Sierra Metals (TSX: SMT NYSE: SMTS) announced Q1 2022 earnings; results highlight an operational turnaround is in full progress at their major mines and they are on track to meet full year guidance.
Bolivar Mine (Mexico)
At the Bolivar mine operations have begun to rebound towards full production. Production is expected to improve for the balance of the year, in particular the second half of 2022. Most personnel are now vaccinated at the mine with plans to achieve full vaccination by the end of Q3 2022.
Sierra metals completed 20,000 meters in exploration drilling, which now provides access to the Bolivar northwest zone. This zone is expected to support a bulk of the production for the coming quarters.
In addition to production improving at the mine, further investment will be done to correct drilling and development backlog and update operational facilities.
Sierra Metals delivered substantial improvement at their Cusi mine. A 15% increase in throughput along with a 11% increase in silver grades resulted in a 37% increase in silver equivalent production for the quarter.
At the Yauricocha mine Sierra Metals discovered a new high-grade zone – Fortuna, it’s adjacent to their current mine operations. Access to the zone will be available as early as Q3 2022 and will result in an increase in ore grades over the next several years. The 8 exploration holes intercepted high-grade copper, zinc and lead zones.
Alonso Lujan, Vice President of Exploration at Sierra Metals stated the following:
“The reported results from the Fortuna zone, located laterally, between the Esperanza zone and Cachi Cachi Mine demonstrates the continued resource potential within the Yauricocha Mine. The high value ore that has been defined suggests that continued exploration in the area is warranted, to better define its potential.”
Q1 2022 Operational Results
Revenue for Q1 2022 was $57.2 million, a decrease of 18% from the previous year; and EBITDA was $16 million, a 43% increase vs. the prior year.
With a backdrop of soaring inflation, Sierra Metals provides investors with an attractive inflation protection revenue mix; 93% of current production comes from copper, silver, zinc and gold.
Average realized prices were strong in the quarter; copper was up 17%; silver was down 9% and zinc was higher by 36%
The Outlook is Bright
Luis Marchese, CEO of Sierra Metals stated the following:
“The outlook for a full recovery at our largest mines is encouraging. Our goal is to ensure that our current guidance is met, and we are making the right decisions for the future performance at our mines”
At the Yauricocha mine management is focused on meeting the maximum permitted throughput of 3,600 tonnes-per-day while incorporating the newly discovered high-grade areas (Fortuna) to maximize metal production. The company expects to meet 2022 production guidance of 45 to 49 million copper equivalent pounds.
The drilling campaign remains focused on the upper areas of the mine to identify additional new mineable areas and a focus on the Fortuna zone to better understand the orebody structure.
At the Bolivar mine management is targeting to meet throughput of 5,000 tonnes-per-day by year end, improved production is anticipated in the 2nd half of the year with the Bolivar Northwest zone supporting a bulk of the production.
Management expects to meet 2022 production guidance of 23.8 to 29.9 million copper equivalent pounds. Additionally, they will continue infill drilling and development with a focus on Bolivar East and La Sidra.
At the Cusi mine the focus is on meeting current throughput of 1,100 tonnes-per-day and continue mine development to the target of 1,200 tonnes-per-day.
Management expects to meet 2022 production guidance of 1.75 to 1.85 million silver equivalent ounces. Other projects at the mine for 2022 include equipment replacement and tailings dam development.
Sierra Metals: Green Metals Exposure & Inflation Protection at a Discount
Earlier this year Capital 10X highlighted copper as the strategic green metal during the current energy crisis and Sierra Metals as one of the best value plays.
Sierra Metals has strong exposure to the green metals theme with 41% of production coming from copper. Capital 10X believes energy security will be one of the most critical initiatives for governments around the world – copper will play a central role in the green infrastructure build out.
Additionally, Metals provide an important hedge against inflation. During the ’70s the best way for investors to protect themselves versus inflation was by owning gold and commodities; we believe that applies to this decade as well.
Sierra Metals trades at a deep discount vs its copper peers, on a forward price to cashflow basis Sierra metals trades at 1.6x vs small & mid cap copper peers at 4.4x.
Additionally, the company has an attractive dividend yield of 3.4%, 2% higher than the dividend yield of the S&P 500.
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.