Silver Standard Resources Inc.'s Best Moves in 2016
There were four notable transactions last year at Silver Standard Resources Inc. (NASDAQ: SSRI). All the activity started with an acquisition that added a material new mine to the business. But investors shouldn't look at any one of the moves the silver and gold miner made in 2016 in isolation. In the end, the company's outlook was enhanced because of the combined effect of the moves. Here's what you need to know.
Silver Standard employees at its Marigold Mine. Image source: Silver Standard Resources Inc.
The big one
Silver Standard ended the first quarter of 2016 with a bang when it announced in March that it would be acquiring Claude Resources. The deal, which closed at the end of May, added Claude's Seabee and Santoy mines in Canada. That increased Silver Standard's notable operations from two working mines to three and expanded the company's reach into another politically stable region. Moreover, the acquired mines enhanced the company's mining profile because of their relatively low cost and high-grade operations.
A better company after the deal. Image source: Silver Standard Resources Inc.
Claude's low debt and cash balance also led to an improvement in Silver Standard's financial profile. All in all, it appears to be a really good deal. But the icing on the cake is that the Canadian mines provide worthwhile expansion opportunities. In fact, the miner has already inked a deal with Eagle Plains Resources to explore land contiguous with Silver Standard's Seabee property. That's the second most important deal of 2016 because it shows the immediate growth potential that the Claude transaction offers.
With this acquisition under its belt, Silver Standard made the decision to focus on its newly enhanced core of assets. And that led it to sell its Parral properties to Endeavour Silver Corp. (NYSE: EXK) and to draft an exploration agreement with Huayra Minerals Corporation for its Diablillos assets. Both transactions were completed in early November.
Notably, neither of these deals was really about raising cash. The big payoff actually comes if the exploration projects prove successful. For example, in lieu of big up-front cash payments, Silver Standard will have an economic stake in both the companies above, generate small royalty streams, and earn-outs based on project success and investment.
Key 2016 projections for Silver Standard. Image source: Silver Standard Resources Inc.
So what Silver Standard really did was to remove two assets from its portfolio that would have been left idle or been a distraction from better opportunities. But it didn't give up on the potential of these investments. It's allowing others to develop them while retaining the opportunity to still benefit financially if they are successful. Taken alone, these look like decent moves. But add them to the Claude Resources acquisition and they start to look even better.
Focus and options
Last year was an active one for Silver Standard Resources. It bought a Canadian miner to gain access to both an operating mine and its expansion opportunities. And it disposed of two early-stage development operations while keeping an economic interest in each. But what was, perhaps, most impressive about these changes was the bigger-picture improvement. The moves, looked at together, allowed Silver Standard to focus its energy on its best opportunities while still giving it the chance to benefit from projects that would have otherwise been a distraction or left idle. It's hard not to consider that a win-win.
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