Ssr Mining Inc. (SSRM) Q1 2023 Earnings Call Transcript

Hello, everyone, and welcome to SSR Mining's First Quarter 2023 Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Alex Hunchak from SSR Mining. Please go ahead. Thank you, operator, and hello, everyone. Thank you for joining SSR Mining's first quarter 2023 conference call, during which we will provide an update on our business and a review of our financial performance. Our first quarter 2023 consolidated financial statements have been presented in accordance with US GAAP. These financial statements have been filed on EDGAR, SEDAR, 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 the call are in US dollars unless otherwise indicated. Today's discussion will include forward-looking statements, so please read the disclosures in the relevant documents. Joining us on the call today are Rod Antal, President and CEO; and Alison White, CFO. Now, I will turn the call over to Rod for his opening remarks.

Thank you, Alex, and hello everyone. We concluded 2023 with a strong focus on execution and operational delivery, and our first quarter results align well with our expectations. We are on track to meet our guidance targets and anticipate improved production and costs in the coming quarters, which will generate significant free cash flow for the rest of the year. Our first quarter began with the announcement of our updated three-year guidance, reaffirming our commitment to maintain an annual production of 700,000 ounces through 2025, a level we aim to sustain throughout the decade without substantial capital investment. We are advancing numerous key work programs to support this long-term production goal, including preproduction efforts at the Çakmaktepe extension, with initial production expected in 2023, as well as investing in four new haul trucks for the waste stripping operations at Red Dot. Additionally, we have highlighted our exploration portfolio by releasing impressive near-mine results from Puna, which could enhance mineral reserve growth at the mine, thereby bolstering our long-term production platform. We have several key catalysts planned for this year, including first production from Çakmaktepe extension, technical report updates at Marigold and Çöpler to demonstrate their potential, and further exploration results from our other targets. Our robust capital returns program continued in the quarter, and given our optimistic outlook for the remainder of the year and a strong balance sheet with nearly $900 million in total liquidity, we plan to remain active in the share buyback program. With a rich history as explorers, mine builders, and operators, our solid first quarter results keep us on track to meet our guidance targets, as we have done for the nine consecutive years before 2022. With positive catalysts on the horizon, we are excited for the year ahead. On April 14th, we published our fifth annual ESG and Sustainability Report, which marks another step in our commitment to operate responsibly and sustainably while maximizing benefits for all stakeholders. ESG has long been a core value for the company, underpinning our success. We continue to prioritize the health and safety of our employees and business partners, recently implementing a formal leadership initiative in the field to enhance engagement and safety performance across the company. Last year, we also focused on developing a global water strategy to manage water as a vital resource for both our operations and the communities we serve. We are now putting water management plans in place for each of our assets and advancing integrated mine closure plans to ensure we leave a positive legacy. This year, we will continue developing an action plan on our journey toward net zero, including assessing options for renewable energy and decarbonization technologies within our operations. We remain committed to advancing our ESG initiatives and look forward to sharing updates throughout the year. Moving on, the three-year guidance reiterates our expectation for a stable production platform of at least 700,000 ounces. With a strong exploration platform and several growth initiatives underway, we believe we can maintain this baseline production level through the decade. Later this year, we will share updated technical reports showcasing the maiden mineral reserves from the Çöpler C2 expansion project and a revised life of mine plan incorporating new ounces from Marigold's New Millennium target. Recent exploration results in Seabee and Puna have highlighted successes that present opportunities to build reserves and extend mine lives at each asset, which we will look to showcase in 2024. While the production platform detailed in this slide largely focuses on existing mineral reserves, we see numerous opportunities to enhance these reserves through the updated technical reports expected at year-end. These reports aim to capture positive potential regarding production and value from our portfolio. Additionally, we have a strong reputation as operators with a proven history of successful project delivery and value-accretive M&A. Our approach to M&A has not changed; we are actively seeking and evaluating opportunities to enhance our business through transactions that align with our strategy of low capital-intensity growth in core areas and support our focus on free cash flow. We successfully executed two deals in 2022, increasing our ownership in in-mine assets at Çöpler and Seabee, where we believe we have a significant advantage. Now, I will turn the presentation over to Alison.

Thanks, Rod. I'd like to first focus on our capital returns program and track record, which are well-aligned to the three pillars of our capital allocation strategy. We remain committed to our disciplined approach to the three pillars this year, continuing to reinvest in our business, ensuring balance sheet strength, and executing on our final pillar to return capital to shareholders. Through the end of April, we've returned approximately $47 million to shareholders in the form of our base dividend and through our active share buyback program. Our strong start to returns in 2023 follows two consecutive years with shareholder returns averaging 5% annually. Since the beginning of 2021, nearly $400 million of total capital has been returned to shareholders or approximately 14% of our current market cap. As Rod has mentioned, we see a number of positive and value-additive catalysts on the horizon. As such, we view our share buybacks as an accretive way to deliver further value to our shareholders. Slide eight will provide a review of the first quarter, so let's take a look at our results. There are a few key points that I'd like to highlight today. The first quarter production of 147,000 ounces was in line with budget. All-in sustaining costs of $1,693 an ounce were also in line with expectations and reflect our guidance of a first half-weighted sustaining capital profile, which included higher planned spending associated with haul truck purchases at Marigold and purchases during the Seabee winter road season. Overall, our full-year production profile remains 55% to 60% weighted to the second half of the year, and our free cash flow outlook remains even more heavily weighted to the second half of the year. As planned, sustaining capital remains in Q2, and we remain on track for our consolidated 2023 guidance targets. Also within the quarter, we were pleased to announce positive exploration results from Puna and proud to release our fifth annual ESG and sustainability report. And now I'll discuss our quarterly financial performance in more detail on slide nine. In the first quarter, we sold 155,000 gold equivalent ounces, generating $315 million in revenue. Attributable net income for the quarter was $30 million or $0.14 per diluted share, and adjusted attributable net income was $21 million or $0.10 per diluted share. First quarter operating cash flow of $3 million, and free cash flow of negative $56 million was impacted by the expected CapEx spend mentioned on the previous slides and the changes in working capital. Operating cash flow and free cash flow before changes in working capital were $91 million and $32 million, respectively. As noted, we continue to anticipate a second half-weighted free cash flow profile, supported by increased production and improving costs. With respect to inflation, we've seen some relief from diesel and power prices across the portfolio but note that consumable pricing and labor cost pressures remain a headwind for us. Overall, we remain on track for our full-year consolidated capital and cost guidance. Let's talk about our reported $0.10 in diluted earnings per share that is calculated based on the company's definition of adjusted attributable net income per share and is shown on the right side of the presentation. We start with our attributable net income of $0.14 per share and then make adjustments to exclude the after-tax impact of specific items that are not reflective of the company's ongoing operations. This quarter primarily featured adjustments for tax impacts, including a one-time tax in Türkiye to assist with earthquake recovery efforts, as well as a minor adjustment to the market value of our investment portfolio. And turning to slide 10, we'll talk about SSR's financial position. Our balance sheet remains one of our key strengths and pillars of our capital allocation strategy with nearly $600 million in total cash and more than $310 million in net cash. Total liquidity stood at nearly $900 million at the end of the first quarter. We are committed to maintaining a robust balance sheet to weather volatility in the commodity price environment and to ensure all of our capital commitments, debt servicing requirements, and base dividend payments are fully funded even in the event of a potential downturn in the gold price. The quarterly base dividend of $0.07 a share is payable to our $1,350 per ounce gold reserve price. At the same time, we will continue to reinvest in internal growth, including our exceptionally high return Çakmaktepe extension and C2 projects, as well as our plethora of exciting exploration programs across the portfolio that we have dedicated more than $80 million to this year. Finally, our peer-leading capital returns represent the third pillar of our overall strategy. So far in 2023, our previously discussed share buybacks and the annualized base dividend have us on track for a minimum full-year capital return yield in excess of 3%. We will remain dynamic in our approach to share buybacks and have the capacity to repurchase up to approximately 2.4 million shares in the current buyback program before its expiration later in June. Our significant capital returns over the year-to-date are a meaningful tailwind for the company. And I'll leave the discussion on a positive note as I turn it back to Rod to walk through the assets.

Great, perfect. Thank you very much, Alison. Earlier this year, we welcomed Bill MacNevin as our EVP Operations and Sustainability after a successful career at Barrick, among other places. Since his arrival, Bill has been laser-focused on ensuring operational delivery from each of the assets. Already, he has identified a number of opportunities to help streamline and drive down costs, and we're excited to see our portfolio continue to mature in both performance and ESG under his leadership. Right now, and as you would expect, he's in the field, but you will hear from him later in the year. I'll now talk to slide number 12, starting off with Çöpler. The mine delivered quarter one production of 55,000 ounces at an all-in sustaining cost of $1,420 per ounce, reflecting our expectations for a production profile weighted 55% to the second half of 2023. Impressively, the sulfide plant delivered its second consecutive quarter with throughputs above 8,000 tonnes per day, showcasing the successful ramp-up of the operation since last September. In addition, we are finalizing the plans for a full plant shutdown, which will either be late this quarter or early in quarter three. Other work programs at Çöpler continued as scheduled, including first production from the more than 1.2 million ounces from the Çakmaktepe extension project. We're also continuing to work on the C2 expansion opportunity through the pre-feasibility study, which will be published in the fourth quarter. Technical work to date has been built on the original technical report released in 2022, and we see potential to further improve the existing study through the incorporation of successful drilling results and flow sheet optimizations and refinements. Exploration work continues across the Çöpler district, including the regional Kartaltepe target, where we expanded our ownership to 80% in quarter four last year. We have a full suite of near and longer-term growth opportunities across the district, and we will continue to aggressively advance these during 2023. Moving on to slide 13. Marigold produced 52,000 ounces in the first quarter, in line with the plant production profile that is 60% to 70% weighted to the second half of the year. All-in sustaining costs of $1,663 in the first quarter reflected the planned spend on the new haul truck purchases that have facilitated the start of waste stripping at the Red Dot target. The sustaining capital will remain elevated in the second quarter as we complete the delivery of the remaining haul trucks, and we forecast all-in sustaining costs to reduce in the second half of the year. We expect to continue to recover the majority of the remaining ounces from last year's final material stacked in the second quarter. During the remainder of the year, we will stack more typical durable ore at Marigold and have already seen leach cycles return to normal. Marigold remains on track for a strong 2023 with full-year production of 260,000 to 290,000 ounces. We're continuing to progress the work ahead of an updated technical report for Marigold, where we are working to capture upside. This includes incorporating more than two years of drilling and in particular, focusing on the new Millennium target. Work is underway to identify longer-term production pathways at both Trenton Canyon and Buffalo Valley at the southern end of the Marigold property. So, moving on to slide 14 and Seabee. Seabee's first quarter production reflected a now resolved issue with underground equipment availability that negatively impacted the mine sequencing schedule. As a result, while we had expected the first quarter to represent the lowest period of production for the operation, grades processed were below expectations. And while we are working hard to hit the full-year guidance of Seabee, this will be a challenge. In addition, Seabee's winter road season means costs are heavily weighted to the first half of the year. Work continues to advance our near-mine exploration at Seabee as we prioritize mineral resource conversion activities to ensure mineral reserve growth and mine life extensions in the future. We also continued to evaluate early-stage exploration targets at depth below the existing Santoy mineralization, as well as regional targets like Porky and Porky West that could contribute meaningfully to Seabee's longer-term production platform. On to slide 15 and Puna. Puna once again delivered a strong quarter with 2 million ounces of production at an all-in sustaining cost of $16.40 an ounce. Puna remains well on track for its full year guidance with production 50% to 55% weighted to the second half, and costs are also improving in the second half. In the quarter, we announced positive exploration results from Puna predominantly focused on near-mine resource and reserve expansion efforts as we aim to extend the life of mine plans. We also demonstrated successful step-out drill results at the Cortaderas target on the Pirquitas property, which could also represent a longer-term growth opportunity for the mine. Moving on to 16, our exploration. Sitting on the exploration success of Puna and the other assets, work continued globally across the portfolio of growth opportunities. New mine exploration continues to advance in all four producing assets, and we're excited to showcase these results in the forthcoming updated technical reports starting with Çöpler and Marigold in the fourth quarter of this year. Work continues at our greenfield target in core jurisdictions, and we expect to have an update from our Copper Hill target in the coming months. We plan to invest significantly in exploration across the platform, recognizing significant value we can deliver to shareholders through the organic growth we have. So, just some concluding remarks before I open it up to Q&A. Now, as you heard, we started the year well and look forward to regaining some of the lost momentum as we deliver against our operational targets throughout the year. We remain firmly committed to capital returns as evidenced by the continued activity on our share buyback program and expect to deliver strong free cash flow into the second half of this year. We're excited for the many catalysts that we've explained that will be released during 2023, including the first production from the Çakmaktepe Extension project as well as highlighting the upside potential associated with our Çöpler and Marigold mines in the new technical reports planned for later this year. SSR Mining is in a great position, and we look forward to continuing to demonstrate that to the market throughout the remainder of the year. So, with that, operator, let's open it up to questions, please.

Thank you, Mr. Antal. Our first question is from Michael Siperco with RBC Capital Markets. Please go ahead.

Thanks very much, Rod and team for taking my questions. Maybe a couple of questions on Marigold and Puna, if I could. First, on Marigold, I know that you have the update coming. But can you talk a bit more about how you're thinking about the longer-term there, what considerations you're taking into account for sequencing in New Millennium, Trenton, Buffalo Valley? And at this point, I suppose, could you say whether or not it's possible that the lower guidance in 2025 could be backfilled with some of the new pits?

Yes. Our main focus right now is converting the exploration we've conducted over the past few years. Specifically at Marigold, we are emphasizing near-term opportunities that can enhance our current production profile. We are particularly looking for ways to improve the existing values in our production profiles. Our immediate efforts are centered around the oxide opportunities, especially the New Millennium target, which will be highlighted in the upcoming technical report. At the same time, we are considering future developments, exploring pathways for longer-term opportunities at Trenton Canyon and Buffalo Valley, which are still in the early stages of their lifecycle. We're beginning to conceptualize how these could contribute to Marigold's future. For now, our primary goal is to enhance and extend Marigold's production profile.

Is it fair to characterize the exercise as figuring out how they'd be sequenced, how you'd move ore around? Or is it more at this point figuring out what the mineral endowment is at each of the targets or both?

It's a combination of both aspects. We are examining two distinct elements, particularly regarding Trenton Canyon and Buffalo Valley, where we have oxide opportunities and potential sulfide prospects. Key considerations include whether the project is substantial enough to support its own infrastructure, such as the possibility of establishing a heap leach pad in that area instead of transporting materials to the Marigold mining processing site. These are some of the early trade-offs we are assessing, and drilling is progressing to help us better understand the size and value of the resources.

Okay, that's great. That's helpful. And maybe just flipping to Puna. Could you update us maybe on how you think about Puna in the portfolio? You've obviously had the solid exploration results. You've been reinvesting. Obviously, silver has moved higher, too. Do you think you get full value for that silver? Should we still think of it as a core operation and core jurisdiction in Argentina? And do you expect this level of reinvestment and exploration to continue for the foreseeable future?

Yes, I think if you take a step back and look at Puna, probably from an exploration perspective, it's actually been under-invested for a number of years. Last year was our really first effort of putting some more effort and dollars into the exploration programs. Not a surprise to us, the drill results that we're releasing in quarter one were outstanding and do show clearly a potential there for mine life extension for the assets. So, that's a good place to start. So, while we're generating those results and understanding how they play into the longer-term picture for Puna for extending the mine life, they will get more dollars to invest into it. But at this stage, Puna remains a core asset to us. As it continues to evolve, that will be important to us to really understand its full potential as an asset in the SSR portfolio. So, it's pretty exciting with some of the results we're getting down there.

Okay, great. No, that’s helpful. Thanks and I'll pass on the line. Thank you.

Your next question is from Cosmos Chiu with CIBC. Please go ahead.

Hi, thanks, Rod and team for the conference call. Sorry, if you might have answered some of my questions here, but I missed the first 10 minutes because it took me 10 minutes to get in. But maybe first off on Seabee, Rod, not the best quarter in Q1, as you mentioned. Could you maybe elaborate on what the equipment downtime issues were and how they were resolved?

Yes, look, sorry you missed the first 10 minutes, but I'm happy to answer the questions. Happy to answer your questions. Look, the Seabee issue was just equipment availability. We had some unscheduled maintenance, which meant that the development rates and access to the mine schedule we had actually planned for weren't able to be executed. So, instead of accessing some of the better grades, we were in areas where we hadn't planned to be. So, it was as simple as that. We've now overcome those issues, and the fleet is up and running again. But as you know, with a quarter behind us, we're going to do everything we can to catch it back up, but it might be a bit of a stretch to sort of get back to that bottom end of guidance. But again, if I look at it from an overall perspective in materiality, relative to the other assets, it is obviously a smaller contributor, so it's not a concern for us on a consolidated basis at this stage.

Of course. And I think in the MD&A, you mentioned that you're trending back up to reserve grade. I think reserve grade is 6.35 grams per tonne. How does it work? Is it like linear? Are you going to get back to it right away? And how should we look at grade?

Look, as soon as we get back into the more normal sequence, you would expect it to hit that average cost. So, to answer your question, yes, we would expect it to get back to that average for the year.

Yes. And then, Rod, last year was a very good year. There was positive grade reconciliation to the point where I think at one point, you were trying to look to see if you could do some exploration around the fringes to find some of that higher grade. I didn't see it mentioned in the MD&A, but could that be a factor in terms of Seabee? Or is there any potential here in terms of the higher grades that you saw last year this year?

We are still actively exploring and have a program focused on continuing to assess the mineralization at depth. That is indeed part of our work this year. Regarding the planning for the leprechaun pots at Cosmos, it's a risky approach to take. However, if it works out, that would be fortunate for us. Nevertheless, we do not operate in that way.

So, where is the play if you don't bet on the leprechaun?

Well, if we do, Cosmos, you'll be the first to know.

All right. Thank you. Awesome. Maybe switching gears to Çöpler, great to hear a number of catalysts coming up, Çakmaktepe extension, and then also C2. Have you ever disclosed, Rod, I forget how much are you accounting for in terms of Çakmaktepe Extension coming in, in terms of production ounces to get to your guidance for the year for Çöpler? Did you ever talk about that, or if you didn't, can you?

Cosmos, I don't think we actually put it into by location. But overall, the oxide production at Çöpler this year is 30,000 to 35,000 ounces. Part of that, probably a third of that is the Çakmaktepe Extension.

Yes, great. Regarding the C2 project, it seems to have a lot of potential. Could you clarify if the C2 project is included in the 700,000-ounce platform you mentioned a few months ago, or is there a possibility for additional upside beyond what has been accounted for?

When we released the technical report, we discussed that C2 was initially similar to a Preliminary Economic Assessment case. This early analysis included certain ounces. However, as we have mentioned multiple times, the ongoing work aimed at updating us for the next round later this year will elevate our study to a Prefeasibility level, providing greater detail. We are focusing on two key areas: continuing our exploration efforts and optimizing the flow sheet, which may open up additional opportunities beyond C2. While there's not much more to share at this moment as it's still a work in progress, we expect that the findings from the 2022 study were just the beginning of C2's development, and we foresee potential for further improvements from our current initiatives.

Of course. Yes. Great. Thanks, Rod and team, and those are all the questions I have. Thanks again.

Thank you, Cos.

Thanks, Cos.

This concludes the question-and-answer session. I will turn the conference back over to Mr. Antal.

Right. Thanks very much. And look, again, thanks very much for joining us on the call. Look forward to a very strong 2023 and talk to you all soon.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.