Silver Standard working to develop multiple projects

Vancouver – 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 in the midst of a transformation from a major exploration company to a silver producer, with one mine commissioned and several projects at advanced stages, and significant changes in management already completed to 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 experience in the industry, including 17 years at BHP Billiton (BHP-N, BTL-L)where he ended up working “almost every job”, from chief operating officer to chief development officer to CEO of the BHP Billiton Mitsubishi Alliance that operates one of the world’s largest coal operations.

Smith said in a phone interview that after turning down the offer three times he finally took a good 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,” said Smith. “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 explained that for years Silver Standard provided a way for investors to be exposed to silver without production exposure, as former CEO Robert Quartermain build up a total resource of over 2 billion oz. silver in various categories. But once the likes of Silver Wheaton (SLW-T) and the exchange-traded funds started popping up, the company made a strategic decision to move into 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 northern Argentina, and with challenging mineralogy, the mine has had some growing pains. Smith said getting Pirquitas sorted out 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 6 months behind where everybody thought it was,” said Smith.

The company took a hard look at bottlenecks at the mine, and responded by installing a tertiary crusher system to add capacity, and also started to address vibration problems in the ball mill and its gear box, with plans to install a new gear box in November. The repairs have meant 30 costly days of downtime this year, but have already 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,” said Smith. Thanks to higher efficiencies, plus about a 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, the Silver Standard has also been working to strengthen its personnel as the company moves to become more production focused. The former COO, CFO, senior VP of exploration and senior VP of corporate development have all been replaced in the last year, while the company has also added new mine general managers, a new VP 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,” said Smith. “A big part for me this year has been about getting our technical and development team benched out.”

Making the task harder, Smith has to contend with a roughly 30% inflation rate in Argentina’s labour market, while also making sure he hires experience and proven staff.

“I can’t risk Silver Standard with young people and giving them a chance,” said Smith. “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.”

The third area Smith has been working on is cleaning house in its portfolio of projects, with the double benefit of raising some much-needed cash. Early last year the company sold the Silvertip project in British Columbia for $15 million to Silvercorp Metals (SVM-T) after having done almost no work on it for the eight years it held the project, and just recently it sold the Bowdens project in Australia for total consideration of $83 million to an Australian-listed firm.

The biggest deal, however, was for the sale of its adjacent Brucejack and Snowfield projects in British Columbia, which hosted roughly a quarter of the company’s total silver resource count. The projects are now owned by Pretium Resources (PVG-T), led by none other than Robert Quartermain, while Silver Standard has received about $365 million cash from the deal so far and still controls about 30% of Pretium shares.

With the company cashed up and a little more streamlined, it continues to advance the many other projects in the pipeline.

In Peru, the company’s San Luis project is nearing an official decision on the production go-ahead, with community agreements and environmental work some of the last hurdles. Once cleared, the company will be set to advance the high-grade underground operation with reserves of 7.2 million oz. of 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 reserve 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 and 82.3 million oz. inferred.

The company has almost a dozen other projects at various stages of development, but not many that offer near-term production. Smith said he would like to change that.

“I have one asset in production. That actually is probably the area I need to address,” said Smith. “From an organic point of view I’ve got a large organic pipeline, but from a 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, while the company has a 52-week share price range of between $17.40 and $34.17 with 80 million shares outstanding.