Silver Standard Resources Inc. (NASDAQ: SSRI) (TSX: SSO) reports consolidated financial results for the first quarter ended March 31, 2014.
"The first quarter of 2014 was significant for our future as we initiated and have now completed the acquisition of the Marigold mine in Nevada," said John Smith, President and CEO. "At Pirquitas we maintained cost focus and at Marigold we are well through the integration process. Both mines are driving forward with their plans to improve margins, which will position us well for cash flow generation and further growth. "
First Quarter 2014 Highlights:
(All figures are in U.S. dollars unless otherwise noted)
- Delivered consistent mine production and sales: Produced 1.9 million ounces of silver and 8.8 million pounds of zinc, on track to meet production guidance for the year. Sold 1.6 million ounces of silver and 10.2 million pounds of zinc.
- Maintained lower cost profile: Reported cash costs of $12.36 per payable ounce of silver sold, below 2014 guidance range.
- Focused on cost discipline: Continued to focus on our cost reduction strategy throughout the organization.
- Created value through our portfolio: Completed the sale of the Challacollo project in Chile for total consideration valued at $18.6 million, recording a gain of $7.5 million after tax.
- Upgraded portfolio and production profile: Subsequent to quarter end, completed the acquisition of the Marigold gold mine in Nevada, U.S. for $275 million in cash.
Pirquitas Mine, Argentina
|Summary Mine Operating Statistics|
|Q1 2014||Q4 2013||Q3 2013||Q2 2013||Q1 2013|
|Total material mined||Kt||4,208||4,277||4,465||4,471||4,210|
|Silver mill feed grade||g/t||204||228||215||216||207|
|Zinc mill feed grade||%||2.02||2.12||1.91||1.53||0.92|
|Zinc recovery (zinc con.)||%||48.9||53.0||47.0||46.0||41.1|
|Silver produced||'000 oz||1,918||2,281||2,028||1,890||2,017|
|Zinc produced (zinc con.)||'000 lbs||8,844||10,307||7,818||5,589||3,323|
|Silver sold (1)||'000 oz||1,596||2,499||1,969||2,207||2,018|
|Zinc sold (zinc con.)||'000 lbs||10,227||14,208||4,952||2,217||2,147|
|Realized silver price||US$/oz||20.38||20.79||21.38||22.47||30.68|
|Cash costs (2)||US$/oz||12.36||11.75||13.32||13.03||13.58|
|Total costs (2)||US$/oz||17.42||17.75||21.24||20.05||20.06|
|(1)||Silver sold in first quarter of 2014 was previously reported in press release dated April 9, 2014 as 1.5 million silver ounces due to delayed receipt of documentation enabling us to verify the recognition of one shipment as a sale.|
|(2)||We report non-GAAP cost per payable ounce of silver sold to manage and evaluate operating performance at the Pirquitas mine. See "Cautionary Note Regarding Non-GAAP Measures". Information has been restated as discussed in section 12 of the Management's Discussion and Analysis of the Financial Position and Results of Operations for the year ended March 31, 2014 ("MD&A").|
The Pirquitas mine produced 1.9 million ounces of silver during the first quarter of 2014, which is a 15.9% quarter-on-quarter decrease and reflects lower average head grade and recovery as we had expected due to rainy season conditions. The lower mill throughput is in line with the life of mine plan and is expected to improve in the second half of 2014.
The Pirquitas mine produced 8.8 million pounds of zinc in zinc concentrate in the first quarter of 2014, a 14.2% quarter-on-quarter decrease reflecting a lower average head grade and recovery.
Approximately 406,000 tonnes of ore were milled during the first quarter of 2014, compared to 420,000 tonnes in the fourth quarter of 2013. Ore was milled at an average rate of 4,514 tonnes per day during the first quarter of 2014, 13% above the mill's nominal design. This compares to an average milling rate of 4,567 tonnes per day in the fourth quarter of 2013. The lower total ore tonnes processed were a result of fewer operating days in the first quarter of 2014.
Ore milled during the first quarter of 2014 contained an average silver grade of 204 g/t, compared to 228 g/t reported in the fourth quarter of 2013. The average silver recovery rate of 72.1% was slightly lower than the fourth quarter recovery rate of 73.9% due to the use of low grade oxide stockpiles.
Mine operating costs
Cash costs per ounce and total cost per ounce are non-GAAP financial measures. See "Cautionary Note Regarding Non-GAAP Measures"
Early in 2013, we commenced a cost reduction initiative at the Pirquitas mine, which continued through the rest of the year and into 2014 as part of a continuous improvement process. The main focus has been on replacing third party contract services, reducing staffing and implementing operational controls at the plant and mine to drive efficiencies.
Cash costs, which include cost of inventory (excluding adjustments for write downs and one-off restructuring costs), treatment and refining costs, and by-product credits, were $12.36 per payable ounce of silver sold in the first quarter of 2014 compared to $11.75 per payable ounce of silver sold in the fourth quarter of 2013. Cash costs in the first quarter of 2014, even though slightly higher than in the previous quarter, continued to reflect our cost management focus and are marginally below our guidance for the current year.
Total costs, which add silver export duties, depreciation, depletion and amortization to cash costs, were $17.42 per payable ounce of silver sold in the first quarter of 2014 comparable with $17.75 per payable ounce of silver sold in the fourth quarter of 2013. Depletion, depreciation and amortization was slightly lower on a per unit sold basis in the first quarter of 2014 compared to the fourth quarter of 2013.
In the first quarter of 2014, we sold 1.6 million ounces of silver compared to 2.5 million ounces in the fourth quarter of 2013, and 10.2 million pounds of zinc in the first quarter of 2014, compared to 14.2 million pounds sold in the fourth quarter of 2013. The higher sales in the fourth quarter of 2013 resulted from a strategy to sell down finished goods inventory that had resulted from high production levels in the second half of 2013. In addition, scheduled deliveries of silver concentrate through the first quarter of 2014 were below production levels, however over the full year 2014 we expect silver sales to approximate silver production.
Exploration at Pirquitas
At Pirquitas we are directing work towards replacing mineral reserves, mineral resources and extending the mine life of the operation. In support of these activities we continue mapping and sampling to develop targets for drilling.
This section of the news release provides management's production and cost estimates. Major capital and exploration expenditures are also discussed. See "Cautionary Note Regarding Forward-Looking Statements."
We concluded the acquisition of the Marigold mine in Nevada, U.S. from subsidiaries of Goldcorp Inc. ("Goldcorp") and Barrick Gold Corporation on April 4, 2014. Marigold has been in continuous operation since 1988. Ore is mined by conventional truck and shovel equipment and processed via a large run-of-mine heap leach operation averaging 40,000 tonnes per day. As disclosed by Goldcorp in its public disclosures, the mine produced 162,000 ounces of gold in 2013 and has consistently produced over 140,000 ounces of gold per year at gold recoveries in excess of 70%. Production at Marigold is subject to various net smelter returns ("NSR") royalties. In 2012 and 2013, significant investments were made to purchase new, larger mining equipment which is expected to improve the efficiency of future mining operations. The mine employs 360 people including contractors, who manage and maintain the mine and plant to world-class safety and environmental standards.
Nevada is among the world's most favorable exploration and mining jurisdictions with a stable tax regime, robust legal framework, streamlined permitting process and access to qualified labor.
Based upon Marigold's mine plan developed prior to our acquisition, production and cost guidance for the Marigold mine from April 4, 2014, through December 31, 2014, is:
- Production and sales of between 105,000 and 115,000 ounces of gold.
- Cash costs per payable ounce of gold sold of between $1,000 and $1,100. Cash costs per payable ounce of gold sold exclude any non-cash adjustments to restate heap leach pad inventory to fair value as required under IFRS upon acquisition.
- Capital expenditures and mineral reserve replacement drilling of $20 million.
A number of activities have commenced at Marigold focused on improving margins including the development of a revised mine plan and focused mining efficiency projects to improve cost per tonne of material moved.
At Marigold, the second and third quarters of 2014 are expected to be low gold production quarters due to mining within low grade areas of the open pits with production during the second quarter forecast at approximately 20,000 ounces of gold. Cash costs per payable ounce of gold sold are expected to be consequently higher than average in the second quarter due to low grade ore stacked over the last six months and draw down of work-in-process inventory prior to the close of the acquisition. Gold production is forecast to improve as mining progresses into higher grade areas of the open pits with third quarter production expected to be higher than the second quarter and the fourth quarter forecast to be the highest production period in 2014.
Our annual guidance for Pirquitas, exploration and development activities remains unchanged from that provided in our fourth quarter 2013 MD&A Outlook.
Annual wage negotiations with unionized staff at Pirquitas commenced in late March. We had industrial action during the negotiating process resulting in approximately three days of lost production in April. To date negotiations have not concluded, but work at the mine currently continues safely under normal conditions. We continue to negotiate towards an agreement that is fair for the business and our employees.
During January 2014, the Argentine peso significantly devalued as the government reduced intervention and relaxed capital controls. Since the January devaluation the Argentine peso has been stable and, while government actions have been taken to curb inflation, recent estimates indicate it remains in the range of 2.5-3% per month. We continue to evaluate the impacts of exchange and inflation rates on our forecasts to our Pirquitas mine operations.
- Revenues were $33.7 million in the first quarter of 2014, compared to $49.1 million in the quarter ended March 31, 2013. Cost of sales was $27.8 million, including $5.1 million non-cash depletion, depreciation and amortization, in the quarter ended March 31, 2014. This compares to cost of sales of $34.6 million and non-cash depletion, depreciation and amortization of $9.1 million in the quarter ended March 31, 2013.
- Mine operations at Pirquitas earned $5.9 million in the first quarter of 2014, compared to $14.4 million in the quarter ended March 31, 2013.
- Net loss was $16.9 million, or $0.21 per share, in the first quarter of 2014, compared to net loss of $4.6 million or $0.06 per share in the quarter ended March 31, 2013.
- Cash and cash equivalents were $396.4 million at March 31, 2014, compared to $415.7 million as of December 31, 2013. Working capital was $587.0 million at March 31, 2014, compared to $584.1 million at December 31, 2013. On April 4, 2014, we completed the acquisition of the Marigold mine for cash consideration of $275 million and incurred associated costs which reduced our cash position.
|Selected Financial Data
(US$000's, except per share amounts)
This summary of selected financial data should be read in conjunction with our MD&A, the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2014 and March 31, 2013, and the audited consolidated financial statements for the year ended December 31, 2013.
|Three Months Ended
March 31, 2014
|Three Months Ended
March 31, 2013
|Income from mine operations||5,924||14,438|
|Operating (loss) income||(3,676)||8,994|
|Net loss of the period||(16,858)||(4,559)|
|Basic loss per share||(0.21)||(0.06)|
|Cash generated by operating activities||1,171||8,947|
|Cash used by investing activities||(16,558)||(29,717)|
|Cash generated by financing activities||—||118,160|
|Financial Position||March 31, 2014||December 31, 2013|
|Cash and cash equivalents||396,413||415,657|
|Current assets - total||670,615||688,203|
|Current liabilities - total||83,636||104,124|
Following the October 2013 enactment of significant changes to the Mexican mining tax and royalty regime and given the reduction in metal prices, in the fourth quarter of 2013 we deferred a construction decision for the open pit mine at Pitarrilla and have placed all project activities on hold. In addition, we have reduced our presence on site, while continuing to honour our commitments to local communities.
On February 14, 2014, we were advised that the Mexican Ministry of Environment and Natural Resources did not approve the environmental impact assessment ("EIA") for the Pitarrilla open pit mine, primarily because sufficient water rights had not been secured. Our ability to secure water rights is currently limited due to the temporary moratorium on subterranean water exploitation imposed in April 2013 in connection with uncontrolled and over exploited aquifers located throughout Mexico.
Capitalized expenditures at the Pitarrilla project during the first quarter of 2014 amounted to $1.2 million compared to $2.1 million in the same period of 2013.
The first quarter of 2014 work program was focused on surface rights acquisition, reviewing options for re-submission of the open pit EIA and progressing internal reviews of lower capital cost development options for the Pitarrilla project.
Negotiations with surface rights holders have progressed during the quarter. Surface land use agreements are now in place for all required land for the open pit development, with the exception of one parcel over which we are in active discussions with the title holders. We have been notified of an appeal against the 30-year temporary occupation order for a parcel of land located over the future open pit and this process continued through the quarter.
Pitarrilla is an important development asset in our portfolio with significant mineral resources and mineral reserves. However, with the recent acquisition of the Marigold mine, our resources need to be prioritized appropriately. Additionally, with extraneous factors such as the new Mexican mining tax and royalty regime, prevailing metal prices and the national moratorium on aquifer water drilling, we have decided to postpone major project activity on Pitarrilla at this time. We will consider advancing the project based upon priorities when conditions are more supportive.
San Luis, Peru
Capitalized expenditures at our wholly-owned San Luis project located in the Ancash Department, Peru, during the first quarter of 2014 amounted to $1.2 million compared to $1.4 million in the first quarter of 2013.
The San Luis project comprises a 35,000 hectare area which includes several vein systems across an area of land whose surface rights are held by two separate communities, Ecash and Cochabamba. A feasibility study was completed on the Ayelén vein and the EIA was approved in 2012. The execution of the project requires land access negotiations to be completed with both communities. To date we have reached an agreement with the Cochabamba community while we pursue an agreement with the Ecash community. We have also identified an additional potential high grade gold vein target, the Bonita Zone, which is located entirely within the area held by Cochabamba and have a 5,000 metre drill program planned and budgeted for 2014.
In 2013, we signed a five-year extension agreement with the community of Cochabamba granting us access rights to conduct exploration activities on the community lands that cover the southwestern sector of the San Luis mineral property. This extension enables us to complete exploration work on the Bonita Zone. Exploration permits for the Bonita Zone target have been received and, once a water permit is received, we will commence exploration drilling in the second quarter of 2014, upon the conclusion of the Peruvian rainy season.
We continue to pursue an agreement with the Ecash community in order to reach alignment on a benefits and surface use agreement over the remaining surface rights required for the Ayelén vein project. If we are able to conclude a land access agreement, we will then be able to submit permit applications and make a development decision.
Other Exploration Projects
We hold four mineral properties in the mining district of Parral in the southern Chihuahua State, Mexico and are evaluating such properties for their potential to yield economic silver deposits. Our ongoing exploration of these properties has involved detailed geological mapping and sampling of outcroppings that host silver-bearing quartz veins and veinlets.
San Luis del Cordero, Mexico
During the first quarter of 2014, we completed a 15-hole, 5,500 metre diamond drill program under an option agreement entered into in 2013 in respect to the San Luis del Cordero property in Durango, Mexico. Although mineralization was encountered, it was insufficient to justify making the next option payment. We therefore terminated our option agreement in March 2014.