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What Could Drive Estimates for SSRI Higher?

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Acquisition of Claude

Silver Standard Resources (SSRI) completed the share-based acquisition of Claude Resources in early June. SSRI increased its production guidance from 343,000 ounces to 390,000 ounces. One of the key things to look forward to in SSRI will be whether it’s able to extend the mine life of Pirquitas mine in Argentina. While active mining has already ceased at the site, stockpiled ore is expected to be processed through 2017.

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Declining production profile?

Analysts are currently projecting revenue of $453 million for the next four quarters. This estimate has seen an upward revision of 46% since the start of 2016. Consensus revenue estimates for 2016 imply year-over-year (or YoY) growth of 20%. The revenue estimates for 2017, however, imply a YoY decline of 9% while 2018 estimates imply a decline of 5% YoY. As Pirquitas mine life ends, SSRI doesn’t have much growth potential right now to continue with increased production. This is leading analysts to forecast declining revenue growth going forward.

Other precious metal producers (SIL) (GDXJ) such as Kinross Gold (KGC), Iamgold (IAG), and Yamana Gold (AUY) also face long-term declining production growth.

Upside to forecasts?

An update on the Claude Resources as well as the optimization of Seabee/Santoy could lead to an upside to revenue forecasts.

SSRI’s consensus EBITDA (earnings before interest, tax, depreciation, and amortization) projection for 2016 is $163 million. This implies a margin of 36% for 2016. SSRI has improved its cost guidance for 2016 during its 1Q16 earnings release due to the weakening of the Argentinian peso. Improved costs and firm precious metal prices have driven EBITDA estimates for the company higher.

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