Vancouver Aug 10, 2015 (Thomson StreetEvents) -- Edited Transcript of Silver Standard Resources Inc earnings conference call or presentation Friday, August 7, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Svetoslava Pavlova Silver Standard Resources Inc. - IR Manager * Paul Benson Silver Standard Resources Inc. - CEO and President * 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 * Chris Polka The Zone - Analyst * Mark Mihaljevic RBC Capital Markets - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, everyone, and welcome to the Silver Standard Second Quarter 2015 Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Stacey Pavlova, Manager of Investor Relations. -------------------------------------------------------------------------------- Svetoslava Pavlova, Silver Standard Resources Inc. - IR Manager [2] -------------------------------------------------------------------------------- Thank you, Nicole. Good morning, ladies and gentlemen. Welcome to Silver Standard's Second 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 in 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 is 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 and President [3] -------------------------------------------------------------------------------- Thanks, Stacey. Good morning, ladies and gentlemen. I'm very pleased to lead my first quarterly call since joining Silver Standard in mid-July. There is always some anxiety with a change of CEOs, so it's probably worth saying upfront that I strongly support the work the team is doing and the company's current direction. As far as I'm concerned, it's business as usual, and that the focus will continue to be on delivering safe production and pursuing value-creating growth opportunities for our shareholders. I have already visited both sites, and I'm pleased with what I saw at both Marigold and Pirquitas. I was impressed with the quality of the operations, the focus on operational excellence, and the capability of our people. This is underscored by a strong second quarter 2015 that achieved above-expectation production figures at low cash cost. We produced 48,700 ounces of gold and 2.4 million ounces of silver. Also, we further enhanced our liquidity by $42 million during the quarter with cash and cash equivalents increasing to $217 million. This increase was a result of positive operating cash flow of nearly $22 million from both mines and the receipt of $20 million from deferred consideration from the sale of San Agustin project and the release of restricted cash. Our working capital is further enhanced with our holding of $98 million of marketable securities, principally our position in Pretium Resources. Confidence in our future business performance is best demonstrated in part by the revised guidance announced this past July. At Marigold, we now expect to produce between 195,000 and 205,000 ounces of gold at a cash cost of between $700 and $750 per payable ounce sold. And at Pirquitas, we've increased our silver production guidance to 9.5 million to 10.5 million ounces at lower cash cost of $10.50 to $11.50 per payable ounce sold. Strong production results increased -- sorry, increased liquidity and improved guidance differentiated Silver Standard as a leader in the midcap precious metals sector. We maintain our focus on three main goals: safe production, free cash flow generation at the corporate level, and growing our business, both internally and externally. Our achievements are illustrated by robust operating performance with nearly $53 million cash generated by operating activities year-to-date and through the exploration success at Marigold. Simultaneously, our team continues to work on external growth opportunities that would add a third leg to the business that would benefit from our strong development and operating skills. 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 will discuss the quarterly results for both our operations. Q2 continued to deliver better-than-planned results at both operations in terms of production volumes and operating costs. As a result of this, we've increased our production guidance and lowered our cost guidance for both operations. At Marigold, we continue to find areas where we can further improve operational efficiency. Every $0.01 per tonne that we can reduce our mining costs, we save the equivalent of $700,000 per annum. Total material mined in Q2 increased by 2.7% to just over 19 million tonnes, the highest quarterly movement yet. In fact, June was the highest month's total material movement ever in the history of the mine. This was partially due to the addition into the fleet of a 19,300-tonne haul truck during the quarter and improved truck availability. We're still truck-constrained and are focusing on further opportunities to increase affected operating hours and better payload per truck. Importantly, this quarter, we also saw a continued decrease in the dollars per tonne mined, which in the second quarter came down to $1.48 per tonne. The mine safely produced 4.89 million tonnes of ore at a grade of 0.33 grams per tonne for contained ounces of 51,288, which was above expectations for the quarter. This is predominantly due to the additional ore that continues to occur on each production bench outside the modeled mineralized volume, which also lowers the strip ratio. We commenced an operational excellence program to understand the reason for this additional ore, which resulted in an assay program that is increasing ore volumes inside the planned mining shelves. The full impact of this is still being assessed, and Jon will discuss this later. As expected, the commencement of the first ore benches in the next phase of the Mackay pit caused the grade reduction in Q2. We expect grades to increase as we reach the deeper benches in late Q3 and Q4 to finish the year with strong quarterly production. In Q2, Marigold produced 48,700 ounces of gold at a cash cost of $717 per payable ounce sold. Additionally in Q2, we continued with the construction of the leach pad, which is on schedule for completion at the end of Q3. This will allow us to place the high-grade ore close to the liner in Q4 and ensure our expected production levels. It should also be noted that there is still significant pad capacity to place the additional low-grade ore on hind sections of the existing pads. At Marigold, we continue with our operational excellence strategy and will relentlessly pursue more opportunities to safely move more tonnes at a lower unit cost. Nowhere can the impact of these programs be seen more clearly than when we compare Q2 2015 with our first quarter of operations in Q2 2014 under Silver Standard ownership. Mining costs per tonne moved, have dropped from $1.70 to $1.48, and processing costs have reduced by almost 50%. Moving on to Pirquitas, where we've also continued with the focus on operational excellence. With silver production of 2.4 million ounces, we continue to track for a production record this year. It impacted -- its impact can clearly be seen in the quarter-on-quarter improvements in cash costs that have further reduced to $9.45 per ounce in Q2 from $11.25 per ounce in Q1. Q2's costs were partially benefited by higher byproduct credits due to increased zinc shipments in the quarter. Q2 saw a steady ore production from the mine with further decline in the strip ratio, decreasing from 3.4:1 to 3:1. In the process plant, we maintained the improved performance achieved in Q1 with feed grades and recoveries being at very similar levels. When compared to the corresponding period in 2014, the silver recovery has increased by almost 10%, from 74.3% to 83.7%. Additionally, we have nearly doubled the concentrate grade in Q2 2015 compared to Q2 2014. Ore milled was slightly lower due to the planned 11-day mill shutdown, and this was the principal reason for the lower quarterly production. However, when the tonnage rate is corrected for the shutdown, the daily tonnage is slightly higher than Q1 at 4,339 tonnes per day. Zinc production continued to reduce quarter-on-quarter as planned, in line with the reduction in the zinc feed grade. The zinc production for Q2 was 2.6 million pounds. So as with previous quarters, our strong management team in Argentina continues to demonstrate their ability to maintain, operate, and consistently improve the operation. So in summary, Q2 continued to deliver better-than-planned results at both operations in terms of production volumes and operating costs, and this led to a review of our production plans, and our increased production guidance and lowered cost guidance for both sites. 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. Our focus over the quarter has been on the safe execution of brownfields exploration program at both Marigold and Pirquitas. We issued an exploration news release in early July on the half year results for the Marigold resource development program, and announced a funding increase of $2.4 million for the second half of the year. Of this funding, approximately half is to extend the resource drilling around the 8 South area, and the other half is for the assay program in the Mackay area, which Alan mentioned previously. The assay program initiated in January as part of our operational excellence strategy has confirmed the presence of historic drill hole samples recorded in our database at zero gold grade having grades above the current reserve's cutoff. We've taken a systematic approach to understanding this issue and commenced analyzing all such zero-grade samples on a section-by-section basis starting inside the 2015 production volume in the Mackay area. Test volumes analyzed to date in this area demonstrated 21% increase in mineralized tonnage above cutoff and a 7% reduction in average grade. This translates to a 12% increase in recoverable gold as reflected in part in our revised 2015 guidance. These new assays demonstrate the existence of low-grade but economic mineralization not contained within the existing resource or reserve models, which replaces waste in the same mining volume. The result in large part accounts for the positive ore reconciliation we've experienced over the last three quarters and also has a positive significant impact on the strip ratio. The objective for the second half of 2015 is to complete the assay program covering the next five years of production, and in 2016, to complete all assays through to the end of mine life. Also, at Marigold, the high-grade mineralization discovered in the 8 South area continues to grow with a new zone of high-grade mineralization delineated on a structure to the Northwest of the backfill pit. Recent highlight results include drill hole MRA-6103, which intersected 0.91 grams per tonne over 51.8 meters down hole, demonstrating continued positive intercepts in the southern portion. Additionally, drill hole MRA-6104 in the new Northwestern area intersected 1.18 grams per tonne over 56.4 meters down hole. This latter result extends the 8 South area high-grade mineralized zone to a strike length of more than 500 meters. Sonic drilling to evaluate the gold grade of the rock stockpiles and old leach pads at Marigold overlying the 8 South pit mineralization continues with more than 90% of the drill holes returning full hole depths with average gold grades above the current cutoff grade. Metallurgical test work has commenced, and the potential to convert this surface material into ore will be evaluated during the year-end mine panning process in Q4. Moving to Pirquitas. In Q2, we commenced the third phase of the San Miguel underground drilling program, which focused on resource step-out on the high-grade Oploca structure. A total of 4,023 meters of core was drilled in 19 holes. And the program was completed as of early August. Initial resource modeling work on the San Miguel mineralization will be updated with the Phase 3 drill results as they are received in Q3. It is anticipated that any underground resource updates will contribute to the annual Pirquitas resources and reserves statement due in the first quarter next year. On the surface, geologic mapping and sampling of the Pirquitas Norte exploration area, which surrounds the open pit mining area, was completed during the quarter. Six prospects have been identified and three surface drill targets defined. So in summary, our focus on brownfields opportunities of the operations is yielding results. In particular, the additional exploration funded directed to Marigold in the second half of the year reflects the continuing underlying potential of this deposit to deliver upside resource opportunity. 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, and good morning. The second quarter continues our track record of delivery with positive mine operating earnings and strong cash generation, driven by solid production and continuing positive cost performance. Our operations continued to deliver, which is critical as we see metal prices come under renewed pressure. Revenues for the quarter totaled $96 million, a 50% increase over the same quarter last year due to both Marigold and Pirquitas delivering stronger production and sales. Marigold sold 48,000 ounces of gold, and Pirquitas sold 2.6 million ounces of silver, significant increases over the comparative quarter, more than offsetting the decline in metal prices relative to that period. Revenues were impacted by a $4 million mark-to-market loss on concentrate receivables due to declines in metal prices at quarter-end. We generated income from mine operations of $16 million, again, an approximate 50% increase from the same quarter last year. Operating margins stayed constant at 17% as operating cost declines fully offset the 16% drop in metal prices. Growing income from mine operations and maintaining margins is a distinguishing accomplishment and in an area we look to differentiate ourselves from our peers. Corporate costs were well controlled as cash expenditures on G&A and exploration on nonoperating assets declined. The reported increase in general and administration on the income statement is fully due to the $3.3 million noncash expense related to stock-based compensation driven by the strong relative performance of our shares year-to-date. Our Q2 tax expense was significant at $4 million. Our tax expense is high due to the earnings generated at Marigold, where we currently aren't able to recognize deferred tax assets related to alternative minimum tax paid. We expect this situation to normalize over time, but it impacted our Q2 earnings. We don't consider the above items in our reported adjusted loss, which for Q2 was $1.8 million or $0.02 per share. This compares to our reported net loss of $7.3 million or $0.09 per share for the quarter. Cash flow performance in the quarter remained strong. Despite a $2.9 million build in working capital, we still generated cash from operations of $22 million. This brings our year-to-date cash generated from operations to an impressive $53 million. Investments in our operations remain modest at $8.2 million with approximately $5 million invested at Marigold as they advance the new leach pad on schedule and budget. We did not incur any capitalized stripping due to the low strip ratio at Pirquitas and lower-than-expected strip ratio at Marigold. Furthermore, no deferred stripping is expected for the remainder of the year. Critical in this environment, our cash position increased by $42 million to $217 million due to the strong operating performance and deferred consideration received on the San Agustin sale. A point I'd like to note is that when we closed the all-cash Marigold purchase in April 2014, we reported a cash position of $102 million. Twelve months later, we have grown that cash position by $115 million and are again sitting with one of the leading liquidity positions in the mid-tier space while continuing to hold our position in Pretium Resources. Working capital at June 30 stood at $380 million, continuing to demonstrate the financial capacity within Silver Standard to drive our business forward. We announced on Tuesday the closing of our inaugural three-year $75 million revolving secured credit facility. The facility provides us with flexibility to pursue our growth strategy and/or effectively provide for reclamation bonding requirements within our portfolio. Due to our strong liquidity position, we do not have current plans to draw on the facility. Total silver equivalent production of 6 million ounces at equivalent cash cost of $9.74 per payable ounce continues to position Silver Standard into a new range against our peers. As gold is representing a proportionately larger part of our business currently, in gold equivalent terms, the second quarter was 83,000 equivalent gold ounces at cash cost of $701 per equivalent gold ounce sold; again positioning us strongly in our peer group. CapEx in deferred stripping totaled approximately $145 per equivalent gold ounce sold for the quarter. So adding this to cash costs, we were at about $845 per equivalent ounce on an all-in basis. Looking forward, the stronger first half of the year and our increased confidence in our mines' performance has enabled us to revise downward cost guidance at both operations. At Marigold, due to the strong first half of the year, an increase in production to between 195,000 and 205,000 ounces, and a favorable energy price environment, we have been able to reduce cash costs guidance to between $700 and $750 per payable ounce of gold sold. And concurrently, lower deferred capital stripping guidance, the combination of which significantly improves cash generation of the asset. Eliminating deferred stripping shifts approximately $12 million of site costs into cash costs, which really highlights how impressive it is to be able to reduce cash cost guidance. With total capital at Marigold forecast for the year at approximately $190 per ounce at a midpoint of cash cost guidance, all-in costs of about $900 per ounce benchmarks the asset well, setting up the mine to generate cash at current gold prices. At Pirquitas, we are now expecting cash costs to total between $10.50 and $11.50 per payable ounce of silver sold, a reduction of about 8% from initial guidance. Importantly, mine capital remains at a modest $10 million, so cash generation remains meaningful at current silver prices with production now expected between 9.5 million and 10.5 million ounces. It is fair to say the mine continues to battle the headwinds of high inflation and a strong peso, which is a testament to the job they have done driving the performance of the asset to compensate. We continue to expect that as we move past the Argentine presidential elections in late fall this year, the peso will weaken, which should assist cost performance. So in summary, solid second quarter and a positive year-to-date, delivering on our improved guidance positions the company through the second half of the year with a bias to a stronger fourth quarter production to weather, if not strengthen, its financial position during this period of metal price pressures. I'll now turn the call back to Paul for concluding comments. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO and President [7] -------------------------------------------------------------------------------- Thanks, Greg. In summary, during the second quarter of 2015, we continued to deliver strong operating performance and continued to realize efficiencies at both Marigold and Pirquitas. These results in part have contributed to the improved production and cost guidance for the year. Additionally, various activities on growth were advanced with demonstrated exploration success at Marigold. We also continue to evaluate potential acquisitions. As a result of the free cash flow delivered by our operations and the optimization of our portfolio to asset sales, we have strengthened our balance sheet even further, positioning us well to look for growth opportunities consistent with our strategy. We have demonstrated our ability to deliver results, and we'll continue to do so in the best interest of our shareholders. With this, our presentation concludes, and I'll pass over to the operator to take any questions you may have. For reasons I'm sure you'll understand, this quarter, I'll probably delegate the majority of questions to my colleagues. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Craig Johnston of Scotiabank. Your line is now open. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [2] -------------------------------------------------------------------------------- Hi, guys. Thanks for taking my call. Congrats on a good quarter. Just, Paul, you touched on it briefly, and Greg, you highlighted one of you're leading liquidity positions in the mid-tier space. Just wondering if you guys could kind of refresh us on what your growth strategy is at the moment, given kind of where the market is with prices. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO and President [3] -------------------------------------------------------------------------------- Sure. I'll go first and then pass over to Greg. Obviously, internally, we're investing in exploration, and we're seeing some really exciting results at Marigold. And we do see that adding growth to the business internally, but we continue to look for opportunities externally. Greg? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [4] -------------------------------------------------------------------------------- Yes, I think Paul summarized it. Really, our focus has been at the existing assets, as both Alan and Jon talked to, improving the operating performance and continuing to build on both of those assets through our exploration and associated activities. And as you say, as a combination of our liquidity position, I think combined with the strong performance of our share price, that certainly positions us well to look at external opportunities. And the team's been active on that front. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [5] -------------------------------------------------------------------------------- And is there a certain level of cash or working capital on your balance sheet that you'd like to maintain just to stay comfortable? Like for instance, when you purchased Marigold, you noted that you had about $100 million left in cash on the balance sheet. Is that something of a fair number that you'd like to keep at all times in working capital? Or is there something different there? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [6] -------------------------------------------------------------------------------- No, I think that's a good benchmark to look at, Craig. Obviously, the credit facility is an important component in that in giving us some flexibility at how we would look at those situations. It gives us some available credit that we can then take into consideration as we planned our capital structure through any transaction. But in general, we understand maintaining a strong balance sheet is absolutely critical through any kind of transaction as we look forward from a funding and uncertainty standpoint. We need to make sure we have the confidence and our shareholders have the confidence to be able to deliver on any transaction that we would undertake. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [7] -------------------------------------------------------------------------------- Okay, that's great. Thanks, Greg. Moving on just at Marigold and seeing the mining costs there being the lowest in the mine's history, any targets for the second half of the year in terms of mining costs that you're looking at? I saw that you've implemented a diesel hedging program. I guess the second question to that would be what percentage of your diesel consumption have you hedged? But, yes, just looking for a target on mining cost and what kind of us in the investment community can benchmark it against. -------------------------------------------------------------------------------- Alan Pangbourne, Silver Standard Resources Inc. - SVP of Operations [8] -------------------------------------------------------------------------------- Good morning, Craig. To start off, I'll take the first half, and then I'll let Greg discuss the diesel hedging. I mean we targeted $1.50 when we did the acquisition, and we've now got down to that and under that. And we continue to look for every way we can to keep reducing that mining cost and keep increasing the efficiency of the mining operation. And we continue to find small gains in every direction we look, whether it's the truck operations, the availability, the utilization or the payload, and every one of those will help us to continue driving that mining cost down jointly with the fuel price. So, Greg, I don't know, comment on the diesel? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [9] -------------------------------------------------------------------------------- Yes, Craig, in terms of the program, it's something we've instituted quite recently. So as of quarter-end, there was really no material mark-to-market on those positions. But we have protected about 25% of our [H2] diesel consumption at price levels that we're in kind of low, equivalent to the low $50 oil price level. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [10] -------------------------------------------------------------------------------- Okay, that's great. And then just moving on to Pirquitas, just wondering if you guys could provide a sense of where mining rates will be for the year. And where, I guess from there, your strip ratio is or expected to be in the second half? -------------------------------------------------------------------------------- Alan Pangbourne, Silver Standard Resources Inc. - SVP of Operations [11] -------------------------------------------------------------------------------- Sure, Craig. We're down in that 3.5 to 3:1 strip ratio, and as we're now right in the core of the orebody, we don't really see that changing very much. Most of that waste that's coming out is interstitial, so it's between the veins. So we expect that strip ratio to hover around that three mark until the end of the life of mine. -------------------------------------------------------------------------------- Craig Johnston, Scotiabank Global Banking and Markets - Analyst [12] -------------------------------------------------------------------------------- Okay, great. Thanks, Alan, and thanks, guys. Congrats on a good quarter. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Chris Terry of Deutsche Bank. Your line is now open. -------------------------------------------------------------------------------- Christopher Terry, Deutsche Bank - Analyst [14] -------------------------------------------------------------------------------- Hi, guys. Welcome, Paul. Good to have you on this side of the world. I just had a couple of questions. In terms of the CapEx for '16, I don't think you've got official guidance out but just interested in what the trend might be in forward years after the small revisions to 2015. And then just a little bit further on that, the question around the balance sheet. So is it fair to say that right now, unless you find an opportunity, you'll just keep trying to keep the balance sheet in a net cash position, and then if you were to find an opportunity, you'd keep the cash at $100 million as the bottom line. Is that how we should read it? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [15] -------------------------------------------------------------------------------- Yes, thanks, Chris. It's Greg speaking. I'll address those two questions. As you noted, we have not provided 2016 CapEx guidance. But I think in terms of profiling, looking at Pirquitas first, we see it pretty much at a steady state, quite a modest capital. There is really no major capital expectations through the remaining years at Pirquitas. With regards to Marigold on the CapEx side, as we've noted, we're investing about $7 million this year in a leach pad. That doesn't repeat every year. That's a periodic investment. So we see this year being in the range but towards the high side of the range of where we'd see Marigold be typically on a CapEx basis. And in terms of deferred stripping at Marigold, as Jon Gilligan spoke to, we're still working through looking to how this reassay program may impact on strip ratio. So I can't give you any particular insight, I think, in terms of how capital stripping would look in 2016. We need to work through that through the second half of the year. With regards to liquidity, again, I think that's -- it's a good range to look at and accurate. It really does come down to the opportunity. Obviously, a cash flow generating opportunity versus a noncash flow generating opportunity may impact how we set our capital structure. But in general terms, I think as a team and as an organization, we're committed to maintaining a solid balance sheet, making sure we have sufficient liquidity to see ourselves through any kind of internal and external issues. -------------------------------------------------------------------------------- Christopher Terry, Deutsche Bank - Analyst [16] -------------------------------------------------------------------------------- Thanks, Greg. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Our next question comes from the line of [Chris Polka], [The Zone]. Your line now open. -------------------------------------------------------------------------------- Chris Polka, The Zone - Analyst [18] -------------------------------------------------------------------------------- Hi, thanks for taking my question. Yes, based on your comments around your balance sheet, I was just curious as to why you wouldn't use some of the excess cash to buy back your [2 7/8] converts that are puttable in 2020. At current prices, they yield 10%, which would be quite a nice return on capital for you, guys. -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [19] -------------------------------------------------------------------------------- Sure, Chris. It's a Greg again. I'll take that question. Certainly, we look at, again, at our liquidity position and our capital structure over a long-term basis. I think as anybody that's following the industry, we're in a quite capital-constrained part of the market cycle, you would say, where capital is a very key asset here at this point in the cycle. So we see lots of opportunities out there in the market where we believe we can earn above-level returns for our shareholders, and it's a matter of working through those here over time. But that is an issue that we continue to monitor. And we'll continue to make decisions around that based on our long-term look through our liquidity position. -------------------------------------------------------------------------------- Chris Polka, The Zone - Analyst [20] -------------------------------------------------------------------------------- And when you say above-level returns, what does that mean? -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [21] -------------------------------------------------------------------------------- Well, again, we would compare any kind of opportunity against the alternatives you just referenced. -------------------------------------------------------------------------------- Chris Polka, The Zone - Analyst [22] -------------------------------------------------------------------------------- Okay, okay. -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [23] -------------------------------------------------------------------------------- Clearly using our capital to buy back the convert is one use, and anything we did in alternative would have to, in our estimation, earn a higher return than that. -------------------------------------------------------------------------------- Chris Polka, The Zone - Analyst [24] -------------------------------------------------------------------------------- Then, right, a equity-like return, given your debt cost to capital is 10%, would be something in the mid-teens, I would think. -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [25] -------------------------------------------------------------------------------- That's a logical connection. -------------------------------------------------------------------------------- Gregory Martin, Silver Standard Resources Inc. - CFO and SVP [26] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Our next question comes from the Mark Mihaljevic of RBC Capital Markets. Your line is now open. -------------------------------------------------------------------------------- Mark Mihaljevic, RBC Capital Markets - Analyst [28] -------------------------------------------------------------------------------- Hey, good morning, guys, and congrats on a nice quarter. Just to touch on some of the exploration stuff you guys have been doing. So, just trying to get a sense of the scale of the underground that you're seeing, I believe you talked that maybe it could add a year or two to the mine life. Just wondering if that's still a reasonable assumption there, similar with the regional stuff you've been seeing around there. -------------------------------------------------------------------------------- Jonathan Gilligan, Silver Standard Resources Inc. - VP of Technical and Project Development [29] -------------------------------------------------------------------------------- Mark, this is Jon Gilligan. Thanks for the question. I think the regional stuff is a longer-term play. We have identified these six prospects and three drill targets, and we need to work through evaluating those over the next period, so I don't see those in the short term coming forward. The underground, we are -- as we said, we've completed that underground drilling program. We are still in the process of chewing over those results. We haven't had the assay data back for the Phase 3. We've done some preliminary underground work. We need to do a bit more. So I think it's a little premature to be able to confirm or deny what we might be seeing there as a time extension. -------------------------------------------------------------------------------- Mark Mihaljevic, RBC Capital Markets - Analyst [30] -------------------------------------------------------------------------------- Okay, that's fair to say. And then actually continuing on this track, the high-grade stuff you found in Marigold has been pretty impressive. So what are your thoughts around that? And how would you use that to supplement some of the lower-grade stuff you have? -------------------------------------------------------------------------------- Jonathan Gilligan, Silver Standard Resources Inc. - VP of Technical and Project Development [31] -------------------------------------------------------------------------------- So I think -- the story at Marigold is the original discovery was the 8 South pit, which was a 3-gram pit. And the history of the deposit has evolved by discovery of these small mineralized centers that, over time, have been drilled out and they're sort of coalesced to large pits. I think our on-site team has diligently worked through available space and has sort of found that particularly around the 8 South. We're starting to grow these mineralized centers. Some of them are nearer surface and some of them are deeper. In particular, the 8 South sits underneath -- part of it sits underneath the waste dump, and the sonic drilling is showing us that some of those waste dumps in fact lie above -- the gold grades in the waste dumps lie above current cutoff grades. It?s an exciting view around what the strip ratio that material needs to carry to develop. So in short, I think we're very excited about the opportunity of growing these individual high-grade zones into something that will pop a pit, and that's the work that's going to be done over the next two quarters. And we would hope to see some results coming into the year-end results in the first quarter of next year. -------------------------------------------------------------------------------- Mark Mihaljevic, RBC Capital Markets - Analyst [32] -------------------------------------------------------------------------------- Okay, perfect. And -- actually, I guess, that?s it for me. Thanks. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Paul Benson for any closing remarks. -------------------------------------------------------------------------------- Paul Benson, Silver Standard Resources Inc. - CEO and President [34] -------------------------------------------------------------------------------- Okay, thank you, operator, and thanks, everyone, for participating in the call today. Have a great day. Thank you. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may now disconnect. Have a great day, everyone.
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