It's been an eventful few years for shareholders of SSR Mining (SSRM 3.00%), who've held pat through changes of the company's name and stock ticker while awaiting a steep jump in production. Now, it's finally within reach: By 2021, production is expected to rise 26% from this year's attributable output of 325,000 gold equivalent ounces.
Assuming selling prices cooperate for the next few years, the upcoming production boom has all the potential to drive growth in sales volume, revenue, earnings, and cash flow. Then again, the new mining assets entering operations are expected to churn out precious metals at even lower costs than today. That, coupled with the fact SSR Mining has all the cash it needs to deliver in the next four years, is something that has attracted the attention of gold and silver investors. Is the stock a buy right now?
Image source: Getty Images.
By the numbers
SSR Mining reported a mixed year of operations in 2017. Many metrics on the income statement failed to match the full-year results from the previous year, although the performance met management's production and cost guidance. Nonetheless, shareholders are probably happy that the year is over.
|
Metric |
2017 |
2016 |
% Change |
|---|---|---|---|
|
Revenue |
$448.8 million |
$491.0 million |
(8.6%) |
|
Operating income |
$101.3 million |
$112.6 million |
(10%) |
|
Net income |
$71.5 million |
$64.9 million |
10.2% |
|
Attributable EPS |
$0.58 |
$0.63 |
(8%) |
|
Operating cash flow |
$144.7 million |
$170.7 million |
(15%) |
Data source: SSR Mining.
One quick note: the company's attributable EPS declined even after posting higher net income because the diluted weighted average of shares in 2017 rose to 120 million, up from just 100 million in 2016. Aside from that, after reviewing production totals from the company's three major mining assets -- Marigold, Seabee, and the mines collectively known as the Puna Operations -- it's easy for investors to pinpoint the sources of variability. Production slipped slightly at Marigold, which holds most of SSR Mining's reserves. SeaBee saw a 13% increase in production, while silver out of the Puna Operations was roughly half of what it was in 2016.
To be fair, production met guidance, and investors are firmly focused on the mining assets coming online. What should investors expect?
A peek at the road ahead
There may not be much immediate relief for shareholders or SSR Mining in the year ahead. Production out of the Puna Operations is expected to drop once again. The potential for slightly higher production out of Marigold and Seabee won't be enough to offset another year of companywide production declines, as management issued total production guidance of 340,000 gold equivalent ounces in 2018. By comparison, the company produced 370,000 gold equivalent ounces in 2017.
Image source: Getty Images.
Of the 340,000 gold equivalent ounces expected in 2018, only 325,000 will be attributed to SSR Mining as a result of it owning only 75% of the Puna Operations. That's an important detail because "attributable production" is the benchmark management uses to calculate production growth over time. So, when management says production is expected to rise 26% between 2018 and 2021, the company is using the lower number for this year's output.
That said, the first contributions from the highly prized Chinchillas Project will begin to trickle in at the end of the second half of 2018. Due to its geographic proximity to other assets, its production will likely be included in the Puna Operations segment. Nonetheless, at full tilt, the asset could churn out 6.1 million ounces of silver in addition to copious amounts of lead and zinc.
But despite the long-awaited start-up of Chinchillas, investors will need to wait for at least another year for material changes to revenue and earnings. Production is expected to rise once again in 2019, perhaps substantially, and remain at elevated levels through at least 2021.
Is this gold and silver stock a buy?
If SSR Mining delivers on its expected production growth in the years ahead, then it would buck the industrywide trend of declining output. Considering that's a likely outcome, this should be in the discussion as one of the better gold stocks for forward-thinking investors -- but maybe not until the second half of 2018 or even early 2019. With production expected to fall this year compared to last year, there's simply no reason for investors to hurry when considering this gold and silver stock for their portfolio.
