SSR Mining Stock: Outstanding Execution, But Tough Comps Ahead (NASDAQ:SSRM)

Modern strip mine in the Nevada desert at night.

NeilLockhart/iStock via Getty Images

We’re nearing the end of the Q4 Earnings Season for the Gold Miners Index (GDX), and one of the first companies to report its results was SSR Mining (NASDAQ:SSRM). The company had a blowout year post-merger, with several highlights that were as follows:

  • executing successfully on its buyback program
  • raising its dividend by 40% to $0.28 annualized
  • trouncing its cost guidance midpoint by more than 10%
  • beating its production guidance, with record production of ~794,000 gold-equivalent ounces [GEOs]

This incredible performance was despite COVID-19 related headwinds sector-wide and inflationary pressures which weighed on costs, making it a more difficult year to deliver a beat than usual. The continued outperformance makes SSR Mining a special story. Given the incredible free cash flow generation, a special dividend in the next 18 months would not be surprising if the gold price stays above $1,900/oz. Having said that, the stock is up sharply from its lows and has tough comps ahead, so I see better value elsewhere in the sector currently on a relative basis.

SSR Mining Operations

SSR Mining Operations (Company Presentation)

SSR Mining released its Q4 and FY2021 results last month, reporting a blowout year. This was evidenced by the production of ~794,000 GEOs at all-in sustaining costs [AISC] of $955/oz, which smashed the company’s initial guidance midpoint of ~760,000 GEOs at AISC of $1,080/oz. The cost beat was the most remarkable, given the sector-wide inflationary pressures, and while the weakening Turkish Lira certainly helped, the ~11% vs. the guidance midpoint was beyond impressive. Let’s take a closer look at the results below:

US Dollar vs. Turkish Lira

US Dollar vs. Turkish Lira (TC2000.com)

SSR Mining - Annual Production & Forward Guidance

SSR Mining – Annual Production & Forward Guidance (Company Filings, Author’s Chart)

As shown in the chart above, SSR Mining saw significant production growth in 2021, helped by a strong year across the board from Copler, Marigold, and Seabee. At Marigold in Nevada, production increased slightly year-over-year to ~235,300 ounces at improved costs ($1,187/oz), while Seabee’s production soared 45% to ~118,900 ounces at $804/oz. It is worth noting that the asset benefited from easy comps due to voluntarily placing the operation under care & maintenance for several months in late March 2020 due to this being a higher-risk fly-in, fly-out operation.

Moving east to Turkey, Copler had another exceptional year, with gold production of ~329,300 ounces at all-in sustaining costs of $713/oz. These costs were more than 30% below the industry average for 2021 of ~$1,080/oz, and this asset continues to have a very bright future with a ~20-year mine life based on the updated Copler District Master Plan Technical Report. This updated report includes reserves from Ardich, where growth capex comes in at roughly $70 million based on the most recent estimates.

Copler District Map

Copler District Map (Company Presentation)

Meanwhile, the Copler C2 Project could begin production by 2025 for modest growth capex of ~$220 million by building a 1.8 million tonne per annum copper concentrator to exploit the copper opportunity at Copler. The major benefit of this is the ability to work with a larger pit and extract significantly more gold, benefiting from the added value from the copper component. Under the current assumptions, average annual production would come in at ~300,000 ounces from 2022 to 2031 at industry-leading costs of $907/oz, with a mine life extending out to 2042, giving visibility into two decades of meaningful revenue without upside from near-mine/regional targets or further metallurgical optimization at Ardich/C2.

Updated Mine Plan - CDMP21

Updated Mine Plan – CDMP21 (Company Presentation)

Financial Results

Given the significant increase in production at Seabee and higher contribution from Copler combined with higher silver prices and silver sales at Puna ($24.98/oz vs. $21.23/oz), it’s no surprise that SSR Mining saw strong revenue growth. As shown below, quarterly revenue increased 10% year-over-year to $407.9 million, while annual revenue increased to more than $1.47 billion. Notably, this strong revenue growth was achieved despite a lower average realized gold price in 2021 ($1,802/oz vs. $1,812/oz), a slight headwind.

SSR Mining - Quarterly Revenue

SSR Mining – Quarterly Revenue (Company Filings, Author’s Chart)

Moving to costs and margins, SSR Mining ended the year on a high note, with AISC margins of $837/oz, up nearly 7% sequentially. AISC margins did decline on a year-over-year basis, but this was entirely related to the tough comps due to the higher gold price in Q4 2020 ($1,880/oz). If not for the lower gold price, we would have seen meaningful margin expansion on a year-over-year basis in Q4. Finally, on a full-year basis, AISC margins improved materially to $847/oz, up from $619/oz in FY2020. This was despite a $10/oz headwind due to the lower gold price.

SSR Mining - AISC & AISC Margins

SSR Mining – AISC & AISC Margins (Company Filings, Author’s Chart)

Given the increase in revenue and margins, SSR Mining was a free-cash-flow machine in FY2021, posting an annual free cash flow figure of ~$444 million. This helped SSR Mining to finish the year with cash of more than $1.0 billion and net cash of ~$680 million and allowed it to return significant capital to shareholders. This included a dividend of $0.20 annualized and substantial share buybacks. The dividend was recently raised to $0.28 annualized, or $0.07 per quarter for those unfamiliar.

SSR Mining - Quarterly/Trailing-Twelve Month Free Cash Flow

SSR Mining – Quarterly/Trailing-Twelve Month Free Cash Flow (Company Filings, Author’s Chart)

During FY2021, SSR Mining had one of the most aggressive buyback programs sector-wide, buying back ~8.8 million shares at US$16.82, which helped the company reduce its float by ~4% in less than 12 months. As it stands, the company has an additional ~1.2 million shares outstanding under its share repurchase program. Finally, from an earnings standpoint, and benefiting from a lower share count, SSR Mining grew annual EPS 25% year-over-year to $1.78.

SSR Mining Annual Earnings Trend

SSR Mining Annual Earnings Trend (FactSet.com, Author’s Chart)

These results are phenomenal, but the only negative is that the company has created difficult year-over-year comps for itself, given these incredible results. This is because the company will see slightly lower production year-over-year based on guidance (~740,000 GEO midpoint) and higher costs of more than $1,100/oz. While the higher gold price will pick up some of this slack, it will be challenging to grow annual EPS on a year-over-year basis with lower gold sales and higher costs.

This isn’t a huge deal, and SSR Mining is focused long-term, but it is worth pointing out since stocks can underperform their peers when they rally sharply into a year with difficult year-over-year comps. This is similar to what we saw with B2Gold (BTG) last year, which had a massive year in FY2020 but had to come up against tough comps in 2021 due to lower grades at Fekola. The stock underperformed significantly in 2021, declining 29% vs. an 11% decline in its benchmark, the Gold Miners Index. We could see a different outcome for SSR Mining, but with the stock outperforming into these comps, I think it’s wise to be a little cautious.

Valuation & Technical Picture

Looking at the chart below, we can see that SSR Mining has historically traded at ~10x cash flow since the tail end of the 2015 secular bear market in gold and closer to 9x cash flow over the past ten years. At a share price of $22.10, SSR Mining trades at approximately ~8.2x FY2022 cash flow estimates ($2.70), leaving the stock below fair value, even after its impressive rally. I would argue that a cash flow multiple of 9 is more conservative vs. the 5-year average of ~10x cash flow.

SSR Mining - Historical Cash Flow Multiple

SSR Mining – Historical Cash Flow Multiple (FASTGraphs.com)

Using a more conservative multiple (9x cash flow) and assuming SSRM meets FY2022 estimates, this would translate to a fair value for the stock of ~$24.30 per share. This might be enough upside for some investors to justify starting new positions here, but I prefer at least a 25% discount to fair value to enter new positions. Assuming a fair value of $24.30, this would require a pullback towards $18.00 per share. Obviously, a pullback of this magnitude may not materialize if the gold price continues its upward trajectory.

Moving to the technical picture, SSR Mining punched through its previous resistance near $21.00 per share but now has a major resistance level overhead at $23.30. Meanwhile, the next support level doesn’t come in until $17.80. This corroborates the view that this is not a low-risk buy point for SSR Mining, given that there’s $1.20 in potential upside to resistance and more than $4.00 in potential downside to support, translating to a reward/risk ratio of 0.28 to 1.0. The unfavorable reward/risk ratio doesn’t mean that the stock can’t go higher; it simply means that there is an elevated risk to entering new positions at current levels.

SSRM Technical Chart

SSRM Technical Chart (TC2000.com)

SSR Mining had a blowout year and arguably had a top-5 performance sector-wide. Given the company’s continued ability to massively over-deliver on its promises, I see the stock as one of one the best buy-the-dip candidates sector-wide. However, in my view, the time to buy the stock was below $16.00 per share, not at ~9x cash flow currently. So, while I think this is a name to keep at the top of one’s shopping list, my preference from a valuation standpoint currently is Alamos Gold (AGI), which trades at a much lower market cap, but could generate up to $650 million in free cash flow in FY2025.

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