SSR Mining Inc (TSX: SSRM) is a minerals company focused on mining precious metals in the Americas. More than half of company’s revenue is attributable to the production of gold, with a significant portion derived from silver production.

Key Highlights

• Robust quarterly operating performance: SSRM produced 199,673 gold equivalent ounces in the reported quarter at an AISC of USD 961 per ounce. The firm reported excellent sales of USD376.9 million, up 308% from USD 92.4 million in the previous corresponding period. Operating income and net income, which totalled USD 106.4 million and USD 51.6 million, respectively, followed the same pattern.

• Strong cash generated by operating activities: In addition to the solid production in Q2 2021, the company clocked strong cash flow from the operation at USD 148.6 million, against USD 22.0 million in the previous corresponding period. The strong margins further demonstrated its peer leading free cash flow yield as the Company generated USD100 million of free cash flow in the quarter.
• Minimizing debts: On the back of healthy production and free cash flows, the company minimized its debt balances by USD17.5 million during the quarter, which is a key positive.
• Guidance on 2021 production: For 2021, the company would be advancing and executing its organic growth portfolio to increase production, reduce costs, and extend mines lives. The company would continue to demonstrate its capability to sustain 720,000 to 800,000 gold-equivalent ounces of production for the next 5+ years.

Source: Company 

• Disposing non-core royalty portfolio: The company recently stated that it has reached a formal deal with EMX Royalty Corp. "EMX" to sell a portfolio of royalty interests and deferred payments for a total value of USD 100 million. This payment is made up of USD 33 million in cash, USD 33 million in EMX stock, and USD 34 million in deferred compensation instalments that will be made once certain project development milestones are met.
  

Financial overview of Q2 2021 (expressed in thousands of USD)

Source: Company 

• In Q2 2021, the company’s revenue increased by USD284.5 million, or 308%, to USD 376.9 million, against USD 92.4 million in the previous corresponding period. The increase was mainly due to USD 140.7 million in gold sales at Çöpler, as well as higher gold sales at Seabee and Marigold and higher silver sales at Puna.

• Income from mine operations stood at USD 154.8 million, against USD 34.1 million in pcp. The increase was mainly due to higher revenue, partially offset by higher cost of sales and higher depreciation cost.
• The company posted operating income of USD106.4 million, against a loss of USD 5.1 million in the previous corresponding period.
• On the back of healthy operations, the company’s net income jumped to USD 51.6 million, against a net loss of USD 6.2 million in the previous corresponding period.
  

Risks associated with investment

The market prices of gold and silver are key drivers of the company’s profitability. The prices can fluctuate widely and are affected by several macroeconomic factors, including global or regional consumption patterns, the supply and demand for gold, interest rates, exchange rates, inflation, etc. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Th company continued with the strong operational and financial track record and delivered quarterly production of 199,673 gold equivalent ounces at an AISC of USD 961 per ounce and generated USD 100 million in free cash flow. Furthermore, the management focuses on generating peer-leading free cash flow in the foreseeable time frame. On the back of healthy production and expanded margins, the company also managed to minimize its debt, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the closing price of CAD 19.58 on October 18, 2021. We have considered First Majestic Silver Corp, Kirkland Lake Gold Ltd, etc. as the peer group for the comparison. 

*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 October 18, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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