SSR Mining Inc (SSRM) 2014 Q1 法說會逐字稿

Good morning, 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, Nicole. Good morning, ladies and gentlemen. Welcome to Silver Standard's first-quarter 2014 conference call during which we will provide a review of our financial performance and give an update on our business.

Joining me on the call this morning are Greg Martin, our CFO; Alan Pangbourne, Senior Vice President, Projects; Andrew Sharp, Vice President of Technical Services; and Carl Edmunds, our Chief Geologist. Also present is Kelly Stark-Anderson, Vice President of Legal and Corporate Secretary.

Our financial statements and management's discussion and analysis are being filed on SEDAR and EDGAR, and are also available on our website. To accompany our call, there is also an online webcast and you'll find the information to access the webcast in our news release relating to this call.

We will be making forward-looking statements today, so please read our disclosures in the relevant documents.

The first quarter of this year has seen a significant change in Silver Standard. The purchase of the Marigold mine from Goldcorp, Barrick heralds a new year for our company in terms of size, cash flow, portfolio, and capacity. With two large producing mines we are now more strongly positioned and have an enabled platform for future growth.

Pirquitas in Argentina has seen significant improvement over the past year in this cost structure; and, therefore relative positioning in the industry. This was achieved by workforce engagement and operational excellence. We now have a continuous improvement program embedded at the mine which keeps focus on cost and productivity.

Our silver production in the first quarter is seasonally consistent, at 1.9 million ounces, and currently, as expected, we are seeing weather conditions abate. Sales for the reported quarter were 1.6 million ounces of silver. And the annual shipment schedule is managed so that cumulative sales will be similar to production by the end of the year.

Cash costs for the quarter are $12.36 per payable ounce of silver sold, or slightly below our 2014 guidance range.

March and April are months normally for annual wage negotiations at Pirquitas. We have had industrial action during the negotiating process resulting in approximately three days lost production in April. We have not concluded negotiations as of yet, but work continues safely at the mine and we are focused on what is right for the business, our employees, and communities.

Now moving to our Marigold mine in Nevada, integration is well underway and we have commenced work on long-term mine planning and equipment optimization. The entire management team has transferred across to Silver Standard, which has assisted significantly with transitioning and understanding of the business. We acquired Marigold as it improves our operating and political risk profile. It adds to cash flow and reserves. And it is operated at world-class standards.

We also significantly benefit from the recent investments by the previous owners. Alan Pangbourne, the executive in charge of Marigold, will lead to recover our 2014 costs and production guidance for the assets. We commenced the work for 2014, recognizing that information relating to life of mine resource and reserve will necessarily be completed later in the year.

With a mine plan that works through the price cycle and is optimized mining operations, delivering material of best margin, Marigold and Silver Standard are set for a strong future.

Pitarrilla is an important development asset in our portfolio, with significant mineral resources and reserves. However, with the recent acquisition of Marigold mine, our resources need to be deployed appropriately. Additionally, with extraneous factors such as the new Mexican tax and royalty regime, prevailing metal prices, and the national moratorium act for water drilling, we have decided at this time to postpone major project activity on Pitarrilla. We will consider advancing the project based on priorities and when conditions are more supportive.

In Peru we are mostly through the permitting process for drilling the Bonita Zone, up in our San Luis project area. And our drill team is commencing proprietary access work.

Now, let me had you over to my colleagues to provide more detail on our performance. Andrew?

Thank you, John. Without doubt, comparing Pirquitas Q1 seasonally affected results with a strong performance in Q4 2013 shows a number of quarter-on-quarter reductions. This wet season came early and hard and, a little unusually, maintained saturated soil conditions for most of quarter. The saturated conditions precluded some high-grade ore mining from river plain resources that are now delayed into later 2014.

As a third consequence, by not being able to source some of our preferred ore in Q1, this was replaced by low grade oxide stockpiles and so reduced head grade and impacted silver recovery.

In Q1 the mining operations team moved 4.2 million tonnes of material, 2% less than the fourth quarter. This small variation resulted from major loader component change outs, but total mine movement is in line with our expectations.

In the plant, ore was milled at an average rate of 4514 tonnes per day during the quarter, 13% above the mill's nominal design reflecting improved process control and mechanical availability. The continuous improvement program is well-established at Pirquitas, and we will discuss further benefits as they are delivered throughout 2014.

The mill's silver head grade was 204 grams per ton in Q1, 11% lower than for Q4. Silver recovery was 72.1% in Q1 compared to 73.9% in Q4, being slightly affected by the use of our oxide stockpile material. We produced 1.9 million ounces of silver and 8.8 million pounds of zinc, 16% and 14% lower than Q4, respectively.

The annual wage negotiations for the Pirquitas mine have traditionally occurred during late Q1 to early Q2. The current year's negotiations commenced in March and are in progress to this date. During the negotiations the union did choose unfortunately to engage in 2.5 days of work stoppages in April. There has also been an additional half day of production loss to meetings for information dispersal and time for orderly plant shutdown and start up.

We would like to mention that the site is currently operating at full capacity, and we continue to work with the union to seek a fair and just outcome for all.

In the first quarter, we achieved cash costs of $12.36 per payable ounce of silver sold, slightly less than our full-year guidance range of $12.50 to $13.50 per ounce. The lower cash costs are result of the cost discipline we instituted in 2013, and we aim to deliver continued benefits in 2014.

Notwithstanding the weather impacts on Q1 results, we expect to see stronger performance for the remainder of the year, and silver and zinc production to be within our stated guidance for 2014.

Alan will now provide an update on activities at the Marigold mine and Pitarrilla project.

Thank you, Andrew. First I will address our new operation, the Marigold mine in Nevada. As you have seen from our previous press release, we closed the transaction on the 4th of April and we are now working on the final purchase price adjustments that Greg will discuss later. This marks the ends of the transition from the Marigold mine to the Silver Standard family. All of the employees are now being successfully transferred with payroll, IT, and other administrative processes having been smoothly integrated.

Marigold is now operating as a Silver Standard mine. Over the second quarter we will continue to see integrations of systems and processes as we move through our first reporting period with Marigold. In April we moved into an optimization phase with the Marigold integration. This has seen the start of a comprehensive review of the current geological models and my plans which will lead us to 43-101 compliant reports being released as planned.

We are also focused on current day-to-day operational practices and procedures with an aim to optimize the mining operational effectiveness to ensure we put the best ore at the lowest costs on the leach pads.

Today we are also pleased to release our production guidance for Marigold for the remaining three quarters of 2014. We expect to produce between 105,000 and 115,000 ounces at a cash cost between $1000 and $1100 per payable ounce of gold sold. The required capital of the remaining three quarters will be $20 million, which includes funding (technical difficulty) reserve replacement drilling.

The second-quarter production will be lower than average of around 20,000 ounces with the associated higher unit cost of production. This is due to the significantly lower than average grade ore that has been placed on the pads over the last six months. The current mine plan shows an increase in heap leach grade with associated high production in the last half of the year.

I will now move on to Pitarrilla. Pitarrilla continues to be an important asset in our portfolio with significant mineral resources and mineral reserves. However, as John discussed, with recent developments, we have decided to postpone major project activity on Pitarrilla and will consider advancing when external conditions are more supported.

Moving forward, we will continue our presence in Mexico and preserve the value of the project by maintaining our good relationships and commitments to the local communities. Continuing to monitor the water moratorium, and advance our land holdings.

Additionally we will continue to explore a range of options that could enhance the overall value of the Pitarrilla region to the Company.

I will now hand over to Carl, who will take you through our exploration activities in the first quarter.

Thank you, Alan. During the first quarter, exploration activities remain focused on advancing key projects in our exploration portfolio while optimizing the remaining properties by evaluating their probability of success. The exploration portfolio remains a significant source of value as the proceeds from the sales of San Agustin and Challacollo are now realized on our balance sheet.

At our San Luis project in Peru, we are just coming out of the rainy season and are in the final stages of permitting the Bonita Zone drilling program. We remain on target with preparatory exploration activities. The authorization to work from the Ministry of Energy and Mines is expected in late May with drilling beginning in June. The drill program aims to define a resource which could provide an additional development path at this project.

The Bonita Zone is located entirely on Cochabamba community land, covered by exploration and development agreements.

At Pirquitas, we continue to work on replacing reserves and extending the mine life of the operation. In support of this we remain focused on mapping and sampling directed towards finding new resources on the property.

At Marigold, we have just approved the first phase of an exploration program that is targeted towards replacing reserves mined this year and adding resources. The majority of the 85-hole, 15,000 meter program is aimed at adding reserve ounces in the north Mackay pit while the remainder of the drilling has the potential to discover new shallow resource ounces in other areas.

This exploration program began in April this month, and we look forward to receiving results over the coming months. Longer term, we are working towards developing and testing near surface open pit target concepts, as well as the higher grade underground resource potential that may lie beneath areas already exploited to date.

Now, over to Greg for discussion of the Company's financial results.

Thanks, Carl. Financial results for the first quarter of the year are in line with expectations and consistent with the seasonally impacted first-quarter production, and lower plant silver concentrate deliveries. Revenues for the quarter were $33.7 million, a reduction from $49 million in the comparative first quarter of 2013 due to the combined effects of a 33% drop in silver prices and a 21% reduction in silver ounces sold, which were partially offset by an almost fourfold increase in zinc pounds sold. We sold over 10 million pounds of zinc in the quarter.

Income from mine operations was $5.9 million representing a 17.6% gross margin. Margins benefitted from the lower cost of inventory of silver ounces sold due to the cost reductions accomplished in 2013, somewhat offset by lower silver prices and a greater proportion of lower margin zinc pounds sold.

General and administration expenditures continued to decline to $4.4 million for the quarter. Due to our increased share price, non-cash stock-based compensation expense was higher than previous periods at $2.5 million making the reported G&A expense of $6.9 million increase relative to the comparative quarter despite the underlying cost reductions.

As outlined on our first quarter call, income before taxes were impacted by two significant items. The January devaluation of the Argentine peso by approximately 25%, combined with a weakening Canadian dollar, resulted in a foreign exchange loss for income statement purposes of $16.8 million. The majority of this foreign-exchange impact was non-cash related to our VAT receivable balance in Argentina. Secondly, we recognized a $9.2 million pretax, or $7.5 million after-tax gain on the sale of Challacollo, which closed early in the first quarter. For the period, we reported a net loss of $16.9 million or $0.21 per share.

Shifting to cost performance, Pirquitas' reported cash costs were $12.36 per payable ounce sold, 9% below the first quarter of 2013 and marginally below our guidance range. We remain vigilant around managing costs, but the interaction between inflation and currency devaluation has introduced further volatility into the forward view on costs.

Overall, we still expect these two items to offset through the full year. We generated $1.2 million in cash from operating activities in the first quarter, a decrease from $8.9 million in the comparative quarter of 2013. We saw strong sales collections during the first quarter resulting from our surge in concentrate sales in the fourth quarter of 2013, which helped offset lower silver prices and sales volumes.

Investments in our business were consistent with guidance, as we invested $2 million on PP&E; $3.5 million in our property portfolio; and $4.2 million in deferred stripping. All items were down significantly from the comparative period, reflecting a lower capital intensity of Pirquitas this year and our more focused project spending. Investing activities were supported by $3 million of VAT recovery, and $7.5 million of cash proceeds from the sale of Challacollo.

As discussed on our fourth quarter call, we paid the full Mexican tax amount on the San Agustin sale of approximately $16 million in the first quarter. The deferred cash proceeds of $30 million, $10 million of which was received a few days ago, are being collected free of any additional tax.

VAT recoveries in Argentina are progressing well, as evidenced by the Q1 recoveries and the increased VAT amount reclassified the current receivables during the first quarter.

We closed the quarter with $396 million of cash and a higher working capital position of $587 million. So, we remained in a strong liquidity position as we closed and funded the Marigold transaction on April 4, 2014. With Marigold closed and integration well advanced, we have begun working through the reporting issues as we prepare to report our combined operations in the second quarter.

A valuation team is on the ground working through our purchase price fair market value determinations, as we set the opening balance sheet for our acquisition. As Alan discuss, Marigold's second quarter is the lowest production quarter of the year. So, we really won't see the strength of the combined business until late in 2014.

Additionally, all of the ounces on the heap leach pads at time of acquisition will be written up to value fair value. So these non-cash adjustments will impact cost of goods sold and therefore reduce reported earnings as those ounces are produced and sold, largely through the second and third quarters of 2014.

The strength of our balance sheet enabled us to fund the Marigold transaction and associated costs from cash on hand here early in the second quarter. So post acquisition, we maintain solid liquidity and retain a strong working capital position due to our marketable securities portfolio. This provides us with capacity to remain active on our exploration and development properties and continue to consider opportunities while we optimize Marigold to generate Increasing free cash flow from both of our operating assets.

I will now turn the call back to John.

Thanks, Greg. Ladies and gentlemen, to conclude, our goals for 2014 are to fully integrate and optimize Marigold; to maintain the drive on operational excellence at Pirquitas; and to determine pathways for San Luis and Pitarrilla projects. We will also maintain strong cost discipline, which is essential at all times in business.

At Silver Standard, we strive for excellence in all that we do. Our aim is to deliver value from all parts of our business for shareholders. I believe our track record supports this, with the positive changes made at Pirquitas; the property divestments, such as San Agustin and Challacollo; and the Marigold acquisition.

As management, we are acutely aware that now we have to deliver at Marigold and maintain the good progress at Pirquitas. The work that we have done at Pirquitas is very relevant for reconfiguring Marigold. And we will leverage this experience as well as action and future growth.

With the entire Marigold management team now part of Silver Standard, our capacity and capability to assess and uncover other growth opportunities results is also significantly enhanced.

So, ladies and gentlemen, that concludes this presentation part of the call. And I'll now to turn it back to the operator, and we will answer any questions that you may have.

(Operator Instructions). Brian Yu, Citi.

Great. Thanks and good morning. So the question is, with Marigold you are guiding for volume and it seems like cost improvements as the year progresses -- can you try to give a sense of what -- were your exit rate is going to be, year end? And might that be a better proxy for what you expect Marigold to operate at on a go forward basis?

Thanks, Brian. This year is a transition year for us and we -- through the year is not consistent quarters.

But I will let Alan talk about how that proceeds through the year and future.

Okay, thanks, John. Brian, the goal production at Marigold, as I mentioned in the call, is low in the first quarter and then we -- in the second quarter. We then expect to see third and fourth quarter increase significantly, and get us in the position where going forward the annual guidance would be similar to the 150 or 160 sort of range that we have seen in past.

But that isn't clear yet. We need it to finish the new mine plants for the new life of mine plan and make sure that we focus on the better margin materials. But certainly towards the end of the year we get back to that sort of run rate.

So, in summary, Brian, I think we worked hard to get the 2014 guidance out because that's important for the market. But Andrew and the team are working through with Alan on the mine plan optimization, and how we deal with equipment. And as we go through the year, we will update the market on progress.

Okay. Thank you.

(Operator Instructions). There are no further questions at this time. I would like to turn the call back over to Mr. Smith for any closing remarks.

Thank you, Nicole. So, ladies and gentlemen, I look forward to speaking to you at our AGM. We've got that at 2 PM Pacific time today. If you would like to listen to the presentation, you can find the link on the webcast on our website.

But again, thank you for participating, and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.