We are nearing the end of the fourth quarter earnings season for the Gold Miners Index (GDX), and one of the first companies to report results was SSR Mining (NASDAQ: SSRM). The company had a stellar year after the merger, with several highlights as follows:

• successfully execute its buyback program
• increasing its dividend by 40% to $0.28 annualized
• exceeding the midpoint of its cost forecast by more than 10%
• exceeding its production forecast, with record production of approximately 794,000 gold equivalent ounces [GEOs]

This incredible performance came despite industry-wide COVID-19 headwinds and inflationary pressures weighing on costs, which made the year harder to beat than usual. The continued outperformance makes SSR Mining a special story. Given the incredible free cash flow generation, a special dividend over the next 18 months would not be surprising if the price of gold remained above $1,900 an ounce. That said, the stock is up sharply from its lows and has some tough comps ahead, so I see better value elsewhere in the sector currently on a relative basis.

SSR Mining released its fourth quarter and full year 2021 results last month, reporting a banner year. This was demonstrated by the production of approximately 794,000 GEOs at all-in sustaining costs [AISC] of $955/oz, which smashed the company’s initial midpoint of around 760,000 GEO at the AISC of $1,080/oz. The beating in costs was most notable, given industry-wide inflationary pressures, and while the weaker Turkish Lira certainly helped, the ~11% from the midpoint of guidance was more than impressive. Let’s take a closer look at the results below:

As shown in the graph above, SSR Mining experienced significant production growth in 2021, helped by a strong year across the board from Copler, Marigold and Seabee. At Marigold in Nevada, production increased slightly year-over-year to ~235,300 ounces at improved costs ($1,187/oz), while Seabee production climbed 45% to ~118,900 ounces at $804/oz. It should be noted that the asset benefited from easy compensations due to the voluntary placement of the operation under care and maintenance for several months at the end of March 2020, since it was a round trip flight operation at higher risk.

Moving east to Turkey, Copler had another bumper year, with gold production of approximately 329,300 ounces at all-in sustaining costs of $713/oz. These costs were more than 30% below the industry average for 2021 of approximately $1,080/oz, and this asset continues to have a very bright future with a mine life of approximately 20 years based on the updated Copler District Master Plan Technical Report. This updated report includes Ardich’s reserves, where growth investments amount to approximately $70 million based on the most recent estimates.

Meanwhile, the Copler C2 project could begin production by 2025 for modest growth investments of around $220 million by constructing a 1.8 million tpa copper concentrator to exploit the copper to copler. The main advantage of this is the possibility of working with a larger pit and extracting much more gold, benefiting from the added value of the copper component. Under current assumptions, average annual production would be approximately 300,000 ounces from 2022 to 2031 at peak costs of $907/oz, with a mine life extending to 2042, giving a visibility over two decades of significant revenue with no upside up close. -mining/regional targets or continued metallurgical optimization at Ardich/C2.

Financial results

Given the significant increase in production at Seabee and the higher contribution from Copler combined with higher silver prices and sales at Puna ($24.98/oz vs. $21.23/oz), it’s no surprise that SSR Mining has seen strong revenue growth. As shown below, quarterly revenue increased 10% year-over-year to $407.9 million, while annual revenue reached over $1.47 billion. Notably, this strong revenue growth was achieved despite a decline in the average realized gold price in 2021 ($1,802/oz vs. $1,812/oz), a slight headwind.

In terms of costs and margins, SSR Mining ended the year on a high note, with AISC margins of $837/oz, up nearly 7% sequentially. AISC margins declined year-over-year, but this was entirely related to the difficult compounds due to the increase in the price of gold in the fourth quarter of 2020 ($1,880/oz). Without the drop in the price of gold, we would have seen a significant increase in margins on an annual basis in the fourth quarter. Finally, on a yearly basis, AISC margins improved significantly to $847/oz from $619/oz in fiscal 2020. This despite a headwind of $10/oz due to lower price gold.

Given the increased revenue and margins, SSR Mining was a free cash flow machine in fiscal 2021, posting an annual free cash flow figure of around $444 million. This helped SSR Mining end the year with cash of over $1.0 billion and net cash of approximately $680 million and enabled it to return significant capital to shareholders. This included a $0.20 annualized dividend and substantial stock buybacks. The dividend was recently increased to $0.28 annualized, or $0.07 per quarter for those unfamiliar.

In fiscal 2021, SSR Mining implemented one of the most aggressive buyback programs in the industry, repurchasing approximately 8.8 million shares at $16.82, which helped the company reduce its free float by approximately 4% in less than 12 months. Currently, the company has approximately 1.2 million additional shares outstanding under its share buyback program. Finally, from an earnings perspective, and benefiting from a lower share count, SSR Mining increased annual EPS by 25% year-over-year to $1.78.

These results are phenomenal, but the only negative is that the company has created some tough comps year over year given these incredible results. Indeed, the company will experience slightly lower production year-over-year based on forecast (~740,000 GEO midpoints) and higher costs of over $1,100/oz. While the higher price of gold will offset some of this slowdown, it will be difficult to grow annual EPS year-over-year with lower gold sales and higher costs.

It’s not a big deal, and SSR Mining is focused on the long term, but it’s worth pointing out because stocks can underperform their peers when they rally strongly in a year with tough comps from a year to year. This is similar to what we saw with B2Gold (BTG) last year, which had a massive year in fiscal 2020 but faced tough comps in 2021 due to lower ratings in Fekola. . The stock has significantly underperformed in 2021, falling 29% against an 11% decline in its benchmark, the Gold Miners Index. We might see a different outcome for SSR Mining, but with the stock outperforming in these comps, I think it’s wise to be a little cautious.

Evaluation and technical image

Looking at the chart below we can see that SSR Mining has historically traded at around 10x cash flow since the secular gold bear market ended in 2015 and closer to 9x cash flow over the past ten years. At $22.10 stock price, SSR Mining is trading at ~8.2x FY2022 cash flow estimates ($2.70), leaving the stock below fair value , even after its impressive rally. I would say a cash flow multiple of 9 is more conservative compared to the 5 year average of about 10 times cash flow.

Using a more conservative multiple (9x cash flow) and assuming SSRM meets fiscal year 2022 estimates, this would translate to a fair value for the stock of approximately $24.30 per share. That might be enough for some investors to justify starting new positions here, but I prefer at least a 25% fair value discount for entering new positions. Assuming a fair value of $24.30, this would require a pullback towards $18.00 per share. Clearly, a pullback of this magnitude may not materialize if the price of gold continues its upward trajectory.

Turning to the technical chart, SSR Mining broke through its previous resistance near $21.00 per share, but now has a major resistance level at $23.30. Meanwhile, the next level of support does not arrive until $17.80. This supports the view that this is not a low risk buy point for SSR Mining given that there is $1.20 upside potential at resistance and more than 4 $.00 of downside potential at support, which translates to a reward/risk ratio of 0.28 to 1.0. The unfavorable risk/return ratio does not mean that the stock cannot rise higher; it just means that there is a high risk of entering new positions at current levels.

SSR Mining had an amazing year and arguably ranked in the top 5 in industry-wide performance. Given the company’s continued ability to massively exceed its promises, I view the stock as one of the best candidates for buying the industry-wide decline. However, in my view, the time to buy the stock was below $16.00 per share, not around 9x cash flow right now. So while I think it’s a name to keep at the top of your buy list, my preference from a valuation standpoint is currently Alamos Gold (AGI), which trades at a much higher market cap. low, but could generate up to $650 million in free cash flow in fiscal 2025.