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. 

Why should investor’s book profit?

• Lengthy cash conversion period: The company takes ample time to convert its inventories to cash flows, which is higher than the industry median. This indicates poor operational efficiencies. Notably, cash conversion period stood at 218 days in Q3FY21, as compared to the industry median of 54.4 days.
• Rise in input costs: For 9MFY21, the company reported a significant rise in its input costs, which remains a key concern for the company. During the period, the company reported higher production costs and general & administrative expense of USD 457.810 million and USD 33.298 million, respectively, as compared to USD 249.071 million and USD 15.556 million in pcp. Moreover, exploration, evaluation and reclamation expense also stood higher at USD 27.975 million versus USD 16.054 million in pcp. Continuation of the above trend might impact the overall performance of the company.

• Volatile commodity prices: The company derives its majority income from gold and silver, and a higher commodity price led to increase in the realization price and increase in revenue for the company. On the flipside, during price volatility of the international commodities, the realization price dips and impacts the overall revenue. Notably, during Q3FY21, Average realized gold price and Average realized silver price stood at USD 1,792/oz and 24.06/oz versus 1,914/oz and 26.69/oz in pcp.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

Rise in input costs along with lower realization price due to falling commodity prices might lead to margin pressure and subsequent fall in the cash flows and profitability.  We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like Torex Gold Resources Inc, Kirkland Lake Gold Ltd and Alamos Gold Inc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the closing price of CAD 22.05 on January 19, 2022.

One-Year Technical Price Chart (as on January 19, 2022). Analysis by Kalkine Group

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

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