SSR Mining Digs Out Massive Free Cash
Summary
- Estimated fair value of $32, with $444 million free cash generated in FY2021 and a very strong balance sheet.
- Large catalog of tier-1 assets, with long lives, excellent costs, and located in stable areas.
- Slated mine extension projects, adding 14% in gold reserves in FY2021, with additional exploration scheduled.
Alfio Manciagli/iStock via Getty Images
Investment Thesis
SSR Mining Inc. (NASDAQ:SSRM) is a diversified precious metals mining company with 4 actively producing assets in the U.S., Turkey, Canada, and Argentina. The primary focus of SSRM is acquiring, exploring, and developing gold and silver mines (84% gold, 12% silver), with a de minimus share of lead, zinc, and copper also extracted.
Their portfolio is comprised of long-life assets that are free cash machines, producing approximately 800,000 gold equivalent ounces per year, with $995/oz in all-in sustaining costs.
We believe that SSRM is an excellent choice for capital appreciation. The value of the firm is compelling, and it is the sector leader with $444 million in free cash flow per year. This has allowed SSRM to increase its dividend by 40% and implement a share buyback program, already amounting to $200 million.
Estimated Fair Value = $32.0 = 20.0 times $1.60
Forward Price-to-Earnings: 20.0
Estimated 2022 EPS: $1.60
SSR Mining (SSRM) | E2022 | E2023 | E2024 |
Price-to-Sales | 3.9 | 3.8 | 3.7 |
Price-to-Earnings | 17.4 | 16.0 | 15.0 |
EV/EBITDA | 8.4 | 8.2 | 8.0 |
Present Operations
During FY2021, sales of a gold-silver alloy called doré made up 84% of revenue, with 41% being sold to Istanbul Gold Refinery, and 30% to CIBC (in previous years, customers also included BMO and Scotiabank).
Çöpler (80% SSRM owned) is a copper-gold mine situated in Turkey. This mine is a cornerstone asset, with mineral reserves estimated to last until 2042, a total of 5.2 Moz Au ((gold)) of mineral reserves. Average annual gold production is 278koz, with all-in sustaining costs (AISC) averaging $1,071/oz over the last 5 years.
Marigold is a gold mine situated in Nevada. The mine is composed of several open pits with 3.4 Moz Au of mineral reserves, estimated to last until 2032. Average gold production is 222 kOz/year, and AISC averaging $1,156/oz over the last 10 years.
Seabee is a gold-silver hybrid mine, located in Saskatchewan. This is the shortest life mine, estimated to last until 2028, with 580koz Au mineral reserves. Average gold equivalent production is 96koz annually, with an AISC of $1,004/oz over the last 5 years.
Puna is a mine locate in Argentina, mining silver, with 39Moz Ag (Silver) in reserves. It averages 7Moz annually, with an AISC of $13.57/oz over the previous 5 years. The mine is estimated to last until 2027, with significant opportunity to extend mine life.
Mine | 2022E (100% basis) | 2023E (100% basis) | 2024E (100% basis) |
Çöpler, Turkey (kOz Au) | 255-285 | 220-250 | 300-330 |
Marigold , USA (kOz Au) | 215-245 | 245-275 | 200-230 |
Puna, Argentina (Moz Ag) | 8-9 | 8.5-9.5 | 7.5-8.5 |
Seabee, Canada (kOz Au) | 115-125 | 120-130 | 95-105 |
Total (kOz Au equivalent) | 700-780 | 700-780 | 700-780 |
Expansion
Çöpler has undergone ongoing expansion and modernization operations, adding 32% to mineral reserves since FY2020. The expansion project includes incorporating the nearby Çakmaktepe mine, estimated to come online in 2025 with a total cost of $218 million. With the price tag comes an estimated IRR of 60%, and a significant extension of mine life.
Seabee has undergone some additional exploration, increasing mineral reserves by 18%. The mine has been in operation for over 30 years, and SSRM has implemented additional life-extension projects to add to the reserves of the mine. The mines life has continuously been extended, and output is only increasing as exploration projects unlock previously untenable veins.
Puna will undergo significant exploration in 2022, so to extend the mine’s life even further. Additionally, early-stage exploration operations are underway in the area that may be able to leverage the existing infrastructure in the area.
SSRM Investor Day
Market Conditions
In the short term, inflationary hedges and global events have driven the price of gold to record highs, giving SSRM significant pricing tailwinds, with all mines being profitable over $1,200/oz, and the price of gold sitting at $1957.14/oz at the time of the writing of this article. Additionally, with sanctions crippling the Russian economy, China and Russia have moved toward a commodity-based exchange, as both countries are attempting to decouple themselves from USD and EUR denominated transactions.
The Fed’s bloated balance sheet, runaway government debt and deficits, and the US government’s unfunded liabilities with Social Security and Medicare pose an additional boost to gold. Many investors see gold as a safer store of value than USD, especially now that the Fed’s balance sheet is nearly 9 trillion dollars and the federal budget deficits are adding to the Federal debt every year.
Gold has increasing importance to the technology economy, with an ever-present share being used for electronics and other industrial applications. While previously gold’s exclusive use was jewelry, coinage, or a hedge, it is becoming increasingly critical for the development of semiconductors. According to the USGS, the approximate global consumption of gold for electronic devices is 10% in 2022, a 35% increase since 2021 alone.
Risk
As a producer of gold, which is a commodity, the company is a price taker with no differentiation. Partially mitigating this risk is the company’s low cost will allow for cashflow generation at far lower gold and silver prices.
Mining is fiercely competitive, and while most of SSRM’s mines have long lives, should they be unable to replenish reserves with expansion or new projects, it would reduce the bottom line and thus reduce the company’s cash flow and value.
Environmental concerns are ever-present in mining and will become increasingly expensive, especially in countries such as Canada and the United States. SSRM does have ESG goals in mind for carbon reduction and is a heavy recycler of water at 82.8%.
Conclusion
SSRM has a healthy balance sheet, and manages to hold a list of tier-1 assets with long lives. Not only from a valuation perspective but as a hedge against inflation, SSRM is an excellent choice for the value-conscious capital appreciation investor.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of SSRM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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