SSR Details

Improving Top-line: SSR Mining Inc. (ASX: SSR) is a focused intermediate gold company with a portfolio of high margin, long-life 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. In 2019, gold contributed 76% of the total product revenue. SSR was recently admitted to ASX on 17 September 2020, following the completion of the merger with Alacer Gold Corp. Besides ASX, the company is also listed on the NASDAQ and Toronto Stock Exchange (TSX). The company is focused on leveraging its balance sheet and proven track record of free cash flow generation to organically fund growth across the portfolio and to provide superior returns to shareholders. From 2015 to 2019, the company’s revenue grew at a CAGR of 12.77%.

Revenue Trend (Source: Refinitiv, Thomson Reuters)

Following the completion of the merger of equals transaction with Alacer Gold Corp. on September 16, 2020, SSR updated full-year 2020 production guidance to 680,000 to 760,000 gold equivalent ounces from its four operating mines at consolidated all-in sustaining costs (AISC) of US$965 to US$1,040 per ounce. Looking ahead, the company is focused on completing its integration efforts and assessing its extensive growth and development portfolio. The company anticipates completing FY20 on a strong note with production and free cash flow generation expected to heavily weigh in the fourth quarter.

H1FY20 Results: For the six months ended 30 June 2020, the company reported total revenue of US$256.95 million, slightly lower than the revenue of US$281.4 million reported in the previous corresponding period (pcp). The gold production from Çöpler and Marigold stood at 167,212 ounces and 108,366 ounces, respectively in H1FY20. The company reported a total operating income of US$29.6 million and a net income of US$17.7 million. As at 30 June 2020, the combined cash balance of SSR and Alacer stood at US$703 million and debt balances at US$475 million.

H1FY20 Results Highlights (Source: Company Reports)

Key Metrics: For the June 2020 quarter, the company’s gross margin stood at 37%, higher than 27.2% in March 2020 quarter. The company’s current ratio stood at 8.96x in June quarter, higher than 7.69x in March 2020 quarter, demonstrating that the company has improved its ability to pay its short-term obligations. The company’s debt to equity multiple stood at 0.15x, lower than the industry median of 0.21x.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Merger with Alacer Gold:  On 16 September 2020, the company completed the merger of equals transaction with Alacer Gold Corp, following which, each of the issued and outstanding common shares of Alacer Gold has been exchanged for 0.3246 of an SSR Mining common share. The merger of SSR and Alacer Gold has created one of the premier free cash flow generators in the sector with a number of near-term value enhancing catalysts on the horizon. As a result of the transaction, Alacer Gold has become a wholly-owned subsidiary of SSR Mining.

Key Risks: The market prices of gold and silver are key drivers of the company’s profitability. Hence, any fluctuations in the process of gold and silver could impact the financial results of SSR. As SSR operates in several jurisdictions, any change in the regulations or shift in political attitudes in a jurisdiction could impact the company’s operations. The company is also exposed to the risks and uncertainties caused by the COVID-19 pandemic. The company’s operations are located in several countries, making it exposed to the risk of fluctuations in the foreign currency exchange rates.

What to Expect: With Çöpler and Marigold operations continuing uninterrupted and Seabee and Puna operations returning to normal, the company expects a strong finish to FY20. From Çöpler, the company expects its total gold production in FY20 to in between 310,000 to 360,000 ounces with AISC expected to be US$710 to US$760 per ounce. From Marigold, the company expects total FY20 gold production to be between 225,000 to 240,000 ounces. Overall, the company expects its full-year production to be in the range of 680,000 to 760,000 gold equivalent ounces at consolidated AISC of US$965 to US$1,040 per ounce. The company expects to incur a total growth capital expenditure of US$57 million in FY20. At the Pitarrilla project, located in Mexico, the company is expected to spend around US$5 million as part of a program to extend an existing decline to provide drill access to the underground Mineral Resources. At the San Luis project, located in Peru, the company is expected to spend around US$2 million in FY20 to commence a detailed mapping program in the area of the existing high-grade gold-silver Mineral Reserves and Resources. The combined general & administrative expenditures for 2020 are expected to be between US$25 and US$30 million. SSR intends to release Q3 FY20 results on 12 November 2020. 

FY20 Guidance (Source: Company Reports)

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (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: Following the listing on ASX on 17 September 2020, the stock of SSR has corrected by 13.69%. On the technical analysis front, the stock of SSR has a support level of ~A$25.208 and a resistance of ~A$27.55. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Northern Star Resources Ltd (ASX: NST), St Barbara Ltd (ASX: SBM), Sandfire Resources Ltd (ASX: SFR). Considering the company’s robust balance sheet, 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$26.230, down by 1.206% on 27 October 2020.

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

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