Quartermain sets the pace for silverQuartermain sets the pace for silver
By: Dorothy Kosich
Posted: '21-DEC-04 05:00' GMT © Mineweb 1997-2004
RENO--(Mineweb.com) Could an entrepreneurial geologist, who sets a brisk pace for property acquisition, ring in the new year as a silver producer?
And, as Robert Quartermain and Silver Standard Resources (SSRI) blaze a trail of silver projects in the Americas, it's a sure bet that his efforts will benefit the entire silver mining sector.
First started in British Columbia in 1946, Vancouver-based Silver Standard noticed in 1993 that silver supply was not meeting silver demand. "No one else was looking for silver. It was a contrarian thing to do," Quartermain recalled.
Silver Standard acquired silver projects when no one else wanted them, holding onto the properties until the company could take advantage of higher metals prices. Today the company owns 15 properties and projects in seven nations. It currently holds 508.4 million measured and indicated ounces of silver resources and 840,000 M&I ounces of gold resources. The majority are owned by Silver Standard while two are joint ventures. Of those projects, seven are undergoing feasibility, pre-feasibility, and scoping studies. Combined, these seven projects could have an anticipated annual production of nearly 30 million ounces of silver.
Quartermain asserts that the positive aspect of this philosophy of holding numerous properties in several nations is, as the political landscape or currency changes, "we adjust the focus of our projects as if we had just one very large project in one country."
The rebuilding of Iraq and Afghanistan and the infrastructure needs of China, which have caused metals prices to increase, conversely, have a negative aspect which makes developing mines more costly, he noted. As a result, Silver Standard is re-evaluating projects management may have thought of developing a year ago.
Silver prices have increased nearly 50 percent in the past year. Because current silver prices are at a sustained high, it allows companies like Silver Standard to finance a project, service debt, and get a quicker payback period if prices begin to fall. Silver Standard doesn't necessary select a project simply because metals prices have reached a certain high. Instead, the company looks to develop a silver project that has lower operating costs, and can withstand fluctuating prices, according to Quartermain.
Meanwhile the company also holds almost 2 million ounces of silver bullion, according to Quartermain. At the time the company bought the silver, Silver Standard executives had excess cash over its needs. The company purchased the bullion at prices between $5.50 and $5.90/oz. "If we could buy silver at under $6/oz," he recalled, "that's probably cheaper than we could mine it out. So we might as well mine it and then put it in a bank underground."
"When we do get up and move into production, if we have to take debt on, then it is likely that the providers of debt will want us to put some sort of hedging or financing structure in place," Quartermain explained.
"As a result of that, we might have to hedge our first year's production," he added. "If we own the metal already, we can reduce the amount of hedging or the amount of upside we would have to give to a potential financier because we already have the physical metal."
"We can, therefore, maximize our exposure for our shareholders to the commodity upside and that's what we're all about."
In the year ahead, Quartermain predicts silver will move up because of technical reasons, such as the delivery of physical silver. "I think prices will be in and around the range they currently are, plus or minus 10 to 15 to 20 percent of that." Prices will continue to fluctuate during consolidation, he added.
Recently, Silver Standard moved up to the National Market on NASDAQ and its counterpart on TSX. The move to senior boards gives Silver Standard "a little more visibility," which, in turn, helps the company access more capital. Due to low interest rates, Silver Standard feels more comfortable taking on debt risk.
Meanwhile, Silver Standard has decided to conduct its own silver exploration program, which is partly driven by the renewed interest in silver and precious metals for the past couple of years, according to Quartermain. "There's much more competition now for projects and prices have gone up," he added. Historically, Silver Standard paid an average cost of 7 cents per resource ounce to acquire 960 million ounces in all categories. Costs are now 20 to 30 cents.
To have accretive value for shareholders, Silver Standard tries to buy resources at 15 cents or less per ounce. "If we can't buy it, then going exploring for it is a better value." Quartermain said not much exploration has been conducted in the past for bulk tonnage silver deposits. Using new technologies in established mining camps, Silver Standard was able to make the La Pitarrilla discovery in Mexico, which is a brand new discovery.
Thus far, Silver Standard has not experienced permitting problems. The company always looks for who owns the land, the social-political landscape, what social license is need to operate, and hire local individuals with good communications skills prior to commencing any work in the area, he said.
Quartermain declared that it is imperative that mining and exploration companies build good community relations. Silver Standard has not yet shown up on any environmental NGO radar screens. "It's again a function of having good corporate and local relations with the community," Quartermain explained. "It doesn't mean that as the project advances and it gets more publicity, NGOs won't then suddenly arrive."
Silver Standard has put together partnerships in the Pirquitas project in Argentina. Local villagers voluntarily relocated to make way for the project. However, rather than build houses and community facilities, Silver Standard purchased raw materials and hired local residents to supervise and complete the work. The local Catholic church is also regularly consulted.
Because of the region's lengthy mining history, local residents already understood the benefits of mining. "They know it can create jobs. As long as you have good environmental stewardship, everyone can come out of it with a win-win situation," he added. Silver Standard also regularly conducts environmental due diligence studies prior to acquiring projects. For instance, the company will determine if historic tailings exist, who owns the tailings, and what kind of liabilities may exist.
As an example, Silver Standard did not acquire historic tailings when it bought the Shafter underground project in a historic Texas mining district. Another company is reclaiming Shafter's existing tailings. During the permitting process, Silver Standard hosted a number of open houses, inviting regulators, politicians, the local press, and other local stakeholders in the area. "The transparency that we brought to it has certainly helped" win local support, Quartermain said.
As a silver producer, Silver Standard still has a tough time getting the attention of mining analysts. Canadian analysts tend to be focused on gold because "there are many more gold companies out there," Quartermain explained. Analysts often follow producers or people moving into production. "Because we're not a producer, there are not as many people who want to follow it (Silver Standard) because the modeling has to be different," he added.
"It is tough slogging" to get the attention of the investment community for silver, admitted Quartermain. North America tends to be Kodak-centric and technology centric, he theorized. "When they think silver, they think of cameras and Grandma's tarnished silverware and that's about it."
herefore, silver producers go out and regularly remind investors about silver's electrical conductivity, its biocidal applications, its use in Palm Pilots, telephones and electrical circuitry, water purification and 40% consumption through industrial applications. Silver producers also remind investors that silver has no competing elements or metals for it, "so, there is no substitution in some of this cases," Quartermain declared. He constantly "tells that story, again, and again, and again."
"Sometimes you will find someone that will follow you," Quartermain said, noting that the company has gone from one analyst covering Silver Standard to coverage by three analysts. As of October 31, Silver Standard estimates 79 percent of its stock was held by retail investors while 20 percent was held by institutional investors.
To promote North American companies, Quartermain recently spoke in China at the Third International Silver Conference. "I was certainly impressed with the size of the delegation and the interest," he recalled. "If we look at Chinese consumption, it's doubled in the past 10 years." The ability of 1.3 billion Chinese to finally own physical precious metal is also a significant development. Quatermain joked that it is also harder to steal silver bullion rather than gold from Chinese homes.
Quartermain viewed this interview as an opportunity to remind investors and consumers about silver. "It is a every day metal that touches our lives every day. We are going to continue to need it as society grows on a global basis as more consumer goods become more available to more people. It's not about photography or silverware. It's about that small electronic component in your Gameboy or your new cell phone. That's the future of silver," he concluded.