Vancouver Nov 9, 2015 (Thomson StreetEvents) -- Edited Transcript of Silver Standard Resources Inc earnings conference call or presentation Friday, November 6, 2015 at 4:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Svetoslava Pavlova Silver Standard Resources Inc. - Manager, IR * Paul Benson Silver Standard Resources Inc. - CEO, President, and Director * Alan Pangbourne Silver Standard Resources Inc. - SVP of Operations * Jonathan Gilligan Silver Standard Resources Inc. - VP of Technical and Project Development * Gregory Martin Silver Standard Resources Inc. - CFO and SVP ================================================================================ Conference Call Participants ================================================================================ * Craig Johnston Scotiabank Global Banking and Markets - Analyst * Christopher Terry Deutsche Bank - Analyst * Christopher Cook Zazove Associates, LLC - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by. This is the conference operator. Welcome to the Silver Standard Third Quarter 2015 Financial Results and Project Update Conference Call and Webcast. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. (Operator Instructions) At this time, I'd like to turn the conference over to Stacey Pavlova, Manager, Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Svetoslava Pavlova, Silver Standard Resources Inc. - Manager, IR [2] -------------------------------------------------------------------------------- Thank you, operator. Good morning, ladies and gentlemen. Welcome to Silver Standard's third quarter 2015 conference call, during which, we will provide an update on our business and a review of our financial performance. Our financial statements and management discussion and analysis have been filed on SEDAR and EDGAR, and are also available on our website. To accompany our call, there is an online webcast, and you will find information to access the webcast in our news release relating to this call. We will be making forward-looking statements today, so please read the disclosures and the relevant documents. Joining us on the call this morning are Paul Benson, President and CEO; Greg Martin, our CFO; Alan Pangbourne, Senior Vice President, Operations; and Jon Gilligan, Vice President, Technical and Project Development. Also present are John DeCooman, Vice President, Business Development and Strategy; and Kelly Stark-Anderson, our Vice President, Legal and Corporate Affairs. Now, I would like to turn the call over to Paul for opening remarks. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [3] -------------------------------------------------------------------------------- Thank you, Stacey. Good morning, ladies and gentlemen, and welcome to our third quarter call. I'm pleased to say that both of our mines have performed as expected during the quarter, producing over 41,000 ounces of gold and 2.6 million ounces of silver. Importantly, we have set up both sites, particularly Marigold, for a strong fourth quarter, and we are confident we will achieve our production and cost guidance for the year. We continue to focus on safe production and operational excellence throughout the organization to maximize the value of our current operation, but also continue to review and invest in growth opportunities for the future. In addition to our solid operating performance, our exploration team continued their success through the quarter. Drilling at Marigold continues to identify more high-grade mineralization, most recently in the new HideOut and 8D areas, with some drillholes exceeding grades of 2 grams per tonne gold. At a mine with an average reserve grade of around 0.5 gram per tonne, these discoveries are exciting and increase our confidence that we will continue to add to reserves and resources going forward. This shouldn't come as a surprise, as during the month of October, Marigold produced its 3 million ounce of gold. It was opened in 1988 with an eight-year mine life, and today, some 27 years later, still has more than an eight-year mine life. This is a testament to the team's ability to continuously operate through all parts of the product cycle and to continue to add to reserves and resources. Also in Q3, we announced the completion of our underground drill program at Pirquitas, where we've identified three veins zones with high-grade silver mineralization. These results increased the possibility that a low-tonnage underground operation could provide additional high-grade feed to the Pirquitas plant. Later in the call, Jon will go over our key exploration activities in more detail. We've maintained a strong balance sheet with over $200 million in cash and $108 million in marketable securities, mainly comprised of our interest in Pretium Resources. Our cash position is lower than that of the second quarter, primarily due to the fact we continue to invest in the future. We believe that the acquisition of the Valmy Property, contiguous to our Marigold Mine, for $11.5 million, will create significant value for the company. We expect to add ounces from Valmy to our resource inventory by the next update in February 2016 and plan to start drilling on the property in the first half of next year. In August, we further enhanced our liquidity by adding a $75 million revolving credit facility, which together with our balance sheet positions us well to pursue new growth opportunities. Most recently, we entered into an agreement to explore and evaluate the Chinchillas project, which is approximately 30 kilometers from Pirquitas. This project has the potential to extend the Pirquitas mine life while leveraging our existing infrastructure and relationships. We have commenced drilling and are looking forward to the economic viability of proving the economic viability of the project and working with local communities and the government as we progress. On a related matter, it's worth noting that Argentina will have the final round of the presidential elections at the end of this month. We share the view of most commentators that no matter which candidate wins, the rate of devaluation of the peso with respect to the U.S. dollar will accelerate. All things being equal, this will be positive for both Pirquitas and Chinchillas as cost in U.S. dollar terms would drop and thus expand margins. With that, I'll turn the call over to Alan, who will discuss our operational performance in more detail. -------------------------------------------------------------------------------- Alan Pangbourne, Silver Standard Resources Inc. - SVP of Operations [4] -------------------------------------------------------------------------------- Thank you, Paul. Today, I'll discuss the quarterly results for both of our operations. During the third quarter, we continued to deliver planned production at both operations. At Marigold, the total material mine decreased by 3.4% to just under 18.5 million tonnes when compared to Q2. At the same time, the ore tonnage stacked increased to 7.2 million tonnes with a grade of 0.43 grams per tonne for contained recoverable gold of almost 70,000 ounces; above expectations for the quarter and almost 100% more ounces stacked than Q2. This gives us the confidence that we can meet our annual production guidance of 195,000 to 205,000 ounces. The positive reconciliation that continues to occur on each production bench resulted in increased ore tonnage. The additional ore also led to a significant reduction in the strip ratio to 1.6:1. At the same time, in Q3, we reached the high-grade benches in the current phase of the Mackay pit, which gave us the high-grade material that was stacked. So as we expected, the grade has started to increase as we reach the deeper benches in late Q3, and we expect this to continue in Q4 to finish the year with a strong quarterly production. In the third quarter, we also completed the construction of the leach pad expansion ahead of schedule and almost $1 million under budget. This allowed us to place the high-grade ore coming out of the pit at the end of Q3 closer to the line and supporting our expected higher production levels in Q4. Moving on to costs. In Q3, Marigold produced 41,262 ounces of gold at a cash cost of $719 per payable ounce sold. The cash cost is similar to Q2, despite 15% lower gold production in the quarter. In the third quarter, we experienced an 11% increase in our unit mining cost, which were at $1.65 a tonne compared to $1.48 in Q2. There were two principal causes for this increase. Firstly, the additional ore tonnage that required holding to the leach pads, and this is one of our longest holes. This led to longer cycle times and less tonnage moved per hour, resulting in a high unit cost per tonne moved. The second reason for the higher mining cost was related to a premature failure of the swing bearing on one of the hydraulic shovels. Whilst the shovel was down, we also decided to advance some major rebuild work that was programmed for 2016. Overall, this resulted in the shovel being done for the entire month during the quarter. To make up for the loading capacity, we used the higher-cost wheel loaders. By the end of the quarter, this repair work was completed and all shovels were again operating normally. Despite the unexpected costs in the third quarter and given the cost profile over Q2 and Q3, and expected higher production in Q4, we're still confident we are on track to meet our revised lower cash cost guidance at Marigold. Moving on to Pirquitas, where we produced 2.6 million ounces of silver, and continue to track for record production this year, in line with our increased production guidance. Q3 saw a 10% reduction in the mine tonnage as the pits gets deeper, the holes get longer, and experienced high truck maintenance requirements. In the process plant, we maintained the improved performance achieved since Q1, with silver feed grades and recoveries being at similar levels. Following the planned 11-day mill shutdown in Q2, milling rates have continued to rise so that in Q3, we milled an average rate of 4,450 tonnes per day, an 18% increase over Q2. Towards the end of the quarter, we further increased the milling rate to average 4,600 tonnes per day, which we expect to continue in Q4. Cash costs at Pirquitas returned to levels similar to Q1 at $11.02 per ounce. This was due to several factors, including the lower by-product credits from the lower zinc production; increased labor costs due to the annual wage increases that hasn't been offset by expected currency devaluation; and longer holds from the deeper benches in the mine that led to higher mining operating and maintenance costs. However, we continue to be on track to meet our lowered cash cost guidance. So, in summary, the third quarter continued to deliver strong results in both operations in terms of production volumes and operating costs, and we are confident in meeting our revised guidance. I'll now hand over to Jon, who will take you through our exploration activities. -------------------------------------------------------------------------------- Jonathan Gilligan, Silver Standard Resources Inc. - VP of Technical and Project Development [5] -------------------------------------------------------------------------------- Thank you, Alan. We had a very positive quarter for exploration at Marigold and Pirquitas, culminating with exploration news release regarding favorable exploration drill results at both assets in September. At Marigold, we announced the discovery of a high-grade mineralized zone called HideOut. This is the third sub-stone discovered in the last 12 months and highlights the capability of the exploration team and the upside potential of the orebody at Marigold. Recent results for HideOut include Drillhole MR-6170, which intersected 2.5 grams per tonne gold over 76 meters down hole; an outstanding intercept to the Marigold deposit, considering the average reserve rate is around 0.5 gram per tonne. Importantly, the rock stockpiles overlying this discovery include above ore-grade material, and this reduces the stripping required to bring the mineralization into reserves. The assay program is advancing well with just under 80,000 samples sent for analysis year-to-date. We are on track to complete the 2015 program of 95,000 samples assayed by year-end. Results from the Mackay area comprising the next four years of production continued to support the 10% to 12% increase in recoverable gold previously reported. The program will conclude in 2016, with the essay of additional 90,000 historic drill samples evaluating the remaining Marigold resource volume. Resource development drilling continued during the quarter with 12,570 meters drilled in 48 RC holes and 509 meters drilled in nine sonic holes. The 2015 drill program was completed in the fourth quarter, and we are waiting one final assay results before geological remodeling and an updated resource estimate. The acquisition of the Valmy Property during the third quarter increased our landholding at Marigold by 36% to just over 10,000 hectares, giving us some additional prime exploration ground. We've commenced our review of historical geologic data, transferred over to Marigold on closure, in order to validate this information prior to resource work. We expect to be in a position to include a mineral resource estimate for the Valmy mineralization in the 2015 year-end reserve and resource statement to be released in February 2016. Moving to Pirquitas. We have received all remaining drillhole assays from the underground drill programs on the Oploca and Chocaya veins, and have incorporated these into an updated resource model. The high-grade intersections from both veins, released in market in September are encouraging to the San Miguel underground potential; that is the vein sets underlying the current open pit. In recognizing the opportunity for revival underground mine at Pirquitas, we have extended the scope with a conceptual study. This will now include the previously drilled Cortaderas silver-zinc vein located some 650 meters North of the current open pit. Preliminary results on a combined Cortaderas San Miguel underground option suggest the economic potential for a small-scale, high-grade ore feed to the Pirquitas mill. It is anticipated that we will conclude the conceptual study on Pirquitas underground options late in the fourth quarter. With the announcement of the Chinchillas option agreement, the technical teams commenced evaluation of this deposit. Key activities in the fourth quarter will include 5,000 meters of resource infill drilling and initial geotechnical, hydrological, and metallurgical studies. We also commenced environmental baseline studies and community engagement programs. Two drill rigs are mobilized to site early in October, and we have completed more than 2,500 meters of core drilling to-date. So in summary, at Pirquitas, we are delivering on our commitment to generate life-extension opportunities of this asset, with both the Pirquitas underground and the Chinchillas open-pit options. At Marigold, despite more than 27 years of continuous mining and exploration activity, and with the recent of the Valmy ground into the land package, from an exploration perspective, Marigold is anything but mature. With the discovery of the third high-grade mineralized zone since acquisition, the exploration potential of this asset continues to impress. Now, over to Greg for a discussion of the company's financial results. -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [6] -------------------------------------------------------------------------------- Thanks, Jon. The situation for us in the third quarter was similar to many in our industry. Our assets performed right on expectations, but the drop in realized metal prices impacted profitability. We have guided that Q2 and Q3 would be weaker quarters at Marigold, so it remains a significant achievement that we are through those periods, have weathered the drop in metal prices and still have added significant cash and liquidity to our balance sheet since the beginning of the year. Revenues for the quarter totaled $77 million, a nominal decline from the $79 million reported in the same quarter last year, as an increase in silver sales of 1 million ounces was offset by declines in metal prices of 12% for gold and 25% for silver. Revenue was further reduced by a $4.3 million mark-to-market charge on outstanding concentrate sales, as silver priced at $14.76 per ounce on September 30. With silver prices rebounding through October, we were able to settle certain of those sales at better prices and recover some of that charge. Both Marigold and Pirquitas delivered stronger production compared to the previous year's quarter, with Marigold selling 39,500 ounces of gold and Pirquitas selling 2.8 million ounces of silver. Zinc sales at Pirquitas declined as budgeted. Also take note that approximately 2,700 ounces of gold remained unsold as the last port didn't ship to the refinery before quarter end. We generated a loss from mine operations of $7.4 million compared to income from mine operations in the comparative period of $6.3 million. A couple of important points in this quarter's cost of sales. Cost of inventory declined by $7 million compared to the same quarter last year, despite the significant increase in silver sales and higher gold sales, reflecting the improvements in the underlying operating cost of our veins. This decline was offset by $10 million of higher depreciation charges, principally at Pirquitas, and the $7.7 million noncash write-down related to ore stockpiles at Pirquitas. The cost of inventory is the important component of cost of sales, as this is what translates through the cash flow. Corporate costs were well controlled as cash expenditures on G&A and exploration declined quarter-on-quarter. The increase in general and administration expense reported in Q3 is solely due to a $2.1 million noncash expense related to stock-based compensation, driven by the strong relative performance of our shares. This strong relative the performance is clearly a positive outcome from the market's confidence and our operating performance and balance sheet strength, but somewhat ironically results in a higher noncash expense in our P&L. Adjusted net income for the third quarter was a loss of $10 million or $0.13 per share, a slight improvement over the comparative period despite the drop in metal prices. For the quarter, we reported a net loss of $59 million, significantly impacted by the $42 million of noncash write-downs at Pirquitas, due solely to the reduction in consensus forecast silver prices. It is challenging with previously written down assets like Pirquitas, when metal prices continued to decline. The starting fair value in the next period is equal to carrying value. So as metal prices decline, they clearly have a significant impact on fair value that trigger further impairments. Unfortunately, neither the underground nor Chinchillas were sufficiently advanced to ascribe value to for the impairment analysis. Our focus remains on maximizing cash flow from Pirquitas through this period of lower prices, and we have been successful on that front. Cash flow performance in the quarter remains solid. Cash from operating activities, before interest and taxes, increased to $7.4 million from $6.4 million in the comparative period and stands at $67.2 million year-to-date. After taxes and interest, and including a working capital build of $2.5 million in the quarter and $6.3 million year-to-date, cash from operating activities was $1 million for the quarter and stands at $53.6 million year-to-date. The third quarter was a heavier investment period at our assets due to the completion of the leach pad build at Marigold, as previously guided. Investment in plant and equipment of $13 million during the quarter represented almost 40% of our total expected capital spend for the year. Year-to-date investments in plant and equipment of $28 million represent 80% of our guidance total, so Q4 capital is excited to ease. We also invested $11.5 million in the purchase of the Valmy lands at Marigold as previously announced. So excluding the Valmy purchase, we had a use of cash of $6 million during our weakest-operating and highest-capital quarter of the year. Our cash balance at the end of the quarter totaled $200 million, $15 million higher than the start of the year, reinforcing our strong liquidity position and evidencing our ability to generate free cash flow. This cash position is enhanced by the $75 million credit facility we signed, which improves our flexibility around liquidity management. Additionally, we saw material increase in the value of our shareholding of Pretium post their financing. Our position at September month end was valued at $104 million, making up the majority of our $108 million of marketable securities. These items drive our working capital position at September 30 to $373 million, continuing to demonstrate the financial capacity within Silver Standard to execute our strategy. We saw cash cost performance of the mines right on expectations and within their guidance ranges. Pirquitas' cash cost for the quarter were $11.02 per silver ounce sold, an increase from Q2, largely due to lower by-product credits. I had raised on our Q2 call that by-products in that period were higher than would be expected going forward. Marigold cash cost of $719 per ounce sold were right on last quarter's cost, showing continued favorable cash cost performance, particularly in light of no cost being deferred to capitalized stripping. Silver equivalent production totaled 5.6 million ounces at equivalent cash cost of $10.32 per ounce sold, or in gold equivalent terms, 75,168 ounces at equivalent gold cash cost of $763 per ounce sold. These metrics position us well in this price environment. CapEx totaled approximately $152 per equivalent gold ounce sold for the quarter. So adding this to cash costs, we were at $915 per equivalent gold ounce sold on an all-in operating basis. So our operations are in a good position going into the final quarter of the year. Marigold had a good opening inventory balance with the gold they stacked on the pads and their unsold bullion. And at Pirquitas, we expect operations to stay on pace. Metal prices remain challenging, particularly in the currencies of jurisdictions in which we operate. After an encouraging October, prices have receded again, but we took the necessary adjustments in our Q3 under the consensus expectation of lower prices persisting. We continue to be pragmatic and proactive around ensuring decision-making at the assets is aligned with this price environment. So with solid year-to-date results and our outlook for Q4, I look forward to reporting on a successful year in February. I'll now turn the call back to Paul for concluding comments. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [7] -------------------------------------------------------------------------------- Thanks, Greg. To summarize, in the third quarter, we delivered metal production and cash cost to plan with solid operating performance and exploration success at both mines. Importantly, both sites are positioned for a strong fourth quarter, and we remain on track to meet our production and cost guidance. At Marigold, with the ore already stacked on the leach pads and the bench is currently being mined in the pit, we also expect a strong start to next. We maintain our focus on safe production, free cash flow generation at the corporate level and growing our business, both internally and externally. The added strength of our balance sheet and the technical and operating capability of our team enable us to continue to pursue value-adding growth opportunities for our shareholders. With this, our presentation concludes, and I'll pass over to the operator to take any questions you might have. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you, Mr. Benson. (Operator Instructions) Our first question today comes from Craig Johnston of Scotiabank. Please go ahead. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [2] -------------------------------------------------------------------------------- Hi, guys. Thanks for taking my call. Just a couple of questions here. First on mining costs at Marigold. With the hydraulic shovels back or the one back up and running, just wondering, any thoughts or expectations on mining costs in Q4 and leading into 2016? -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [3] -------------------------------------------------------------------------------- Sure, Craig. Really the impact on the mining cost, we think, was anomalous to Q3, and we are focused on continuing to drive that mining cost down as we advance the project. We continue to increase the tonnage rates that we can move, and we expect to see those costs come back into line where they were before around the $1.50, $1.40 range. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [4] -------------------------------------------------------------------------------- Great. Okay, sounds good. And then moving on to Pirquitas, just in regards to the impairment and the export duty, when you did the realizable value assessment there, did you -- what's the estimate on the export duties? Is the assumption that the export duty is paid or not paid -- or half or in between? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [5] -------------------------------------------------------------------------------- Sure, thanks, Craig. It's Greg here. Certainly, when we do the impairment analysis, we do have to look at those kind of variables. Obviously, we're highly confident in our position around that issue. But we do factor in a probability of that having to be paid. The way impairment analysis looks, it looks at how a third-party would consider the value of that asset. So we have to consider effectively how we think a third-party would look at that issue in assessing the value of Pirquitas. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [6] -------------------------------------------------------------------------------- Okay. And then -- I mean, I might be kind of jumping ahead too much, but do you think there'd be a case to argue that you stop accruing the export duty on your financial statements? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [7] -------------------------------------------------------------------------------- Certainly, it's an issue we track carefully. And as you're aware, the case still remains in front of the courts and we're tracking through our response process to a number of pieces on that. And we've continued to be successful throughout a number of challenges from the tax authorities through that. If we do have any conclusive evidence that would support a reversal of that, then we would highly look forward to making that adjustment. But, clearly, we're looking for some tangible evidence to be able to support that position. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [8] -------------------------------------------------------------------------------- Makes sense. Thanks, Greg. And then finally, just on M&A, any recent update you can provide in terms of what you guys are seeing out there in the market and opportunities out there? -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [9] -------------------------------------------------------------------------------- Sure. This is Paul here. Obviously, we won't go into any specifics. But generally or as a generalization, the market is favorable from our point of view. As we've mentioned, we're in a good position from a liquidity perspective. And there are a lot of people out there who have good mines and good projects for a variety of reasons that are trouble, have trouble accessing funds. So there are opportunities that we continue to review, but we'll only move forward if we think it's value-adding for shareholders. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [10] -------------------------------------------------------------------------------- Okay, great. Thanks, Paul, and thanks for taking my call. I'm looking forward to Q4. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- The next question comes from Chris Terry of Deutsche Bank. Please go ahead. Mr. Terry, your line is open. -------------------------------------------------------------------------------- Christopher Terry, Deutsche Bank - Analyst [12] -------------------------------------------------------------------------------- Hi, guys. Yes, a couple of questions from me. Just following on the Marigold costs, can you just remind us what hedging you have in place on the diesel, how long that run and at what price? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [13] -------------------------------------------------------------------------------- Yes, sure. Chris, we have put in place some of protection on Marigold's diesel through the end of 2016 calendar year. Right now, we've covered about 15% of their estimated needs in that. We've done it under a structure that protects about $1.90 per gallon, which would equate to about $40, between $40 and $45 oil price. -------------------------------------------------------------------------------- Christopher Terry, Deutsche Bank - Analyst [14] -------------------------------------------------------------------------------- Okay. Thanks so much. And then just to be clear on a few moving parts around Marigold with the reserve and resource. You put Valmy in for February of next year, as I understand it, and you have the assay program ongoing. When you give the guidance for 2016, that will include the re-assay program, as I understand it? -------------------------------------------------------------------------------- Jonathan Gilligan, Silver Standard Resources Inc. - VP of Technical and Project Development [15] -------------------------------------------------------------------------------- Chris, hi, this is Jon. Absolutely, yes, we will come out with our annual statement, and that will obviously be our best view of the resource at that time, so that will have included the re-assay program that looks at, forward look ahead for the next five years, that production volume. So all of that will be in that resource estimate and will be in the forward plan for '16. -------------------------------------------------------------------------------- Christopher Terry, Deutsche Bank - Analyst [16] -------------------------------------------------------------------------------- And Valmy? -------------------------------------------------------------------------------- Jonathan Gilligan, Silver Standard Resources Inc. - VP of Technical and Project Development [17] -------------------------------------------------------------------------------- And Valmy will be also included in the resource estimate. We're doing to work with now, and we would have initial numbers beginning in the year so that we'd be in a position to public those in February. -------------------------------------------------------------------------------- Christopher Terry, Deutsche Bank - Analyst [18] -------------------------------------------------------------------------------- Okay. Sure. And then just post the write-down, more on noncash side, but how do we look at D&A for the next couple of years? Will that come down a touch? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [19] -------------------------------------------------------------------------------- Hi. Chris, it's Greg. Yes, I would estimate that we would see similar levels to what we're currently experiencing on a D&A perspective. So I wouldn't raise your expectations or any significant changes on that front. -------------------------------------------------------------------------------- Christopher Terry, Deutsche Bank - Analyst [20] -------------------------------------------------------------------------------- Okay, great. Thanks very much, guys. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Chris Cook of Zazove Convertible Securities Management. Please go ahead. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [22] -------------------------------------------------------------------------------- Hi, thanks for taking my question. Based on your, the midpoint of your production guidance as well as your cash costs, it implies cash costs both at Marigold and Pirquitas are going up dramatically in the fourth first quarter. Am I missing something? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [23] -------------------------------------------------------------------------------- Chris, yes, thanks. Again, we lowered our cash cost guidance at Q2 at both operations, as hopefully you're aware if you've tracked us for a number of quarters. As we talked about through the quarter, we're tracking within the guidance range. I think your comment is, year-to-date, Pirquitas is right at the bottom of the range and Marigold on a year-to-date basis is below the range. So again, we continue to manage those operations to maintain the lowest-cost position, and we certainly have confidence that we can come in at the farewell part of that range as we move through Q4. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [24] -------------------------------------------------------------------------------- So I might understand that those ranges then -- you're not changing those ranges even though year-to-date numbers are well below those ranges. But you don't want to tighten up that guidance at all? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [25] -------------------------------------------------------------------------------- Yes, we don't tend to provide frequent updates to the guidance. We do an initial year and midyear guidance based on our budget and forecasting processes that we have internally. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [26] -------------------------------------------------------------------------------- Okay. So using the midpoint, you are still comfortable? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [27] -------------------------------------------------------------------------------- We are comfortable in our guidance that has been put out, correct. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [28] -------------------------------------------------------------------------------- Okay, I guess I'm not going to get you towards you for any additional information. That's all I had. Thanks. Oh, one last question. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [29] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [30] -------------------------------------------------------------------------------- Would you guys consider using some of your cash to buy back bonds given where they trade? -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [31] -------------------------------------------------------------------------------- Yes, it's Paul here. That's certainly not on the agenda at the moment. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [32] -------------------------------------------------------------------------------- Okay. So even though a 10% yield to put, that doesn't look like a favorable return to you guys? -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [33] -------------------------------------------------------------------------------- It's more that we just see there are a lot of opportunities out there in the market, and we are in an excellent position. So I'd like to keep our powder dry for that at the moment. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [34] -------------------------------------------------------------------------------- Understood. But the past -- the results of your existing acquisitions and mines are not producing that kind of return. So I don't understand why you would persist in continuing to throw money into the ground that's not producing a 10% return when your bonds are -- would give you that kind of return and it would be riskless, right? It's a guaranteed return, return on capital is nowhere close to that. -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [35] -------------------------------------------------------------------------------- Yes. Paul, I'll just add - I'll just add to Paul's comments. We have a number of commitments, I guess, we've made to the market. One is to maintain a strong balance sheet through our period. Clearly, we do look at that analysis that you're referring to. It is an issue look at as a competitive use of our capital. So we would have to believe that any investment would exceed the return levels that you've preference, yes, clearly, your reference point has been in a period where metal prices have been in a multiyear decline period. Obviously, we're making investments over 10- and 15-year horizon. So we need to look over a longer horizon in making that assessments. But you can rest assured that we look at of that issue carefully and certainly consider its. And if we came to the same conclusion that you did that, that was the best use of capital, then we would look at it. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [36] -------------------------------------------------------------------------------- And so what kind of price forecast do you use to make assessments on investments in mines? Do you use swap pricing? Do you use increased pricing on gold and silver, I'm saying? Decreased price -- pricing going down, I mean what -- you obviously have to make a huge assumption on both the operating mine cost as well as what you could sell the ultimate minerals for. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [37] -------------------------------------------------------------------------------- No, we obviously -- -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [38] -------------------------------------------------------------------------------- I guess I'm to assume that the prior price forecast didn't come true. So, I guess, I'm reluctant to try so that you guys have a better forecast for pricing going forward of than the market, but maybe I'm wrong. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [39] -------------------------------------------------------------------------------- No, I'd agree with you there. When we look at investment opportunities, we look at a variety of things, including consensus, which is in some respect a weighted average spot, and we test anything for a variety of scenarios, so both upside and downside. -------------------------------------------------------------------------------- Christopher Cook, Zazove Associates, LLC - Analyst [40] -------------------------------------------------------------------------------- Okay. All right, thanks. Good luck. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- There are no further questions at this time. I'll turn the call back over to Mr. Benson for closing comments. ================================================================================ Presentation -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO, President, and Director [1] -------------------------------------------------------------------------------- Okay, thank you very much, operator. Thank you everyone for listening in today. Have a great day, and we'll do it again in the fourth quarter next year. Thank you. -------------------------------------------------------------------------------- Operator [2] -------------------------------------------------------------------------------- This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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