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Good morning everyone, and welcome to SSR Mining’s Second Quarter 2019 Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Stacey Pavlova, Manager, Investor Relations. Please go ahead.
Thank you, operator. Good morning, ladies and gentlemen. Welcome to SSR Mining’s second quarter 2019 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 and EDGAR 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 U.S. dollars unless otherwise indicated. All references to cash costs and all-in sustaining costs are per payable ounce of metal sold. We will be making forward-looking statements today, so please read the disclosures in the relevant documents.
Joining us on the call this morning are Paul Benson, President and CEO; Greg Martin, our CFO; Kevin O’Kane, COO; and Carl Edmunds, Vice President, Exploration.
Now, I would like to turn the call over to Paul for opening remarks.
Thank you, Stacey. Good morning, ladies and gentlemen. I’m very pleased to welcome you to our call to discuss our second quarter 2019 operating and financial results. We delivered a strong quarter as we produce nearly 100,000 gold equivalent ounces and progressed a number of strategic initiatives, while we maintained our financial strength. All three mines achieved solid results.
At Marigold, we produced 55,000 ounces of gold, while stacking nearly 30% more ore on the leach pad at a higher grade, compared to Q1 setting us up well for the remainder of the year. At CB, high gold grade and recovery led to a strong quarterly production of over 26,000 ounces. The new underground equipment was commissioned early in the second quarter and we are already seeing an improved underground development rate as well.
Puna operations produced 1.5 million ounces of silver, with silver grades tracking well to the mine plant. So, overall, the solid performance delivered by each operation position is slow for the year. With the first half of the year behind us, we are taking this opportunity to revise or guidance at each operation as Greg will discuss later.
On a consolidated basis, we are improving our production guidance and increasing our mid-point production to 400,000 gold equivalent ounces. Largely due to strong metal prices, which drives royalties upwards, we are marginally increasing our cash cost guidance with mid-point now expected to be $735 per gold equivalent ounce.
During the second quarter, we announced the acquisition of the Trenton Canyon and Buffalo Valley properties located immediately south of Marigold mine. This acquisition almost doubles our land package and provides us with the opportunity to grow the reserves and resources and potentially extend Marigold’s mine life.
We expect to begin drilling there in the third quarter of this year and Carl will discuss this later in the call. As we recently reported, our exploration programs at Marigold and CB have been successful, and we expect to reserves and resources at year-end 2019 from a number of our exploration targets.
Most pleasingly, we anticipate the conversion of resources to reserves at Red Dot area, which is expected to extend the Marigold mine life into the early 2030s without the mining expansion capital previously considered as part of the equipment replacement study. This is particularly important for the operation in this environment where investors are rightfully focused on capital discipline rather than expansion for expansion sake.
We’re also pleased with our financial performance during the quarter as we reported $18 million of adjusted attributable net income and generated $33 million of cash from operating activities. We ended the quarter with a strong balance sheet of $452 million even after a $22 million cash outflow for the purchase of Trenton Canyon and Buffalo Valley properties.
Subsequent to quarter-end, we announced we have entered into an agreement to acquire the remaining 25% of Puna Operations. This acquisition provides many benefits both to SSR Mining and Golden Arrow shareholders as it allows us to consolidate our ownership, while providing Golden Arrow with funding to pursue exploration projects.
We also elected to exercise our participation right to purchase additional shares in SilverCrest, which allows us to maintain a 9.9% interest in the high-grade Las Chispas deposit.
With that, I’ll turn the call over to Kevin, who will discuss our operational performance in more detail.
Thank you, Paul. As you have heard, our operational performance in Q2 sets us up for an equally strong second half of the year. At Marigold, we had the second consecutive quarter with no recordable injury. At Puna, we reached 3 million hours of lost time incident dating back more than 2 years. And at CB, we safely mobilized and ramped up construction of the tailing’s expansion project.
From this stable base in the quarter, we produced more than 98,000 gold equivalent ounces at a consolidated cash cost of $775 per gold equivalent ounce. At Marigold, we produced 54,992 ounces of gold, 3% more than the first quarter. Cash costs were $835 per ounce, 3% higher, compared to the first quarter.
The cost results were driven mainly by increased reagent consumption from more ore ton stacked, dry maintenance on the Hitachi haul fleet and lower capitalized dripping, which sees overburdened costs allocated to cash costs. Although diesel prices were higher, this was partially offset by lower tariff cost from improved life.
We moved 19.3 million tons of material; an 11% increase compared to the first quarter. Approximately, 7.1 million tons of oil were delivered to the heap leach pad at a grade of [0.38 grams] per ton gold. This compares to 5.5 million tons of ore at a grade of 0.34 grams per ton gold in Q1, and we expect this stack rate to increase through the year.
As Paul already discussed, at the Red Dot area, we completed a drill program in 2018 and geotechnical drilling and engineering work in H1 2019, aiming to convert resources to reserves. This effort was successful and we’ve already converted 250,000 ounces to reserves as reported at year-end 2018, and now expect to add reserves at Red Dot.
This work completed by Marigold is based on current assumptions, which included gold price of $1,250 per ounce and is anticipated to extend the Marigold mine life into the early 2030s. We are very pleased with this result and extend thanks to the team for their hard work.
Seabee's operational performance was solid. The operation produced 26,539 ounces of gold in the second quarter of 2019, a 15% decrease, mainly due to timing of gold pours at year-end 2018 that led to an overall higher gold production in the first quarter of 2019. Cash costs were $526 per ounce, compared to $467 per ounce in Q1 2019 as the timing of gold pours benefited unit cash cost in the first quarter.
The new underground mining equipment delivered over the ice road was commissioned at the beginning of the second quarter and is operating at the Santoy mining complex. Underground development rates, the key driver for higher ore extraction in the future increased by 26% during the second quarter, compared to the previous quarter. We’re on track to reach a processing rate of 1,050 tons per day by year-end 2019.
The mill achieved an average throughput of 971 tons per day over the second quarter, a 4% decline compared to the previous quarter, largely due to the planned work on the electrical distribution system as part of the tailings expansion project. Gold mill feed grade was 9.83 grams per ton, 15% higher compared to the first quarter and in-line with plan.
Gold recovery for the quarter was 98%, a 1 percentage point increase over the first quarter. And we’re on track with the development of the tailing’s expansion project. Puna operations produced 1.5 million ounces of silver during the second quarter, 38% lower than the first quarter of 2019, mainly due to lower silver grades, which are consistent with the mine plan and the reserve grade and processing less ore.
Silver sales totaled 2.7 million ounces. On an attributable basis, silver production and sales for the second quarter totaled 1.1 million ounces, and 2 million ounces, respectively. The increase in silver sales in Q2 aligns quarterly sales with production year-to-date. Zinc recovery from the Chinchillas ore has been lower than projected, reflecting our focus on raising silver recovery above that projected in the PFS, and lower than expected performance of the zinc circuit to date. Cash costs were $9.80 per ounce of silver for the second quarter, compared to $9.94 per ounce of silver for the first quarter, reflecting the increase in byproduct credits.
During the second quarter, ore was milled at an average of 3,436 tons per day, and 11% decrease compared to the previous quarter, mainly due to maintenance of control systems and continued debottlenecking of the new tailings pumping system that is expected to continue through the third quarter of 2019. Processed ore in the second quarter of 2019, Canadian average silver grade of 160 grams per ton, a 32% decrease, compared to the first quarter consistent with plan.
Mining of the Chinchillas pit reached the planned rates during the quarter as we stabilize the operation. Strip ratio was 16:1 as mining of the next phase of the Chinchillas pit continues as planned. The strip ratio will decrease for the second half of the year and trend to the long-term strip ratio outlined in the PFS.
In summary, the operation delivered solid results during the quarter, setting us up well for the second half of the year. We continue our focus on safe production and achieving steady state operation and Puna, while exploring for additional mineralization at Marigold, including at the recently purchased land position and in and near the Seabee Gold Operation.
I will now hand over to Carl, who will take you through our exploration activities.
Thank you, Kevin. For 2019, our objectives at Marigold are resource conversion at Red Dot and exploration for new resources North and south of Red Dot and at the Mackay and Valmy areas. Our objectives at Seabee focus on resource conversion at Santoy 8A, Gap and Gap hanging wall and resource growth drilling at Gap hanging wall. Greenfields activities continue at the Fisher project and select areas south of the Santoy mine.
Turning to Marigold, the main focus of former 2019 activities has been to define the Red Dot mineral reserve through a completion of geotechnical and QA, QC core drilling to provide sufficient data for detailed mine planning. And similarly, to this has been continued exploration for drilling for additional resources North and South of Red Dot in the Mackay pit and at the Valmy and East Basalt areas.
During the second quarter, we completed a total of 66 reverse circulation drill holes for 25,167 meters on these targets. At Red Dot, our exploration and drilling indicates that the majority of the originally targeted mineral resources is expected to convert to mineral reserves at year-end 2019 as disclosed in our exploration update news release in late July. We view this as a successful result, which will extend the mine life at Marigold.
We released exploration results from drilling completed in September 2018 at Red Dot, North and South Red Dot the Mackay pit. Examples such as the 114 meters of 0.79 grams per ton gold at North Red Dot, 47 meters of 1.7 grams per ton gold at South Red Dot, and 53 meters of 0.7 grams per ton gold at Valmy were received this quarter as set out in our July news release. We expect these results to positively impact our mineral reserves and mineral resources estimate at year-end 2019.
During the third quarter of 2019, we will begin exploration work at the recently acquired Trenton Canyon property. Our objectives there are to develop the mineral resources estimate and to evaluate the greater consolidated land package for other perspective targets. At the Seabee gold operation, our 2019 exploration plans include 45,000 meters of underground drilling and 15,000 meters of surface drilling with the objective to increase and convert mineral resources into mineral reserves near the Santoy mining complex.
During the second quarter of 2019, close to Santoy mine area, we completed 20,379 meters of surface and underground drilling in 49 holes. Our drill programs focus mostly on Santoy Gap hanging wall with a number of holes completed on Santoy Gap and the Santoy 8A zone. Results received during the second quarter at Santoy Gap hanging wall include examples of such as 5.8 meters of 9.16 grams per ton gold, four meters of 23.3 grams per ton gold, and 5.8 meters of 11 grams per ton gold as highlights from drill intersections outside the mineral resource, as reported in our July news release.
We are confident that Gap hanging wall will again make a positive contribution to mineral resources when reported at year-end 2019. Greenfields exploration activities began in June and are focused on inferred mineral resource discovery on the Seabee Gold Operation claims and the adjacent Fisher project. This work comprises field programs of soil geochemistry, prospect entrenching and geological mapping conducted from fly camps located at strategic points along the Santoy shear.
Prospecting work has already located anomalous gold mineralization in bedrock 500 meters north of the Mac target where we reported a drill intercept of 7.3 grams per ton over 1.6 meters and 3.76 grams per ton over 4.2 meters as previously reported in Q1 2019.
Turning to Pitarrilla. Last week, we announced that we are assessing further exploration activity following the review of a smaller scale underground mining alternative. This underground project is based on the potential to increase contained silver, zinc, and lead in the resource to improve definition of high-grade vein mineralization.
The contemplated underground drill program would orthogonally target higher-grade vein mineralization associated with steeply dipping rhyolite dikes that cross-cut the host lithology at angles parallel to most of our current resource drilling.
This mineralization is likely to be underrepresented in terms of grade and continuity in our historic drilling and current resource. Presently, we are in the process of evaluating contractors to extend the existing decline and if approved, our intention is to initiate drilling in the second half of 2020.
Now, over to Greg for a discussion of our financial results.
Thanks Carl. The second quarter continued to support our expectations for the year with continued stronger production on the back of the December 2018 start-up of Chinchillas, driving sequential improvement in financial performance. Gold price strength late in the quarter had a limited impact on the second quarter and silver prices were a drag on results. So, our financial improvement reflects operating performance.
For the quarter, we generated revenues of $155 million, a 50% increase from the comparative quarter, and a 23% increase from the first quarter. Revenue was positively impacted by above production sales at Puna, as we sold down a good portion of inventory built in the first quarter. Going forward, our objective remains achieving a general balance of production and sales. Though it's typical in concentrate operations, some volatility will persist.
Income from mine operations was $30 million this quarter, about a 41% above the comparative quarter, and in-line with Q1 as we saw a marginally lower contribution from gold assets offset by a higher contribution from our silver asset. Reported net income was $12.4 million or $0.09 per share, an improvement from both the comparative and first quarter.
Adjusted net income was $18 million or $0.15 per share. So, a positive and straightforward quarter from an income statement perspective. Cash generated by operating activities was $33 million, roughly double the comparative quarter, and clearly significantly better than the first quarter. You may have noted that operating cash was negatively impacted by an $11.4 million build of non-cash working capital.
We have seen a large overall build in the first half of the year totaling $39 million. Non-cash working capital in the second quarter was largely driven by an increase in accounts receivable from the high concentrate sales that have delayed payment terms. So, we will definitely see recovery of this working capital as concentrate sales stabilize and Seabee works aggressively through its site consumable inventories over the balance of the year.
Investment in our operating assets remained on track for guidance, totaling $21.4 million for capital and capitalized mining and exploration cost. The biggest use of cash was the $22 million paid for the acquisition of the Trenton Canyon and Buffalo Valley properties contiguous to Marigold. We also use $4.8 million for the residual infrastructure works at our Chinchillas project.
We closed the quarter at $452 million of cash, a marginal reduction in our cash balance, due to working capital and the land acquisition. And with our $75 million credit facility completely undrawn, we remain in an enviable liquidity position. We have completed our mid-year forecast process, which combined with a favorable first half of the year has driven revisions to certain of our guidance metrics.
At the Marigold mine, full-year production has increased to between 205,000 and 220,000 ounces. As we have been able to stack more ounces early in the year than anticipated, due to pit optimization. Cash cost guidance has increased marginally, due to a lower proportion of waste mining costs being capitalized, and higher royalty cost on the back of higher gold prices.
Each $100 increase in the gold price adds approximately $10 to Marigold reported cash cost. With the reduction in capitalized stripping guidance to $15 million, all-in sustaining cost remained largely unchanged. At the Seabee Gold Operation, similarly production guidance has increased to between 100,000 and 110,000 ounces, due to higher grades mined.
We have also had a meaningful downward revision to cash cost guidance to between $475 and $505 per payable ounce sold, due to higher grades, favorable foreign exchange rates in the first half of the year, and strong cost discipline. The operating margins at Seabee are quite impressive at these gold prices.
At Puna operations, with the mine and mill now operating for six months, we have actual performance data, we have incorporated into our guidance update. We have seen better silver recovery then modelled and lower zinc recovery. The silver/lead concentrate holds the majority of value with better payment terms. So, our focus is on optimizing silver and lead.
Silver guidance has been increased to between 6.5 million and 7.5 million ounces, at higher cash costs of between $9.75 and $11.25 per payable silver ounce. Capital stripping and capital expenditures have increased marginally as we focus on stripping the Phase 2 pit. Work remains ongoing to optimize performance recognizing we are in the early days of Chinchillas operations.
So overall, we are set up well for the second half of 2019. Looking forward to the third quarter, we have announced the intent to acquire the remaining 25% of Puna operations. This acquisition is unlikely to impact on our third quarter results with an expected close date late in the third quarter or early in Q4.
The consideration is almost all non-cash and as we already consolidate 100% of Puna results, once the deal completes the financial reporting results are mainly balance sheet related. Post-acquisition, we will benefit from the full operating exposure of the asset through the elimination of the noncontrolling interest. We will also record the purchase of the SilverCrest top-up shares in the third quarter.
Our participation in its financing has a relatively modest impact to cash of up to $3.5 million. The original purchase of shares has proven quite positive. At the end of July, we saw about $21 million increase in value. So, we are pleased to continue to support their success. The final point I will highlight is to move in metal prices through July for both gold and silver. Each metal has moved through some significant resistance levels, so that is an encouraging long-term development.
With those comments, I turn the call back to Paul.
Thanks, Greg. So, in summary, another strong production quarter, enabling us to improve guidance, which positions us to meet or exceed guidance for the eighth consecutive year. Our investment in exploration continues to pay dividends as we expect Red Dot to increase the mine life without the need for expansion capital at Marigold, and as we continue to drill the Santoy Gap hanging wall at Seabee.
Pending final approval, we will look to extend the existing decline at Pitarrilla to complete a drilling campaign with the aim of increasing the high-grade zones and hit our objective of double-digit returns at spot silver price. We’ve also continued to pursue external opportunities, while maintaining strong financial discipline, which includes completing the acquisition of the Trenton Canyon and Buffalo Valley properties neighboring Marigold, announcing the acquisition of the remaining 25% in Puna operations, and maintaining a 9.9% increase in SilverCrest and our exposure to the high-grade Las Chispas project.
Finally, with the refinancing of our convertible notes earlier this year, our balance sheet is in a very strong position allowing us to pursue internal and external growth opportunities.
This concludes the formal remarks of our earnings call. I'll now pass the line to our operator to take any questions you may have.
Thank you, Mr. Benson. [Operator Instructions] The first question comes from Mike Parkin with National Bank. Please go-ahead, sir.
Hi, guys. Thanks for taking my call. Following up on Greg’s comments about the working capital build in the first half, where do you expect like accounts receivable to kind of normalize by the end of the year?
Yes, thanks. Good morning, Mike. You will note obviously sales at Puna and those accounts receivable are largely related to our concentrate sales, we would cover any gold sales in an immediate fashion. So, as we production come in line and we will see those accounts receivable probably come back just above 50% of the level that we see now. If you look at what our production guidance is and you match up sales up the kind of range that we would expect to see those come in line too.
Okay. Good. I think that was pretty much it from me. Everything else seems pretty straight forward with the previous releases you’ve given. Thanks very much.
Thanks.
The next question comes from Chris Thompson with PI Financial.
Hi, good morning guys. Thanks for organizing the call. Just two quick questions, Marigold first of all. How should we be looking at strips for the remainder of the year and more specifically the – I guess the portion that you plan to capitalize?
We don’t give quarterly guidance on strip ratios, but Kevin just in terms of where we are mining at the moment.
Yes. Our stripping ratios should remain similar to what they have been in the first half of the year. There is nothing, no changes made in the mine plant.
Greg, any comments on the projects, catalogs?
Yes. So, Chris, I would point you towards our guidance. So, you can see we dropped preferred stripped guidance relative to where we started the year and that’s really reflecting on what’s happened in the first half of the year with more ore tons being mined and you can see that in the stack. So, clearly, our guidance indicates that we will see a return to what I call average strip ratios over the balance of the year. And kind of back to the typical level of give or take $3 million to $4 million capitalized in each quarter to get us towards our guidance number for the year.
Perfect. Thank you for that. And then just over to Puna, obviously a bit of a switch around moving to higher silver and obviously lower zinc production there, would it be true to say that the Q2 would be more representative by way of grade and – sorry recoveries and head grades to what we should expect through the remainder of the year here?
Yes, Chris that’s right. You will see the second half being very similar to Q2 in both in grades and recoveries for both metals, for all the metals.
Perfect guys. Alright, thank you very much.
Thank you.
[Operator Instructions] The next question comes from Adam Graf with B. Riley FBR. Please go ahead, sir.
Hi, guys. Thanks for taking my call. congratulations on a quite a strong quarter. I just have a couple of detailed questions; can you give us any guidance Greg on tax – effective tax rates that we can expect for the second half of the year?
Yes, sure. Adam, I will do my best and I have talked to taxes over a number of previous quarters. They are an issue always has some variability and it is a bit difficult to predict. What I would say is, in this quarter there is really nothing unusual that happened in our tax. You know we are taxable at Seabee and Marigold and we see basically recoveries at corporate and recoveries at Puna where we have inflation adjustments that flow through the tax expense down at Puna that resulted in some different tax recovery and that’s going to be an ongoing issue that’s I’ve highlighted in the last couple of calls.
So, quarter-to-quarter we are going to see some variability. I’d still guide generally to, you know about a 25% effective tax rate over a longer-term period, but we certainly could see that very meaningfully from that percentage in a period just depending on where foreign exchange and inflation rates go down in Argentina principally.
And then, speaking about Puna, can you guys give us the rough or the – maybe the exact realized income lead prices that you realized?
I’m sorry, I don’t have what we would call the exact numbers, but effectively we would realize what the prevailing price was in the quarter for the shipments that settled. We have a number of outstanding shipments that we will continue to settle that would be subject to price adjustments over the kind of six weeks post quarter end depending on where those base metal prices go.
And related to the realized price, what was the impact of TCRCs in the quarter?
Yes. So, if you look at our cash cost note in our MD&A, Adam, you'll see the TCRCs that we incurred, disclosed separately as an item in that table. You know look at that and if you want to follow-up, I’m certainly happy to have a discussion on any specifics on it.
Alright. And then getting away from kind of accounting type issues, can you guys give us an idea of when you are going to sort of have a new idea of a mine plan or potential mine plan for mine plan for Pitarrilla?
As we have said around Pitarrilla, we are reviewing at the moment, looking at the extension of the decline and then the diamond drilling. Gut feel at the moment, order of magnitude for that would be 18 to 24 months, extending the decline doing the drilling and then interpretation. And so, obviously following on from that and we worry about what the new mine plan looks like.
And sort of what, I assume you're going to be sort of thinking about spot pricing at that time?
Yes. What we have said with Pitarrilla is, we will only move forward, if it gives us double-digit IRR at spot price. Obviously, the challenge with silver, the consensus projects has in recent years hit fairly significantly about the sport price. So, you can't justify the project just with hoping for the consensus price. We will take into account at that time what the spot prices and making a valuation at that time.
And based on the old plan, and the current exchange rates, does Pitarrilla look pretty good at $17 silver?
With a history of Pitarrilla, the original plan coming in 2012 that was a project with capital. That needed well over $20 to get a double-digit return. Last year, we be said we will do a study to look at a smaller project focused on higher grade underground focus on the sulfites. It came back at a single digit IRR, and we said we’re going to maintain our discipline. So, we're NPV positive, which is great, but we want to maintain that discipline.
When we went back to have a look, we realize that – we think there is a good chance that the higher grade is under represented in that old resource model. So, we're going to go ahead with this. So, irrespective of what the silver price does short-term, we're going to do this evaluation because we believe this is the chance being to increase volume and impacted that high growth.
Alright. Thanks for taking so many questions guys. I appreciate the patience.
Not at all. Thank you.
This concludes the question-and-answer session. I will turn the call back to Mr. Benson.
Thanks very much operator. Thanks very much everyone for participating in the call today. Have a great day.
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.