SSR Mining Inc.
Q4 2020 Earnings Call Transcript

Published: 17 Feb 2021

[Operator:]

Good day, everyone and welcome to SSR Mining’s Fourth Quarter and Year End 2020 Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Brian Martin, Investor Relations for SSR Mining. Please go ahead.

[Brian Martin:]

Thank you, operator. Good day, ladies and gentlemen. Welcome to SSR Mining’s fourth quarter and year end 2020 conference call, during which we will provide an update on our business and review of our financial performance. Our Financial Statements and Management Discussion and Analysis have been filed on SEDAR, EDGAR, ASX, 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 this call are in US dollars, unless otherwise indicated. All references to cash costs and all in sustaining costs are per payable ounce of metals sold.

[Rod Antal:]

Thanks, Brian and good afternoon and good morning to you all. 2020 was truly a transformational year for SSR Mining, as we completed the merger and integrated Alacer Gold. We delivered a number of value-enhancing catalysts across our portfolio and successfully navigated the challenges presented by the COVID-19 pandemic. During this period of unprecedented change, we met our 2020 objectives with all four of our operating sites, exiting 2020 with momentum and clearly defined growth initiatives which we’ll touch on later in the presentation. I’m proud to announce, we declared our inaugural quarterly dividend this morning, in line with our recently announced capital returns policy which is designed to maintain balance sheet strength, fund future growth opportunities and return capital to our shareholders. A balance sheet with $457 million in net cash and continuing peer leading free cash flow will allow us to assess additional capital returns in the form of supplemental dividends and/or share buyback programs moving forward. From a growth perspective, we delivered a number of exciting catalysts highlighted by the release of the Copler Technical Report, which demonstrated the scale, quality and long-term value of these assets. The report mainly featured Ardich and was the first step in defining the significant organic growth potential of this world-class asset. We also announced the discovery of C2 copper-gold porphyry intersecting wide mineralization below the Copler pit. This is just another emerging example of the significant and material growth potential within the business. At Marigold and Seabee and across the broader portfolio, we have a number of organic growth and exploration opportunities we expect to highlight as the year progresses. We remain focused on sustaining and growing our business with a goal to demonstrate our organic ability to sustain production of 700,000 to 800,000 gold equivalent ounces for the next five plus years. On this note, we are planning to provide a longer data production guidance to the market later in 2021. Building from our fundamentally strong business, we have an exciting platform to firmly establish SSR as a premier mid-tier gold producer in the sector. And our fourth quarter results clearly demonstrate the strength of the business.

[Greg Martin:]

Thank you. As outlined by Rod, a fantastic final quarter for SSR Mining, with our assets integrated and all operations delivering. We posted impressive financial results which demonstrate the new strength and scale of our business model. While COVID continues to impact on costs and efficiencies, it did not stop our minds from achieving revised guidance. With annual numbers being a blend of pre and post merger results, I’ll focus my comments on the fourth quarter. Revenue for the quarter increased 65% to $371 million as compared to $225 million in the previous quarter. As we benefited from Copler’s contribution for the full quarter combined with sequential improvements at all four assets. Income from mine operations increased 76% quarter-on-quarter to $146.5 million and net income effectively quadrupled from $90 million to $98 million from $25 million in the third quarter. Adjusted net income increased 61% to $109 million or $0.50 per share in this quarter from $68 million in the third quarter. So strong financial momentum across all metrics as SSR resets into a new higher scale peer space. Perhaps the only blemish on the quarter was our results would have been even stronger if ounces sold would have equal ounces produced. Timing of gold pours at year end drove higher carryover of finished goods inventory at our gold assets. And for those of you familiar with the concentrate market, which is how our silver gets sold, you understand the normal lags from restarting concentrate shipments post-COVID closures. Our concentrates in Argentina are generally smelted in Europe or Asia. So shipment cycles are long. Shipments were back to steady state in November. And as a bit of a bonus, we’re selling our concentrates into stronger silver prices to this point in Q1. As I noted on our third quarter call, amortization of fair value adjustments related to acquisition accounting for Alacer will be an ongoing impact to reported income. These items totaled $28 million in the quarter and $49 million for the full year and are identified in our adjusted income table. Also through the fourth quarter, while all less than the third quarter, COVID costs, care and maintenance costs and transaction and integration costs all impacted reported income.

[Stew Beckman:]

Thanks, Greg. Before we move into the mine site summaries, as always, I’ll start with EHS&S, environment health, safety and sustainability. Although COVID remains pervasive, we are managing it at our sites, caring for our people and getting on with business. Marigold and Copler didn’t suffer shutdowns due to the pandemic and both Seabee and Puna had bounced back to full production. Our COVID protocols focus first on protecting our people, contractors and the communities in which we work.

[Rod Antal:]

Well, thanks, Stew, and thanks, Greg. So despite the challenges thrown at us by COVID, our team have done a tremendous job managing our operations, completing the merger, and integration, all while finishing the year with exceptionally strong fourth quarter performance. We declared our inaugural dividend this morning, which highlights the financial strength of our new business at a responsible approach to capital allocation. We will assess the potential for further capital returns to our shareholders in line with our capital allocation policy with our Quarter 1 2020 financial results. In ‘21, we remain focus on creating value for our shareholders, safety and execution, while progressing the many organic high value growth options that we have been highlighted during this presentation. So with that, I’ll pass the line to the operator to take any questions you may have.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Ovais Habib of Scotiabank. Please go ahead.

[Ovais Habib:]

Hi, Rod and team and thanks for taking my questions. Rod, just the first question, again, you’ve touched on asset allocation quite a bit. And you know, talked about share buybacks. And is there you know, obviously, your balance sheet is extremely strong, you’re – you’ve got to be generating a lot of good free cash flow in 2021. You know, and your free cash flow profile is second half weighted? Is this kind of what you’re looking to get over in terms of announcing any sort of a share buyback program? Or is there any other plans in place?

[Rod Antal:]

Thanks, Ovais and look, I’ll answer the question in a slightly long version, because I think it’s important. The capital allocation – policy that we established towards the end of last year was really in three prongs and the, you know, the first part was to maintain the, you know, maintain and strengthen the balance sheet to you know, ensure we continue with our debt management and other needs of the business. Keeping an eye to the future and some of the exciting growth prospects that we have, you know, emerging in the portfolio, in particular, more recently, we want to be able to maintain that strength in that balance sheet to allow us to grow from within our means, so that’s really important to us, and then obviously the last piece is, you know, returning excess cash to shareholders. So the base dividend that kicks it off this morning is the first step in that direction and that’s something that we feel very confident that can sustain through any cycle and so we are really pleased to get that behind us. And then obviously with the you know now we’re already in ‘21 once we complete our Quarter 1 financial results or in conjunction with those Quarter 1 financial results, we’ll start doing the assessment of either supplementing those base dividends with another dividend and/or the other share buyback so it’s not too not too far down the road here, Ovais.

[Ovais Habib:]

Okay. Thanks, Rod just getting antsy here I guess. Just moving on to exploration. You know, definitely focus seems to be in near mine organic opportunities and you’re looking at Copler, Marigold as well as Seabee. What are your plans on Pitarrilla and San Luis, I mean, what – are those assets becoming a little bit non-core or just will remain part of the portfolio? And then, you know, once you do kind of go through your three main assets, then you’ll start looking at those assets as the next in the organic pipeline?

[Rod Antal:]

Yeah, look, no, Ovais, we haven’t made any determinations about no core and non-core, I mean in the portfolio at this stage, where we will go through a process and we’ll continue to do it as normal course business for us to ensure that, you know, we always have a view to managing the portfolio, because you can easily get, you know, in the bad habit of not doing that, and being ruthless and rigorous in those approach. It’s still status quo in terms of San Luis and Pitarrilla in particular and your question and, you know, we’ll continue to work to look at those during 2021. And then, you know, Puna, Puna towards, Ovais, is another question that comes up quite a lot. You know, it’s a great little cash flow generator, and you know particularly with silver prices where they are today, we see that continuing. And this year, we are going to put some money into investing and looking at some of the exploration potential around Puna as well to see what else might exist there. So, you know, at this stage, it’s a bit of a holding pattern, Ovais and really important that we understand the full value of the portfolio. And as time goes on, obviously, those questions will become more front of mine for us.

[Ovais Habib:]

That’s it, Rod. Thanks so much and, again, yeah, thanks for taking my questions.

[Operator:]

Our next question comes from Cosmos Chiu of CIBC. Please go ahead.

[Cosmos Chiu:]

Hi, thanks, Rod and team for the conference call and great to see that you’ve put in the inaugural dividends here. Maybe my first question is on reserves and resources, Rod, you know, great to see that you’ve put into technical report late last year on Copler updating the reserve and resources there. But how about the other deposits, you know, in terms of Marigold and Seabee Santoy? You know, when would we – should we be expecting in terms of a reserve resource update? And on a go-forward basis, should we expect it on an annual basis in terms of, you know, reserve resource updates at the various deposits?

[Stew Beckman:]

Yeah, Cosmos, it’s Stewart here.

[Cosmos Chiu:]

Hi, Stew.

[Stew Beckman:]

So we’d use to do this differentially you know, Alacer used to do it annually. And with the aim, and that’s what we’re going to do going forward. So you’ll see those come out, they’re prepared ready to go. We’re just finalizing them and taking in time at the moment. So you’ll get to see those with the filings at the end of the year, or the year end filings, I should say.

[Cosmos Chiu:]

Okay, so it should be coming out fairly soon like within the month.

[Stew Beckman:]

And we’ll do that regularly in March.

[Cosmos Chiu:]

Okay. Okay. Sounds good. And then, I guess my next question is, you know, in terms of C2, you know, great to see that you’ve made a discovery here. But maybe it’s too early right now, but I’m just trying to, you know, figure out this kind of fits in, you know, you put out the technical report, the Copler master plan late last year. Clearly C2 is not in it yet. But how does it sort of, and kind of fit in, and clearly, you know, it’s a bit different, you know, you’re getting down to the porphyry now, compared to, you know, more the epithermal deposit up at the top. And so it sounds like to me, you’re going to have to put in some infrastructure. However, you know, Stew, as you said, there’s already some infrastructure in place. Could you kind of help me in terms of, you know, try to piece it together how this kind of fits in and potentially could fit in based on what you know, today?

[Rod Antal:]

Because I think the – I’ll just make a point and I let Stew also contribute on this question. In particular, the tech report that we put out for Copler last year, we’re very clear that it was really just the start for that asset in terms of highlighting the full value and the full potential of it. Maybe we did still have constraints around the other drilling around Ardich and so there’ll be more to come. But we have a number of other targets that we’ll pursue around the Copler settle and also within the Copler pit. So it really was just the beginning of the new story for Copler. And then, obviously, on the backside of that we discovered the C2 as well. So, you know, my view is I’m agnostic to discoveries in terms of, you know, whether it’s a gold-copper porphyry or whether it’s a gold discovery only, because of time grind, and that’s the best bang for the buck and the best value for our shareholders. But, you know, it’s definitely exciting. Stew?

[Stew Beckman:]

Yep. So maybe I could just help you how to think about it. So the porphyry deposit, we should, you know, we’re thinking about that as potentially a standalone porphyry, which would carry its own infrastructure. So, you know, a typical concentrator, and that’s the test work that we’re currently undertaking. That said, if, as we do the cutbacks, we would expect to pick up more of the epithermal on the contact at each of the contacts, the gold. We also have the areas that you know that look like they might be very high gold and lower and copper, which may be suitable for the sulfide plant going forward. And one of the things that we have been looking at in the laboratory is, whether or not after we make the, you know, the typical copper concentrate, whether there is any opportunity for us to recover more of the gold into a para concentrate. So, you know, in typical cheerful of fashion, we’ve got lots of opportunities. But if you look at the grade of the, you know, the first holes that we pulled out, you know, the length of those and where they sit and the strike length, you know, if we can get enough volume in the bottom that into the porphyry. You know, it’ll stand well against other porphyry discoveries in the world.

[Cosmos Chiu:]

Great. And then, as you mentioned, Stew, on the grade, you know, the drill intercepts that you’ve put out, they are on a copper equivalent basis. Could you remind me, you know, what’s the split here between copper and gold? And is it really, you know, the economics behind here? Is it really copper-driven?

[Stew Beckman:]

It’s gold-driven about two-thirds gold in value, at this stage for the first four holes that we sold.

[Cosmos Chiu:]

Okay. Okay, I was just wondering, because I guess so why do you, you know, put it out as a copper equivalent grade?

[Stew Beckman:]

Because that’s typically how people look at porphyries.

[Cosmos Chiu:]

Okay.

[Stew Beckman:]

So we were trying to do something to help people to understand it to be able to write it against our porphyries.

[Cosmos Chiu:]

Got you. And then the –

[Stew Beckman:]

As the other thing, you know, with a copper – with a porphyry that tend to be larger volume, lower grades. So, you know, the development of a porphyry would generally mean a larger, you know, a larger throughput concentrator rather the sort of the higher grade, lower tonnes that you see fitting the current Copler facility.

[Cosmos Chiu:]

Got you. Thanks, Stew. Maybe a last – my last question is that is on the 2021 catalysts. You know, as you mentioned at Marigold, you’re looking at ongoing cost reduction, continuous improvement initiatives. Could you maybe, you know, expand on that? You know, I guess, in the past, SSR Mining had talked about, you know, equipment, replacement and Marigold? Is that something that’s being considered, you know, great controlled drilling? enhancements? Is that something that’s been considered, I’m just trying to get a better sense in terms of how you’re going to, you know, get about getting to that, you know, continuous improvement at Marigold?

[Stew Beckman:]

Yeah, so we’ve obviously got a you know quite a program of fleet replacement at Marigold going on at the moment. So the PC 7000s have really started to hit their straps. This year, when we did the original pass of the plan, the plan was showing, you know, the biggest movements that we would have ever seen in the pit. And as part of their caution was, we kept the throughput rate based on the fact that we thought we might see congestion. And we think there’s a real opportunity to start to apply some higher level control over the top of the dispatch, and we’re doing some work, we’ve done some work, we’ve actually got operating within Copler, within the plant, some AI and there’s some advances in similar technology for PID control. So the guys are starting to look at those types of – that type of work, as well as the other type of continuous improvement that we’re always working on. So as part of the merger, we’re going through a process of just redigging that hole improvement space. And we’ve really broken it into two parts. One is continuous improvement, which is that doing good business, you know, doing better at what we do every day, you know, Lean Six Sigma and these programs. The second part we’re doing is, how can we get step change improvement into the business, leveraging off some of this new technology at sort of low cost and to get it into place quickly. So, you know, we’re not looking immediately to automate fleet, but how can we use AI to help us to manage and plan better and allocate resources better.

[Rod Antal:]

When you remember, because America you know increments are really meaningful. So we have some of the work programs will obviously talk about as I get through further advancement this year.

[Stew Beckman:]

Yeah, you know, we’ve been busy reaching out, you know, to all of that network to see how we can advance this. And I have to say, you know, the Marigold team are pretty impressive team. And, you know, always looking for and hungry for these opportunities.

[Cosmos Chiu:]

Yeah, I concur. I was there three years ago, and I was quite impressed by the team out there at Marigold. Maybe my last question here, again, on the 2021 catalysts at Seabee, you mentioned, you know, you’re looking to increase the mining rates to exploit a latent mill capacity here. Again, could you, you know, help me understand elaborate on what you’re trying to do at Seabee Santoy?

[Stew Beckman:]

Yeah, so in the first instance, there’s been a continuous improvement program and increasing lateral development is required at Seabee. Some of that was required just to get the continued go-forward plan, they were also looking at. So we’ve got a couple of jumbos coming in. The same type of things that I was talking about doing at Marigold, we’re looking to implement at Seabee and going forward, this year will be stabilization, getting the lateral development rates up. And, you know, I have to say, implementing sort of continuous improvement work that people well at the end of last year, and sort of started to move consistently at rates that they haven’t moved out before, at the beginning of this year, you know, this far ahead of what the plan has in place for us for lateral movement – lateral rates. So that’s sort of, again, that’s the foundational continuous improvement piece. The other piece that we’re doing is a little bit longer-lived. You know, everybody believes that Seabee is a project that sort of always has four or five years life in front of it. And we’ll have four or five years life in front of it for the next 20 or 30 or 40 years. However, how along we manage to continue to develop the next tranche and bring it on. The question has to be, we put a bit more focus and effort and money into exploration, and we can lift our time horizon a little bit, will we be able to bring some of that other – some of the other mineralization forward and invest in building up the mine capacity to be able to at least meet what the mill can do, and then maybe fully exploit the resource. So you sort of got the immediate, you know, do better at what we’re doing and go faster and a half way that you know is improvement, some sort of innovation. And then the longer-term piece lift the horizon and, you know, can we change the paradigm for Seabee. There’s a lot of work to do to work out whether that’s going to be achievable, but we believe that there’s a pretty good chance that that’s real opportunity.

[Cosmos Chiu:]

Thanks. Thanks for the very thorough answer here. And those are the questions I have. Thanks a lot.

[Operator:]

Our next question comes from Tyler Langton with JP Morgan. Please go ahead.

[Tyler Langton:]

Yeah, good afternoon, and thanks for taking my question. I guess, you know, in general, and I guess oil prices up, diesel prices up or, you know, outside of those, are you seeing sort of just any inflation, whether it’s through labor, materials, equipment that could kind of pressure something for cost targets for the year. And then I guess, one more specifically with Copler maybe you know the flotation circuit, it’s not a huge CapEx spend, but we think just, you know, the PEA case and then the CapEx there over the next, you know, year or so, you know, any uncertain inflationary risks with that?

[Rod Antal:]

Hi, Tyler it’s Rod. I’ll let Greg tackle the most of the questions actually, if not all.

[Greg Martin:]

Yeah, sure. Thanks. Thanks, Tyler. You know, I think we’re still seeing cost pressures to be fairly moderated generally from the labor side, you know where we’re operating, obviously we’re still seeing, you know, generally economic conditions not fully rebounded. So we’re not seeing significant pressures, as you noted, obviously, commodity prices are trending up. So that is an area that we’re monitoring. We’re fairly well protected on the diesel side for 2021. You know, we’re well hedged at both Marigold and Seabee on that pace. So we do have, you know, we do have some protection in on those assets, let’s so at Puna and at Copler. But it does provide a bit of protection against those pieces. So it’s certainly an area we’ll be monitoring. But I would say currently, you know, we’re not seeing significant pressures translate through.

[Tyler Langton:]

Fair enough, that’s helpful. Thanks. And then in terms of just a follow-up on the capital allocation. I mean is there, as you mentioned, you kind of ended the year with, you know, close to $900 million of cash. I mean is there sort of, as you go-forward a minimum level of cash that you want to keep on the balance sheet, just to kind of, you know, provide support for the various sort of projects in expiration you’re looking at?

[Rod Antal:]

Yeah, look, I think it’s a – we sort of take a more holistic view of what all that means to us to all of it. Yes, that’s definitely part of the objective to ensure we have the balance sheet recognizing, you know, we’re in a cyclical business. As quickly as signals go up, we’ve seen more recently, you know, prices come off and ensuring that we have the ability then to, you know, self fund the growth that we have in the pipeline. So that’s definitely part of the, you know, the overall strategy for us. And, you know, obviously, with the current share price weakness, we’ll definitely look more closely at using tools available tools, like an NCIB program for share buyback moving into these quarters, I’m not promising it, but it definitely becomes a key piece of our considerations as we move forward. So it’s really just trying to do it all, you know, recognize the strength of the business, recognize the growth potential and recognize the cash flow generation through the cycles. So and that – this will be well obviously evolving. It’s new, it’s still a new company, and who can teach you to mature our thoughts as we move along.

[Tyler Langton:]

Great, thanks so much.

[Operator:]

Our next question comes from Daniel Morgan with UBS. Please go ahead.

[Daniel Morgan:]

Hi, Rod and team. Two questions, if I may. Firstly, just on Marigold. Can you simplistically talk to when it will hit its sweet spot? I, this year, you’ve got record material movements coming? And I think, Greg, correct me if I’m wrong, this year we’ll still be below reserved grades. So just wondering, you know, when are we going to get that sweet spot where stripping comes off and you get, you know, grade at or above reserve grade?

[Stew Beckman:]

Yeah, it’s not in this year, it’s in the next few years. This year, we’ve got a highest strip ratio. We do get some higher grade at the end of the year when we move to five in to the north. But it’s another stripping year.

[Daniel Morgan:]

Okay. And at Copler, just wondering if you could elaborate on when other shutdowns budgeted for this year. I’m just trying to get my, you know, quarterly numbers, you know, trajectory, right. And, you know, perhaps if you could also call out if there’s any major, you know, seasonal or quarterly changes to production this year that are worthy of note?

[Stew Beckman:]

Yeah, so for this year, we’ve only got one major shutdown on the autoclaves and that’ll be autoclave 1, which will happen right at the end of this quarter at the beginning of next quarter. It will be about three weeks. And then other than that, the big drivers to Copler this year, the grade varies a bit just based on the mine plan. And then the big – the really big overprint is the commissioning of the flotation plant which happens in starting and starting at the beginning of third quarter.

[Rod Antal:]

Dan, let me put our ‘21 guidance, I’ll let Brian or Greg just to give you the exact numbers. We actually did note that the production will be back end rated for the year for some of the reasons Stew did outline, but for other reasons and other operations as well. And I think Greg gave a really good overview of how it also translates into cash generation in 2021. So if you look back at those documents, and if you need anything else, we can always do it offline.

[Daniel Morgan:]

No, that’s perfect. Thanks for your answers.

[Operator:]

Our next question comes from Ryan Thompson of BMO. Please go ahead.

[Ryan Thompson:]

Hey, guys. Thanks for the update. I think most of my questions have been asked, but maybe just a couple of housekeeping things for the model. I think Greg mentioned that the dividend to the JV partner was paid in January, just for the benefit of the biggest legacy SSR analysts, what is like how should we model that dividend going forward in terms of timing? And then just secondly, just on the sales like in production. Is it safe to assume that the bulk of both gold and silver that wasn’t sold in Q4 is going to hit the Q1 income statement?

[Greg Martin:]

Yeah, sure I’ll address those, Ryan. I think just first talking about the sales. I mean, you know, we’ll see normal variations, moderate quarter-on-quarter, you know, it was extreme in the fourth quarter, just as really all four assets returned to much higher levels of production relative to Q3. So typically, on a portfolio effect, we won’t see that kind of variation nor, you know, at Puna, assuming we stay at steady state, which is obviously something where we’re expecting, you know, we’d see that moderate. So, again, you’ll see normal variations, but I think as we move towards the end of Q2, you know, we’ll be right on track. With regards to the, you know, dividend piece, it’s really, you know, that that’s a question that’s really challenging to answer specifically, a lot of that’s going to depend on some of the issues that Stew talked about in terms of, you know, the needs of that operation from an investment standpoint, that would dictate, you know, how we look at distributions out of that operation going forward. And there’s also, you know, debt repayments and other things that come out of that operation as part of the debt structure in there. So, you know, we’ll provide guidance as it’s appropriate, but it’s something that we can’t really give you a formula to determine in any in any manner.

[Ryan Thompson:]

Okay, appreciate the update, guys. Thanks a lot.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Rod Antal for any closing remarks.

[Rod Antal:]

Well, thanks, operator and thanks, everyone for participating today. I look forward to keeping you informed of our progress in 2021. And obviously, recapturing some lost momentum here is, we you know get this year and start to highlight some of the excellent growth potential we have in the portfolio. So with that, good afternoon, good evening and good morning.

[Operator:]

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