Sierra Metals (NYSE:SMTS, TSX:SMT) released stellar Q3-2020 results on November 9th, delivering record quarterly production and EBITDA (cash flow).
Despite the challenging operational backdrop of 2020 with the headwinds of COVID-19, Sierra Metals was able to quickly restart operations; delivering record quarterly production of 35.2 million pounds of copper equivalent production and record EBITDA of $37.2 million.
Sierra Metals: Attractive Commodity Exposure and Best-in-Class Costs
Sierra’s operations consist of 3 mines in 2 attractive mining jurisdictions:
- Mexico: Bolivar Mine (copper) and Cusi Mine (silver)
- Peru: Yauricocha Mine (copper/zinc)
Sierra Metals provides investors with an excellent inflation protection revenue mix, 71% of their Q3 production revenue came from copper, (37%), silver (25%) and gold (9%).
The company’s flagship mines, Yauricocha and Bolivar, have best-in-class production costs versus global copper mining peers. Both mines sit at the 31st percentile of the global copper industry cash cost curve.
Lower production costs equal more potential for cashflow.
Record-Setting Q3 Results
Sierra Metals delivered record-setting production and profitability results in Q3 despite the volatile COVID-19 operational environment.
- Record quarterly production of 35.2 million pounds of copper equivalent production (up +9% y/y)
- Record EBITDA of $37.2 million (up +73% y/y)
- Cash costs falling -23% year-over-year to $0.92/lb (copper eq. pounds)
Attractive Production Growth Outlook
The company’s long-term production outlook is also very encouraging, they are planning to increase tonnages mined per day (TPD) to 17,900 by 2024-2026.
Management’s production outlook represents an impressive 14% compound annual growth rate (CAGR) over the next 5 years, placing Sierra Metals as one of the highest growth copper mining companies in the world.
Sierra Versus Commodity Peers
On a valuation basis, Sierra Metals trades at a very attractive multiple versus its commodity peers (copper, silver and gold) at 1.0x forward price-to-sales (analyst consensus).
Sierra trades at a 60% discount to its copper peers, a 90% discount to silver peers and deep 86% discount to the gold miner peer group.
The top 10 holdings of the Global X Copper Miners ETF (NYSE:COPX) trade at 2.4x forward price-to-sales, the top 10 holdings of the Global X Silver Miners ETF (NYSE:SIL) trade at 7.7x forward price-to-sales and the top 10 holdings of the VanEck Vectors Gold Miners ETF (NYSE:GDX) trade at 7.7x forward price-to-sales.
2020 Financial & Production Guidance
Sierra Metals issued revised 2020 EBITDA, CAPEX and cash costs guidance.
- Consolidated EBITDA for 2020 will be in the range of $100 to $105 million, this implies an impressive +57% increase from 2019.
- CAPEX of between $40 to $45 million for 2020.
- Yauricocha cash cost (copper eq. lb) will be in the range of $1.25-$1.31/lb
- Bolivar cash cost (copper eq. lb) will be in the range of $1.45-$1.52/lb
- Cusi cash cost (silver eq. oz) will be in the range of $18.15-$19.05/oz
The company has maintained full-year 2020 production guidance, anticipating copper equivalent production that will be in the range of 110.1 to 122.3 million pounds. An impressive outlook that could potentially see the company grow overall production by 9% at the top-end of guidance.
Key catalysts for the company in Q4 2020 include:
- The continued ramp-up to full capacity at all mines
- Updated preliminary economic assets (PEAs) for Yauricocha and Cusi Mines.
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.