On April 19th Sierra Metals Inc. (TSX: SMT) (NYSE: SMTS) announced first quarter 2022 production results. Despite operational challenges as a result of COVID-19 and lower ore grades, the company expects to meet their H1 production guidance (34.0-39.5 million copper eq. pounds), and continue to recover production through the remainder of 2022.
Consolidated copper equivalent production was 15.9 million pounds; a 38% decrease from Q1 202 – the decrease can be mainly attributed to the 50% decrease in throughput at Bolivar in conjunction with lower grade ore.
Luis Marchese, CEO of Sierra Metals stated the following about the company’s outlook for 2022:
“An improvement is expected on a quarterly basis, in particular during the second half of the year, due to the full turn-around effort currently underway. The turn-around includes an aggressive infill drilling campaign to improve the quality of ore resource estimation, additional mine development in order to regain ore access and mining flexibility”
Marchese also stated that an initial milestone has been reached at the end of Q1 when mining started in the Bolivar Northwest zone – this is the area that will support a bulk of the production for the coming quarters.
Yauricocha Mine (Peru)
The Yauricocha Mine processed 315K tonnes during Q1 2022, a decrease of 3% from the previous year. The delays in preparation of the polymetallic mining zones forced the mine to focus on copper suldes during the quarter, which resulted in higher copper head grades, but negatively impacted grades for all other metals, except gold – resulting in copper equivalent production at 29.1 million pounds in Q1, 42% lower from the previous year.
Production was impacted by COVID-19 during the quarter, the mine faced substantial shortage of service personnel during January and February. Lost production is expected
to be recovered in the coming quarters by making use of spare capacity at the plant.
The drilling campaign remains focused on the higher areas of the mine to identify new mineable areas within the permitted levels of the mine.
Bolivar Mine (Mexico)
The Bolivar Mine processed 188K tonnes during Q1 2022, a 50% decrease from the previous year. The decrease in throughput and grades resulted in a 64% decrease in copper equivalent pounds produced during Q1 2022 at 2.5 million pounds.
Sierra expects improved production for the balance of the year, in particular, during the second half of 2022, due to the full turn-around effort currently underway. Mining started in the Bolivar Northwest zone, which is expected to support the bulk of production for the coming quarters.
Cusi is beginning to reap the benefits of investment into critical Mine infrastructure over the last year, including improved ventilation with the addition of a raise bore, which alleviated high temperatures at depth, as well as a fully operational new tailings dam.
The Cusi Mine processed 88K tonnes during Q1 2022, an increase of 15% from 2021. Higher throughput and grades resulted in silver equivalent production which was 37% higher in Q1 2022 versus the previous year.
Sierra Metals: Inflation Protection at a Deep Discount
Last month we highlighted Sierra Metals as one of the best value plays in the critical green energy metals space.
Sierra Metals offers a diversified exposure across the metals complex, in 2021 copper, zinc and silver were the top three contributors by revenue, 35%, 26% and 24% respectively.
Looking at updated valuation metrics (Bloomberg consensus, April 22, 2022), Sierra Metals trades at deeply discounted valuation multiples relative to its copper peers across all metrics.
- 84% discount on forward price-to-cashflow
- 72% discount on forward EV-to-EBITDA
- 87% discount on forward price-to-sales
Sierra Metals is a market awareness client of Capital 10X.
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