Sierra Metals Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Sierra Metals Inc. 2nd Quarter 2023 Consolidated Financial Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Jean Pierre Fortel Rio, Manager of Business Development and Investment Relations for Sierra Metals. Please go ahead.

Speaker 1

Good morning, everyone. I'd like to note that this earnings call contains forward looking information that is based on the company's current expectations, estimates and beliefs. Please review these slides and other forward looking information contained in the company's annual information form, which is publicly available on SEDAR and the company's website. Please note that all dollar amounts mentioned in today's call are in U. S.

Speaker 1

Dollar unless otherwise noted. I will also remind everyone, as previously announced, we have made a strategic decision to classify Cusi Mine as a non core asset. So Cusi results are not included in the consolidated results and in our guidance. We continue to operate Cusi while we explore strategic alternatives on that mine. The accompanying presentation for today's call is available for download from the company's website at sierramedals.com.

Speaker 1

This morning's press release, the financial statements and the management discussion and analysis are also posted on our website and on SEDAR. Our speakers on today's call are Ernesto Valarejo, our CEO and Jose Hernandez Vaca, our CFO. Following management's prepared remarks, a question and answer period will follow. And now, I would like to turn the call over to Ernesto. Thank you, Jean Pierre, and good morning, everyone.

Speaker 1

Let me begin my remarks today by discussing our number one priority, Safety. Our strong operating performance since I joined as CEO is doing large part to our improved approach to safety. As you hear me say on every call, a safe mine is an operating mine. And our focus is to ensure we provide a workplace environment will all our employees and contractors are safe and can be productive. As shown on this slide, We can see how everyone at Sierra Metal has embraced our renewed focus on safety.

Speaker 1

On a consolidated basis for the first half of twenty twenty three, We have improved our safety performance over 2021 2022. Everyone at Sierra Maderos should be proud of these accomplishments. I know we will continue to strive to maintain these high standards. Now on to an overview of our results. We released our Q2, 2023 production results on July 25th and our financial results earlier today.

Speaker 1

I will assume everyone has had a chance to review them, so I will not be going into detail of each line, but will instead provide highlights from yet another strong quarter of operating results. Thanks to our process of $702,000 in the Q2 of 2023 was 22% higher than in the Q1 of 2023. When comparing Q2 2023 to Q1 2023, silver, copper, zinc, lead and gold production has increased 19%, 26%, 16%, 39% and 14% respectively. Production in copper equivalent pounds in Q2 2023 was £21,700,000 versus £18,000,000 on Q1 2023 for a 21% increase. For our 2 core mines, the Bolivar mine in Mexico achieved a record 10,700,000 pounds of copper equivalent production with increased production for all metals.

Speaker 1

Throughput averaged 4,640 tons per day in Q2 2023, resulting in total tons of throughput of near and beyond 4106,000 tons, an increase of 36% over Q1, 2023. This was Bolivar's 3rd sequential quarter of increased throughputs. Exiting the quarter, Bolivar has been able to consistently achieve its target of 5,000 ton per day run rate by increasing the number of ex locations sold. At our other core operation, The Yauricocha mine in Peru delivered an 11% increase in throughput and a 6% increase in copper equivalent production over the previous quarter. Until the permits to operate below the 11.20 level are obtained, which we anticipate being in hand later this year, we're doing everything to maximize production above the 11/20 level.

Speaker 1

All in all, I'm very pleased that we have been able to achieve quarter over quarter improvements across many of our key of the key operating metrics. This is a testament to the hard work of our entire team as we all strive to maximize the value of the company's assets. Now let me hand the call over to Jose, our CFO.

Speaker 2

Thank you. Following the comments just discussed by Ernesto, Let me provide the following quarter over quarter financial highlights. Consolidated revenue from Metals payable of $52,700,000 in the Q2 of 2023 was an increase of 7% from the Q3 of 2023. The increase was mostly through higher metal sales at Bolivar. In Q2 2023, the viscous cash cost per corporate equivalent payable pound was 2.29 and all in sustaining cost per corporate equivalent payable pound was 3.97.

Speaker 2

These were respectively 12% 27% higher than in Q1 2023. All in sustaining costs were higher in the quarter than the previous quarter primarily due to higher treatment and refining charges and the timing of sustaining capital. At Bolivar, Q2 2023 cash cost per corporate equivalent payable pound was 1.62 And all in sustaining cost per corporate equivalent payable fund was 3.02%. These were respectively 12% and 2% lower than in Q1 2023. The quarter over quarter change in lower cost per payable corporate equivalent pound was primarily due to the increase in production despite higher treatment and refining charges and the timing of sustaining capital in the quarter.

Speaker 2

Adjusted EBITDA in Q2 2023 of $13,500,000 was is slightly lower than in Q1 2023. Adjusted net income attributable to shareholders for the Q2 of 2023 was $4,300,000 or $0.03 per share on a basic and diluted basis, an increase over Q1 2023. Cash flow generated from operations before movement in working capital of $11,600,000 for Q2 2023. As of June 30, 2023, cash and cash equivalents were $4,400,000 and working capital was minus 88 $1,000,000 primarily due to the reclassification of long term debt to COSE. During the quarter, we finalized the agreement to refinance $18,750,000 of our $25,000,000 debt obligation during 2023.

Speaker 2

As a result, we repaid $2,100,000 of principal in June 2023 with further installment of $2,100,000 to be repaid in September December 2023, with $18,750,000 deferred to 2025. Throughout the process, All our lenders have been very supportive in our plans as we improve our operations and balance sheet. And one final comment, We are reviewing several other initiatives to improve our balance sheet, including opportunities to surface keeping value of exploration projects in Mexico and other financial levers available to the company. We hope to be able to speak further about these key features. Now back to you Ernesto.

Speaker 1

Thank you, Pepe. As a result of the great work by the team and the first half 2023 production results achieved. I am pleased to confirm that we are on track to meet our 2023 production guidance range of $74,000,000 to $83,000,000 copper equivalent panels. As for cost guidance, in the first half twenty twenty three, Costs at Yauricocha have been higher than previously guided, which has been partially offset with lower costs at Bolivar, which we have been trending towards the lower end of 2023 guidance. As such, we have revised with our cost guidance at Yauricocha to reflect this new reality.

Speaker 1

In spite of this revision, I would like to emphasize that our revised 2023 cost guidance is lower than 2022 actual costs. And while much has been done to reduce costs, We will continue to be diligent to do more to preserve cash by streamlining operations, reducing expenses wherever possible and deferring growth related capital. This focus on cost reductions and expense containing is one of the hallmarks of our new management team and part of the renewed culture at Sierra Mestas. One of our key growth initiatives is centered around our recently completed life of mine plans at Yauricocha and Bolivar. These new internal plans are guiding us as we build the business.

Speaker 1

Among the many initiatives being implemented during Q2 at Bolivar, We optimized the tailings dam to operate more efficiently and effectively, commenced a pre feasibility study to fill the underground mine with dry tailings and purchase new more efficient drilling equipment. At the agriculture, we've implemented automated doors to improve the underground ventilation system, increased efficiency in mining development, 3.3 to 3.5 meters per blast by using the same operating resources, We negotiated fuel and energy contracts and are optimizing the deployment of company mining contractors. At the community level, we are pleased to have offered 21 scholarships to local students, providing them with training and education on mining skills such as electrical and mechanical maintenance and heavy equipment repairs. We see this as both an important initiative and a smart investment in the future workforce or at our mines. Now that we have stabilized and have initiatives in place to optimize our operations, we can turn our focus to growth.

Speaker 1

An important part of the company's growth will be increasing our mineral resources. At Bolivar, Q2 2023 excuse me. At Bolivar, during Q2 2023, we drilled over 20,000 meters at the Northwest Cienaita and Dulce zones, where we encountered current intersections with mineralization. We'll announce this after after results shortly. While at Yauricocha, we recently conducted surface exploration on 4 areas to increase geological of the resources while also diamond drilling more than 3,300 meters underground.

Speaker 1

Our goal here 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 agriculture and Sierra Mexas. The ore body below 11.20 is in name and will allow us to implement bulk mining techniques utilizing sublevelcaving mining methods. This will increase throughput and lower costs. Given the importance of these initiatives for the past 9 months, we have had a dedicated team in place working to obtain the needed permits.

Speaker 1

They are making great progress and are currently on track to obtain this permit before year end. Once the permit is in place, we expect it will take between 6 to 9 months of development work to prefer the mining below the 11.20 level. In summary, over a very short period of Our team has been able to surface value across our very strong base capacities. I said last call and I'll say it again. We firmly believe Bolivar and Yavicotcha are cornerstone assets capable of underpinning Sierra Metals for the benefit of all our stakeholders.

Speaker 1

Long term success in mining requires a focus on things such as safety, Proper mine planning, sequential and logical mine development and operational excellence. I know we have the team to ensure Sierra Metals delivers on these keys to success. As always, we appreciate the ongoing support of our shareholders, for dedicated employees and all stakeholders as we move Sierra Metal forward. With that, I hand the call back to the operator to start the Q and A questions session. Operator?

Operator

Thank you. We will now begin the analyst question and answer session. You will hear a tone acknowledging your request. To withdraw your question. The first question comes from Lee Cooperman with Omega Family Office.

Operator

Please go ahead.

Speaker 3

Thank you. I think you kind of touched on this, but maybe you could repeat it. What is your expected cash generation in 2023? And what does the current balance sheet look like? And do you have any sense of What additional equity you might or might not need?

Speaker 1

Okay. Thank you. Our current Thank you for the question, Lee. Our current situation regarding cash, we don't have an operating problem right now. Our 2 mines, Yauricocha and Bolivar, ourselves to Pigeon.

Speaker 1

We do need cash. Well, the balance sheet, your second question, We have a net debt of 82 a bank debt of $82,000,000 As you all know, we are working with the banks in order to extend The repayment period that is only 3 years. So that's where we are right now with the liabilities. And we are exploring many alternatives on next steps in order to fund Actually, three things. CapEx to develop $11.20 in Yauricocha, CapEx to develop a new tailings dam in Bolivar and we need money for working capital.

Speaker 1

We're still finalizing those numbers. We are juggling with many options on how to do this. As soon as we get Something clear, hopefully in the next few weeks, we can come back to you guys.

Speaker 3

Thank you very much and good luck.

Speaker 1

Thank you,

Operator

As there are no further questions, I would like to turn the conference back over to Ernesto Valerizo for any closing remarks. Please go ahead.

Speaker 1

Thank you for taking the time to join us today. We appreciate your continued I'm proud of what the team has accomplished to date. I believe we are heading in the right direction, growing our business in a safe and responsible manner. Have a good day everyone and thanks a lot.

Operator

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

Powered by Quartr
Earnings Conference Call
Sierra Metals Q2 2023
00:00 / 00:00