Sierra Metals Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 18, 2024

There are 6 speakers on the call.

Operator

Welcome to the Sierra Metals Inc. 4th Quarter 2023 Financial and Operating Results Conference Call. As a reminder, all participants are in a listen only mode. And 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 Fortebrillio, Manager of Business Development and Investor Relations for Sierra Metals. Please go ahead, sir.

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 Plus and on the company's website. The company's presentation for today's call is available for download from the company's website at sierrametals.com. This morning's press release, the financial statements and the MD and A are posted on our website and on SEDAR Plus.

Speaker 1

Please note that all dollar amounts are mentioned today in today's call are in U. S. Dollars unless otherwise noted. I will also point out that the Cuchi mine was deemed a non core asset in 2023 placed on current maintenance on September 20, 2023, and thus the results of the mine are not included in the consolidated results or in our 2023 2024 guidance and has been classified as a discontinued operation in our financial statements with all historical results related to Cusi also reclassified. Speakers on today's call are Ernesto Valadezo, our CEO and Jose Hernandez Vaca, our CFO.

Speaker 1

Following management's prepared remarks, a Q and A period will follow. And now, I would like to turn the call over to Ernesto. Thank you, Jean Pierre, and good morning, everyone. Let me begin as we always do by discussing our company's number one priority, safety. We did without a doubt that our strong operating performance this past year is due in large part to our improved approach to safety.

Speaker 1

Our focus is to continuously ensure we provide a workplace environment where all our employees and contractors are safe and as a result are able to maximize their productivity. As you hear me always say, a safe mine is an operating mine. As shown on this slide, we can see how everyone at Sierra Metals has embraced our improved focus on safety. For 2023, each mine trended in the right direction. We aspire to be a leader amongst our peer group within our industry.

Speaker 1

Before I get into the details of the quarter, let me provide some highlights of the past year. I joined Sierra Meadows 15 months ago knowing the company had strong assets and with the right team, strategy and hard work, we could turn the company around in short order. During this time, with the support of the Board and many of our shareholders, we recruited a new senior management team with the goals of improving safety, increasing efficiency and reducing costs throughout our business. It hasn't been easy, but we can now see our hard work being realized. While there are many initiatives that I'm very proud of, some specific ones to highlight includes ramping Bolivar's production close to 5,000 ton per day.

Speaker 1

This has proven to be the backbone of our operational improvements. Our team obtained the permit to mine below the 11.20 level at Yauricocha, which will be a great source of growth for the company going forward. This will allow to ramp up Yauricocha's production by 40% by year end. Putting Cusi on current maintenance and starting the divestment process. We replaced our mine mineral resources by more than 100 percent ensuring our sustained production.

Speaker 1

And at the corporate level, we improved our financial position through refinancing our debt, completed a CAD16 1,000,000 equity finance and uplisted to the OTCQX in the U. S. Thereby expanding our shareholder base. And as such, we are pleased to see our stock price respond by increasing over 200%, thus validating our strategy. Now let's move on to an overview of our results.

Speaker 1

We released our Q4 2023 production results February 1 and our financial results earlier today. I will assume everyone has had a chance to review them, so I will not be going into detail on each mine, but we'll instead provide these highlights. On a consolidated basis, our 2 operating mines, Yauricocha and Bolivar processed nearly 774,000 tons of ore in the Q4 of 2023, which was 59% higher than in the same quarter a year ago. For the full year of 2023, our 2 mines processed nearly 2,500,000 tons of ore, which was 24% higher than in 2022. All metals produced in Q4 2023 and full year 2023 were significantly higher than in 2022.

Speaker 1

All of these resulted in 21,100,000 copper equivalent pounds for use in the Q4 of 2023, which was a 78% increase over the same quarter last year. For 2023, we produced 76 point 7,000,000 copper equivalent pounds, which was 37% higher than in 2020. Needless to say, operationally, 2023 was a tremendous year for Sierra Madras. Through the hard work by everyone throughout the company, we turned around our operations. Our hands on approach created a safe, dynamic and responsive operating environment, which has stabilized operations and build a platform for growth.

Speaker 1

Now let me move on to some specific highlights of Voliva and Yauricoxtro. Bolivar achieved a throughput of 410,000 tons in Q4 2023, a 52% increase from Q4 2022. For the year 2023, the mine increased throughput by 57% over 2022. Our team did a great job during the year of getting the mine throughput levels back to its capacity of close to 5,000 tons per day. This was a key factor for Chora Metals in achieving our goals last year.

Speaker 1

Some of the initiatives undertaken in 2023 that help boost productivity and reduce costs in Bolivar includes starting new tailings dam project, increased development, improving availability of available sorry, improving availability of salts, improving water recovery using 50% less fresh water, upgrading definition drilling that improves the modeling process and purchasing new blasting equipment. As a result of the increased throughput levels, copper equivalent production was higher and costs were lower in 2023 versus 2022. Copper equivalent production was £36,600,000 in 2023, which was 116% higher than 2022. We met our 2023 guidance. When comparing 2023 to 2022, grades for all metals and recovery rates were higher.

Speaker 1

Cash costs and all in sustaining costs for 2023 were $1.87 $3.29 respectively per covered equivalent time. Cash costs were lower than 20 22, 2023 guidance, while all in sustaining costs were $0.04 higher than guidance. Yavicocha highlights. Yavicocha processed nearly 264,000 pounds during Q4 2023, an increase of 73% over Q4 2022. On each quarter throughout 2023, Yauricocha increased its throughput rates and increased the amount of metal produced.

Speaker 1

Copper equivalent production for Q4 last year of 10,900,000 tons represented a 100% increase over the Q4 of 2022. As a result of higher grades mined, higher recovery and increased throughput rates, copper equivalent pounds produced was £40,000,000 or 2% higher than a year ago, thereby meeting 2023 production guidance. As well as gold, copper, zinc, silver and lead production were higher in 2023 than in 20 22. In the Q4 of 2023, Yauricocha had a cash cost per copper equivalent payable pound of $1.84 and an all in sustaining cost per copper equivalent payable pounds of $3.47 For 2023, cash cost per copper equivalent payable pound of $2.05 was above guidance and in all sustaining cost for copper equivalent payable pounds of $3.56 which met guidance. I won't take you through all the significant productivity and cost reduction initiatives that we undertook at the agriculture during the quarter other than to highlight the following: increased availability of stopes improved main ventilation and pumping infrastructure optimized mine haulage cycle with damper trucks improved mine development and improved copper recoveries.

Speaker 1

All in all, Latina Yavicocha did a great job maximizing production and reducing costs where possible until we are able to mine the ore body below the 11.20 level. As we announced on February 21, 2024, we obtained this permit to develop the mine below the 11 20 level. The permitting team did a fantastic job in obtaining the permit in less than a year. Mining below the 11/20 level will be a game changer for Yolgicocha and Sierra Merals. To put it simply, the ore body below 11.20 is huge.

Speaker 1

Access to it will allow us to implement bulk mining techniques utilizing sublevelcaving mining methods. This will increase throughput and lower costs allowing the mine to reach its full potential of 3,600 tons per day, a 40% increase from current run rate within 6 to 9 months with a modest investment in development capital of between $4,000,000 to $5,000,000 Now let me hand the call over to Pepe, our CFO.

Speaker 2

Thank you, Ernesto. I will now provide highlights on how to improve operations impacted our financial position. Consolidated revenue from metals payable of $60,600,000 in the Q4 of last year was an increase of 58% from the Q4 of 2022. For 2023, revenues were $229,500,000 or a 39% increase from the previous year. Adjusted EBITDA in quarter 4, 2023 was $12,200,000 compared to a negative adjusted EBITDA in the same quarter of 2023.

Speaker 2

For the year, we generated $50,300,000 of adjusted EBITDA, a 4 fold increase from 2022. Cash flow generated from the operations before movements in working capital was $12,800,000 for Q4 2023, resulting in another positive quarter of cash flow from our mines. On a full year 2023 basis, cash flow denominated from operation before movement in working capital was $43,300,000 Cash at year end was $9,100,000 While the improved operational results have helped to improve our financial position, we continue to look for ways to further strengthen our balance sheet. This includes reducing cash outflows by around $8,000,000 per year by putting Cusi on credit maintenance, the potential sale of the Cusi mine opportunities to surface hidden value from our more than 90,000 hectares of mining concession in Mexico and the ongoing and very productive talks with our lender on a refinancing package. We expect the refinancing package will offer the company relief on its repayment schedule in health fund future growth opportunities.

Speaker 2

Our lenders have very strong partners have been very strong partners and show a tremendous amount of support for our achievement to date and our growth initiatives. We hope to be able to speak further about all these initiatives in the U. K. In summary, the private placement of CAD 15,400,000 in Q4, along with the refinancing of our debt announced in the Q2 and improvement in our operations' ability to generate positive cash flow throughout the year has allowed us to enter 2024 with a significantly strengthened improved financial position from what it was a year ago. Now back to you Ernesto.

Speaker 1

Thanks, Pepe. Looking ahead, we see 2024 as a year to consolidate the optimization efforts that started in 2023 and to establish the platform for growth. I'll just let everyone know that starting 2024, the company modified its definition of cash costs to include treatment and refining charges, selling costs and G and A costs. We think this is more accurate and more transparent to the market. Now we can clearly identify the sustaining CapEx portion of the total costs.

Speaker 1

Mentioned earlier at the agriculture, we will be focused on developing the mine below the 11.20 level. At Bolivar, we will continue our project to expand our tailings facilities with a goal of having them up and running within 3 years. That expansion should increase production by 50% to 7,500 ton per day throughput from current rates. And one last item to note, we expect to publish for both mines an updated NI 40three-1 101 Mineral Reserve and Resource Report shortly. Shifting now to a very important part of our success, which is to partner with our local communities.

Speaker 1

Listed on this slide are some images of the events and initiatives in Mexico and Peru, where we remain committed to ensure their safety, wellness and environment are a top priority. As I finish up my remarks, I'd like to take a moment to remind everyone that our success in generating shareholder value this year and the years to come are supported in the following four pillars on this slide. Given the challenges in 2022, our focus in 2023 was to stabilize and optimize our operations with much of our attention on the first two pillars: safety, health, environment and our communities of interest and operational excellence to improve efficiency and further reduce costs. As such, we now believe we have the foundation and platform to grow our company and focus more on the other two pillars. Organic growth, which will come from within the company.

Speaker 1

This includes increasing capacity through such major initiatives such as mining below level 11 20 at the Alicocha and increasing the capacity of our tailings at Bolivar and always finding mineral resource expansion. But it also includes the last pillar of inorganic growth where we will look outside of the company for growth. And as Pepe already mentioned, one such area of potential growth is surfacing value from the large greenfield land package we have in Mexico and Peru through partnerships and joint ventures. Rest assured, while we want to grow, we will continue to seek value across our very strong base of assets by generating positive cash flow from the operations, increasing production and lowering costs, all in a safe and responsible manner. In closing, we appreciate the ongoing support of our shareholders, Board, dedicated employees, financial institutions and all stakeholders as we continue the positive momentum in moving Sierra Mera forward.

Speaker 1

With that, I'll hand the call back to the operator to start the Q and A session. Operator? Thank you. We will

Operator

now begin the question and answer session. The first question is from Randy Rockman of West. Please go ahead. I'm sorry, we're not Pardon me. Pardon me, sir.

Operator

Randy's line drops off. We have Kate Nakagawa of CIBC. Please go ahead.

Speaker 3

Hi, good morning. Thanks for taking my question. So towards the end of the call, you briefly mentioned that you modified your cash cost calculation method. Could you please provide a bit more color around this

Speaker 1

change? Yes. Pepe, you want to go into retail?

Speaker 2

Bigger in transporting to include in our U. S. Our current calculation, the commercial terms and the selling expenses. So that's the market we have a better idea of how the sustaining CapEx is in our numbers.

Speaker 1

Yes. Note that for 2024, we are already using these new methods. Like Pepe said, we think it's much more transparent to put it like that.

Speaker 3

Okay, great. Thank you.

Speaker 1

Sure.

Operator

The next question comes from Ben Pyrie of Atrium Research. Please go ahead.

Speaker 4

Hi, guys. Ben from Atrium. Firstly, I just wanted to say congrats on the quarter and a good year. Just going back to the environmental permit you received last month and the production that we're expecting to ramp up by Q4, when will we start seeing these efficiencies taking effect? And yes, could we start seeing production numbers begin to pick up as early as next quarter?

Speaker 1

Okay. Thank you for the congrats, first of all. We can we are aiming by Q4 to have already production from below the 11.20 level. We are ramping up, so you're going to see some increase in Q3 probably. But Q4, we should be at full production, 3,600 40% increase of last year.

Speaker 4

Okay. Thank you. And just one more at Bolivar. Is there any opportunity to ramp the production further prior to the tailings dam completion? Or is there no ramp up until the tailings dam is completely finished?

Speaker 1

Okay. Thanks for the question. We don't plan on increasing the capacity of Bolivar until we get this new tailings dam in place. We have a few years of tailings dam capacity at 5,000 tons. We expect to have the new tailings done in 2 to 3 years.

Speaker 1

But we want to keep a little bit extra time just in case something goes wrong. So we are not planning on increasing the capacity right now.

Speaker 4

Yes, that makes sense. Okay, that's all for me. Thank you.

Speaker 1

Sure.

Operator

The next question is from Randy Rockman of West. Please go ahead.

Speaker 5

Hello, Ernesto. Congratulations. You've done it. You and your team have done a wonderful job writing this company from the prior management. My question is the following.

Speaker 5

Once you get production from 11/20, let's assume we're talking about 2025 where you get a full year of production. What kind of cost savings do you think we will see at Yauricocha? Because as you pointed out, you're absorbing unused mill capacity currently. And so I'm just kind of curious where you'll see the costs falling to once we have this rising production from below 11.20?

Speaker 1

Okay. First of all, thanks, Randy, for the congratulations to the team. Once we get a full year of production, 2025 as you say, we should be looking at cost numbers the same as we had them in 2020 when we were at full production. Those were in the mid-2s. I don't know exactly how much it will be, but they're going to be very, very good.

Speaker 1

We're going to be in the first quartile of costs market wise for sure.

Speaker 5

Terrific. Thank you very much.

Speaker 1

Thank you.

Operator

The next question is from Ben Parry of Atrium Research. Please go ahead.

Speaker 4

Hi, guys. Sorry, just one more question here and I might be getting into the weeds a little bit. But I understand you're doing a raised board project in Mexico and I'm just curious how that's going and if there's going to be any material effect to mine productivity following this project?

Speaker 1

Okay. You meant sorry, a rain border you said?

Speaker 4

Correct.

Speaker 1

Okay. What we are doing there is yes, we are building a rate border that is going to connect the underground mine to the mill. So instead of going by road, right now we take the mineral out of the mine and take it by road to the mill. We're going to take it underground straight to the mill. This project we should have it finished by Q3, Q4 this year and it's going to reduce our holding costs.

Speaker 1

So we'll tell you all about it as soon as we get it done, but we're working on that. And thanks for the question.

Speaker 4

Yes. Thank you.

Speaker 1

Sorry, this is going to decrease the whole edge distance by around 12 ks. So this is going to be very material.

Speaker 4

Great. Thank you very much.

Operator

Sure. As there are no more questions from the phones, management will now take questions sent via email.

Speaker 1

So operator, we have received a couple of questions on our email. Do you mind me if I go through those?

Operator

Please go ahead, sir.

Speaker 1

Sure. So the first one is, why are you seeking partners on your greenfield project in Mexico and Peru? Okay. Thank you. The idea is to maximize the value of our assets.

Speaker 1

We have a potential portfolio in Peru. And like Pepe mentioned, we have more than 80,000 hectares in Mexico to explore in 7 projects. We don't have that financial ability to do so alone. As you know, a corporate project may involve 100 or 100 of 1,000,000 of dollars to assess and a lot of time. And so our financial capability is going to be put this year more in our core assets.

Speaker 1

So we want partners to develop the organic and inorganic growth of our peers. The next question we have is, what's the objective of the refinancing package currently being negotiated? Pepe, you want to add?

Speaker 2

Yes. Thank you, Vanessa. Yes, this will enhance our balance sheet position. Even though the size of the debt is still low for the company, a company like ours, we need to adjust the churns and be able to extend the cash flow down to 5 years. By doing that, Tierra will be able to focus on deploying capital in its core assets and creating value out of those.

Speaker 1

Okay. Thank you. No more questions on this end, operator.

Operator

Thank you. This concludes the question and answer session. I would like to turn the conference back over to Ernesto Belarezo for any closing remarks.

Speaker 1

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 in the right direction in growing our business in a safe and responsible manner. Have a good day everyone.

Speaker 1

Thanks again.

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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