SSR Mining Inc (SSRM) 2019 Q1 法說會逐字稿

Good morning, everyone, and welcome to SSR Mining's First Quarter 2019 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 SSR Mining's First Quarter 2019 Conference Call, during which we will 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 is an online webcast, and you will find the information to access the webcast in our news release relating to this call.

Please note that all figures discussed during the call are in U.S. 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-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; Kevin O'Kane, COO; and Carl Edmunds, Vice President, Exploration. Also present is John DeCooman, Senior Vice President, Business Development and Strategy.

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

Thank you, Stacey. Good morning, ladies and gentlemen. I'm very pleased to welcome you to our call to discuss our first quarter 2019 operating and financial results.

We're off to a very strong start for the year, as we produced over 112,000 gold equivalent ounces, a new record for the company, and all 3 operations delivered solid performance.

At Seabee, we delivered record quarterly production of over 31,000 ounces of gold, an over 50% increase quarter-on-quarter. It's worth noting that we had another quarter of increase in mill throughput, with further increases expected in the second half of the year, in line with our goal of achieving 1,050 tonnes per day of mill throughput for 2019. At Marigold, we produced over 53,000 ounces of gold despite some challenging weather conditions, setting up the mine well for the remainder of the year. At Puna, we doubled silver production quarter-on-quarter to 2.4 million ounces, as we benefited from a full quarter of processing ore from the Chinchillas mine after declaring commercial production on December 1 last year. As ramp-up of the Chinchillas mine was substantially completed in the first quarter on budget, we are now focused on achieving steady-state production.

So overall, I'm pleased with the solid results delivered by each operation. From an exploration perspective, as Carl will speak to shortly, our 2019 programs at Marigold, Seabee and Puna are underway, and we look forward to providing results as the year progresses.

We are also pleased with our financial performance during the quarter. In March, we completed our $230 million convertible notes offering to refinance a portion of our existing 2013 convertible notes, and Greg will provide additional color on this later in the call. We generated positive income from all 3 operations and ended the quarter with $17 million of adjusted attributable net income. Our cash balance increased to $461 million, so all in all an improving financial result.

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

Thank you, Paul.

As you heard, we had a solid performance in Q1 2019. Importantly, our safety performance was excellent, with only one recordable injury during the period. We also achieved near-record production of more than 112,000 gold equivalent ounces, a 27% increase over Q4 2018 at lower consolidated cash costs of $712 per gold equivalent ounce.

At Marigold, we produced 53,151 ounces of gold at cash costs of $812 per ounce. There were some impacts on production and mine movement from wet weather conditions during the quarter. This will not affect our full year results. During Q1, we moved 17.3 million tonnes of material, a 2% increase compared to the fourth quarter of 2018. We commenced mining the next phase of the Mackay pit, which resulted in shorter haul distances that offset weather events from earlier in the quarter. The mine grade in the quarter was 0.34 grams per tonne. We expect this to increase through the year.

Looking ahead, we remain confident on delivering guidance again due to improving gold grades, material movement rates and leach pad capacity.

Moving on to Seabee. The site's performance for the quarter was exceptional, achieving strong results during a historically busy quarter of the year due to the operation of the annual ice road in February and March. This year, we transported a record 542 truckloads across the ice road compared to typical annual averages of 400 loads. This was due to our increasing operational needs as well as the mobilization of equipment and consumables required for the tailings facility expansion project that has now commenced.

For the quarter, Seabee produced a record 31,183 ounces primarily due to timing of gold pours and higher mill throughput. Cash costs were $467 per ounce compared to $502 per ounce in Q4 2018. Mill throughput increased to 1,008 tonnes per day, reflecting continued improvement of the mining rates at the Santoy mine. It's important to note that 2 new scoops and 2 new underground haul trucks were purchased and delivered over the ice road at the end of Q1. These additions, along with the impact of our operational excellence improvement projects, will facilitate our goal of reaching 1,050 tonnes per day for 2019.

As previously reported, given the strong exploration results since our acquisition in 2016, we are investing in an expansion of tailings capacity in excess of that contemplated in the 2017 PEA. This project was approved at the end of 2018, and the contractor is fully mobilized to site, with field activities commencing at the end of March.

At Puna Operations, ramp-up of the Chinchillas mine was substantially completed during the quarter on budget. Total material mined from the Chinchillas open pit increased significantly compared to the previous quarter, almost 3x higher.

Silver production was 2.4 million ounces for the quarter, a significant increase relative to the fourth quarter of 2018 mainly due to higher silver mill feed grade and recovery from ore sources exclusive from the Chinchillas mine. Silver sales totaled 0.9 million ounces as concentrate shipments ramped up through the quarter. Subsequent to quarter end, we have entered into annual contracts for all our -- all of our expected 2019 concentrate tonnage.

Ore was milled at an average of 3,830 tonnes per day, a 3% increase compared to the previous quarter. Processed ore in the quarter contained an average silver grade of 235 grams per tonne, a 77% increase compared to the fourth quarter of 2018. The average silver recovery was 91.7%, as expected for the ore grade fed to the plant. Metallurgical recoveries of silver, lead and zinc are expected to be variable until we achieve steady state. The higher strip ratio during the quarter reflects stripping of the next pushback while processing previously stockpiled ore. The strip ratio will decrease through the second half of the year.

The new tailings pump system at the Pirquitas plant was completed during the quarter and was transferred to the operations group during the first part of April.

Cash costs were $9.94 per ounce of silver compared to $15.02 per ounce of silver for Q4 2018, reflecting the higher-grade Chinchillas ore fed to the plant during the period and the higher byproduct credits.

So in summary, all of our operations delivered solid production and cost performance during the quarter. We continue our focus on safe production and the stabilization of operations at Puna while looking at organic growth opportunities at Marigold and Seabee.

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

Thank you, Kevin.

For 2019, our objectives at Marigold are resource conversion at Red Dot; and exploration for new resources, north and south of Red Dot, and at Mackay and Valmy. The objectives at Seabee are similar, with the focus on resource conversion at 8A, Gap and Gap hanging wall; and with resource growth drilling also at Gap hanging wall. Greenfields activities continue at Fisher and select areas south of the Santoy mine.

At Marigold, we completed approximately 23,000 meters of drilling in 70 holes on areas north and south of Red Dot as well as within the Mackay pit. To evaluate the conversion of the Red Dot resource, we completed 12 core holes totaling 4,900 meters for geotechnical and QA/QC purposes. During the quarter, results were received from 40 RC holes, with 29 reporting resource grade intercepts. Some notable gold intercepts include 53 meters of 2.85 grams per tonne from 372 meters at North Red Dot and 15 meters of 2.1 grams per tonne gold from 5 meters at Mackay.

At the Seabee Gold Operation, underground drilling amounted to approximately 12,600 meters, while surface drilling totaled nearly 15,600 meters on resource extension and conversion work at 8A, Gap hanging wall and Santoy Gap. Several Gap hanging wall holes intersected visible gold, particularly the near-surface holes targeting the up-plunge extension of the structure. Notable results from this area outside of the current resource include 4.9 meters of 12.95 grams per tonne and 4.2 meters of 13.7 grams per tonne gold.

Greenfields drilling activity at Seabee included 4 holes for a total of 1,000 meters at a target called Batman Lake located approximately 800 meters south of Santoy, where 2 holes with quartz staining, alteration and gold mineralization returned anomalous results up to 1.5 meters of 6.3 grams per tonne gold. We view this as an encouraging result and plan further work at this target.

At Fisher, by quarter's end, we have completed 20 holes for just over 7,600 meters on the Mac, DD and Footprint targets. Although the majority of the analytical work is still pending, we encountered several occurrences of visible gold at the Mac north target, where we intercepted 4.2 meters of 3.5 grams per tonne gold. We view this intercept as encouraging and plan follow-up work in the summer.

Finally, at Puna Operations we received drill permits for a 3,000-meter core drilling program, which will test the at-depth intersection of the Potosi vein and the Cortaderas vein breccia, so we anticipate initiating that work in the second quarter.

We look forward to updating you on our exploration efforts throughout the year. And now over to Greg for a discussion of our financial results.

Thanks, Carl.

Overall, I feel positive on the quarter. We saw our financial results improve as strong production across the portfolio drove our financial performance. The expectations we highlighted last quarter of concentrate sales lagging production and a quarterly working capital build played out as expected. While these temporary items reduced free cash flow for the quarter, we are set up well going forward.

For the quarter, we generated revenues of $126 million, representing a 21% increase over the fourth quarter of 2018 and a 29% increase over the comparative period. Income from mine operations increased to $30.2 million, which was also an increase of over 80% from the fourth quarter. It was great to see Puna Operations return to a positive mine operating earnings position to complement the strong results of Marigold and Seabee.

G&A and exploration were on track, as were financing expenses and income.

We recorded a $5.4 million pretax noncash loss on the repurchase of approximately $150 million of our 213 convertible notes -- sorry, 2013 convertible notes. We repurchased the notes at market value, but since the notes are recorded on our balance sheet at a discounted value and accreted over their life to face value, the difference between these amounts generated a noncash loss on repurchase. I'll speak further on the new note offering shortly.

For the quarter, we generated net income of $5.7 million, an $8 million increase from the fourth quarter, so net income reflected the improved operating margin. Adjusted net income totaled $17.2 million or $0.14 per share, a strong result which better reflects our performance and almost 4x the fourth quarter.

We similarly saw a significant improvement in cash flow from operations. As discussed at year-end, the first quarter consumes working capital primarily due to Seabee ice road restocking of consumables and delivery of full year capital items. This was compounded in the quarter as Puna concentrate sales ramp-up occurred, but normal lags meant sales were well below production. We generated $43 million of operating cash flow before working capital, moratorium payments, taxes and interests, so the operations continued to deliver strong cash. In the first quarter, we had one of our semiannual interest payments due on our convertible notes and tax payments related to last year's Pretium divestments, both of which I also noted on our fourth quarter call. So I am pleased, considering these seasonal and other impacts, that operating cash flow for the quarter was essentially breakeven.

And capital spending and capitalized development were consistent with guidance, with investments in our operating assets totaling $25 million. As noted, we have a concentration of capital expenditures at Seabee in the quarter, as equipment and materials for all capital projects for the year came in over the ice road. Exploration investments totaled $4 million, as both Marigold and Seabee were pushing exploration hard. We also invested $6 million in Chinchillas as infrastructure components of the project were completed or advanced. Before financing activities, we used $34 million of cash during the quarter. Remaining capital expenditures within the Chinchillas project budget are expected to be spent during the second quarter.

Clearly, a significant event for us in the quarter was the refinancing of our 2013 convertible notes, which are puttable back to us at par early in 2020. With the gold market performing well through the first quarter and recognizing cash is a strategic asset, with overall financing markets remaining subdued, we felt it advisable to reset our capital structure and term out our debt for another 7 years. This refinancing gives us certainty as we consider internal and external growth opportunities. Simultaneously with the issuance of $230 million of new notes which have a lower interest rate of 2.5%, we repurchased $150 million of our outstanding 2013 notes.

Once the remainder of the 2013 notes are redeemed, our leverage will be modestly reduced and our cash position will remain strong.

We finished the quarter with $461 million of cash and our working capital position totaled $617 million, continuing to set us apart from our peers in terms of our balance sheet strength.

So a positive start to the year with solid operating performance, financial metrics trending positively and our refinancing completed.

With those comments, I'll now turn the call back to Paul.

Thanks, Greg.

In summary, we are pleased to be off to a solid start to the year, as we delivered strong operating performance and each operation is on track to meet its annual operating guidance. We also repositioned our balance sheet to maintain financial flexibility. Looking ahead for 2019, we will continue to exercise discipline to deliver free cash flow through safe production while pursuing internal and external opportunities to create value for our shareholders.

This concludes the formal remarks of our earnings call. I'll now pass the line to the operator to take any questions you may have.

(Operator Instructions) Our first question comes from Chris Thompson with PI Financial.

You might be on mute, Chris.

Yes. Sorry about that, guys. Sorry. I was phoning in from my cellphone. Just a couple of quick questions, some details really on the -- on some -- on Marigold, looking at the mining costs, slightly higher on the quarter, obviously. Do you expect these to come down a little?

Kevin?

Yes. No, thanks for the question, Chris. This is Kevin. We -- as we mine more material through the year, then we will see a natural reduction in the unit cost rates; and some of that additional movement, the results from the higher throughput from the investment we've put into the equipment over the last 12 to 18 months.

All right, yes. That's great. And any sense of how quickly that's going to happen? Can we just dial that back a little bit more into Q2? Are we looking later on in the year?

It's a gradual process and it doesn't come sort of in an even flow. As components get changed out, the rates change in specific jumps or reduce.

And I think that's -- it's dependent quarter-on-quarter on haul distance, which is then -- yes, it's strip ratio, [augers, some] waste. And then also when you -- equipment maintenance and things like that. We don't give quarterly guidance on that.

Yes. No, fair enough. And then just finally, just moving over to Seabee, just similar comment, I guess, on the processing costs. Nice to see the funds, again slightly higher than what we were looking for. Any sense of where you need to go?

We don't see anything any different than we would have provided guidance on previously.

(Operator Instructions) Our next question comes from Adam Graf with B. Riley.

Congratulations, guys. Just a quick question on the Chinchillas grades and recoveries. To meet your full year guidance, it looks like zinc grades and recoveries have to both ramp up quite strongly here through the remainder of the year to make your full year guidance, to -- and on a grade level to levels significantly above reserves. What -- can you give us some color here on how you expect the grades and recoveries to evolve there through the rest of the year?

Yes. Zinc is a minor product tier. We are definitely not driving the mine plan by that. You've seen in the first quarter the significantly higher grade in the silver. Zinc was down but with -- the mine plan is always optimizing the main revenue streams, which is [only] silver then lead. So if zinc is down, we're not losing any sleep over it. And we'll optimize the plan on the lead and zinc -- lead and silver.

And -- okay. So no kind of guidance here on how the full year numbers are going to shake out there, if you're going to -- if you're still holding the guidance.

Yes. At the moment, yes. We look at the total silver equivalent [metal]. At the end of the day, that's the bigger standard that we're driving the operation by.

And are you guys making a separate zinc concentrate, I assume, versus a bulk concentrate? And if you are making a separate zinc concentrate, are those exposed to the zinc spot and the benchmark TC environment which has gone dramatically higher?

Yes. We produce lead con, and most of the silver goes there, which is where you want it to go. That's where you get those payables. And then we produce a separate zinc con. Obviously, as we explained previously and again today, as the operation ramps up, you then start -- you're producing concentrate and then you start to sell that concentrate. It takes a lot before you actually get sales equaling production. That will probably be Q3. But we have set contracts for both products for the year, and the market is what the market is.

So just to follow up. Your contracts that you've set are at benchmarks, or they're just the offtake contracts at spot.

Adam, it's Johnny. The contracts that we have on both of those are with respect to just direct with the smelters, whereby we negotiate. We're -- I wouldn't say we're always price takers, but both concentrates have a very good quality, so we've been able to manage, I think, to have good TC and RC levels relative to the market. But they'll go up and down over time, as Paul referenced.

Our next question is from Mike Parkin with National Bank Financial.

Just a question on the moratorium payments. I noticed in the notes for the financials, you're looking at a little over $4 million as the current and a bit over $11 million or so on noncurrent. Is it fair to assume kind of an equal quarterly payment for this year? And how should we think of it, the $11 million being paid? Is it kind of equally spread over a number of years after this? Or any kind of color would be great.

Yes. Thanks, Mike. And appreciate the question. That moratorium was payable over a 5-year period from when we entered into the moratorium. And it is on an equal basis in peso terms, so it is a peso liability. So it has devalued significantly as we've seen the peso trend, I think when we entered into it, from 16 down to 45 today. So certainly, in U.S. dollar terms, we've seen a significant erosion of that liability. So you can effectively put it in equal payments over the period between now and that end of that 5-year period; and then devalue it by -- in dollar terms, by what your view of the peso will be over that time period.

Okay. That's pretty good color. Can I actually get -- what is the total peso amount owing?

If you go back to the press release, it's got all the details in it. We put that out in 2017 (inaudible)

Yes. We -- you can -- again, you can take the amounts that are on the balance sheet and effectively convert them with the prevailing exchange rates.

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

Thanks very much, operator. Thanks, everyone, for joining the call. Have a great day. Speak to you next quarter.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.