this morning that as of the end of April, Pirquitas is now six months into a successful production run, and that with operating results continue to exceed expectations. We completed a record production quarter at the mine with 2.2 million-ounces of silver produced. Zinc production was 3.3 million-pounds, right on budget. This is particularly satisfying given that we achieved this production reported during the rainy season, normally the most difficult quarter for our operations. This is the second consecutive quarter where we have demonstrated the capability of our debottlenecked plant, and are embarking on a new era of reliable production from this mine.

It is also significant that in our average feed grade to the plant was inline with our average reserve grade, meaning that the production results were entirely a credit to improved operating rates, capacity, and efficiency of the mine, and our debottlenecked plant. During the quarter, the mining operation continued to provide an optimum blend of silver and zinc ore to the plant. Average material movement for the quarter was 47,000-tons per day, precisely on plan. Ore feed grade to the mill was also consistent with our annual plan. Our crushing plant produced over 5,500-tons per day, which allowed the downstream circuits of the plant to operate continuously, with an optimum blend of ore. Jig circuit operated at an average of 3,300 tons per day, upgrading our oral feed grade to the mills from 180 grams to 221 grams per ton.

Our Ball Mill averaged 4,567 tons per day, nearly 600-tons per day over its designed capacity. The mill continues to operate smoothly with no vibration or heating. Plant silver recoveries of 77.3% were close to our target of 79.4% and reflect a negative impact of strong seasonal rains on plant operations. Total direct mining costs for the quarter were $25 million, right on budget. Higher silver production resulted in direct cost of silver production per ounce of $11.86, a 21% quarter-on-quarter improvement, and right in line with our guidance on operating costs.

We continue to benefit from our program of development of Argentine-based suppliers, and have recently reduced directly imported spares and supplies to below 5% of our total consumption. While the majority of the Argentine mining industry has suffered from controls on imports of critical parts and supplies, however industry-leading proactive efforts to develop local suppliers, has led to our continued success in obtaining licenses to import critical spares and components. In addition to our recognition as an industry leader in developing local suppliers, this program has been a key part of our in-country cost control strategy.

In Mexico at our Pitarrilla project, the feasibility and EIA efforts are on schedule for second half of the year completion. Engineering and design work, capital and operating cost estimates are on schedule for mid-year completion. We are pursuing some interesting opportunities for improvement of the project, which will move our completion into the second half. The preliminary EIA for construction of the infrastructure has been completed and filed. The main EIA for plant and mine construction is on schedule for mid-year metal. The current phase of our Brownfields exploration program on the periphery of the plan pit is in full swing. This program is expanding mineralized zones in the upper levels of the pit which are currently open towards the pit wall, and are targeted to increase ore tons and reduce stripping ratios in early years of the operation.

At San Luis in Peru, we have recently approved of our EIA for the exploration of an area that we call the BP Zone on our Cochabamba properties. Representatives of the Cochabamba community have expressed significant interest in collaborating to expand our project within the Cochabamba community, which is a strategy that we are pursuing aggressively. In the meantime, the review and approval of our EIA for the main San Luis project appears to be nearing completion.

I am pleased to welcome two new members to our team this quarter. First, Mr. Kelly Boychukjoined us as our new Director of Project Department in Vancouver. Kelly comes to us from Ledcor Contractors where he was the Manager of Project Development Mining. Second, Mr. Cesar Maldonadois our new Deputy General Manager at Pitarrilla, and comes to us from [Frisco], where he was general manager of the San Francisco Del Oro Mine in Mexico.

Again, as John as indicated, we are continuing to make significant strides in building a capable, experienced team for the construction and development of operations in mines. Now over to Ron, who will report on the status of our exploration activities.

Thank you, Joe. For 2012, our exploration strategy will be different than it has been in the past several years, when following major discoveries at our Pitarrilla and Snowfield properties. These projects received the lion's share of our exploration budget. This year, we will instead be comprehensively exploring several properties in our extensive portfolio, and some of these for the first time. In fact, as many as 11 of our mineral properties will see drilling done on them in 2012, and provided that all 11 of the budgeted programs are completed as planned, we will be drilling a total combined length of 56,500-meters.

Our total budget for exploration in 2012 is approximately $25 million. At Pirquitas we will be diamond drilling a minimum of 22,500 meters on the property this year. Roughly half of the planned program has been designed with the objective of doubling the size and substantially updating the Cortaderas Breccia inferred resource, that currently contains approximately 10 million-ounces of silver and 239 million-pounds of zinc. This mineralized body lies just 250-meters north of the San Miguel open pit. We will also be drilling west of the Cortaderas Breccia resource where another inferred recourse of 12.5 million-ounces of silver was delineated last year. Our goal here is to significantly expand and upgrade the silver and zinc resources in the Cortaderas Valley, with the ultimate objective to extend the life of the Pirquitas separation.

Also at Pirquitas, we completed ground use physical surveys over areas adjacent to the San Miguel open pit. The results of our gravity survey proved particularly encouraging, since gravimetric highs which are interpreted to be reflecting zones of relatively dense rock were outlined over the top of the Cortaderas Breccia, the Cortaderas Valley, and the [Obtoka] zones of silver-bearing sulfite mineralization. Besides these anomalies, well defined gravity highs were also detected north of the Cortaderas Breccia resource and more importantly, just southwest of the open pit.

These physical anomalies represent attractive exploration targets for us, and will also be tested with this year's drilling program. So-called Brownfields exploration is also being conducted at our Pitarrilla project, on which a feasibility study is currently underway. This year we have plans to drill more than 8,300 meters at Pitarrilla, with the objective being to convert currently defined waste rock in the upper parts of the deposit, into indicated resource blocks to improve the strip ratio of the project.

In addition to Pitarrilla, the Company holds 100% ownership in another 15 properties that are favorably situated within the central Mexican silver mill, the world's premium mineral province for silver. In 2012, we will be conducting comprehensive exploration programs on eight of the properties, with drilling programs planned for six of these, including the advanced San Agustin project. So far this year we have conducted a variety of geophysical surveys at the Almagote, Palenciana, and at our four properties in historic Parral silver district. The [Aldo Copter Borne] magnetic surveys that were done will assist us in identifying structures that potentially host mineralization, while our gravity and heat induced polarization surveys have the potential to outline mineralized bodies directly. Soil geochemistry surveys are also being carried out in our Elmagote and Palenciana concessions. We are confident with our systematic exploration programs on these properties will yield drilling targets with high potential for new discoveries.

We have also planned drilling campaigns for a number of our South American properties, and in the southwestern USA. At our San Luis project in Peru, we will be drilling a porphyry copper target located less than five kilometers east of our Ayelen gold silver resource, a high grade epithermal vein deposit that we are advancing towards a construction decision.

At our Diablillos project in northern Argentina, we will have drill testing for near service disseminated and offsite gold mineralizations at several targets that were defined earlier this year, through mechanic trenching and detailed rock sampling. These targets lie within two kilometers of our Oculto silver-gold indicated resource, and any discovery of a new resource that may result from our drilling campaign, would clearly have a positive impact on the economic value of the Diablillos project. Finally, at our [Saddleback] property in southwest New Mexico, where we have identified epithermal vein type silver targets that are presently being surveyed with induced polarization geophysics in preparation for drilling.

In summary, the first quarter of 2012 ended with drilling programs just getting underway at our Pirquitas and Pitarrilla projects. We are focused on enhancing the known silver resources. The first quarter also saw geophysical and geochemical exploration programs completed on several of our properties located in highly prospective mineral provinces on two continents where we have planned to carry out nine drilling campaigns. With the exploration budget of $25 million, we expect to drill a minimum of 56,000-meters in 2012. As the drill hole asset results are received and compiled, we will be reporting notable [results] throughout the year.

Now I will turn over the call back to John for concluding remarks.

Thanks, Ron. So ladies and gentlemen, I trust that we have given you a clear picture as to the focus and achievement of the team at Silver Standard, holding real value underpinned by experience and good process. We have started the year well with record production at Pirquitas, and our concentrate strategy is well advanced for a completion in Q2. Development of the feasibility study at Pitarrilla sees real progress, and an exploration continues to add value. All of this with a cash balance generated from Pretium, has us in an enviable position to build real value for our investors.

With that, let me pass you back to the operator, and we can open up for any questions you may have.

Thank you. (Operator Instructions). We have a question from the line of Jeffrey Wright with Global Hunter Securities. Please go ahead.

Good morning, John, how are you doing?

Good, Jeff, how are you?

Pretty good. Couple of questions here, first off,on Pirquitas and the mill, pretty impressive having the rate up to 4,500-tons a day above the design rate. Should we be viewing this that while it is above the design rate that this is the new normal, or do you think this was playing catch up given the lower grade?

Okay. Jeff, let me put that one to Joe, he is probably the best to answer.

Jeff, good morning. There was really nothing exceptional about the quarter. I think that is probably in the 4,500-ton per day range is something that we will be targeting.

So 4,500-tons a day, let's call it 5% plus or minus around that?Do you think that is fair?

That is reasonable, yes.

Then I understand you guys are turning more towards a reserve grade, the recovery is down. Just slightly, do you anticipate the recoveries would recover back towards that 80% range in Q2 going forward?

That is certainly our objective, yes.

Jeff, we are coming through the rainy season and that is difficult for the mine to get the line delivers in the regions when they want, so we are seeing that coming through in the quarter. We have dealt with that, but effectively those are the reasons for the recovery issues.

Okay, so you think that the recovery issue is really a seasonality that can be addressed through the rest of the year would get that back up, correct?

That's correct.

Okay. Then shifting just a little bit here to Pitarrilla. Maybe I missed the detailed explanation on this. It sounds to me there is a little bit of delay in the feasibility study. Can you readdress that, please? I think I missed that part.

Where we are with Pitarrilla, we are still on schedule, and are planning around that engineering at Plant Leo, that is still on schedule there. The interesting thing that we have is some metallurgical opportunities that warrant us doing more work around that, and it is really that is going to put it into the second quarter, the second half.

Okay. When you talk about the second half, are we talking early Q3 or are you thinking this could be on the way to Q4, middle of Q4?

Jeff, we are managing this hard. We know it is important for us, we want to get on with this, so we are at full speed to get this done.

Okay, thanks. I will turn it over to somebody else. I might have another question in a couple of minutes.

That is fine.

Thank you. (Operator Instructions). Our next question is from the line of [Joseph Reger] with Global Hunter Securities. Please go ahead.

Hey guys. Just a housekeeping question following on some of Jeff's stuff. Exploration you guys listed at 25 million for the year. How much of that are you guys expensing versus capitalizing?

Joseph, the exploration at Pirquitas gets expensed and the balance of the exploration generally gets deferred, so the split that you can look at would be in the range of about 5 million expense and 20 million deferred.

Okay. So then just doing some back of the envelope math, kind of suggests that SG&A and interest expense and that kind of stuff added up to about call it 5 million in the first quarter?Is that right, and is that what you guy expect the run rate for be for those items?

Certainly we expect the run rate for the first quarter on those items to be pretty consistent through the year. Again, I am not sure that the numbers that you quoted were exactly correct. Our interest expense and finance costs was just under 6 million and our G&A was just over 6 million. There are some non-cash items in the interest expense and you will see the disclosure of the cash nature of those items in our statements.

Okay, that is great, thanks.

Thank you. And our next question is from the line of Trevor Turnbull with Scotia Capital. Please go ahead.

I just had a question with respect to the zinc sales or the zinc deliveries that you made in the quarter versus the by-product credit that you booked, assumably for that zinc. I get the sense there must be a lag in getting full compensation for what has been delivered given the by-product credits came in about 647,000, and yet deliveries of zinc were well over 1 million pounds?Can you give us a bit of color with how those two numbers reconcile?

Sure. The credit that is disclosed, Trevor, is net of TCRCs and other costs related to the zinc concentrates, because it is a separate zinc concentrate that gets sold, and the silver component of that zinc concentrate gets reported in the silver portion of the results, so that number is a net number which is why you may not see it correlate to kind of a production versus spot price of zinc amount.

Exactly. So instead of seeing the zinc processing as part of your cost of sales, that is netted out so that the by-product credit line contains all of that, and we are not seeing the zinc concentrate fees anywhere else in the income statement?

Yes. I just don't want to confuse income statement from originally I think you were originally talking about the disclosure on the cash costs. The credit that shows in the cash cost expresses the TCRCs and other related costs into that one line on zinc. From an income balance statement, those things get separated between revenue and cost of sales, so there is a difference in the treatment, but effectively the same net results.

Sorry, I was looking at, you are right. I was looking at the cash costs reconciliation, not the income statement. Okay. Thanks, Greg.

Thank you. (Operator Instructions). Our next question is from Jeffrey Wright with Global Hunter Securities. Please go ahead.

Thanks for taking my follow-up. One quick follow-up on Pirquitas. Given the higher throughput, do you anticipate that, that would incur any additional regular maintenance to maintain the higher throughput, or do you think systems are go, and we are in the clear now?

Well, certainly the message is that everything is a go. I think one of the big benefits we have had from a number of improvements we have made, we refer to it as debottlenecking, is providing the time for the regular program preventative maintenance. We have that scheduled, it is in our production forecasts now, and I truly feel we are truly staying well ahead of the maintenance.

Thanks. Then one final question for Johnny on long-term concentrate sales, I believe in the previous press release it was discussed there would be future contracts that would be entered into. Do you anticipate that is going to be a Q2 event, or do you think that is later in the year?

Yes, I think we are still on track to get a reasonable portion, an overwhelming proportion of our sales contracted by June 30th of this year.

Okay, fantastic. Pretty good quarter operationally. Thanks for your time, guys.

Thanks, Jeff.

Thank you, Jeff.

Thank you. Our next question is from the line of Jim Schultz. Please go ahead.

My question is revolving around the political situation in Argentina. I am just wondering should I be concerned? Is management concerned about what is happening with the expropriation of a company?

Thanks, Jim, that is a good question. Argentina for us, we have been there for a number of years. We started off this mine in 2006. We've built our management team in an understanding of working in Argentina. The main thing that we deal with is how to deal with a bureaucracy and the regulations in managing that. As Joe said, the mine team has done a really good job of sourcing internally in Argentina. We have less than 5% of our stuff that we have to buy from outside. These are more the issues for us in the Argentina, I think the YPF thing that you are alluding to is very specific to the energy sector, very specific issue relating to 2011, effectively it became a net importer for energy. From my point of view, Argentina, we continue to manage it, and we continue to focus on how we make our business successful there, and really we have got good people doing that.

You are not expecting that to expand into the mining sector at all, I am assuming?

In terms of the situation with YPF, no, I don't see that, I see it as very specific to what happened there.

Okay, thank you.

Thank you. This concludes the Q&A portion of today's conference call. At this time, I would like to return the call back to John Smith, President and Chief Executive Officer for any closing comments.

Thank you very much everybody, I appreciate you being on the call. We look forward to keeping you updated on the progress we are making on Pirquitas, as well as our project and exploration portfolio. Have a good day. Thank you very much.

Ladies and gentlemen, thank you for participation of the Silver Standard Resources, Inc. first quarter 2012 financial results conference call. This does conclude the program, and you may now disconnect. Thank you, and have a wonderful day.