Q3 2022 Sierra Metals Inc Earnings Call
Okay.
One technical report.
But management's best estimate of future expected cash flows.
I would also like to note that it is the company's current intention to not disclose developments with respect to the special committee process unless.
And until the board of directors of Sierra Metals has approved a specific transaction or material step.
Or otherwise determines that disclosure if necessary.
We will not be taking questions about the strategic process, which is being overseen and are diligently transparent inclusive.
And comprehensive manner by a special committee of the board of directors.
Louie.
Thank you Christina and good morning, everyone.
Before we begin.
I would like to conclude our counsel on bonuses.
For the families of the business.
People.
Most loans again.
Joe reports online system.
Well continue to be with their families and the local ones.
During this difficult time.
The primary objective remains the same.
It will be a Hollywood <unk> and contractors.
As such.
We continue to work through our sweet fisheries pent up demand.
Looking at the slides.
Hi.
For a review of operational highlights.
As you may have risking our Q3 results on the press release.
The challenges during the quarter of a significant impact.
On the Companys operations.
With just under three weeks left in the quarter, we experienced in.
In Los <unk> jewelry culture with three contract workers lots of nice buffer we spoke of the mudslides.
As a result of the axiom and the blockade.
As a reminder, manson's the diesel followed by a local community in an unrelated matter.
Acuity was suspended for the remainder of the quarter and into Q4.
Mine is now in a transition from food products.
So you already put your mind at a 13% decrease in throughput when compared to Q3 2021.
In addition to reclaim throughput online restricted access to non permitted areas of this impact with great momentum and provided a 51% decrease in corporate Grunenthal option.
For legal collection also the claims during the quarter when compared to Q3 2021.
Underground floating in the northwest zone during most of the quarter.
In addition to the operational efficiency due to limited installations.
Focusing a further delay in the production ramp up all year.
You bet on bill rates have improved by 9% on 159%, respectively, when compared to the third quarter of 2021.
But were not enough to offset the associated with increase in throughput.
Consulting.
And a 16% decline in corporate growth in pumps per views.
At <unk> on the other hand, when compared to the same quarter last year.
7% increase in throughput and improved precious metal grades.
Whether they are 22% increase in Cuba equivalent ounces produced.
Well the underground flooding event of course during the second quarter is now under control access to the lower levels of the mine was limited at the beginning of Q3.
Throughput was slightly lower than Q2, but it was offset by higher raising all metals.
Resulting in a 32% increase in silver equivalent ounces produced.
Okay and consolidated basis.
<unk> was 35% lower equivalent and corporate group production was 34% lower than the third quarter of last year.
Turning to slide six.
The accumulation of operational losses, and negative cash flows primarily from our Mexico operations.
Coupled with the sufficient magnitude of theaters already culture during this quarter.
Ultimately put the company in a difficult liquidity position.
October 18th we filed a press release through <unk>.
So Paul I.
And if the clauses of the outlook for the company and the formation of a special Committee.
It made up of the board's independent directors and the initiation of a strategic review process.
The Special Committee continues has mandated.
Claude review and consider all options to optimize the operations of the company and possible financing.
Collections on our strategic options in the best interest of the company.
In taking pulling a third of our cash conservation or <unk>, we announced the company's decision to delist condition.
And why do you see American and the BDO.
This decision was not made lightly as we recognize the challenges. These Brooklyn this presence to many of our smaller shareholders.
The leasing was something that we havent been contemplated for some time given the costs associated with these leases.
The decision to move ahead with leasing from the exchanges coinciding with the news that the company was facing financially <unk>.
The final day of trading in the NYSE American last November 14 2022.
Shares means is printed continuing today before the market momentum traders.
We are continuing to pursue the <unk> and <unk>.
Suspension from training assistance anticipated later during the year.
We will provide an update on our final trading days on the video one this has been confirmed.
Turning to slide seven.
And looking at our current focused as we continued to deal with existing challenges.
As you recall, we're focused on our comprehensive take this rooms processes following day's yield.
Will production will only resume once this process is completed.
Drilling remains remains focused on other areas of the mine by the 85 additional new mine novel areas with within the permitted level of their mind.
In addition to you Amit you cannot go on mute.
Amelia Microsoft you can present and started to unwind the host would like you to mute your microphone you can start six floating.
Flooding that took place during the quarter, it's under control.
We continue to work with operational constraints due to limited installations.
The mine plan is with bookings into Bolivar northwest and developing into higher grade in the heater is ongoing.
Other operational improvements in the whole process ongoing.
Drilling at the relevant to reduce backlog increase the knowledge around availability of ore continues.
<unk> with the underground flowing under control. The goal remains to continue to manage this and continue with operational improvements that are in process.
Across all three mines.
We are certainly focused on sustainable cost management, while dealing with inflationary pressures.
Now, let's turn to add through user quarter financial highlights.
Thanks, Louise and good morning, everyone.
Turning to slide eight.
The company's financial results were impacted by the operational setbacks experience.
In Q3.
For the quarter, we reported a 25% decrease to a consolidated throughput.
And the 24% decrease in consolidated copper equivalent production.
<unk> to the third quarter of 2021.
Metal prices continue to decline during the quarter and combined with lower production revenues from metals payable decreased 36% when compared to Q3 2021.
Adjusted EBITDA for the quarter was negative $3 nine.
We reported a net loss attributable to shareholders for Q3 of $46 2 million.
Negative <unk> 28 per share, which includes an impairment charge of $32 million fourth quarter.
Given the company's reduced market capitalization.
Aligning metals prices lower production.
Got it.
The company performed an impairment analysis on all three of its mines using the life of mine or long analysis.
The analysis of our life of mines is not a 43 101 technical report.
Management's best estimate for future expected cash flows.
The analysis of the Mexican operations concluded that an impairment charge of $25 million and $70 million is required for Alibaba and <unk> respectively.
An updated life of mine analysis for Gary Gotcha did not required impairment as of September 32022.
We reported an adjusted net loss of $10 7 million or negative <unk> <unk> per share.
And finished the quarter with approximately $13 $7 million in cash.
There are three months revenue mix by metal continues to be led by copper at 39%.
Over by silver and zinc at 21% and 26% respectively.
Letting go continued to contribute equally each revenue at 7% and in line with previous quarters.
Looking at the airports realized prices compared to Q3 2021.
Global recession fears sparked by interest rate hikes.
And declining demand continued to drive metal prices lower.
Resulting in a 17% decline in copper in Q3 2022.
Silver gold and lead also declined by 20%, 3% and 16% respectively.
I think on the other hand increased by 10% during the first quarter.
Okay.
Turning now to slide nine to review the balance sheet financing and liquidity highlights for the quarter.
The company reported $13 7 million in cash as at September 32022.
Total debt at the end of the second quarter was $87 3 million, which includes $62 3 million owing on senior secured corporate facility with Banco de Credito del Peru with ECP.
And $25 million for the Crown of terminal the PCP et cetera.
Which was a range during Q2 refinanced quarterly installments payable for 2022.
The company's net debt balance is $73 6 million.
Cash and cash equivalents decreased to $13 7 million as of September 32022.
Due to $31 2 million used in investing activities.
<unk> by $6 $1 million generated from operating activities.
And $3 8 million of cash generated from financing activities.
During the third quarter the company breached certain debt covenants related to our senior secured corporate credit facility with BCP.
Thereby requiring the company to reclassify 37 million short term loan.
Consequently reporting a negative working capital of $52 3 million at the end of the quarter.
The company is seeking accommodation from the lending banks in the form of waivers with its noncompliance.
The company paid its final installment of $6 $7 million to BCP and <unk> and.
And is proactively engaged in discussions and discussions with the senior secured credit facility lenders.
The unexpected flooding at its Mexican operation and operational restrictions limited escalation that fully burden and mudslide events at the early question.
Our novel abuse tool nature.
And we will have a temporary impact on company's ability to generate sufficient cash to meet its financial obligations.
These events have impacted the companys financial position and prior available lines of credit are now subject to further evaluation.
The company has secured short term credit facilities with certain Peruvian banks over the past several weeks.
And although there is no guarantee the company isn't it.
<unk>.
And the process.
Finalizing repayments from an off taker on the sale of its 2023 copper concentrates from the Bolivar mine.
As Luis mentioned earlier the company has formed a special committee of the board of directors to explore review and consider options to optimize the operations financing restructuring.
Restructuring and strategic options in the best interest of the company.
The company has also engaged CIBC as a financial advisor to review various strategic options.
I want to reiterate that im sorry.
I would like you to on mute Micros, you can press star one.
Many of the Tulsa.
Unless and until the board of directors of Sierra Metals has approved a specific transaction or a material steps or otherwise determines that disclosure is necessary.
We will not be taking questions about the strategic process, which is being overseen the diligent transparent inclusive and comprehensive manner by a special committee of the board of directors.
Okay.
Turning now to slide eight to look at the cost breakdown for each mine.
Hi, Joe.
The crusher, we saw an increase to both cash and non sustaining costs by 47% and 19% respectively when compared to Q3 2021.
As a result of the 25% decrease in copper equivalent payable pounds.
Unit costs decreased slightly relative to Q2 2022.
As a result of lower cost of sales and sustaining costs.
But bolivar again, both cash and all in sustaining costs increased when compared to Q3 2021.
Cash costs increased by 67% and all in sustaining costs increased by 18% driven.
Driven by higher operating costs, and an 8% decrease in copper equivalent payable pounds.
All of our Q3 2020 to cash costs and all in sustaining costs per copper equivalent pound.
Decreased.
However from $3 $39 549, respectively in Q2 2022.
At QVC.
Cash cost declined by 15% and all in sustaining costs.
Decreased by 34% when compared to the same quarter in 2021.
A decrease in unit costs as a result of lower operating costs and lower sustaining costs compared to Q3 2021.
Offsetting a 10% reduction silver equivalent payable ounces.
<unk> Q3 2021.
With that I will now turn the call back to Christine.
Thanks, Ed that the.
Our priorities for your question.
We would now like to open the call to questions for effectively participate.
In the interest of time and fairness, we ask.
Quick question for the net appear to give all participants an opportunity.
Operator, please our primary means.
Thank you we will now start today's Q&A session. If you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by Jay.
Our first question today comes from Lee Cooperman from Omega family Office. Your line is now open.
Yes. Thank you I had trouble hearing similar comments made so if I ask a question that you don't wanted to respond to I apologize, but the stock price reflects I think the risk of bankruptcy and solvency or extremely dilutive equity financing can use you far enough into this process, where you could.
Say that the market has overreacted to those kinds of risks.
You don't know the answer at this point in time.
Hello.
Hello.
Hello.
Could you hear the question.
Hello can you hear me.
Hello could you hear the question I didn't hear your answer in response to the question.
Hello.
Hi, we're just having difficulty.
Second quarter here.
Continuing with you.
Lower the shades and you cant okay.
The host would like you to mute your microphone you can press star six to on mute.
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Our first question today is from Lee Cooperman from Omega family Office. Your line is now open.
I asked the question I would say the stock price reflects the.
The risk of <unk>.
In solvency for a very dilutive financings to rescue the company.
Firstly I didn't see either one was likely I'm just curious can the company kind of on that issue.
Do you know enough about the process.
To say that.
Let's see.
Or a very dilutive equity financing.
Being considered.
Hmm mm.
Unfortunately.
Technical <unk>.
I'm.
Unable to get management underlying unfortunately, we're probably going to have to end the call I can't certainly arrange a call separately for you you can call my cell phone I think they have the number.
Okay. Thank you.
Operator.
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