SSR Mining Inc (SSRM) 2016 Q1 法說會逐字稿

Good day, everyone. Welcome to the Silver Standard's first-quarter 2016 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 Stacey Pavlova, Manager, Investor Relations.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to Silver Standard's first-quarter 2016 conference call during which we will provide an update on our business and 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 is an online webcast, and you will find information to access the webcast in our news release relating to this call.

All figures discussed during the call are in US dollars unless otherwise indicated. All references to cash costs and all-in sustaining costs are per payable ounce of metal sold. We will be making forward statements -- forward-looking statements today, so please read the disclosures in the relevant documents.

Joining us on the call this morning are Paul Benson, President and CEO; Greg Martin, our CFO; Alan Pangbourne, COO; and Carl Edmunds, Chief Geologist. Also present are John DeCooman, Vice President, Business Development and Strategy; and Kelly Stark-Anderson, our Vice President, Legal and Corporate Secretary.

Now I would like to turn the call over to Paul for opening remarks.

Thanks, Stacey. Good morning, ladies and gentlemen. I am very pleased to welcome you to our call to cover not only our strong Q1 performance, but also to discuss our progress to date on delivering a strong year for the Company.

Our two mines continue to perform well. We had a good quarter at Marigold with over 50,000 ounces of gold produced, with cash costs lower than Q4 2015 of $719 an ounce, and the mine is well-positioned for Q2.

More importantly, from my perspective, is the continued operational improvement at the mine, with mining costs dropping 6% to $1.45 per tonne. The three additional 300 tonne trucks we announced early in Q1 were commissioned ahead of schedule in early Q2. We have already seen their impact as the daily tonnage mine has increased, which should lead to further productivity improvements in Q2.

It is also worth noting that early in the quarter, we improved Marigold's production and cost guidance reflecting the impact of the three trucks. Pirquitas had an excellent quarter with 2.6 million ounces of silver produced, slightly ahead of Q4 2015. We also saw the full benefit of the recent peso devaluation reflected in cash costs falling more than 18% to a record low of $8.93 per ounce.

The strong operating performance and the devaluation have prompted us to lower Pirquitas annual cost guidance. Overall, our consolidated total gold equivalent production in Q1 was 84,000 ounces with all-in sustaining costs of $859 an ounce, which allowed us to increase our cash position to [$218 million], even after investing in exploration and (technical difficulty).

In addition to this, our holdings of marketable securities, which predominantly reflect our near-10% interest in Pretium Resources, stood at $95 million at March 31. It is worth noting that due to the recent increases in equity prices, these were valued at approximately $140 million as at May 11.

Carl will discuss our exploration results at Marigold. Unlike last year, where our focus was solely on resource discovery, this year we're also undertaking infill drilling, which we expect will enable us to convert resources to reserves at year-end. In Argentina, where we had the option to earn a 75% interest in the Chinchillas project, our partner, Golden Arrow Resources, released an updated mineral resource statement in early April.

We now expect to complete the relevant engineering studies to determine the economic viability of Chinchillas as a satellite mine to feed the Pirquitas plant, extending the life of that operation into the next decade. At this stage, we expect to be able to make a decision as to whether we exercise the option to move forward with the project in the fourth quarter of this year.

Obviously, the most important event during the quarter was the announcement of our acquisition of Claude Resources. The transaction will bring Claude's high-grade CB operation into our portfolio, positioning Silver Standard as an intermediate producer with scale and margin. The pro forma company would have production of approximately 400,000 gold equivalent ounces in 2016, with highly prospective ground at each of our operations, and a very strong balance sheet that will enable us to pursue internal and external value-adding growth opportunities.

Subject to shareholder approvals on May 18, we look forward to integrating the CB operation into our Company, introducing our operational excellence programs, and continuing to advance the exploration activities.

With that, I will turn the call over to Alan, who will discuss our operational performance in more detail.

Thank you, Paul. Today I will discuss the quarterly results for both of our operations. At Marigold, we had a strong start to the year in Q1, and are on track to meet our increased guidance for 2016. We produced, as expected, 50,520 ounces, with cash costs lower than Q4 at $719 per ounce, as we continue to see the impact of our operational excellence program.

During the quarter, we moved to 17.3 million tonnes, slightly lower than Q4, primarily due to weather impacts and the longer hauls associated with the additional ore being placed on the leach pads. By March, we were able to return to the expected mining rates, and in April, we completed the commissioning of the three additional 300 tonne class trucks.

The impact of these trucks is already being seen at site with approximately a 13% increase in daily tonnage movement. Q1's mining costs at $1.45 per tonne moved continued the downward trend from the previous quarter and resulted in a 6% reduction in unit costs.

$1.45 per tonne is the lowest mining cost for Marigold since Q4 2010. And we expect this trend to continue in Q2 as the impact of the additional trucks is realized. To put this into context, on an annual basis, the reduction in costs from $1.54 in Q4 to $1.45 in Q1 would be the equivalent to $7.2 million in annual savings or $36 per ounce produced.

During the quarter, we continued to see a positive reconciliation on each production bench, resulting in increased ore tonnage when compared to the 43-101 Report. And the additional ore led to a continued reduction in the strip ratio, which this quarter dropped to 2 to 1.

Construction of the next leach pad was commenced in late Q1 on schedule, and is expected to be completed in Q3, with benefits being seen in the last quarter of 2016. So, at Marigold, a strong start to the year. We delivered, as expected, gold production with lower mining costs, and expect to continue in Q2 as we realize the impact of the additional trucks that started up ahead of schedule and are already showing very positive impacts on production.

Moving on to Pirquitas where we produced 2.6 million ounces of silver, slightly ahead of Q4 and in line to meet our guidance. On the cost side, we also saw the first full quarter since the peso devaluation, which, combined with other operational and cost improvements, led to a record low cash cost of $8.93 per ounce, a reduction of over 18%.

Q1 saw the total tonnage mine continue to drop as the pit became deeper and the holes longer. However, we continue to mine more ore and the strip ratio continued to decline. The impact of this additional ore and some metallurgical testing that has been conducted on some older stock pile material now leads us to believe that the mining operations will continue until late in Q4, and the plant will continue to process stockpiled ore until late in 2017.

In the process plant, we maintained the improved performance, with silver feed grades increasing, and recoveries continuing at similar levels to previous quarters. Milling rates continue to rise in Q1, and we milled at an average rate of 4,590 tonnes per day, a record processing rate for Pirquitas.

A detailed economic review of the concentrate production was completed and it was decided that at current zinc feed grades, increasing silver recovery to the silver con, combined with better payability for silver, was more attractive than producing a zinc concentrate. Therefore, zinc production was ceased.

The zinc circuit only operated for 21 days during the period. We will reevaluate zinc production when zinc feed grades recover, as we start processing stockpiled ore in late Q4 or early 2017.

Moving on to cost, cash costs at Pirquitas reduced significantly in Q1 to $8.93 per ounce, a reduction of more than $2 an ounce. This was due to several factors, with the largest impact being the significant devaluation that occurred late in 2015. Operational improvements and cost control measures also added to the cost reduction, such as lowering total mining volumes, higher plant throughput, and higher silver production.

It should also be noted that in April, we completed the annual wage negotiations with the Union. The negotiations were concluded without any impact or interruption to the operations. So, Pirquitas started the year strongly, producing 2.6 million ounces, which included a record monthly production in March of over 1 million ounces at the lowest unit cost we've seen in the history of the operation.

I would now like to make a few comments on the Claude acquisition. Several members of my team and I have visited the site over the last few months, and we're looking forward to integrating these assets into Silver Standard. We have been impressed with their safety culture, the development and ramp-up of the Santoy Gap deposit, and the potential of these operations.

We plan to use the same operating -- operational excellence process that we have successfully employed at both Pirquitas and Marigold, and I look forward to outlining the possible improvements in future calls.

So, in summary, as I said at the beginning, both operations started the year strongly, and remain on track to achieve both cost and production guidance. And I look forward to working with the CB team this quarter.

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

Thank you, Alan. During the first quarter, the Company's exploration efforts remained focused in our mine districts, plus we stepped up activities in greenfield areas by completing an option agreement on a promising land package in Inyo County, California. At Marigold, our main objectives centered on resource to reserve conversion and to identify additional resources in and around existing reserve areas.

During the quarter, we drilled 11,860 meters and 54 RC holes, the results of which were released earlier this week. 13 holes were completed on the Terry Zone North for the quarter, and highlighted results include 75 meters grading 0.88 grams per tonne gold and 37 meters grading 1.16 grams per tonne gold in holes MR6188 and MR6195, respectively.

These holes and others completed in the period improved the high-grade structural definition, which increases the grade and the likelihood that resources will convert to reserves. At HideOut, we drilled 23 holes at 8 South extension and -- we drilled five holes at 8 South extension, sorry, while another 13 holes tested the mineralized stockpile.

Highlights at HideOut are 29 meters at 1.3 grams per tonne and 46 meters of 0.9 grams per tonne in holes MR6186 and MR6197, respectively. Another valuable contribution towards reserves addition comes from the assay program that we initiated last year. This activity will continue through 2016 and, to date, we have received results for 25,500 samples. Results to date are broadly in line with what we achieved in 2015, and we anticipate having this task completed by the end of the first-half of this year.

On the adjacent Valmy property, we carry an inferred resource of 300,000 ounces, grading half a tonne -- or, sorry, half a gram per tonne gold. In Q2, subject to permitting, we plan resource to reserve conversion drilling plus drill testing several near-surface targets to increase resources.

In Argentina, we have an option agreement with Golden Arrow Resources to advance their Chinchillas project located 30 kilometers from the mine at Pirquitas. Here we spent $2.4 million in the first quarter on resource drilling and geotechnical, hydrological, metallurgical and environmental studies, along with continuing community engagement programs.

By the end of the first quarter, together with Golden Arrow, we had completed 15,142 meters of diamond drilling in 115 core holes to upgrade the resources at the project. The results from these programs have been reported in Golden Arrow's press releases published during the quarter.

Regarding greenfields growth initiatives, on March 31, we announced the signing of an option agreement to acquire 100% of a prospective land package of nearly 5,800 hectares located in California. The Perdito property is an exciting prospect, as it shows geological characteristics consistent with Carlin-type gold deposits, and importantly, it has not received much exploration activity since the late 1990's.

This area of the state permits mining, demonstrated by the development and operation of the Briggs and Soledad Mountain mines over the last five years. We like the exploration opportunity presented by Perdito, and have budgeted $1.5 million to confirm and expand upon previous drilling that achieved results as high as 99 meters of 1.02 grams per tonne gold starting from surface. A plan of operations to drill 3,000 meters in 10 to 14 holes has already been submitted to the regulatory authorities, and we continue field investigations.

Finally, we are keen to see the closure of the Claude acquisition, which brings approximately 23,000 hectares of perspective underexplored greenstone terrain into the Company. We consider the exploration potential to be excellent, as evidenced by the productivity of the Proterozoic rocks elsewhere in North America -- for instance, the Homestake Mine in South Dakota -- and by Claude's success in 2011 with the Santoy Gap discovery. I look forward to working with the team in place at CB to realize the resource potential of the district.

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

Thanks, Carl. I am pleased to be able to discuss a strong start to the year for Silver Standard, as we reported another quarter of free cash flow and adjusted earnings-per-share of $0.11. 84,000 gold equivalent ounces produced at low cash cost of $715 per ounce, and all-in sustaining costs of $859 per ounce drove our strong financial performance in the quarter.

The comparative first quarter of 2015 was a very strong operating quarter at Marigold, with higher metal prices, so results in this quarter are generally below our comparative quarter, but significantly improved on Q3 and Q4 of 2015. And importantly, both of our Marigold and Pirquitas mines contributed to this strong first-quarter.

We reported revenues of $102 million and income from mine operations of $23.3 million, as both mines showed solid cost performance. Corporate spending remained well-contained, with certain Claude due diligence activities elevating exploration and evaluation marginally.

Reported tax expense in the quarter, a significant portion of which was deferred tax, remained elevated due to the strong earnings in the US. As a result of this strong revenue and cost performance, we reported adjusted earnings of $9 million or $0.11 per share.

Cash flow generation in the quarter was solid, with reported cash from operations of $12.7 million. This was after our non-cash working capital build of $11.4 million, and Q1 also includes payment of interest on our convertible notes, which happen semiannually.

So, before non-cash working capital, cash from operations was $24 million. Excluding any effects from Claude Resources, working capital should normalize as we move through the year, generating a positive cash impact in future quarters.

We had another quarter of free cash flow generation, as our cash balance increased by $5.8 million to $218 million at quarter-end, and up $42 million year-on-year. A better measure to reflect the success of the quarter was the improvement in our net working capital position by $14 million to $355 million at quarter-end.

And post-quarter-end, we have seen further improvements to our working capital and outlook, with metal prices trending stronger, and our portfolio of marketable securities increasing in value to currently approximately $140 million.

Disciplined operating performance, production to plan, the decline in the Argentine peso, and lower diesel prices, all contributed to driving costs favorably within our guidance. As a result of our good Q1 at Pirquitas, and in light of the positive outlook for operations at the mine, we are reducing our cash cost guidance at Pirquitas by $1 per ounce to between $9.50 and $11.50 per payable ounce sold.

The balance of our guidance remains unchanged. However, I do remind you that in February, we increased Marigold's production guidance by 10,000 ounces to between 200,000 ounces and 210,000 ounces, and reduced its cash cost guidance by $25 per ounce to between $690 and $740 per ounce.

We are on track for capital spend, but due to sequencing of the start of the leach pad build at Marigold and payment on the haul trucks, we do expect the middle two quarters to have a higher capital spend intensity, so please consider that in your outlook.

Finally, assuming successful shareholder votes, I look forward to the integration of Claude's results into ours starting late in Q2, and discussing those with you next quarter. In these market conditions with the higher metal prices we are seeing, the acquisition makes for a strong pro forma business, with an exceptional liquidity position that puts us in great situation to continue to differentiate Silver Standard.

So, with those comments, I will turn the call back to Paul to wrap things up.

Thanks, Greg. The most notable event for the quarter was the announcement in March of the acquisition of Claude Resources. This is another strategic step to position Silver Standard as a high-quality intermediate precious metals producer. Upon closing, the combined Company would have gold equivalent production in the order of 400,000 ounces in 2016 and a market cap of around $1 billion at today's equity prices.

Importantly, the combined Company will have an exceptionally strong balance sheet, aided in part by Claude's near-record first-quarter production and strong financial results that were announced last week. This financial flexibility enables us to continue pursuing internal and external growth opportunities.

The closing of the deal requires positive votes by the shareholders of Claude Resources and Silver Standard at meetings being held next week on May 18. Pleasingly, we had very strong support during our recent marketing of the transaction, along with both major proxy advisors having recommended voting in favor of the respective Company resolutions.

In summary, this was a strong quarter for the Company, with solid production and excellent cost performance that positions us well in 2016 and amongst our peer group. We continue to focus on operational excellence and have already seen the impact of the additional 300 tonne haul trucks at Marigold during the second quarter.

Exploration activities progressed well at both operations, demonstrating our ability to invest in the future growth of the Company while still increasing our cash position and strengthening our balance sheet. For the remainder of 2016, we expect strong operating delivery and safe production at low cash cost, and we will integrate the higher-grade, higher-margin CB operations into our portfolio, with an eye towards productivity improvements that maximize the value of our assets and maintain our financial strength for continued growth.

With this, our formal presentation concludes. And I will pass the line over to the operator to take any questions you might have.

(Operator Instructions). Jessica Fung, BMO Capital Markets.

Very good quarter. Question at Pirquitas. How much do you guys have stockpiled currently? And what do the grades look like on average?

Thanks, Jessica. I will pass it over to Alan to answer first.

As I'd mentioned in the call, Jessica, we have got at least a year's worth of feed in stockpiles on the surface that we know are treatable and give reasonable metallurgical recovery. That's why we ran a test recently just to make sure that they hadn't oxidized, as they have been sitting on the surface.

So, we are reasonably confident that we have got a year's worth of material that makes sense at the metal prices at the moment. And we will be looking at processing that as we complete the pit.

In terms of processing, what rate would you be looking at to do that next year?

The processing rate will be very similar to the current processing rates, as we are running the mill to its maximum limit.

Okay. Perfect. And then you guys also mentioned a deeper pit at Pirquitas. How does that extend your mine life? And what could that potentially mean in terms of going underground?

I think, as we have mentioned before, the underground option is very dependent on what happens with Chinchillas. As far as deepening the pit goes, it is really to do with slight increases in angles and being able to run smaller trucks at the bottom in quite a tight bench configuration for the last few benches. So the impacts are more in the line of high-grade material in the last couple of benches and -- but lower production. And that will be augmented as we move into the stockpiled material.

Okay, perfect. And then just a quick question on Marigold as well. Can you give us some guidance in terms of what you think the stripping is going to look like over the next few quarters?

Me again, apparently? (laughter) The stripping over the next few quarters, it varies quarter-on-quarter, specifically dependent on where we have the big shovel and what it is in. And as we have been getting more ore in these early quarters, as you know, it can be quite cyclical, and we do have plans that the large shovel will move back up into the next pushback, which obviously starts off with large volumes of waste. So the strip ratio will probably come up slightly before we get back into ore again, and then it will come back down again as has been typical over the last year or two.

Okay, perfect. Thanks so much, Alan.

Thanks, Jessica.

Chris Terry, Deutsche Bank.

So, well-done on a good quarter. A few questions for me. Just on the benefit you're getting from the peso in Argentina, can you just remind us of your total cost base, what the exposure to the peso is, just so we can think about that going forward?

Greg?

Yes. Chris, thanks for your question. As you recall, we saw a significant devaluation in the peso late in 2015, which had a positive impact particularly here in the first quarter. Our cost structure in Argentina is about 50% -- just over 50% peso-based, so that would be the kind of sensitivity that we would be looking at as we see the peso move and local cost inflation continue to flow through, as we move through the year.

Okay, thanks for that. And then I know you have mentioned a lot about whether the San Miguel underground might fit in with Chinchillas trucking option, but if you were to, say, hedge the peso at today's rates, does that make a big difference on how the underground might look on its own?

Let me answer that first. The geometry of the underground is such that you can't keep the mill full, so the mill runs, say, at about 4,000 tonnes a day. From an underground on its own, we would probably get 400 tonnes a day. We're trying to be selective in mining.

So, we look at it as only being considered if Chinchillas goes ahead sequentially. If Chinchillas goes ahead, then we revisit the underground. If it doesn't -- if Chinchillas doesn't go ahead, then we can't keep the mill full with the underground.

Okay. Thanks for the color on that. And then I think you have probably gone through this, but just after a little bit more detail, on the re-assay program, so that ends about midyear, so as you have gone through that, have you got roughly the same positive reconciliation over the whole time? Or is that diminishing over time?

No, it is more or less similar to the numbers we put out last year we have said in line. Just because of the sequencing of how you do the assays, you can't do a quarter-on-quarter saying exactly this is how much additional material at this grade. So, we will do an update once we finish the program. And, as Carl said, we expect that around midyear.

Okay. And in terms of your actual reserves/resources at Marigold, that would still wait until early 2017 to be released?

Yes, yes. Unless there was something extraordinary, it does makes sense to complete all the drilling. We will only get into Valmy maybe towards the end of this quarter, but in the second-half. And so it makes sense to get all those results in and just update as per schedule.

Okay, thanks very much, Paul. Appreciate it.

(Operator Instructions). James Steels, Scotiabank.

I saw about $3 million of cash taxes were paid during the quarter. I recognize there is going to be lots of moving parts with the consolidation of Claude next quarter, but could you give us any idea of how much tax you are thinking you might pay for the rest of the year?

I will gladly pass that one over to Greg.

So, as you said, there is certainly a number of factors that will come into play. And to begin with, I would caution relying too heavily on any single quarter. Tax expense is really something that is more relevant when you look at the year in its entirety. And there will be variations quarter-to-quarter.

Right now on a cash basis, as I mentioned in the script, principally, that is a US issue, so we had to make installment payments, both in terms of income tax and also in terms of Nevada net proceeds tax in the quarter. As we see silver prices -- or sorry, metal prices continue to improve, we then have to effectively top up some of those installments through the year as we update our estimates of where we expect us to be on a cash tax basis, both in an income basis and a state tax basis.

So, we will continue to do that. Overall, the Nevada rate is a 5% rate and the state rate is 35%, so we would be somewhere in the 35% to 40% rate on a US income basis. As you talk about with Claude, we expect that to be somewhere around the Canadian rate, which is 26%.

So, we have guided previously that we expect our all-in tax rate to be in that 35% range, and that would be consistent with where we would expect it to be. Some of the points that result in quarterly variation, we do have some deferred tax assets that we are just not -- we are not able to recognize because of our current outlook of future taxable income, principally in Argentina and currently in Canada.

As, again, we see metal prices change, that may give us some opportunity to recognize some of those deferred tax assets and bring our tax expense in line with those rates that I just discussed.

Perfect. That's really helpful. Thank you.

This concludes the question-and-answer session. I will turn the call back to Mr. Benson.

Excellent. Thanks, operator. Thanks, everyone, for participating on the call today. Have a good day.

This concludes the conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.