Q3 2020 Sierra Metals Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to Stacy era metals Q3, 2020 consolidated financial results call.

The speech <unk> presentation, there will be a question and answer session to ask a question. During this time simply because our number one on your telephone keypad.

Anytime you require any further assistance please press star zero.

I like to turn the call over your speaker today, Mike Mcallister.

<unk> President of Investor Relations. Please go ahead.

Thank you operator, and good morning, everyone. Welcome to fear Middle of Q3 2020 results Conference call today's call. We're joined by Bruce Murky, our CEO and streamline our CFO today's call will be followed by a question and answer period. The accompanying presentation for today's call is available for download.

Both through the webcast and on the company's website at CRM metals Dot com.

This morning's press release, the financial statement and managements discussion and analysis were also posted on the website.

Before I turn the call over to me I would like to indicate that this earnings call contains forward looking information that is based on the company's current expectations estimates and beliefs.

These forward looking information is subject to a number of risks uncertainties and other factors actual results could differ materially from our conclusions forecasts or projections as reflected in the forward looking information.

Additional information about the material factors that could cause actual results to differ materially from the conclusion forecast or projection in the forward looking for information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information contained in the Companys annual.

All information form, which is publicly available on SEDAR or as guar via form 40 F. <unk>.

Or on the company's website. Please.

Please note that all dollar amounts mentioned on the call today are in us dollars unless otherwise noted.

With that I would now like to turn the call over to Luis murky, the CEO of fear metal.

Thanks, Mike.

Before the call.

Hello or to see highly screen size I'd like to take a moment to update you on the most recent rebranding development mixing them.

Turning to slide four.

At the beginning of the group here in Mexico, Gorman alone for the retention with full lending and lending related activity.

The company recorded the use of the Liberty quotes from one of our mine.

Also in July. Thank you once the process could be put in place.

Thanks for working community say, Rosemarie clinically there as well to reach telecommunications.

We are proceeding cautiously unique goods threeq, so protocols to protect our employees and the communities in which we operate.

Well have to mitigate the potential for further work to produce the armory.

We continue to employ a double transmit below your pacing corn beans, and good afternoon before employees coming off rig during the active workforce.

Also 1000 miles on them to use our continuous to be Monaco, then so sick.

Well. This is concur served us well not a perfect solution.

We used to have some specific cases materialize in the workforce a couple of years is going to be some employees for further make on the page.

We also need to remove any employees. It is the price we contract pricing for the work was untrue.

Bill I mean come here to compete.

I can look on this term on this page the difficult situation due to covidien being going through both improved mix.

As we must continue to be very diligent.

Taking care of their communities, where we operate is also very important to us for the system that will be.

So if we were to communities that have donated BB and medical supplies, including.

Including a neutral to a local fundraising. Therefore, you know that your books remain for the purchase of oxygen production plants.

We will continue to strengthen our engagement and support workforce their families and the local communities.

Influence at all three mines as deep basin.

Jason you malls.

I would like to commend our employees and management, who despite the challenges facing.

In the quarter for lower than optimal physical mute covering 90 days managed to maintain a high level of growth too.

With that I will now turn the call over to demonize, our CFO for the financial highlights.

Thanks, Louise good morning, everyone turn.

Turning now to slide five the company achieved exceptional results in the third quarter, despite managing the implications of coated in 19.

We reported record consolidated throughput and record adjusted EBITDA of 37 million.

As well as 24 million of free cash flow.

We also reported strong cash flow and net income and we finished the quarter with approximately 63 million in cash.

These are strong results that has evolved from optimizing operations and expansions ramp up that have provided stronger financial in the upper operational performances, which we expect to continue.

Over the course of this year.

As well as next year.

Our revenue mix by metal continues to be led by copper followed by silver, which is taken an increasing role with the ramp up of QC.

All has also seen a continued increase as a percentage of the mix.

Aided by improved production and recovery at Balibar and supported by higher gold prices.

In Q3, we saw an improvement in realized metal prices for copper silver gold and zinc.

Precious metals have continued to improve in Q3 and remained strong in Q4 and copper continues to strengthen in Q4.

Turning to slide six.

When compared to the same period in 2019 cash costs were down at all mines, which was attributable to lower operating costs lower sustaining capital and the prudent management of capital expenditures to protect the balance sheet.

All in sustaining costs were also lower at Boulevard and cool seat.

However, we did see a 6% increase in the all in sustaining costs at Yanacocha due to the higher treatment and refining costs higher sustaining capital and lower copper equivalent payable pounds due to lower head grades and recoveries for all metals.

Accessing as less or was contributed from the high grade narrow ore bodies, otherwise known as purpose chicos.

We also realized improved favorable foreign exchange during the quarter as well as year to date.

I will now turn the call back over to our CEO Luis much Anthony.

Thanks, Dave.

Turning to slide seven.

When looking at Pearson tinted certainty.

We used to see strong growth for the company. So patients return to full capacity and we are optimistic that we can fiscal 13 efficiencies and position of higher metal prices, we see a strong fourth quarter and finished for 20 thing.

Our third quarter, we completed community could recover lost production from Nicolay maintenance shutdowns were ramping up our produced water infrastructure projects, which have been on hold due to problems team further.

Furthermore, we also continue to seek the required permits to increase our repurchase could include two centssix hundred 20 per day level for next year.

Were also excited to see value on Coolsculpting up to the target. This capacity for 5000 underfunded tonnage per day, respectively.

Soon enough for you every quarter, we're ramping our exploration and construction and mining footprint, meaning expanded stainless activities at both mines as well as on Amazon Commission panel, but weaker mix in mind with implantable Europe, improving efficiencies reducing college costs.

Of course.

We continue to explore in the northeast Friendly's, Houston, which customer cited us decline seem to agree.

We continue to bring in this highly prospective targets.

Due to its close proximity to existing operations before being able to bring more from this area into the mine plan at an accelerated pace.

Im also pleased to announce the very positive B.A.R.W.R. mine.

Rich highlighted the doubling of throughput to 1000 tonnes per day as the best path forward more.

For comparative communities study is underway are expected next year.

Basis.

Those will be completed footage already booked some value our minds.

Our expected to be released shortly which will highlight the risks throughput levels going forward based on the size of those might mean that our results because of the mine.

The company has excellent land packages, we tremendous resource growth potential to support further revenue growth up all night.

The company has also issued revised Tracy 20, adjusted EBITDA Capex and cost guidance.

We now anticipate our principal see adjusted EBITDA will range between $100 million to $105 million.

Capital expenditure will range between $40 million to $45 million.

The revised guidance assumes more further shutdowns workers stoppages because of the commitment to pandemic is based solely on what management expects the company's operations contribute this year.

In conclusion on.

On slide eight.

The company has a very strong quarter. Despite the adversities, we face from deployment in pandemic were to able to emerge with a stronger balance sheet and cash position.

While we continue to operating a more real world environment due to pulling anything.

We remain optimistic that further cash flow and liquidity improvements because as we finish this year. So.

So were indicative of into production and metal prices.

The company has made the necessary capital investments and infrastructure improvements, we will grow our actual during this call. We have now reaping the rewards.

We remain committed to returning to sustainable growth of the company and more importantly to boost the per share value benefiting our shareholders with.

With that I will now turn the call back to Mike.

Thanks Louise guidance the presentation portion of this call we would now like to open up the call to questions from participants operator could you. Please open the lines.

At this time, if any that I would like to ask a question. Please press star one on your telephone keypad now this.

Let's start with one on your telephone keypad. Your first question comes from Mark Astrachan from Noble capital markets. Your line is open.

Good morning to those on the strong operational and financial performance for the quarter. Just had a couple of questions. First is I was wondering what you see as the key drivers of lower all in sustaining costs at Europe culture.

Thank you Mark.

Well so look for that equipment, we are working on streamlining operations and building the operating efficiencies that we've.

Our intensified in the last three quarters.

Actually.

During the last.

Six months Weve been booking.

Optimizing our operations due to covering under control from opportunities that we are.

Working on.

On the termination fees in this last quarter.

We live in.

Typical of Pmone, so actually we've done less than we should have done.

The part of the sustaining of beer.

What we are being disciplined in capital expenditure.

So.

Recently, we are going to to recover the lost on mix that in quarter four.

And then secondly, you made mention in the press release about the exploration at your approach.

Mentioning the copper and molybdenum porphyry.

And then also the actual drilling during the third quarter QC I was wondering if there was any more you could elaborate on in terms of.

Your plans at your coach and maybe what you found so far can you see in that new zone.

I am taking assay results, probably won't be out a little while but.

Maybe your preliminary thoughts.

Well, then Jody confident retirement came back to drill in March.

Mark.

Of course, we have the ability to do so.

So actually as we speak where we are really into the potential of copper porphyry period.

We just started the loser green coffee, we've been doing the infill drilling in the area that you mentioned and what we find is that we can confirms our belief is.

Silver.

But the area and we are pretty optimistic that we're going to find more around.

And your next question will come from Heiko Ihle.

From H.C. Wainwright your line is open.

Hey, guys. Thanks for taking my questions hope everybody is safe.

Good day in the market today, obviously with the.

Coal with this de risking the life, a little bit but the.

Talking a little bit about treatment and refining costs remain a what are you seeing in the market. The here in Q4, we are halfway through Q4, and how long are you able to able and willing I guess.

Lock in pricing place.

I can thank you. Thanks for the question, yes, so in terms of Tcs our seas, we're in the process.

The newly.

The contracts as we speak but we have seen.

Significant decrease decline in the tea season, our seeds.

For zinc and and led but principally things like last last year's benchmark was around $300 per tonne.

And that spot.

Ccs IP skus that down says the below hundreds so a significant increase there.

I don't really want to speculate further in terms of trends.

But.

That being said certainly improved turn on the T. CRC front when compared to the last two years.

Particularly because of the improvement seen industry.

Fair enough.

I assume I know the answer this question, but I mean, you don't have a whole lot of delays in regards they're getting paid after thing leads to bore.

Yes, Thats correct, we get paid around five to seven days.

Okay, so that that hasn't that hasnt changed no ones come up with excuses for the later.

No.

Okay.

Your next question will come from Rockdale guesses preference shabby shape. Your line is open.

Hi, Good morning, Thank you for taking my script my questions and congratulations congratulation on the strong quarter.

My first question is regarding your Capex guidance I believe you had $52 million before.

And you are now changing to call. It a midpoint of 42.5 million. So can you provide us a little bit of color on where were you made the changes and how deep and how you expect to spend call. It another $20 million in the fourth quarter along thank you.

Thanks, Great question, Yes in terms of Capex and the deferrals that were seeing 101 main one primary one was.

A year ago to shop.

Most of that expenditure is being.

Pushed forward, if you will or deferred to 2021.

And.

And what was the second part of your question sorry, Rebecca.

Yes, and also I believe you still have to have about $20 million to get to that midpoint of guidance to dispensed in the fourth quarter. So just a little bit of color on your plans for that.

Yeah, we're where we have we have the cash and and we have the wherewithal and we have been.

Investing spending aggressively on our capex projects and we feel comfortable in that.

In that range.

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Okay, Okay and.

So after another after a very strong quarter in terms of.

Cash flow generation deep Mick Chris foot provided any update on your previous plan to distribute cash to shareholders.

So.

As as we all know the return of capital.

Producing the CEO of cash to shareholders, which was put on hold and that was put on hold because of cold.

We still are very much in coated.

This is something that the board is considering in terms of its one of many options that the board is considering and we have to take it.

Along with our expected home.

2021 budget in terms of Capex and the factors exploration potential there theres a lot of factors.

Factors. In addition to the return of capital and in the Board will ultimately make that decision whether it's in the fourth quarter or in the first quarter of next year I'm not sure, but that's that's an important chance.

Okay. Thank you.

And your next question will come from James Sheehan from My Stanley Investment Your line is open.

Yes.

Hi for your EBITDA guidance for the full year of $100 million to $105 million.

What are you assuming for commodity prices in the fourth quarter.

Yes.

Hi, Jim Thanks for your question, we're assuming consensus prices for the fourth.

And they are.

I don't have one potential.

My headset.

So you are looking at we warned three bucks.

And thinking about Ken.

Sobered around day believe $24 an ounce those those are the main ones.

Sure It sounds like the assumptions that you are using are lower than the current prices in the market.

Great consensus typically.

They are there's usually a laggard in the consensus price and every quarter Weve seen the consensus price move up to catch up to the.

To spot prices, but spot prices have increased.

So much over the last six months that answer.

Consensus has been.

Laggards to spot prices.

And your next question comes from Leon.

Leon Cooperman from Omega Advisors. Your line is open thank you very much.

I have six questions. So let me just put them out there.

And.

First and also congratulate you on your performance the performance is quite excellent.

I realize the question number one I realize that to an important degree mine life is a function of product prices.

And but and running it to people I think the stock is extremely mis priced but running into people's views. There seems to be a concern at the mine life is very short at current price levels. What is the estimated mine life of that three mines have be question number one.

Question number two do you have a plan for tons processed in 2021 versus 2020, assuming no mine shutdowns due to the virus.

Third if you could prioritize the use of the free cash flow.

Fourth with the recent.

Valuations that you come out with and provided to the market do you have an updated view of any v.

And then 50. This question would just asked but.

I wanted to kind of elaborate a little bit more on January 8th of 2020, you announced a plan to return 30 million to shareholders.

We show due to the virus prices really what you see what you sell a higher EBITDA is higher the stock is up very little.

No.

You mentioned in better support consideration when do you think we'll hear from the board has to a decision.

And finally, given the size of the company in a liquidity and we sort of maximizing shareholder value by sale to a larger entity. So those six questions I hope it could be would be much appreciated I congratulate you and very strong performance.

Okay. Thank you.

Most of mine life.

Yes.

Declare leasing hour.

Yes.

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Mexico is what you are aware thinking alone over 10 years monomer.

Real forward things year thing in.

The only become reverses I mean dirty closer working capital a year now having said that has been done that's the story with the underground mine produced really horrified rather.

Phase 210 year mine life.

It's a moving target it.

Because it doesn't make sense to keep drilling for more resources both of them.

I think the value that you are planning to get the theme of 50 years from now you'll be street rates than in the money now to keep recognizing that resource.

So although we have the number of years, we certainly believe that the medical domain expertise to extend beyond those four items.

In terms of bonus of 30 to 31 versus Twentytwenty.

Well, we're we're expecting the bolivar will reach different for companies produce on a constant basis. So we feel good pull through for both founded on the change would be in Dirty quarterly we managed to get the permits to expand from there.

Our 3000 permitted to 5600 permits.

If you take out altogether would you expect to what order of magnitude increase in production would you expect in 2021 versus 2020, just a rough idea.

But it would be 20% majority hunter.

Which is in terms of revenue is 60% of our revenue.

So 60% of your revenues would go up 20%.

Yes.

Got it at that.

Very encouraging.

Yes, okay.

This has been the profile of the great works of centuries, we my customers may be lower grade.

Although we expect more in the.

We are in the process of budgeting, including coding that final number.

Initially.

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Well in terms of the border orthopedic preempt the board.

When and how they make their decisions. So in terms of free cash flow or we make use of this.

Current free cash flow or.

The other benefit there, but certainly as if it's going to be on the universal.

And anyway.

The Navy NPV, we've just released the DTA for believers and we are planning to release therapies for Jody purchasers inclusive, whether we'd give you.

Our sales for what we believe both of B quality assessment was released.

The potential value of this the operation.

In terms of selling to larger entity will.

I cannot comment on that beyond saying that we we certainly look at ways to increase value for our shareholders.

I Didnt asked this question before but I assume that you would be looking for a substantial increase in EBITDA in 2021 versus 2020, all things being equal if prices stay here et cetera.

Well as compared with persistency, we expect to include onshore.

At this time this brings us to the end of Q and a session I turn the call back over to the presenters for closing remarks.

Thank you operator that concludes todays call on behalf of the management team I would like to thank the participants for joining us on todays call a replay of the webcast and all material can be found on our website at tier metal dot com. If there are any further questions or concerns you may reach out to us anytime after.

On todays call our contact information can be found in today's presentation as well as on the company website. Thank you operator Hello.

Thank you everyone. This concludes today's conference call you may now disconnect.

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And.

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Okay.

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