SSRM

Business Context and Reporting Period

Company: Silver Standard Resources Inc. (Note: Metadata listed "SSR Mining Inc." but the filing text identifies the registrant as Silver Standard Resources Inc.)
Filing Type: Form 20-F (Annual Report)
Period Covered: Fiscal year ended December 31, 2006
Business Overview: A mineral exploration and development company focused on silver-dominant projects in Argentina, Australia, Canada, Chile, Mexico, Peru, and the United States. The company has no operating revenue from mining but holds significant cash reserves and mineral properties. The primary development focus is the Pirquitas Project in Argentina, for which a production decision was announced in October 2006.

Key Financial Metrics (Canadian GAAP)

Note: Under U.S. GAAP, the company reported a net loss of $11,045,000 for 2006 due to the expensing of mineral property costs.

Material Changes vs. Prior Period

• Profitability Shift: The company transitioned from a net loss in 2005 to a net profit in 2006. This was primarily driven by a one-time gain of $35,390,000 from the sale of its 50% interest in the Manantial Espejo joint venture to Pan American Silver Corp.
• Liquidity Expansion: Cash and cash equivalents increased tenfold from $23.0 million to $229.6 million, largely due to a public offering in May 2006 that raised net proceeds of $171.1 million.
• Exploration Spend: Cash invested in mineral properties nearly doubled to $39.4 million, with significant allocation to the Pitarrilla Project in Mexico ($21.1 million) and the Pirquitas Project in Argentina ($5.0 million).
• Asset Base: Total assets more than doubled to $471.0 million, reflecting the increase in cash, silver bullion holdings, and capitalized mineral property costs.

Guidance, Outlook, and Risks

Outlook and Guidance:

• Pirquitas Project: Management announced a production decision in October 2006. Construction is estimated to take 21-24 months with capital costs of approximately US$146 million. The mine is expected to produce over 9 million ounces of silver annually over an 8.8-year life.
• San Luis Project: The company expects to elect to increase its interest in this Peruvian joint venture to 70% in the first half of 2007 upon reaching specific expenditure thresholds.
• Profitability: Management expects to continue incurring losses until the Pirquitas Project enters commercial production and generates sufficient revenue.

Risks and Contingencies:

• Development Risk: Pirquitas is the only property under development; failure to successfully establish operations would be material.
• Commodity Prices: Profitability is highly sensitive to fluctuations in silver, tin, and zinc prices.
• Regulatory and Environmental: Operations are subject to extensive regulations in multiple jurisdictions. Significant reclamation obligations exist, with a provision of $3.4 million recorded.
• Resource Estimates: The filing cautions that Canadian resource estimates (Measured, Indicated, Inferred) are not recognized by the SEC and may not be converted to reserves.
• PFIC Status: The company was classified as a Passive Foreign Investment Company (PFIC) for 2006, which may result in unfavorable U.S. tax consequences for shareholders.

Investor Verification Checklist

• U.S. GAAP Reconciliation: Verify the significant difference between Canadian GAAP earnings ($16.4M profit) and U.S. GAAP earnings ($11.0M loss) due to the treatment of mineral property costs.
• One-Time Gains: Assess the sustainability of earnings by excluding the $35.4M gain from the Manantial Espejo sale.
• Capital Requirements: Confirm the sufficiency of the $229.6M cash balance against the estimated US$146M construction cost for Pirquitas and ongoing exploration spend.
• Resource Classification: Review the distinction between Canadian "Resources" and SEC-recognized "Reserves" for the Pirquitas project.
• Reclamation Liabilities: Monitor the $3.4 million provision for asset retirement obligations and potential increases due to regulatory changes.