SSR Mining Inc.

SSR Mining Inc. (TSX: SSRM) is a minerals company which is engaged in mining precious metals across the Americas. The company derives its majority production from the gold segment, while a significant portion is derived from silver. 

Key Highlights:

• Encouraging Drilling results: During 2021-2022, the company posted positive results from 194 diamond drill holes for Ardich, located 1.5 km north of the Çakmaktepe mine. As mentioned by the company, the above results confirm the extension of mineralization along with impressive grades. On the other hand, the company is focusing on drilling and technical study for gold deposits and targeting a maiden Mineral Reserve declaration in 2022, followed by gold production in 2023.
• Impressive Margin profile: The company commands higher margins than its peers, which is an indication of superior operational efficiencies. Notably, gross margin and operating margin stood at 51% and 28.2% in Q2FY21, higher than the industry median of 41.3% and 25.8%, respectively. Pre-tax margin during the quarter was recorded at 26%, as compared to the industry median of 23.1%.
• Started paying dividends: The company started paying a dividend in Q1FY21. Notably, the company reported its dividend distribution of USD 21.996 million in H1FY21, backed by improved cash flows. This reflects the management’s confidence in its cash flow generation abilities.

Q2FY21 Financial Highlights:

• SSRM impresses with its quarterly results, wherein the company posted revenue of USD 376.950 million, which stood significantly higher from USD 92.485 million in the previous corresponding period (pcp). The surge was driven by the higher gold sales of 173,620 oz, as compared to 46,387 oz in Q2FY20. Moreover, the average realized gold price stood at 1,820 /oz v/s 1,722 /oz in pcp. Apart from higher gold sales, the company’s reported a healthy performance from the silver segment, wherein sales volume stood at 2,021 oz, as compared to 624 oz in pcp.
• Income from mine operations jumped to USD 154.855 million compared to USD 34.177 million in Q2FY20. The increase was aided by higher income, partially offset by higher cost of sales (USD 63.230 million v/s USD 11.128 million in pcp).
• Operating income stood at USD 106.412 million, as compared to a loss of USD 5.111 million a year ago. The company reported its AISC per gold equivalent ounce sold at USD 961, declined drastically from USD 1,734 in pcp.
• Net income climbed to USD 51.604 million, as compared to a net loss of USD 6.276 million in the previous corresponding period.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: Volatility in the commodity prices such as gold and silver would affect the realization price and would take a toll on the company’s income and cash flows.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company reported a tremendous growth in its cash from operating activities, which stood at USD 293.822 million in H1FY21, as compared to USD 87.133 million in pcp, supported by strong growth in net profit. For FY21, the company expects its consolidated production of 720 – 800 koz of gold equivalent, which is significantly higher than 484.153 koz in FY20. Consolidated all-in sustaining costs (AISC) is expected in between USD 1,050 - 1,110/ AuEq oz. The company would allocate USD 87 million capex and exploration activities.  We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Alamos Gold Inc, Torex Gold Resources Inc etc. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 20.53 on September 07, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 07, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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