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Why This Gold Stock Shed 12.9% in September Despite a Mega Merger

By Neha Chamaria – Oct 7, 2020 at 1:38PM

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SSR Mining's outlook for 2020 may have disappointed investors even as the price of gold reversed its bull run.

What happened

Shares of SSR Mining (SSRM 0.13%) slumped 12.9% in September, according to data provided by S&P Global Market Intelligence. Interestingly, September was a historic month for the gold miner as it completed a megamerger, but the stock price's drop suggests investors weren't all that pleased.

So what

Mid-September, SSR Mining and Alacer Gold finally combined in a merger-of-equals after receiving the final regulatory clearance. Shortly after the merger, SSR Mining updated its full-year outlook as below:

  • Production of 680,000 to 760,000 gold equivalent ounces (GEO).
  • All-in-sustaining cost (AISC) of $965 to $1040 per ounce.

For perspective, earlier in February before its proposed merger with Alacer was announced, SSR Mining expected to produce roughly 425,000 GEOs and ended 2019 with AISC of $1,034 per ounce.

Gold bars.

Image source: Getty Images.

Now compare that with SSR Mining's latest AISC guidance for the year, and investors may have been a tad disappointed given that Alacer's cornerstone mine, Copler in Turkey, is a low-cost mine with projected 2020 AISC of only $710 to $760 per ounce of gold. Alacer originally guided for an even lower AISC for Copler, but the government royalty rate in Turkey was bumped up in early September. Although a rising gold price bodes well for any gold miner, a higher price also means a larger government royalty outgo for Alacer.

It didn't help that gold was losing ground when SSR Mining came out with its latest outlook -- the price of gold dropped off to the mid-$1,800s in September on profit taking and a strong U.S. dollar, among other factors, after hitting an all-time high of around $2,075 per ounce in August. Not surprisingly, SSR Mining shares lost their luster last month.

Now what

Copler is a key mine, but Turkey's economy is reeling under geo-political pressures. The Turkish Lira has slid more than 25% this year to hit all-time lows just days ago, and the European Bank for Reconstruction and Development projects Turkey's economy to shrink by 3.5% this year.

On the flip side, in September, Turkey's energy and natural resources minister Fatih Donmez announced record gold production target of nearly 44 tons this year compared with 38 tons in 2019, and an ambitious goal to more than double production to 100 tons over the next five years.

In short, there are a lot of moving parts to SSR Mining, but the gold stock is worth watching especially given the chances of gold hitting record highs in 2020

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

SSR Mining Inc. Stock Quote
SSR Mining Inc.
SSRM
$15.85 (0.13%) $0.02

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