Sierra Metals (TSX: SMT, NYSE: SMTS) released solid Q1 2020 results and provided the market an update on its operations and outlook as a result of the COVID-19 virus.
Financial results for the quarter were ahead of consensus expectations, with copper equivalent production up 43% to 31.2 Mlb, revenue up +13% at $55.6 million, and EBITDA up 33% at $16.1 million.
Management stated on the conference call the company’s 2020 objectives:
- Keeping employees safe through the COVID-19 pandemic.
- Maintaining a strong balance sheet.
- Pursuing growth and cash flow.
- Seek exploration and development to extend mine life.
The global slowdown has had an adverse impact on base metal demand and prices. As a result G7 central banks and governments have ushered unprecedented levels of fiscal and monetary stimulus to drive economic growth.
A recovery from the pandemic is expected to generate more demand and better prices for base metals. We believe mining companies with copper exposure present a strong value opportunity for investors.
Copper consumption remains invariably linked to global economic growth, particularly as we move to a world where transport is driven by electrification.
Global Copper Consumption: 1900-2019
Base metal mining stocks have sold off meaningfully year-to-date as a result of COVID-19. However Sierra has sold off more than its peers, we believe the company’s attractive copper, silver and gold exposure will attract interest from investors looking for value opportunities in the market.
Sierra Metals recorded consolidated mill throughput for the quarter at 740,698 tonnes, an increase of 30% year-on-year. Consolidated copper equivalent pounds of production came in at 31.2 million lbs, an increase of 43% year-on-year.
Copper continues to increase as a percentage of overall revenues, currently at 40%. The favorable pricing pricing environment for gold has resulted in the metal now accounting for 9% of overall revenues.
The Yauricocha Mine in Peru achieved 22% higher throughput on the quarter, resulting in a 30% increase in copper equivalent pounds produced to 20.1 Mlbs.
The mine is trending towards copper as the main product as a percentage of revenue. On a copper equivalent basis, cash costs were down 20% y/y at $1.17/lb and AISC (all-in-sustaining-cost) was up 15% to $2.24/lb.
The Peruvian government declared a COVID-19 state of emergency on March 17th, 2020, the measures have been extended to May 24th, as a result the company is maintaining only essential crew at the site. Open pit mining is currently permitted in Peru and the industry is waiting for a date to restart underground mining.
Sierra has the flexibility to run the mill at higher levels to make up for lost tonnage from the COVID-19 shutdown. Additionally, the company is optimistic they will receive government permits to increase production by 20% to 3,600 tpd and is currently completing studies to increase it further to 5,500 tpd over the next few years.
The Bolivar Mine in Mexico achieved record throughput for the quarter, 43% higher from the previous year at 4,315 tpd. This resulted in an 80% increase in copper equivalent pounds produced to 9.1 Mlbs.
On a copper equivalent basis cash costs were 44% lower to $1.15/lb and AISC was 48% lower to $1.85/lb.
The Mexican government announced a suspension of all non-essential activities in Mexico on March 31st, 2020 for 30 days. The government has declared mining an essential operation and the company is is expecting to open operations from May 17th.
The company is focused on ramping up production to the 5,000 tonne per day level, which is a 38% increase over 2019. The recent reserve and resource update has outlined expansion potential exists beyond the 5,000 tpd level.
The Cusi Mine in Mexico achieved 9% higher throughput on the quarter, resulting in 53% increase in copper equivalent pounds produced to 1.9 Mlbs.
On a silver equivalent basis cash costs were 37% higher to $22.62/oz and AISC was flat at $30.00/oz. Cusi has faced higher operating costs due to development and subsidence activity experienced in 2019.
Cusi is currently on care and maintenance, and as a result of the COVID-19 shutdown the NI 43-101 has been delayed.
Sierra Metals is a market awareness client of Capital 10X.
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