SSR Mining Inc (SSRM) 2015 Q1 法說會逐字稿

Good morning, everyone. And welcome to Silver Standard's First Quarter 2015 Conference Call. The 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.

Good morning. Thank you, operator. Welcome to Silver Standard's first quarter 2015 conference call, during which we'll provide an update on our business and a review of our financial performance.

Our financial statements and management's discussion and analysis have been filed on SEDAR and EDGAR, and are also available on our website. To accompany our call, there's 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 the disclosures and the relevant documents.

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

2014 was a transformational year for Silver Standard. And in the first quarter of 2015, we have continued to deliver production performance and importantly lowered our cash costs even further. We exceeded our gold production schedule at Marigold with 55,600 ounces produced at continuing lower costs, $612 per payable ounce, down near 8% when compared to the fourth quarter of 2014 which was the best production quarter in the life of Marigold.

Pirquitas achieved an all time record of 2.7 million ounce of silver and did this in the wet season which is even more impressive. Costs continued to be strongly managed down, $11.25 per ounce of silver sold, compared with $11.76 in the fourth quarter of 2014. The positive repositioning of Pirquitas against industry peers continues. Strong silver sales of 2.9 million payable ounces went to the revenue line overall making this an exemplary start to the year.

So, let's look at one of the two goals for 2015, which is generating free cash flow at a corporate level.

This was another quarter in which we generated positive cash flow from operating activities over $37.5 million. Overall, tax, interest and capital invested, we ended the quarter with $176 million in cash, importantly not including the $19 million we have in deposit with the CRA. Strong performance delivers to the bottom-line and we do this through operational excellence programs at our mines which focuses on process discipline to generate safe production at lowest cost.

Our second goal for the year is to grow our business. Our agenda is to add ounces to reserves and resource, both at Marigold and Pirquitas and drill programs are well underway to achieve this.

Further growth is targeted through acquisition and our business development team are active on this front.

So just in gold equivalent terms, we produced in Q1, 98,200 equivalent ounces at cash cost of $695 per ounce. And when you add on capital costs, we produced at lower than $900 per equivalent ounce, strong performance compared with peers. And there are few companies that provide the leverage to precious metals that can share price like standard, a unique opportunity given that we continue to demonstrate delivery and we have the assets, capital and management that create real value.

Now, I'll turn the call over to Alan, who will discuss the operations in more detail.

Thank you, John.

Today, I will discuss the quarterly results for both our operations. Q1 delivered better than planned results of both operations in terms of production volumes and operating costs. 2015 was planned to build on the operational improvements made in 2014 and will safely deliver increased production from both operations while maintaining the focus on cost and margins. And this was demonstrated in our strong Q1 results.

At Marigold, we have now operated the mine for a year and continue to find areas where we can further improve operationally. The mine safely produced more tonnes of ore at a grade of 0.59, both above expectations for the quarter. Together with the higher grade material that was stacked in Q4 2014 and the continued higher tonnage and grade of ore stacked in Q1, we produced 55,600 assays of gold this quarter.

As expected, the grade reduced in Q1, reflecting the completion of Phase I of the Mackay pit. The next phase will produce the majority of the ore for the rest of the year. And we expect production in Q2 and Q3 to be more in line with average rates. And so we reached the deeper, better grade benches in Q3 and Q4 to finish the year with a strong quarterly production.

During the first quarter, we saw the full impact of the hot shift change and we've seen a significant improvement in the mine operations. The impact on use of availability on the mine shovel has increased on average by 3% to 4%. Also the average first and last hour loading rate has increased from 6,500 tonnes per ounce to almost 8,000 tonnes per ounce, a 23% improvement.

On the cost side, we have also seen decreases and we're now mining material at a cost of $1.57 a tonne moved. These and other improvements in the higher gold production has led to a continuing reduction in the cash cost per ounce, reaching $612 per ounce produced in Q1.

As the results of the improved drilling and loading operations, we have now moved to bottleneck to our truck fleet. As such, we took a decision in Q1 to add a 19th truck to the haulage fleet. This 300-tonne truck has arrived and we expect to have it operational during Q2, which should further improve the mining efficiencies of Marigold.

Additionally in Q1, we commenced the construction of leach pad expansion. Once complete later this year, it will allow us to place the higher grade ore expected in like Q3 and Q4, plus it's a plastic and therefore improve the recovery rate.

Moving on to Pirquitas, where we have also continued with the focus on operational excellence. Its impact can clearly be seen in the quarter-on-quarter improvement in cash costs that have further dropped to $11.25 per ounce in Q1 from $11.76 in Q4. Q1 saw a continuing improvement in ore availability in the mine with mine goal increasing to 770,000 tonnes in Q1 from 648,000 tonnes in Q4. The strip ratio also continued to decline from 4.921 to 3.421. This resulted in an increasing mill feed grade that averaged 267 grams per tonne in Q1, a 20% increase over Q4.

Additionally, we've been able to sustain the higher silver recovery in Q1 at 83.9%. All these factors combined for us to produced 2.7 million ounces of silver in the first quarter. That is a record quarterly production for the mine. It is even more significant when compared to previous year's first quarter results and demonstrates the impact of the operational excellence programs at Pirquitas.

Zinc production continued to reduced quarter-on-quarter as planned, in line with the reduction in the zinc feed grade. The zinc production in Q1 was 3.8 million pounds. Silver concentrate grades continued to increase and concentrate moisture levels have declined, all having a positive impact on the total silver payability, freight and treatment charges for our concentrates.

So, as with previous quarters, our strong management team in Argentina continues to demonstrate their ability to maintain, operate and continually improve the operation.

I should also comment on two significant events during May. We completed a scheduled plant maintenance shutdown at Pirquitas, which took 11 days this quarter. While the shutdown will impact the second quarter and -- they both accounted for in our annual guidance. Also at Pirquitas, we've just concluded our annual union negotiations with the mine-site workers without any labor related stoppage.

So in summary, Q1 delivered better than planned results of both operations in terms of production volumes and operating costs. 2015 is planned to build on the operational improvements made in 2014 and will safely deliver increased production from both operations whilst maintaining the focus on costs and margins.

I'll now hand over to Jon who will take you through our project and exploration activities.

Thank you, Alan. 2015 has seen us initiate focused Brownfield programs at our operating sites. At Marigold, we've put in place successful resource development programs which are progressively increasing the resource base over time. Whilst work at Pirquitas presented directly on life extension opportunities, through near mine surface exploration and the delineation underground resources but Marigold, our experienced resource development team completed 9,700 meters of RC drilling in 34 holes by end Q1. 96% of these holes have resource grade intercepts.

The higher grade mineralization discovered in the old 8 South pit area and previously reported, continues to grow. One hole MR-6045, returned to downhole interval of 165 meters at a grade of 1.7 grams per tonne gold.

The second RC drill was brought in during the quarter to accelerate the exploration program. And the sonic drill rig is now also on site, drilling to evaluate historic waste dumps and leach pads adjacent to old 8 South pit.

We also completed the fourth core hole on the deep sulphide exploration project at Marigold and have confirmed the presence of permissive rock units at depth, underlying the oxide mineralization. Analysis interpretation of drill results continues. Additional drill holes will target the intersection of gold-bearing structures with those permissive rock units at depth.

At Pirquitas two phase of the San Miguel underground drill program were completed over the last two quarters for total of 7,400 meters of core drilled in 27 holes. Highlighted results include downhole intercepts of 6.9 meters at a grade of 1,038 grams per tonne silver in old PUG-03 and 18 meters at a grade of 517 grams per tonne silver in whole PUG-10.

Resource modeling will continue in the second quarter followed by underground mine design and scheduling work in the second half of the year. We commenced an additional phase of underground drilling in the second quarter, targeting further expansion of underground resource at Pirquitas.

On the Pirquitas note a surface exploration area, we have completed 70% of the surface mapping and sampling by the end of Q1. Two new prospects have been located on the southern portion of the property. One of these, the cable prospect is of particular interest. A veins structure with 800 meters of strike length, fresh sulphide exposed and shale [offers] and workings and are out-cropping hydrothermal breccias. We expect the surface to commence this drilling program in these areas to commence in the third quarter.

So, in summary we've made a strong start in the first quarter towards our 2015 goal to add ounces to both reserves and resources at our operating sites. These early signs are highly encouraging.

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

Thanks Jon and good morning. From a financial performance standpoint, we made a strong start to 2015. Income from mine operations; net income; and operating cash flow, all showed strong improvements, in the first quarter. This was driven by solid production and continuing positive cost performance. The results highlight both our continued focus to improve our operational performance and the positive impact of the Marigold acquisition.

Revenues for the quarter totaled $112 million, more than three times the first quarter of 2014, which was due to the acquisition of Marigold. In addition, we also had a 31% increase in revenue at Pirquitas. Marigold sold 56,000 ounces of gold and Pirquitas sold 2.5 million ounces of silver. These very strong sales more than offset the decline in metal prices we experienced compared to the first quarter of 2014. We generated income from mine operations of $30 million, a fivefold increase from the $6 million recognized in the comparative period.

Operating margins improved to 27% from 18% despite the drop in metal price. This again highlights the positive impact that Marigold brings to us and also the costs improvement have outpaced the metal price decline.

We maintained a disciplined approach to spending on both general and admin costs and our exploration work, so that despite the impact of our accounting policy change, whereby we now expense the majority of exploration spend, we reported net income of $9.1 million for the quarter versus a loss of $12.4 million in the first quarter of 2014.

Earnings per share in the quarter were $0.11 per share. Cash flow performance in the quarter was equally impressive as strong operations and neutral working capital impacts drove cash generation to $37 million in the quarter and $31 million after payment for taxes and interest.

Investing activities were in line with expectations. Capital purchases were limited, while capitalized stripping at Marigold was the highest quarter for year, as we mine through the early part of the next phase of the Mackay pit. Capitalized stripping is expected to trend down through the year consistent with our guidance.

As previously announced, we deposited $90 million with the CRA in order to appeal the reassessment received earlier this year related to the tax treatment of the 2010, sale of shares of a subsidiary that owned and operated the Snowfield and Brucejack projects. Subsequent to quarter end, we have formerly launched our notice of objection with the CRA and we are preparing our notice of appeal for the Tax Court of Canada. Despite this deposit, our cash balance only declined marginally from year-end and remains very a healthy $176 million, due to the cash generation from our operations.

Working capital at March 31st, which excludes that CRA deposit as it's recorded as a long-term receivable, stood at $358 million, continuing to demonstrate the financial strength within Silver Standard to drive our business forward.

Fundamental to the improvement in financial results has been the solid cash cost performance at both mines, where they continued their trend of sequentially lower reported cash costs. Pirquitas achieved cash costs of $11.25 per ounce, despite significantly lower by-product credits due to lower zinc production as planned. Our reported zinc sales were also lower than production due to timing of deliveries but we will make up the zinc sales through the remainder of the year.

I also note that the cash cost reductions have come through a period over the last 12 months, where Argentine inflation has been significantly higher than the Argentine pace of devaluation, increasing our labor and other costs in U.S. terms, opposite to what's been occurring in any jurisdictions where currency devaluation has assisted producers reporting costs. So, this further underscores the good work by the operating team and our expectation that as we move past the election this fall, the peso is likely to weaken which should assist cost performance.

At Marigold, the tailwinds from the strong fourth quarter coupled with the solid quarter drove cash cost of $612 per ounce, well below where the mine sat on the cost curve when we acquired it last year. Energy price reductions have certainly assisted costs, but underlying performance improvements were the main drivers of these lower reported costs. We have guided to the first and fourth quarters of Marigold being the strongest quarters for the year, so these results are consistent with that expectation.

Solid production and lower cash costs coupled with low capital intensity drove our free cash flow performance in the quarter. On a silver equivalent basis, we reported production of 6.8 million ounces at cash cost per silver equivalent ounce of $9.57, a result that scales us well in the mid-tier space. As gold is representing a proportionally larger part of our business currently, in gold equivalent terms Q1 was 93,200 equivalent gold ounces at cash cost of $695 per equivalent ounce, again positioning us strongly in our peer group. CapEx in deferred stripping totaled approximately $200 per equivalent gold ounce sold for the quarter. So adding this to cash cost, we remain below $900 per equivalent ounce.

Looking forward a few items to note, Alan already mentioned the planned maintenance that will impact Q2 production at Pirquitas, while at Marigold, we have -- and as planned the $7 million capital spending for this project will be concentrated through Q2 and Q3. Also on May 5th, as previously disclosed, we received the $20 million cash payment from Argonaut Gold in relation to our sale of our San Agustin project back in 2013 and that certainly provides a nice boost to our liquidity.

So in summary, Q1 has given us a great start to 2015 and we remain focused on driving free cash flow through solid operating performance and disciplined stewardship of our financial resources.

I now turn the call back to John for concluding remarks.

Thanks Greg. So, as we move into 2015, we are driving hard on the key metrics for our business which are generating positive free cash flow at the corporate level and secondly, using our strong balance sheet and cash flow for growth.

Our demonstrated delivery culture leverages the precious metals and a balance sheet that supports our growth agenda position Silver Standard as a unique investment choice for investors seeking exposure to the metals.

Now delivering free cash flow at corporate level at this point in the market cycle is not only a goal in itself, but importantly because of the capability to position our business to perform strongly when the market turns, we have organic opportunities for the future, as well as strong balance sheet that allows us at this time in the market to look for acquisitions consistent with strategy.

In summary, the first quarter followed a strong second half of 2014. Our guidance for the year clearly enriched. We delivered strong production performance, continued to lower our costs and maintained our strong cash position. Various activities on growth were advanced from exploration of both Marigold and Pirquitas to evaluating potential acquisitions. We did what we said, we would do.

So with this, our presentation concludes. And I'll pass you over to the operator, who will take any questions that you may have.

Thank you, Mr. Smith. (Operator Instructions). Our first question comes from the line of Craig Johnston from Scotiabank.

First question on mining costs; apologies Alan, you might have mentioned this earlier, I might have missed it. But just in terms of what you're seeing right now for mining cost per tonne at Marigold and whether or not you think you've kind of seen the benefit from the lower diesel prices in that number or if you expect cost to trend down as you fully realize lower prices?

Thanks, Craig. I did mention the current cost in Q1 were at $1.57 per tonne moved. Certainly some of the fuel impact has come through but then we're also starting to see the fuel costs slowly move back up again. So, it's difficult to suggest where it's going to go. We're obviously focused on continuing to find opportunities to reduce that operating cost further. And as I mentioned, we've got a 19th truck starting up this quarter, which will help. And we continue to look at ways to improve the entire operation overall and keep driving those costs further down.

Just sticking at Marigold and cost, in terms of cash cost, 6.12 seemed like great number. The guidance for the year I think is 7.65, if I'm not mistaken. Can you give us a sense of how big of a guidance beat you could see or where costs could go in the next couple of quarters with the lower production, just trying to get a sense of say normalized cash cost if we go forward from here?

Hi, Craig, it's John. Look I think, we always knew our plan just on mining sequence that the first quarter was a strong production quarter and the last quarter of the year is also a strong production quarter; and second quarter, third quarter are more normal type quarters. So, it has that mining sequence that says big upfront and bigger the bank. And necessarily as we produced more and you spread the costs, you get that benefits. So, we'll still hold the guidance. Clearly as a business we're always trying to improve. We'll still hold the guidance. And really as we come through the second quarter, we get a better view on where we're going. And as Alan gets to see more of the oil flow in the third quarter, we'll see that built through third and fourth. So, it's a great first quarter; it's consistent with what we've planned, a little bit ahead where we planned. But I think we've got the second quarter sequence to come through third quarter and then it starts to lift again.

So, in a sense third and fourth quarter not that different as we think about last year.

Last question just on CRA audit export duty, any update on either of those?

Not really; we're just going through the process now Craig of filings and getting -- we've paid $19 million to pursue it. So, we're really just going through the due process on that at the movement.

And anything on the export duty in Argentina?

No, nothing at all. We've got a fiscal stability agreement. You know our position on that. There has not been any change of significance that we can tell.

Thank you. And our next question comes from Jean-Paul Tsotsos of BMO Capital. Your line is now open.

I just have a question with regard to the Marigold. You guys are indicating that through Q2 and Q3, there is going to be some lower production. Is that due to lower grades or higher stripping during that period? And for both of those, can you guys provide some guidance on those measures?

Jean-Paul, it's the mining sequence issue. So, as we get through each sequence, we got more ore. And the early stages of going through that sequence, we got less ore and we move more waste. And it's really that sort of push through as we go through the year. So first quarter of this year is benefiting from our stripping last year and what we loaded to the pads of the Q4. As we come through the second and third quarters, they are more normal quarters. And it's hard to guide exactly what we should do. But think of it in the sense that our guidance for the year is good guidance. We're at good start at the front of the year, commensurately we expect to have something similar at the end of the year and fill in the blanks.

So, it's just mostly moving up material and it's more of a stripping?

It's literally that Jean-Paul. It's just as we go through, we have to shift to get to the ore and it's the sequence of stripping and shifting the ore. I think when this was a gold [crop] mine before, as 1 of 13, it was less problematic that changes. We've tried to and Alan and Jon are through the process of building the mine plan, try to smooth those things. I think we've got them in a good state as we think about the year, but necessarily between quarters, you do get some differences, but it's purely mining sequence drilling, nothing anything else.

Thank you. (Operator Instructions). Our next question comes from Robert Weaver of Citigroup. Your line is now open.

Going back to the prospect for acquisitions, can you give us any additional color on the size that you're looking for or maybe way to rephrase it would be, what would be the maximum size that you're looking to do, what kind of scale are you thinking about in terms of acquisitions?

Robert, I think acquisitions, as you well know we are kind of opportunistic and ideally like to be able to pick the size and shape and location if we could, but somewhat opportunistic. Having said that, I think if you look at Marigold, it's a good indication size and what we're looking for. So that I think is a good proxy for what we're trying to find. Clearly we'll look at things that are slightly larger, slightly smaller, but that's I think a fair proxy of guiding you as to from an M&A point of view what we're looking at.

Thank you. And our next question comes from Mark Mihaljevic of RBC Capital Markets. Your line is now open.

You put out a few nice holes actually both Marigold and Pirquitas, so also with Pirquitas now, just want to get a sense for those underground holes. How close are they to the underground, or to the potential underground at Pirquitas you talked about and how much follow-up could be there?

I'll get Jon to talk you through that in a bit more detail.

So, the program at Pirquitas underground was to take some inferred resources that we had underlying the pit and upgrade that to indicators. So the holes that we've seen have been within that volume. And we're now looking to do some mine design and planning on that resource to see how it would convert to a potential underground reserve.

And were those relatively in line with the undiluted inferred and what you would have been expecting or has it been better?

Well I think broadly the results are in line with what we expected. I think we got some areas that were better grades and some areas that are worst. The results are broadly consistent in terms of upgrading that materially to indicate it.

And then just circling back to Marigold, again 1.7 gram a tonne is a nice hole. Just wanted to get a sense of how large that the area around that 8 South pit is and how much reserve you have there now or if you have any?

So right now, we have no reserve in that 8 South pit area. The resource that we came out with late last year, this drill hole comes within that volume. So it's adding to that resource number that we previously published.

Thank you. Our next question comes from Brian Yu of Citigroup. Your line is now open.

First off is just I think in prepared comments, you mentioned that you're expecting the cover rate improve with the new leach pad. Can you remind me what the targeted recovery rate is, what that had in place?

The expected recovery out of the ore, Marigold from where it coming out of the pits is around 73% to 74% as stated in the 43-101. The comment around the recovery rate is because it's so close to plastic, because it will be the first lift, it's more of a timing issue. So, I see the gold come out of the heap faster. So, it's not the recovery percentage, it's the speed of which will come.

And then secondly, if I look at the grades, the ore that was placed in the first quarter of 0.59 and I go back to what Marigold's done in the past, it seems like you're probably going to come in somewhere around 40,000 ounces in the second quarter. So with the mining plan, are you expecting the grades to maybe fall bit more or not grades, but grades fall in second quarter and then production to come down a bit more in third quarter before recovering, because if I just look at where it's trending now, it's seems like you guys are going to be at the high-end of guidance or even better than that if grades remain at these levels.

You're about right. I mean as we come into the top of the next phase, typically we see lower grade material at the top of the phase and that grade gets better as we go down with that. And hence the comments we've made about Q2, Q3 will be more in line with average type quarterly productions and then a Q4 production will be higher again as we come into the deeper higher grade at the bottom of that next phase which is an exact copy of what happened in the first three quarters we had the mine last year, but to a less volatile effect. We've managed to plan the mine to take some of that volatility out of it and get a smoother production on this year than we had last year.

Thank you. Our next question comes from John Tumazos of John Tumazos Very Independent Research. Your line is now open.

Following up on the first question, did you say your mining costs per tonne of $1.57 at Marigold in the coming quarters would rise, fall or stay the same? And then concerning the exploration opportunities at Pirquitas, would you put more capital into the mine to develop them or could you use this is an opportunity to draw in a partner, which might give you an opportunity to take capital out of Argentina in effect?

I'll let Alan speak about the cost per tonne but just as a run into it. I mean the cost per tonne is what this mine is all about. And what Alan and his team do is really drive hard to make sure we move that to the lowest cost per tonne. So that $1.57 is indication of we've broken the $1.60, we keep pushing down. And that's really where the focus on this operational excellence is can we get it at the lowest, lowest cost per tonne move. Alan, I don't know if you have anything to add?

No, that's correct. We got to the $1.57 in Q1, there was some help for fuel price so, really depends where you believe fuel prices are again to going forward. But we're focused on all other aspects of how we can drive that cost down. I mentioned the hot shift change that we think stole the site and the increases we've seen from that and that's even going for three months. So, there is potentially more improvements there. There is the work with the 19th truck that will come up this quarter that will obviously allow us to retire some of the more expensive operating pieces of gear. And all of those source of things whether it's drills, loading, cooling, every area of the operation is on the scrutiny to get every cent out of the mining cost that we can to keep driving down our costs.

John, just to answer your question around Pirquitas and the exploration and underground; I mean clearly what we're doing there is drilling that out to understand exactly what's there and exactly what's possible as part of our component to extend the life of Pirquitas. The way that we've been able to drive down cost, get that business in shape, I think it's testament to our team down there. So we see this as one element of building out the future for Pirquitas.

In terms of is that -- would you do joint venture, would you sell whatever, those are decisions we make at the time with opportunity but for us, we're just looking at how do we extend life, add value that mix sense for us and shareholders. And we'll just keep driving hard on that.

Thank you. Our next question comes from [Nicolas Betsy] a private investor. Your line is now open.

Just a quick question; has there been any consideration or discussion regarding dividend policies on -- in your company seeing as you're profitable now and hopefully the price of silver will be moving forward from here. Thank you.

Look, as a mining company, our ultimate aim is to get to that position where we generate enough operating cash flow that we can invest in our business and keep that going and clearly the time of shareholders.

I think we're in a steep just now having come out from being a pure exploration company, a pure exploration play, we started out Pirquitas, we've got another mine going at Marigold and clearly now we're getting to the position of free cash flowing at a corporate level. I think there is another stage there that we need to go to, to build our business before we get to that stable platform. So, in short, I think for just note, we're not capable to pay dividends out of our free cash flow. But as we're trying to drive strategy to the business, absolutely that's part of our strategy.

Thank you. There are no further questions at this time. I'll turn the call back to Mr. Smith.

So, today we have our annual general meeting at the Terminal City Club here in Vancouver at the 2:00 pm. So, I welcome to any of you who wish to attend. Other than that, thank you everybody for participating and have a great day.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the program.