Is SSR Mining Inc. a Buy?

Despite the precious metal underperforming most asset classes over the long term, global security and economic jitters are helping to lift gold's popularity as an investment once again. Most individual investors would find it easier to own gold stocks than the metal itself, but the returns aren't much better for shareholders of gold mining companies. In fact, most gold stocks have failed to outperform the S&P 500 over long periods of time -- and sometimes by a wide margin.

That said, some businesses are better positioned than others. SSR Mining (SSRM 0.54%) is one of a handful of companies in the industry that is actually expected to increase gold and silver production over the coming years. Investors could soon be rewarded for their patience. An important expansion project is ramping up in 2018, while two other major mines are also planning on boosting output in the next several years.

Despite these seemingly indisputable catalysts, though, the stock has only managed to gain 8% in the last year. What else should investors know about the growth strategy? Is SSR Mining a buy?

Image source: Getty Images.

The business

While SSR Mining produces gold, silver, lead, and zinc; it reports "gold equivalent ounces" that normalizes all output and makes it easier to communicate progress to investors. The entire business is supported by three mining assets located in stable regions with strong legal institutions. The company's Marigold mine is located in Nevada, its Seabee mine is in the heart of Canada, and its Pirquitas mining complex is located in the mountains of mining-friendly Argentina. The latter is owned through a 75% interest in a company called Puna Operations.

The three assets are central to the near-term growth strategy. While the company's total gold equivalent production is expected to slip in 2018 compared to last year, management expects to boost output 32% by 2021. Production costs per gold equivalent ounce are expected to fall nearly 20% in that span. Here's a summary of how each mine factors into the growth outlook. 

Data source: Investor presentation.

It could get even better. SSR Mining is targeting over 250,000 gold equivalent ounces of production from Marigold in 2022. However, that's a little too far away for investors to get too excited about that projection right now. What matters most at the moment is executing on planned expansions -- some of which are already well underway. 

Image source: Getty Images.

By the numbers

The first quarter of 2018 was a mixed bag of results for shareholders. Both Marigold and Pirquitas sifted through lower-grade ore held in stockpiles, which increased cost per ounce sold and reduced sales volumes. But since that was a planned activity for the mines, investors mostly shrugged off the poor year-over-year comparison as they looked forward to the future. 

Data source: Press release.

More importantly, SSR Mining ended March with nearly $473 million in cash and cash equivalents. In fact, it was the 10th consecutive quarter in which the gold miner's cash balance increased. That speaks to the company's strong cash flow and bodes well for completing the planned expansions.

Right now, that includes steady growth from Marigold and Seabee that will set the stage for an additional 25,000 gold equivalent ounces and 11,000 gold equivalent ounces of production, respectively, in 2019. That's not to be overlooked, but investors are understandably keeping a close eye on the expansion project underway at Pirquitas known as Chinchillas.

The mine's approximate doubling of silver equivalent ounces produced from 3.4 million in 2018 to 6.9 million in 2021 hinges on the Chinchillas project. But investors may not have to wait long. That's because it's expected to power Pirquitas output to 6.8 million silver equivalent ounces next year, thanks to a ramp-up that's expected to occur in the second half of 2018. It remains on track and on budget as of the last major update in mid-May.

The expansion's importance extends beyond pure growth. Consider that SSR Mining expects the mine to deliver cash costs per ounce of $12 to $15 in 2018, which is relatively high for a mine producing the precious metal. But those production costs don't include the expansion, which won't factor into silver costs until early 2019, when the first new production is sold. Either way, silver hasn't dipped below $16 per ounce since early 2016. Therefore, depending on how low production costs fall next year, the mine should be an immediate boon for the business' bottom line.

Image source: Getty Images.

A rare gold growth stock?

Most gold miners are bracing for reduced production and focusing on reducing production costs. That makes the growth plans of SSR Mining all the more remarkable: Management thinks the company can increase gold output while decreasing costs. The gold stock has even outperformed the S&P 500 in the last three years, although it's fallen behind in the last five- and 10-year periods.

While my personal investing strategy doesn't include gold or silver stocks, SSR Mining could make shareholders happy if it delivers on production increases and cost reductions in the coming years. Investors won't have to wait much longer, as big production increases should make their presence felt in financial metrics beginning in the first quarter of 2019. Simply put, if you're looking at investing in gold or silver, then this stock might be a great place to start.