Silver Standard advances projects across the Americas

With one of the largest silver resources around, Silver Standard (SSO-T, SSRI-Q) has positioned itself well to benefit from rising silver prices, but it still faces the challenge of getting those resources out of the ground.

The company is transforming from explorer to producer, with one silver mine commissioned and several silver projects at advanced stages, and significant management changes already completed to better suit the company’s new direction.

John Smith was picked in mid-2010 to lead Silver Standard and help direct the transition. He brought with him over 30 years of industry experience, including 17 years at BHP Billiton (BHP-N, BTL-L) where he ended up working “almost every job,” including CEO of the BHP Billiton Mitsubishi Alliance that operates one of the world’s largest coal mines.

Smith says in a phone interview that after turning down the offer three times, he finally took a good look at what Silver Standard offered.

“When persistence paid off and I did my due diligence, I saw here was an organization that was right on the cusp of changing from an exploration-based entity,” Smith recalls. “The thing that got me excited was the opportunity to get into that early stage of change in the company, and be part of the growth and the excitement of building it out.”

Smith explains that for years Silver Standard provided a way for investors to be leveraged to silver without production exposure, as former CEO Robert Quartermain built-up a total resource of over 2 billion oz. silver in various categories.

But once the likes of Silver Wheaton (SLW-T, SLW-N) and silver-linked exchange-traded funds started popping up, the company decided to move into mine development, starting in 2006 with the Pirquitas mine in Argentina.

Silver Standard declared commercial production at the open-pit mine in December 2009, with a target output of 8 to 10 million oz. silver annually and a 15-year mine life. But at over 4,100-metres elevation in the rugged terrain of northwestern Argentina, and with challenging mineralogy, the mine has had some growing pains. 

Smith said sorting out Pirquitas  was one of his biggest priorities when he started.

“When I first came on to Pirquitas, it was quite clear to me that the mine was at least six months behind where everybody thought it was,” Smith says.

The company examined bottlenecks at the mine, and responded by installing a tertiary crusher system to add capacity, and addressed vibration problems in the ball mill and its gear box, with plans to install a new gear box in November. 

The repairs cost 30 days of downtime this year, but have since delivered higher recoveries and increased production.

“We’re setting up really well for 2012 at Pirquitas, because we’ve put a lot of attention into the processing systems and the robustness,” Smith says. With higher efficiencies, plus 1 million oz. silver identified in fines in operations ponds that it plans to recover, the company has kept its 2011 production guidance of 8.5 million oz. silver.

Along with improving plant operations, Silver Standard has changed up its personnel as the company becomes more production focused. The chief operating officer, chief financial officer, senior vice-president of exploration and senior vice-president of corporate development have all been replaced over the last year, while the company has added new mine general managers, a new vice-president of technical services and a new director of metallurgy.

“People always say it, but it actually is true that it’s all about the people,” Smith says. “A big part for me this year has been about getting our technical and development team benched out.”

Making the task a bit harder, Smith has had to contend with a 30% inflation in Argentina’s remuneration rates, while making sure he hires experienced and proven staff.

“I can’t risk Silver Standard with young people and giving them a chance,” Smith says. “I have to use grey-haired experience to make sure we do things properly, and then behind that we’ve got the next set of leaders and the young people coming through the organization.”

Smith’s third focus has been to clean house with respect to the company’s project portfolio, gaining the double benefit of raising some much-needed cash. 

Early last year the company sold its Silvertip silver-lead-zinc project in northern B.C. for $15 million to Silvercorp Metals (SVM-T, SVM-N), after having done almost no work on it for the eight years it held the project. 

Just recently, it sold the Bowdens silver project in Australia for $83 million to Australia’s Kingsgate Consolidated.

The biggest deal, however, was  the sale of its adjacent Brucejack and Snowfield projects in B.C., which hosted a quarter of the company’s total silver resource.

Brucejack and Snowfield are now owned by Pretium Resources (PVG-T), led by none other than Robert Quartermain, while Silver Standard has received $365 million cash from the deal so far and still controls about 30% of Pretium’s shares.

Now that Silver Standard is cashed up and more streamlined, it continues to advance other projects in its pipeline.

In Peru, the company is nearing official production on its San Luis project, with community agreements and environmental work being some of the last hurdles.Once these are cleared, the company will be set to advance the high-grade underground operation with reserves of 7.2 million oz. silver and 290,000 oz. gold.

In Mexico, the company’s board recently approved a $25-million work program for the Pitarrilla project. The property hosts 16.7 million probable tonnes grading 171 grams silver per tonne, 2.57% zinc and 1.12% lead for 91.7 million oz. contained silver at a silver price of US$11 per oz., plus a total resource of 643.6 million oz. measured and indicated oz. silver and 82.3 million inferred oz. silver.

The company has almost a dozen other projects in development, but not many that offer near-term production.

Smith would like to change that in the mid-term.

“I have one asset in production. That actually is probably the area I need to address,” Smith says. “From an organic point of view, I’ve got a large pipeline. But from  near-production to production, if I could find something that fit in that space – from an M&A point of view – I would certainly have a look at it.”

Silver Standard’s share price recently closed at $26.62. The company has a 52-week share price range between $17.40 and $34.17, with 80 million shares outstanding.