Mr. Igor Gonzales reports
SIERRA METALS REPORTS CONSOLIDATED FINANCIAL RESULTS FOR THE SECOND QUARTER OF 2019 CONFERENCE CALL AUGUST 15, 2019 AT 10:30 AM (EDT)
Sierra Metals Inc. had revenue of $50.7-million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $12.6-million on throughput of 662,490 tonnes and metal production of 4.7 million silver equivalent ounces, or 25.2 million copper equivalent pounds, or 57.6 million zinc equivalent pounds for the three-month period ended June 30, 2019.
Revenues and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) generated during Q2 2019 allowed the company to finance its capital expenditure programs despite a challenging metal price environment and a loss of production from the illegal strike action at the Yauricocha mine. Yauricocha's cash costs were lower quarter over quarter, while there was a slight increase in the AISC (all-in sustaining capital) during Q2 2019 compared with Q2 2018 due to the increase in treatment and refining charges related to the zinc concentrate produced, as well as higher general and administrative costs due to higher labour costs. The mine sustained its exceptional performance into July, and the remainder of the year continues to look very promising, despite the significant decline in base metal prices. As previously announced on the company's July 30, 2019, news release, the management team has revised the release date for the Yauricocha National Instrument 43-101 reserve and resource update to Q4 2019 in order to allow the company to include the results from additional drilling currently taking place at key, high-priority targets at the Yauricocha property.
The Bolivar mine generated $2.6-million in EBITDA during the quarter, helped by record quarterly throughput despite lower copper prices. Average daily throughput realized during the quarter was approximately 3,700 tonnes per day (tpd) and the company expects to reach 4,000 tpd during Q3 2019, increasing to 4,250 tpd during Q4 2019. Copper head grades are expected to improve during the second half of the year as more ore is sourced from the Bolivar West zone.
At Cusi, the company realized record quarterly tonnage in the second quarter, resulting in a 41-per-cent increase in metal production, even with lower head grades and recoveries for all metals. Daily throughput at Cusi during Q2 2019 was 938 tpd but is expected to reach 1,200 tpd by the end of Q4 2019. The proposed increase to 1,200 tpd has been slower than expected due to poor contractor performance, equipment availability issues, delays in development and stope preparation, and issues with subsidence. To address these issues, the company is changing to mining contractors that can provide their own equipment and the focus of which will be to significantly increase development to a level of 90 metres per month. Additionally, in order to provide ore with silver head grades of 175 grams per tonne (g/t), mine production will focus on the 1704 and 1720 levels of the Santa Rosa de Lima zone. Work will also continue enlarging the ramp size to four by four metres, allowing for larger trucks to haul more ore from the mine to the plant.
The company expects to have an updated NI 43-101 technical report for the Cusi mine during Q2 2020, which has been pushed back two quarters from the original estimate of Q4 2019. The reason for the delay is to include the results from additional infill drilling currently being completed at the mine in order to improve the quality and classification of the resources/reserves contained within the NI 43-101 technical report. Management is evaluating a delay in the expansion of Cusi from 1,200 tpd to 2,400 tpd to allow the company to stabilize Cusi's operating rates at the 1,200 tpd level first, while increasing silver metallurgical recoveries as well as improving dilution control as these were critical issues during the recent ramp-up to 1,200 in the first half (H1) of 2019. Additionally, the revised NI 43-101 technical report will allow for improved strategic mine planning, development and stope preparation. As such, the $10-million of capital expenditures planned for 2019 relating to the plant and tailings dam expansions will be deferred until the expansion timetable is redefined. However, the capital investments already made at the mine and plant during 2018 and the first half of 2019 were necessary to achieve the throughput increases to 1,200 tpd, which is required to make the mine profitable at current spot silver prices.
Igor Gonzales, president and chief executive officer of Sierra Metals, stated: "I am pleased with the improvements that we have seen in the production performance for the company in the second quarter of the year. Building on the first quarter, we have continued to overcome the challenges encountered to date this year, including lower metal prices, a strike at Yauricocha, and a slower-than-expected ramp-up of throughput at Bolivar and Cusi. However, the company realized record consolidated quarterly throughput during the second quarter, with record throughput at both the Bolivar and Cusi mines, which contributed to strong cash flows and good returns on the capital invested in our growth projects. Management expects that the company will still be within its annual production guidance provided. Furthermore, we remain very focused on improving all three mines to reduce costs where possible while reaching higher throughput rates."
He continued: "Yauricocha continues to be a solid performer for the company and with permits in hand we are working on completing construction of the tailings dam expansion and Yauricocha shaft deepening to enable us to reach the 3,600 tpd level. We continue to make up for lost production tonnage, which occurred during the month-long strike. Also, recently received permits are allowing us to drill new high-value targets, such as Don Leona and Kilkaska, from surface. Turning to Bolivar, production has surpassed our original goal of 3,600 tpd and is now headed to 4,250 tpd, with plans to access higher copper grades in the second half of the year. Looking now to the Cusi mine, [we] are dealing with challenges previously mentioned in this release. Our focus is currently on improving recoveries and accessing higher-grade silver zones at the mine. We expect that these efforts should become more apparent as we progress into the second half of the year. We continue to monitor metal prices and our capex spend, and, as such, management has decided it would be prudent to re-evaluate the Cusi ramp-up to the 2,400 tpd level and defer some of the capital expenditures that were allocated to be spent until we resolve ore dilution and recoveries issues at our recently expanded operations."
He concluded: "Our balance sheet remains strong with the liquidity needed to meet our operational and growth expenditure requirements. We are also continuing with our efforts to modernize and improve all our mines while implementing best operational practices. These efforts are expected to allow the company to continue to increase metal production over the coming year. Additionally, our company-wide ongoing brownfield exploration programs should also lead to further discoveries and growth in reserves and resources, which will add to the value of our assets during the year ahead."
SELECTED FINANCIAL AND OPERATIONAL INFORMATION
(in thousands of dollars, except per-share and cash cost amounts;
consolidated figures unless noted otherwise)
Three months ended Six months ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Operating
Ore processed/tonnes milled 662,490 602,087 1,230,891 1,159,797
Silver ounces produced (thousands) 836 692 1,528 1,287
Copper pounds produced (thousands) 9,723 8,621 17,455 16,710
Lead pounds produced (thousands) 8,066 7,096 15,020 13,408
Zinc pounds produced (thousands) 16,593 20,300 33,014 38,514
Gold ounces produced 2,540 1,814 4,526 3,765
Copper equivalent pounds
Produced (thousands) (1) 25,230 24,452 47,004 47,937
Zinc equivalent pounds
Produced (thousands) (1) 57,622 55,279 108,277 102,19
Silver equivalent ounces
Produced (thousands) (1) 4,667 4,663 8,652 9,071
Cash cost per tonne processed $46.11 $44.62 $48.72 $45.60
Cost of sales per AgEq ounce $7.82 $6.68 $8.13 $6.91
Cash cost per AgEq ounce (2) $7.30 $6.34 $7.78 $6.55
AISC per AgEq ounce (2) $12.31 $9.56 $12.98 $9.70
Cost of sales per CuEq pound (2) $1.44 $1.27 $1.50 $1.31
Cash cost per CuEq pound (2) $1.35 $1.21 $1.43 $1.24
AISC per CuEq pound (2) $2.28 $1.82 $2.39 $1.83
Cost of sales per ZnEq pound (2) $0.63 $0.56 $0.65 $0.61
Cash cost per ZnEq pound (2) $0.59 $0.53 $0.62 $0.58
AISC per ZnEq pound (2) $0.99 $0.81 $1.04 $0.86
Cash cost per ZnEq pound (Yauricocha) (2) $0.50 $0.50 $0.52 $0.54
AISC per ZnEq pound (Yauricocha) (2) $0.86 $0.72 $0.86 $0.77
Cash cost per CuEq pound (Bolivar) (2) $1.51 $1.14 $1.75 $1.21
AISC per CuEq pound (Bolivar) (2) $2.55 $1.90 $3.02 $1.92
Cash cost per AgEq ounce (Cusi) (2) $16.49 $12.78 $16.51 $14.96
AISC per AgEq ounce (Cusi) (2) $25.67 $19.98 $27.79 $23.25
Financial
Revenues $50,673 $62,721 $99,853 $124,396
Adjusted EBITDA (2) $12,558 $28,878 $24,599 $56,281
Operating cash flows before
movements in working capital $12,773 $29,525 $24,577 $56,873
Adjusted net income
attributable to shareholders (2) $1,645 $12,557 $2,531 $23,744
Net income (loss)
attributable to shareholders $(158) $10,843 $(1,882) $19,546
Cash and cash equivalents $40,246 $21,804 $40,246 $21,804
Working capital (3) $50,911 $2,896 $50,911 $2,896
(1) Silver equivalent (AgEq) ounces and copper equivalent (CuEq) and zinc equivalent (ZnEq) pounds for Q2 2019
were calculated using the following realized prices: $14.88 per ounce (oz) silver (Ag), $2.75 per pound (lb)
copper (Cu), 85 cents per lb lead (Pb), $1.20 per lb zinc (Zn) and $1,323 per oz gold (Au). Silver equivalent
ounces and copper equivalent and zinc equivalent pounds for Q2 2018 were calculated using the following
realized prices: $16.36 per oz Ag, $3.12 per lb Cu, $1.09 per lb Pb, $1.38 per lb Zn and $1,296 per oz Au.
Silver equivalent ounces and copper equivalent and zinc equivalent pounds for the six months in 2019 were
calculated using the following realized prices: $15.23 per oz Ag, $2.80 per lb Cu, 90 cents per lb Pb, $1.22
per lb Zn and $1,314 per oz Au. Silver equivalent ounces and copper equivalent and zinc equivalent pounds for
the six months in 2018 were calculated using the following realized prices: $16.56 per oz Ag, $3.13 per lb Cu,
$1.12 per lb Pb, $1.47 per lb Zn and $1,315 per oz Au.
(2) This is a non-IFRS (international financial reporting standards) performance measure. See the section on
non-IFRS performance measures of the MD&A (management's discussion and analysis).
(3) The increase in working capital was due to the company drawing down the remainder of the senior secured
corporate credit facility during the quarter.
Q2 and H1 2019 financial highlights
Revenue from metals payable of $50.7-million in Q2 2019 decreased by 19 per cent from $62.7-million in Q2 2018. The decrease in revenues was partially due to a 10-per-cent decrease in tonnes processed at the Yauricocha mine due to the illegal strike action initiated by members of the union of the mine and metallurgical workers of Minera Corona on March 19, 2019, which resulted in 12 days of lost production during April. Lower revenues were also affected by the decreases in the prices of silver (9 per cent), copper (12 per cent), zinc (13 per cent) and lead (22 per cent), and higher treatment and refining charges incurred on the company's zinc concentrate. This was partially offset by higher head grades and recoveries for all metals, except zinc head grades at Yauricocha. A 20-per-cent increase in throughput at the Bolivar mine offset declines in copper head grades and copper prices as revenues were consistent quarter over quarter. Cusi's revenues decreased by 24 per cent due lower head grades and recoveries for all metals quarter over quarter.
Yauricocha's cash cost per zinc equivalent payable pound was 50 cents (Q2 2018 -- 50 cents) and AISC per zinc equivalent payable pound was 86 cents (Q2 2018 -- 72 cents). The increase in the AISC per zinc equivalent payable pound for Q2 2019 compared with Q2 2018 was due to the increase in treatment and refining charges for the zinc concentrate produced, and higher general and administrative costs.
Bolivar's cash cost per copper equivalent payable pound was $1.51 (Q2 2018 -- $1.14) and AISC per copper equivalent payable pound was $2.55 (Q2 2018 -- $1.90) for Q2 2019 compared with Q2 2018. The increase in the AISC per copper equivalent payable pound was due to higher labour and contractor costs incurred related to stope and ramp development within the mine required to increase throughput to the 4,250 tpd level. The majority of these costs are included in opex. Additionally, sustaining capital expenditures were $2.0-million higher in Q2 2019 compared with Q2 2018 and related to the purchase of mining equipment, mine development costs, exploration drilling within the mine and plant improvements.
Cusi's cash cost per silver equivalent payable ounce was $16.49 (Q2 2018 -- $12.78) and AISC per silver equivalent payable ounce was $25.67 (Q2 2018 -- $19.98) for Q2 2019 compared with Q2 2018. AISC per silver equivalent payable ounce increased due to higher sustaining capital expenditures and lower silver equivalent payable ounces due to a buildup of concentrate inventory at quarter-end with a high moisture content that was not shipped until after quarter-end. If the buildup of concentrate inventory during H1 2019 had been sold, it would have resulted in the AISC per silver equivalent payable ounce decreasing by $5.50 for Q2 2019 and $4 for H1 2019.
Adjusted EBITDA (1) of $12.6-million for Q2 2019 decreased compared with $28.9-million in Q2 2018. The decrease in adjusted EBITDA in Q2 2019 was due to the decrease in revenues realized at Yauricocha and Cusi, mainly due to the illegal strike action at Yauricocha, a decrease in the prices of all metals, and higher operating and administrative costs at Yauricocha.
Cash flow generated from operations before movements in working capital of $12.8-million for Q2 2019 decreased compared with $29.5-million in Q2 2018. The decrease in operating cash flow is mainly the result of lower revenues generated and lower gross margins realized.
Net income (loss) attributable to shareholders for Q2 2019 was a loss of $200,000 (Q2 2018 -- income of $10.8-million) or nil per share (basic and diluted) (Q2 2018 -- income of seven cents).
Cash and cash equivalents of $40.2-million and working capital of $50.9-million as at June 30, 2019, compared with $21.8-million and negative $8.3-million, respectively, at the end of 2018. The increase in working capital was due to the company drawing down the remainder of the senior secured corporate credit facility during the quarter. Cash and cash equivalents have increased by $18.4-million during H1 2019 due to $6.9-million of operating cash flows and $99.2-million drawn down from the senior secured corporate facility, being partially offset by capital expenditures incurred in Mexico and Peru of $28.1-million, $1.5-million of share repurchases, and repayments of loans, credit facilities and interest of $58.1-million.
Under the normal course issuer bid, the company has repurchased 1.1 million shares for a total consideration of $1.6-million.
(1)
This is a non-IFRS performance measure. See the section on non-IFRS performance measures of the MD&A.
Project development
The company received its permit to construct the expansion of the tailing dam facility as well as its permit for the surface drilling program at its Yauricocha mine in Peru.
The company repurchased the royalty on its Cusi silver mine in Mexico from Minera Cusi S.A. de C.V. for $4.0-million (U.S.).
Mine development at Bolivar during Q2 2019 totalled 1,945 metres. A portion of the metres (1,508 metres) was developed to prepare stopes for mine production. The remainder of the metres (384 metres) was related to the deepening of ramps and developing service ramps to be used for ventilation and pumping in the Lower El Gallo Inferior orebody and Bolivar West orebody.
During Q2 2019, at the Cusi property, mine development totalled 1,387 metres, which included 147 metres of ramp development at the Santa Rosa de Lima zone; the rest of the development related to stope preparation in various zones within the mines.
Exploration update
Peru
During Q2 2019, the company drilled 65 holes totalling 7,614 metres at Yauricocha. The drilling included the following.
Exploration drilling:
-
Copper porphyry mineralization (level 720, Central mine zone): one hole totalling 136 metres was advanced as the drilling continued to test the priority anomaly located in the monzonite intrusive zone, where a copper molybdenum mineralized porphyry was discovered earlier in the year; drill results continue to display the presence of a copper molybdenum porphyry orebody, where the company has observed typical alterations as well as copper mineralization disseminated in the encased rock, as veinlets with quartz and copper are present with molybdenum;
- Mascota Norte (level 1170, Central mine zone): six diamond drill holes totalling 1,183 metres to explore the continuity of mineralization of the orebody at depth; the holes intercepted polymetallic sulphides including the presence of galena and sphalerite within the mineralized orebody;
- Contacto Occidental orebody (level 1170, Central mine zone): one hole totalling 68 metres to explore the continuity of this mineralized orebody, which displayed recrystallized limestone in fractured marbled sections; six more diamond drill holes are planned to explore this orebody.
Definition drilling:
- Esperanza (level 1020, Central mine zone): 14 holes totalling 1,847 metres to provide a higher level of certainty of the mineralized orebody in the projection of the zero floor on the 1020 level; drilling in this area will continue;
- Antacaca (level 1070, Central mine zone): 22 holes totalling 2,338 metres with the goal of providing more certainty to the indicated and inferred resources, and changing the category of the resources; this mineralized orebody is more of a polymetallic sulphide;
- Joselyn (level 870, Cachi Cachi mine): two holes totalling 272 metres to delineate the Joselyn orebody and provide a higher level of certainty to the indicated and inferred resources; six holes will continue to be drilled during the next quarter;
- Karlita (level 1070, Cachi Cachi mine): 19 holes totalling 1,770 metres to provide more certainty and change the category of the indicated and inferred resources present.
Mexico
Bolivar:
- At Bolivar during Q2 2019, 4,847 metres were drilled from surface as well as diamond drilling within the mine, 1,204 metres were drilled within the mine in the El Gallo Inferior area toward La Montura, which intersected a mineralized skarn orebody of semi-massive magnetite and disseminated chalcopyrite; and 3,643 metres of exploration drilling was performed from surface in the following areas:
-
654 metres at Bolivar West to explore the extension of Bolivar West to the northwest;
- 821 metres in order to explore the continuity of Bolivar West to the south;
- 2,168 metres were drilled at La Montura exploring the northeast part of the Gallo Inferior area. These drill results included a stratiform mineralized orebody of skarn with magnetite and chalcopyrite.
Cusi:
-
During Q2 2019, the company drilled 3,867 metres of surface diamond drilling and infill drilling within the mine. Infill drilling of 2,184 metres was performed to support development of the Santa Rosa de Lima vein in order to verify the ore zone and its continuity.
Conference call webcast
Sierra Metals' senior management will host a conference call on Thursday, Aug. 15, 2019, at 10:30 a.m. EDT, to discuss the company's financial and operating results for the three and six months ended June 30, 2019.
Via webcast
A live audio webcast of the meeting will be available on the company's website.
The webcast along with presentation slides will be archived for 180 days on the company's website.
Via phone
For those who prefer to listen by phone, dial-in instructions are below. To ensure your participation, please call approximately five minutes before the scheduled start time of the call.
Participant number (toll-free North America): 833-245-9659
Participant number (toll-free Peru): 0800-71-476
Participant number (international): 1-647-689-4231
Conference ID No.: 7169142
Quality control
All technical production data contained in this news release have been reviewed and approved by Americo Zuzunaga, FAusIMM, CP (mining engineer), vice-president of corporate planning, who is a qualified person and chartered professional qualifying as a competent person under the Joint Ore Reserves Committee (JORC) Australasian code for reporting of exploration results, mineral resources and ore reserves.
Augusto Chung, FAusIMM, CP (metallurgist), vice-president of special projects and metallurgy, is a chartered professional qualifying as a competent person on metallurgical processes.
About Sierra Metals
Inc.
Sierra Metals is Canadian-based growing polymetallic mining company with production from its Yauricocha mine in Peru and its Bolivar and Cusi mines in Mexico. The company is focused on increasing production volume and growing mineral resources. Sierra Metals has recently had several new discoveries and still has additional brownfield exploration opportunities at all three mines in Peru and Mexico that are within or close proximity to the existing mines. Additionally, the company has large land packages at all three mines with several prospective regional targets providing longer-term exploration upside and mineral resource growth potential.
We seek Safe Harbor.
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