"In 2012, Silver Standard delivered on its commitments to the market and positioned the Company for growth," said John Smith, President and CEO. "We exceeded silver production guidance, achieved cost guidance, announced the results of the Pitarrilla Feasibility Study and received approval for the San Luis Environmental Impact Assessment. More recently, we bolstered our management team and raised $265 million - enabling us to repay existing debt and helping to fund new mines."
(All figures are in U.S. dollars unless otherwise noted)
- Reported strong financial performance: Generated annual sales revenue of $241 million, a 63% increase over the $148 million generated in 2011. Increased cash and cash equivalents to $367 million from $329 million at December 31, 2011.
- Delivered at Pirquitas: Produced 8.6 million ounces of silver at Pirquitas, exceeding the high-end of the 2012 guidance range. Reported direct mining costs of $12.61 per ounce of silver produced, down 8% from $13.65 per ounce in 2011 and within the 2012 guidance range.
- Executed the sales strategy: Signed multiple long-term silver concentrate sales contracts with smelters, diversifying the customer base and reducing treatment and refining costs.
- Completed the Pitarrilla Feasibility Study: Completed the Pitarrilla Feasibility Study, defining a 32-year, high production project in Mexico.
- Delivered organic growth: Increased the Company's silver Mineral Reserve to 566 million ounces, approximately three-times the 189 million ounces reported at year-end, 2011. Increased Measured and Indicated Mineral Resources to 1,188 million ounces of silver, up 3% from 1,148 million ounces of silver reported at December 31, 2011.
- Raised capital for mine development: Subsequent to year-end, closed a $265 million offering of convertible notes, the proceeds of which are anticipated to be used to repurchase or redeem approximately $138 million of the Company's outstanding 2008 convertible notes and for general corporate purposes, which may include developing or advancing the project portfolio.
Director, John R. Brodie Passes Away
Silver Standard regrets to announce that director, John R. Brodie, passed away on Sunday, February 24, 2013. "We would like to express our sincere appreciation for John's tremendous contribution to Silver Standard and for his friendship," said Peter Tomsett, Chairman of the Board. "John's leadership has been instrumental to the Company's development, and he will be greatly missed."
Pirquitas Mine, Argentina
Summary Mine Operating Statistics (1)
|Q1 2012||Q2 2012||Q3 2012||Q4 2012|| Full Year |
| Full Year |
|Total material mined||Kt||4,297||4,483||4,333||4,415||17,528||17,480|
|Silver mill feed grade||g/t||221||219||214||212||217||253|
|Zinc mill feed grade||%||0.97||0.66||0.65||0.67||0.74||1.02|
|Silver produced||'000 oz||2,172||2,021||2,163||2,268||8,624||7,056|
|Zinc produced||'000 lbs||3,324||1,900||2,770||3,176||11,171||10,122|
|Silver sold||'000 oz||1,536||1,859||2,770||3,218||9,383||4,846|
|Zinc sold||'000 lbs||1,791||1,791||2,152||2,731||8,465||12,419|
|Realized silver price||US$/oz||32.20||30.06||29.37||32.69||31.13||33.58|
|Cost of inventory||US$/oz||14.79||14.42||14.99||14.81||14.78||15.19|
|(1)|| The Company reports non-GAAP cash and total costs per ounce of silver produced to manage and evaluate |
operating performance at the Pirquitas mine. See 'Cautionary Note Regarding Non-GAAP Measures.'
The Pirquitas mine produced 8.6 million ounces of silver during 2012, 22% more than the 7.1 million ounces produced in 2011. The higher 2012 production is the result of better mechanical availability in the plant and operational improvements that led to higher and more consistent throughput. The mine also produced 11.2 million pounds of zinc, 10% more than the 10.1 million pounds produced in 2011, again largely the result of higher throughput.
During the year, 1.6 million tonnes of ore were processed at an average milling rate of 4,433 tonnes per day, 11% above the plant's nominal design. This compares to 1.1 million tonnes processed in 2011, at an average milling rate of 2,983 tonnes per day. The ongoing performance above design was the result of continuous improvement initiatives at the mine, including improved preventative maintenance.
The average silver grade of the ore milled in 2012 declined to 217 g/t from 253 g/t in 2011. The average silver recovery rate declined to 76.3% in 2012 from 79.5% in 2011, partly due to a temporary shortage in the desired reagents. Despite lower grades and recoveries, overall production improved due to the higher average milling rate.
Mine operating costs
Cash costs per ounce and total cost per ounce are non-GAAP financial measures. See "Cautionary Note Regarding Non-GAAP Measures."
Direct mining costs for 2012, as detailed under the Company's previous presentation method for its non-GAAP financial measures were $12.61 per ounce of silver produced, within the guidance range of $11.85 to $12.85 per ounce.
During 2012, the Company changed its presentation of cash costs, a non-GAAP financial measure. Under the revised methodology, the Company reports "cash costs" and "total costs" on a "per payable ounce sold" basis. Silver concentrate export duties, that are being accrued but not paid, are included in total costs to reflect their non-cash nature. Previous disclosures have been restated to conform to the amended presentation.
Cost of inventory in 2012 was $14.78 per payable ounce of silver compared to $15.19 per payable ounce in 2011. The cost of inventory was lower in 2012 as operating costs on a per ounce basis improved due to consistent production and higher throughput.
Cash costs in 2012, which includes treatment and refining costs, freight and transportation, and by-product credits were $19.14 per payable ounce of silver compared to $19.70 per payable ounce of silver in 2011. The lower incremental per ounce impact of off-site costs in 2012 compared with 2011 is due partially to lower silver prices in 2012 and improved concentrate sales contract terms negotiated in 2012.
Total costs, which includes export duties, depreciation, depletion and amortization, were $27.06 per payable ounce in 2012 compared to $26.36 per payable ounce in 2011. Depreciation, depletion and amortization costs on a per ounce basis were higher in 2012 due to a reduction of Mineral Reserves at Pirquitas at the end of 2011, which increased the depreciation charge on certain assets in 2012.
At Pirquitas, the Company completed an extensive diamond drill program of 142 holes for approximately 53,000 metres. The program was extended beyond the planned campaign following positive drilling results and the discovery of certain geophysical anomalies to the east of the San Miguel open-pit in the first half of 2012. The drilling program was principally designed to expand and better define the Cortaderas Breccia and Cortaderas Valley Mineral Resources as reported in the technical report entitled "NI 43-101 Technical Report on the Pirquitas Mine, Jujuy Province, Argentina", dated effective December 23, 2011 (the "2011 Pirquitas Technical Report"). An updated Mineral Resource model was completed, and as of December 31, 2012 the Cortaderas area is estimated to contain the following Mineral Resources:
| Cut-off Ag |
|Classification|| Tonnes |
|Ag (g/t)||Zn (%)||Ag (Moz)||Zn (Mlb)|
- Jeremy D. Vincent, B.Sc. (Hons), P.Geo., Senior Geologist employed by the Company, is the Qualified Person for the reported Mineral Resources estimate.
- All Mineral Resource estimates have been classified in accordance with current Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") definition standards.
- The above Mineral Resources are reported at a range of potentially economic silver cut-off grades to demonstrate sensitivity, whilst retaining reasonable prospects for economic extraction. The cut-off grade of 50 grams per tonne silver has not yet been demonstrated by a preliminary economic assessment or higher level mine study.
- Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. While the classification categories of Mineral Resources used in this news release are recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission ("SEC") does not recognize them and U.S. companies are generally not permitted to disclose resources in documents they file with the SEC.
- The reported tonnes, grade, and metal content may not tally precisely due to rounding.
This section of the news release provides management's production and cost estimates for 2013. Major capital and exploration expenditures are also discussed. See "Cautionary Note Regarding Forward-Looking Statements."
The Company's production and cost guidance for 2013 is:
- Produce and sell between 8.2 and 8.5 million ounces of silver.
- Produce over 20 million pounds of zinc.
- Cash costs between $17.00 and $18.50 per silver ounce.
- Capital expenditures of $25 million at Pirquitas, including approximately $15 million for a tailings facility expansion but excluding capitalized stripping costs.
- Expenditures of $15 million for exploration across the Company's portfolio.
- Expenditures of $17 million for development.
At the Pirquitas mine the Company expects to produce between 8.2 and 8.5 million ounces of silver in 2013. The mine is currently transitioning from Phase 1 to Phase 2 of the San Miguel open-pit, and due to ore and stockpile sequencing, the Company plans to produce approximately two million ounces of silver in the first quarter of 2013. Production is expected to increase as the year progresses.
The Company is required to adopt the accounting standard IFRIC 20 "Stripping Costs in the Production Phase of a Surface Mine" effective January 1, 2013, as discussed in detail under 'Future Accounting Changes' in item 16 of the MD&A. The Company estimates that the adoption of IFRIC 20 will result in the capitalization of a significant amount of stripping costs at Pirquitas in 2013 that will be amortized in subsequent periods. The estimated impact of this accounting standard has been included within the cash costs guidance provided.
Cash costs are a non-GAAP financial measure. See "Cautionary Note Regarding Non-GAAP Measures." Note that the Company changed its "cash costs" and "total costs" disclosure methodology.
The Company plans to spend approximately $15 million on exploration in 2013. Approximately $7 million is budgeted for exploration at the Company's Mexican projects, with the balance mainly budgeted for Argentina and Peru. The Company may increase its exploration budget or redirect exploration spending in response to positive exploration results.
The Company expects to spend a minimum of $17 million on development in 2013, including approximately $8 million at Pitarrilla and $7 million at San Luis, in line with the Company's goal of advancing these projects to construction decisions. In the event that the Company makes a positive construction decision for one or both of the projects, development expenditures would increase significantly. Planned investments in advance of construction decisions include optimization, land acquisition, community agreements, permitting and financing.
- Revenues were $241.1 million in the year ended December 31, 2012, versus $147.8 million in the year ended December 31, 2011. Cost of sales was $195.0 million, including $44.7 million non-cash depletion, depreciation and amortization, in the year ended December 31, 2012. This compares to a cost of sales of $95.9 million and non-cash depletion, depreciation and amortization of $16.5 million in the year ended December 31, 2011.
- Mine operations at Pirquitas earned $46.1 million in the year ended December 31, 2012, compared to $51.9 million in the year ended December 31, 2011.
- Net earnings of $54.8 million, or $0.68 per share, in the year ended December 31, 2012, compared to net earnings of $80.1 million or $1.00 per share in the year ended December 31, 2011.
- Cash and cash equivalents were $366.9 million at December 31, 2012, compared to $329.1 million as of December 31, 2011. Working capital was $379.0 million at December 31, 2012, compared to $399.1 million at December 31, 2011.
| Selected Financial Data |
(US$000's, except per share amounts)
This summary of selected financial data should be read in conjunction with the Management Discussion and Analysis of the Financial Position and Results of Operations and the audited consolidated financial statements of the Company for the years ended December 31, 2012 and December 31, 2011.
| Three Months |
Ended December 31
| Year |
Ended December 31
|Income (loss) from mine operations||16,640||(3,270)||46,112||51,919|
|Operating income (loss)||6,026||(7,137)||9,748||22,565|
|Net income for the period||23,848||2,584||54,826||80,128|
|Basic earnings per share||0.30||0.03||0.68||1.00|
|Cash generated by (used in) operating activities||13,305||(7,223)||5,410||5,679|
|Cash generated by (used in) investing activities||203||(20,507)||31,864||70,980|
|Cash generated by financing activities||—||882||618||20,085|
|Financial Position||December 31, 2012||December 31, 2011|
|Cash and cash equivalents||366,947||329,055|
|Current assets - total||593,771||476,676|
|Current liabilities - total||214,812||77,588|
|Total assets||1,316,912|| 1,276,102 |
A total of $23.9 million was spent during 2012 at the wholly-owned Pitarrilla project located in the State of Durango, Mexico compared to $18.2 million in 2011.
In a news release dated December 4, 2012, the Company announced the results of a feasibility study on the project. The following are key highlights1:
- Probable Mineral Reserves of 479 million ounces of silver, approximately 5.2 times greater than the 91.7 million ounces of Probable Mineral Reserves reported previously.
- A 32-year project life producing an average of approximately 15 million ounces of silver per year during the first 18 years of production.
- An after-tax NPV of $737 million at base case metal prices using a 5% real discount rate and $1.7 billion at spot prices. An after-tax IRR of 12.8% at base case metal prices using a discount of 5% and 21.2% at spot prices.
- Estimated average cash costs of $10.01 per payable ounce of silver over the life of the project.
- Total pre-production capital of $741 million, including $157 million of pre-production operating costs and $131 million of pre-operating revenue.
- Standard truck-and-shovel open-pit mining methods and well-established flotation and leach processing methods.
The feasibility study evaluates the development and construction of an open-pit mine, processing facilities, a tailings storage facility and supporting infrastructure. Pitarrilla is expected to be one of the largest silver mines in Mexico, producing an estimated 333 million ounces of silver, 582 million pounds of lead and 1,669 million pounds of zinc over a 32-year project life.
Pitarrilla is expected to use a standard truck and shovel open-pit mining method, with a fleet of trucks that is expected to haul an average of over 175,000 tonnes of material per day over 20 years. The plant will use standard grind, float and agitated leach circuits to process 16,000 tonnes per day of flotation/leach ore or 12,000 tonnes per day of direct leach ore. The plant will produce lead and zinc concentrates and a silver doré.
Pitarrilla is located approximately 160 kilometres north-northwest of the city of Durango. A paved roadway extends to within 47 kilometres of the plant site. The Company has been advised by the Comision Federal De Electricidad, Mexico's national power utility, that it will provide power for the project via a new powerline.
During 2012, the Company completed 34 in-fill drill holes totaling 3,400 metres in the upper zones of the oxide deposit, and 33 closely-spaced drill holes totaling 8,914 metres for geostatistical studies to refine the Mineral Resource model in support of the feasibility study. The Company also successfully closed certain land access rights and continues to negotiate for the remaining few parcels of land. It also received approval for the EIA for certain parts of the project infrastructure. An EIA is expected to be completed and ready for submission to Mexico's environmental agency in the first half of 2013.
In connection with the technical report dated December 14, 2012 and entitled "NI 43-101 Technical Report on the Pitarrilla Project, Durango State, Mexico" (the "2012 Pitarrilla Technical Report"), the Company prepared updated estimates of the Pitarrilla project's Mineral Reserves and Mineral Resources. The deposit is estimated to comprise Probable Mineral Reserves of 157 million tonnes containing 479 million ounces of silver, 1,014 million pounds of lead and 2,722 million pounds of zinc, and Measured and Indicated Mineral Resources (inclusive of Mineral Reserves) of 260 million tonnes containing 695 million ounces of silver, 1,815 million pounds of lead and 4,146 million pounds of zinc, all at a 30 grams per tonne silver cut-off. The updated Mineral Reserves estimates for the Pitarrilla project represent an increase of approximately 422% from the Mineral Reserves estimate for the project that was reported on September 21, 2009 in a technical report entitled "NI 43-101 Technical Report - Pitarrilla Property Pre-feasibility Study". The Mineral Resources and Mineral Reserve estimates were prepared respectively by Jeremy Vincent, B.Sc. (Hons), P. Geo. and by Andrew Sharp, B.Eng., FAusIMM and are presented in the 2012 Pitarrilla Technical Report, in accordance with the standard of the Canadian National Instrument 43-101 and the definitions of the CIM standards.
1 Base case metal prices: $27.50 per ounce silver in the final pre-production year and the first two years of production, and $25.00 per ounce silver thereafter; $0.90 per pound of lead and $0.95 per pound of zinc. Spot case metal prices: $34.13 per ounce of silver, $0.99 per pound of lead and $0.87 per pound of zinc. See news release dated December 4, 2012.
San Luis, Peru
A total of $7.9 million was spent during 2012 at the wholly-owned San Luis project in Peru compared to $5.6 million in 2011.
On September 10, 2012, the Peruvian government approved the EIA for the mining operation of the Ayelén deposit, completing a significant milestone for the San Luis Project. Long-term land access negotiations are continuing with one of the two local communities that control the rights to surface lands on which the future mine would be located. An agreement with the other community was completed in late 2011. With the EIA approved, completion of the final land access agreement will enable permit applications to be submitted and a development decision to be made.
The San Luis project comprises Proven and Probable Mineral Reserves of approximately 0.5 million tonnes containing 7.2 million ounces of silver at an average grade of 446 g/t silver and 290,000 ounces of gold at an average grade of 18 g/t gold within the Ayelén vein, with other identified veins on the 35,000 hectare property requiring further exploration. The Mineral Reserve estimate for the San Luis project was prepared by Steve L. Milne, P.E of Tucson, USA and presented in a technical report dated June 4, 2010 and entitled "Technical Report for the San Luis Project Feasibility Study, Ancash Department, Peru", in accordance with the standard of the Canadian National Instrument 43-101 and the definitions of the CIM standards.
During the year, the Company received approval for an exploration EIA, allowing for an exploration drilling campaign at the BP Zone, a high-potential porphyry copper target, located about 4.5 kilometres southeast of the Ayelén deposit. This target is located in an area where land access for exploration activities has been previously granted by the local community. The Company obtained the required water permit and is now awaiting final government approvals.
A total of $2.0 million was spent during 2012 at the Company's wholly-owned Diablillos project in Argentina. In the fourth quarter of 2012, the Company drilled 19 diamond boreholes for a combined length of 1,684 metres to test five targets. The targets were zones of gold and silver mineralization that lie peripheral to the Oculto deposit. Initial results demonstrate encouraging mineralization that will be considered for additional testing in 2013.
Mineral Reserves and Resources
At December 31, 2012, Proven and Probable silver Mineral Reserves totaled 566 million ounces. The increase in Mineral Reserves from 189 million ounces at December 31, 2011, is largely driven by an increase in reserves at Pitarrilla, as announced in a news release dated December 4, 2012, which exceeded the depletion of Mineral Reserves from mining activities at Pirquitas. Measured and Indicated silver Mineral Resources (inclusive of Mineral Reserves) at year-end totaled 1,188 million ounces and Inferred silver Mineral Resources totaled 343 million ounces. See Table 1 for details of the Company's Mineral Reserves and Mineral Resources by project.
Fiscal stability agreement and Argentine regulatory environment
The Pirquitas mine has a fiscal stability agreement with the government of Argentina dating from 1998 (the "Fiscal Agreement"). In December 2007, the National Customs Authority of Argentina (the "NCA") levied an export duty of approximately 10% on concentrates, even for projects with fiscal stability agreements predating 2002. The legality of the export duty on silver concentrates has been challenged and is currently under review by the Federal court in Argentina. The Company has been advised that the Pirquitas mine is subject to this export duty despite contrary rights detailed under the Fiscal Agreement. In December 2012, the Federal Court of Appeal (Salta) upheld a cease payment order granted in the Company's favour by the Federal Court (Jujuy) effective September 29, 2010, which provided that the Company was not required to pay the 10% export duty imposed upon us by the NCA in December 2007. However, the Federal Government of Argentina has appealed this decision to the Federal Supreme Court of Argentina. The appeal by the Federal Government of Argentina has also included the refund claimed by the Company for the export duties paid before the cease payment order, as well as matters of procedure related to the uncertainty of the amount reclaimed.
Until the order to cease payment was granted in 2010, the Pirquitas mine had paid $6.6 million in export duties, against which it has filed for recovery. In accordance with this order, the Company has not been paying export duties on silver concentrate but continues to accrue duties in full until the outcome of the claim is known with certainty. At December 31, 2012, the Company has accrued a liability totaling $35.0 million, with a corresponding increase in cost of sales in the relevant period. If this export duty is successfully overturned, the benefit will be recognized in the Consolidated Statement of Income (Loss) for the full amount of paid and unpaid duty in the period that recovery becomes virtually certain. The accrued export duty also has a significant impact on the Company's total production cost. If resolved in the Company's favour, the impact would be to reduce total production costs by approximately 10% of the net sales price on a per ounce basis.
On October 26, 2011, the Argentine government announced a decree that requires all funds from export sales to be repatriated to Argentina and converted into Argentine pesos within the Sole Foreign Exchange Market in Argentina. The Argentine pesos can then be exchanged back into the original currency, again through the Sole Foreign Exchange Market, provided the required authorization is granted by the Argentine Central Bank and the Federal Administration of Public Income. Each transfer is subject to a 0.6% transfer tax. The mining industry had previously been exempted from this obligation to bring such foreign currency into Argentina. Although the Fiscal Agreement includes stability over foreign exchange controls, the government removed such benefits with this decree.
In addition, the regulatory environment in Argentina continues to impact the business, as outlined in item 3 'Business Overview' of the MD&A. Notably, in the second quarter of 2012, the Argentine Ministry of Economy and Public Finance issued a resolution that reduced the time permitted to repatriate export proceeds from 180 days to 15 days, which caused the Pirquitas mine to temporarily suspend shipments while the Company assessed the impact of this resolution. Subsequently, the time permitted to repatriate export proceeds was increased to 30 days and then to 140 days for silver and zinc concentrates, which enabled the Company to recommence shipping. In September 2012, a revised resolution reinstated the 180 day time limit for silver concentrates only. Further, during 2012, the Argentine Central Bank increased its involvement in U.S. dollar inflows and outflows, and the country continued to experience high inflation along with a weakening currency.