Mr. Paul Benson reports
SILVER STANDARD REPORTS FIRST QUARTER 2017 RESULTS
Silver Standard Resources Inc. is releasing its consolidated financial results for the first quarter ended March 31, 2017.
Paul Benson, president and chief executive officer, said: "The first quarter of 2017 marks a strong start to the year as we produced nearly 98,000 gold equivalent ounces at all-in sustaining costs of $977 per payable ounce sold. Our three cash-flowing mines generated $31-million of operating cash flow, supporting our continued investments in sustaining and growing our operations, while also adding to our cash balance, which now totals $341-million. This marks the sixth quarter in a row we have added to our cash position.
"During the quarter, we secured an exciting future for our Pirquitas operation as the resolution of our export duty claim enabled us to exercise our option on the Chinchillas project, which, once developed, will extend the Pirquitas operating life well into the next decade. Additionally, as a result of the strategic evolution of our company, we announced a proposed name change to SSR Mining, which will come into effect later this year, following approval by our shareholders. Our focus remains on creating shareholder value through safe production, operational excellence and growth opportunities."
First quarter 2017 highlights
(all figures are in U.S. dollars unless otherwise noted):
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Strong financial performance: achieved quarterly revenue of $117.9-million, net income of $15.0-million or 13 cents per share, and adjusted net income of $19.7-million or 17 cents per share;
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Increased cash balance: quarter-end cash increased by $13.5-million to $340.6-million. Cash generated by operating activities totalled $30.6-million. Marketable securities increased by $41.7-million to $190.6-million;
- Consistent production: produced 97,851 gold equivalent ounces at cash costs of $646 and AISC (all-in sustaining cost) of $977 per payable gold equivalent ounce;
- Low-cost gold production at Marigold: produced 55,215 ounces of gold at cash costs of $585 and AISC of $799 per payable ounce of gold sold;
- Robust gold production at Seabee: achieved production of 21,023 ounces of gold as higher-grade ore was sourced from the Santoy mine at cash costs of $574 and AISC of $986 per payable ounce of gold sold;
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Strong operating fundamentals at Pirquitas: concluded open-pit mining in January and commenced stockpile processing for quarterly production of 1.5 million ounces of silver at cash costs of $12.68 and AISC of $14.82 per payable ounce of silver sold;
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Exercised option on the Chinchillas project: creates a joint venture to extend the Pirquitas operating life with the Chinchillas silver-lead-zinc deposit. Silver Standard will be the operator;
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Resolved export duty claim: entered into the tax moratorium system in Argentina, which resolves the company's export duty claim. The company has agreed to pay approximately one billion Argentine pesos with 5 per cent paid upon entry and the balance in instalments over 60 months.
Marigold mine, United States
Mine production
In the first quarter of 2017, the Marigold mine produced 55,215 ounces of gold, in line with the company's plan.
A total of 16.7 million tonnes were mined in the first quarter of 2017, 14 per cent less than the fourth quarter of 2016, primarily due to weather-related impacts in January and February, which caused the open pit to cease operations intermittently due to unsafe work conditions. Additionally, the rope shovel was down for planned maintenance for five days during the month of March. The company expects to recover the tonnage in the second half of 2017 as it will have significantly shorter hauls available due to backfilling previously mined areas.
Approximately 5.7 million tonnes of ore was delivered to the heap leach pads at an average gold grade of 0.42 gram per tonne (g/t). This compares with 6.4 million tonnes of ore delivered to the heap leach pads at a gold grade of 0.48 g/t in the fourth quarter of 2016. Gold grade mined in the first quarter was 13 per cent lower than the fourth quarter due to planned pit phase sequencing. The strip ratio declined to 1.9:1 in the quarter, a 5-per-cent reduction compared with the previous quarter.
Mine operating costs
Cash costs and AISC per payable ounce of gold sold are non-GAAP (generally accepted accounting principles) financial measures.
Cash costs, which include all costs of inventory, refining costs and royalties, of $585 per payable ounce of gold sold in the first quarter of 2017 were equal to cash costs in the fourth quarter of 2016. Total mining costs were lower in the first quarter of 2017 than in the fourth quarter of 2016. However, costs per tonne mined increased by 9 per cent to $1.65 per tonne in the first quarter, due to a decrease in total tonnes mined. Processing unit costs were 11 per cent higher in the first quarter of 2017 than in the fourth quarter of 2016 due to fewer tonnes stacked. General and administrative unit costs were also higher in the first quarter of 2017 than in the fourth quarter of 2016 due to fewer tonnes stacked but were comparable on an absolute basis.
AISC of $799 per payable ounce of gold sold in the first quarter of 2017 decreased from $835 in the fourth quarter of 2016 predominantly due to lower capitalized stripping.
Mine sales
A total of 52,528 ounces of gold were sold at an average price of $1,214 per ounce during the first quarter of 2017, compared with 61,308 ounces of gold sold at a 3-per-cent-higher average price of $1,247 per ounce during the fourth quarter of 2016.
Exploration
Exploration activities during the first quarter of 2017 focused on the conversion of mineral resources to mineral reserves in areas proximal to the 2016 mineral reserve pit. During the quarter, the company completed 10,255 metres of reverse circulation drilling in 44 drill holes on four targets. Positive drill results demonstrate the potential to increase and convert mineral resources and warrant further follow-up drilling, which is currently under way. The drill results from the fourth quarter of 2016 and first quarter of 2017 were reported in the company's news release dated May 1, 2017.
Seabee gold operation, Canada
Mine production
The Seabee gold operation consists of the Seabee and Santoy underground mines, both of which feed a single processing facility. In the first quarter of 2017, the Seabee gold operation produced 21,023 ounces of gold, a 7-per-cent increase from the 19,711 ounces of gold produced during the fourth quarter of 2016, primarily due to higher-grade ore from the Santoy mine complex.
A total of 72,394 tonnes of ore were milled at an average gold grade of 9.22 g/t and recovery of 97.7 per cent during the first quarter of 2017. This compares with a total of 84,526 tonnes of ore milled at an average gold grade of 7.40 g/t and recovery of 97.0 per cent in the fourth quarter of 2016.
During the first quarter, the mill was maintained at a throughput of 804 tonnes per day, lower than the previous quarter as ore delivery from the mine constrained mill throughput due to ventilation system requirements. The need for additional ventilation was identified in the fourth quarter of 2016. A solution to deliver more fresh air, especially in deeper sections of the Santoy mine, was developed with equipment delivered to site in the first quarter of 2017, with installation and operability expected by the end of the second quarter.
The Santoy mine complex supplied 98 per cent of ore milled in the first quarter, predominantly from long-hole stopes. The company continues to develop new mine plans to achieve a higher, sustainable production rate.
Mine operating costs
Cash costs per payable ounce of gold sold, which include all costs of inventory, refining costs and royalties, were $574 in the first quarter of 2017, lower than the $595 in the fourth quarter of 2016. Costs per tonne mined were $68 per tonne in the first quarter of 2017, 10 per cent higher than in the previous quarter due to lower tonnes mined. Processing and general and administration (G&A) unit costs were higher by 21 per cent and 34 per cent, respectively, in the first quarter of 2017, compared with the fourth quarter of 2016, due to lower tonnes milled; however, the mill feed grade was 25 per cent higher in the current quarter than in the preceding period, driving higher production, which resulted in lower cash costs in the period.
AISC per payable ounce of gold sold was $986 in the first quarter of 2017, higher than the $833 in the fourth quarter of 2016, as a significant portion of planned capital spending was incurred due to the delivery of capital items over the ice road. Exploration spending also increased, consistent with the company's objective of adding mineral reserves and mineral resources at the mine.
Mine sales
A total of 22,411 ounces of gold was sold at an average price of $1,233 per ounce during the first quarter of 2017, 30 per cent higher than the 17,229 ounces of gold sold at a comparable price of $1,230 per ounce in the fourth quarter of 2016.
Exploration
For 2017, the Seabee gold operation plans to complete up to 60,000 metres of underground drilling and 28,500 metres of surface drilling with the objective to increase and convert mineral resources into mineral reserves. In the first quarter of 2017, the company completed 16,267 metres of underground drilling and 11,394 metres of surface drilling in 42 and 24 drill holes, respectively. Drill results continue to be encouraging and additional exploration drilling has been planned for 2017 across the Seabee gold operation to define, increase and convert mineral resources. The drill results for fourth quarter 2016 and first quarter 2017 were reported in the company's news release dated May 1, 2017.
Pirquitas mine, Argentina
Mine production
Mining from the San Miguel open pit ceased in January, 2017, and medium-grade stockpile material is being processed through the plant. Lower-grade stockpiles may be processed in late 2017 and potentially in early 2018, once the medium-grade stockpiles have been consumed, depending on prevailing economic conditions. The operation produced a total of 1.5 million ounces of silver from ore mined and stockpiles processed.
Ore was milled at an average rate of 4,994 tonnes per day in the first quarter, 25 per cent above the mill's nominal throughput of 4,000 tonnes per day. Ore milled in the first quarter of 2017 contained an average silver grade of 145 g/t, 25 per cent lower than the 194 g/t reported in the fourth quarter of 2016, as the majority of mill feed was sourced from medium-grade stockpiles. The jig circuit was not utilized to treat stockpile material. The average silver recovery in the first quarter was 72.6 per cent, lower than the recovery of 74.5 per cent in the previous quarter, in line with reduced silver mill feed grade.
Mine operating costs
Cash costs, which include cost of inventory, treatment and refining costs and byproduct credits, increased by 29 per cent to $12.68 per payable ounce of silver sold in the first quarter of 2017, from $9.80 per payable ounce of silver sold in the fourth quarter of 2016, principally due to the transition to processing lower grade stockpiled ore. While unit processing costs declined as the preconcentration circuit was idled, the transition to processing stockpiles added rehandling costs and stockpile inventory costs of approximately $2 per payable ounce that were previously incurred.
AISC of $14.82 per payable ounce of silver sold was higher in the first quarter of 2017 than the $11.47 per payable ounce of silver sold in the fourth quarter of 2016, due to higher cash costs per payable ounce of silver sold and higher capital spend per ounce sold.
Mine sales
The company recognized sales of 1.4 million ounces of silver in the first quarter of 2017, lower than the 2.6 million ounces in the fourth quarter of 2016, as a result of lower production due to processing of lower-grade stockpiles.
Chinchillas project, Argentina
On March 31, 2017, the company provided notice to Golden Arrow to exercise its option on the Chinchillas project and form a joint venture comprising its Pirquitas property and Golden Arrow's Chinchillas property owned on a basis of 75 per cent and 25 per cent by the company and Golden Arrow, respectively. The transaction is expected to close on or before May 31, 2017, and the company will be the operator.
The Chinchillas project provides operating life extension to Pirquitas with a modest capital investment of $81-million on a 100-per-cent basis. With construction expected to begin in the third quarter of 2017, subject to permitting, Chinchillas is expected to produce 8.4 million ounces of annual silver equivalent production over an eight-year operating life. Chinchillas ore delivery to the Pirquitas mill is expected in the second half of 2018.
A news release on the Chinchillas prefeasibility study was reported by Golden Arrow on March 31, 2017. The associated National Instrument 43-101 technical report will be filed within 45 days. Subject to closing the transaction, the company approved the development of the project and expects construction to commence in the third quarter of 2017, following the receipt of environmental permits.
Export duties
The company entered into a fiscal stability agreement with the federal government of Argentina in 1998 for production from the Pirquitas mine. In December, 2007, the National Customs Authority of Argentina (Direccion Nacional de Aduanas) levied an export duty of approximately 10 per cent from concentrate for projects with fiscal stability agreements predating 2002 and it has asserted that the Pirquitas mine is subject to this duty. The company had previously challenged the legality of the export duty applied to silver concentrate.
On March 31, 2017, the company entered into the tax moratorium system in Argentina to resolve the export duty dispute. Under the conditions of the moratorium, which converts the export duty liability to Argentine peso, the company has agreed to pay approximately one billion Argentine pesos with a 5-per-cent down payment initially and the balance in instalments over 60 months. Outstanding amounts are subject to interest at a minimum rate of 1.5 per cent per month.
With the company's entry into the tax moratorium for resolution of its export duty dispute, Silver Standard is no longer challenging the legality of the application of the export duty other than with respect to its right for reimbursement of the $6.6-million of export duty that it paid. Export duties were removed effective Feb. 12, 2016. At Dec. 31, 2016, the company had accrued a provision for $67.1-million for unpaid duties but had not accrued for potential interest and penalties.
Entering the tax moratorium resolves the existing liability, and the company has recognized the new Argentine-peso liability at amortized cost by discounting expected future payments using a discount rate of 20 per cent per annum over the 60-month period. It paid 5 per cent, or 52.9 million Argentine pesos ($3.4-million), when entering the moratorium on March 31, 2017, and has recognized the reduction in the liability of $4.3-million within cost of sales.
Outlook
This section of the news release provides management's production and cost estimates.
Silver Standard's operating guidance remains unchanged from that provided in its fourth quarter 2016 MD&A (management discussion and analysis) outlook.
OPERATING GUIDANCE FOR FULL-YEAR 2017
Marigold mine Seabee gold operation Pirquitas mine
Gold production (oz) 205,000 to 215,000 72,000 to 82,000 -
Silver production (million oz) - - 4.5 to 5.5
Cash costs per payable ounce sold (1) ($/oz) 655 to 705 575 to 625 13.50 to 16.00
Capital expenditures 30 8 5
Capitalized stripping/capitalized development (million $) 17 11 -
Exploration expenditures (2) (million $) 5 5 -
(1) The company reports the non-GAAP financial measure of cash costs per payable ounce of gold and silver sold to
manage and evaluate operating performance at the Marigold mine, the Seabee gold operation and the Pirquitas mine.
(2) Exploration expenditures include capitalized and expensed exploration expenses.
In 2017, on a consolidated basis at midpoint of guidance, the company expects to produce 355,000 gold equivalent ounces at gold equivalent cash costs of $735 per ounce. Cash costs and capital guidance are based on a $55-per-barrel oil price and a Canadian-to-U.S.-dollar exchange rate of 1.30. Gold equivalent figures are based on $1,250-per-ounce gold price and $17.50-per-ounce silver price.
CONSOLIDATED FINANCIAL SUMMARY
Three months ended
March 31, 2017 March 31, 2016
Selected financial data (1)
Revenue $ 117,905 $ 101,513
Income from mine operations 40,089 23,298
Operating income 24,809 14,614
Net income for the period 15,047 2,300
Basic income per share $ 0.13 $ 0.03
Adjusted income before tax 23,161 12,581
Adjusted net income (2) 19,741 9,023
Adjusted basic income per share (2) $ 0.17 $ 0.11
Cash generated by operating activities 30,643 12,724
Cash (used in) investing activities (18,118) (5,844)
Cash generated by (used in) financing activities 335 (1,069)
As at
March 31, 2017 Dec. 31, 2016
Financial position
Cash and cash equivalents $ 340,585 $ 327,127
Marketable securities 190,631 148,944
Current assets (including cash and cash equivalents) 769,074 704,240
Current liabilities 80,837 144,306
Working capital 688,237 559,934
Total assets 1,484,224 1,438,688
(1) All values are presented in thousands of U.S. dollars, except per-share amounts.
(2) The company reports non-GAAP measures, including adjusted income before and
after tax, and adjusted basic income per share, to manage and evaluate its
operating performance.
Quarterly financial summary
The 16-per-cent increase in quarterly revenue compared with the first quarter of 2016 was due to higher realized prices of gold by 3 per cent and silver by 16 per cent, combined with an 8-per-cent increase in equivalent payable gold ounces sold. The increase in ounces sold was largely due to sales from the Seabee gold operation, which the company did not own in the first quarter of 2016, partially offset by 55-per-cent-lower ounces sold from the Pirquitas mine.
Income from mine operations in the first quarter of 2017 generated a gross margin of 34 per cent, significantly higher than the 23-per-cent margin in the first quarter of 2016, due to higher precious metals prices, lower cost of sales at Marigold and the addition of the Seabee gold operation. In addition, the resolution of the company's export duty claim in Argentina resulted in a $4.3-million reduction to cost of sales.
Cash generated by operating activities increased significantly to $30.6-million, compared with $12.7-million in the first quarter of 2016. Higher prices of gold and silver and higher volumes of gold sold at lower unit costs generated significantly higher cash from operating activities. The company used $18.1-million in investing activities in the first quarter of 2017, compared with $5.8-million in the first quarter of 2016. Investments in property and plant were higher by $3.7-million, mainly due to the addition of the Seabee gold operation, and the company also capitalized $2.5-million of underground development. Capitalized stripping at Marigold was $5.3-million higher than in the comparative quarter in 2016.
Subsequent events
On April 24, 2017, the final step in the sale of the company's Diablillos and M 18 projects, located in Argentina, to Huayra Minerals Corp. was completed with the reverse takeover (RTO) of Huayra by AbraPlata Resource Corp. This transaction was previously announced in the company's new releases dated Sept. 19, 2016, and April 25, 2017.
As a result of the RTO and under the terms of the definitive agreement, Silver Standard: received 19.9 per cent of AbraPlata as partial consideration for the sale of the projects, with a free carried interest in AbraPlata until the completion of a financing of $5-million or more; has appointed one member to the board of directors of AbraPlata; maintains the right to participate in future equity financings after the financing to maintain its ownership level in AbraPlata for as long as Silver Standard continues to hold more than 10 per cent of the then issued and outstanding shares of AbraPlata on a non-diluted basis; is entitled to cash payments to Silver Standard of approximately $1.6-million, of which $600,000 was received by March 31, 2017, over the first two years and $12.5-million over the following three to five years; and retains a 1.0-per-cent net smelter return royalty on production from each of the projects.
Subsequent to the quarter-end, AbraPlata paid Silver Standard its $500,000 instalment due April 30, 2017.
On April 26, 2017, the company announced that it entered into an option agreement with Eskay Mining Corp. to acquire up to a 60-per-cent undivided interest in the SIB project, located in British Columbia, Canada.
On May 2, 2017, the company completed the sale of 100 per cent of its Berenguela project in Peru to Valor Resources Ltd.
Qualified persons
The scientific and technical information contained in this news release relating to the Marigold mine has been reviewed and approved by Thomas Rice and James N. Carver, each of whom is an SME-registered member and a qualified person under National Instrument 43-101, standards of disclosure for mineral projects. Mr. Rice is the company's technical services manager and Mr. Carver is its chief geologist at the Marigold mine. The scientific and technical data contained in this news release relating to the Seabee gold operation have been reviewed and approved by Cameron Chapman, PEng, and Jeffrey Kulas, PGeo, each of whom is a qualified person under NI 43-101. Mr. Chapman is the company's general manager and Mr. Kulas is its manager, geology, mining operations, at the Seabee gold operation. The scientific and technical information contained in this news release relating to the Pirquitas mine has been reviewed and approved by Bruce Butcher, PEng, and F. Carl Edmunds, PGeo, each of whom is a qualified person under NI 43-101. Mr. Butcher is the company's director, mine planning, and Mr. Edmunds is its chief geologist.
MD&A and conference call
This news release should be read in conjunction with the company's unaudited condensed consolidated interim financial statements and its MD&A as filed with the Canadian Securities Administrators, and available on SEDAR and the company's website.
Conference call and webcast: Thursday, May 4, 2017, at 11 a.m. EDT
Toll-free in the United States and Canada: 1-800-319-4610
All other callers: 1-416-915-3239
Webcast: at the company's website
The conference call will be archived and available at the company's website.
Audio replay will be available for two weeks by calling the following.
Toll-free in the U.S. and Canada: 1-855-669-9658, replay code 1322
All other callers: 1-412-317-0088, replay code 1322
About Silver Standard
Resources Inc.
Silver Standard is a Canadian-based precious metals producer with three wholly owned and operated mines, including the Marigold gold mine in Nevada, U.S., the Seabee gold operation in Saskatchewan, Canada, and the Pirquitas silver mine in Jujuy province, Argentina. The company also has two feasibility-stage projects and a portfolio of exploration properties in North and South America. It is committed to delivering safe production through relentless emphasis on operational excellence. It is also focused on growing production and mineral reserves through the exploration and acquisition of assets for accretive growth, while maintaining financial strength.
We seek Safe Harbor.
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