SSR Mining Inc (SSRM) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the Silver Standard's first quarter 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.

Thank you, Kevin. Good morning, ladies and gentlemen. Welcome to Silver Standard's first quarter 2013 conference call, during which we will provide a review of the financial performance and give update on our business.

Joining me on the call this morning are; Greg Martin, our CFO; Ron Burk, Vice-President of Exploration; and Alan Pangbourne, our Senior Vice-President of Projects. Also present are; John DeCooman, Vice-President of Business Development and Strategy; and Andrew Sharp our Vice-President of Technical Services.

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

Before I start to cover the business, it would be remiss of me not the to comment on the market and our share price. With almost all of the major economies in the world in poor state and substantively using monetary expansion as a tool to try and generate growth, it is hard to understand the disconnect to precious metals. In my view, the reality of the situation and proper pricing of risk will see a return by investors to silver and gold.

Our share price also has impacted by perceived Argentinian risk and the cost position of our Pirquitas mine. Of our mining company, a sound cost management is a core activity. We have a continual cost management process at our Pirquitas mine to counter inflation in Argentina. We have, also, commenced a formal restructuring program at Pirquitas, aimed at rebasing the business and costs to a sustainable position for the future.

This process addresses, both, optimizing production and reducing costs. The majority of the changes will be implemented through the second and third quarters of the year. In addition, our exploration program is being examined to reduce expense, profit overhead reductions are being instigated, and the timing of development capital spend reassessed.

Our priority is to be disciplined in our investment activities and drive the margin within the operating cash flow. Planning of activities and revised forecasts, if applicable, will be reflected in the outlook guidance of our second quarter report.

Through the first quarter, we continued to progress on delivering on our commitments. Pirquitas is going through a major mining transition, to widen and deepen the pits, and, yet, even with the variability of ore through the transition, we still delivered 2 million answers in the first quarter; and we also did that at a cost that keeps in line with annual guidance. On development activity, we keep driving forward at, both, Pitarrilla and San Luis projects. We will talk more about these on the call.

In January, we issued convertible notes of [CAD265 million] in aggregate, to repair existing [CAD138 million] convertible, with the remaining proceeds adding to our cash position for investment in projects, such as Pitarrilla construction. This was part of our strategy for funding our growth pipeline. At a cutting point that I make is, that we have a team that delivers. We have proven capability and capacity across our business, and that is what, at the end of the day, delivers success.

In operations, our Management at Pirquitas, again, delivered to plan this quarter following a successful 2012. Silver production was just over two million ounces. Cash costs for the quarter for CAD14.64 per ounce of silver produced. A good start to the year to achieve guidance. The mine also produced 3.3 million pounds of zinc in the first quarter, a 27.1% improvement, reflecting higher zinc grades as we mine through the zinc-rich, port of sea area of the San Miguel Open Pit.

And sales match productions, again, as per guidance. Approximately, 396,000 tons of ore milled during the quarter, at an average weight of 4,402 tons per day. 10% above the plant's normal design and in line with our production plan. The average recovery rate for silver decreased to 76.3%,from 79.9% last quarter, mainly due to the availability of more oxidized and transitional ore in the feed.

As Phase 2 of the San Miguel Pit opens up, the proportion of oxide and traditional ore in the mill feed is expected to decrease, which will enable higher silver recoveries. During the month, we had a labor action at the Pirquitas mine for, approximately, 36 hours, as the union sought a higher bonus in 2012. We had made it clear to our employees the basis on which the bonus would be paid, and this position was upheld by the Secretary of Labor in Jujuy, thus avoiding an actual strike.

At Pirquitas, we achieved the plan for the first quarter, positioning as well for the year. In exploration, Q1 was about preparation for field work for the rest of the year and, importantly, determining the hole locations to drill the gravity anomalies discovered at Pirquitas in 2012. We have scheduled 7,000 meters of drilling for the Pirquitas program. Mexico is another key area for us, giving acreage and strategic prospectively. In 2013, we have planned to [evalue] three properties, which Ron will cover in more detail later.

For now, I hand you over he to Alan, who will talk about our projects.

Thank you, John.

In the last quarter of 2012, we completed the Pitarrilla feasibility study, and delivered the 43-101 report to the market. In the first quarter of 2013, we have continued to advance the Pitarrilla project by focusing on the key elements for the required (inaudible) prior to a construction decision. We have continued working on acquiring the remaining parcels of surface land we require, either through negotiation or via the legal processes that are available to us on the Mexican law.

The permitting process is under way and we expect to submit the final chapters [indiscernible] in Q2. We have started assembling the project team. Discussions have been initiated with various equipment suppliers, as well as engineering companies, that could supply the EPCM services for the project.

We have, also, begun working on upgrading the access road and continue advancing further definition of water and power supplies. Financing and joint venture options continue to, also, be defined in advance. All of these activities aim to allow the company to take the construction decision later this year.

Now, moving to our St. Luis project in Peru, this quarter we continue to negotiate with both communities, aiming for a five-year extension to the exploration agreement with the Cochabamba community, and the exploitation agreement with the Ecash community. I will now hand over to Ron, who take you through our exploration activities in the first quarter.

Thank you, Alan. Brownfield's exploration is again underway at Pirquitas, as we have commenced the diamond drilling campaign that will size, approximately,7,000 meters. This programs follows the exploration success we achieved in 2012. Specifically, the definition of the Cortaderas silver-zinc deposit is some 500 meters north of operating open pit.

Earlier this year, we reported, indicated, and inferred silver and zinc resources for the Cortaderas deposit, and a preliminary economic assessment has been initiated. Our goal is to add mineral reserves to the mine's inventory. This year's drilling at Pirquitas, we will be testing geophysical survey anomalies identified north and east of the Corderas resources and the San Miguel Open Pit.

As well as a number of outcropping structures marked by silver and zinc geochemical anomalies. In addition to the drilling that is ongoing at Pirquitas,our 2013 exploration campaign, currently, includes drilling programs at our San Luis project in Peru, at Diablillos in Argentina, and at three projects in Mexico.

We budgeted for a total of 18,000 meters of drilling this year. However, given the cost cutting measures we are in instigating, only the highest priority drilled programs may be completed. In Mexico, we entered into an option agreement with Prospero Silver Corp., on the San Luis del Cordero property in central Durango state.

This agreement, signed in March, gives us a three-year option to acquire a 51% interest in the property, located 65 kilometers east of our pit Pitarrilla development project. Also, in Mexico, we are focused on a group of four properties that we hold in the historic silver mine District of Parral in the southern Chihuahua State. There, we have surface exploration programs under way, with prospective drill targets already defined on each of the properties.

Silver Standard has an enviable portfolio of projects ranging from large, early stage exploration properties and prospective mineral districts, to the potentially multi-decade mine of Pitarrilla. One of the Company's goals is to maximize the value attributed to this suite of assets. This will involve the rigorous assessment of each of the property's economic potential and how well it fits our corporate strategy.

We anticipate that, for some properties, it will make more sense, strategically, to monetize or joint venture them, rather than to explore them ourselves. The ultimate goal is to upgrade the quality of our property portfolio, so that we can advance our projects throughout the stages of exploration and development into production as quickly and cost-effectively as possible.

Now, I will pass over to Greg for a discussion on the Company's financial position.

Thanks, Ron. And good morning.

For Silver Standard, the most significant development, financially, in the first quarter, was the successful raising of CAD265 million through the issuance of convertible notes. Our preparation through the end of 2012 positioned us to be able to move rapidly when market conditions were supportive in early January.

Seven-year convertible notes, yielding 2 7/8, with a conversion premium of 43%, or CAD20 per share, provides cost-effective capital that aligns the convertible holders to benefit in an environment when our common shareholders benefit. The financing funded the repurchase of our CAD138 million of 2008 notes that were put to us on March 1 and, simultaneously, provided incremental capital for our development projects.

The net result is our cash position of CAD462 million at the end of March, which combined with our investments in Pretium, and other securities, puts us in a strong position to deliver on our stated commitments. As John has reviewed, the first quarter was on plan, operationally, which has driven financial results in line with our expectations.

Sales of 2 million ounces of silver matched production, resulting in revenues of CAD49 million, a 28% increase, relative to the CAD38 million in revenues generated in the comparative period. As higher sales more than offset lower silver prices. Silver prices during the quarter averaged CAD30.68 per ounce, which was a moderate decline against the fourth quarter average of CAD32.69 per ounce, and lower than the CAD32.20 realized in the comparative period.

Silver prices declined to CAD28.60 per ounce at the end of the quarter, resulting in a revaluation of our accounts receivable, which reduced revenues by CAD2.5 million. With sales matching production, we ended the first quarter with concentrate inventory of about 2.1 million ounces, having a book value of CAD29 million. This inventory provides flexible in managing to our contract sales commitments. Income from mine operations for the quarter totaled CAD14.4 million. Over double that of the comparative period due to our stronger sales.

Operating income totaled CAD9 million, as G&A and exploration expenses declined by about CAD2 million over the comparative quarter. For the quarter, net loss was CAD4.6 million, or CAD0.06 per share. This net loss includes a higher than usual interest expense of CAD7.6 million,as we had an overlap on our convertible notes for about half the quarter.

Foreign exchange losses of CAD6 million related, principally, to the devaluation of the Argentine peso. Cost performance in the quarter was within expectations, as the mine managed costs, as with production, in line with plan. Cash costs totaled CAD14.64 per ounce in the quarter, approximately CAD4.60 per ounce lower than the comparative period due to stronger operating performance, improved sales terms, and the impact of required adoption IFRIC 20. The new accounting standard for deferred striping, that we discussed on our year-end conference call.

As noted earlier, the financing significantly strengthened our cash position, which stood at CAD462 million at quarter end, an increase of CAD95 million from year end. Operating cash before changes in noncash working capital was CAD14.8 million during the first quarter; a solid result. We saw an increase in our noncash working capital of CAD10.4 million, as the decline in payables was greater than the decline we saw in receivables.

Investments in our properties totaled CAD27.7 million,with the principle areas being tailings, expansion, and stripping at Pirquitas, and cots to advance Pitarrilla and San Luis. VAT recovery slowed toward the end of the quarter, due to delays by the Argentine tax authorities. The situation has arisen from time to time, but we continue to comply with requirements and work through these challenges as they arise.

Our overall working capital position was, significantly, strengthened by the convertible refinancing that extended out our repayment commitment to seven years. As a result, we saw our working capital increase by CAD237 million in the quarter to CAD588 million, providing significant capacity to pursue our growth objectives.

We remain very disciplined in our investments of this capital. Our equity interest in Pretium dipped under 20% in the quarter and is now approximately 18.6% after the close of the recent private placement to Liberty. Our steak in Pretium is, currently, valued at approximately CAD150 million, and gives our shareholders significant value and exposure to their success.

The transaction announced yesterday in which Franco, Nevada, bought an existing 1.2% net smelter royalty on the Bruce Jack property, for CAD45 million, provides further third-party validation of the potential for that project. The market's subsequent reaction to the NSR purchase, and Pretium's completion of the access ramp, for the bulk sample, led to a one-day share price increase of, approximately, 17%.

We are very aware of the challenges that current market conditions pose as the drop in metal prices squeeze margins and reduce valuations test many business models. We have the financial strength to weather this volatility and continue to execute our business plan for the benefit of shareholders. We remain unchanged in our view of the longer-term value in precious metals and the value we can deliver from the financial capacity we have built within a disciplined, risk-managed approach to opportunities. Clearly, with the decline in silver prices, cost management is a primary objective for the site and corporate teams.

With those comments, I will now turn it back to John for concluding remarks.

Thanks, Greg. Ladies and gentlemen, at Silver Standard we continue to deliver on your commitments.

In the second quarter, silver production is targeted around 2 million ounces, due to the ore mix, as we continue to transition in Phase 2 of the San Miguel pit, and we also have a five-day planned maintenance shutdown for the ball mill reline. Our focus for 2013 is on delivering predictable performance at Pirquitas.

Moving the Pitarrilla project forward to construction, increasing reserves, maintaining our strong balance sheet, continuing to create value from an asset portfolio, and instituting cost margin and capital change across our business. We are proactive in managing costs to planned programs, thus, allowing us to lock in sustainable change. We recognize the need for prudency in these times and no area is spared from review or challenge.

As I said in my opening remarks, we will inform the market regarding any changes to guidance, should they be identified. Our employees make our business successful and with the right processes we aim to keep our company well positioned. We will make the right call regarding both short- and long-term value. That is what we are here for.

With that, let me thank you for dialing in and we will, now, take any questions that you may have.

Thank you, Mr. Smith.

(Operator Instructions). Our first question from Dan Rollins with RBC Capital.

Thank you very much. Good morning, John and Team.

Good morning.

Question regarding this rebasing of Pirquitas. I was wondering if you could provide a little more information than just that?

Dan, we always have to manage costs with the inflation environment of Argentina. We he have a continual program to do that, but instigated, also, a process to really look at setting the mine up for the future. We started that process.

We had a meeting for about four days, on site, with the Management team, so we are well and trained with that, and as we progress through the quarter, we will come back to the market, should we have any changes to guidance with the output of that.

Are you looking at roughly? Is this a situation where you are going after a higher cut-off with less throughput? Or is this a mine sequencing? What is the main plan to take these costs down to the next level?

We are looking at everything, Dan. We are looking at pit. We are looking at process. We are looking at all matters. So, really, no area of costs is not being challenged and looked at.

And within the current price environment, right now based on your numbers, outside of the cash you bought in from the debt facility, you were negative free cash flow, given the amount of money you have been spending on exploration and, also, capitalized stripping at Pirquitas.

What, right now, is your estimate of the silver price you need, assuming constant zinc price right now, to breakeven there on a free cash basis at Pirquitas?

Let me ask Greg to answer that one for you.

Thanks, Dan. A couple of questions on the quarter. As we noted, obviously, an impact on the overall cash flow was the buildup in working capital and that is more of a timing issue than an absolute piece.

And as you note, you know, through 2014, we had indicated it was going to be a year of higher investment in our properties, largely due to the tailings impact through Pirquitas. We are at a high strip point as we move from that Phase 2 through to Phase 1, and that starts to decline as we move forward.

So, we don't provide the specific guidance that you are working for, but I think because you look off our cash cost guidance, we've provided our capital spend guidance. We have provided the stripping guidance, through what we announced in January. You could come up with a very close estimate.

As John said, the key focus for us, right now, is working hard, obviously, to drive those pieces down; not just on-site, but also off-site costs as well. We have had some success with that. As we move through to Q2 and we get through that work, obviously, we will be updating the market as we see appropriate on those issues.

Okay. And then, maybe just for reference, of the amount of material that you -- waste material that you reported in your MD&A, how much of that was capitalized? How much would have been expensed, rough percentage?

In the current period, a significant amount of it is being capitalized. If you refer to the cash flow statement, you can see on a dollar basis what was deferred in the period.

And what would be, so you are capitalizing a lot right now. What is sort of a good life of mine run-rate percentage? Is it 50/50 capitalized to operating waste? Or is it 75/25? I'm just trying to tweak the model here, given the new accounting standards.

Yes. I am not sure the way you are describing it is correct. In periods, IFRIC 20 requires you to look it on a phased basis. In periods where we are stripping above that phase average, we would defer; in other periods, we would amortize it.

Okay. Over the life of the project, based on your knowledge of the phasing, how much waste stripping is going to be capitalized, per year, average, versus how much would be going to the P&L? Because it has an impact in the operating cash costs versus what we see on the investment line.

Correct. We don't give you life-of-mine guidance on that.

I'm happy to walk you through the process, in more detail, offline. We have given you the guidance for this year on those metrics.

Okay.

It's fair to say, Greg, in this period just now, as we are going through the main part of going out into Phase 2 of the pit, we are capitalizing more. When we get into the future years, that changes. It is not a constant that we get to.

Correct. I understand that. Just trying to get an idea of what it is because before everything was going to be expensed, and you can see that in the strip ratio now, there is not the same type of clarity because you don't break it out. So, that's' fine.

Maybe, John, could you just give us an update on the negotiations with the Ecash community on San Luis?

Yes, Dan. We are negotiating with, both, Cochabamba and Ecash, and Ecash to get on the next point. We keep going forward and, then, we go back a bit and we go forward. So, substantially, the main point is we are still well engaged with them. Active in dialogue and it is progressing forward. As I have said to you before, it is never as fast as I would like, but we are moving forward, which is important.

Great. Thanks.

Thanks, Dan.

Our next question from Joseph Reagor with Global Hunter Securities.

Hi, Joe.

Hi, guys, thanks for taking my questions. Two main ones. The first one is just, thebig picture rest of the year, what are the things that we should be looking out for, as like the main catalysts for the Company? Whether it be great improvements, Pitarrilla decision, et cetera.

Yes. So, Joe, we are really focused on six things that we're trying to do. We are trying to deliver the plan at Pirquitas. So, as we meet the change through the Phase 2, and get down in the heart of the pit, then, we're managing Q2, Q3 through the transition material. We will look at our balance sheet. We have a strong balance sheet. We want to maintain that position.

And as we think about Pitarrilla, we're going progress that to a point that we can take it to Board decision. Exploration is still strong for us, but we have to look at what we need to do versus what we want to do, in light of this price environment, and really driving those cost reductions across this business, just now, is really a focus is for us as well. So, those are the things that are, mainly, taking our attention as a Management team through the rest of this year.

Okay. And, then, on Pitarrilla specifically, you guys have [CAD450-some odd million] in cash and, obviously, the debt is not due tore a while, but the cost of construction there is probably going to be another [CAD300 million] to CAD500 million on top of that. What type of financing are you guys looking at, currently, given the change in the environment, over the recent month?

Joe, I disclose that my preference would be to have a joint venture partner to proceed with Pitarrilla. We are active in that course, just now. And concurrent with that, we are also looking at non-partnered financing opportunities. Both of those things are tracking along and, really, they're all coming towards that sort of key point for the end of the year to get to the sort of construction decision.

Thanks, guys.

Thanks, Joe.

(Operator Instructions). The next question from Chris Linchenheldt with Duquesne Capital Markets.

Hi, guys. Thanks for taking my question. First I just wanted to ask just a quick housekeeping question. How much capitalized stripping is expected for the remainder of the year at Pirquitas? Can you just remind us of that?

Greg?

Yes. So, in our guidance, we indicated that the capitalized stripping was about CAD25 million. As you saw this year in the cash flow statement, Chris, it is about [CAD7.4 million] that was deferred in the first quarter.

Okay. Thanks a lot. Secondly, just back to the discussion on Pitarrilla and the potential for a joint venture partnership.

Can you provide any additional color on how that looks right now and what those conversations might be like; what the counter parties' sentiment towards new projects is, particularly in light of the recent metal price movements? Or are companies sort of looking long-term and still open to these kinds of things or has that changed the dynamics at how you look at the prospects for Pitarrilla going forward?

Chris, welcome back, by the way. Good to have you back.

Thanks.

I think, for us, we are having good conversations about joint venture partners, so we haven't seen any major change that people have dropped off because of the here and now. Because, you remember, fundamentally, three years to build, but then 18 years at 15 million ounces is a 32-year project. So, people that were talking do tend to see that dynamic, in terms of what is going on.

Okay. That's it for me. Thanks a lot.

Our next question comes from Jorge Beristain with Deutsche Bank.

Hey, guys. Hey, John, it's Jorge.

Hey, Jorge. How are you?

I guess my question is for Greg. Just trying to come up to speed as to what is happening with working capital in the current environment? It seems like it was a pretty high use during Q1, and in a declining, silver price environment, can you talk about, will working capital be a source of funds going forward?

That is, certainly, our expectation, is those things normalize over time, Jorge. Obviously, part of it is different payment terms under some of our receivable contracts that impact that. In the first quarter, just coming through year end, we paid down some taxes payable and some other payables that were there through year end.

So, I don't see it as anything significant, just normal business timing variations that, in this quarter, kind of all happened to go in the same direction.

Great. And could you also talk, maybe John, a little bit about the issues you had last year with the treatment and refining charges and, then, you restructured them. How are they going to look in a lower silver price environment?

Are there any kind of provisions there that would stay fixed, I guess, in a lower silver price environment, such that the treatment charges could be proportionally higher than what we are used to seeing?

Thanks, Jorge. I will get Johnny to answer that one for you.

Good morning, Jorge. Thanks for that. The restructuring has been in a lower cost environment, better for the shareholder. The price participation clauses that we had seen before were more punitive.

The price participation clauses that we have, now, either do not exist, or are less punitive, and so overall we were able to negotiate a better downside protection situation for the company.

Great. Thanks very much.

I'm not showing any further questions in the queue at this time. I would like to turn the call back to Mr. Smith.

Thank you, Kevin, and thank you everybody for participating. We look forward to keying you updated and have a good day. Thank you.

Ladies and gentlemen, that does conclude today's presentation. You may now you disconnect. Have a wonderful day.