Exposure To Country Risk: The Silver Standard Edition

| About: Silver Standard (SSRI)

Silver Standard (NASDAQ:SSRI) advanced the Pirquitas silver mine in Argentina to commercial production late in 2009. More recently, the company is in the process of developing several other projects. Most notably, a feasibility study for the Pitarilla project in Mexico has been completed in 2012 with a construction decision anticipated for 2013. Silver Standard claims to have the largest in-ground silver resource of any publicly-traded primary silver company. According to Yahoo Finance, Silver Standard has a market capitalization of $561M and the company controls $490M in cash. The table below gives an overview of production, reserves and resources at Silver Standard's mine and projects.

Continuing on from an article on country risk exposure of silver mining companies which was based on 2011 data, we are now updating our study using 2012 year-end data. The present article will evaluate country risk exposure for Silver Standard. In previous work, we have collated country risk ratings for numerous countries from eight different sources and averaged these ratings into compounded country risk scores. Our compounded country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The most recent results from this work can be found in this article. Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socioeconomic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article.

The asset profile shown in the first table above can be consolidated listing summations for each country of exposure resulting in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).


The country risk rating based on production was computed to 68.30, indicating significant exposure to country risk due to the only producing asset being located in the high-risk jurisdiction of Argentina. In this interview, John Smith (President and CEO of Silver Standard) describes some of the issues the company manages with regards to operating in Argentina.

Due to the huge reserve at the Pitarilla development project in Mexico, the rating based on reserves drops off to 41.62. When considering resources this trend is continued with a value of 41.49 for measured and indicated resources and a value of 31.21 for inferred resources owing to a pipeline of projects in comparatively safe jurisdictions.

This year's country risk ratings compare favorably to last year's results as outlined in the diagram below. The trend towards a reduced exposure to country risk is driven by the development of the Pitarilla project in Mexico which will bring significant geographical diversification for the company in the mid-term.

Note: last year's statistics did not differentiate between different resource classes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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