SSR Mining Inc (SSRM) 2014 Q3 法說會逐字稿

Good morning, everyone, and welcome to Silver Standard's Third quarter Financial Results and Project Update conference call. This call is being recorded. At this time for opening remarks and introduction, I would like to turn the call over to John Smith, President and CEO.

Thank you, Charlotte. Good morning, ladies and gentlemen. Welcome to Silver Standard's third quarter conference call during which we'll provide a review of our financial performance and give an update on our business.

Our financial statements and management's discussion and analysis have been filed in SEDAR and EDGAR and are also available on our website. To accompany our call there is an online webcast and you will 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 the disclosures in the relevant documents.

Joining me on the call this morning are Greg Martin, our CFO; Alan Pangbourne, Senior Vice President of Operations; John Gilligan, Vice President, Technical and Development; and also present is John DeCooman, Vice President of Business Development and Strategy; and Kelly Stark-Anderson, our Vice President of Legal and the Company Secretary.

The third quarter has been significant for us in many ways. We achieved strong production results at both mines with cash cost trending the right way. This combination led to us generating positive operating cash flow. Also importantly, our total cash balance increased quarter-on-quarter.

Marigold delivered production 23% above guidance and 83% higher than in Q2. We also completed the life of mine [plan] which shows a strong future with considerable opportunity to further grow value with the drill bit and relentless focus on cost structure. On the 15th of October, we had a site visit for investment analysts to Marigold.

The mining have been in production since 1988, but it started then with a mine life of eight years. Twenty-six years later, our current plan has nine years in reserve with an extensive resource outline. Marigold has a track record of replacing reserves consumed year-on-year. Earlier this month we shared some of this year's drill results with the market.

With the focus on our Marigold acquisition of recent, Pirquitas has been a quiet achiever. Argentina like all countries has its challenges. But the fact is that we keep delivering both on cost repositioning and on production results. Our team [up] to manage variable supplies to the process plant over the past 18 months as the San Miguel pit transition.

But moving forward at a point where most of the feed is going to come directly from the pit with less use of previously mined stock piles. With both mines reporting through Alan, we are really leveraging improvement opportunities.

At Marigold, we are applying process improvement initiatives we made at Pirquitas through operational excellence. Simplicity of process and smart use of data provide the pathways to achieving change. In this current market with pressure on prices, it is extremely important to manage what we can; costs, production, and balance sheet.

We've shown that period on period. We are successful in managing our business appropriate to conditions. Now, I'll turn the call over to Alan who will discuss the operations in more detail.

Thank you, John. First, I'll discuss Marigold's third quarter results. Now after six months, we considered at the Marigold mines have been fully integrated into Silver Standard. In Q3, we produced 40,442 ounces of gold, which exceeded our quarterly guidance of 33,000 and puts us ahead of our plan and on track to exceed our original guidance.

Yesterday, we increased our production guidance for Marigold to between 110,000 and 120,000 ounces for the full three quarters. During the quarter, work continued at site on a mine-wide optimization program. We've seen improvement in all areas of the mine. We expect these trends to continue in Q4.

As we have said before, Marigold is all about moving tonnes for the lowest cost possible and focusing on the best margin ore being moved to the pads for leaching. This has been our focus month on month since we took over the operation. It will continue to be our focus moving forward. We are now starting to see the impact of these efficiencies on a unit cost basis.

At our headline level, we can now see some of the main impacts. In September, we achieved our highest daily average movement at 208,000 tonnes per day. More recently in October, we have achieved our highest single total movement in one day at 288,000 tonnes per day with the new shovel loading over 8,000 tonnes per hour for a day. This has led to a drop in the unit mining costs from a $1.70 per tonne moved in Q2 to a $1.61 per tonne moved in Q3.

We have seen almost all areas improve whether it's availability, utilization, or efficiency of the mining equipment. Additionally, as we've previously expect -- stated, we expected the grade to rise quarter-on-quarter. This has occurred. This together with more ore tonnes being stacked all converting to ounces produced as this material has now been put under leach.

In Q3, the cost per ounce produced was 20% lower than planned primarily due to the higher ounce production. Moving forward at Marigold, we will maintain the focus on moving the maximum amount of material at the lowest cost possible while focusing on the highest margin oil.

We have additional projects underway, which will further improve availability, utilization, and efficiencies in the mine. We expect to see further unit cost reduction in Q4. In summary, we believe we've had a better than expected quarter at Marigold and are delivering into our increased guidance.

Moving on to Pirquitas; in the quarter, Pirquitas produced 2.6 million ounces of silver, 25% higher than the second quarter as a result of continuing grade improvement and higher availability of ore in the pit. The mine also produced 7.0 million pounds of zinc in zinc concentrate in the third quarter. However as expected the zinc fee grade has started to drop from its previous high levels as we move out of the high zinc ore and into a more typical high silver and low zinc area.

Over Q2 and Q3, the tonnage of available ore and ore grade continued to increase month by month as planned. This trend is expected to continue as the pit advances into the main high grade silver areas.

The mine is now able to provide almost exclusively fresh ore to the process plant without needing to add previously stock piled material. With the production achieved today and our plans for the last quarter, we maintain our guidance for the full year production at Pirquitas. This will be the third consecutive year that we have been able to maintain or improve our production guidance.

Over the same period, we have also been able to significantly lower cash costs from $19.70 per ounce to $12.22 per ounce this quarter. At $12.22 per ounce per payable ounce of silver sold, we remain at the low end of our previously lowered guidance range of $12.00 to $13.00 per ounce.

Moving to the physicals of Pirquitas, in Q3, the mine operating team was 4.3 million tonnes of material, 6% more than Q2. This small variation is in line with our expectations as we move down the pit in phase 2.

In the mine despite continuous issues with [spares] availability in Argentina, we've been able to achieve 90% availability and 99% utilization on the triple seven truck fleet. This has helped us maintain our cost basis. Approximately 407,000 tonnes of ore were milled through the third quarter.

Levels slightly higher than the second quarter, ore was milled at an average rate of 4,402 tones per day. This is due in part to the higher availabilities achieved in the plant at 96%. These availabilities and utilization numbers are an example of the quality team that we have in Argentina and their ability to maintain the operation under adverse conditions.

Ore milled during the third quarter contained an average silver grade of 248 grams per tonne, higher than the 213 grams per tonne reported in the second quarter achieved through blending of previous stock piled material. The average recovery rate for silver increased to 78.7% from 74.3% in the previous quarter due to accessing a greater portion of fresh sulfide ore in the pit.

Additionally, as the result of improved metallurgical understanding, we've increased the zinc recovery to zinc concentrate by 5%. Pirquitas continues to deliver production as planned quarter-on-quarter and maintain its unit operating cost basis. This is despite higher fuel costs, longer hauls, and higher maintenance costs caused by spare supply issues.

As John said, Pirquitas this quarter has been the quiet achiever as we improved both metal recoveries, better production. We're now moving into the typical high silver and low zinc ore zones. Production wise, it was a good quarter from both operations.

I'll now hand it over to John who will take you through our project and exploration activities in the third quarter.

Thank you, Alan. The exploration and projects team has focused attention on to new mine exploration and major project support. Over the quarter, we completed the initial phase of resource delineation drilling at Marigold. We finalized planning for a new mine reconnaissance drilling program at our Pirquitas mine in Argentina.

We started drilling on the Bonita Zone at our San Luis project in Peru and completed both initial [sub] exploration and the drill target definition on our Pitarilla and Parral projects in Mexico. The major activity for the technical team during the quarter was the coordination and oversight that the Marigold life-of-mine plan released to market on October 6th. The associated NI 43-101 Technical Report on the life-of-mine plan will be filed by November 20.

Moving to activities at Marigold, our resource expansion and infill drill program is targeting higher grade mineralization in areas directly adjacent to the current life-of-mine pit design. In the quarter, we completed the first phase of the plan to drill program. Year to date we've drilled a total of 14,408 meters in 83 reverse circulation holes on targets in the Mackay, Hercules, 5North, and 8 South areas of Marigold.

Fifty-six of these holes, or 67% reported mineralized intercepts above the resource cut off rate criteria. Selected drill holes from this program were released to market from October 15. These included two notable holes in the 8 South area, which returned mineralized down hold intercepts of 53 and 71 meters, both averaging 2.3 grams per tonne of gold.

Accordingly, we had extended the drill program for a total of 23,900 meters. We continued to do work to understand the impact of these positive drill results on the resource space in Marigold. We have also identified the geological potential for higher grade sulfide gold mineralization underlying the oxide mineralization at Marigold.

The structural analysis, geophysical data, and the mineral trend evaluations performed over the quarter that allowed us to define a series of deep drill targets. The first drill hole commenced in October testing structural, and stratographic, and genetic models of that potential mineralization.

At our Pirquitas mine in Argentina, brownfields exploration work has also focused on the potential for additional near-mine mineral resources with the objective of adding life to the existing surface operations. Importantly, in this quarter we have more than doubled our land position at Pirquitas through acquiring exploration rights to an additional 4,400 hectares of land contiguous with our current property holding.

During the quarter, explorations fieldwork at Pirquitas centered of the mapping and sampling of surface mineralized zones in five new prospect areas; all of which offered a potential for economic, silver, zinc mineralization, and open pit conjurations. These areas are all located within three kilometers of the current open pit operation at Pirquitas.

Drill targets have been identified on all areas, and a 3,000 meters reconnaissance core drilling program commenced in October. Additionally, Silver Standard has procured access to two larger properties in the region around Pirquitas. The goal here is to identify drill targets for surface mineable silver, base metals, and gold mineralizations. These will be evaluated as part of the 2015 explorations program.

Moving now to project support in Peru and Mexico; the Bonita Zone at the San Louis project in Peru is comprised of at least three gold-bearing [bang] structures exposed on surface with strike length in excess of 600 meters.

Previous channel sampling of these extensive vein [tips] on surface has returned grades of up to 87 grams per tonne gold and 264 grams per tonne silver. A two-phase drill campaign was developed to evaluate the Bonita mineralization.

Phase one of this program consisted of ten reverse circulation holes of which the first two holes were completed in the quarter. These holes confirm the extension of the mineralized structures on surface down to depths greater than 80 meters. The Bonita Zone lies entirely on land owned by the Cochabamba community with whom we have an exploration agreement.

In the period leading up to recent municipal elections, drilling was suspended as issues were raised regarding application of the agreement for the area required for the exploration of Bonita. Elections have now been held. We are in discussions with community leaders to confirm our agreement with the aim to recommence the drill program.

Moving to Mexico, we completed both the initial surface exploration and a drill target definition on the land package around [Pitarilla] with the objective of identifying economic satellite mineralization. In Parral, we have also done quite a number of drill ready targets on the main and Veta Colorada structure.

In summary, the major effort over the quarter has been to focus our brownfields exploration resources around Marigold and Pirquitas mine sites with the view to expanding our resources and reserve base for those operations.

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

Thanks, John, and good morning, to everyone. The team has provided a good overview of the strong operating performance during the quarter; which we have seen translates through to positive cash generation. Our income statement was impacted by a number of nonoperating items that negatively hit earnings. But what remains clear through this third quarter is a positive effect the Marigold mine is having on our financial performance.

Revenues for the quarter totaled $79.3 million on the sales of 38,245 ounces of gold; 1.9 million ounces of silver, and 8.1 million pounds of zinc. With increased production driving higher sales, revenues increased quarter-on-quarter by 23%; and with the addition of Marigold, by 80% over the comparative quarter. Both of these increases [were] achieved despite declines in metal prices.

Income from mine operations was $6.3 million. It was materially reduced by negative mark-to-market adjustments of $4.3 million on Pirquitas's sales contracts that were outstanding at quarter end as silver prices closed the quarter at $17.11 per ounce. These required adjustments dropped directly to the bottom line.

As a result, despite solid operations, Pirquitas showed break even contributions while Marigold's contribution approximately doubled from the previous quarter on higher sales. General and administration expense continued at its lowered level of approximately $4 million per quarter of cash expenditures.

Expensed exploration and evaluation increased by approximately $2.5 million due to the brownfields exploration of Marigold, and Pirquitas being more active consistent with John's earlier discussion; and costs related to the evaluation of optimization projects at Marigold.

Certain of these costs are temporary, but the addition of Marigold will generally result in an increase in exploration expenditures. Foreign exchange loss declined significantly from the comparative period. But it does still remain elevated at $4.5 million due principally to VAT balances in Argentina.

We had a second consecutive quarter of strong recovery of VAT. The balance is trending down and in fact, it has declined from $65 million at the start of the year to $40 million at the end of the third quarter. Year to date, we have received about $23 million in the VAT refunds.

On sales of marketable securities, we recognized a net loss of $1.8 million as our hedge structure partially offset realized losses. All marketable securities sales were done at levels significantly above the current share prices for those equities. For the period, we reported a net loss of $14.7 million or $0.18 per share.

Shifting to cash flows, most importantly, we added $33 million to our cash position closing the quarter at $135 million as we continue to rebuild our liquidity post the Marigold acquisition. Our cash position continues to differentiate us from many other mid-cap peers. It's an increasingly important asset in these market conditions.

Operating cash flow was positive $3.6 million despite a $10 million build in pad and finished good inventory as gold stacks exceeded gold produced at Marigold. Sales were below production at Pirquitas. This quarter is also a significant improvement over the $3.9 million operating cash use in the comparative period; again despite declines in metal prices.

From investing activities, we generated a net positive $31.3 million of cash. Significant positive contributions came from the receipt of the working capital adjustment related to our Marigold purchase of $7.3 million which reduced our net acquisition costs for that asset to $268 million; $16.9 million of VAT recovery, principally in Argentina and $29 million from the sale of marketable securities.

Approximately $16 million of that relates to the sale of a portion of our Argonaut shares at Canadian $5.00 per share under our hedge arrangement; and $11.5 million relates to our participation in the [Paredian] financing at US$6.89 per share. These proceeds more than financed our investment in plant property and equipment of $7.9 million, deferred stripping of $4.5 million, and VAT payments, and other uses of $9.7 million.

Capital investments declined from the comparative quarter despite the addition of Marigold to the portfolio. At quarter-end, based on government approvals already received, we were able to reclassify $13 million of VAT as current; which puts us in a great position to continue receiving funds and reducing the VAT balance.

As a result of stronger portfolio performance and opportune divestments, we were able to increase our cash position by $33 million closing the quarter with $135 million of cash. Due to the reduction in share prices of our marketable securities portfolio through the quarter, our working capital position declined to $363 million from $428 million at the end of the second quarter.

However, on any absolute or comparative basis, our liquidity position remains very strong. Moving to cost performance of the assets during the quarter, Pirquitas cash costs remained within our lowered guidance range at $12.22 per payable ounce sold. Cash costs are on track.

The strong Q3 production puts us in very good shape to attain production guidance. The mine is tracking well on capital spending. At quarter-end, due to a temporary strike late in the quarter and strong Q3 production, we had considerable concentrated inventories in transit and on the ground at Pirquitas.

We have a high level of shipments scheduled during the fourth quarter for both silver and zinc. In fact, in October we shipped the highest tonnes of silver concentrate from Argentina in the history of the mine. Marigold performed above expectations in the quarter and cash costs reduced commensurately to $997 per ounce, a $106.00 per ounce decline from the second quarter.

The mine consistently delivered more ore than planned through the quarter. Therefore, the strip ratio was below planned resulting in lower than expected deferred stripping. To date, we have deferred only $9.6 million against our guidance expectation of $20 million.

On an overall cash generation per ounce basis, Marigold is tracking very well against expectations. As Alan noted, a strong fourth quarter is expected as reflected by the increased production guidance. Looking at the results in aggregate, silver equivalent production increased to 5.1 million ounces, up 48% from the second quarter.

Cash costs per silver equivalent ounce sold were $14.29, a modest reduction from Q2. These results highlight the new scale of our portfolio.

So to conclude, sequential improvements at both Pirquitas and Marigold, a build in inventory of both assets, we will pull down going forward; and continued generation of our -- of cash from our portfolio.

Lower metal prices are putting pressure on the industry's overall financial performance; but our diversification into gold has proven positive with its recent outperformance relative to silver. Already, Marigold has had a positive impact on our results. We look forward to that asset's strong contribution going forward. I'll now turn the call back to John for final comments.

Thanks, Greg. Ladies and gentlemen, the third quarter for me was significant beyond the strong results we announced. What I'm proud of is the way that we achieved them by smart cost business teamwork following the technical and business processes we have embedded in our organization.

Now, one of the analysts who have recently visited Marigold, he said to me. You have a great team with a lot of enthusiasm for what they're doing. That really impresses me. Nothing beats having great people working together to drive results.

Production, 83% up in the second quarter for Marigold; and 25% up in Pirquitas; cost and finance having significantly been strongly managed at both mines. Looking forward, we will push hard on costs. Per guidance, we are set for a strong finish of the year. Our fourth quarter at Pirquitas, it will see production in the sales come more into balance for the year with sales being higher than production as we deliver product to our customers and cash flow to our balance sheet.

But this [is a] difficult stage in the cycle for silver and gold, we have delivered this quarter. We know what we have to do to keep delivering. We are positioned strongly on costs, and offer a considerable leverage to the change in price cycle when it comes.

With two large producing mines delivering free cash flow, our loaded development pipeline, and increasing cash balance, and a dynamically situated for growth, we are well positioned in price as an equity choice for exposure to precious metals.

Cash is king; this is the life blood of business. This is what we focus on, and what we have delivered again this quarter with a $33 million increase over the past quarter. Be it through the operating business or our portfolio value, it provides the ability to reposition in this market and to fund the future growth.

With this, our presentation concludes. I'll pass you back to the operator to take any questions you may have.

Thank you, Mr. Smith. (Operator Instructions). Our first question for you is from Brian Yu from Citi. Your line is open.

Thanks and good morning, and congrats on a nice quarter. The first question is just on Marigold. I was comparing from what you guys had laid out as the fourth quarter production. There, I think, yes, the number was about 60,000 ounces.

Now the guidance looks a little bit lower. I was wondering if you could elaborate on it? Was some of that just due to pulling some ounces [for us] since you had a very nice 3Q?

Yes, Brian, yes, pretty much that. I mean, we've increased the guidance by 5,000 ounces. If you just take the midpoint in what we have done. We definitely took some into the third quarter, so that's had the impact on the fourth quarter. Year-on-year we'll still be up about 5,000 ounces. We've just slid them between the third and fourth.

I got it, OK. Then the second one I think is in the prepared comments. There is a mention about increasing the zinc recovery by 5%. Would you be able to elaborate a bit more on that?

Sure. I'll let Alan talk to you about that one?

Sure, thanks John. Yes, we've been focusing on the performance of the Pirquitas metallurgical plant as we've been getting more and more fresh sulfides out of the pit. They've been responding better.

As we understand how the zinc circuit works better, we've been changing some of the chemical characteristics of the float plan. That has allowed us to increase the zinc-to-zinc recovery, which obviously flows into the final revenue line.

OK, great, I appreciate it. Thank you.

Thanks, Brian.

Thank you. Our next question comes from the line of Mark Milosovic from RBC Capital. Mark, your line is now open.

Thanks, and morning John and team. I just wanted to figure one thing out. Quarter-over-quarter we saw grades at Pirquitas go up about 15%. You also had the benefit of higher zinc byproduct sales. But the reported cash cost number was basically flat versus Q2. Can you just explain what drove that?

Yes, I'll let Alan have an explanation of that one, Mark.

Sure, Mark, basically as the increased production came through, we saw an increased cost related. As I mentioned in the call to fuel and [hole] distances as the mine is maturing, the waste dumps are getting further away.

The hole distances are getting longer. Unlike the rest of the world, we haven't seen the fuel prices come down in Argentina because it is controlled by the government. That's been impacting our mining costs. That's what's caused the cost to stay up.

Just to add, [Mike]. I think the fuel bit is a big bit. You're seeing it. We're seeing fuel come down sort of managed with the prices gold and silver. We're not seeing that yet in Argentina. It will likely happen, but it's lagging.

OK, thanks guys. Now, do you see - so, should we expect the unit costs if they, similar to what we see, saw in Q3? Or, do you think you can bring them down a little bit further?

No, we will continue to work on that. We were just down there in the last quarter, Greg, Alan, and myself; and reinforced that and worked with the team. They are very focused on driving those cost variances down.

Perfect, and just one broader question. We've all seen equity valuations come off. A lot of stocks are down quite a bit. Are you seeing anything interesting in the market? Or, are you guys focused on what you have in front of you?

We're always interested. I think we've made it quite clear that at the right point, we want to grow our business. This provides opportunity. Difficult on our share price, but we're well positioned with our cash balance and with our balance sheet generally. I think there's opportunity. We'll keep looking at that, Mark.

Absolutely, you want to be the guys who cash in on this market and not the ones struggling to finance yourself.

Yes. That's right. That's right.

Yes.

I think that is a big part of this quarter for us. We put $33 million on the balance sheet. We'll keep working hard on that. We know that at this time in the market, these times in prices, cash is king.

OK, perfect, and thanks guys. That's it for me.

Thank you, and as a reminder ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touch tone telephone. We'll wait a moment to see if we have any more questions. All right, there are no further questions at this time. I will turn the call back to Mr. Smith.

Thank you, Charlotte, and thanks everybody for participating. Have a great day, and we'll speak to you later. Thanks, now, and good-bye.

Ladies and gentlemen, Thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.