Shares of SSR Mining (TSX:SSRM) (formerly Silver Standard Resources), a gold and silver mining company with properties located in North and South America, surged by as much as 13% during Thursday's trading session after the company released better-than-expected second-quarter results, and improved its full-year outlook.
For the quarter, SSR Mining wound up recording $117 million in sales, down slightly from the $118.8 million it reported in the year-ago quarter. The reason for the drop can be attributed to a drop in silver sales tied to the end of mining operations at the San Miguel mine and the sell-off of its remaining stockpile. On the other hand, higher gold sales helped to offset the drop in silver sales, with gold production from the Seabee mine topping expectations, with 20,690 ounces of gold produced and 17,909 ounces sold.
In terms of profitability, the company reported adjusted net income of $13 million, which works out to $0.11 per adjusted share. This was down from the $0.25 in EPS reported in Q2 2016, however, it was a more than $0.02 a share ahead of what Wall Street had been expecting. This earnings beat is one reason why SSR Mining has regained its shine on Thursday.
The other component to the company's healthy market cap increase ties to its revised full-year outlook. It wound up keeping its gold production forecast at its flagship Marigold mine unchanged at 205,000 ounces to 215,000 ounces, but it lowered its cash costs payable per ounce to a fresh range of $640 to $670 an ounce from a prior forecast of $655 to $705 an ounce. SSR Mining believes a short waste haul to an exhausted mining pit in the second half of the year should boost Marigold's efficiency and lower cash mining costs.
Furthermore, it upped its gold production outlook for the Seabee mine, which was acquired when it purchased Claude Resources last June. Its previous full-year outlook had called for 72,000 ounces to 82,000 ounces of gold production, with the new forecast expecting 75,000 gold ounces to 85,000 gold ounces. The fact that Seabee achieved record throughput per day during the second quarter, and that gold recovery remained "relatively consistent" at 97.3%, gave SSR the confidence to lift its full-year production outlook for the mine.
As a long-term shareholder of Claude Resources, and now SSR Mining, this Fool is quite pleased with the company's results. However, investors should also understand that there could be some near-term bumps in the road, even if its cash costs and production outlook were both upped in select instances.
For example, the wind down of operations at San Miguel means lower silver production in the interim, and therefore lower sales and profit potential over the next four quarters. The good news is SSR's new joint-venture with Golden Arrow, known as the Chinchillas Project, has the potential to ramp up SSR's silver production once more for up to a decade. \We're not going to see any true impact until the second-half of 2018. That means SSR Mining, which has a 75% stake in the joint-venture, is going to be heavily reliant on gold in the meantime.
Nevertheless, we have a company that's worked diligently to lower costs, improve its cash flow and balance sheet, and reduce its reliance on the more volatile silver metal, which is exactly why it recently changed its company name. Considering that a fair valuation for mining companies tends to be right around 10 times cash flow per share (CFPS), and SSR Mining could be bordering on $1.50 to $1.60 in CFPS by 2020 per Wall Street's consensus, this Fool believes it has around 50% upside still left, if not more.