SSR Mining Stock: Another Solid Quarter In Q3
Nov. 03, 2021 6:05 PM ETSSR Mining Inc. (SSRM)7 Comments7 Likes
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Taylor Dart
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"A bull market is when you check your stocks every day to see how much they went up. A bear market is when you don't bother to look anymore."
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Summary
SSR Mining released its Q3 results this week, reporting quarterly production of ~186,900 gold-equivalent ounces at all-in sustaining costs of $1,006/oz.
These solid results have pushed year-to-date production to ~583,300 gold-equivalent ounces, and the company made a surprising move, pulling its cost guidance down to $1,020/oz.
With trailing-twelve-month free cash flow of more than $400 million and an aggressive buyback program, SSR Mining continues to be one of the most attractively valued names sector-wide.
Based on SSR Mining's industry-leading reserve life at Copler and recent trend of under-promising and over-delivering, I would view any pullbacks below $15.15 as low-risk buying opportunities.
Mining in Northern Nevada
gchapel/iStock via Getty Images
The Q3 Earnings Season for the Gold Miners Index (GDX) has finally begun and the results to date have been mixed, with decent production results being overshadowed by inflationary pressures. SSR Mining (SSRM) was the most recent company to report its results and deviated significantly from the norm, lowering its cost guidance to $1,020/oz ($1,080/oz previously) and revealing aggressive share buybacks in the quarter, returning more than $70 million to shareholders through buybacks alone. Based on SSR Mining's industry-leading reserve life at Copler and a recent trend of under-promising and over-delivering, I would view any pullbacks below $15.15 as low-risk buying opportunities.
SSR Mining
(Source: Company Presentation)
SSR Mining ("SSRM") released its Q3 results this week, reporting quarterly production of ~186,900 gold-equivalent ounces [GEOs] and quarterly attributable gold production of ~141,000 GEOs. This solid performance was driven by another strong quarter at Copler (~66,400 attributable ounces), and a great quarter from the company's Puna Mine, with silver production up sharply to ~2.18 million ounces. Production was down on a sequential basis at the company's Seabee and Marigold mines, but it's worth noting that both mines were coming up against outstanding performance in the most recent quarter. Besides, though production was down, SSRM reported record tonnes moved at Marigold and record daily throughput at Seabee. Let's take a closer look at the quarter below:
SSR Mining quarterly GEOs produced
(Source: Company Filings, Author's Chart)
As shown in the chart above, we've seen a significant increase in production from SSR Mining since its merger of equals with Alacer Gold (OTCPK:ALIAF), and the company has seen a dramatic improvement in capital returned to shareholders. This is evidenced by SSRM declaring a dividend earlier this year and announcing an aggressive share buyback program. The buyback program called for up to 10 million shares to be repurchased. Unlike other producers that have announced aggressive programs, but barely followed through on them, SSRM has not wasted any time taking advantage of dips in its share price. This is evidenced by the company repurchasing ~4.81 million shares in Q3 alone at an average price of $16.20 per share and more than 8.8 million shares year-to-date. Based on a float of ~221 million shares as of the end of Q1, this translates to a 4% buyback, which is one of the largest buybacks I've seen sector-wide this year.
In some instances, I would be a little critical of a share buyback program this aggressive, but for SSRM, it's more than justified. This is because the stock has spent most of the year trading at a double-digit free cash flow yield with operations printing cash each quarter despite the recent softness in the gold (GLD) price. During the most recent quarter, SSR Mining reported revenue of $322.9 million and free cash flow of $129.2 million, pushing year-to-date free cash flow generation to $306.2 million. Despite its dividend payments and aggressive buybacks, net cash is still sitting at more than 10% of the company's market cap at more than $400 million. This provides SSRM the opportunity to continue its share buyback program opportunistically if the company's share price continues to languish and even increase the program next year. Let's take a look at the company's operations below:
SSR Mining quarterly gold production by mine and total
(Source: Company Filings, Author's Chart)
As shown in the chart above, SSR Mining saw an increase in production at its three gold operations in Q3, with production at Marigold up ~6% year-over-year to ~52,000 ounces. All-in sustaining costs in the quarter were elevated at $1,307/oz, but this was mostly related to higher capital expenditures of ~$26.0 million vs. $16.5 million in the year-ago period. As noted previously, Marigold moved a record ~25.4 million tonnes of material, an impressive feat driven by shorter haulage cycles and increased loading fleet capacities. It's worth noting that production would have been higher in the period if not for unplanned maintenance of the carbon strip vessels. This gold inventory will be poured in Q4, translating to a slight boost to production next quarter.
Moving to Copler, the Turkish mine had another very solid quarter, producing ~83,000 ounces on a 100% basis (~66,400 attributable ounces), up more than 8% from Q3 2020 levels. The increase in production was driven by higher throughput and higher grades for sulfide ore, with sulfide production coming in at ~66,700 ounces, up from ~57,000 ounces in the year-ago period. Given the much higher production, all-in sustaining costs came in at industry-leading levels of $714/oz, down from $796/oz last year. This translated to an AISC margin of $1,079/oz at the operation, only down slightly from $1,106/oz in Q3 2020, despite the weaker gold price. SSRM noted that it expects the flotation plant to be bright online as soon as the final permit is received, with construction completed on time and budget in Q3.
SSR Mining photo
(Source: Company Presentation)
Finally, at Seabee, SSRM saw a 12% increase in production year-over-year, though the mine was up against very easy year-over-year comps due to the voluntary shutdown last year, given that Seabee is a fly-in, fly-out operation. During the quarter, the mine processed ~91,200 tonnes of material at an average grade of 7.70 grams per tonne, translating to ~22,600 ounces produced. Despite higher capital expenditures in the period, Seabee was able to see a sharp decline in all-in sustaining costs on a year-over-year basis ($898/oz vs. $988/oz), benefiting from more ounces sold. Notably, production was lower sequentially; the mill processed a record of 1,400 tonnes per day in September and averaged 991 tonnes per day despite mill maintenance. This would have been a much better quarter for the Manitoba mine if not for the lower grades and mill maintenance. Let's take a look at the financial results:
SSR Mining quarterly gold price
(Source: Company Filings, Author's Chart)
As shown in the chart above, SSRM saw only a 10% decline in all-in sustaining cost margins in Q3, which is much better than the declines we've seen sector-wide. The significant declines on a sector-wide basis are due to most companies coming up against very difficult year-over-year comps, given that the gold price posted a record high in Q3 2020 and is since sitting more than 10% lower. However, given SSR Mining's ability to drive costs lower on a year-over-year basis despite inflationary pressures, AISC margins came it an impressive $786/oz. Due to the ability to keep costs well below FY2021 guidance, SSR Mining has revised its cost guidance to $1,020/oz at the mid-point, which would translate to costs more than 3% below the industry average this year. This is very impressive, given that most companies look like they will come in at the high-end of their guidance ranges.
SSR Mining FCF
(Source: Company Filings, Author's Chart)
Moving over to quarterly sales, we saw SSRM's revenue increase 43% year-over-year, which is no surprise given the addition of a 4th asset in the merger (Copler). Looking at free cash flow, we saw yet another quarter of more than $100 million in free cash flow generation, with year-to-date free cash flow sitting at ~$306 million. On a trailing twelve-month basis, free cash flow hit a new high above $400 million. For a company like SSRM with a market cap below ~$3.4 billion (211 million shares at $15.75), this is a dirt-cheap valuation.
This undervaluation is corroborated by SSR Mining's annual earnings per share, which is expected to increase more than 20% year-over-year to $1.66 (FY2020: $1.30). At a share price of $15.75, this leaves the stock trading at below 10x earnings despite sitting on more than $2.00 in net cash. Looking ahead to FY2022 and FY2023, even if the gold price doesn't increase and stays below $1,900/oz, SSR Mining should be able to post moderate growth in annual EPS due to shrinking its float with its buyback program. As noted earlier, nearly nine million shares have been repurchased since Q1 of this year, translating to a more than 4% reduction in the share count.
SSR Mining EPS
(Source: YCharts.com, Author's Chart)
As shown in the chart below, while SSR Mining has seen a violent correction over the past year, minimal technical damage has been inflicted on the long-term chart. This is because the stock has simply pulled back to re-test the top of a multi-year base breakout (2012-2020), and to date, continues to find strong support in the important $14.80 - $15.20 region. Typically, these back-tests of major breakout levels can provide buying opportunities, so I see no reason to be bearish on the stock, despite the more than 40% correction in the gold price since Q3 2020. Given the strong zone of support between $14.80 and $15.20, pullbacks towards this level should provide low-risk buying opportunities, supported by the strong fundamental outlook. In summary, I would view any pullbacks below $15.15 as low-risk buying opportunities.
SSR Mining stock chart
(Source: TC2000.com)
While this has been a mixed quarter for the sector, SSR Mining has put up another very solid quarterly report and is one of the only producers revising its cost guidance lower this year. This is certainly a welcome deviation from the trend we've seen this year, speaking to rigid cost controls, but also the company's ability to under-promise and over-deliver. If we combine this with an aggressive buyback program to help support the share price and drive production and cash flow per share growth, SSR Mining continues to be one of the best buy-the-dip candidates out there sector-wide. At a double-digit free cash flow yield, and less than 10x earnings, I would view any pullbacks below $15.15 as low-risk buying opportunities. |
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