Silver Standard Resources Delivers a Solid Fourth-Quarter



On Thursday, Silver Standard Resources (NASDAQ:SSRI) announced its fourth-quarter and 2013 year end results. It reported revenues of $49 million for the quarter and a profit of $29.8 million due primarily to the gains from the sale of non-core assets. The company accomplished a lot during the quarter, although it still barely reported an operating profit, meaning that it still needs a higher silver price to be a viable investment.

In the fourth-quarter, Silver Standard accomplished two things. First, it sold two non-core assets. Silver Standard has several non-core assets, and while they add value to the company, management believes correctly that it needs to focus its capital and its efforts on its core assets. This prompted the company to sell its San Agustin project in Durango, Mexico and its Challacollo project in Chile.

The company sold the San Agustin mine to Argonaut Gold (MKTS:ARNGF.PK) for $15 million in up-front cash, $30 million in stock, $30 million in future cash payments, and a royalty on the metal produced at the mine. It then sold the smaller Challacollo mine to Mandalay Resources (MKTS:MNDJF.PK) for $7.5 million in cash, 12 million shares of Mandalay Resources worth about $10 million at the time, an additional 5 million shares of Mandalay Resources once production begins at Challacollo and a royalty on the silver produced there.

These deals not only build up the company’s cash hoard, but Silver Standard’s management was smart enough to retain an interest in the success of these projects. Both Argonaut Gold and Mandalay Resources are well capitalized companies with multiple producing mines that are going to have production plans for these two projects by the end of the year. Had Silver Standard held onto them, these projects would have just sat there gathering dust as the company focuses on its Pitarrilla and Sa Luis development projects.

Silver Standard’s second accomplishment for the quarter was reducing costs at its Pirquitas silver and zinc mine in Argentina. With weak silver prices, the Pirquitas mine was breaking even during the second- and third-quarters of 2013. However, in the fourth-quarter, production costs came down considerably from just over $20/ounce to $17.75/ounce, and with 2.3 million ounces of silver production, the mine was able to turn a $4 million operating profit compared with a combined $1.2 million operating profit for the first three quarters of the year. Furthermore, costs are expected to remain lower, and so with silver prices on the rise, the Pirquitas mine is going to be generating much needed cash flow for Silver Standard.

Going forward, the company still has a lot to do. For starters, it needs to integrate the newly acquired Marigold mine in Nevada. Management’s goals for 2014 include completing the transaction with Barrick Gold (NYSE:ABX) and Goldcorp (NYSE:GG) and producing a technical report in order to determine the mine’s future production schedule.

The company also has to find funding for its flagship Pitarrilla mine, which will require $740 million construction expenditure. While management finds this funding, investors need to bear in mind that the project is not economically feasible unless the silver price rises. Depending on how one values the mine, the silver price needs to be at least 20 percent higher, if not $30/ounce or more.

Therefore, despite the company’s 2013 Q4 accomplishments, Silver Standard Resources remains a somewhat speculative bet that the price of silver will rise meaningfully in the next several years. If it doesn’t, the company will generate some cash flow from its Pirquitas mine, and it will generate more cash flow from its newly acquired Marigold mine, although this will not be enough to justify the company’s current valuation.