Sierra Metals Q3 2023 Earnings Call Transcript

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November 13, 2023

There are 5 speakers on the call.

Operator

Welcome to the Sierra Metals Inc. 3rd Quarter 2023 Consolidated Financial Results Conference Call. As a reminder, all participants are in a listen only mode. The conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

I would now like to turn the conference over to Jean Pierre Forte Del Rio, Manager of Business Development and Investor Relations for Sierra Metals. Please go ahead.

Speaker 1

Good morning, everyone. I'd like to Please review this slide and other forward looking information contained in the company's annual information form, which is publicly available on SEDAR Plus and the company's website. The accompanying presentation for today's call is available for download from the company's website at sierramedals.com. This morning's press release, the financial statements and the MD and A are posted on our website and on SEDAR Plus. Please note that all dollar amounts mentioned on today's call are in U.

Speaker 1

S. Dollars unless otherwise noted. I will also point out that the Cusi mine was deemed a non core asset earlier this year placed on current maintenance on September 20, 2023, So the results of the mine are not included in the consolidated results in our 2023 guidance and have been reclassified At discontinued operations in our financial statements with all historical results related to Cusi also reclassified. We are well along the process to sell the mine, and we'll have more to report in due course. Speakers on today's And now, I would like to turn the call over to Ernesto.

Speaker 2

Thank you, JP, and good morning, everyone. Let me begin as we always do by discussing our number one priority, safety. Our strong operating performance inside joint as CEO is due in large part to our improved approach to safety. Our focus is to relentlessly ensure we provide a workplace environment where all our employees and contractors are safe And as a result, able to maximize the productivity. As you'll hear me always say, a safe mine is an operating mine.

Speaker 2

As shown on this slide, we can see how everyone at Sierra Metals has embraced our renewed focus on safety. On a consolidated 2023 year to date basis, we continue to trend in the right direction. I know we will do everything we can to ensure this positive Now, let's move on to an overview of our results. We released our Q3 2023 production results on October 19 and our financial results earlier today. I will assume everyone has had a chance to review Then, so I will not be going into detail on each mine, but we'll instead provide these highlights.

Speaker 2

On a consolidated basis, our 2 operating mines, Yauricocha and Bolivar, processed 623,000 tons So far in the Q3 of 2023, which was 25% higher than in the Q3 of 2022. All metals produced in the quarter were higher on a year to year basis, most notably copper, which was up 50%. This resulted in 18,500,000 copper equivalent pounds per use in the Q3 of 2023, which was a 27% increase over the same quarter last year. In fact, in just 9 months this year, we have produced 55,300,000 copper equivalent pounds, which is almost as much as we did in all of last year. Bolivar achieved a throughput of almost 363,000 tons in Q3 2023, A 59% increase from Q3 2022 and an 11% decline from Q2 2023.

Speaker 2

This decline was anticipated in our life of mine plans. We expect to return to higher throughput rates in Q4 2023 like we achieved earlier in the year. Copper equivalent production of £8,100,000 in Q3 2023 was 113% higher than in Q3 2022 and 24% lower than in Q2 2023. Bolivar's cash cost per copper equivalent payable pound decreased 36% to $2.15 And all in sustaining cost per copper equivalent payable pound decreased 30% to $3.57 when compared to Q3 2022. I won't take you through all the significant productivity and cost reduction initiatives Shown on this slide that we undertook at Bolivar during the quarter, other than to highlight the initiatives with the biggest impact, The replacement of the primary crusher and the hiring of an additional specialized mining contractor.

Speaker 2

At our other core operation, Yauricocha processed 260,000 tons during Q3 2023, an increase of 6% over Q2 2023 and a decrease of 3% from Q3 2022. Copper equivalent production for Q3 2023 of £10,400,000 represented a 9% increase over the previous quarter and a decline of 4% when compared to Q3 2022. I'll point out when compared to Q3 20 22, the 4% decrease in the copper equivalent pounds produced is largely due to the change in metal prices, particularly because of lower zinc and higher copper prices when calculating copper equivalency. When compared to Q3 2022, we have produced more fine metals, specifically in copper and zinc. This was Yauricocha's best quarter of the year.

Speaker 2

In Q3 2023, Yauricocha had a cash cost per Cash corporate cash cost per corporate equivalent payable pound of $2.08 and an all in sustaining cost per Copper equivalent payable pound of $3.75 both of which were slight increases from Q3 2022. Again, I won't take you through all the significant productivity and cost reduction initiatives shown in this slide that we undertook at Yavicocha during the quarter, Other than to mention that we have hired a new operations manager, Mr. Carlos Trio. Mr. Trio brings more than 35 Years of vast experience in underground mining in companies such as Pan American Silver, Hochschild Mining, Vulcan and Glencore.

Speaker 2

We continue to maximize production and reduce costs where we can until we obtain the permit to mine below the 11.20 level. More on that permit later.

Speaker 3

Now, let me hand the call over to Jose, our CFO. Thank you. Following the comments yet discussed by Armisto, let me provide the following financial highlights. Consolidated revenue from metal payables $57,000,000 in the Q3 of 2023 was an increase of 62% from the Q3 of 2022. The increase was mostly through higher metal sales at Bolivar and increased metal prices.

Speaker 3

In Q3 2023, consolidated cash cost per corporate was $30.66 This was respectively 12% and 5% lower than the same quarter in 2020 Again, primarily due to increased production levels in our cost efficiency. Adjusted EBITDA in Q3 2023 was $8,100,000 compared to a negative adjusted EBITDA of $6,200,000 in the same quarter of 2022. The improved adjusted EBITDA is primarily driven by higher revenues attributable to higher production and improved operating costs. Excluding discontinued operations, net loss to our shareholders was $2,800,000 in Q3 2023 versus a loss of $38,100,000 in Q3 2022. Note that net loss discontinued operations or CUSI was 6 $600,000 in Q3 2023.

Speaker 3

Cash flow generated from operations before movement in working capital of $6,000,000 for Q3 2023 resulted in another positive quarter of cash flows from our mines. On a year to date basis, cash flow generated from operations before movement in working capital was over $30,000,000 Subsequent to quarter end and announced on October 13, we closed a private placement of CAD 16,400,000. This plays Along with the refinancing of our debt announced in the Q2, an improvement in our operations' ability to generate cash flow has significantly strengthened and improved our financial position from what it was at year end. Meanwhile, We continue to look for ways to strengthen our balance sheet, which includes reducing cash outflows by putting Cusi on current maintenance, The potential sale of the Kruse mine, ongoing and very productive talks with our lenders on our refinancing package and opportunities to surface Now back to you Ernesto.

Speaker 2

Thanks Pepe. As a result of the hard work by everyone at Sierra Madras this year, I'm pleased to confirm that we are on track to meet our 2023 guidance. We are trending to be somewhere between the lower end and midpoint of our production guidance. As for costs, both mines are expected to achieve 2023 all in sustaining cost targets. And on a company wide basis, we expect to be near the higher end of our 2023 cash cost guidance.

Speaker 2

And while much has been done to reduce spending and increase production, everyone will continue to be diligent To do more to preserve cash, a hallmark of our team and part of the renewed culture at Sierra Metals. An important part of the company's growth is to increase our mineral resources. At Bolivar, as announced on August 22, We increased the mineral resources by adding 15,500,000 copper equivalent pounds in the Dulce ore body on the property. Exploration at Bolivar is the foundation for its future growth. So during Q3 2023, we drilled over Meanwhile, in Q3, we drilled almost 2,300 meters underground, where we have been encouraged with a polymetallic mineralization found.

Speaker 2

Our goal is to add mineral resources until we have the permit in place to mine below the 11.20 level. Mining below the 11.20 level will be a game changer for the Avicocha and Sierra Merals. To simply put it, The ore body below 11.20 is large. Access to it will allow us to implement bulk mining techniques Utilizing soup level cave in mining methods, thereby increasing throughput and lowering costs, allowing the mine to reach its full potential. The permitting team is making great progress and we continue to be on track to obtain this very important permit before year end.

Speaker 2

Once the permit is in place with a modest investment in development capital, we expect it will take We continue and will always Continue to partner and invest within our local communities. In Q3 2023, near Yauricocha, We undertook a genetic improvement initiative where we donated 20 stallions and 40 alpacas that were of value to our local communities. In both Peru and Mexico near operations, we sponsor Cheryl Community Health Learning Workshops and water care awareness campaigns. In summary, we have 4 pillars in place to underpin our business to and human capital, which drive the implementation of our strategy. In less than a year, we've built a team that has been able to surface value across our very strong base of assets, but generating positive cash flow from the operations, Increasing production, lowering costs and growing mineral resources, all in a safe and responsible manner.

Speaker 2

A very clear turnaround is underway at Sierra Meros. A testament and validation of our strategy is the We received from the CAD16 1,000,000 financing that Jose already commented on. I want to take a moment to discuss this in a little more detail. The financing was mainly driven by existing shareholders with a number of insiders from management and the Board also participating with nearly 10% of the placement. We see this as a major vote of confidence as it shows that in short order, we have earned the trust of key shareholders.

Speaker 2

And it has also provided myself, colleagues and certain members of the Board the opportunity to increase our personal holdings in Sierra Meros, Therefore, further aligning our interests by investing alongside our shareholders. We all recognize the strong work that has been driven improved results in the past year. But more importantly, We all see the potential of this company to do more and create even more value for shareholders. In closing, we appreciate the ongoing support of our shareholders, board, dedicated employees and other stakeholders As we continue the positive momentum in moving Sierra Madras forward. With that, I'll hand the call back to the operator to start the Q and A session.

Speaker 2

Operator?

Operator

Thank you. We will now begin the question and answer session. The first question comes from Bryce Adams with CIBC. Please go ahead.

Speaker 4

Good morning, Ernesto and Jose. Thanks for taking my questions. So related to the 11/20 level permit, you mentioned this is still on track for year end and that the timeline for development is 6 to 9 months. I was wondering what's the CapEx needed for that development? And then subsequent to that, What does it mean for the grade profile?

Speaker 4

I understand you'll have improved throughput from sublevelcaving, But is it also higher grade below that 11/20?

Speaker 2

Okay. Hello, Bryce, and thank you for the question. We're still on track to achieving the permit by year end. Everything is going Well, I wouldn't say as planned because we wanted earlier this permit, but everything is going on track. The mineralization below the 11 20 line level is very much the same as it was on top, similar grades, but huge ore bodies.

Speaker 2

As we had many years and a few years ago in Yauricocha. So we are changing The mining method instead of being right now 80% probably cut and fill and 20% sublevelcaving is going to be the other way around. 6 to 9 months to get to the mineralization and the CapEx involved in that In this 1st month is going to be around $3,000,000 to $5,000,000 not much. We have the money to do it. So we are confident that we'll get there by Q3, Q4 of 2024.

Speaker 4

I'm sorry, I missed it. It's $3,000,000 to $5,000,000 to develop below $11,000,000

Speaker 2

Yes, to reach mineralization. Once we reach mineralization, Then that mineral will produce cash flow and we'll use that cash flow to continue the deepening of the mine.

Speaker 4

Okay. Thanks so much. I appreciate the extra color there.

Operator

Turn the conference back over to Ernesto Balarezo for any closing remarks. Please go ahead.

Speaker 2

Thank you for taking the time to join us today. We appreciate your continued support. I'm proud of what the team has accomplished to date. I believe the momentum we've built is heading

Operator

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

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Earnings Conference Call
Sierra Metals Q3 2023
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