Q4 2020 Sierra Metals Inc Earnings Call
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Ladies and gentlemen, thank you for standing by.
And welcome to the Sierra metals fourth quarter and year end 2020 financial results Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
And you ask a question during the session you will need to press star one on the telephone.
If you require any further assistance please press star zero.
I would now like to hand, the call over to the speaker today, Mike Mcallister, Vice President Investor Relations. Thank you. Please go ahead.
Thank you operator, and good morning, everyone.
Welcome to the Sierra Yearend 2020 results conference call on.
On today's call we are joined by Mark.
And Ed Tomorrow.
Today's call will be followed by a question and answer period. The accompanying presentation for today is.
Is the available for download through the do the.
Net debt or from the company's website at Sierra metals Dot com.
Yesterday's press release, the financial statements and the management's discussion and analysis are also posted on the Companys website.
Before I turn the call over to Ed I would like to indicate that the earnings call contains forward looking information that is based on the company's current expectations estimates and beliefs. This forward looking information and subject to a number of risks and <unk>.
Certainties and other factors actual results could differ materially from our conclusion forecast or projection as reflected in or.
<unk>.
Additional information about the material factors that could cause actual results to differ materially from our from the Asian forecasts or projections and the forward looking information and material factors or assumptions that were applied in drawing conclusions or making a forecast or projection as reflected on the forward looking information.
Is contained and the company's annual information form, which is publicly available on SEDAR or Edgar by a form or the app or on the Companys website. Please note that all dollar amounts mentioned on today's call are in U S dollars unless otherwise noted.
I would now like to turn the call over to Edgar merits of our CFO for the financial highlights then to Louis Mark Davis, our CEO of the company outlook. Please go ahead.
Thanks, Mike and good morning, everyone, turning now to slide four the.
The company achieved exceptional results from 2020, despite managing the implications of Covid.
We reported a 6% increase to our consolidated throughput and record adjusted EBITDA of $97 million we.
We also reported strong cash flow and net income and.
And we finished the quarter and year end with approximately $71 5 million and cash.
These solid results.
Part of the product of evolving optimized operations and expansion to ramp up providing stronger financial and operational performances, which we expect to continue into 2021.
Our revenue mix by metal continues to be led by the copper followed by silver, which have taken an increasing percentage of the overall revenue mix with the ramp up of the all of our top of mind and.
And the <unk> silver mine.
Gold has also seen the continued to increase as a percentage of the mix aided by improved production at Bolivar and supported by higher gold prices.
In 2020, we saw an improvement and copper silver and gold realized prices.
Copper has continued to improve by the end of the year and remained strong currently.
Precious metals of also remains relatively strong as we finished the year and into 2021.
Turning now to slide five.
Compared to the same period and 2019 cash.
<unk> costs were down at all mines, and this was attributable to higher throughput lower.
We're operating and lower contractor costs due to operational challenges challenges from Covid.
All in sustaining costs were also lower and all of our enthusiasm.
However, we did see of 10% increase and the all in sustaining costs at the agriculture due to the higher treatment and refining costs.
Other costs were in line with the the costs that were incurred in 2019.
With that I will now turn the call over to our CEO Luis <unk>.
<unk>.
Thanks, David.
Everyone.
Turning to slide six.
And moving our dividends interest and duo.
We continue to see us loan growth of the company of the bridge from Mexico, one of the rate the revenue and the increased capacity of price announcement earnings per day of linear and there is.
Some of them.
Furthermore, we recently received on Apa's environmental permits and expect to ease the burden of the ATM permitting and Q2 31.
Which would be the repurchase increased relative to book by 30% from 7600 tonnes per day.
We are optimistic the boost operating efficiencies and from.
Diluted and metal prices.
We will be <unk> of the patients meet the annual production and EBITDA guidance provided.
COVID-19, and certainly is still challenging and peak.
Balance remained high and mid single growth.
However policies and practices in place to manage the issues, while prioritizing our employees from <unk>.
The lending community solvency.
And the recapture we continue to complete willing to grow our mineral reserves and resources.
And complete the development work required of operations to increase production and the future.
We expect the capital expenditure projects, which both increased cash flow and lower cash growth.
Additionally, we expect to fund the capital expenditure burn through the and the reason of operates in the discussion.
And I believe adequacy. Similarly, the culture, we are ramping up the mineral exploration firms and completing the production move recently.
These improvements and gluten and Intel.
On the extended facility of both money and driving and windows on some of them, but with the mix of mine with the concentrate the plans of Bolivar.
The book efficiencies and reduced funding costs.
Furthermore, we continue to work on the pre feasibility study, which build on upon the previous B and completed the folks Lehman.
The study and the expansion of the of the share repurchase.
And sometimes on the per day on the doubling of production of the wholly owned 69 and 2020.
100 tonnes per day.
And.
In conclusion.
Turning to the right Kevin.
So the company net.
And the year. Despite the bulk of this is based.
Based on the COVID-19, pandemic and on Wednesday labels to emerge with the stronger balance sheet and cash position.
While we continue to operate in a reasonable environment due to COVID-19.
New renamed to the.
We expect further the cash flow and the liquidity improvement and systems into one of <unk>.
Of the improved production and the Midland price.
The company has made the necessary capital investment volume.
Infrastructure, improving the growth of our action or input cost and we are now reaping the rewards.
We remain committed to the company's proven and sustainable growth and more importantly, the grew in the industrial volume medicine.
<unk> deposits.
With that I will now turn the call back to Mike.
Thanks Louise.
That ends the presentation portion of the call and wed now like to open the call to questions from participants however, and the interest of time and fairness, we ask participants to try and keep your questions to the limited to thinking of all participants the opportunity to ask questions.
With that debt operator, please open the line.
As a reminder, ladies and gentlemen, please press star one on your telephone keypad, if you would like to ask a question.
Our first question comes from the line of Heiko with H C. W.
Line is open.
And then Eric Thanks for taking my questions.
Over the same space.
All of them.
Our press release and the and.
And Thats also on the MD&A page seven and exploration of the art postural were suspended.
Covid restrictions on auto plus and the only drill of $10 100 meters of the 25000 and you want to do.
And January during year 2020 production release, you mentioned that the 10 million and had been carried over from the 2020 capex budgets for carry for projects.
And whats physically spend per crude specifically has this expectation changed since January and should we anticipate these expenditures to be quite strong relative to the year given that they were initially expected to be incurred last year.
And in other words, what are you starting to see for Q1, which is almost over.
Hi, Tycho. Thanks, Thanks for your for your question Yes.
Yes.
And Hayward largely the delays were largely through the Covid and we have seen COVID-19.
Sure.
Into 2021.
In terms of our guidance, we're still holding to our Capex guidance.
And so they're not going to be Frontloaded issue.
Indicated.
I think youre still going to see some impacts.
And into Q1, but we're still holding firm with our guidance for revenue.
Got it and then just one more can you provide some color on what you've been seeing with the treatment and refining costs in Q1, so far.
Total SG&A spend for the $5 8 million team sees and I understand that figure is very comparable with the current environment, but is it maybe just a little bit more detail on with and you can provide for 2021 us today.
Sure of HEICO can really go into too much detail there, but I can talk in general terms in terms of where benchmark flourish.
And were indicative of benchmarks of equity per se.
Last year benchmark was sort of just under 399.
Per ton.
And what we've seen so far and into the.
And the fourth quarter and into this year, we serve of 50% lower.
In terms of indications where benchmark.
And.
On the spot prices have been all over the place with the container.
Digits.
And that are happening in China, So you've got higher freight costs.
No.
All in all of it looks like theyre going to be better and.
And what they were in 2020 for 2021.
And copper copper looking like last year's benchmark was about $60 per ton six months on.
And on the refining side and we're seeing of boats indications of our there of about 25% lower and that share in that regard.
That's all I feel comfortable and income.
So that's actually a pretty comprehensive I appreciate the insight the stay well stay safe.
Thanks, Mike.
Our next question comes from the line of Mark Reichman with Noble capital markets. Your line is now open.
Thank you and good morning.
Question is just on page six of the presentation, where.
They talked about the new tailings dam.
Both for QC and Bolivar and I was just wondering if perhaps you could comment on that and kind of how those those.
The expansion set you up.
And whether you.
And whether thats going to provide enough capacity and kind of whats the whats youre envisioning there.
Thank you Mark.
The Swift.
Three of our finishing the first the facing of course, these new tailings dam and were previously and as well the first of pitching the bally or.
Of our both our.
The outlook for the mid to long term operation of the mine that will be started going through each growth.
The space for the mix of <unk>.
Yes.
The from both sides.
So the Capex that we are.
Of serving now, but it's going to.
Let us operate.
And the comparability for the next few years.
Okay and then the second question.
It's just.
Is there anything any updates.
Related to the strategic review that you announced earlier in the year or.
Anything related to that and it's worth mentioning.
Hi, Mark on and I can take that one on yes as stated in the Companys press release of January eight 2021, the company does not intend to provide announcements or updates regarding this.
The strategic process, unless and until it determines that further disclosure is appropriate and necessary.
That's all we have.
Okay. That's helpful. Thanks.
Our next question comes from Alex <unk> from tax with CIBC World markets.
Your line is open.
Hi, guys. Thanks for taking my questions just wanted to ask on on cost. So obviously, they are up a bit and Q4.
And I think most of that went through the due to COVID-19, but.
Should we expect basically flat cost into Q1 as well.
Given the COVID-19 hasn't really per improve as much of the would've liked and then is there is no risk the guidance if vaccine rollout of our delayed later into the year of how have you sort of incorporated.
Yes, COVID-19 assumptions.
Thanks, Alex I'll take the first part of the question and then I'll pass the second one suite for the World.
Yes.
Yes.
In terms of costs Covid has continued its not like it ended in 2020 and obviously we're seeing.
So.
And a way it's happening into.
2021, and January and so forth.
And I believe that you will see the.
And be some repercussions on costs.
And but we're still sticking to our guidance that was put out in January.
The pass it over to Luis for the second part question.
The loan and fifth third we are aware of maintaining our guidance for 2021.
In Peru, we earned the simple in the hypothetical and waste now we started mid of January and we are still there and and.
Mexico has helped to keep the flow weakness.
And although North America now we've also had the heath of the.
Winter waste of wind down the picks of the northern Mexico. So that's also hit us of it so.
So.
We are feeling the pain of those two issues that come on top of us.
Okay fair enough.
Okay.
Take care of temperature check on that.
Sounds good. Thank you and then maybe just.
So obviously, we don't have any reserves right now because of the PPA of last year, but then I assume that when a pre feasibility studies come out we'll get reserve updates with dose that will be of anything that changes in terms of the price assumption.
Good day of their calculation or can we just kind of assume that we take the last the last day of their statements subtract depletion and and we should be sort of matching up when the when the new reserves thereof.
That should either way to do it.
And it's.
Yes, we are planning to release the preserve Swan.
Once we have.
Finalize and rebuild the DFS.
During this year.
Okay. So no changes to some of our metal price assumptions or anything.
On a number from the WTO.
Okay. Thanks.
Yes.
And next question comes from James Jang from Midwest investments.
Your line is open.
The high couple.
Couple of questions here for a number one.
Regarding your guidance for EBITDA and 2021 of $1 70, and 185 can you give us a sense as to where debt.
Is your range of EBITDA, given the fact that you had copper price is up about 16% since that guidance was issued and the silver has also been a little bit higher.
Hi, and thanks for your question and that get copper zone.
Since our guidance, we put out of China.
January.
And our copper is up about 10% of action and.
And silver and it's remained relatively the same.
And so we're still sticking with our consensus.
And.
I think I would.
A few of our direct you to analysts.
Updated <unk>.
EBITDA price I believe the Alex CIBC, just put out of.
And our revised target EPS.
That's all at the Sandler.
Okay.
And the.
I guess the question regarding of course the strategic.
I will turn and says that you're pursuing.
And what you said about no announcements, but can you give us a sense as to when you made this announcement on January eight.
And there is some price and expectation about the ability of fall through and get the executed and done can.
Can you give us a sense of two are you feeling less confident we're more confident today that you will reach on a mutually agreeable agreements.
And when I can't comment.
Beyond what I commented and answering Mark's question.
Okay.
Can you give us a sense at all as to about I mean here.
And here we are.
It's March $8 19.
And.
I would expect of something's going to the something's going to occur that we should be hearing something.
Shape by the end of the April.
I appreciate your understanding chairman and this matter.
And incentive provide announcements or updates regarding the process.
Unless and until it is determined that further disclosure is appropriate and necessary.
Okay. Thank you very much and that's it from me.
As a reminder, ladies and gentlemen, if you would like to ask the question. Please press star one on your telephone.
Our next question comes from.
Omega family Office and your line is now thank you Lee Cooperman anyway.
And there's something wrong with your financial Communications, and let me explain why I say that Freeport copper and goes up 32% year to date your stock is down 13, 9%.
They have not announced and it.
And to seek strategic alternatives, which would be of plus your stocks of despite making the announcement in January if your stock is down 13, 8% and I Couldnt think and management and the an excellent job of managing the business the earnings look terrific and so.
You've kept people and the dark so I think of it.
Three questions question number one is what do you think of reasonable free cash flow generation for this year is.
The Capex you mentioned $78 million I assume net interest expense will be very nominal because you're generating cash and you have net debt coming into the of 27 nine and Youll.
And of the year I show with the net cash but.
And what kind of free cash flow are you anticipating for the year.
The range.
Hi, Thanks for your question and Im not going to comment further than what's in our guidance that was published in January I think the what was your free cash flow guidance in January and February.
I'd have you look at that Lee and not.
And are prepared to get into that on this call.
What are you prepared to get into the Asia, So rediculous sticky and it looks like.
And like Julie.
Two of them basically.
And you gave it.
Assumptions on EBITDA give capex the interest expense.
And as can be and nominal number.
And what kind of cash taxes, I assume that you're going to generate free cash flow of almost $100 million of share maybe maybe I don't the 80 to 100 million of something like that.
I am on a conference call on coal.
Hi, Matt.
I am sorry, excuse me I was interrupted.
No problem.
Just to get here, but it's all in the.
The guidance.
And the guidance just given the number I don't have it in front of me what do you think you generate the way of cash do you expect and the year with net cash.
We'll take the adjusted EBITDA and debt range, and just deduct the key anticipated and effects and us and what of that what about and do you want to give me and and number that you would expect the taxes are of interest.
No I don't want to do that now.
Now the everyone has asked you a question about the strategic process, Okay, and I hear your answers, but it's not an unreasonable question to ask when do you think the process will be concluded.
And I'd ask you what the outcome is going to be when do you think the shareholders.
You should expect to hear from you as to the process and it was announced January as these processes take usually three years and for lunch.
Cash before you announced in January 8th you had some insight into the process already and basically you think we're likely to hear from you before the end of April and I'm going to ask you, what you're going to say unless you when and where the process to be concluded well you know that you have and acceptable offer or you don't.
Theres nothing more I can say on that strength.
And what and advice and your devices. Okay last question before I give up of new people.
What level of debt with management and comfortable and caring and let me explain what's behind the question I think the stock because we take the C mispriced.
And I think you probably have the potential of learning to Atlanta.
Basically if I put two times leverage on the company you have the capacity to borrow $400 million I don't know if management will be comfortable and doing that $400 million is not an inconsequential.
<unk> of the market cap of the company.
So would the company consider if you don't get and accepted the offer and I think the stock is very mispriced. If you don't get an acceptable offer would the company consider recapping itself and it's one of the light of shows and the company I would not the against debt.
And the market cap of $4 $72 million.
And so to Atlanta.
And basically we would represent a pretty significant percentage of the company.
And I don't know what the management's attitude is towards taking on debt can.
Can you elaborate on that a little bit.
Break now and there's no there's no need to take on debt we have.
As you mentioned.
The EBITDA target is really no need should there be a need on the road for sure.
We will consider it and right now.
And we're cash flowing and up to fund all of our.
The growth projects and the.
And there's no need for debt at this time.
Our next question comes from James Jang with Midwest investments.
Your line is open.
Yeah, Hi, given where you were on a net cash on the the net debt level of ending the fourth quarter can you give us a sense of are you already net cash positive.
Because of the net.
Think about the significant price increase that we've seen so far year to date and the metals markets and your cash generating ability can you give us a sense of are you currently net cash positive.
Hi, Jim we can't comment on that yes, that's not publicly disclosed.
As of Q4 and year end from the <unk>.
Since call I'm not prepared to the.
The comment on on the net debt position into 2021 that we will provide and the May conference from Q1.
David do you have a day.
We are already in terms of the date for your first quarter call.
I think it's usually the third and the gym, but.
I'm not sure of length of substance around the May 18, or thereabouts, but.
But that hasnt been.
Finalized yet Mike is there any current EBIT element.
Year on year.
Yes, it's around that time.
And the third we haven't finalized the date quite yet, but we've up on on an announcement well in advance of that Jim.
And that's all the time that we have for questions. Today I will now turn the call over to Mike Mcallister for closing comments.
Thank you operator that concludes today's call on behalf of the management team I would like to thank all participants for joining us today.
Way of the webcast and all the materials can be found on our website of Sierra metals Dot Com and is there any further questions or concerns you can reach out to us after today's call or contact information and from the presentation and relative on the company website. Thank you operator, please conclude the call.
This concludes today's conference call and you may now disconnect.
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