SSR Mining Inc. (NASDAQ:SSRM) Q1 2021 Earnings Conference Call May 6, 2021 5:00 PM ET
Wes Sconce - SSR Mining Inc.
Rodney Antal - President and Chief Executive Officer
Alison White - Executive Vice President and Chief Financial Officer
Stewart Beckman - Executive Vice President and Chief Operating Officer
Conference Call Participants
Tyler Langton - JPMorgan Chase & Co.
Cosmos Chiu - CIBC Capital Markets
Michael Parkin - National Bank Financial, Inc.
Good day, everyone, and welcome to SSR Mining's First Quarter 2021 Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Wes Sconce with SSR Mining.
Thank you, operator. Good day, ladies and gentlemen. Welcome to SSR Mining's first quarter 2021 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, EDGAR, the 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 U.S. dollars, unless otherwise indicated. All references to cash costs and all-in sustaining costs are per payable ounce of metals sold. We will be making forward-looking statements today so please read the disclosures in the relevant documents. Joining us on the call today are Rod Antal, President and CEO; Alison White, CFO; and Stewart Beckman, COO.
Now I'd like to turn the call over to Rod for opening remarks. Rod?
Thanks, Wes, and good afternoon, and good morning to you all. Before we begin, I would like to welcome Alison White, our new CFO to her first earnings call with SSR Mining. We are delighted to have a person with Alison's caliber joining SSR as we continue to set the foundation for the future. In time and as travel allows a number of you will meet Alison in person. But for today, you will have the opportunity to hear from Alison as she walks you through the results of a very strong first quarter.
So now moving on to the quarterly review. The quality and operational consistency of our four operating sites were clearly on display in the quarter as we delivered production of 196,000 gold equivalent ounces at an all-in sustaining costs of $1,004 per ounce. We generated $77 million as unlevered free cash flow, and this great start to the year certainly puts us on track to achieve our full-year guidance targets.
Our peer-leading free cash flow generation and strong balance sheet have allowed us to take the last step to our overall approach to capital management and allocation. We already implemented a base dividend of $44 million per year to be paid quarterly. Now and in addition to the base dividend, we announced a meaningful share buyback program of up to $150 million. The combination of the base dividend and our share buyback program aligns our peer-leading free cash flow yield with our capital returns yield. Our total capital return to shareholders will be up to $194 million this year, which is a peer-leading position.
It is important to highlight that we have entered into an automatic share purchase agreement with a Canadian broker and have full intention to execute on our share buyback programs especially at the current share prices.
In a short period of time, since closing of the merger, we have implemented a holistic capital allocation program that allows us to continue to invest in growth and maintain returns to our shareholders through the gold price cycles, which is great progress and provides clarity on our capital management going forward.
From a growth perspective, we continue to invest in value adding capital projects, while advancing our large organic exploration portfolio. The purpose of our exploration program is to highlight our ability to sustain 700,000 to 800,000 ounces of gold production for at least the next 10 years.
So moving on to the next slide, which is on ESG. We've done a tremendous amount of work on setting and resetting priorities of both legacy companies as well as finalizing a new suite of sustainability policies to align to leading industry practices. This work form the foundation for our 2020 sustainability report that was released during the quarter.
The sustainability report reconfirmed our commitment to communities and the environment, and it also highlighted several achievements during 2020, and most importantly, set out our priorities for 2021. This included a commitment to establishing an action plan to achieve net-zero greenhouse gas emissions by 2050. We have also begun to improve disclosures on climate and water management by responding to the Carbon Disclosure Project and aligning our reporting with the requirements of the Taskforce on Climate-related Financial Disclosures.
From a safety perspective, although COVID remains pervasive, we are doing a good job of managing it at all our sites. Our COVID protocols focus first on protecting our people, contractors and the community in which we work and our efforts have been successful in mitigating the impacts to our operations. We have a well-resourced and experienced HSE and operations teams within SSR and are proud of our achievements envisioned for the future as we continue to be progressive in our approach.
Moving on to the next slide. Our year-to-date production and cost performance is tracking well to meet our 2021 guidance that you can see here on this slide. Our focus for the year is to ensure safe production, and we have several initiatives underway as we push to improve our overall approach to safety and results. The quarter one safety results were a step in a right direction. We are investing in several high growth returns – growth opportunities across the business.
Some examples of the growth initiatives include Çöpler, the flotation circuit construction and ramp-up, which is on track for commissioning in the second half. We have an ongoing and continuous improvement initiatives at Marigold. And at Seabee, we are focused on increasing the underground development rates to allow us to utilize the latent mill capacity in the future. And finally, at Puna, the transition to an owner-operated haulage fleet is underway. All the initiatives that I just mentioned are now progressing to plan.
On the exploration side, we are investing $65 million across our portfolio and expect these efforts will take center stage as we advance the exploration targets and provide some clarity on their scale and timelines during the year. A good example is the step-out and infill drilling at Ardich, which continues to support resource expansion and conversion to reserves for this sizeable, low capital intensity asset that is planned to come into production by 2023. Stu will touch on a number of these later in the call.
Just moving to the next slide, and before I hand the call over to Alison and Stu, I want to touch base on a few of the quarterly highlights. As I said, operationally, all four sites had a good first quarter, nicely setting us up for the remainder of the year. Our gold production and costs provide a solid start. At Marigold, we set a record material movement and at Çöpler, Seabee and Puna all contributed to the strong results.
From a financial perspective, we reported an EPS of $0.47 per share and generated $77 million in free cash flow adding to our strong balance sheet. Finally, we published the updated mineral resources and reserves during the quarter. Gold mineral reserves increased 5% to 8 million ounces, while M&I mineral resources increased 14% to 15 million ounces.
So with that, I'll turn the call over to Alison who will discuss our financial performance in more detail starting on Slide 7.
Thanks Rod, and good afternoon, everyone. I'm thrilled to be here at SSR Mining and very excited to talk about the quarterly results as shown on Slide 7. We've completed a strong quarter with the assets all delivering on quality and consistency, producing 196,094 gold equivalent ounces during the quarter and selling 201,494 gold equivalent ounces for a total of $366.5 million in revenue for the quarter. Attributable net income was $53 million or $0.24 per share, and adjusted attributable net income was $102.4 million for the quarter with adjusted attributable earnings per share of $0.47.
Operating cash flows were strong at $145.2 million for the quarter and our free cash flow was $77 million before paying out $49.1 million in shareholder and non-controlling interest dividends as well as $17.5 million to reduce debt. On the right side of the slide, there are more details on the $0.47 and adjusted earnings per share. Walking from the $0.24 and attributable net income per share to add $0.11 for the amortization of the fair value as a result of the adjustment to bump up to the fair value of inventory and mineral properties at Çöpler at the time of acquisition, followed by $0.03 per share for COVID and integration costs, less $0.03 for taxes and adding back $0.11 per share as a result of the foreign currency revaluation on the deferred tax assets held in Turkey.
Turning to Slide 8, we can talk about SSR’s balance sheet strength. SSR continues to provide balance sheet strength amongst its peers and maintain strong liquidity closing the quarter with over $900 million in consolidated cash and $476 million in net cash. Given heavier loads on working capital in Q1, especially at Seabee, where they restocked while the ice road was still formed, dividend payments to our shareholders of $11 million and a $38 million payment to our non-controlling interest partner at Çöpler, we are in an outstanding cash position.
Net cash to EBITDA ratio is 0.6x again, demonstrating our strength and placing us in the top quartile of our peer group. SSR continues to act on its multi-faceted capital allocation strategy, declaring a $0.05 dividend per share again during Q1, coupled with a recently announced non-course issuer bid share buyback program set up to repurchase 10 million shares through an automated purchase framework within 12 months.
On Slide 9, we can talk more about SSR’s peer-leading free cash flow and capital returns. We are confident that our capital allocation program provides attractive yields for our shareholders. SSR Mining’s peer-leading free cash flow yield of 11% is more than double the Midcap Peer Group at 2% and SSR’s capital return yield is more than double that of the Midcap Peer Group at 5.4% for this year alone. Our capital allocation priorities include investing in growth, returning cash to shareholders and maintaining balance sheet strength.
SSR is accomplishing this through a $0.05 base dividend per quarter, yielding 1% per year, which is supplemented by the share buyback program recently announced and discussed on the previous slide. The combination of a peer group leading returns and significant free cash flow generation differentiates SSR Mining, and demonstrates our commitments to shareholder returns. We will continue to execute on our priorities both financially and operationally as we move through 2021.
Stu will walk you through the operational highlights starting on Page 10.
Thank you, Alison. Thank you, Rod. First off for ESG, we had an impressive health and safety quarter with a 65% reduction in recordable injury rate compared to 2020, with all of the sites seeing improvement. We also completed the sustainability report, which I hope you've had time to read. It includes new commitments on greenhouse gas emissions and water.
To match this result to deliver these extended ESG commitments, we started some restructuring of the EHS&S team. The rollout of our new integrated ESG management system progress to plan, and we will provide our business leaders with better tools for delivery, risk management and improve oversight and data analytics. While COVID remains challenged for the world, it is now part of our ecology and we had diligently managing it along with the other risks and business factors.
Moving on to operations and growth. The business is off to a really solid start with all operations achieving above budgeted production and overall billowed budgeted costs. So we are in a great position to deliver guidance to 2021. Some cost savings was simply off timing of exploration and capital spend, which are both expected to catch up. However, taking timing into consideration, overall costs were still slightly better than budgeted for the quarter. Across the business, we've been reviewing and improving our life of mine planning processes. Yet on this long cycle, we will form the basis of the long-term guidance, which we will include for the first time with the annual guidance starting in 2022.
Moving on to Çöpler. The Çöpler sulfide plant continued to process well above the designed throughput rates, rates were good relative to budget and offset lower than planned recoveries. The Çöpler oxide plant is back well above budget, recoverable ounces on to the heap leach with the gap in production is simply a function of timing of the late cycle.
The flotation plant construction is well-advanced and remains on schedule with commissioning and ramp-up for the beginning of Q3. The flotation plant is really going to transform the Çöpler pressure oxidation plant. Drilling and study work continued in the district, which includes Çöpler, Ardich, C2, and the Çöpler Saddle and we drill about 13,000 meters of diamond holes in the quarter. We currently have seven drills at Ardich.
The deeper drilling in C2 is showing gaps in continuity of economic mineralization, and late in the quarter, we slowed the drilling. That said, there is already considerable copper-driven mineral value [indiscernible] and immediately adjacent to the reserve [indiscernible], and the current mine plant does not exploit these. The study team analyzing options to leverage additional value from this.
Ardich will be the significant feature of the updated CDMP 2021 technical report, which we aim to complete by Q1 next year. In the last technical report, CDMP 2020, Ardich was included only as a resource and as a PEA case in Section 24, which showed a potential to add about $500 million in NPV and about 1 million ounces of gold production.
In CDMP 2021, Ardich will be improved with the subsequent work and will be converted into reserve. That is, it will move to the base Central Coast and evaluation models. Additionally, and our stress, of course, depending on the outcome of the work, we are aiming to include copper mineralization as a resource and as a PEA case in the CDMP 2021 technical report.
Now let’s move to Marigold. Marigold achieved a quarterly record for mine times and its second best quarter of gold production. This is doubly impressive given the site completed the scheduled 35 days shutdown for the big electrical P&H 4100 shovel. The two new hydraulic PC7000 shovels stepped up and filled the gap during the shutdown. In the mine, we started drilling and equipping dewatering bores and commenced the construction of the rapid infiltration basin. This is where the water will be put back into the water tile.
We also intentionally lift some ore in the pit during the quarter, while we completed the construction of cell 24. The cell is now complete and we are stacking on that. Exploration at Marigold focused mostly around the existing pits and we drilled about 25,000 meters which what is looking like a good result.
Please move to Seabee. Seabee’s production was slightly above budget. The annual ice road restocking is done and we're set for the year. There were some new and additional underground mining equipment arrived on site, which will go into service in the coming months. Mine development is also in line with budget. We've been very busy with exploration at Seabee, drilling out the Gap Hanging Wall and the Santoy Hanging Wall looking to pull these into reserve and resource in the near-term. We are also drilling exploration sites at Mac North, Joker and Fisher, and we are setting out for more work at Amisk. We remained pretty bullish on the growth potential at both the greater Seabee and Amisk.
Please move to Puna. Puna’s master production target is [indiscernible]. They were well over budget on production and unit cost was significantly below budget. That throughput was sustained at greater than 4,500 ton a day, a new record. A longer way to change over to iron ore haulage for the mine to the plant started in April and should further lower operating costs. We are reviewing the life of mine planning at a higher processing rate for Puna.
Now let’s move to the exploration slide. I've pretty much talked about all of these key items already. And so in summary, for the business, safety was excellent, production was above budget, cost was above budget and our organic growth projects advances. A good quarter for the business and the operations and growth teams.
Thank you very much. Back to you, Rod.
Thanks, Stu, and thank you, Alison. So just to summarize, as we’ve all mentioned, a very strong quarter to start the year both financially and operationally. Within our completed capital allocation framework and continuing strong free cash flow, our capital returns to shareholders is peer-leading, while allowing us to grow. With the operations delivering, low capital intensity growth, the balance sheet in terrific shape, and now our capital returns in place, we believe we will regain share price momentum and offer an excellent long-term investment choice for shareholders.
So with that, operator I'll pass the call over to any questions you may have.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Tyler Langton with JPMorgan. Please go ahead.
Yes. Good afternoon. Thanks for taking my questions. I guess to start, are you seeing any sort of inflationary pressures for like materials, energy, labor? And then I guess just somewhat related with exchange rates. I guess any details around – maybe impact on costs in sort of Canada, Turkey or Argentina?
Hi, Tyler. I’m going to pass that one over to Alison.
Hey, Tyler. So I'll take the first portion of your question about inflation pressures. So at this point, we really have not seen any material inflation pressures across the business. We are continuing to monitor that and stay close to the markets to try to just weigh anything that could be coming our way, but we have not yet seen that come through.
And then on the second part of your question, Tyler, around exchange rates and the devaluation in some of the currencies in the countries where we operate, again, it's usually a short-lived win for us. We normally get offset by the country inflation rates increasing with the devaluation. So while it's a short win live and it looks good on paper. It usually catches up to being sort of net-net neutral.
Okay. That's helpful. And then just with Çöpler, I guess, obviously was a good start to the year, and I mean, sort of just annualized Q1 production would just get to the low-end of the guidance. But I guess, costs – sorry, production should be sort of ramping throughout the year, and then costs sort of came in kind of around the midpoint of annual guidance. Can you just talk about the cadence of production for the remainder of the year and just kind of how to think about cost as well especially as the flotation starts up?
Yes. Hi, Tyler. It’s Stewart. So you remember when we gave guidance, at the beginning of the year, we said that we expected Çöpler to be backend loaded. When we issued the technical report, what are the main drivers in the technical report was – construction of the flotation plant, which draws volumes up at Çöpler through the sulfide plant and significantly pushes the cost down. So our expectation is always been that the year would be backend loaded and the cost would drop in the second half.
Got it. Great. Thanks so much.
The next question comes from Cosmos Chiu with CIBC. Please go ahead.
Great. Thanks Rod, and Stewart, and welcome, Alison. Certainly a great way to kick-off your journey with SSR Mining with a huge earnings beat. Maybe first off my question is on the Marigold. I think in the MD&A you mentioned that the heaps are getting fairly high now, and so part of the Q1 production was actually a result of stocking in Q4. Can I ask you about the leach cycle these days at Marigold? What's the height of some of these lifts here? And I guess the point of my question is you stacked 5.7 million tons in Q1, fairly good grade 0.4 gram per ton. When is that going to come through?
Yes. It is always an interesting question, Cosmos. For the rest of this year, we'll be stacking in cell 24, which I mentioned, which has started stacking on and we'll start irrigating them soon. So for the remainder of the year, we got to see our stacking pretty close to the plastic and so we'll see a pretty quick return or a short leap cycle. And we'll actually see a draw down in the inventory from the rest of the…
Great. And then maybe moving to Seabee here. As you mentioned, 8.45 gram per ton head grade in Q1 lower than last year, but as expected as you were working through some of the lower productivity areas. Stu, could you remind us, when are you getting back to some of the higher productivity areas potentially higher grades?
Yes. So we are seeing some high grades coming through the mine at the moment. But you remember, the guidance – say there was a little bit lower this year than the previous years on the basis of that's what the mine schedule was doing, and with an expectation that will come back up in the following years. We will – as I said in my call being the issuing long-term guidance that will help you to map that out at least over the three years when we issued the long-term guidance at the end of the year.
Great. I guess, bringing this all together, as you mentioned earlier, Çöpler is going to be backend loaded. It sounds like Marigold in the second half, production is going to be fairly good as well. And Seabee, you're seeing some of the high grades. I guess, what I'm trying to get to is if I look at Q1 production, 196,000 gos, if I were to analyze that, you might say, I can't. You would hit the top end of full-year guidance. How should we look at it? Is it – I know it's still early days, but is that possible?
Hi, Cosmos. This is Alison. Thanks for the question.
Hi, and thank you for the welcome earlier. I appreciate that. So I think that our guidance for the year remains consistent with what we've previously talked about and we are going to continue to monitor if there's any intra-quarter changes. But right now we are affirming what we've previously said. And we’ll bring back any additional information that we have when we were aware of it.
Sure. Thanks, Alison. And maybe one last question. Just looking at Turkey here, I think two days ago, or several days ago, there was – the government announced a shutdown given COVID-19. Maybe a question for Rod, could you make some comments in terms of COVID-19 and Turkey, that shutdown. Does it have any impact on mining operations?
No. It doesn't cause. It’s similar to what we've seen all through COVID actually. In Turkey, there's been times where there's been restrictions placed that hasn't entirely build the country on a shutdown. So the mining industry is sort of considered in the essential service group. And so we can continue to operate as long as it's done safely. So the restrictions are really around just the public and restricting hours in and out of their homes and that sort of stuff. I went through more recently quite a big spike in COVID cases and that’s really just in response to that short-term. And particularly the fact that they're just about to start celebrating their religious holidays as well, where it's a lot more people, usually mobile moving around. So they're trying to avoid another big spike.
Of course. Got it. Those are the questions I have. Thanks, again, Rod and team and congrats again.
[Operator Instructions] The next question comes from Mike Parkin with National Bank. Please go ahead.
Hi guys. Thanks for taking my questions and congrats on the solid quarter. Most of my questions have been answered. Just one on the exploration side of things, when could we expect the next exploration update coming out of Marigold? And just in terms of drilling the Trenton Canyon oxides, how are you kind of on that program? Is that program well-established and ramping up? Or are you still kind of mobilizing drills and stuff? Should we expect kind of a greater number of holes coming in the second half versus the first half in terms of updates?
So we are ramping up in that area. We will bring it up over the next couple of quarters and update all Trenton Canyon, and we will bring out [indiscernible] advanced exploration sites, so from Seabee and from Çöpler to provide updates of where we are across all of the businesses. In Trenton Canyon, we took a step back and doing more drilling before we advance into study work at Trenton Canyon to make sure we fully understand that resource before we proceed to the next step. But we are out there drilling.
Okay. Great. And then with Pitarrilla, when do you think you'd be in a position to start drilling from the underground?
So after the merger, we took the opportunity and we put the advancement of the underground decline on hold, while we do a more wholesome assessment of the current resource knowledge and the status of that study. So we don't have an immediate plans on drilling in the Pitarrilla underground.
Okay. All right. That's it for me guys. Thanks so much.
Great. Thanks, Mike.
This concludes the question-and-answer session. I would like to turn the conference back over to Rod Antal for any closing remarks.
Great. Thanks, [indiscernible], and again, thank you all for joining us today. Really solid quarter and it's obviously nice to introduce Alison that way to the company and hopefully have many more of them to come. Thanks again, and have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.