Business Context and Reporting Period
Company: Silver Standard Resources Inc. (SSRI)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2008
Business Overview: Silver Standard is a development-stage mining company focused on advancing a portfolio of silver-dominant projects in the Americas and Australia. The company's primary focus is the construction of the Pirquitas Project in Argentina, which is nearing commercial production. The company has no operating revenue from mining operations as of the reporting date.
Key Financial Metrics (Year Ended Dec 31, 2008)
| Metric | Value (Cdn$) | Notes |
|---|---|---|
| Revenue | Nil | No operating revenue; gains from asset sales recorded separately. |
| Net Loss (Canadian GAAP) | $(10.5) million | Loss per share: $(0.17) |
| Net Loss (U.S. GAAP) | $(43.1) million | Loss per share: $(0.69); includes expensing of exploration costs. |
| Total Assets | $695.5 million | Includes $515.8 million in mineral property costs and PP&E. |
| Cash and Cash Equivalents | $88.2 million | Plus $13.4 million in marketable securities. |
| Long-Term Debt | $127.4 million | 4.5% Convertible Senior Notes due 2028. |
| Working Capital | $50.8 million | Down from $117.3 million in 2007. |
Material Changes vs. Prior Period
- Net Loss Reduction (Canadian GAAP): Net loss decreased significantly from $35.2 million in 2007 to $10.5 million in 2008. This improvement was driven by a $31.5 million pre-tax gain on the sale of the Shafter Silver Project and a $23.5 million gain on the sale of silver bullion.
- Exploration and Development Costs: Total expenditures on mineral properties increased to $47.4 million (exploration) and $135.8 million (construction/equipment) in 2008, compared to $42.7 million and $45.6 million respectively in 2007. The increase is primarily due to accelerated construction at the Pirquitas Project.
- Investment Write-downs: The company recorded an $18.4 million write-down on asset-backed commercial paper (ABCP) investments and a $6.0 million mark-to-market write-down on marketable securities, reflecting the impact of the global financial crisis.
- Debt Financing: In February 2008, the company completed a US$138 million convertible debt offering, resulting in net proceeds of approximately $129.8 million (Cdn$).
Guidance, Outlook, and Risks
Outlook and Guidance
- Pirquitas Project: Construction is approximately 84% complete (US$194 million expended of US$230 million total estimated cost). The company expects to commence silver concentrate production in late Q1 or early Q2 2009. Full production is targeted for 2010, with an expected output of over 10 million ounces of silver annually.
- Capital Resources: Management states it has sufficient funds to complete the Pirquitas mine construction and fund planned exploration programs for the coming year. A subsequent public offering in February 2009 raised an additional $109 million (Cdn$).
- Other Projects: Feasibility studies are underway for the San Luis Project (Peru) and Pitarrilla Project (Mexico).
Risks and Contingencies
- ABCP Investments: The company holds restructured notes from frozen ABCP trusts valued at $26.7 million (down from a face value of $57.1 million). There is uncertainty regarding the ultimate recovery value and the development of a secondary market.
- Commodity Prices: Profitability is highly dependent on silver, tin, and zinc prices. Volatility in these markets could impact the economic viability of projects.
- Regulatory and Political Risk: Operations in Argentina, Peru, Mexico, and Chile expose the company to potential changes in tax regimes, export taxes, and political instability.
- Convertible Notes Covenants: An event of default under the 4.5% convertible senior notes could result in the immediate acceleration of debt, potentially forcing the sale of assets.
Key Facts for Investor Verification
- Production Timeline: Verify the commencement of silver concentrate production at Pirquitas in Q1/Q2 2009 and the ramp-up to full production in 2010.
- Capital Cost Overruns: Monitor the final construction cost of the Pirquitas Project, which was revised upward to US$230 million in February 2009 due to inflation in Argentina.
- ABCP Recovery: Track the actual cash recovery from the restructured asset-backed commercial paper notes, as the current fair value is based on estimates.
- U.S. GAAP vs. Canadian GAAP: Note the significant difference in reported net loss ($43.1M vs $10.5M) due to the expensing of exploration costs under U.S. GAAP versus capitalization under Canadian GAAP.
- Debt Maturity: Confirm the status of the US$138 million convertible notes due 2028 and any potential early redemption or conversion events.