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Sierra Metals Inc
Symbol SMT
Shares Issued 162,636,499
Close 2019-11-13 C$ 1.78
Recent Sedar Documents

Sierra Metals earns $1.77-million (U.S.) in Q3

2019-11-13 17:43 ET - News Release

Mr. Igor Gonzales reports

SIERRA METALS REPORTS SOLID CONSOLIDATED FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2019, INCLUDING AN 18% INCREASE IN ADJUSTED EBITDA CONFERENCE CALL NOVEMBER 14, 2019 AT 10:30 AM (EST)

Sierra Metals Inc. had revenue of $64.6-million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $21.6-million on throughput of 709,461 tonnes and metal production of 4.9 million silver equivalent ounces, or 32.3 million copper equivalent pounds, or 80.4 million zinc equivalent pounds, for the three-month period ended Sept. 30, 2019.

All dollar figures are reported in U.S. dollars.

Highlights:

  • Revenue from metals payable of $64.6-million in the third quarter of 2019, up 22 per cent from $53.0-million in the third quarter of 2018, due to higher throughput and metal production from all three mines;
  • Adjusted EBITDA of $21.6-million in the third quarter of 2019, up 18 per cent from $18.2-million in the third quarter of 2018, primarily due to increased revenues realized from all three mines;
  • Operating cash flows before movements in working capital of $21.8-million in the third quarter of 2019, up from $18.1-million in the third quarter of 2018;
  • Third quarter 2019 consolidated copper production of 11.1 million pounds, consolidated silver production of 1.0 million ounces, consolidated zinc production of 22.5 million pounds, consolidated lead production of 10.5 million pounds and consolidated gold production of 3,490 ounces -- a 34-per-cent increase, 34-per-cent increase, 8-per-cent increase, 65-per-cent increase and 83-per-cent increase, respectively, compared with the third quarter of 2018. Management expects that annual production guidance will still be met (1);
  • Third quarter 2019 revenues as a percentage of metals sold represent 35 per cent from copper, 27 per cent from silver, 23 per cent from zinc, 14 per cent from lead and 1 per cent from gold;
  • Record consolidated quarterly equivalent metal production and throughput, and record quarterly equivalent metal production and throughput at the Yauricocha and Bolivar mines;
  • $40.4-million of cash and cash equivalents as at Sept. 30, 2019;
  • $50.9-million of working capital as at Sept. 30, 2019;
  • Net debt of $58.8-million as at Sept. 30, 2019;
  • A shareholder conference call to be held Thursday, Nov. 14, 2019, at 10:30 a.m. ET.

Note:

  1. Silver equivalent ounces and copper and zinc equivalent pounds for the third quarter of 2019 were calculated using the following realized prices: $17.28 per ounce of silver, $2.63 per pound of copper, 94 cents per pound of lead, $1.06 per pound of zinc and $1,481 per ounce of gold. Silver equivalent ounces and copper and zinc equivalent pounds for the third quarter of 2018 were calculated using the following realized prices: $14.85 per ounce of silver, $2.79 per pound of copper, 94 cents per pound of lead, $1.14 per pound of zinc and $1,206 per ounce of gold. Silver equivalent ounces and copper and zinc equivalent pounds for the first nine months of 2019 were calculated using the following realized prices: $15.91 per ounce of silver, $2.74 per pound of copper, 91 cents per pound of lead, $1.16 per pound of zinc and $1,370 per ounce of gold. Silver equivalent ounces and copper and zinc equivalent pounds for the first nine months of 2018 were calculated using the following realized prices: $15.99 per ounce of silver, $3.02 per pound of copper, $1.06 per pound of lead, $1.36 per pound of zinc and $1,279 per pounce of gold.

The company achieved record quarterly consolidated equivalent metal production and ore throughput, as well as record quarterly ore throughput and equivalent metal production from the Yauricocha and Bolivar mines. The company has continued to build on its successful plant expansions and mine production increases in Mexico over the last three quarters. This has resulted in record quarterly metal production, as the company is approaching its 2019 target of 4,250 tonnes per day at Bolivar, and 1,200 tonnes per day at Cusi.

The company earned revenues of $64.6-million, adjusted EBITDA of $21.6-million and operating cash flows before movements in working capital of $21.8-million. Higher revenues are primarily attributable to the 8-per-cent increase in throughput, higher head grades and recoveries of all metals, except zinc recoveries, at Yauricocha; a 46-per-cent increase in throughput, higher silver and gold head grades, and higher copper and silver recoveries at Bolivar; and the 28-per-cent increase in throughput, higher gold head grades and silver and gold recoveries, higher silver prices, and the sale of concentrate inventory buildup during the first half of 2019 at Cusi. Quarterly revenues at Yauricocha increased by 16 per cent and at Bolivar increased by 23 per cent compared with the third quarter of 2018, despite decreases in the prices of copper (6 per cent) and zinc (7 per cent), as well as higher treatment and refining charges incurred on the zinc and copper concentrates sold.

Despite the decrease in copper prices over the last nine months, the Bolivar mine was able to generate $900,000 of adjusted EBITDA during the third quarter of 2019, helped by record quarterly throughput. The company hopes to increase throughput at Bolivar to 4,250 tonnes per day during the fourth quarter of 2019, and then to 5,000 tonnes per day during the fourth quarter of 2020, while modestly improving copper grades to approximately 0.95 per cent due to an expected blend of 40 per cent of ore sourced from Bolivar West and 60 per cent from El Gallo Inferior.

At Cusi, an increased silver price and the sale of approximately 1,000 tonnes of stockpiled concentrate resulted in adjusted EBITDA of $1.5-million in the third quarter of 2019. Ore throughput reached approximately 805 tonnes per day during the third quarter of 2019, and the company continues to work toward reaching the 1,200-tonne-per-day mark during the fourth quarter of 2019. The 28-per-cent increase in throughput realized during the third quarter of 2019 resulted in a 15-per-cent increase in silver equivalent ounces produced, despite lower head grades for all metals, except gold, as the company continues to develop deeper into the Santa Rosa de Lima zone, which has higher silver head grades.

Currently, the company remains focused on increasing the efficiency of mining the mineralized silver structures using selective mining techniques, with the objective of reducing dilution. A significant infill drilling program is expected to be initiated on the Santa Rosa de Lima orebody during the fourth quarter of 2019, targeting improved resource classification, while also improving mine planning and selective mining methods to reduce the dilution of high-grade minable stopes. Additionally, development work is being accelerated to provide access to more minable stopes, which should help with grade control and dilution control. The orebodies within the Santa Rosa de Lima zone have strong rock structures that should allow for sublevel stoping and sublevel caving mining methods to be implemented. The company believes that this strategy can be successful, given the higher-grade ore available on the 1,704 and 1,720 levels of the Santa Rosa de Lima zone, and the substantial investment that has been made to ramp to and develop these areas for mining.

Igor Gonzales, president and chief executive officer of Sierra Metals, stated: "I am proud of the company's achievements in the third quarter. We were able to generate one of the company's highest quarters of operating cash flows of $21.8-million, with free cash flow of $1.9-million despite lower metal prices as a result of record quarterly consolidated equivalent metal production and throughput. Additionally, we have consistently used operating cash flows for significant growth capital investments at all three mines, which have proven to be value creating for the company, given the cost-efficient growth realized. The capital was allocated to significant plant expansions, successful brownfield exploration programs and rigorous infill drilling campaigns to maximize production and resource definition. Furthermore, we are continuing with our efforts to modernize and improve all our mines while implementing best operational practices."

He continued: "Management continually monitor and modify projects and capital allocation and have decided at the end of Q3 2019 to further reduce our capital expenditures from $70-million to $55-million for 2019. The company's decision to defer $11-million of growth capital expenditures in Peru was due to project delays caused by the strike at Yauricocha, equipment procurement and contractor hiring difficulties, as well as poor ground conditions at the areas proposed for the new ventilation raise bores. Additionally, $4-million of growth capital at Bolivar was deferred due to the postponed equipment purchases, plant improvement costs and development costs previously planned to push throughput to 5,000-tonne-per-day level. Despite the capex deferral for 2019, the company remains committed to its growth plans and the prudent use of capital to achieve its objectives at Yauricocha, regardless of whether these expenditures are made during 2019, or postponed until 2020 or 2021. I am also happy to state that the company is nearing completion of the Yauricocha and Bolivar NI [National Instrument] 43-101 reserve and resource updates, which are expected to be released during December, 2019."

He concluded: "Our balance sheet remains strong with the liquidity needed to meet our operational and growth expenditure requirements. 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."

The accompanying table displays selected financial and operational information for the three and nine months ended Sept. 30, 2019.

(in thousands of dollars, except 
per-share and cash cost amounts; 
consolidated figures unless             Three months ended Sept. 30,      Nine months ended Sept. 30,
noted otherwise)                             2019              2018           2019              2018

Operating
Ore processed/tonnes milled               709,461           566,194       1,940,353        1,725,991
Silver ounces produced (000s)                 976               728           2,504            2,015
Copper pounds produced (000s)              11,127             8,326          28,582           25,037
Lead pounds produced (000s)                10,508             6,358          25,528           19,766
Zinc pounds produced (000s)                22,480            20,772          55,494           59,286
Gold ounces produced                        3,490             1,906           8,016            5,606
Copper equivalent pounds 
produced (000s) (1)                        32,326            23,628          79,099           71,717
Zinc equivalent pounds 
produced (000s) (1)                        80,390            57,883         186,599          159,165
Silver equivalent ounces 
produced (000s) (1)                         4,917             4,447          13,645           13,540
Cash cost per tonne processed              $49.68            $48.43          $49.07           $46.55
Cost of sales per AgEq oz                   $8.27             $7.62           $8.18            $7.14
Cash cost per AgEq oz (2)                   $7.86             $7.38           $7.81            $6.82
AISC per AgEq oz (2)                       $13.16            $10.21          $13.04            $9.86
Cost of sales per CuEq lb (2)               $1.26             $1.43           $1.40            $1.35
Cash cost per CuEq lb (2)                   $1.20             $1.39           $1.34            $1.29
AISC per CuEq lb (2)                        $2.00             $1.92           $2.23            $1.86
Cost of sales per ZnEq lb (2)               $0.51             $0.58           $0.59            $0.60
Cash cost per ZnEq lb (2)                   $0.48             $0.57           $0.56            $0.58
AISC per ZnEq lb (2)                        $0.81             $0.78           $0.94            $0.83
Cash cost per ZnEq lb 
(Yauricocha) (2)                            $0.38             $0.48           $0.46            $0.52
AISC per ZnEq lb (Yauricocha) (2)           $0.66             $0.67           $0.77            $0.73
Cash cost per CuEq lb (Bolivar) (2)         $1.40             $1.68           $1.62            $1.36
AISC per CuEq lb (Bolivar) (2)              $2.53             $2.35           $2.84            $2.06
Cash cost per AgEq oz (Cusi) (2)           $18.77            $14.11          $17.62           $14.68
AISC per AgEq oz (Cusi) (2)                $24.60            $19.08          $26.22           $21.72
Financial
Revenues                                  $64,551           $52,956        $164,404         $177,352
Adjusted EBITDA (2)                       $21,554           $18,212         $46,153          $74,493
Operating cash flows before 
movements in working capital              $21,831           $18,108         $46,408          $74,981
Adjusted net income attributable 
to shareholders (2)                        $4,115            $4,482          $6,646          $28,226
Net income (loss) attributable to 
shareholders                               $1,779            $1,922           ($103)         $21,468
Cash and cash equivalents                 $40,434           $29,073         $40,434          $29,073
Working capital (3)                       $50,932            $1,780         $50,932           $1,780

(1) Silver equivalent ounces and copper and zinc equivalent pounds for the third quarter of 2019 were 
    calculated using the following realized prices: $17.28 per ounce of silver, $2.63 per pound of
    copper, 94 cents per pound of lead, $1.06 per pound of zinc and $1,481 per ounce of gold. Silver 
    equivalent ounces and copper and zinc equivalent pounds for the third quarter of 2018 were 
    calculated using the following realized prices: $14.85 per ounce of silver, $2.79 per pound of
    copper, 94 cents per pound of lead, $1.14 per pound of zinc and $1,206 per ounce of gold. Silver 
    equivalent ounces and copper and zinc equivalent pounds for the first nine months of 2019 were 
    calculated using the following realized prices: $15.91 per ounce of silver, $2.74 per pound of
    copper, 91 cents per pound of lead, $1.16 per pound of zinc and $1,370 per ounce of gold. Silver 
    equivalent ounces and copper and zinc equivalent pounds for the first nine months of 2018 were 
    calculated using the following realized prices: $15.99 per ounce of silver, $3.02 per pound of 
    copper, $1.06 per pound of lead, $1.36 per pound of zinc and $1,279 per pounce of gold.
(2) This is a non-IFRS (international financial reporting standards) performance measure.
(3) The increase in working capital was due to the company drawing down the remainder of the senior 
    secured corporate credit facility during the second quarter.

Third quarter 2019 financial highlights

Revenue from metals payable of $64.6-million in the third quarter of 2019 increased by 22 per cent from $53.0-million in the third quarter of 2018. Higher revenues are primarily attributable to the 8-per-cent increase in throughput, higher head grades and recoveries of all metals, except zinc recoveries, at Yauricocha; a 46-per-cent increase in throughput, higher silver and gold head grades, and higher copper and silver recoveries at Bolivar; and the 28-per-cent increase in throughput, higher gold head grades and silver and gold recoveries, higher silver prices, and the sale of concentrate inventory buildup during the first half of 2019 at Cusi. Quarterly revenues at Yauricocha increased by 16 per cent and at Bolivar increased by 23 per cent compared with the third quarter of 2018, despite decreases in the prices of copper (6 per cent) and zinc (7 per cent), as well as higher treatment and refining charges incurred on the zinc and copper concentrates sold.

Yauricocha's cash cost per zinc equivalent payable pound was 38 cents (third quarter 2018 -- 48 cents), and AISC (all-in sustaining cost) per zinc equivalent payable pound was 66 cents (third quarter 2018 -- 68 cents). The decrease in the AISC per zinc equivalent payable pound for the third quarter of 2019 compared with the third quarter of 2018 was due to the increase in throughput, and head grades and recoveries of all metals, except zinc recoveries, resulting in an increase in zinc equivalent payable pounds. This was partially offset by higher labour costs, higher treatment and refining charges, higher general and administrative costs, and an increase in sustaining capital expenditures.

Bolivar's cash cost per copper equivalent payable pound was $1.40 (third quarter 2018 -- $1.68) and AISC per copper equivalent payable pound was $2.53 (third quarter 2018 -- $2.35) for the third quarter of 2019 compared with the third quarter of 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-tonne-per-day level. A significant portion of these costs were included in opex. Additionally, sustaining capital expenditures were $2.7-million higher in the third quarter of 2019 compared with the third quarter of 2018 and were related to the purchase of mining equipment, mine development costs, exploration drilling within the mine and plant improvements. This was partially offset by the 46-per-cent increase in throughput, which resulted in a 34-per-cent increase in copper equivalent payable pounds.

Cusi's cash cost per silver equivalent payable ounce was $18.77 (third quarter 2018 -- $14.11) and AISC per silver equivalent payable ounce was $24.60 (third quarter 2018 -- $19.09) for the third quarter of 2019 compared with the third quarter of 2018. AISC per silver equivalent payable ounce increased due to higher treatment and refining charges incurred as well as higher sustaining capital expenditures from an unexpected ground subsidence event, which has been rectified by leaving a wider support pillar. This required further mine development in the deeper zones, but which have the benefit of higher grades.

Adjusted EBITDA (1) of $21.6-million for the third quarter of 2019 increased by 18 per cent compared with $18.2-million in the third quarter of 2018. The increase in adjusted EBITDA in the third quarter of 2019 was due to the increase in revenues realized at all three mines, discussed previously.

Cash flow generated from operations before movements in working capital of $21.8-million for the third quarter of 2019 increased from $18.1-million in the third quarter of 2018. The increase in operating cash flow is mainly the result of higher revenues generated, despite slightly lower gross margins realized.

Net income attributable to shareholders of the company for the third quarter of 2019 was $1.8-million (third quarter 2018 -- $1.9-million) or one cent per share (basic and diluted) (third quarter 2018 -- one cent).

Cash and cash equivalents were $40.4-million and working capital was $50.9-million as at Sept. 30, 2019, compared with $21.8-million and ($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 second quarter. Cash and cash equivalents have increased by $18.6-million during the first nine months of 2019 due to $21.9-million of operating cash flows and $99.2-million drawn down from the senior secured corporate facility, partially offset by capital expenditures incurred in Mexico and Peru of ($41.2-million), ($1.8-million) of share repurchases, and repayments of loans, credit facilities and interest of ($59.5-million).

Note:

  1. This is a non-IFRS performance measure.

Project development

Mine development at Bolivar during the third quarter of 2019 totalled 2,768 metres. A portion of the metres (2,340 metres) were developed to prepare stopes for mine production. The remainder of the metres (428 metres) were 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 the Bolivar West orebody.

During the third quarter of 2019, at the Cusi property, mine development totalled 1,016 metres, which included 86 metres of ramp development at the Santa Rosa de Lima zone; the rest of the development was related to stope preparation in various zones within the mines.

Exploration update

Peru:

During the third quarter of 2019, the company drilled 48 holes totalling 9,522 metres at Yauricocha. The drilling included the following:

Surface exploration drilling:

  • Surface diamond drilling began at the Dona Leona and El Paso targets along the Chonta fault. Five holes totalling 2,373 metres were drilled at these targets during the quarter, and the Dona Leona drilling has intersected areas of silver polymetallic mineralization. Drilling will continue over the next several months.

The surface exploration drilling targets have been prioritized by previous geochemistry sampling as well as geophysical work, and they are all significant, high-priority targets for testing.

The Dona Leona area is located 2.5 kilometres southeast from the central Yauricocha mine. This area has already had surface geochemical sampling completed on structures and gaps, which provided values in anomalous silver, zinc, lead and copper. Furthermore, geophysics from a Titan 24 survey showed significant anomalies in this area. Eight drill holes totalling 8,000 metres will be drilled from five platforms to test these targets for high-grade structures.

The El Paso-Exito areas are located between 3.5 and five kilometres southeast of the central Yauricocha mine. The Exito mine contains skarn and replacement mineralization and surface sampling detected structures with high values of anomalous lead, zinc, and copper. Geophysics with the Titan 24 geophysical survey have determined important anomalies in the area. Ten drill holes totalling 10,170 metres will be completed from six platforms to test these targets for high-grade structures.

Exploration drilling:

  • Huamanrripa (level 720 Central mine zone): Three holes totalling 1,100 metres to explore geophysical anomalies realized during previous Titan 24 geophysical surveys. These holes were able to define a skarn area with the presence of pyrite; however, this skarn does not have economical head grades, and exploration in this area has been concluded;
  • Contacto occidental orebody (level 1,170 Central mine zone): Five holes totalling 1,282 metres to explore the continuity of this mineralized orebody where the company has an intrusive limestone contact, which shows areas of tectonic gaps with sections of high-grade polymetallic mineralization of zinc and lead.

Definition drilling:

  • Esperanza (level 1,070 Central mine zone): 13 holes totalling 1,802 metres to provide a higher level of certainty of the amount of estimated resources within this mineralized orebody. The holes were directed to the 16th floor, and floors zero and eight on the 1,070 level. Drilling in this area will continue as the mineralization of this orebody has irregular shapes;
  • Cuye (level 1,070 Central mine zone): Three holes totalling 526 metres to provide a higher level of certainty for the estimated resources within this orebody with copper mineralization. This drilling was performed in order to convert resources from the inferred to indicated category within the coming NI 43-101 technical report;
  • Joselyn (870 level Cachi Cachi mine): Six holes totalling 1,179 metres to delineate the Joselyn orebody and provide a higher level of certainty to the indicated and inferred resources;
  • Escondida (920 level Cachi Cachi mine): 13 holes totalling 1,260 metres to provide more certainty and to upgrade the category of the indicated and inferred resources present.

Mexico:

  • Bolivar: At Bolivar during the third quarter of 2019, 9,923 metres were drilled from surface as well as diamond drilling within the mine. In total, 1,973 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. In total, 7,950 metres of exploration drilling were performed from surface in the following areas:
    • 249 metres at Bolivar West to explore the extension of Bolivar West to the northwest;
    • 5,300 metres of infill drilling performed at Bolivar West to tighten drill spacing and upgrade the resource category classification;
    • 2,401 metres of exploration drilling performed from two drill holes to explore for a previously identified porphyritic environment.
  • Cusi: During the third quarter of 2019, the company drilled 3,220 metres of infill drilling within the mine. This drilling was performed to support development of the Santa Rosa de Lima vein in order to verify the ore zone and its continuity.

Conference call and webcast

Sierra Metals' senior management will host a conference call on Thursday, Nov. 14, 2019, at 10:30 a.m. ET to discuss the company's financial and operating results for the three and nine months ended Sept. 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 prior to 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:  5678458

Quality control

All technical production data contained in this news release have been reviewed and approved by Americo Zuzunaga, FAusIMM CP (mining engineer) and 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) and 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 a 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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