Sierra Metals Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2024

There are 6 speakers on the call.

Operator

Welcome to the Sierra Metals Incorporated Second Quarter 2024 Financial and Operating Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I will now hand the call over to Aliyah Benavides, the company's new Corporate Finance Manager. Please go ahead.

Speaker 1

Thanks. The accompanying presentation for today's call is available for download from the company's website at sierrametals.com. Today's press release, the financial statements and the MD and A are posted on our website and on Securitas Plus. 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 our Q2 2024 disclosure materials for forward looking information.

Speaker 1

Please note that all dollar amounts mentioned on today's call are in U. S. Dollars unless otherwise noted and that all unit cash costs and all in sustaining costs are in a corporate equivalent payable pound basis. I would like now to turn the conference over to Ernesto Valerreso, Chief Executive Officer for Sierra Metals. Please go ahead.

Speaker 2

Thank you, Lia, and good morning, everyone. Let me begin as we always do by discussing our company's number one priority, safety. As seen on the Slide 4, our focus is to continuously ensure we provide a workplace environment where all our employees and contractors are safe. This includes a continuous improvement approach to safety where we conduct regular safety programs, safety inspections and safety audits for our employees and contractors. Our focus this quarter has been the designation of leaders throughout the company that are our critical risk champions who disseminate the 16 critical risks and rules that will save lives.

Speaker 2

Overall, our safety programs have been well received by everyone throughout the company as we all recognize that being safe leads to a productive work environment. We released our Q2 2024 production results on July 12 and our financial results on Friday, August 9. I will assume everyone has had a chance to review them, so I will not be going into detail, but will instead provide highlights as seen on this slide. On a consolidated basis, in the Q2 of 2024, our 2 operating mines, Yauricocha and Bolivar, produced 16.8 1,000,000 copper equivalent pounds from processing almost 630,000 tons of ore in the 2nd quarter, which was around 4% lower than in the same quarter a year ago as we expected when defining our 2024 plan. We expect production to increase throughout the rest of the year as we position for a strong second half of twenty twenty four.

Speaker 2

Lower grades at the Alicocha for Q2 2024 compared to Q1 2024 and Q2 2023 were partially compensated for by the increase in throughput. Lower grades from Yavicocha were primarily due to the limited available ore above the 11/20 level. The company expects that throughput will increase and grades will improve from the current levels as the development below 11/20 level progresses. Early in Q3 2024, we started mining below 11/20 level. We are on track and on budget to achieve full capacity production of 3,600 tons per day by Q4 2024.

Speaker 2

Bolivar experienced a decrease in throughput and grades as compared to Q1 2024 and Q2 2023. The lower throughput rates in Q2 2024 were a result of the planned maintenance downtime required for the commissioning of the new primary crusher and due to lower water availability as a dry season hit the region, which has since been resolved with the commencement of the rainy season. As a result of our continued overall strength in production, we continue to generate a strong cash flow from our operations and are reaffirming our 2024 guidance. All in all, I'm pleased to say that we made our expectations for the quarter. Moving on to Slide 7.

Speaker 2

Von Bibarel processed nearly 374,000 tons of ore during Q2 2024, which represented a 6% and 8% decline from Q1 2024 and Q2 2023 respectively. As already discussed, the lower throughput during the Q2 was mainly attributable to scheduled plant maintenance combined with the lower availability of water for the concentration process. With the issue of water availability resolved and the new crusher running well, we anticipate production levels in the second half of the year to increase. Bolivar's lower grades during Q2 2024 when compared to the Q1 of 2024 and the Q2 of 2023 were a result of the mining program sequence. It was in our Q2 2024 Mine Plan to have a lower contribution from the high grade dulce zone during the quarter as compared to the Q1 of the year.

Speaker 2

However, the company continues to better understand this new zone and expects to continue mining from Dulce throughout the year as the exploration efforts in this area continue to be very encouraging. Cash costs and all in sustaining costs per pound for Q2 2024 were $2.76 and $3.53 respectively. Lower grades and throughput resulted in a drop in metal sales, representing a decrease in corporate legal impairments, therefore, leading to higher unit costs when compared to Q1 2024 and Q2 2023. Mine development at Bolivar during the Q2 consisted of approximately 3,600 meters, including 1300 meters of development to prepare new operating stocks for production and just over 2,300 meters of development ramps and underground accesses. Some of the major operational initiatives undertaken in the quarter include successful installation of the new primary job crusher, increased the long drill increased the long drilling ratio from 5.5 to 6.5 tons per meter drilled with our new mining equipment and infill drilling that has enhanced predictive rates and tons in the Ciena Ita zone and expansion drilling in the Dulce body zone that should increase mineral resources.

Speaker 2

As shown on this slide, given first half twenty twenty four production levels, we expect to meet 2024 production guidance. Likewise, first half twenty twenty four cash costs and all in sustaining costs also indicate that we expect to meet 2024 cost guidance. Turning to Yauricocha on Slide 8. Yauricocha's cash cost was $3.44 per pound and all in sustaining cost per pound of $3.79 Cash costs for the Q2 of 2024 were slightly higher than Q1 2024, given the decrease in copper equivalent pounds sold. At the agriculture, work on-site during the Q2 included nearly 2,300 meters of development to prepare mining zones and approximately 4,200 meters related directly to the infrastructure and development grants, including 86 meters below eleventwenty 11.

Speaker 2

We're expecting throughput grades and metal production volumes to improve as development below the eleventwenty eleven progresses through the rest of the year. I will take you through all the productivity and cost reduction initiatives that we undertook at Yolgincocha during the quarter other than to highlight the following. In July, we started to mine ore below the 11.21, therefore giving us the confidence that we are on the path to achieve full capacity by Q4. Our processing campaigns have increased recoveries of lead and zinc. Major overhauls to crusher and shaft to increase availability and expansion drilling in the Cuye and Marita zones that increase mineral resources.

Speaker 2

All in all, the team at the Aliquocha did a great job maximizing production and reducing costs. Like at Bolivar, given metal production and costs in the first half of twenty twenty four at Yauricocha, we remain on track to meet 2024 guidance. I'd like to welcome Jean Pierre Ford as our new CFO. Jean Pierre was formerly our Business Development Manager and has been a key driver in raising our profile in the capital markets. We know Jean Pierre's financial background in the mining sector will be a tremendous asset for the company.

Speaker 2

Now over to Jean Pierre to discuss our financial results.

Speaker 3

Thank you, Ernesto. I will now provide the key financial highlights of the Q2 of 2024. Overall, our robust operating performance has improved our financial position. Consolidated net revenue of $57,500,000 in Q2 was in line when compared to the Q2 of 2023. Overall, we have generated net revenues of $120,000,000 during the first half of the year.

Speaker 3

Cash flow generated from operations before movements in working capital was $15,000,000 for Q2 2024, resulting in another positive quarter of cash flow from our mines. From the first half of the year, this was $31,400,000 which was 30% higher than in the same period of 2023. Adjusted EBITDA from continuing operations in Q2 was $12,900,000 and for the first half of the year was $30,800,000 3% higher than last year. In June, the company signed a new credit agreement with a syndicate of banks left by Banco Santander for a senior secured credit facility of $95,000,000 The proceeds from the new credit facility were used to repay the balance of $75,000,000 of the original loans with Banco de Creditoal Peru and Santander. The additional $20,000,000 is earmarked for high return capital projects and to cover transaction fees and expenses.

Speaker 3

These projects include the development below level 11 20, the acquisition of new ventilation and mining equipment and the completion of the new ore shaft at the agriculture mine, which is expected to commence operations in early 2020 5. And at the Voluar mine, where we are conducting the mine development of more than 13,000 meters to increase the number of operating stopes, a newer path to enhance ore and waste haulage efficiencies and new tailings dam facilities being built in phases. Overall, the new crate facility enhances Sierra's working capital, increases the company's financial flexibility, provides covenants relief and extends the company's maturity profile to execute on its operational strategy. As a result of our new debt facility, our net debt to LTM EBITDA ratio as of June 30 was around 1.6x, which is strong and very manageable for us. We expect the ratio to improve as we progress our operational and cost efficiency plans.

Speaker 3

The company's cash position as of June 30 was $22,500,000 doubled from the Q1 of 2024 and was 5 times higher than in June 2023. All in all, we are in a stronger financial position and can comfortably execute on our operational plans. Back to you, Nao Ernesto.

Speaker 2

Thank you, Jean Pierre. Shifting now to another very integral part of our business, which is to partner with our local communities on important initiatives that benefit everyone. Our focus continues to be on health, education and community entrepreneurship. Shown on this slide are some images of the events and important initiatives undertaken this quarter in Mexico and Peru. In summary, earlier this year, we published an updated national instrument 40three-1 101 compliant mineral reserve and resource estimates for both our Yauricocha and Bolivar mine.

Speaker 2

Overall, our operations have a very significant amount of mineral reserves and resources that will provide the foundation for our ambitious growth plans at each mine. During Q2, our achievements include the following. As previously discussed by Jean Pierre, we refinanced our debt to be better aligned with our growth plans and have financial flexibility. We are now listed on the Lima Stock Exchange, further increasing our investor exposure and liquidity potential by allowing investors in Latin America to participate in our growth. And at our most recent Annual General Meeting, we revitalized our Board of Directors.

Speaker 2

I'd like to thank departed Board members, Oscar Cabrera, Carlos Santa Cruz and Dola Skeitor for their support and leadership. Appointed to the Board was Roberto Maldonado, who has over 35 years of mining operating experience and appointed as Chairman of the Board was Miguel Anguru, who has deep senior mining experience and whose leadership will be instrumental as we move Sierra through its next growth phase. As for the remainder of the year, we've already closed the sale of the Cusi mine and the surrounding mineral concessions. Important to note, apart from simply adding cash to the company's cash balance, the Cusi sale will also help the company avoid the fixed monthly current maintenance costs of around $300,000 per month. At Bolivar, we will continue our project to phase in the expansion of our tailing facility with a goal of having them up and running within 3 years.

Speaker 2

That expansion will set up the basis to increase production by 50% to 7,500 ton per day. And lastly, we continue to seek partners to help us uncover value from our large and prospective greenfield land packages in Mexico and Peru. In closing, we see 2024 as a year to consolidate the optimization efforts that started 6 quarters ago and establish a platform for growth and long term value creation. And based on our achievements in the first half of twenty twenty four, we're on track to achieve our goals. With that, I'll hand the call back to the operator to start the Q and A session.

Speaker 2

Operator?

Operator

We will now begin the question and answer Please go ahead.

Speaker 4

Yes. Good morning, Ernest. So thank you for the presentation. Looking at your comments on the technical report, can you hear me?

Speaker 2

Yes, yes, yes. And thank you for your comments.

Speaker 4

Yes. Thank you. On the technical report, there was for the first time some announcements on the drilling results on the porphyry at the Yauricocha and I would like you to elaborate a little bit about that given the significance of them. There is one for 6 80 meters and another one for 7.86 meters of around 0.2. But when you convert it into copper equivalent, it's around 0.27 copper.

Speaker 4

Given the size of such intercepts, I would like to know your comments about when were these drill holes drilled and what does it mean for Sierra Metals?

Speaker 2

Okay. I think you're talking about that the Adriada portfolio, right, Alberto? Correct, yes. Okay. Well, we are eagerly looking for, like I say like I like to say it, a big brother to develop the Triada porphyry.

Speaker 2

The last, we haven't drilled any new drill holes in the Triada. What we have is what we did a few years ago, only drill holes, only 5 drill holes. We are talking with major companies to get them interested, And that's all I can say for now. Hopefully, I can give better news in the next months to come. But right now, that's all I'm allowed to say.

Speaker 2

But we haven't forgotten about it. We are looking eagerly to find a big brother.

Speaker 4

Yes. No, thank you. Thank you. Because I remember in the past, we had put out drilling results on this for free. I think it was in 2018, but these drill holes of 2018 were like 40 meters wide.

Speaker 4

These ones that have been disclosed in the technical report are 6 80 meters, 7.86 meters, which is a pretty significant step up more than an order of magnitude, more than what was disclosed before. So you mentioned over there Sumitomo is doing some work. Could you elaborate in terms of was that an association you have with Sumitomo? Is Sumitomo left? Or do they continue there?

Speaker 4

Or if they leave, why do they leave?

Speaker 2

Yes. I don't really know the exact reason why they left. Only the reason they gave us is that a lot of managerial positions were changed at the higher level at Sumitomo, and they were not prioritizing this region anymore. But that's all they said to us. And your first comment, I'll find out about I know the NI 40three-1 101 has the latest.

Speaker 2

In my tenure here, we haven't drilled the Triada project. So that addition that you are mentioning for 400 meters to 600 meters is probably during the Sumitome area. I'll get back to you about when was that done, but it's not it was not done in the last year and a half. Yes. No I'll find out about that and get back to you.

Speaker 4

Yes. Thank you. Thank you. Because this was the first time this was disclosed. So I was really pleasantly surprised about how big the intercepts are.

Speaker 4

So this is, if you could help us In my recommendation for disclosure to the whole market, maybe to pull out a press release with the full drilling intercepts, because if you have 786 meters wide of average 0.2, there are some sections that would be higher than that. And the question for the market given that there is a lot of M and A activity with porphyry coppers, I think this will be very valuable for the capital markets to understand what is the quality of the porphyry that has been discovered.

Speaker 2

I thank you for your comments and we'll definitely look into it. Maybe we can market it a little bit better. Thank you, Alberto. Thank you.

Operator

The next question is from Randy Rookeman, a Private Investor. Please go ahead. Good morning, Ernesto. Congratulations on a nice quarter. Thanks.

Operator

My question has to do with the growth that would ultimately come from Bolivar, assuming we have a larger tailings dam, a new tailings dam. Can that be funded from the cash flow that the operation will generate on its own, meaning will you not need to go into the capital markets to raise money to create that expansion?

Speaker 2

I think so, Randy. I think we can manage that investment. We are on a pre engineering phase yet, and we are thinking about doing this building these new tailings done in stages. So we won't have to go to the markets to ask for a process. So I think so I think we can manage it.

Operator

Excellent. Congratulations.

Speaker 5

Operator, we have some questions from the Spanish webcast.

Operator

Please go ahead, Ms. Cosa.

Speaker 5

We have the following question from the Spanish webcast. How confident is management on achieving full capacity on Yauricocha by Q4 2024?

Speaker 2

Thank you, Pati. Earlier this quarter, we already started mining below the 11.20 level. I'm talking about the Q3. This milestone give us a lot of confidence that we are delivering on our plans and that we'll be at full capacity by Q4 of this year. So we are very confident that we'll get there before year end.

Speaker 5

Operator, we have another question from the Spanish webcast. Where do you see Sierra's growth?

Speaker 2

Okay. Thank you, Patxi. Let me try and set up this answer. As you have seen over the last 6 quarters, we've turned around our company by strengthening our leadership team, enhancing our safety practices, greatly improving our financial position and stabilizing and optimizing our 2 continuous operations. But there is a lot more to do.

Speaker 2

Now we have sold Cusi. We are focused on our 2 core mines. I believe we will have one of the strongest growth stories in the sector. Our Yogycolcha mine is set to grow its capacity by 40% by year end and Molivar is on path to increase production by 50% upon completion of the tailings dam. This might take 2 to 3 years.

Speaker 2

In addition, we have a large greenfield portfolio of exploration projects in Mexico and Peru and has yet to be developed, which we hope to do through partnerships, as I already mentioned. And lastly, the company is always scouring the market for accretive opportunities. So basically, that's our strategy. Starting with our 2 main assets, I think that the best share the best value for shareholders is going to come rapidly from our 2 main assets, but we also need to look outside and develop our greenfield projects through partnerships. So that's our strategy.

Speaker 5

So we have no further questions. I will hand the call back over to Ernesto for closing remarks.

Speaker 2

Thank you for taking the time to join us today. Please feel free to reach out if you have any questions. And Alberto, I'll get back to you on those 600 against the 400 meters question. Have a good day everyone.

Operator

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

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Sierra Metals Q2 2024
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