Silver Standard slashes Pirquitas’ reserves

Silver Standard Resources (SSO-T, SSRI-Q) hopes it has put an end to lingering troubles at its Pirquitas silver mine in Argentina, with no further plant shutdowns or surprises. The latest surprise was a 52% reduction in the mine’s reserves. 

“This revision does not detract from what we achieved this year,” John Smith, the company’s president and CEO, argued during a conference call. “We established a plan earlier this year to improve  Pirquitas, and we did.” He lists that the company added new crushing capacity, hired a new general manager, rebuilt the ball mill, achieved high recoveries and improved safety. 

After completing a drill program between late last year and this September, Silver Standard says it enhanced the deposit’s reserve and resource models. It found that silver mineralization between high-grade veins in the upper portions of the deposit didn’t continue at an economic grade to the lower portions of the pit. 

Reserves now stand at 93.1 million oz. silver and 262.6 million lbs. zinc contained, based on 16.7 million tonnes grading 173.7 grams silver per tonne and 0.71% zinc – a 52% reduction over the previous 2008 reserve estimate. 

Reserves were previously pegged at 195.1 million oz. silver and 548.5 million lbs. zinc contained, from 30.4 million tonnes at 199.6 grams silver and 0.82% zinc. 

“While we have taken a prudent approach to Pirquitas’ reserves, we have a great exploration team who are focused on finding more ounces,” Smith told investors in a press release. He added that with the revised reserves, Pirquitas will continue from 2012 for nine years, including over six years at an annual production rate of 8 million oz. to 10 million oz. silver, and a further 2.5 years at 3 million oz. a year from stockpiles. 

Silver ounces in the measured and indicated category also fell in comparison by 32%, to 150.1 million oz. from 221.2 million. The resource is based on 32.8 million tonnes grading 142.2 grams silver and 0.79% zinc, while 2008’s estimate contains 45.2 million tonnes of 152.3 grams silver and 0.78% zinc. 

The company says the 2008 resource used a 50-gram silver-equivalent cut-off and included the economic benefit of tin, while the new estimate uses a 50-gram silver-only cut-off.

Based on a net smelter return basis, the cut-off grade estimated total operating costs at US$35.52 per tonne, up from US$22 per tonne. 

Smith also added that the shrinking reserve was partially a natural impact of being in production for two years. Since coming online in 2009 until Sept. 30, the reserves have depleted by 18.6 million oz. silver. 

Silver Standard expects Pirquitas to start producing 8 million oz. to 10 million oz. a year. 

But the mine is forecast to generate between 7.3 million oz. and 7.6 million oz. silver this year, owing to problems at the ball mill gearbox. The company, which revised its guidance in late September, expects production closer to the lower end after unexpected plant downtime in October and early November.

Despite boasting a quarterly profit of US$21.8 million compared to a US$10.4-million loss from last year’s third period, Smith concedes that the three months were difficult. 

“This quarter had its challenges, with lower silver production and limited sales,” he notes.

 Quarterly revenue was down 37% from the comparable period to US$26.2 million, while sales decreased from Pirquitas, the company’s sole producing mine. 

The mine generated 1.6 million oz. silver and 3.3 million lbs. zinc. This represents a 15% decrease in silver output versus last year’s third period. 

The weak output resulted from a 17-day shutdown at the ball mill this July, followed by a seven-day halt in September to rebuild the gearbox, which “wasn’t easy to fix,” the company says. 

But with the gearbox in mint condition, the Pirquitas mine restarted operations on Nov. 5. It is expected to chug along nicely until it is replaced by a gearbox being shipped from Europe. The shipment is expected in January 2012. 

The company ended the period with US$355.9 million in cash and equivalents.

On the quarterly news, Silver Standard dropped 21%, or $4.14, to $15.44. 

At presstime its shares had moved up 5% to $16.22.