SSR Mining Inc

NASDAQ:SSRM

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, everyone, and welcome to SSR Mining’s First Quarter 2020 Conference Call. 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.

[Michael McDonald, Director IR]

Thank you, operator. Good morning, ladies and gentlemen. Welcome to SSR Mining’s first quarter 2020 conference call, during which we will provide an update on our business and a review of our financial performance.

Our Financial Statements and Management’s Discussion and Analysis have been filed on SEDAR and EDGAR and are also available on our website. To accompany our call, there is an online webcast and you will find the information to access the webcast in our news release relating to this call.

Please note that all figures discussed during the call are in US dollars unless otherwise indicated. All references to cash costs and all-in sustaining costs are per payable ounce of metals sold. We will be making forward-looking statements today, so please read the disclosures in the relevant documents.

Joining us on the call this morning are Paul Benson, President and CEO; Greg Martin, our CFO; Kevin O’Kane, COO; and Carl Edmunds, Vice President-Exploration. Also present is John DeCooman, Senior Vice President, Business Development and Strategy.

Now, I would like to turn the call over to Paul for opening remarks.

[Paul Benson, President & CEO]

Good morning, ladies and gentlemen. I'm very pleased to welcome you to our call to discuss our first quarter 2020 operating and financial results. Firstly, I hope everyone on this call is safely navigating the brave new world of COVID-19. Later in the call, Kevin will explain the impacts on each of our sites and the status of our planning to Seabee and Puna. Obviously COVID is impacting the communities where our people work and live. And last month, we announced we’re donating $350,000 to help assist the communities around our mines and projects get through this difficult period.

Looking back on the first quarter, we got off to a very strong start for the year, as we produced over 107,000 gold equivalent ounces. And all three operations delivered a solid performance. At Marigold, we produced over 58,000 ounces of gold, setting the mine out well for what we’ll, hopefully, be another year of record annual gold production.

At Seabee, we delivered quarterly production of over 29,000 ounces of gold. Importantly, mill throughput averaged over 1,050 tonnes per day in the first two months of the quarter. The Puna silver production was 1.8 million ounces, as we continue to achieve steady state operating metrics, with mill throughput consistently above the rates assumed in the PFS. So overall, I'm pleased with the solid results delivered by each operation.

From an exploration perspective, as Carl will speak to shortly, we've had some exciting drill results at both Marigold and Seabee. We're also pleased with our financial performance during the quarter. In March, we repaid the remaining outstanding portion of our 2013 convertible notes and still ended the quarter with an enviable cash balance of just under $400 million. With that repayment, we now have no debt maturities until 2026.

As we disclosed yesterday, we sold our stake in SilverCrest for gross proceeds of CAD 90 million and a pretax profit of CAD 55 million, which will further enhance our financial flexibility moving forward. Finally, on Monday, we announced our zero-premium merger with Alacer Gold.

The transaction combines our diversified portfolio with Alacer’s Tier 1 Copler Mine positioning SSR Mining as a leading intermediate producer. The pro forma company will have near term annual production of approximately 780,000 gold equivalent ounces with highly prospective ground across the portfolio and a very strong balance sheet that will enable us to pursue internal and external valuating growth opportunities.

Subject to shareholder approvals, we look forward to integrating the two companies and collaborating on value enhancing initiatives and continuing to invest heavily in exploration activities. I encourage everyone to listen to the replay of the transaction announcement call and to read the deal presentations posted on that home page.

I briefly want to comment on that call. I made a mistake by not actually referencing what was happening to me in the transaction. I assumed it would come up as a question, but when it didn't, I didn't bother raising it. I did have a number of questions raised by shareholders they are after, so I thought it was -- and I've spoken to them, but I thought it’s worthwhile covering it now.

Over the last five years, we've continued to look for external opportunities at anything from MOEs down to advanced exploration projects. But with respect to MOEs, they are always difficult. I think out of the 30 or so companies that technically could qualify as an MOE, we probably discount 20 or so just because they are not attractive from our shareholders’ point of view.

But with the others, say, the other 10, often the conversations are quite challenging, often go along the lines of would you like to discuss a potential MOE and their response is, fine as long as I keep the top job, our board keeps their job, the name stays the same, and their head office stays the same. And clearly, that's not a recipe for success or merger of equals.

Rod Antal, the CEO of Alacer, and I started talking in November last year. And very early on, we agreed with the key terms to the deal. It was the CEO comes from one company, the chairman from the other and the split down the middle on the board, and then best people for the job throughout the management team.

Very early on in the process, I decided that Rob was the best person to lead the company going forward. To me there are a number of clear and logical reasons. One, he’d put together the team that built the pressure oxidation plant in Turkey. And it’s been a very successful plant operation. I think more importantly though that operating in Turkey, it's about relationships. And Rob has built relationships throughout the different level of politics, communities and also with the key joint venture partner.

Once I made that decision, it was very easy to go through the process. I need to step away from the company. A number of shareholders asked why I didn't stay on as a non-executive director, and I think the answer is very clear. I wouldn't be independent. And the last thing a CEO needs is to have a former CEO sitting behind them, whispering advice in their ear.

I think finally, the other point is that all too often when deals are done the leaving CEO takes some of the furniture with them. There is no spin out. There is no royalty stream going anywhere else. All the part albeit be very happy and contented shareholders cheering from the sidelines. So that’s why I just want to make that very clear.

I’ll now turn the call over to Kevin who will discuss our operational performance in more detail.

[Kevin O’Kane, COO]

Thank you, Paul. We certainly ended the quarter in a different context than what we started. Despite this, we had strong operating results for the first quarter of 2020. Whilst we suspended operations at Puna March 20, and at Seabee during the last week of the quarter, across the three operations we still produced 170,000 gold equivalent ounces and a cash cost of $824 per gold equivalent ounce. We had strong mill performance at Seabee while average throughput during January and February over a 1,050 tonnes per day.

Material movement Marigold was over 20 million tonnes and Puna operated at a steady state with mill throughput above the PFS projections. I'm proud of the teams and all our sites projects and offices with the way in which they manage the growing COVID-19 crisis in a safe and responsible manner.

We suspended operations at Puna March 20 and complies with government decree and efficiently manage the movement of our people back to their homes despite complexity across provincial travel. We provided support and resources to the communities near the operations.

At Seabee, we voluntarily suspended operations during the last week of March and went on care and maintenance because we determined at that time this was the right thing to do for the safety and health of our employees, their families and the communities in which they live.

As you know Marigold does not have the complexities of the remoteness and camp environment of the other two sites and we continued operations with strict controls for social distancing and other protocols. They have implemented robust screening and contact tracing tools for entry onto the site and those that can are working from home.

At Marigold, we produced 58,500 ounces of gold at Q1 consistent with Q4 2019. Cash costs for Q1 of 2020 $824 per ounce, 6% higher than in Q4 2019 because of the lower recoverable ounces stacked, and, therefore, higher unit inventory costs. And an increase in royalty costs due to higher gold prices. Direct costs were lower than planned.

During Q1, approximately 5 million tonnes of ore at gold rate of 0.3 grams per tonne were delivered to the heap leach pads consistent with expectations compared to 6.7 million tonnnes and a gold grade of 0.36 grams per tonne in Q4 2019. million tonnes of material were mined, an increase of 10% in Q4 2019 mainly because shorter hole distances associated with increased waste movement and some benefit from the new hydraulic shovel commissioned during the first quarter.

The gold grade delivered to the leach pad was 17% lower than the prior quarter, and the strip ratio increased by 76% to 3 to 1. The decrease in gold grade and increase in strip ratio are due to the completion of higher-grade ore deliveries from Mackay Phase 5, and the transition of mining equipment to stripping of Mackay Phases 6 and 8, and with ore deliveries from Mackay Phase 4 continued. The gold grades will increase through the year and recoverable ounces stacked in H2 should be 50% higher than H1. Engineering of the new leach pad is progressing per plan and the project is on track to be completed during the year.

During the first quarter of 2020, there were fewer tonnes stacked at lower grades compared to the fourth quarter of 2019, while production levels were similar compared to the fourth quarter of 2019 due to a drawdown on leach pad inventories and benefits of the newly commissioned leach pad.

While lower than Q4 2019, the ounces stacked in Q1 2020 were, in fact, more than planned which sees a higher portion of ounces stacked during the second half of the year as I mentioned previously. The increase in ounces stacked will positively impact costs during H2. Operating during the COVID-19 crisis has been challenging for the Marigold team, and I'd like to recognize the great job they're doing. They have managed the operation with the disciplined use of social distancing and other important protocols.

Moving on to Seabee. The mine produced 29,500 ounces of gold in the first quarter of 2020, a 34% increase compared to the fourth quarter due mainly to higher mill feed grades. Gold sales were 27,400 ounces, a 14% increase from Q4 2019. Cash cost were $544 per ounce compared to $505 per ounce in Q4 2019.

Several factors contributed to the higher costs. Price roll activity which of course down in current Q4, higher mobile maintenance costs mostly timing, and Alimak development to access higher grade areas in the -- higher grade the upper areas of Santoy to be feed to the flat later in the year. And finally, compensation payments which are timed for Q1.

During the first quarter, 89,300 tons of ore were meld and an average gold grade of 10.3 grams per tonne and recovery of 98.1%. This compares to 87,400 tonnes of ore milled at an average gold grade of 7.9 grams per tonne and recovery of 97.9% in the fourth quarter of 2019.

Tonnage throughput exceeded 1,050 tonnes per day during January and February and was impacted by the ramp down of operations in March. Mining unit cost were $68 per tonne mined in the first quarter, a 15% increase compared to the prior quarter and were impacted mainly by higher mobile equipment maintenance costs and the Alimak development work I mentioned.

We completed all of the planned transport across the ice road. As previously reported, we’re expanding the capacity of our tenant storage facility to accommodate the expected increase in mine life. Activities recommenced in the quarter were put on hold with the suspension of operations in March.

During April, we assessed options to restart operations and we continue to manage the required activities to ensure the safety of our employees and the environment and develop the staged increase in care and maintenance activities and restart schedule.

At the beginning of May, we doubled the size of the care and maintenance crew on site and soon we’ll begin critical underground activities at the end of the month or the first part of June. Depending on our ability to manage the COVID-19 protocols and with the easing of the government restrictions, we could restart mine production and processing operations before the end of the second quarter.

Puna Operations produced 1.8 million ounces of silver during the first quarter of 2020, 17% lower than the fourth quarter 2019 due mainly to lower throughput as a result of the suspension of operations on March 20. The improved metal throughput and metal recoveries we saw in Q4 2019 continued in the first quarter.

Cash cost were $13.49 per ounce of silver for the quarter compared to $8.90 per ounce of silver in the fourth quarter. This difference is entirely due to a noncash write down of inventory because of the significant drop in silver and base metal prices at the end of the quarter.

Total material mined during the first quarter while planned to be lower than in Q4 2019 was also impacted by weather events and associated temporary suspension of operations. Existing ore stockpiles are sufficient support milling activity for a phase restart of operations in the near term.

During April, the government declared mining an essential business, and we are evaluating sales restart options that enable the safe resumption of operations and that comply with government regulations and guidelines. We continue to manage required activities to ensure the safety of employees and care for the environment. We expect that the earliest we would achieve steady-state planned operations would be during June and July in the mine.

In summary, the operations again delivered solid safety performance and production results during the quarter especially considering the escalating COVID-19 crisis toward the end of the quarter.

I would now like to make a few comments on the Alacer Gold merger. We conducted comprehensive due diligence over the last few months including a visit by some of the members of our team to the Copler operation, and we look forward to combining this Tier 1 asset with our diversified portfolio.

We have been impressed with our safety culture, the successful delivery of the sulfide plant and the overall potential of the operation. We plan to combine the operational excellence processes that we have successfully deployed at our operations with Alacer Gold's programs to further improve performance across all the operations and deliver additional value for the shareholders.

I will not be able to Carl who will take you through our exploration activities.

[Carl Edmunds, VP Exploration]

Thank you, Kevin. For 2020, our objectives at Marigold are to discover additional mineral resources south of the currently producing Mackay Pit, Trenton Canyon, Valmy, East Basalt and Crossfire. The goal at CDR to increase mineral resources and reserves at Santoy Gap Hanging Wall, Santoy 8A and Santoy 9A through 9C zones.

We also plan aggressive greenfield activity at Fisher and select areas close to existing mine infrastructure at Santoy and Seabee. Given the health and travel restrictions presently in place, it is unlikely that we will be able to complete all of our planned exploration activities in Saskatchewan.

At Marigold, 2020 work include 64,000 meters of RC and core drilling. And during the first quarter we completed over 18,700 meters of drilling in 55 hole on Trenton Canyon, Mackay and Valmy. Trenton Canyon received most of the drill meters where we are confirming historical results and exploring for extensions to known mineralization.

We also initiated a limited core drilling program to explore for high grade sulfide ore potential at depth. Yesterday we released exciting results from exploration drilling at Trenton Canyon with one hole demonstrating high-grade, broad-width sulfide mineralization in proximity to three additional mineralized holes. In particular, MRA7178 intercepted a 94.5 meter interval of 5.2 grams per tonne gold that includes 7.6 meters of 44.7 grams per tonne gold.

The news zone is located 300 meters north of Trenton Canyon South Pit and has a dip length of at least 150 meters and an orthogonal thickness of 50 meter to 70 meters. Importantly, all four drill holes have ended in the mineralization which is open on dip and to the north and to the south.

Our experience indicates that these results have grade and witdh characteristics consistent with underground mines successfully operating in Nevada today and we look forward to getting the next few step out holes under way. Confirmation drilling at Trenton Canyon has progressed to plan with a notable intercept of 108.2 meters of 3.1 grams per ton from 27 meters below surface.

This result along with additional oxide intercepts that we reported are expected to contribute to an inaugural FSR oxide mineral resources estimate at Trenton Canyon when we report that year-end 2020.

Additional positive results in the quarter’s drilling came from Mackay and Valmy. We also expect these will contribute to mineral resources when reported at year-end 2020. The one core hole completed in the quarter near Relay Ridge provided valuable structural and logic information which will be tied in with a planned seismic survey as an aid to locating further gold targets.

At the Seabee Gold Operation, the first quarter underground drilling totaled approximately 11,400 meters and surface drilling totaled over 4,800 meters on near-mine targets. The majority of underground drilling with the gap hanging wall zone where we reported positive resource extension results of 7.6 meters of 14.8 grams per tonne gold and 2.6 meters of 28.9 grams per tonne gold.

Importantly, from a growth perspective, the latter intercept is 210 meters down plunge from the Gap hanging wall resource limit, implying a 20% plunge length increase if continuous.

Q1 greenfield drilling activity at Seabee was conducted at Batman Lake and on several targets at Fisher. Our objective with this work is to identify areas of discovery and new resource potential. At the Joker target located 650 meters south of Santoy mine workings, we completed almost 3,500 meters of drilling and 13 holes following up surface gold showings.

Here, one hole returned a resource grade intercept of 3.6 meters of 37.9 grams per tonne gold at shallow depth. With two holes pending and one on plunge with anomalous results, we have follow-up drilling planned for this gold discovery area.

At Fisher during the quarter, we drilled almost 9,500 meters on Mac North, Abel Lake, and Aurora targets following up on surface gold showings and 2019 drilling results. Two resource grade intercepts of 1.9 meters of 9.1 grams per tonne and 2.3 meters of 13.7 grams per tonne gold were returned from Mac North and Yin targets respectively. This winter season has been one of our most successful in exploration on new targets and provides support for continuing with the soil geochemistry prospecting and mapping approach.

Finally, we are keen to see the closure of the Alacer Gold merger which brings approximately 16,600 hectares of prospective terrain near their existing operation and another 105,000 hectares across the region into the company. We consider the exploration potential to be excellent as evidenced by the widespread quartz-related intermediate-sulfidation mineralization and by Alacer’s numerous or success with numerous new gold discoveries in recent years. We look forward to working with the team in place at Alacer to realize the resource potential in country.

Now, over to Greg for a discussion of our financial results.

[Greg Martin, CFO]

Thanks, Carl, and good morning to everyone. I hope you're keeping work through these interesting times. We will all remember Q1 of 2020 for both personal and family reasons, but also for the extreme economic and market sell-off late in the quarter.

We are fortunate that while our business like most has been impacted by the COVID pandemic, our business model has only been strengthened and we see that through our strong first quarter results. We generated revenues of $164.5 million from the sale of 105,000 gold equivalent ounces.

Revenues were a 30% increase from the comparative quarter. Revenue growth would have been even more significant if not due to the $8.7 million negative mark-to-market impact on provisionally price concentrate sales caused by the drop in silver and base metal prices coinciding with quarter-end. With the bounce in silver prices off the quarter-end lows, we have already clawed back some of that impact.

Income from mine operations was $44.8 million, an almost 50% increase from that comparative period. Income from mine operations were impacted by both the $8.7 million mark-to-market adjustment referenced, and an $8.5 million noncash fair value adjustment on Puna ore stockpiles both due to the drop in silver and base metal prices at March 31. Operating income was strong at $34.8 million aided by lower G&A due to share-based compensation reversals.

You will note on the income statement a $1.3 million expense for care and maintenance activities. These costs relate to Puna operations where operations were suspended before quarter end. We did not record any care and maintenance costs for Seabee. For the quarter, we reported net income of $24 million or $0.19 per share almost 4 times the comparative quarter and 19% above the fourth quarter.

Adjusted income totaled $39 million or $0.31 per share, a strong result reflecting the solid operating results and higher average metal prices. Our adjusted income considers the fair value write-down on stockpiles but we don't reverse quarterly mark-to-market changes.

Cash generated by operating activities for the quarter totaled $58.7 million versus 0 in the comparative period and 21% above the fourth quarter clearly showing the stronger business model. Investments in the quarter were $54 million which were elevated relative to our average quarterly run rate due generally to items I raised on our Q4 call.

At Marigold with the new loader received in the fourth quarter fully commissioned, it moved from accruals into capital and we received one of the two new haul trucks at Marigold during the quarter ahead of schedule. Also Marigold recorded higher deferred stripping as expected due to mine sequencing. Capital items arriving at Seabee over the ice road concentrate their recognition in the quarter also as expected.

Overall, capital is tracking at or below budget on each individual project. Also as announced, late in the quarter, we purchased the remaining $150 million of outstanding 2013 convertible notes at face value. Our debt is now solely the $230 million of 2019 notes with an effective term of six years requiring only interest payments at 2.5%.

We close the quarter with $398 million of cash. Based on our investment in SilverCrest which was worth an additional $50 million at that time, working capital was $646 million. So, our balance sheet remains in fantastic shape. Our divestment of SilverCrest yesterday for gross proceeds of Canadian $90 million improves that position.

Turning to cost in that quarter. The operating spend was consistent with budget at all operations/ Reported costs show normal impacts of seasonality at each operation. Winter conditions at Marigold, rains that Puna and ice road operations at Seabee, combined with some business operations towards the end of the quarter as all three sites dealt with operating changes required by the COVID crisis. And at Puna and Seabee phasing into care and maintenance.

Higher gold prices were also evident in Marigold’s reported cash costs and while Puna’s reported cash costs were high backing out the ore stockpile adjustment puts them $8.60 per payable silver ounce actually below the fourth quarter of 2019. So, overall costs were consistent to our plans and had put us on track for our targets.

Looking ahead, clearly, the second quarter is going to be impacted by the temporary mine closures. We have provided guidance on our care and maintenance cost and we will seek to offset a portion of these with government support where applicable particularly the Canadian emergency wage subsidy. With Marigold operating in the mines into a phased restart, I don't anticipate much overall impact on our liquidity position.

With regards to our announcement earlier this week on the merger with Alacer, the transaction provides a unique opportunity to build a strong and diversified portfolio that will generate significant free cash flows. I'm confident we can build on the success of both companies to continue the track record of delivery to operational and financial objectives. The merger makes for a strong pro forma business with exceptional liquidity to drive market recognition and superior value. It's another step that builds from strength and continues to differentiate SSR Mining.

With those comments, I'll turn the call back to Paul.

[Paul Benson, President & CEO]

Thanks, Greg. In summary, this was an important quarter for SSR Mining. The zero premium merger with Alacer is an important strategic step and will position SSR mining as a leading free cash flow-focused, diversified gold producer. Upon closing, SSR would have annual gold equivalent production in the order of 780,000 ounces and a market capitalization around $4.3 billion at today's equity prizes. The company will have a peer-leading balance sheet and cash generation.

The closing of the deal requires positive votes by the shareholders of SSR mining and Alacer at meetings we expect to be held in July. Pleasingly, we've had very strong support during our marketing of the transaction this week and are encouraged by the market reaction to-date.

Looking forward, we have a lot of work -- hard work ahead of us over the coming quarters with the reopening of Seabee and Puna and the integration of the two companies. The inclusion of the world-class Copler operation into our portfolio is just the next chapter in our company's evolution. With our enviable financial position, we'll be able to continue doing what we do well creating value for shareholders by maximizing the value of our own assets and looking externally for new opportunities.

This concludes the formal remarks of our earnings call. I’ll now pass the line to the operator to take any questions you may have.

[Operator]

Thank you, Mr. Benson. We will now begin the question-and-answer session. [Operator Instructions] We will pause for a moment for callers join the queue. Your first question comes from Mike Parkin with National Bank. Please go ahead.

[Mike Parkin, National Bank]

Hi, guys. Thanks for taking my question. Lots of interesting stuff this morning. I'd like to start with the Batman zone. It looks like the one intercept that looks really interesting is very close to the surface. You've got a couple where assays are pending. Is there any thoughts towards that being a potential open pit ore source?

[Kevin O'Kane]

I'll go -- my general comment, most of these tend to be relatively narrow and you end up with some -- you'd end up with a fairly steep or the strip ratio would increase relatively quickly. I think it's something that we've talked about with a few different sort of outcropping mineralization out there, but nothing has ever worked. But, Carl, your view?

[Carl Edmunds, VP Exploration]

It’s a narrow vein. It’s unsuitable really for any open pit, and plus, there’s surface water around there.

[Kevin O'Kane]

That always is a bit of a downer up at Seabee if you come near those ways. So, it can really make the open pit difficult.

[Mike Parkin, National Bank]

Okay. And then, in terms of moving down the Marigold, on the new win packages of Trenton Canyon and Buffalo Valley, are the royalty rates different there than what you're paying for -- at the oxide mine?

[Kevin O'Kane]

Yes, significantly lower. I'm just going to ask John DeCooman to give an update on what they have done there.

[John DeCooman, SVP, Business Development and Strategy]

Yeah. Mike, they differ anywhere from call it 2% to 4% sort of depends on some of the different sections that are there, but they are, they're probably close to a third of what you see in general at the Marigold Macky area.

[Mike Parkin, National Bank]

Great. So, that's great news. All right. That's it for me. I'll let some others ask some question. Thanks very much, guys.

[John DeCooman, SVP, Business Development and Strategy]

Thank you.

[Operator]

Our next question comes from Chris Thompson with PI Financial. Please go ahead.

[Chris Thompson, PI Financial]

Hey. Good morning, guys. Thanks for taking my questions. Paul, just quick notes. All the best for your future endeavors there. It's been great having you at the helm. Congratulations on the announcement, obviously, with Alacer earlier this week. Just a couple of quick questions I guess as far as these results. You do mention, obviously, high grades are going to be stacked at Marigold in the second half of this year. Can you put a number to that?

[Paul Benson, President & CEO]

No. I mean, we haven't changed guidance at Marigold so I just run off what we’ve got there at the moment. Obviously, the only thing that you probably can think about is that if gold price keeps on going that impacts our forecast on cash costs because that includes the royalty but otherwise we're comfortable with the guidance we've been given for Marigold at the beginning of the year.

[Chris Thompson, PI Financial]

Sure. All right. Thanks for that. And, Carl, maybe this is a question for you. I mean great results from Trenton Canyon. And you make reference to that in the news release of similarities with Turquoise Ridge. I wonder if you can just expand upon that and maybe comment on the mineralization that you see and possible sort of metallurgical similarities with Turquoise.

[Carl Edmunds, VP Exploration]

Well, what we -- what we think we know from the core drilling work that we did just near Relay Ridge is that approximately 300 meters down we think we get into the Comus Formation with the lower plate rocks that host Turquoise Ridge. And up at this area here, albeit we only have RC information on it, we're seeing a lithological change just above where these intercepts are occurring.

So we come out of more -- what I understand as more Valmy-looking rock types which are the units that are above the Comus. And then going into what are carbonaceous mud stones, the nature of the mineralization that we're seeing is very fine-grained pyrite in variably solidified rock and now this is all being pulled from RC chips. But that's what we're seeing.

So the similarities at present are that it's -- we've got some pretty interesting-looking high grades and it's sulfide. Some of the differences would be that we're not seeing the realgar, orpiment and in some of the other -- those other more exotic minerals in it.

We're not seeing any of that. I would say yet we may see that in future but at least we're seeing the grade which is the part that we're interested in. And as soon as we can follow up with some core holes we'll be able to provide some detail as to where we think it really fits in in the stratigraphy.

[Paul Benson, President & CEO]

Just a couple of other points on that. When we’ve got the package of land we were restricted on where we could drill. So a lot of the drilling in the first half was on disturbed land. We now have the permits to go and drill where we want to. So, that will be great. The first core hall was a long hole, 1.5 kilometers. We haven't got all the assays back. Think of that as sort of like a Rosetta stone of trying to understand the lithology.

We're going to do seismic down there. And really, what then you’re looking for is trying to interpret the structures and extrapolating lithology. So yeah, this is going to be a long-term game. We've always said we want to -- the initial budget this year is $2 million. We’d expect to be spending that sort of money four or five years. But with success you can always allocate more capital to it. So it's a good story down there.

[Chris Thompson, PI Financial]

No. Good stuff, guys. Congratulations.

[Paul Benson, President & CEO]

I just throw one thing in there. Obviously if we do come across that sort of material and it's refractory, that's the technology that Alacer would just build successfully over in Turkey.

[Chris Thompson, PI Financial]

Absolutely. That's exactly what I was thinking.

[Paul Benson, President & CEO]

Okay. Next question.

[Operator]

[Operator Instructions] Our next question comes from Michael Gray with Agentis Capital. Please go ahead.

[Michael Gray, Agentis Capital]

Hey. Thanks for taking my call. I couldn’t resist calling in here on the results. And I wish you well, Paul and your team, going for it. Congratulations on the deal. My question is on Trenton Canyon. And I'm sure Carl and Jim Carver really wish they had core holes right now. But just asking, mineralization and cross section looks like it's kind of got a lozenge shape.

And I'm just wondering, is it discordant or strata form or can you tell right now? And the rest of my questions have really been answered in terms of it actually being the Comus. So I think this is a really great breakthrough. And I’m really excited for you, guys.

[Carl Edmunds, VP Exploration]

We can’t tell too much from the chips obviously. But in the near surface, it's looking like it's following the general orientation of the rock package. The Valmy rocks that are at surface, Mike, they’re -- they’ve got -- there’s fold packets that are in there. So it's chevron to a little tighter hold it. But in general, the packages is off to the east. So we've either got a structure that's bounding.

We're thinking this is interpretive now. A structure that's sitting in the hanging wall of these intercepts that’s between what might be the Valmy package and the Comus lower plate package or it's that major thrust, so -- or if stratigraphic contact.

[Michael Gray, Agentis Capital]

Okay. And I missed whether you had actually imaged it already with geophysics…

[Carl Edmunds, VP Exploration]

Yeah. We had that planned for the second quarter and with the some of the COVID-19 travel restrictions for contractors out of state and so on, we decided to delay that until we can really get a picture on when we can initiate it. So it's sometime in the near future and hopefully the -- when the area starts to get over that -- those travel restrictions, we can mobilize the contractors. We have approvals to do the work. We're all set for it.

[Michael Gray, Agentis Capital]

Okay. Fantastic congratulations and congratulations again on the deal. Thanks very much.

[Carl Edmunds, VP Exploration]

You'll have to start covering large cap companies so that you can keep on top of us.

[Carl Edmunds, VP Exploration]

Next question.

[Operator]

Our next question comes from John Tomaso with John Tomaso Very Independent Research. Please go ahead.

[John Tomaso, John Tomaso]

Good morning. Congratulations on so many things.

[Greg Martin, CFO]

Thank you.

[John Tomaso, John Tomaso]

With -- if I'm adding this up right, there's about $870 million of gross cash across the two companies pro forma. The SilverCrest sale and the merger and the results. Should we assume that just the merger and the SilverCrest divestiture is enough corporate activity to keep you busy for a good six months and nothing more is going to happen?

And should we assume that you just sit there with this nice cash position and don't retire any of the various liabilities, leases, short term, etcetera, although you do have a few liabilities you could repay?

[Greg Martin, CFO]

Just looking at the pro forma in the table that we put out on -- when we put the announcement out, page 9. The cash of marketable securities was $707 million and that included -- the marketable securities included the SilverCrest stake.so it's just moving it for marketable securities across the cash.

In terms of debt, ours isn’t -- ours is the convertible note, the $230 million. That’s not repayable until 2026. So, we’d see no reason for doing that. And Alacer has a project loan which they can pay back early without penalty. I understand if I want to, but that's something to be discussed later.

I still think cash is a strategic asset. It has been for us. So, we've found that we've been -- we've done well by keeping a significant proportion of cash on the balance sheet. I think both companies leading into the announcement of the deal were certainly giving significant consideration to the capital return.

I'd say that down at the BMO conference early this year that once we go through 2019, we were holding off because we weren't sure whether we needed extra capital of Marigold to bring in the Red Dot deposit into reserves. Once we got through that decision, pleasingly, we didn't need the extra capital.

I said, midway through this year is obviously something that the board would have to consider -- would pleasingly enjoy considering potential capital return. I think realistically we put that on hold until we get out of COVID. It would be -- I think it would be not -- it wouldn't be prudent to do anything in advance of understanding the full impacts of COVID, but certainly, with our balance sheet and our forecast cash generation then yes, I think that will be a key attribute of the company going forward.

[John Tomaso, John Tomaso]

Do you think that four mines on three continents is an expandable platform? Some companies manage growth better than others. A few years ago BHP divested all their smaller mines into South32. There’s different philosophies as to how many moving pieces, how far apart are manageable.

[Greg Martin, CFO]

Both Rod and I have come -- have spent some time -- career in majors here at Rio; me at BHP. And I started off my career with an intermediate back in Australia, Rennison Goldfields, which had I think about eight or nine operations. To me, the sweet spot, somewhere between five to eight mines. I think above that you probably start to get diseconomies, head office becomes too bureaucratic. But I think you can really leverage the head office if you're in that sweet spot. So we absolutely have room to grow.

And at some point, I think Rio, back in its heyday, if you go back in 1970s, 1980s, 1990s, they were brilliant at sort of winnowing out -- as they added a new higher-quality asset, they would sell something lower down the portfolio. So I think that's a discipline that you need.

To me, one of the other great benefits of building the portfolio, adding more assets, is how you can help develop people in a career, is you can move them around between mines which is something that we haven't got to that point yet and very much looking forward to that. So absolutely, there's no way that SSR after bringing Copler has reached the end of its growth potential. I’d say we’re just on that evolution and hopefully we continue to add more.

[John Tomaso, John Tomaso]

Thank you.

[Greg Martin, CFO]

Excellent. Okay. I understand that.

[Operator]

This concludes the question-and-answer session. I will turn the call back to Mr. Benson.

[Paul Benson, President & CEO]

Thanks, operator. Thanks to everyone for listening today. I hope you have a good day.

[Operator]

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