Lowering Estimates

Bolivar Shines During an Otherwise Challenging Quarter

Taking Steps to Improve Liquidity

Third Quarter Production Disappoints; Rating Lowered to Market Perform

Mark Reichman

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Basic Materials

Metals & Mining

Sierra Metals Inc.

Guidance Update
Sierra Metals lowered its full year 2022 production and EBITDA expectations. The table below summarizes first half performance and full year guidance for production and EBITDA. Previously, the company anticipated full year copper equivalent production of 79.5 million to 89.7 million pounds and EBITDA in the range of $90.0 million to $105.0 million.
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/Guidance-Aug2022.jpg" style="width: 650px;height: 160px;float: none" /> 
 
 Revised guidance reflects a slower than anticipated ramp up in throughput at Bolivar, along with the impact of unexpected second quarter underground flooding at Cusi and lower metal prices. At Yauricocha, tonnages and grades are expected to improve due to mining in the higher grade Fortuna zone.
 Summary of Second Quarter Results&nbsp; &nbsp;&nbsp;
Compared to the first quarter of 2022, tonnes of ore processed increased 8.4%. During the second quarter, Sierra Metals produced 8.3 million pounds of copper, 3.3 million pounds of lead, 10.4 million pounds of zinc, 2.6 thousand ounces of gold, and 608 thousand ounces of silver. On a sequential basis, copper and gold production increased 31.8% and 36.3%, respectively, while lead, zinc, and silver production declined 20.9%, 0.6%, and 17.2%, respectively. Sequentially, copper equivalent production increased 11.9% to 17.8 million pounds.
Sierra Metals reported an adjusted net loss of $11.6 million, or $(0.07) per share, compared with net income of $5.9 million, or $0.04 per share during the prior quarter. Adjusted EBITDA amounted to $1.4 million compared to $16.0 million during the prior quarter. Second quarter financial results reflected lower metal prices and margin, along with an $11.0 million mark-to-market adjustment to unsettled open sales positions at the end of the second quarter due to the decline in metal prices toward the end of the second quarter.
Quarterly Mine Performance&nbsp;&nbsp;&nbsp;&nbsp;
Yauricocha processed 317,087 tonnes of ore, or 3,624 tonnes per day, during the second quarter or pretty much in line with the first quarter. Sequentially, copper gold, and silver production increased 19.8%, 11.5% and 4.3%, respectively, while lead and zinc production declined 20.1% and 0.6%. Copper equivalent production increased 11.3%. The increase in copper equivalent production is due to improved grades for all metals except lead. Recoveries of zinc and lead declined to 79.21% and 75.81%, respectively, compared to 82.09% and 82.50% during the prior quarter. Yauricochaâ€™s cash cost per copper equivalent payable pound declined to $2.06 compared to $2.19 during the first quarter of 2022, while all in sustaining costs per copper equivalent pound decreased to $3.39 compared to $3.73 during the prior quarter. The declines were attributed to the increase in copper equivalent payable pounds. Cash and all in sustaining cost guidance for 2022 is $1.80 to $2.00 per pound and $3.10 to $3.30 per pound, respectively. For the remainder of the year, management intends to maximize metal production by operating at maximum permitted throughput of 3,600 tonnes per day, along with sourcing higher grade ore from the Fortuna zone.&nbsp;
Tonnes of ore processed at the Bolivar mine increased 36.7% sequentially to 256,372, or 2,930 tonnes per day, during the second quarter. Gold, copper, and silver production increased 116.7%, 56.8%, and 43.1%, respectively. Copper equivalent production increased 61.7% to 4.2 million pounds. The robust performance relative to the first quarter was due to higher throughput and higher grades for all metals due to the depletion of Bolivar West and the sourcing of ore from the Bolivar Northwest zone. Bolivarâ€™s cash cost per copper equivalent payable pound decreased to $3.39 compared to $4.55 during the first quarter of 2022, while all in sustaining cost per copper equivalent payable pound declined to $5.49 compared to $7.33 during the prior quarter. The declines in unit costs relative to the prior period were due to the increase in copper equivalent payable pounds. Cash and all in sustaining cost guidance for 2022 are $2.70 to $2.90 per pound and $4.70 to $4.90 per pound, respectively.
Relative to the first quarter, tonnes of ore processed at Cusi during the second quarter declined 24.1% to 66,722, or 763 tonnes per day. Gold, silver, and lead production fell 41.6%, 38.6%, and 29.6%, respectively. Silver equivalent production declined 38.2% to 283 thousand ounces. Production at Cusi was negatively impacted by unexpected underground flooding. Cusiâ€™s cash cost per silver equivalent payable ounce increased to $24.84 from $13.48 during the first quarter of 2022, while all in sustainable cost per silver equivalent payable ounce increased to $33.83 compared to $19.94 during the first quarter of 2022. The increase was due to the decline in silver equivalent payable ounces compared to the prior quarter. Cash and all in sustaining cost guidance for 2022 is $17.50 to $18.50 per ounce and $26.00 to $27.00 per ounce, respectively.&nbsp; 
 
Capital Structure and Liquidity
As of June 30, Sierra Metals reported cash and cash equivalents in the amount of $16.4 million and debt of $80.8 million. The company reduced its 2022 capital expenditure budget to $59.0 million from $69.0 million to better time expenditures with anticipated production to avoid excess capacity. Expenditures at the Bolivar mine were reduced $10 million due to slower than anticipated ramp up of throughput that was initially planned for 6,000 tonnes per day by the end of the year.&nbsp; to better time expenditures with anticipated production to avoid excess capacity. Sustaining and growth capital expenditures are expected to be $39 million and $20 million, respectively.

Sierra Metals Inc. (SMT:CA)

Unexpected 2Q Loss; Anticipate a Stronger Second Half

Fundamental Analysis:

Rating: Log in to view

Lowering Estimates (SMT:CA)

Bolivar Shines During an Otherwise Challenging Quarter (SMT:CA)

Taking Steps to Improve Liquidity (SMT:CA)

Third Quarter Production Disappoints; Rating Lowered to Market Perform (SMT:CA)

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