Q1 2022 Sierra Metals Inc Earnings Call

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Hello, everyone and a warm welcome to the Sierra metals first quarter 2020, Chief financial <unk>.

My name is Stephanie and I'll be your operator today.

You would like to ask a question after the speaker's prepared remarks, you may do this by pressing star one on your telephone keypad.

I will now hand, the floor over Cristiano Cathy Douglas manager of Investor Relations at Sierra Metals, Cristiana Eva E.

Thank you and good morning, everyone. Welcome to <unk> first quarter 2019 results conference call on today's call. We are joined by Luis <unk>, Our CEO and Edgar Merit, 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.

Through the webcast or from the company's website at Sierra metals of Dot com.

Yesterday's press release.

Financial.

All statements and the management's discussion and analysis are also posted on the company's website.

I'd like to note that this earnings call contains forward looking information that is based on the Companys current expectations.

Our unbelief for forward looking information is subject to a number of risks uncertainties and other factors.

Actual results could differ materially.

Mark conclusions forecast 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 conclusions forecasts or projections in the forward looking information and the material factors or assumptions that are applied in drawing a conclusion or making a forecast or projected.

In the forward looking information is contained in the company's annual information form which is publicly available on SEDAR.

At Gar.

We have form 40 F or the company's website. Please note that our dollar amounts mentioned on today's call are in U S dollars unless otherwise noted.

I'd now like to turn the call over to our CEO Luis Mark JV Gordon overview of <unk>.

Highlights as well as a summary of what's ahead for the remainder of 2022.

Thank you Christina and good morning, everyone.

Thank you Martin before.

Easter for supposedly windows.

Thank you.

Gotcha.

Good morning.

Which prompted further.

Thank you Luke Bryan Deboer Levine.

With regard to.

Yes.

Please proceed sir.

Great.

Great.

MCP unreasonable.

Thank you.

Corporate group production during the quarter.

Please continue.

Broker to perform for us.

Okay.

Okay.

The repurchase.

But when you go to Google.

Most of them are committed.

Okay.

Okay.

My information by the end of Q2.

Okay.

Yes.

During the second quarter of the year Ghansham.

To be able to make up for the lower growth.

Production.

Thank you.

First one on China.

Glenn will provide good level.

No we don't Marilyn burgers are permitted capacity.

Perfect.

The discovery of new high grade for Google home.

So these are two good move.

David.

Cindy Holmes.

Nathan recurring Manuel Bruce.

No not really because in Turkey.

Can you speak to us.

We are a leader.

Thank you.

Good morning.

The amount of room from DB.

And as we progress.

Please proceed.

Good move throughout the year.

The first quarter was particularly difficult.

Reached as Kelly, who will do a whetstone.

Awesome.

Q.

With a 50% reduction with Google, they're a 64% decrease in corporate gross margin.

With the bulk will be reabsorbed through the year.

Great.

Rupert.

However.

Okay.

By the end of this quarter.

The first quarter.

It will be removed.

Hello.

To provide color on the mix.

Our plans for incremental growth.

Great for Magellan.

Okay.

Bob.

Tonnage per day.

<unk>.

While production inclusive of the mine.

Further investments.

Update you briefly.

Improve brokerages.

Broker.

On upgrades.

Okay.

Among several initiatives.

And finally.

We have seen substantial improvements are our group fleet operation So far this year.

In business into there might be some pressure last year.

Brokerage Commission and the.

Visual of a rate floor.

Alleviate the high throughput to produce.

We're more operations are taking place.

Okay.

Slightly higher grade.

Resulted in a 67% increase.

We see very good production for the same period last year.

This is performance no doubt helped support to fully API production profile of the company during the quarter.

Additionally, we continue for operational recovery.

We set up.

We plan our guidance accordingly.

We can deploy.

Okay.

8% decrease in consolidated copper equivalent production due to that risk.

<unk>.

<unk> reached the companies.

So the copper production guidance of 54 level.

39, 5 million copper equivalent pounds.

Looking at WPZ with Youtube.

Turning to smoking products.

So the question.

Further permitting with switching to mining lower levels of demand refinery agree with.

We are focused on meeting marketing on levels of throughput of 5600 tonnes per day.

Understood.

Along with mining activity when oil from the new high grade zone.

We positively impact our ability to reach yearly target.

Our focus at the regulatory agencies.

Finding new innovative ways to produce and deliver our full capacity.

Within our current mining concludes.

Especially with the continued metal spread.

We expect that we will make up for these production year on year with part of the first quarter to repurchase.

And are on track to meet our guidance of between 45, and 49 million copper equivalent pounds.

While the new <unk> is expected to provide a bit more brief for the mid year.

Our exploration drilling campaign continues with a focus on our reach among high value projects.

Manuel.

We brought on or at least 1500 regional meetings is proposed for fulfillment to further analyze the ore body.

Potentially find correlations between structural problems.

It'll information that may lead to finding additional high value products.

The purchase price also continue the repurchase in <unk>.

We work on the vertical to shop with television production and they require expansion of opinion.

I believe we continue our plan to increase throughput on a quarterly basis.

We then kind of your target of 5000 tonnes per day.

Improved production is anticipated in the second half of the year.

<unk> support feasible production.

Additionally, with the reduction of the development backlog at the mine.

The installation of our premier royalty position.

The objective is to deploy.

We plan to keep our rates of 3000 tonnes per day in <unk>.

However, our strategy is fluid and the actual timing may change.

Our priorities our operational deliver shifts.

But the timing.

We're focused on continuing to win new programs.

Operating philosophy digital Duplicity digital board.

We improved the quality of resource is diminished.

We continue with additional mine development to regain access to ore.

<unk> 96.

We continue to be flexible.

Including installation and indication.

We believe.

The recent tanker lifting the length of the plan.

Relevant brands and planned improvements.

The vessel preparation the company's focus on period.

<unk>.

A year of high grade silver and gold, where we expect to initiate a drilling campaign basically be here.

And last year, our IGD bitter multistem with silver and gold, which capitalized mineral volumes Supportable Your mine.

With improved operating efficiencies, our ramp up to production and continued metal prices.

Affiliate fee that we will see a stronger revenue contribution from <unk> by the end of the year include <unk> III.

It could be.

Before he can continue mine development and processing of the rotation.

Obviously drove 100 tonnes per day.

If you really believe.

In order to support the development of its own broker dealer.

Not true.

Additional employees include equivalent reflecting unfavorable development.

We can report that the minus on track to meet this production guidance would be one despite a $1 55 silver equivalent ounces.

But we think that it will continue to provide a positive contribution towards the company's EBITDA.

And with that I will now turn to <unk> to review the first quarter financial highlights.

Thanks, Louise and good morning, everyone.

Turning to slide six.

With the continued impact of COVID-19 on our employees and operations during the early months of the year.

We reported a 24% decrease to a consolidated throughput.

And with the decline in all grades except for copper this equated to a 38% decrease in consolidated copper equivalent production compared to the first quarter of 2021.

Although strong metal prices continued.

We're not able to fully offset the decline in production and revenues from metals payable, which decreased 18% compared to Q1 2021.

Adjusted EBITDA was 16 million or 43% decrease.

Resulting from lower revenues and lower gross margins when compared to Q1 2021.

We reported a net income attributable to shareholders.

Zero point $4 million or zero cents per share and adjusted net income of $5 9 million or <unk> <unk> per share.

We finished the quarter with approximately $19 5 million in cash.

Our three months revenue mix by mill continues to be led by copper followed by silver and zinc.

At 41%, 28% and 19% respectively.

And gold continued to contribute revenue in line with previous quarters at 7% and 5% respectively.

Looking at the average realized prices compared to Q1 2021.

We continue to see an improvement in copper driven by global infrastructure supply demands and the Green Energy Revolution.

Silver realized prices lagged slightly with a 9% decrease while gold increased a modest 5%.

Zinc and lead saw strong increase with 36% and 16% respectively.

Turning now to slide seven <unk>.

Compared to Q1, 2021, a 48% increase in cash costs and a 42% increase in August .

Okay cost was driven by 37% decrease in copper equivalent payable pounds at DLT culture.

Given our inability to mine higher grade zones over the past few quarters, we have seen a downward trend in rates.

Which continued to result.

These costs when comparing Q1 2022 to last quarter.

In addition to lower grades throughput in the first quarter of 2022 was also impacted by poor performance of a binding contract.

Mine's times were below targets.

<unk> had to resort to stockpiles.

Which also negatively impacted grades.

Costs were also impacted to some extent by a nationwide transportation strike during the last week of March that resulted in an increase of unsold concentrate inventory at quarter end.

At this event developed cash costs would have been closer to $2 per pound.

At Bolivar cash cost increased by 187% and all in sustaining costs by 152%.

Driven by a 56% decrease in copper equivalent payable pounds, which resulted in higher operating costs per ton.

When compared to Q4, 2021, olivares cash costs have improved by 14% and all in sustaining costs by 15%.

While tonnage decreased by 18% higher grades this quarter.

While still significantly lower.

Compared to Q1 2021.

Compensation slightly and approved costs.

Overall this is a positive trend for our turnaround program as we are seeing improvements.

At quarter over quarter.

<unk> as mentioned earlier investments into the mine last year have provided for increased operating efficiencies so or this year.

A 49% increase in silver equivalent payable ounces.

Resulted in the decline for both cash costs and all in sustaining costs by 28% and 34% respectively when compared to Q1 2021.

Looking at our comparison to Q4 2021 cash costs increased 14%, while throughput increased by 4% quarter over quarter.

Cost of inputs also increase.

Global inflation and the impact of the ongoing Russia, Ukraine conflict.

Cost of fuel explosives and drilling equipment are also.

Silver equivalent payable ounces reported during the quarter are in line.

With the previous quarter.

However, the increase in cash costs resulted in higher cash cost per unit.

On the other hand, all in sustaining costs decreased by 5% when compared to Q4 2021.

Costs related to treatment and refining charges.

General and administrative costs as well as sustaining capital expenditures decreased resulting in a lower all in sustaining cost per ounce.

In conclusion on slide eight the company reported $19 5 million in cash asset March 31 2022.

Our total debt at the end of the first quarter was $81 1 million with a net debt of $61 6 million.

Cash and cash equivalents decreased during the quarter due to $3 9 million used in operating cash activities.

$10 7 million used in investing activities.

And 0.9 million used in financing activities.

The company has further access to available credit lines with local banks as well as other short term lines and prepayment facilities, whether it's commercial uptake.

For the remainder of 2022, the Companys focus will be on improved operating cash flows through improved production and cost reduction supported by strong base metals price environment.

Management will continue to review metal prices and retains the option to adjust the capital expenditure.

<unk> metal prices experience any dramatic changes within the year.

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

Thanks Pat.

Thank you.

We now like to open the call to questions.

And we want to maintain.

And then the App in particular.

So limited.

Okay.

Please operator open the line.

Thank you to ask a question. Please press star one on your telephone keypad now.

The first question comes from Mark Reichman from Noble capital markets Mark. Please go ahead.

Thank you. Good morning, just had two questions first is with the recovery in production over the balance of the year do you still expect to meet the cash and all in sustaining cost.

Slide nine guidance.

Hi.

Hi, Mark Thanks for the question.

Yes.

We expect to still meet.

Gross.

Guidance numbers.

Okay. Yes, so there is a little hard to tell because sometimes joseph experienced some inflation in some of the particular line items I was just thinking well I think QC was fine for the first quarter, but.

All of our euro coach work quite a bit higher than the guidance that well.

Maybe maybe there might be some stickiness to some of those costs, but it sounds like it's really just a function of production.

And then just the second question is.

If you could provide just a little more clarity.

Corporate presentation, you've got slides 11, and 12 in 'twenty two that talk about the your codeshare.

Production growth in brownfield opportunities. So if you could just maybe provide a little more clarity on Fortuna.

What that means in terms of a great uplift.

Then kind of longer term plans to bridge to the.

Mining at depth after 2023, and once you get the permit.

Hello, Margaret disagrees.

Fortuna Rubin.

<unk> been bulk routine.

All of the area.

<unk> BV level, Mark, which is our current mining restrictions so by doing that.

Green thumb reinterpretation.

We were successful in finding the pro two nine areas, which as we can to get to go to his grandson's Little Lodge will bring area. There in the middle So I wont remains manageable with fees.

Very good development, because we found these high grade zone.

We are distributing the prescription.

Looking to hopefully finding areas laser now what does this mean in terms of the mine production.

As you are aware over the years and our repurchase has benefited from what has been Colgate Politicals Chico's.

<unk> are a small body and smaller volume with high grade.

These smaller rising high grade was mutually uniques.

The lower grade larger ore bodies and that will give you the mic.

Repurchases smooth.

Major nickel.

Profitability issues.

While competencies.

Most of their political now are below the norm.

Actually almost all of them.

Bye bye.

By finding from tuna, amobi, notably we are replacing.

The high grade.

We would usually mined from the group of Chico's below them.

While this is very good news.

The other variable annuities.

On <unk>, which is where we have our main.

Construction of the tunnel.

So it's very easy to add fleet, we've got all the facilities and really diligently for power we have.

Now developing and we can continue to provide assuming a few months.

This is this is very good news.

Sure.

As we highlighted in our presentation.

Thank you very much that's really helpful.

Our next question comes from Heiko Ihle from Wainwright.

Your line is open.

Paul.

Hey, it's Michael from H C Wainwright.

I saw some news with protests.

Protests civilize exclude energy cost in Peru.

Just given the commodity price spikes in loan obviously inflation is an.

Issue, we had just bought any enrollment comes from every single earnings call. The launch so far.

What are you seeing and what are you doing to a mostly.

If it all mitigated as much as you can and also how much of.

Fuel cost section Walmart.

Yes, we've essentially taken the third cycle as well as exchange rate.

Now the exchange rate will remain.

We budgeted growth as well with.

With Lenovo phone calls per dollar.

Now it's closer to.

These volumes.

Around 65% of the protocols are in Colorado.

Because despite foreign exchange rates.

And we're also hiring.

Tom.

On.

With fewer but we are not so.

Fuel.

Intensive osmotic power on.

Empower crafts.

Very clearly for us.

Saw that.

Passing up into the summer.

How much.

We are looking at.

Explosives.

Items.

Okay.

We are price takers philosophy physically we do management.

It is moving.

Yes.

There is so much we can do on that but certainly we are.

Time to improve.

The effectiveness of the use of those casinos.

Hello.

Earlier on this call you talked about the exploration of Bolivar Eastman obviously high grade zinc is very good in this market commentary actually spending on exploring this area on the desk.

Yes.

Possible question to answer, but how much material do you think.

<unk>.

Might be located in this area. Please.

We are starting to dwindle recasting guidance.

Once we can speak with HEICO, certainly we are definitely starting to move.

That's really one is called Lucky with us the best of breed in the works for some time.

But.

We welcome comparable to where we could get from the physical volume and grade from Coker, but now it's become.

Quite relevant.

We're starting to do that in the earlier years.

Levi.

Which was before COVID-19 financial needs.

The types of deposits.

How much were going to spend for clarity, we have grew $4 million.

Moving on.

<unk>.

All of them.

Could we get we might be based treatments for rare diseases production.

Quite soon.

We will have to budget.

We will be processing plants recovers.

Got it.

Thanks, so much <unk>.

Thank you.

The next question comes from Lee Keith and then our next how many office Li. Please go ahead. Thank you.

You very much and I hope everybody is safe and healthy so maybe ed.

Directly to Ed <unk>, maybe you can help us tie this together give us a range that you're comfortable with the EBITDA for this year.

And your range of Capex, and therefore, where we could look towards free cash flow that would be my first question.

Second and I think we are a much better company than 78 Chevy exchange stock price.

I think that the price of stock kind of gives us a cheapen the image and we thought about the virtues of a reverse split.

As a way of elevating stock price and maybe.

Getting ahead of the category of cigar Butt.

And finally.

Based upon your budgets last year, you went through and gave me with the hope that the dividend being sustainable.

Sure.

A determined by the board rather than management, but.

Do you think you'll be in a position to pay a dividend at the end of this year based upon your budgets if things go along with your expected lines. Thank you and wish you good luck.

Thanks, Lee Thanks for those questions.

In terms of EBITDA, we're maintaining our guidance.

Up between 90 and added $5 million.

In terms of Q1 EBITDA.

So a little bit better.

Than expected.

So we are definitely tracking well.

But things Capex.

Capex guidance was $71 million now depending on really the turnaround.

Boulevard.

We we will have the option to reduce that I believe will probably come under capex.

$71 million.

Probably somewhere between 50% to $60 million.

Again wanting to.

Ensure that we have sufficient liquidity.

To make any.

Production shortfalls that we've made.

We're still not out of the.

But what's yet with respect to the turnaround, but we hope to be.

Over the next.

A couple of months.

In terms of.

EBIT Theres no question.

But our share price. This is Scott Henry at more scale with El Cubo.

Mining space.

It's fair to say that mining companies globally.

Depressed.

Share prices.

<unk> and.

Crs separately.

Okay.

More most banks.

Ben.

And then the rest so.

I don't really want to speculate.

In terms of what M&A.

Again, I believe our analysts defend a really good job and you can.

I encourage.

Everyone on the call to really review the analyst coverage.

Research reports, where they do provide target. Thank you.

<unk> provides.

Net target share price.

Yes in terms of.

I asked you about the reverse split the dividend intentions.

Oh, yes, yes.

Just wanted to.

Some of that as well in terms of the reverse split yes.

That is something.

So a little bit up.

It's rarely from.

Arithmetic perspective, there's really not a lot going on there, but it is something we can look at.

It's more cosmetic.

Than anything else, but it is something.

I'm happy to speak to you more about that in terms.

So.

Okay.

B B.

Best way to go about that in early.

The attitude.

But it is something that.

We have discussed in the past.

Our village.

In terms of the dividend.

The dividend really will depend on the turnaround.

The strength of the metal prices, it's not a big dividend, but given where we are now I think it's too early to make that call will be much better positioned.

When we get through.

Yes.

I would say August September to make that call.

Sure.

But we remind me and I will give you that you have quarterly amortization of debt.

Thats correct, Gabe 625 million per quarter for $25 million a year.

Process.

Refinancing.

The $25 million for 'twenty.

'twenty two.

We have very declarations.

Our Peruvian banks.

Those discussions are ongoing.

We're growing very well and we hope to make an announcement soon.

They've been extremely supportive.

Alright, Thank you very much for your responses I appreciate it.

Thank you.

A final reminder to press star one if you would like to ask a question.

The next question comes from Jim Young with West investments Kim. Please go ahead.

Yes, hi.

Number one is.

Can you just give us an update as to what the status is it to see please.

It was my impression that the management team is focused on divesting this asset.

Yes.

Thanks, Tim Yeah, Kristine, we are in the process for currency.

But as you as you know <unk> really.

Presents some 10% of our revenue it's not our focus our primary focus right now.

The investments that we made last year.

Non infrastructure really paid off and you can see that Q1 results.

Third.

From our perspective.

There would have to be fired with good financial wherewithal now willing to pay cash.

Willing to.

Two to continue to invest in currency, because I think it does need.

Investments.

Yearly given given DSP thermal.

Pension 12 bank.

Jurisdiction.

And that and we'd also be looking for some sort of a royalty. So all these things need to play out whether working fine even though we are in the process.

Again, it's really not our priority.

We're certainly happy to.

To retain cosi.

Especially with the financial results that we're seeing this year.

And we should be able to provide an update.

During our next.

Our next conference call the process should be done by then for sure.

Okay. Thank you and secondly regarding your EBITDA.

You said that.

Part of that $60 million is a little bit ahead of your expectations is that correct.

Yes, yes.

Yes, certainly metal prices helped the sweat spot metal prices.

Okay. So then could you please give us the quarterly progression for the remainder of 2022.

For the June quarter September and December .

They would get to the low end of the $90 million guidance range.

I think you should see Q2 being being somewhat in line with Q1.

And then you really can this be.

Peak significant uptick.

In the second half so.

Really it's still sticking to if you look at the guidance broken by by first half second half I believe will be.

We'll be in the in those ranges for sure.

Okay, well, if you're looking for a similar level of EBITDA for the second quarter.

This suggests that the third.

So as its third and fourth quarters should show significant ramp ups.

Quite clear as to what's going to drive the significant ramp up in the third quarter and the fourth quarter. So can you help us understand what's going to drive that improvement. Please.

It's really scale, it's really scale.

Okay.

Bolivar oil environment being at the 5000 looking up to the 6000 tonne per day.

Tom.

That's going to be.

Significant.

Okay. Thank you Steve.

No.

The next question comes from Chen Lin.

In asset management Chien. Please go ahead.

Hi, Thank you for taking my questions. Most of my question Anthony on for Jeff.

Yes.

One of the issue for Peru, if the water levels, how challenging to get the.

Permit to mine below the welcome mat for what kind of level and how long that would take.

Thank you.

Thank you too.

The.

The June .

<unk>.

<unk> limited the permitting.

For the record 101 for progress.

Moving on workload demands right.

So in order to reach into those mineral and we've got to do.

Environmental impact statement.

And that process is not fair to me.

Boston.

Hum.

Complicated.

Related to these process, which can take it.

Up to three.

Three years.

Okay.

Hi.

History has told us.

We started that process.

Last year, and we expect that process to fees.

Maybe next year.

And then we would apply for a mining permit in that group and.

And our belief would be.

The new two new areas.

We don't foresee any.

May your.

Issues are increasing those periods.

290.

<unk> would be areas for quite a number of years.

No.

We will consequently, the profit.

Yes.

Keeping up with the.

Communities and we'd be garnered from these.

Okay, great. Thank you and therefore for the congratulation for your recent high grade discovery.

Underground so how do you have that.

It's relatively size of that discovery alright, right now is that correct.

<unk> hotel.

The city early June we completed the reservation system.

Just the learning curve.

Sure.

We believe.

Yes.

It's more of them will be greater than the tonnage.

And that is going to help us replace these.

Highly group of Chipotle will be mining over the years, which will be known.

So it's going to be months.

Tom.

Relevant tonnage, but more particularly the higher grade.

91, let me state that we are still looking in those areas.

We are going to hopefully now we might be able to find some other things.

Core values.

Major rebuild.

Okay, great. Thank you.

That's the major question, maybe the others I'll take it offline. Thank you.

Okay.

We have a follow up question for me Keith.

Please please.

Please go ahead. Thank you.

I was just curious any insight into latest moves in the government Peru.

Company friendly industry friendly industry negative whats going on in terms of the leadership of the country.

Thank you David Good question, leading brokerage environment with a strong.

Yeah.

Different phases.

How we deal with expected GDP.

On lung family.

They're supportive of near term.

That's just not necessarily the case.

So.

Yes.

Three we assume when we target our continuing its more now.

Now.

<unk>.

Feelings of the people.

Now.

In.

In the medium to a premier 19, particularly.

Our auto businesses.

These are very sticky.

The entities.

Our concerns.

The new operating these low comp.

The client experience.

But maybe only a few months on the job. So we will see how it works.

We've got is a difficult question to answer.

Got you.

Do you have an easy question, let me ask you.

Good luck. Thank you for your response I appreciate it.

Hey, good luck patient of ticket.

Okay.

We have no further questions I'll hand, it back for any final remarks.

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, a replay of the webcast. The commentary can be found on our website at <unk> Dot com is there any further questions or concerns you may reach out to us after today's call.

Our contact information can be found in today's presentation as well.

Thank you operator.

This concludes with Sierra Metals' first quarter 2020, Chief financial results call. Thank you for joining US you may now disconnect your lines.

[music].

Sure.