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, 2011
Accounting Standard: International Financial Reporting Standards (IFRS)
Business Overview: SSRI is a silver-dominant resource company with one producing mine (Pirquitas in Argentina) and a portfolio of exploration and development projects in the Americas (including Pitarrilla in Mexico and San Luis in Peru). The company transitioned to IFRS effective January 1, 2010.
Key Financial Metrics
| Metric | 2011 (USD) | 2010 (USD) |
|---|---|---|
| Revenue | $147.8 million | $112.3 million |
| Net Income | $80.1 million | $338.5 million |
| Earnings Per Share (Basic) | $1.00 | $4.34 |
| Income from Mine Operations | $51.9 million | $14.1 million |
| Operating Margin (Mine) | 54.1% | 14.4% |
| Cash and Cash Equivalents | $329.1 million | $232.3 million |
| Working Capital | $399.1 million | $306.4 million |
| Total Assets | $1,276.1 million | $1,148.0 million |
| Long-term Debt (Convertible Notes) | $125.3 million | $116.1 million |
Production Data (2011): 7.1 million ounces of silver produced; 10.1 million pounds of zinc produced.
Costs (2011): Total cash cost per ounce of silver was $20.93; Total production cost per ounce was $25.37.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 32% to $147.8 million, driven primarily by a higher average realized silver price ($33.58/oz in 2011 vs. $20.92/oz in 2010), despite lower sales volumes due to the termination of a long-term sales contract in Q3 2011.
- Net Income Decline: Net income decreased significantly to $80.1 million from $338.5 million. The 2010 figure was anomalously high due to a $402 million gain on the sale of the Snowfield and Brucejack properties. The 2011 net income included a $51.4 million gain on the sale of the Bowdens project and a $38.8 million gain on the partial disposal of the Pretium Resources Inc. investment.
- Operational Improvements: Income from mine operations improved to $51.9 million (54.1% margin) from $14.1 million (14.4% margin). This was achieved despite operational downtime (over two months) caused by a damaged ball mill gearbox, which was repaired by November 2011.
- Asset Monetization: The company sold the Bowdens project in Australia for approximately $70.7 million and sold approximately one-third of its Pretium shareholding for $130 million, while retaining a significant equity interest.
Guidance, Outlook, and Risks
- 2012 Production Guidance: Management anticipates Pirquitas will produce between 8.2 and 8.5 million ounces of silver in 2012, following the restoration of full milling capacity.
- Project Development: The company is accelerating the feasibility study for the Pitarrilla project in Mexico, with completion targeted for mid-2012. Infrastructure construction (camp, roads, water wells) has commenced.
- Key Risks:
- Operational: Uncertainty regarding production and cost estimates at Pirquitas; reliance on a single producing mine.
- Regulatory/Legal: Ongoing legal challenge regarding a 10% export duty on silver concentrates in Argentina (approx. $13.1 million accrued liability); potential changes in fiscal regimes in operating jurisdictions.
- Market: Volatility in silver and zinc prices; foreign exchange fluctuations (exposure to Argentine Peso and Canadian Dollar).
- Financing: Convertible senior notes due 2028 are redeemable by holders on March 1, 2013, which could impact liquidity.
Investor Verification Checklist
- Export Duty Litigation: Verify the status of the Argentine court case regarding the 10% export duty on concentrates and the potential for recovery of the $6.6 million paid and $13.1 million accrued.
- Pretium Investment: Confirm the current market value and ownership percentage of the Pretium Resources Inc. stake, as this represents a significant portion of the company's asset value and liquidity potential.
- Pitarrilla Feasibility: Monitor the mid-2012 completion of the Pitarrilla feasibility study and the subsequent construction decision, which will dictate future capital expenditure requirements.
- Convertible Notes: Review the terms of the 4.5% convertible senior notes due 2028, specifically the put option exercisable by holders on March 1, 2013, and the company's liquidity position to meet potential redemption requests.
- Operational Recovery: Assess whether the 2012 production guidance of 8.2–8.5 million ounces is achieved following the ball mill gearbox repairs.