There wasn't a whole lot cooking for SSR Mining (SSRM +2.03%) stock in 2017, which is on track to end the year at nearly the same price it began with. That's not to say it was an uneventful year, however, as shareholders can attest. The stock saw its fair share of sudden pops and drops, although the latter more accurately describes affairs since the announcement of third-quarter 2017 earnings in mid-October. Investors sold the news of quickly falling silver and gold production.
That said, the company expects to meet its full-year 2017 guidance for production volumes and cash costs. And even though the closing of a major silver mine will continue to impact year-over-year comparisons for overall production levels, a new mine in Argentina is expected to begin producing in 2018. Does that have the potential to make 2018 SSR Mining's best year yet?
Image source: Getty Images.
The road ahead
SSR Mining has three producing mines, two in development, and five being explored for their potential. It ended mining operations at its San Miguel silver mine not long ago, which is having the effect of lowering 2017 production volumes and altering product mix (now heavily slanted to gold) compared to 2016. That's just life in the mining industry.
The three remaining active mines are performing as expected for the most part. However, the flagship Marigold mine, which is expected to account for up to 205,000 gold equivalent ounces in 2017, has encountered two notable setbacks.
First, SSR Mining began excavating a different part of the mine that has lower grade ore, which means more material has to be moved to produce the same amount of gold. Second, the clay concentration in this part of the mine is higher than expected, which has forced the company to slow certain aspects of the process. That unpleasant surprise forced management to lower Marigold's full-year 2017 production guidance to a range of 195,000 ounces to 205,000 ounces, down from the previous range of 205,000 ounce to 215,000 ounces.
Nonetheless, the company is on track to turn in a pretty solid 2017 campaign.
|
Project or Category |
Production Guidance, 2017 |
Cash Cost Guidance, 2017 |
|---|---|---|
|
Marigold mine (gold) |
195,000 oz. to 205,000 oz. |
$640 per oz. to $670 per oz. |
|
Seabee Operation (gold) |
75,000 oz. to 85,000 oz. |
$575 per oz. to $625 per oz. |
|
Puna Operations (silver) |
5 million oz. to 6 million oz. |
$12.50 per oz. to $14 per oz. |
|
Company total (gold equivalent) |
350,000 oz. to 380,000 oz. |
$680 per oz. to $725 per oz. |
Data source: SSR Mining investor presentation.
Management told investors in December that it expects to hit at least 350,000 gold equivalent ounces and cash costs of $705 per ounce, which would allow it to meet or exceed guidance for the sixth straight year.
What's ahead for the company in 2018? Well, production from Marigold is likely to continue falling in the year ahead. It reported a 30% drop in gold produced during the third quarter of 2017 compared to the year-ago period as a result of lower-grade ore. Seabee production should remain consistent, and perhaps even rise slightly considering forest fires disrupted operations in 2017.
The most important catalyst for the company resides in the operations at Puna. The total output of the project, which is 75% owned by SSR Mining and 25% owned by Golden Arrow Resources, is expected to be 5.5 million silver equivalent ounces in 2017 (at the midpoint of guidance). That will climb higher in the years ahead.
Image source: Getty Images.
In the final days of December, the companies received regulatory approval to proceed with the Chinchillas Project, which is expected to have an eight-year life and boost Puna's total annual output to 6.9 million silver equivalent ounces through at least 2021. There's just one problem: Chinchillas isn't expected to begin producing ore until the second half of 2018. That means management doesn't expect operations at Puna to begin churning out 6.9 million silver equivalent ounces of ore until 2019.
That means SSR Mining isn't likely to have its best year yet in 2018 on production updates alone. In fact, its shaping up to be a relatively uneventful year for the company on that front. Then again, with over $500 million in cash and cash equivalents at the end of September 2017 and a management team that isn't shy regarding mergers and acquisitions, there's no telling what surprises could come into the mix. Given the company's $1 billion market cap, it's also possible Wall Street will begin to reassess the stock's value heading into 2019.
Long story short, while I'm not a fan of gold and silver stocks, SSR Mining presents an interesting level of potential thanks to a strong balance sheet and several opportunities for growth. It's worth a closer look for investors snooping around gold and silver stocks.
