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« Silver outlook bullish for 2011 and into 2012-Thomson Reuters-GFMS | Main | Silver Wheaton Corporation Triples Dividends despite lower than expected Earnings. »
Thursday
Nov102011

Silver Standard Resources Incorporated Down 20.95% Today

Silver Standard Resources Incorporated (SSRI) has been well and truly sold off today following the release of their third quarter results and a lowering of the estimated Mineral Resources & Reserves at Pirquitas. The Pirquitas Mine is Silver Standard's first major mining operation and commercial production was achieved on December 1, 2009. At full production the mine will produce an average of approximately eight to ten million ounces of silver and ten to twelve million pounds of zinc annually, ranking Pirquitas among the largest primary silver mines in the world.

Production for the full year 2011 is expected to be 8.5 million ounces of silver at an average direct mining cost of $11.00 per ounce of silver (net of by-product credits) and $20.00 per ounce total cash cost including royalties and taxes.

We imagine that the high level of these cash costs would be worrisome to the investment community and to some extent would act as a deterrent to investors. For an explanation we turn to John Smith, President and CEO of Silver Standard, who commented as follows:

"Third quarter production was lower than a year ago, but now that we have addressed the issues at our Pirquitas mine we can look forward to strong, continuous production from the mine" So its now a case of investors being patient and allowing time for this operation to run efficiently.

Another consideration is Geo-political, in that the Pirquitas mine is located in northern Argentina in the province of Jujuy. We recently covered this situation in an article entitled; 'Argentina Rule Change casts a dark shadow over the mining industry' on Thursday, October 27, 2011, when we wrote “This rule change by the Argentinian government renders this country less attractive than it use to be to inward investors. It also serves as a reminder as to the myriad of risks involved in any mining operation. This one comes under the heading of Geo-political risk, as the re-elected government seeks to stem the flow of capital out of the country. Having this cash repatriated also gives the government the opportunity, further down the line, to introduce capital controls which would result in the cash having to be re-invested in Argentina.”

Third Quarter 2011 Highlights are as follows:

Reached 1 million man hours free of any loss time injuries at Pirquitas
Net earnings of $21.8 million or $0.27 per share versus a loss last year
Cash balance of $356 million or $639 million in cash and equity investments
Completed Bowdens sale for $70 million, recording a $51 million gain
Approved $25 million budget to advance the schedule and feasibility of the Pitarrilla complex

Reached 1 million man hours free of any loss time injuries at Pirquitas
Net earnings of $21.8 million or $0.27 per share versus a loss last year
Cash balance of $356 million or $639 million in cash and equity investments
Completed Bowdens sale for $70 million, recording a $51 million gain
Approved $25 million budget to advance the schedule and feasibility of the Pitarrilla complex

Mine Production

The Pirquitas mine produced 1.6 million ounces of silver during the third quarter of 2011 compared with 1.9 million ounces in the third quarter of 2010. The lower production in the current quarter, as compared to the second quarter of 2011, resulted from a 17-day ball mill shutdown in July 2011 and a further 7-day shutdown in September 2011 to refurbish the gearbox. In the period between these two shutdowns the plant was achieving design rates with daily average production of 26,000 ounces and recovery rates of 83%. The gearbox has been completely rebuilt with new parts and recommenced operating in early-November. This rebuild put the gearbox in near-new condition. Shipping of a replacement gearbox from Europe is also scheduled for November with arrival on site in January 2012.

The Company revised its production guidance to produce between 7.3 and 7.6 million ounces of silver in 2011 as a result of the three performance issues with the ball mill gearbox. Unanticipated plant downtime in October and November after the revised guidance was issued on September 24, 2011, means achieving the low end of production guidance will be a successful outcome in the Company's view.

During the third quarter 245,127 tonnes of ore were processed at an average milling rate of 2,664 tonnes per day, compared to 295,004 tonnes at an average of 3,241 tonnes per day achieved in the second quarter of 2011 and 320,174 tonnes at an average milling rate of 3,480 tonnes per day in the third quarter of 2010. However, the average milling rate in the third quarter of 2011 per operating day was in excess of 3,600 tonnes per day.

The ore milled during the third quarter of 2011 contained average silver grade of 250 g/t and achieved average silver recovery of 83%, compared to a silver grade of 283 g/t and recovery of 66% in the third quarter of 2010. The strong silver recovery achieved during the third quarter of 2011 was due principally to consistent feed and continuous improvements to the crushing and flotation circuits.

The mine produced a total of 3.3 million pounds of zinc in the third quarter of 2011 compared to 2.8 million pounds in the second quarter of 2011.

Mine Operating Costs

Direct mining cost in the third quarter was $16.20 per ounce silver compared to $10.43 per ounce in the third quarter of 2010. Operating costs were higher in the third quarter as a result of additional repairs and maintenance costs associated with the refurbishment of the ball mill gearbox, and additional maintenance costs and external costs associated with the import restrictions that affected the ability to obtain quality spare parts. Operations were also impacted by import restrictions which were imposed by the Argentine government on all industries.

Total cash cost, which includes by-product credits, treatment and refining costs, royalties and production taxes, was $20.60 per ounce silver compared to $16.95per ounce in the third quarter of 2010. Treatment and refining costs, as well as royalties and production taxes are all a function of sales prices and are recorded for the actual ounces sold during the quarter. The incremental per ounce impact of these costs in the third quarter of 2011 compared with the third quarter of 2010 is due to lower sales in the current quarter. Higher prices achieved on sales in the current quarter partially offset the volume impact compared to the third quarter of 2010.

Total production cost, which includes depreciation and amortization, was $24.55 per ounce in the third quarter of 2011 compared to $19.89 in the third quarter of 2010. The depreciation and amortization costs are largely fixed, and are higher on a per ounce basis in the current quarter due to lower production volumes.

Pirquitas Mineral Resources and Reserve Estimates

As part of the Company's ongoing production-reserve reconciliation and mine planning, and to delineate the deposit in greater detail for the mine's mineral resources and reserve estimates, the Company undertook a comprehensive drilling campaign between the fourth quarter of 2010 and September, 2011. Assay results from these drill-holes have been utilized by the Company's Qualified Persons (QPs) to complete advanced modeling of the deposit's current mineral resources and reserve. Model validation included detailed reconciliation with grade control and mine production data.

To read their results in full please click here.

Silver Standard Resources Incorporated trades on the TSX under the symbol of SSO and on the NASDAQ under the symbol of SSRI.

For disclosure purposes we do own a small number of shares in Silver Standard Resources Incorporated

Silver Standard Resources Incorporated has a market capitalization of $1.22Bln, a 52week trading range of $14.52 to $35.94, average volume is 7.57M/1.41M. The P/E ratio is a very low 2.70 and the company has 80.56 million shares outstanding.

Regarding www.skoptionstrading.com. We currently have a number of open trades at the moment however, we do not update the charts until the trade is closed and the cash is back in our account. 

Our model portfolio is up 407.38% since inception

An annualized return of 113.83%

Average return per trade of 42.43%

86 closed trades, 83 closed at a profit

Average trade open for 45.85 days

 

 

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Stay on your toes and have a good one.

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