How Silver Standard Resources Inc. Makes Most of Its Money
At first glance, it would seem obvious that a company named Silver Standard Resources (NASDAQ: SSRI) probably makes most of its money from mining silver. That assumption, however, couldn't be farther from the truth because the bulk of this company's production is gold, which currently supplies 70% of its revenue. It's why the company is in the process of changing its name to SSR Mining to better reflect its current business. Here's a closer look at how gold became its biggest moneymaker and if silver can ever take back the crown.
Building a gold company one acquisition at a time
Silver Standard Resources currently operates three mines: the Marigold gold mine in the U.S., the Seabee Gold Operation in Canada, and the Pirquitas silver mine in Argentina. While Silver Standard Resources has been operating for more than 70 years, the company in its current form dates back to 2009 when the Pirquitas mine achieved commercial production. That mine remained the centerpiece of its portfolio until 2014 when the company acquired the Marigold mine from a joint venture between Goldcorp (NYSE: GG) and Barrick Gold (NYSE: ABX) for $275 million, enabling those mining giants to unlock its value. The company recently added a third cash-flowing mine to its portfolio when it acquired Claude Resources and its Seabee Gold Operation last year.
The addition of Seabee to its portfolio was well timed because the company wrapped up mining the San Miguel open pit at Pirquitas this past January, which will cause output to decline nearly 50% this year. Because of that, the company expects total gold equivalent output to drop from its record of 393,325 gold equivalent ounces last year to between 340,000 to 370,000 ounces this year. Overall, gold production should be between 277,000 to 297,000 ounces or about 80% of its expected production this year.
Digging into Silver Standard Resources' mines
Of Silver Standard Resources' three mines, the Marigold mine it bought from the Goldcorp-Barrick Gold joint venture is currently its biggest moneymaker:
2016 Income From Operations
205,000 ounces of gold
53,000 ounces of silver
10.4 million ounces of silver
Data source: Silver Standard Resources.
With Pirquitas' output expected to fall significantly this year, its cash costs will spike, meaning that the company's silver mine will be a marginal contributor to its profitability in 2017. Contrast that with Marigold and Seabee, which both expect to deliver higher output this year, meaning that gold will become an even more precious metal for the company's profitability this year.
Will silver ever regain its shine?
While gold is the company's biggest moneymaker these days, Silver Standard Resources is working to make sure silver remains an important part of its portfolio going forward. To that end, the company recently signed a joint venture agreement to combine Pirquitas with the Chinchillas project, which could extend the mine's life for another decade. The first step involves starting construction on Chinchillas by the third quarter of this year, which if everything goes according to plan would cause ore deliveries to start heading to the Pirquitas mill in the second half of next year. That would enable the company to evaluate the potential for an underground operation at Pirquitas, which could extend the mine's life into the second half of next decade.
In addition to that, the company has two development-stage projects in the pipeline: San Luis in Peru and Pitarrilla in Mexico. Pitarrilla is one of the largest undeveloped silver mineral resources in the world and could produce as much as 15 million ounces per year during its first 18 years of production. That said, Silver Standard Resources has yet to sanction either project, which means that, without an acquisition, silver isn't expected to rival gold as the company's profit center anytime soon.
Despite its name, gold is by far the biggest moneymaker for Silver Standard Resources. That's by design since the company has acquired two cash-flowing gold mines in recent years, which will more than offset the upcoming depletion of its silver mine. While the company does have some silver-focused projects in development, gold will likely remain its primary profit driver for the foreseeable future.
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