- Silver Standard Resources announced that it lost $7 million in the second quarter on revenues of $64.3 million.
- The company remains burdened by a low silver price, and its Marigold Mine isn't as efficient as I thought it would be.
- The company remains highly leveraged to silver prices, and to a lesser extent, gold prices, and the stock should stagnate until these prices rise.
- Those who are especially bullish on silver and gold should continue to accumulate on weakness.
Silver Standard Resources (NASDAQ:SSRI) announced its second-quarter earnings. The company lost $7 million, or $0.09/share, on revenues of $64.3 million. It generated ($1 million) in operating cash flow, as both of its operating mines are high-cost producers. Pirquitas saw a slight increase in silver production from 1.9 million ounces to 2 million ounces, while zinc production rose from 8.8 million pounds to 9.3 million pounds, sending all-in costs down to $16.34 from $17.42 as zinc by-product credits increased. Marigold - which the company just acquired - saw production of 22,000 ounces at $1,135/oz.
In my August 2013 article, I argued that the appeal of Silver Standard Resources was in its leverage to the silver price. Specifically, this is due to the company's Pitarrilla Project, which it has put on hold due to permitting issues, taxes, and a low silver price. The mine will be built, and it offers tremendous leverage to the silver price, but it is akin to an out-of-the-money call option in the current market. However the company's recent acquisition of the Marigold Mine from Barrick Gold (NYSE:ABX) and Goldcorp (NYSE:GG) is designed to generate cash flow in the near term, and the company gets to retain its silver price optionality. I argued in February that while the company didn't get a bargain, it got near-term cash flow and diversification into a low-risk mining jurisdiction (Nevada). Unfortunately, the company's Q1 costs were higher than my $1,000/oz. estimate at $1,135/oz., but production is expected to pick up in the following quarters and costs are expected to fall below my $1,000/oz. estimate.
With the Marigold acquisition, we are seeing signs that the company is more than just its Pitarrilla "call option," and the company is now producing around 15 million silver-equivalent ounces. It also continues to have a large cash position at $102 million and an enormous $428 million working capital position, despite its $723 million valuation. It also owns a large stake in Pretium Resources (NYSE:PVG) worth $127 million, and smaller stakes in Argonaut Gold (OTCPK:ARNGF) and Mandalay Resources (OTC:MNDJF), giving it a rich array of assets. With this in mind, I think the stock has the potential to be one of the best-performing precious metals miners once sentiment turns bullish, especially in the silver space; but until then, the stock will continue to suffer.
Disclosure: The author is long SSRI, MNDJF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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