Sierra Metals – 2019 Q2 Production Results – The Expansion Continues

With pricing for copper expected to strengthen over the next year and the price of gold, the precious metal bellwether, already surging, polymetallic mines should see favorable economics in the near term.

We expect companies with expanding operations to see the biggest growth as the increased revenues will help them beat earnings estimates and give them greater cash flow to speed up their expansion.

One company we have been watching closely is Sierra Metals (TSE: SMT). They are a polymetallic producer headquartered in Toronto with a $250M market cap and 3 operating underground mines in Mexico and Peru. While copper is their primary revenue source, they expect silver and gold revenues to grow as their Mexican Cusi and Bolivar mines continue their expansion leading into 2020.

Catalysts Are The Key

Sierra Metals has a rich pipeline of upcoming catalysts that we believe will garner meaningful interest from investors.  The company is under the radar, positive news catalysts will certainly bring attention from institutional and retail investors.

Sierra Metals already trades at a deeply discounted price to NAV of 0.31. While we expect to see the stock to trade at a higher multiple in the near-term (in-line with peers), with new technical reports coming, we believe the investors will revisit the underlying value of the assets themselves.

Since their last technical reports were released in 2017, the company has completed exploration and definition drilling initiatives at all three of their mines. Over 140,000 meters of drilling have been completed to date, with more expected in 2019.

The fruits of their labor will be released near the end of this year, with updated 43-101’s coming for all three mines in Q4 2019.

On top of this, the ramp-up of their Cusi and Bolivar mines are progressing well. These planned expansions, expected to continue throughout 2019, will further diversify their revenue mix and drive revenue growth.

Sierra Metal’s recently released 2019 Q2 production results demonstrate their ability to execute on these plans.

2019 Q2 Production Results

Overall, Sierra Metals achieved a record consolidated quarterly throughput, led by record throughput from their Bolivar and Cusi mines.

Total silver production increased 21% year over year, yielding 0.8 million ounces. Gold production increased 40% year over year to 2,540 ounces, while copper increase 13% to 9.7 million pounds.

Lead production also saw a 14% increased while zinc production decreased 18% due to operational challenges discussed below.


Ore throughput increased 20% year over year, with a quarterly throughput of 3,700 tonnes per day (tpd). This is expected to grow to 4,000 tpd in Q3, beating their previous guided timeline of Q4 2019.

Copper, Siler and Gold production all increased year over year, with total copper equivalent pounds increasing 19%. This shows recovery and production are increasing in step with the mine expansion – a very positive sign for the mine.

While copper head grades were lower than expected, Sierra sees this improving as mine expansion continues.


Throughput for the silver mine increased 73% in Q2 to 938 tpd. This is slightly below the expected mark of 1,200 tpd, however, the company reiterated they still expect to increase throughout 150% to 2,400 tpd in 2020.

During the quarter, total silver equivalent ounces increased 41% despite lower head grades and recoveries. This was achieved on the back of silver gold and lead production increases of 49%, 52%, and 46% respectively.

An updated LOM and NI 43-101 is expected in Q4 of 2019.


Last but not least is their zinc/copper min in Peru. Total ore throughput for the quarter decreased 10% year over year. This was driven by 12 days of lost work from an illegal strike action at the beginning of the quarter. Since that time, they recorded record production in May and June, mitigating some of these losses.

Higher than expected copper and lead head grades lead to 17% and 16% increases in production despite these operational challenges. Lower than expected zinc head grades combined with the lost time lead to the above mentioned 18% reduction in zinc production.

Overall, Sierra Metals expects mill throughout from Yaurichoca to increase 14% by 2020, allowing the mine to continue to serve as their revenue backbone as production ramps at their Mexican assets.

Look to Earnings

Investors should expect Q2 earnings results to be released in early August.

While we are waiting for earnings to see how the economics of their expansion is playing out, we see their production results as largely positive.

This is a company we will continue to watch throughout 2019.


Sierra Metals is an investor awareness client of Capital 10x.

Sierra Metals is a market awareness client of Capital 10X.

Evan Veryard has a Bachelor's of Chemical Engineering from McGill University and a MaSc. of Chemical Engineering from RMC. He has over 6 years of research experience focusing on industrial materials. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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