SSR Mining (SSRM) is a Vancouver-based mining company with precious metal projects in Saskatchewan Canada, Nevada, and Argentina. SSRM has risen 50% over the past few weeks and, like silver, is returning to its pre-March crash levels. See its performance below compared to the silver ETF (SLV) and gold ETF (GLD):
With a strong trend line, it is hard to overlook a company like SSRM. As you’ll see, it has significant long-run upside potential, but its short-run performance may be weighed down by COVID production suspensions.
A Look At SSRM’s Reserves And Production Costs
The company currently owns two gold mines in North America and one silver mine in Argentina. It has low production costs with gold AISCs ranging around $950-$1150 in its Nevada operation, $700-$950 in its Canada mine, and a silver AISC of $11-$19 in its Argentina mine (2019 MDA). The company has also generally produced at lower than expected levels over the past decade.
The company currently has 4.38M of proven and probable ounces of gold reserves. Given their AISC and the gold prices, this is worth about $2.85B today. SSRM also has 50M P&P ounces of silver. The company’s current silver production costs are around its spot market value so they do not technically have market value. At a market capitalization of $2.1B, the company is trading generally close to the discounted bottom-line value of its P&P reserves.
The company also has significant silver exploration projects across Latin America. These amount to a total measured and indicated silver reserve of 650M oz and about 7.1M oz of gold. These would have a hypothetical market value of $4.2B but should be discounted like most M&I measures.
While the true cash value of these reserves will likely be different than estimated, it is clear that the company has significant reserves and is likely to see a large increase in profits given a rise in precious metal prices. The company is currently mining about 330K ounces of gold and 7.6M ounces of silver per year which gives it 13-30 years of production depending on its true reserves and changes in production volume.
COVID Is Likely To Cause A Poor Earnings Report
Over the long run, I believe SSRM is headed much higher however, the company has had to temporarily shut most of its revenue stream due to COVID-19 mandates.
They do not expect material changes to production at its Nevada Marigold mine since Nevada has designated mining an essential business. However, its Canadian mine (which generates the bulk of its current profits) was voluntarily suspended as of March 25th since many workers fly in and out, creating a significant worker safety risk. Further, Argentina mandated suspension on March 20th but has since changed mining back to essential which will allow SSRM to reopen.
The most significant concern here is its Seabee mine in Canada which generated an income of $61M last year which amounted to over half of its operating income. With its other profitable gold mine suspended, the company is likely to see very low profits (if any) for the current quarter.
Fortunately, the company has a stellar balance sheet. It has half a billion in cash and even more in total working capital. It also has extremely low debt and its market capitalization is very close to its book value. See below:
This makes the company very strong in a situation where temporarily negative cash flow is possible. After suspensions are over, this gives the company ample ability to develop its exploratory assets without the need to dilute shareholders or raise cash.
The only concern I see is a prolonged extension of suspensions which may temporarily harm its stock price. The CDC has warned that a potential second-wave of COVID-19 could be more deadly than the first. This substantial risk does not seem to be priced into equity markets and, in particular, companies like SSRM that are reliant on workers being physically available. In general, most states and countries have made mining into a “necessity” sector, but that does not mean voluntary shutdowns (such as in Canada) will not happen.
For the long-run investor, this is a minor risk. However, if the equity market as a whole pulls back due to second-wave concerns, SSRM will likely fall back to March lows. If that occurs, I believe it will make for a stellar dip-buying opportunity for SSRM and other mining stocks.
The Bottom Line
Regardless of the short run, SSRM appears to be undervalued from a long-run perspective. It currently has a forward “P/E” of 15X and a forward “EV/EBITDA” of 6X. As you can see below, this is around the mid-point of its valuation over the past year:
Going forward, the company is expected to see EPS double by 2022. If we account for a potential rise in gold prices, this would be much higher. Personally, I’m of the view that we will most likely see a new all-time-high in gold this year (unless substantial deflation ensues) and have a longer-term (2-4 years) price target of $3000 for gold and $30 for silver. Based on my past reserve-value calculations, this would bring the fair value of SSRM up to around $45-$60. Importantly, this is based on the success of at least some of its ongoing silver projects.
I am bullish on SSRM and believe it is one of the better precious metal miners available. However, I do expect a potential pullback given an expected pullback in the equity market as a whole.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SSRM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Waiting for a pullback or a new high.