SSR Mining Inc

SSR Mining Inc (TSX: SSRM) is a minerals company focused on mining precious metals in the Americas. More than half of the group’s revenue is attributable to the production of gold, with a significant portion derived from silver production. The company owns and operates the Marigold mine in Nevada, United States; the Seabee Gold Operation in Saskatchewan, Canada; and the Pirquitas mine in Argentina.

Key highlights 

• Robust quarterly operating performance across all four operations: SSRM produced 196,094 gold equivalent ounces in the first quarter at an AISC of USD 1,004 per ounce. The firm reported excellent sales of USD 366.5 million, up 123% from USD 164.4 million in the previous corresponding period. Operating income and net income, which totalled USD 128.0 million and USD 59.7 million, respectively, followed the same pattern.

• Robust free cash flow: In Q1 FY2021, the company generated cash flow from the operation at USD 145.2 million, against USD 64.1 million in the previous corresponding period. Free cash flows stood at USD 76.6 million, against USD 10.2 million in Q1 2020.

Source: Company

• 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

• Industry beating margins: Despite the hard time, the management’s solid determination helped them leaping the industry median margins on many fronts in FY2020, which is a key positive. The chart below gives a glimpse of this.

Source: Refinitiv (Thomson Reuters)

• Strong liquidity and reduced debt balance: The robust production and the higher average realization price helped the company to strengthen its balance sheet. On March 31, 2021, the Company had USD 866.0 million of cash and cash equivalents. Moreover, it also reduced its debt balance by USD 17.5 million during the quarter, which is a positive step.

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company’s revenue increased by USD 202.0 million, or 123%, to USD 366.5 million, against USD 164.5 million in the previous corresponding period. The rise in revenue was primarily due to increase in the average realized gold price and increase in the volume of gold ounces sold.

• Income from mine operations stood at USD 147.8 million, against USD 44.7 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 USD 128.0 million, against USD 34.7 million in the previous corresponding period.
• On the back of healthy operations, the company’s net income jumped to USD 59.7 million, against USD 23.9 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. Fluctuation in the commodity prices would affect the group’s performance. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

SSR Mining had another successful operating and financial quarter. In Q1 2021, it delivered 196,094 gold equivalent ounces at an AISC of USD 1,004 per ounce and generated USD77 million in free cash flow. In terms of expansion, it would continue to invest in and grow its massive brownfield organic portfolio in Turkey, the United States, and Canada. At Çöpler, the flotation plant construction is on-track for commissioning mid-year and would drive stronger operational performance in the second half of the year. Furthermore, the management focuses on generating peer-leading free cash flow in the foreseeable time frame. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 20.91 on May 14, 2021. We have considered Kinross Gold Corp, Pan American Silver Corp, Kirkland Lake Gold Ltd, etc. as the peer group for the comparison.

1-Year Price Chart (as on May 14, 2021). Source: Refinitiv (Thomson Reuters) 

Wesdome Gold Mines Ltd.

Wesdome Gold Mines Ltd (TSX: WDO) is a gold producer engaged in mining-related activities, which includes exploration, processing, and reclamation.

Key Updates:

• Better than Industry Margins: At the end of Q1FY21, the company reported strong operational efficiency, which resulted in higher margins than the industry. EBITDA margin and operating margin stood at 44.5% and 28.3%, respectively, and surpassed the industry median of 40.2% and 24.6%, respectively. The company reported its net margin at 15.5% in Q1FY21, as compared to the industry median of 14.5%.                    

Source: Refinitiv (Thomson Reuters)

• Impressive pipeline: The company is focusing its exploring activities and developing its brownfields asset across the Kiena Mine located in Val d’Or, Québec. The company explored 2.1Mt and mined 709,065 oz of total gold equivalent. During Q1FY21, the group reported a new high-grade gold zone discovery in the footwall of the A Zone, which has the potential to deliver improved prospects in the coming quarters. Overall, the production profile of the company remains bright, driven by ample possibility from Kiena Deep Zone, VC Zone etc.                                    

Source: Company Report

Q1FY21 Financial Highlights:

• WDO declared its quarterly result, wherein the company posted revenues of CAD 45.973 million, declined from CAD 57.332 million in Q1FY20. The decrease was primarily attributable to lower gold sales of 22,457 ounces v/s 26,500 ounces in pcp.
• Gross profit slide to CAD 15.709 million v/s CAD 19.742 million in the previous corresponding period (pcp), mainly attributable to lower revenue, partially offset by a lower cost of sales (CAD 30.264 million v/s CAD 37.590 million in pcp).
• Operating income stood at CAD 13.008 million, as compared to CAD 17.367 million in pcp, due to a lower gross profit coupled with an increase in corporate and general expense (CAD 2.391 million v/s CAD 1.971 million in pcp).
• The corporation reported a net income of CAD 7.103 million as compared to CAD 11.513 million in Q1FY21 due to a lower operating profit and an increase in income tax expense (CAD 5.233 million v/s CAD 5.769 million in pcp).
• Cash and cash equivalents stood at CAD 63.884 million, while total assets were recorded at CAD 375.349 million.

Q1FY21 Income Statement Highlights (Source: Company Reports)

Risks: The performance of the group is correlated with the international gold prices, and volatility in the gold price would impact the company’s realization and sales.

Valuation Methodology (Illustrative): Price to Earnings based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

The company has a strong history of successful discovery, developing and mining of high-grade deposits of gold, while it is focusing on new discovery opportunities to retain its high-grade mineralization. The company is a debt-free entity, which is worth mentioning considering the capital-intensive nature of business. For FY21, the company expects total production of 92,000-105,000 oz from Eagle River Mine, while All-in sustaining costs (AISC) is expected in between USD 980-1,090/oz. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Jaguar Mining Inc, K92 Mining Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 9.37 on May 14, 2021.

One-Year Price Chart (as on May 14, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.