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Is SSR Mining Inc. a Buy?

Reuben Gregg Brewer, The Motley Fool

SSR Mining Inc. (NASDAQ: SSRM) used to be known as Silver Standard Resources. The name change, which took effect in August 2017, is meant to reflect the miner's shift from a focus on silver mining to one that increasingly includes gold. A big acquisition was a key part of that decision, but don't get too excited right now. Production has been slowing down as the miner invests for the future. It's not a bad choice for the right investor, but there could be a better way to go.   

The times are changing

The last few years have been a period of wheeling and dealing for SSR Mining. It's been selling assets, like the recent sale of the Berenguela project for $12 million in cash and a 9.9% interest in Valor Resources, the acquiring company. And it's been buying and partnering on assets that it believes have better growth prospects. That includes the acquisition of Claude Resources, to gain control of the Seabee mine, and the company's partnership with Golden Arrow Resources to combine the Chinchillas project with SSR's Pirquitas mine in a 75% SSR/25% Golden Arrow joint venture.   

A miner holding a gold nugget

Image source: Getty Images

At the end of the day, SSR Mining now has three operating mines that, collectively, appear to have production growth ahead of them. And backing that up is a collection of investments (like the equity stake in Valor) that could help to push production higher longer term. Future production looks pretty solid.   

Perhaps the most interesting piece of this puzzle, however, is that long-term debt makes up just 20% of SSR's capital structure after all of that wheeling and dealing. The miner's cash balance, meanwhile, increased by roughly 30% through the first three quarters of 2017, without any material debt sales. And the current ratio, a measure of a company's ability to pay near-term bills, was a robust 10 times in September. In other words, SSR's balance sheet remains very strong. It should have no trouble affording its expansion plans.   

Some short-term headwinds

SSR's financial strength is a good thing because production in 2017 and 2018 is projected to be relatively weak. For example, production fell year over year at each of the company's three operating mines in the third quarter. But SSR is projecting production to pick back up in 2019 as current investments start to pan out. The miner believes it can push cash costs lower starting in 2019, as well. This is a good thing because its $1,024 all in sustaining costs per gold equivalent ounce in the third quarter of 2017 are toward the high end of the industry.      

A bar chart showing SSR's production guidance, highlighting falling production in 2017 and 2018 before a pick up in 2019

SSR's production projections include falling production between 2016 and 2018 and a material increase in 2019 as new projects come on line. Image source: SSR Mining.

So there's a reason to be positive about the future at SSR based only on its current slate of operating mines and joint ventures. And now is a decent time for SSR to be investing, since gold and silver prices are well off the lows reached a few years ago. That means an improved commodity price environment is helping to fund the spending that should increase production in a couple of years. Earnings reports are just going to be a little less than stellar for the next year or so until production starts to pick up again.

The misgivings of being a miner

None of this should be particularly surprising, since SSR is a miner. This is the type of thing that miners do. That said, the price of the precious metals SSR sells will be the biggest driver of performance. The recent dip in the miner's share price, for example, was driven largely by falling gold prices. If precious metals prices trend downward again, SSR will have a harder time paying for its growth efforts (though, with its solid balance sheet, it should be able to afford them just the same).

SSRM Chart

SSRM data by YCharts.

In the end, however, SSR is really only appropriate for investors seeking out a growth-focused silver and gold miner. Most looking for precious metals exposure would be better served with a more diversified option, such as Royal Gold (NASDAQ: RGLD) or Franco-Nevada (NYSE: FNV). These are both streaming companies that provide cash to miners for the right to buy silver and gold at reduced rates in the future. It's a different business model, but one that remains tied to precious metals. These companies avoid all of the direct expense and headache of owning and operating mines. If all you want is to add some precious metals exposure to your portfolio, consider these two streaming companies.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.