SSR Mining Inc.

Company Overview: SSR Mining Inc. (ASX: SSR) is a leading, focused intermediate gold company with four producing assets located in the USA, Turkey, Canada and Argentina. The company derives the majority of its revenue from the sale of gold, followed by silver, lead and zinc. The company is listed on the NASDAQ Capital Markets, Toronto Stock Exchange, and the Australian Stock Exchange (ASX). The company’s diversified asset portfolio is comprised of high margin, long-life assets including Çöpler Gold Mine, Marigold Mine, Seabee Gold Operation, and Puna Operations.

SSR Details

Backed by Diversified Asset Portfolio: SSR Mining Inc. (ASX: SSR) is a gold mining company with a diversified asset portfolio, comprising high-margin, long-life assets along with several of the world's most prolific metal districts. On 17 September 2020, the company was admitted to the Official List of ASX Limited. As on 14 November, the company’s market capitalisation stood at ~A$5.48 billion. SSR is focused on safely producing gold and silver from its Çöpler Gold Mine, Marigold Mine, Seabee Gold Operation, and Puna Operations. Further, the company is also focused on expanding its production base and Mineral Reserves through the exploration and acquisition of assets for accretive growth, while maintaining financial strength. From 2015 to 2019, the company’s revenue grew at a CAGR of 12.77%.

Revenue Trend (Source: Refinitiv, Thomson Reuters)

Looking ahead, the company is focused on delivering a number of value enhancing catalysts before year-end. The company is optimistic about Q4FY20 and expects decent free cash flow generation over the quarter which will further strengthen its balance sheet. With a decent year-to-date production of 491,821 gold equivalent ounces (as at 30 September 2020) across the four operations, the company is on track to meet its updated FY20 production guidance of 680,000 to 760,000 gold equivalent ounces at AISC of US$965 to US$1,040 per gold equivalent ounce. The company intends to leverage its healthy balance sheet and proven track record of free cash flow generation to fund growth across the portfolio.

H1FY20 Results Highlights: For H1FY20, the company reported total revenue of US$256.94 million, slightly lower than the revenue of US$281.34 million in the previous corresponding period (pcp). The company reported a lower cost of sales of US$177.99 million in H1FY20, compared to US$221.33 million in pcp. As a result of the reduced cost of sales, the company’s income of operations grew to US$78.96 million in H1FY20, compared to US$60 million in pcp. As at 30 June 2020, the company had cash and cash equivalent of US$461.7 million.

H1FY20 Results (Source: Company Reports)

Key Metrics: For the September 2020 quarter, the company reported a net margin of 11.1%, higher than the industry median of 2.5%. For the same period, the company’s EBITDA margin stood at 37.4%, higher than the industry median of 28.7%. The company’s current ratio for the September 2020 quarter stood at 5.4x, higher than the industry median of 2.81x, demonstrating that the company is well equipped to pay its short-term obligations.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Merger with Alacer: On 16 September 2020, the company completed the merger of equals transaction with Alacer Gold Corp to create a leading intermediate precious metals producer with robust margins, strong free cash flow generation and long lives mines. The merger will increase the financial strength of the company and will help it to leverage the proven project execution capabilities of the combined management team. Further, the complementary nature of the assets and the cultural alignment of the organizations will help SSR to continue to deliver value to its shareholders.

Q3FY20 Result Highlights: For Q3FY20, the company reported total revenue of US$225.41 million, higher than the revenue of US$147.85 million reported in the previous corresponding period (pcp). The total operating income for Q3FY20 stood at US$52.72 million, higher than the income of US$39.89 million in pcp.  During the quarter, the company produced 106,838 ounces of gold equivalent at an AISC of US$1,034/ounce.

From the date of acquisition to quarter-end, Çöpler produced 19,586 ounces of gold at AISC of US$737 per ounce. From its Marigold mine, the company produced 49,137 ounces of gold, a decrease of 7% compared pcp, predominantly due to lower gold grades stacked within the previous three months. At Seabee, the company produced 20,249 ounces of gold at AISC of US$988 per ounce. From Puna, the company produced 1.3 million ounces of silver at AISC of US$11.26 per ounce.

The company continued its several exploration programs during the quarter and reported decent exploration results across its portfolio at Çöpler, Marigold and Seabee. The net cash generated from operating activities stood at US$44.09 million. As at 30 September 2020, the company had a consolidated cash balance of US$772.8 million.

Q3FY20 Results (Source: Company Reports)

Key Risks: The company is exposed to the risks related to the fluctuations in the prices of gold and silver. The company is also exposed to the risks and uncertainties caused by the COVID-19 pandemic. The company is also exposed to the risk associated with the changes in government policy, government ownership requirements, changes in environmental, tax and other laws or regulations.

Outlook: Following the successful merger of Alacer, the company updated its FY20 outlook, as per which, it expects to produce 680,000 to 760,000 gold equivalent ounces from its four operating mines at consolidated AISC of US$965 to US$1,040 per gold equivalent ounce. The total growth capital for FY20 is expected to be around US$90 million. For Q4FY20, the company expects strong free cash flow generation which will further strengthen its balance sheet. The H2FY20 production is expected to be 55% to 60% weighted towards Q4FY20 due to both Seabee and Puna ramping up operations in Q3FY20 following COVID-19 shutdowns, stacking of higher-grade ounces later in the year at Marigold, and higher processed grades during Q4FY20 at Çöpler in line with the mine plan. The company’s free cash flow generation is also expected to be heavily weighted to Q4FY20.

The company is committed to invest in high-return growth while providing sustainable capital returns to shareholders. Further, it intends to return excess attributable free cash flow to shareholders through a two-tiered capital return structure. The company recently approved the initiation of a quarterly cash dividend of US$0.05 per share beginning in the first quarter of 2021. The recurring quarterly dividend is expected to be the primary method of capital return.

FY20 Guidance (Source: Company Reports)

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation Approach (illustrative)

P/CF Multiple Based Relative Valuation Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: With a cash balance of US$772.8 million, the company is well-placed to support its growth pipeline. The stock of SSR is currently trading towards its 52-weeks low price of $23.610, offering a decent opportunity for accumulation. On the technical analysis front, the stock of SSR has a support level of ~A$24.13 and a resistance of ~A$27.17. We have valued the stock using the price to cash flow multiple based illustrative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Saracen Mineral Holdings Ltd (ASX: SAR), OceanaGold Corp (ASX: OGC), St Barbara Ltd (ASX: SBM), etc. Considering the company’s decent operational and financial performance in Q3FY20, its portfolio of high margin and long-life assets, recently completed merger with Alacer Gold Corp, and FY20 production outlook, we give a “Buy” recommendation on the stock at the current market price of A$24.550, down by 1.840% on 24 November 2020.

SSR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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