SSR Mining Inc (SSRM) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to Silver Standard's third quarter 2012 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 John Smith, President and CEO. Please go ahead.

Thank you, Stephanie. Good morning, ladies and gentlemen. Welcome to the Silver Standard's third quarter 2012 conference call, during which we'll provide you with a review of our business, our financial performance and a general update. Joining me on the call today are Joe Phillips, our Senior Vice President, Operations & Development; Greg Martin, our CFO; and Ron Burk, our Vice President, Exploration. Also present is John DeCooman, our Vice President, Business Development and Strategy.

Our interim financial statements, Management's Discussion and Analysis and business updates, have been filed on SEDAR and are also available on our website. To accompanying our comments today there is an on line webcast, and you'll find the information on this in our news relating to this call. We will be making forward-looking statements, and I refer you to the disclosure accompanying our slides, news release and also on SEDAR.

So now we will review the Company's progress, positioning Silver Standard for success. As we promised the market at the beginning of the year, we're focused on delivering consistent results from our operations and projects, and building value for our shareholders.

We continue to deliver at Pirquitas, with sales this quarter exceeding production as we sell into our five long-term contracts. This marketing strategy is great outcome, both commercially and from a risk management perspective. Our operations team at Pirquitas continue to perform with another quarter of silver production delivering us -- delivered, which positions us strongly to meet our full year guidance.

Exploration also remains a focus at Pirquitas, with drilling continuing to intersect ore grade mineralization, which will add to the resource and allow us to evaluate be the mining of the material. Our costs are always a challenge in a high inflationary environment, but ourmanagement team in Argentina evaluates all opportunities to contain the impacts of inflation by focusing on improvements such as metal process recoveries and location of waste dumps.

We are working on completing the Pitarrilla feasibility study by the end of the year, and in the third quarter substantial progress has been made towards this timeline. This feasibility study is based on a 16,000 tons per day open pit projects, which would position Pitarrilla one of the largest primary silver mines, with a life well in excess of 20 years.

At San Luis we can report that in September we secured government approval for the EIA for the mine. Having completed this process and having an agreement with the [coach shebanba] community, it now allows us to focus on reaching agreement with [e-cache] with ultimate project timing remaining dependent this agreement. The EIA, however, marks an important milestone for this project.

In exploration our team continues to fight resource adjacent to our open pit Pirquitas, and Ron will cover this in his section. The drilling of the BP zone at San Luis in Peru is still targeted for the fourth quarter, subject to receiving the only standing permit. Exploration at San Agustin in Mexico will be a 2013 activity, as well as the work on evaluating mining potential.

The Silver Standard is well positioned with funding and capability to deliver value with significant leverage to silver price improvements. We have the projects, people, and the financial capability, regardless of the macroeconomic environment, to grow the value of our Company. We're all committed to make this happen.

So now I'll hand over to Joe to take you through operations and development.

Thanks, John, and good morning, everyone. I would like to start this morning reporting on the strong operating results at our Pirquitas mine. Our operations team has been successfully working over the past two years to Pirquitas a reliable, steady state silver mine with consistent quarter on quarter performance.

I'm pleased to report that Pirquitas enjoyed its third consecutive quarter this year of over 2 million ounces, bringing year-to-date production for the mine 6.4 million ounces. The production of 2.2 million ounces in the third quarter was just 7,000 ounces shy of a production record. This puts us on target to achieve our guidance by the year.

By-product zinc production for the quarter was 2.8 million pounds, up by 46% versus the previous quarter, bringing our year-to-date zinc production to 8 million pounds. This is on pace to meet our zinc guidance of the year.

The Pirquitas mining continued to operate smoothly for the quarter, exceeding our forecasted material movement for quarter and year to date. Our mine is approaching the completion of phase one mining pit towards the end of 2012, and we're also advancing the new mining benches on our phase two pit. Our operations and maintenance personnel at the mine continue to maintain high availability and efficiency of the mining fleet in spite of challenging environments for importation and acquisition of parts, supply and component in Argentina.

Our plant continues to operate smoothly at rates exceeding design over 10%. The mill operated at an average throughput rate of 4,388 tons per day in the quarter. Optimum blended consistent feed grade is part of our operating strategy to optimize production. Average feed grade to the mill was 214 grams per ton.

Silver recovery in the plant of 78% is slightly ahead of design for the average grade processed during the quarter and in line with forecast and up 3% from the previous quarter. The plant benefited from receiving adequate quantities of our preferred floatation reagent from our suppliers, a factor which negative impact on recoveries from the previous quarter. We now have received six month supply of these reagents, which are in short supply worldwide. This portends well for future production.

Direct mining costs were CAD13.02 per ounce, in line for the second quarter. As mention last quarter, we ramped up our shipping schedule from the mine in order to meet contracted sales and to lower our on-site silver concentrate inventory. During the quarter we shipped a record 5,900 dry metric tons of concentrate with over 3.4 million ounces of silver,reducing our site inventories to 3,137 dry metric tons.

Also during the quarter we're pleased that the Argentine government made a final adjustment in its resolutions governing repatriation of tails proceeds from export shipment, and returned Pirquitas from 15 day to 180 day period which the mine has had throughout the majority of its operation life. This is an adequate time for the mine to [consenate] all of its export sales.

Now on to Pitarrilla. At our Pitarrilla project in Mexico, we're in the final stages of completion of the feasibility study. The feasibility study will be completed in November and presented to our Board of Directors early in December. We're excited about this very significant project, which represents anopportunity for the Company to build one of the largest silver mines in Mexico in one of the world's best business climates for mining.

As mentioned previously, this large surface mine would have a life of over 20 years, with silver production rates averaging over 10 million ounces per year. We look forward to publishing the results of this study before the end of the year.

At San Luis in Peru we received government approval of our EIA for the mine. This is a major accomplishment for our team in Peru over a two-year period, and this approval was an indication of the support which our project has from the federal and local government. Formal negotiations are continuing with the [a-cache] for the remaining surface rights to mine the San Luis project. The [a-cache] agreement is the final major milestone we have to achieve in order to put the San Luis project in the queue for development decision.

Now over to Ron Burk for an exploration update.

Thank you, Joe. During the quarter, exploration focus remain on the brownfield drilling campaign on the Pirquitas mine property. The ultimate goal of this program is to increase the mine's reserve.

For the Pitarrilla project we completed a number of work programs that together significantly improve geological and resource model, which are now being used for mine design as part of the feasibility study. Also during the quarter, we made final preparations for drilling programs to test high potential gold and silver targets on two properties in Mexico, on the Diablillos property in Northern Argentina, and San Luis property in Peru where the target is a porphyry copper deposit.

At Pirquitas positive drill results obtained during the quarter prompted us to substantially increase for a second time this year the total plan meterage of the exploration drilling campaign. We are now anticipating drilling close to 53,300 meters by the end of the month, with the majority of the drill hole targeting the Cortaderas Breccia and Valley [inford] mineral resources. The two zones of structurally controlled sulfide mineralization are located about 500 meters north of the operating open pit and appear to be connected, based on the drill hole information obtained today.

Since the start of the campaign at the end of Q1, we have diamond drilled 140 bore holes. In our news release issued yesterday we reported a 121 meter long intersection of Cortaderas Breccia mineralization at average 206 grams per ton silver 5% zinc. In the same news release we also reported an intercept of Cortaderas Valley mineralization that averaged 751 grams per ton silver and 16.3% zinc across 14.1 meters. This year's drill holes have returned intersections of silver-zinc mineralization along strike length of at least 400 meters.

Also at Pirquitas we completed a second ground geophysical survey using the gravity method, which on the property has proven to be an effective survey technique for detecting the dense sulphide rich mineralization in the Cortaderas target area. The area that was surveyed lies between the open pit and the mine's administration complex. A number of gravity highs -- that, is rock density anomalies -- were outlined by the survey, and theserepresent high potential drill targets that will be tested in the future.

At Pitarrilla we completed two programs of diamond drilling that totaled approximately 17,000 meters. The mineralized intersections made by one set of drill holes resulted in a modest expansion of the silver resources of the deposit, while the other set of diamond bore holes was drilled for geostatistical purposes. As for the second set of drill holes, analysis of the assay data from these relatively closely spaced holes has considerably increased the level of confidence we have in our estimate of the silver resources in the upper oxidized part of the deposit.

By the end of the third quarter all drill hole information was compiled and incorporated in our latest iteration of the estimated mineral resource model for this very large silver-lead-zinc deposit. The Pitarrilla project feasibility study is based on this updated block model estimate of the resource.

Also in Mexico, in the fourth quarter we'll be commencing with diamond drilling programs on our San Patricio property located in the historically important Parral silver mining district in Chihuahua state, and on the Valenciana in Zacatecas state. The target there will be tested with a 15 to 20 plan drill holes were defined by exploration programs that involve a variety of geochemical and geophysical surveys, which were completed on these properties in the first half of the year.

Minor historic silver mine workings are present on both of these properties. The exploration programs we're conducting at San Patricio and Valenciana are representative of the Company's strategic focus of exploring high potential properties within the central Mexican silver belt.

Moving to South America, we commence a diamond drilling program on our Diablillos property in Northern Argentina. The planned drill holes will be targeting zones of gold and silver mineralization that lieperipheral to the Oculto deposit, where we have an indicated resource of 640,000 ounces of gold and 77 million ounces of silver. And at the [tam louis] property we are waiting to receive a water permit to begin drilling the 2,500 meter program that was designed to test for the porphyry copper mineralization at the BP zone.

In the fourth quarter we will be building a new resource estimate of the Cortaderas Vein and Breccia mineral system at Pirquitas. The two drilling programs that will be done on our Mexican properties will determine if economic vein-hosted silver deposits exist on these properties.

And finally, our goal for the drilling programs in Argentina and Peru is to discover new zones of mineralization that would significantly impact the economic value of the existing Oculto and Ayelen deposits respectively. And with that I'll turn the call over to Greg for a discussion on finance.

Thanks, Ron, and good morning. In addition to the strong operating performance in the third quarter, financial performance improved in all areas on the back of strong sales, stable direct mining costs, and a silver price that improved through the quarter. Income were mine operations, adjusted income, and operating cash flow all improved relative to earlier quarters in the year and relative to the comparative period in 2011.

Sales of 2.8 million ounces of silver and 2.2 million pounds of zinc resulted in revenues in the quarter of CAD73.5 million, a record for the Company, 73% higher than last quarter, and almost triple the comparative period of 2011 due to the higher ounces sold as inventory was shipped in the long-term agreements.

Average realized silver prices declined by 2% relative to the second quarter, but a positive mark to market adjustment of CAD4.7 million was recognized on outstanding sales due to the stronger silver price prevailing at the end of the quarter. As discussed on our previous call, the mine is shifting into the improved long-term sales contracts on schedule and without further regulatory challenges.

As a result, we expect sales to generally match production over the coming quarters. At quarter end total finished goods inventory stood at 5,600 tons, containing 3.2 million ounces of silver, with a book value of CAD50.3 million.

Higher revenues drove income were mine operations from CAD16.5 million, 144% above the second quarter, and 43% above the previous year comparative period. The results indicate the leverage to higher sales, improved quarter end silver prices, and the better sales terms. The quarter had no material unusual items, so net income before tax of approximately CAD2.2 million is indicative of the overall stronger operating performance.

Our tax expense in the quarter of CAD4.7 million makes for an odd quarterly tax rate. Most of this tax expense is delivered tax, not current tax, and it's driven by the devaluation of the Argentine peso, as under IFRS deferred tax balances are determined in the functional currency, which for us is the US dollar.

Quarterly variations in tax expense will occur, but as you can note, the nine month tax expense to September 30 is at an expected rate, so these average over time. The after-tax loss in the quarter was CAD2.5 million.

Direct mining cost totaled CAD13.02 per ounce of silver,marginally lower than in the second quarter, bringing year to date direct mining costs to CAD12.64 per ounce, which is within our guidance range.

Inflation and ongoing import restrictions remain challenges, but the team is actively working to minimize these impacts through process and productivity improvements. We remain confident on delivering on cost guidance, full year direct mining cost within CAD12.85 per ounce of silver.

Cash cost during the quarter CAD24.01 per ounce. We had previously guided that reported cash costs would be higher in periods where sales exceed production, as was the case in this quarter. Cash costs are composed of two main components; direct mining costs, which scale to ounces produced, and offsite costs -- transportation, export duty, treatment and refining charges -- which scaled to ounces sold.

The sum of these is divided by period production, which provides the mismatch to the driver of offsite costs. For comparative purposes, if we take offsite costs and divide them by sales instead of production, it equates to CAD8.29 per ounce, approximately CAD2.32 per ounce lower than reported cash costs. If adjusted by this basis, total cash cost would be CAD21.69 per ounce, which management believes is more indicative of cash cost performance.

I also remind everyone that our reported cash costs include CAD2.60 per ounce produced related to silver concentrate export duties that we accrue but do not pay, as we have an injunction against duties being levied due to our fiscal stability agreement. Net of this accrual, cash costs would be approximately CAD19.09 per ounce.

Cash generation in the quarter was strong. Before changes in working capital, we generated CAD17.6 million in cash from operating activities, anexcellent result. An increase in accounts receivable on the back of strong sales resulted in an increase in working capital of CAD16 million.

Investments in our portfolio during the quarter included CAD2.2 million in plant property and equipment, and CAD11.5 million in exploration and development expenditures, principally related Pitarrilla and Pirquitas. These were entirely funded by net VAT recoveries.

Overall in the quarter our cash position increased by CAD2 million to CAD353 million. The strength of our cash position remains a notable characteristic of the Company.

We continue to have good success on recovery of VAT taxes in Argentina. We had a net reduction in VAT outstanding in the quarter of approximately CAD14 million and CAD17 million year-to-date. In total, we have now received approval of approximately CAD63 million in VAT and recovered over CAD30 million cash.

Last week Argentina announced some regulations specific to a narrow situation around VAT recoveries. We're assessing whether these regulation have an impact on our situation.

Due to the factors just described, our working capital position increased by over CAD18 million in the quarter to CAD396 million. Our working capital remains exceptionally strong in an industry where risk capital remains scarce. Our CAD138 million convertible notes are reported within current liabilities, so they are already deducted in the calculation of our working capital position.

At the end of the quarter over 87% of the cash was held in Canada or other AAA rated jurisdictions, as we repatriated funds from foreign operations and redeploy cash in our development projects. Our interest in Pretium Resources currently stands at just over 20%, with a market of CAD250 million. The market value of Pretiumis not included as an asset in working capital, so thisis an additive source of value.

In summary, we delivered as we guided, with consistent operational results coupled with strong sales. The increase in silver prices since the summer during a period of strong sales has been beneficial, and we remain positive on the outlook of silver prices. The improvement and performance across all of our financial metrics was a key success in the quarter, with cash flow not only funding our development pipeline, but concurrently strengthening our working capital position by over CAD18 million.

With those comments, I'll turn the call back over to John.

Thanks, Greg. Ladies and gentlemen, I trust we have given a sense of progress here at Silver Standard. Revisiting our goals that we set and shared with the market at the beginning of the year, we are delivering consistent quarterly operating performance at Pirquitas. Our long term sales strategy is in place, and we can see the benefits through the revenue line and improved margins.

We are also managing the export/import supply chain well, thanks mainly to our in-country team. And [how] having an excellent experienced team in place, we are focused on real value for our investors, underpinned by experience and good process. As you are heard, we're on track to complete the Pitarrilla feasibility study in the fourth quarter, a significant milestone for the Company.

Silver Standard offers a real value opportunity for investors to participate in a growth strategy that has been systematically built off a strong foundation. We have the answers, people and the wherewithal to deliver. And importantly, we're doing what we said we would do.

So now let me pass over to the operator and open up for any questions that you may have.

Thank you, Mr. Smith. (Operator Instructions). Your first question is from Chris Lichtenheldt from UBS. Your line is open.

Good morning, everyone. Thanks for taking my question. I just wanted to ask first, Greg, I think you said that we should expect sales and production to be similar for the next few quarters. That is to mean that over about a three quarter period do you expect to sell down your remaining level of inventory, is that right?

Yes, Chris, as we've announced, we have entered into a series of long-term agreements, which effectively targeting at matching our sales to our production level. So what we're trying to guide to is you're not going to see the dramatic difference between production and sales as you saw in this quarter on a go-forward basis.

Okay. I'm just trying to understand, because of production would presumably be higher than sales usually just because of the payability. So areyou saying that you won't be moving much inventory, or only very little bit going forward?

We'll actively manage the inventory into the contracts to maximize the value of that inventory within the normal volatility of production and sales through the coming quarters.

Okay. Sorry, last thing on inventory then, is there a number of ounces that you would expect to always be in inventory that you can share with us?

At this point we probably wouldn't provide a specific number of which we would be guiding towards a floor. There is certainly a number of factors that would -- goes into how we optimize that inventory as we look forward into our contracts and through production levels. So we're still working through this process with regards to not only the new agreements we announced last quarter, but also as we roll forward those contracts into 2013. So we can't provide you with that kind of specificity at this point.

Okay, understandable. I wanted to ask on the community negotiations occurring in Peru with respect to San Luis, does the environmental approval -- do you think that may help, or is that really part of the -- is that not having anything to do with the nature of the negotiations with the [acache] community.

Chris, I'll get Joe to answer that one for you.

Chris, good morning. This is Joe Phillips. I would say yes, the approval of the EIA is, as a minimum, an indication of the support that the federal and local government have for the project. We also, with our community relations team, are quite in touch with the general sense of the public support for the project, and it is quite high. So we expect that to be a very positive factor.

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

Thanks, Chris.

Our next question comes from Joseph Reagor from Global Hunter Securities. Your line is open.

Financial housekeeping question. First one is on by-product credit. In your MD&A it says that the revenue from them was only about CAD88,000 in the quarter, is that correct?

Good morning, Joe. I'll get Greg to talk to that.

Yes, that's not exactly correct, Joe. The by-product credit is really netted against a number of processing costs related to the zinc. The zinc has silver ounces contained within that concentrate as well. So effectively all of the cost of that concentrate gets pushed against the zinc revenue, and that's why you've seen it low in the quarter.

Okay, and what are your price realizations for zinc then?

Sorry, in terms relative to the spot market of zinc?

Yes, whatever you guys are getting paid on it as a percentage of actual ounces. Or pounds.

Yes, approximately it's about 70% payable rate on the zinc.

All right, and then on tax rate what should we be looking at going forward in 2013 as a reporting level tax rate for the Company?

Yes, thanks, Joe. As my comment said, certainly we expect to see some volatility of tax rates through quarters, and that's just the nature of your calculation of delivered taxes these days under IFRS and with multi-jurisdictions of which we operate in.

We certainly active manage our global tax position to lower our effective tax rate. We've guided on previous calls, and it remains valid, that we can expect an effective tax rate about 35% on a consolidated basis over a reasonable average in term.

All right. Thanks a lot, guys.

Thanks, Joe.

(Operator Instructions). The next question is from Andrew Kaip from BMO. Your line is open.

Congratulations on progress in San Luis.

Thanks, Andrew.

I'm wondering if you can provide us with any additional details on Pitarrilla. We've talked about it in the past, and the resource that you provided early on this year has a large inventory of silver. It's a very large resource. But can you provide any clarity on what type of grade should we be expecting in the oxide zone? And similarly, what type of grade should we be expecting in the sulfide when you move towards providing the feasibility details.

Andrew, it's John. It's a good question. We know the market is anticipating what the situation in the Pitarrilla, and we're getting very close. We will, through the fourth quarter, complete that study process.

I'll let Joe talk about the expected recovery in terms of the metals. But it's a difficult point of us now. We're just actually writing up the material, but we're publishing, so of course we really can't give you too much guidance at this point. But Joe, maybe you have comments on recovery.

John, I think it would be a little bit premature on that. Over a 20 year period it goes through wide a range.

Okay. Andrew, you're getting the answer you probably didn't want, which is we'regoing to just have to wait until we do the feasibility study and get it out there. But believe me, we're fully focused on getting that done as soon as possible.

Look, I understand, but at the same point in time, you put out a resource earlier this year without any technical information. And that's public information now. So any clarity that you can provide on information that you've already disclosed would be of interest and certainly would help your shareholders better understand the quality of the asset that you're advancing.

Yes, I under understand that, and I share your frustration. But remember we have said to the market that our design of mine for Pitarrilla is different than we've had our pre-feasibility study. So we'll be getting that out to the market, believe me, as soon as possible. Really, I can't, Andrew, provide any more guidance than that.

All right. It is a pit constrained resource that you have provided. Can you give us any details on the volume of waste within that constrained pit?

I'm sorry, Andrew, I've just got to wait.

All right. And then one final comment -- or one final question I've got is, reading the disclosure on your -- essentially your back and forth ongoing legal battle with the Argentinian government, it looks like you're consistently winning with respect to not having to pay the export duty. When are you going to feel confident enough to be able to say, hey, it doesn't look like we're going to have to pay this, and we'll appropriately bring down our cash costs.

Okay, I'll let Greg speak to that one, Andrew.

Andrew, as you'll note, as we've disclosed now for a number of quarters, we have an injunction in place, and we are not currently paying those export duties. But from a conservative standpoint we are both accruing them from a financial statement perspective, and we're also including them in our cash cost calculation to be conservative with our investors on that point.

There has been no update to the legal situation in Argentina, so that injunction remains in place, but there has been no progress on that court case, neither for us, nor on a number of other companies which are similarly effected. So at this point in time we continue to revisit it quarterly, but there is no progress which we view as being substantial to change our accounting on that issue.

Okay, thanks very much.

There are no further questions at this time. I will turn the call back over to Mr. Smith.

Thank you, Stephanie. And thankyou to everybody for participating, and we look forward to keeping you updated. Thank you very much, and you all have a good day.

Thank you, ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.