Alacer Gold Corp. (SSRM) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the joint SSR Mining and Alacer Gold Conference Call and Webcast to discuss their recently announced zero-premium at-market merger of equals. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Michael McDonald, Investor Relations for SSR Mining. Please go ahead.

We will be making forward-looking statements during our conference call today. These forward-looking statements are subject to several assumptions, risks and uncertainties as disclosed in each of SSR Mining and Alacer Gold's publicly available securities filings. Actual results could differ materially from those projected in the forward-looking statements. So please carefully read the disclosures related to forward-looking statements and risk factors in each company's recent filings available online. Our remarks today will also refer to certain non-IFRS financial measures such as, for example, free cash flow. Various disclosures and limitations with respect to these non-IFRS financial measures are also included in those filings. Please note all figures are U.S. dollars, unless otherwise noted. Here with me to lead today's call are Paul Benson, CEO and President of SSR Mining; and Rod Antal, President and CEO of Alacer Gold. I'll now turn the call over to Paul Benson to make some opening remarks.

Thank you, Michael. Good morning, everyone, and thank you for joining us today. Earlier this morning, we announced that SSR Mining and Alacer Gold have agreed to combine in a zero-premium merger of equals transaction to create a free cash flow focused, diversified gold producer. I'm very pleased to be here today with Rod Antal as we share with you the highlights of the new company and discuss the benefits this transaction brings to our respective shareholders. SSR Mining and Alacer are 2 top-performing gold producers, and together, we'll be creating a larger, stronger, more profitable company, offering increased liquidity and scale to investors. The combined company will offer investors a diversified portfolio of high-quality, long-life assets across 4 jurisdictions. Based on analyst consensus estimates, the combined entity is forecast to produce approximately 780,000 gold equivalent ounces over the next 3 years at an average all-in sustaining cost of approximately $900 an ounce. The portfolio will be anchored by Marigold and Seabee in the U.S. and Canada, respectively, along with the world-class Çöpler Mine in Turkey, which has first quartile cash cost and an 18-year mine life based on current reserves. Having worked closely with Rod and his team throughout this process, including mutual site visits earlier this year, I'm confident that we are bringing together 2 of the best management teams in the business. Each team has a track record of creating shareholder value through exploration, construction and operation of high-quality mining assets globally. Our new company will also have wide-ranging operational skill set, including expertise in open pit, underground, pressure oxidation, heap leach and flotation operations. We believe this comprehensive skill set will afford us a competitive advantage in pursuing future growth opportunities. The combined company will be a leader among intermediate producers with peer-leading free cash flow generation. Based on analyst consensus estimates, the combined portfolio is forecast to generate an average of $450 million of free cash flow annually over the next 3 years, well ahead of the intermediate peers at average and in line with several million ounce producing seniors. This cash flow, combined with the approximately $700 million of cash and marketable securities we have on a pro forma basis, provides us with exceptional financial strength, which will allow us to continue growing and delivering on our shared track record of industry-leading shareholder returns. Our portfolio of attractive brownfield opportunities will allow us to continue to create value for our shareholders. This is consistent with the philosophy of both companies to maximize shareholder value through efficient capital allocation and operational excellence. We're excited by the opportunity that this transaction offers to our shareholders to participate in a larger, more diversified, more liquid, free cash, flow focused gold producer. I'll now turn the call over to Rod, President and CEO of Alacer.

Thanks, Paul, and good morning, everyone. I wanted to start by echoing Paul's enthusiasm and excitement for the strategic rationale of the transaction and the opportunity that this new company will offer our respective shareholders as we continue to grow and build on this incredible asset base. In addition to the complementary nature of the assets, what was pleasing for me was that over the course of the last 6 months of discussions, we found a close cultural alignment between the organizations and teams that share a relentless focus on excellence and delivery. Our focus is now on completing the transaction, and in the interim, operating safely and efficiently to deliver on our respective commitments. I will flip to the next page and walk you through some of the details of the transaction, on Slide #4. This transaction is structured as an at-market, no-premium, merger of equals by way of plan of arrangement, resulting in a new company with a combined market capitalization of approximately $4 billion and pro forma ownership split of 57% to SSR shareholders and 43% to Alacer's shareholders. Based on Friday's closing price, this implies an exchange ratio of 0.325 SSR shares for each Alacer share. A key element of the transaction is that the almost net neutral outcome to both set of shareholders based on street consensus estimates. The company will retain the SSR Mining name and will be headquartered in Denver, Colorado and maintain a corporate presence in Vancouver. I will be continuing as President and CEO of the new SSR Mining; and Mike Anglin, who is the current Chairman of SSR Mining, will remain Chairman of the combined company. Each company will nominate an equal number of directors to the Newco Board. Similar to the equal Board split, the other deal terms we agreed to are in the spirit of a merger of equals. We both have support and lockups from our respective Board and management teams. One other thing that I want to emphasize is that we were able to complete the extensive reciprocal due diligence process, including site visits, prior to the COVID-19 travel restrictions. I will now transition to a deeper dive of the rationale of the combined company, starting on Slide #5. This transaction is frankly transformational for both sets of shareholders. It creates a leading intermediate gold producer with high-quality, long-life operating mines across 4 mining-friendly jurisdictions. Alacer shareholders gain instant diversification and exposure to a stable of attractive portfolio of operations in the Americas, and SSR shareholders benefit from exposure to a Tier 1 long-life low-cost mine with material organic growth potential. Based on consensus estimates, the portfolio will be underpinned by strong production, growing from around 745,000 gold equivalent ounces in 2020 to around 810,000 gold equivalent ounces by 2022, and that's without incorporating the potential for growth initiatives. In addition, the new SSR Mining will generate exceptional free cash flow. This will progressively increase year on year, reaching approximately $550 million in 2022 or on average around $450 million per year over the next 3 years. On the next slide, complementing this quality asset base, is a high-caliber and experienced team. I'm very proud of everything we have accomplished at Alacer and in merging with SSR, we are joining forces with an equally successful and disciplined team. Both of us have track records of delivering exceptional value to shareholders, which is demonstrated by the share price performance chart on the page. Over the past 4 years, our 2 companies have individually outperformed not only the broader indices but also our intermediate peers. We strongly believe this outperformance has been driven by our discipline cultures and our excellent records of delivering on our promises. In addition, when you take a look at the broad skill sets retained within the combined company, we have the ability to tackle most types of deposits in the world. I'm eager to get to work and see what the combined team, with an even greater breadth of technical expertise, can accomplish. Transitioning on to Slide #7. In getting to know Paul and his team at SSR, one aspect that impressed us was their approach to ESG. They are top-ranked by ISS for both governance and social responsibility. As Alacer shareholders will already know, we also have a strong track record of ESG. But together and by sharing the same passion, I believe we can leverage the in-house strength of the combined team to become the best in the business. Moving on to the next slide, which we describe as the money page. Paul has already alluded to one of the key differentiators that will set this new company apart: its leading free cash flow generation. Based on analyst consensus estimates, the combined portfolio is forecasted to generate, on average, $450 million of free cash flow annually over the next 3 years. You can see this compares extremely favorably to some of the larger companies on the page when you consider they have larger market capitalization and larger production bases than our combined company. On a per ounce basis, the new SSR will become a leading free cash flow per ounce producer in the intermediate sector. In terms of production, consensus estimates are approximately 780,000 gold equivalent ounces annually over the next 3 years. The combination of SSR and Alacer moves up the ladder in terms of production, but more importantly, vaults us into the upper echelon in the peer group in terms of free cash flow generation. Moving on to the next slide. In addition to the enviable free cash flow profile, the combined company will rank among the best in class from a leverage perspective. It will have available approximately $700 million of cash and securities and a net cash position of $200 million out of the gates. This will certainly underpin our future growth strategy while also bolstering the potential to initiate a regular dividend to shareholders at some point in the future. I will now hand the call back over to Paul to discuss some of the additional merits of the combination.

Thanks, Rod. Another strength of the combined company is a pipeline of greenfield and brownfield development prospects that we have. Alacer shareholders are aware of their near-term growth potential from a number of options within the Çöpler district, including Ardich. SSR shareholders understand the promising exploration potential at Seabee and Marigold. At Seabee, which is one of the higher-grade mines in Canada, we have the recently discovered Gap hanging wall zone and continue to actively explore the 30-kilometer long shear that hosts the plus 1 million ounce Santoy deposit. At Marigold, the recently acquired Trenton Canyon and Buffalo Valley tenements more than doubles our land position and holds potential for deep sulfides underneath the known oxide mineralization. Any sulfide discovery lends itself to the pressure oxidation technology Alacer recently commissioned in Turkey. In addition, we have the San Luis project in Peru and Pitarrilla in Mexico. We're certainly excited to leverage our combined financial strength and operational expertise to maximize the value of that portfolio of organic growth options. The new SSR Mining significantly improves scale and liquidity for both sets of shareholders. As the chart on the left shows, our combined market capitalization will be approximately $4 billion, and our combined trading liquidity will be just shy of $40 million daily, which is above the average of the intermediate peers. We expect these factors, combined with listing across 3 global exchanges and extensive broker research coverage, will significantly increase our relevance to global investors to the benefit of our shareholders. In a time when investors are looking for exposure to rising gold prices, we're very excited to be creating a larger, more globally relevant gold company for our current and future shareholders. With our high-quality diversified portfolio, strong management expertise, peer-leading financial strength, attractive organic growth pipeline and enhanced capital markets profile, we're well positioned to continue delivering exceptional shareholder value in any gold price environment. Looking ahead over the next few months, our priority remains ensuring the completion of safe and seamless integration. We look forward to updating the market on our progress throughout this exciting period for both our companies. This concludes our presentation, and I'll now pass the call over to the operator to take any questions you may have.

[Operator Instructions] Our first question comes from Mike Parkin of National Bank.

My question is for Rod. The presentation gives an overview of the significant exploration upside potential that you see amongst the various assets in the portfolio. Can you give us a bit of color, and Paul feel free to jump in as well, in terms of what's got you most excited at Marigold in terms of the oxide potential, of growth in resources and reserves?

Well, I think there's a lot to like across the portfolio. I wouldn't pick out one particular asset over another that we prioritize. I think the combination of the entities as we look at it, actually gives us a lot of growth potential from within the broader portfolio. But -- so that's my opening remarks on the exploration potential. And I think we've got lots of it across all of the asset bases. Particularly at Marigold, obviously with the oxide potential there, that's one thing. The other thing that I think we were particularly interested in was the deep sulfide potential that exists in Trenton Canyon. And given our expertise that we have within the Alacer team for obviously developing sulfidic type ore bodies, that will be something that we'll start to look at as well. So there's a lot to like across the portfolio. One of the things that we'll do immediately as a new company is to really sit down and look at and prioritize the exploration programs across the group and continue to evolve that as we continue to grow the business. And it's also important, I think, as we look at the portfolio, the other thing that is exciting is most of the options that we have available to us, particularly in the near term, are low capital intensity, which will be important as we look at the capital allocation policies as well. So I don't know, Paul, do you want to add anything to the oxides?

Well, echo exactly what you said. There's no need to single out any one of the sites. They all have excellent exploration potential. If you -- with respect to Marigold, if you go to our normal presentation, there's a slide in the pack that shows cumulative production over its 31-year mine life, and it's going to produce its 4 millionth ounce this year. And below the graph is the continued growth in the reserves, which we've added each and every year since we've acquired it back in '14. [ So at the beginning of this year it ] had a 12-year mine life, and I'm very -- with the addition of those tenements to the south, I'm very confident we'll continue year in year out to continue to add to that base.

And Paul, just to follow up on that. If I recall correctly, the new land packages have some oxide resources that come with them. But they were also historically mined at a much smaller scale in terms of bench height and just overall kind of pit equipment. Is that correct? So you'd be also looking to kind of bring that more up-to-date and into the fold over the course of 2020?

Yes, absolutely. It was mined as a satellite operation for Newmont. So they had smaller equipment, and they trucked the material off-site. The -- what we're doing now -- and there is a resource there, but it's noncompliant. So we haven't published it, but it's quite dated. So at the moment, part of the exploration program so far this year has been twinning and continuing infill drilling. Initially, when we acquired the properties last year, we could only drill on then disturbed ground. We now have the permits to extend the drilling. So for this year and for years to come, we'll continue to step out. And obviously the aim ultimately is to see it as part of the Marigold operation. So once we do that, then you're looking at the large trucks, large shovels, so very efficient mining operation, pushed to cut-off grade down below what had been used before.

Our next question comes from Mark Mihaljevic of RBC.

Congrats on getting the deal across the line here. I guess, first question, can you just walk us through the regulatory approvals you guys need? And if there's anything country specific in Argentina or Turkey? And whether there's anything with, I guess, the joint venture partner in Lidya?

I'll talk to mine, and then Rod can talk to his side. So with us, the approvals are for the issuance of shares. So we will need the shareholder vote, majority of those who vote. And no for Argentina. Rod?

Yes. Mark, the approvals that we have are fairly customary. I don't think there's anything too substantially different. In Turkey, specifically, to answer your question there, we will need competition law approval, which is normal course. We don't see any issues there. And then obviously, as Paul mentioned, we move through to then the shareholder votes, which we need 66 and 2/3. There will also be the Investment Canada approvals that will be required. So that's pretty much fairly standard. From a JV perspective, no, there's no special approvals required.

And your shareholder vote is 2/3 of those who vote, isn't it?

Right.

Perfect. And then I guess both of you guys have very successful management teams, and you've kind of given us the high-level executive. But can you kind of just walk us through how you're thinking about the rest of the team? And should we expect bulking up of the team? And kind of have you made any choices both beyond the CEO roles?

At this stage, no -- sorry, Rod, you go ahead.

I think, Mark, it's -- you're correct. The observation of this, and I think the benefit of this combination is it does bring 2 of the best-performing teams together, over the last sort of 3 or 4 years. And that's what we're particularly excited by. So we have -- Paul and I have gone through a process at the executive level to look at it. And that will be announced later this week internally. And then obviously we'll be able to let you know who those folks are with the ongoing team. And then there will be an effort in the next period until we get to shareholder vote, when those folks will go through and do the selection of the next group down to bring the best of the best together. So -- and that's really the key priority for us is to retain all of that institutional knowledge and best practices and quality of team and get the alignment going. So still some work to be done. But obviously we're in good shape given the quality we have.

Perfect. And then just one last one for me. Obviously, you talked about a lot of the opportunities across the portfolio. Kind of could you just, I guess, hit on whether you think anything changes kind of with the mergeco on how you're thinking about any of the assets? Or should it really be -- I mean obviously you guys both already had a lot of technical strength and strong balance sheet. So will we really expect any changes strategically from how you're going to operate the assets or opportunities you see in the portfolio? Or is it kind of just you become a bigger company and you can maybe look at some bigger external opportunities going forward?

I think the first priority, Mark, is really just to sort of sit down and look across the portfolio and line them up together, look at them in terms of their time line, which is always important. So we can sort of set out the pathway to bring some of these opportunities forward. And obviously we do have -- when I look at the portfolio together, there are a number of near-term, medium-term and longer-term opportunities contained therein. So that's really important. But as you rightly point out, with the balance sheet strength that we start off with, which is exceptional, we will be able to tackle pretty much anything within the portfolio from our -- live within our own means, which has always been something important to me, as you know, and we can start to bring along these in the development curve and understand exactly the time lines, et cetera. So no issues from that perspective. All low capital intensity is what we see in front of us in the immediate term. So it's exciting to sort of get to work and pull it all together on what we have. And then externally, look, I think first thing -- first as a priority let's understand what we have. Let's get that out. Let's get it surfaced. Let everyone understand how the new company will look from a development perspective and how that pipeline will be filled up, and then we'll go from there. So that's really the first key priority.

Our next question comes from Dalton Baretto of Canaccord Genuity.

Congrats to you both on finding something that works. Your presentation focused primarily on scale as well as the pro forma balance sheet and cash flow generation as the primary rationales for this transaction. So 2 questions on that for me. Number one, can you point me to any specific synergies or benefits outside of that, that the combined entity offers over the stand-alone companies? And then part two of that question is, just given the free cash flow generation, can you give us some early thoughts as to your capital allocation strategy going forward?

So from a synergy perspective, as you know, in mining, within the operations itself, we don't see too many synergies happening. And mainly because I think because of the -- where the operations are located in different jurisdictions. So I would think that the biggest benefit that we're going to bring from the combined company is really just the way that we operate and the learnings from each operation to instill best practices. That will definitely be one of the advantages. So most of the synergistic benefits will come from corporate and will come from the reduction of particularly the executive and the Board. And those numbers we're working through now and we can talk about those later. So in terms of free cash flow, your second question, clearly the company's in terrific shape. And clearly, with the organic growth profile that we have and opportunities, most of these are low capital intensity, as I've already mentioned. So I don't see any hindrances for us to be able to do everything that we need to do. And with the cash flow generation that will obviously come with that, on average over 3 years of that $450 million, quickly we can turn our attention to our capital returns and looking at putting in something that we can embed and maintain in the future. And that's really important to me, if we announce the dividend, that we can sustain it, and it will be something you can bank on each year, as we look forward. So that will be something as the new Board gets together, and we'll look at obviously in the near term as an opportunity of the combined company.

Yes. I think from our perspective, we've said earlier this year, we were approaching that point where we got through sort of the major capital investments that we had within our own portfolio. So we were reaching that point where we would start to consider capital returns to shareholders. Obviously, COVID had put that on hold. We have to get through that. But I think now with this combined company, it's even more. So you just see the absolutely fantastic balance sheet and the cash flow generation going forward. So it will be a nice problem to have.

Okay. Great. And maybe just as a very quick follow-up, Rod. Any thoughts on SSR's current investments, equity stakes in other companies?

Look, I sort of echo what Paul has been saying publicly with respect to Silvercrest, I guess that's what you're mentioning or asking?

Yes.

Yes, yes. So we don't have a different view. Obviously, it's been a good investment as time's gone on. And so I think it's something that we'll look at carefully in the next sort of couple of months.

Okay. Great. And maybe just one last follow-up for me. And this one's for you, Paul. Can you talk a little bit about how you got comfortable with adding Turkey to the portfolio?

Yes. So we've done extensive due diligence. We actually started talking together back in November. And we went to site. Turkey is an amazing country. The infrastructure there is truly impressive. And as with any country around the world, everything is regional. You've got to understand that whether you're talking U.S., Canada, Argentina or Australia, it's all very much driven regionally. The Çöpler mine is in the sort of central eastern part of Turkey. It's quite remote, but they've done an absolutely outstanding job building that mine site there. They've done a fantastic job with the communities. And they're like we are in different areas, the major employer of local people. So yes, -- no, we are comfortable.

[Operator Instructions] Our next question comes from Daniel Morgan of UBS.

Just a couple of questions. On timing, obviously COVID-19 is creating challenges for all sorts of businesses. This is -- why now with this deal? And what are the risks from all the travel restrictions on piecing together what will be a very global business?

I'll give my view and then let Rod go. The, why now, you continuously look at opportunities. That's our day job. So the last 5 years we've been looking at external and internal opportunities. We sort of connected, as I said, in November and it's moved forward, and it was just a sequenced approach. First of all, technical due diligence to make sure you love the assets and then you move into the broader issues around legal and finance and things like that. So it's just a sequence that you went through. Obviously, once you start talking, then confidentiality is key. And so you try and keep moving as quickly forward. COVID added some complications, but we've been working remotely in our office for, I think this is our eighth week. And if you'd asked me 10 weeks ago how efficient will you be working remotely, I probably would have said something like 20% or 30%, but it's amazing. Everyone figured out how to work Teams. And we've continued to trundle along. And so it hasn't actually impacted this deal. We've done everything remotely. Obviously, Rod and I have been face-to-face both before we went to site and traveled together to site. Rod?

Dan, I think the answer to why now is really simple. When we started this discussion off with Paul, we wanted to bring together the 2 companies that we didn't have any transfer of value to shareholders. And I think what we brought to market today with the zero-premium MOE, where it's really NAV neutral to both parties is the reason why. There was no impediments for us not to do it. It makes absolute sense for us. There's no reason to wait. And as Paul mentioned, from COVID-19 perspective, I think we've all adjusted as time has gone on. We've all adjusted to the new norm. And from the Alacer perspective, you're right, it's remote, but we haven't missed a beat. We're still going. And Paul has done exactly the same within SSR. So from the operations perspective, remember we're based in Denver. The operations that we're picking up are pretty much in the same time zone for us now. So no issues from that perspective. And when we look at the -- more importantly, the integration and integration planning that we have to do here in the next little while, we're allowing for COVID-19 to continue within that to ensure that we're managing it. But again, I don't see it as an impediment to stop these things, particularly with the deal structure as it is.

And then on the listings, SSR has 2 listings in North America and Alacer has a listing in Canada and also in Australia. It says on the presentation that you're intending to list on the ASX. Does that come concurrent with this deal? Or does that happen at some point in the future?

It comes concurrent, Dan. It's -- because SSR is the acquiring entity, we have to apply for the listing under the SSR name. So that's the process. But obviously, we'll have the 3 exchanges, the TSX, NASDAQ and ASX.

Our next question comes from Chris Thompson of PI Financial.

Congratulations on a very, very interesting transaction. Paul, Rod, I've got a question for both of you. Paul, for you, I wonder if you could answer, I guess, what do you say to shareholders that are a little concerned with the geopolitical uncertainty and risk that comes with operating in Turkey? And then, Rod, I wonder if you could just remind us of your plans, I guess, for growing Alacer within Turkey and outside of Turkey. I don't cover, Alacer. So I'm interested to hear your views on that.

Yes. For me, yes, I've been doing this for over 30 years and worked in some -- all parts of the globe really. And you understand that it's very hard to understand a country until you go there and look at it. So if you haven't been there, I can understand if you're not really aware of how advanced Turkey is. They've got -- it is G20. It's an emerging economy, but they've got some amazing infrastructure that would put a lot of North America to shame. And as I said, in any part of mining, it's always regional. There are parts of some countries where mining is good, some parts that aren't. This is a particularly favorable part for a mine, and we're very, very comfortable with that exposure. Rod?

Look, I think there's a couple of bits to your question. In Turkey, just to give you a bit of history, we've been in the country in some shape or fashion for the best part of 20 years. So during that time obviously we've got to understand it extremely well and understand how to operate in a new country with a new culture and a new environment. And I think we've done that very effectively. We've operated for the best part of the decade now, and so I think that holds us in good stead. We know the landscape really well, and we know how to operate in the country. So from that perspective, no issues. And as Paul sort of mentioned a few times now, I think through their due diligence efforts, I got very comfortable with what we already know. So that was a good endorsement for us in the country. In terms of the exploration and the potential, obviously one of the things that we've been banging on for a long time is the potential within the portfolio that we have. We have a very large land package with our joint venture partner over there, not only surrounding the Çöpler mine, which we're progressively starting to daylight now, we also have a large land position across the country with a number of other active exploration projects that is going on. So we see that as still a key part of the portfolio. We see Turkey as still a key part of that growth. And we look -- keep looking for opportunities because we're good at what we do over there. And we never want to lose sight of that. And then obviously your question about where we see growth. I think we just did it with the announcement this morning with SSR. So we want to obviously bed that down before we start talking about anything else.

Okay. I think there are no more questions.

We do have a final question from Stuart Dodd of Renaissance Asset Management.

I'm just curious, what are the anticipated cost savings of bringing the 2 companies together?

At the moment, as we talked about, I think Rod mentioned before, in this industry where you're really combining individual assets which run in isolation, there's not a huge synergy. It will come from any savings with head office, and obviously one less expensive CEO, and some Board members. But, yes, assume it's single-digit million per annum type savings.

This concludes the question-and-answer session.

Okay. Sorry, operator.

Go ahead.

No. I was just going to say, okay, thanks very much, everyone. Have a good day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.