Silver Standard Resources (SSRI) is a silver mining company with operations and properties across the Americas and Australia. Only one mine at this time is in production and producing revenues: The Pirquitas mine in Argentina.
For the full year 2010, SSRI earned $346.2 million or $4.44 per share versus a loss of $13.2 million or $0.19 per share in 2009.
Proven and Probable (P&P) reserves for silver totaled 291.9 million ounces and Measured, Indicated, and Inferred (MII) resources totaled 1.396 billion ounces of silver on December 31, 2010 at SSRI’s properties.
The bulk of the 4th quarter 2010 numbers are affected by the sale of the Snowfield and Brucejack properties in Northern British Columbia to Pretium Resources. SSRI received total consideration of $450 million including cash, a convertible promissory note, and equity stake in Pretium.
On February 1st, 2011 the promissory note was converted bringing SSRI’s stake in Pretium to 45.8%.
The Snowfield and Brucejack properties are located in Northern British Columbia and host one of the largest gold-copper resources in North America. During the conference call SSRI mentioned that the estimated cost to buildout the mine would be in the billions of dollars and did not fit their core portfolio, hence the reason for the sale.
The high cost of building out the mine is due to its location in Northern British Columbia which is not easily accessible making items such as power acquisition difficult. This problem is not just limited to Snowfield and Brucejack as the cost of building out the Galore Creek mine caused NovaGold and Teck Resources to shelve the project.
The San Luis project in Peru is in the process of being consolidated with Silver Standard earning 70% of the project by advancing it to the feasibility stage and acquiring the remaining 30% interest in a buyout of partner Esperanza Silver.
The Pirquitas project in Argentina is online and producing silver. 2010 production totaled 6.3 million ounces of silver. Production for 2011 is forecast at 8.5 million ounces with 10 million pounds of zinc produced as a byproduct at cash cost, net of byproducts, of $9 per ounce. 2011 will be spent optimizing the mine and eliminating bottlenecks with the hopes of gaining more consistent production.
Silver Standard is making progress towards building out and leveraging the cash flows from Pitarrilla, its major project in Mexico which holds an estimated 91.7 million ounces P&P and 633 million ounces MII of silver.
An important note made in the 4th quarter conference call is that SSRI’s management is exploring opportunities to bring the Pitarrilla project in Mexico into production as soon as possible. The exciting part about this statement is that Pitarrilla is a deposit whose cash flow can be levered to create value either through funding internal capex, making non-dilutive regional acquisitions to add value to the mining camp, and return cash to shareholders either through dividends and/or share buybacks.
SSRI has already purchased the mills, which indicates an intention to bring the mine into production.
It is very good to see SSRI moving forward on the Pitarrilla project in Mexico. This is a major project which whose cash flows can be levered to create further value. The key will be how quickly Pitarrilla can be brought online.
A hidden asset is the Zinc byproduct coming from the Pirquitas mine in Argentina. Zinc is beginning to attract interest and the technical chart shows a reverse head and shoulders pattern forming over the last 15 months. If there is a technical breakout to the upside this would benefit SSRI by helping to lower their overall cash costs.
Technically, the stock is a bit overbought but may be in the process of starting to form the right shoulder of a reverse head and shoulders technical pattern. If we see some good news regarding the production issues at Pirquitas and more good news regarding Pitarrilla we may see the stock break higher.
Investors looking to move into a position with SSRI would be advised to wait for the pullback and scale into a position as there is tremendous value within SSRI.