Sierra Metals: 2021 Full Year Production Results – Navigating COVID Headwinds

On January 24th Sierra Metals (NYSE:SMTS, TSX:SMT) announced full year 2021 production results. Unprecedented COVID-19 operational challenges impacted production for the year.

Consolidated copper equivalent production was 89.9 million pounds; a decrease of 24% from 2020.

Luis Marchese, CEO of Sierra Metals stated the following about the company’s outlook for 2022:

“Although Cusi and Yauricocha are approaching normalized operations and staffing, Bolivar needs to accelerate infill drilling and mine developMENT in order to increase the availability of ore during the first six months of 2022.”

Efforts are underway to normalize operations and the company expects that it will take until the end of Q2 2022 to catch up. The latest wave of COVID-19 infections is anticipated to reduce workforce levels at their operations in both Peru and Mexico during Q1 and potentially Q2.

The company will announce its 2022 production and cost guidance along with full year results on March 16th, when it has better visibility on the impact of the near-term headwinds.

Operational Highlights

Yauricocha Mine (Peru)

The Yauricocha Mine processed 1,256,847 tonnes during 2021, a increase of 12% from 2020.

The higher throughput was offset by lower grades, resulting in 21% lower copper equivalent production as compared to 2020.

Bolivar Mine (Mexico)

The Bolivar Mine processed 1,349,602 tonnes during 2021, a 9% decrease from the 2020 annual throughput. Copper equivalent production decreased 38% for the year; grades were negatively impacted by lack of development and limited infill drilling information.

Cusi (Mexico)

The Cusi Mine processed 295,771 tonnes during 2021, an increase of 28% from 2020. Higher throughput and grades resulted in silver equivalent production which was 38% higher for the full year 2021.

Positive Updated PEA for Yauricocha Mine Expansion

Sierra Metals announced an updated Preliminary Economic Analysis (PEA) for the expansion at its Yauricocha Mine, which supports the company’s organic growth strategy of profitably developing and growing the production rate from today’s permitted 3,600 TPD to 5,500 TPD in 2024.

Highlights from the PEA:

  • Expansion Development Capital (Years 1-3): US$102.2 Million
  • Life of Mine (LOM) after-tax Net Present Value (NPV): US$273.1 Million at an 8% discount rate
  • Average LOM Operating Unit Cost: US$44.01/tonne and US$1.30/lb copper equivalent
  • Mine Life: 11 years based on existing Mineralized material estimate of 17.4 Mt.
  • Average LOM Grades of Copper 1.2%, Zinc 1.4% Silver 31.12 g/t (1.00 oz/t), Lead 0.4% and Gold 0.398 g/t (0.013 oz/t)

Sierra Metals: Inflation Protection at a Deep Discount

As we highlighted in our Copper Miners on Discount report last month we believe that small and mid copper mining companies offer the best value in the metals sector; as they trade at a substantial discount to their large cap copper peers.

Sierra Metals offers a diversified exposure across the metals complex, as of Q3-2021 copper and silver were the top two contributors by revenue, 38% and 21% respectively.

Metals provide an important hedge against inflation. During the ’70s the best way for investors to protect themselves versus inflation was by owning gold (30.7% annual return) and commodities (24.1% annual return); we believe that applies to this decade as well.

Looking at updated valuation metrics (Bloomberg consensus, January 27th, 2022), Sierra Metals trades at deeply discounted valuation multiples relative to its copper peers across all metrics.

  • 80% discount on forward price-to-cashflow
  • 75% discount on forward EV-to-EBITDA
  • 80% discount on forward price-to-sales

Additionally, the company recently initiated an annual dividend of $0.03 per common share resulting in a very attractive dividend yield of 2.2%; 1% higher than the dividend yield on the S&P 500 index.

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

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.


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