On Thursday June 18th, 2020 Sierra Metals (NYSE:SMTS, TSX:SMT) announced that it had confirmed a new high-grade silver zone at its Cusi Mine in Mexico.
The share price rose +113% on the back of a fundamental re-rating of the company’s valuation relative to copper peers and the new upside potential at the Cusi Mine.
Capital 10X had previously highlighted the opportunity in copper miners and the valuation discount of Sierra in the May 18th edition of the Gold & Metals Weekly.
Newly Discovered Silver Zone a Game Changer for the Cusi Mine
This newly discovered silver vein system suggests potential for reinterpretation of the geology and extensions of previously understood areas of mineralization.
Better drill results include:
- 17.5m at 428g/t silver (464g/t silver equivalent including gold zinc and lead)
- 9.4m at 304g/t Ag (327g/t AgEq)
- 8.9m at 303g/t Ag (322g/ AgEq)
- 4.9m at 1,140g/t Ag (1,163g/t AgEq)
The Cusi Mine was placed on care and maintenance last quarter due to a combination of earlier mine subsidence and the government mandated closure due to COVID19 lockdown.
During the closure, management has focused on the optimation of the mine plan that now includes a revised mineralization model based on incorporating the recent drilling success.
The mining plan has been modified to a sub-level stopping method that is expected to enhance ore grade, mining dilution and rock mechanics.
Mine development is underway to by-pass the area of subsidence and to access higher-grade ore.
Cusi ore production is expected to re-start after mine development is complete and when health procedures are ready for the safe return of employees. After re-start cash costs are expected to decline back to steady state production levels, $10-15/oz.
During the second half of 2020, work is expected to begin on a new tailings facility for the life-of-mine while studies examine potential to expand Cusi production levels.
Meanwhile, additional drilling of 1,000m is planned to better understand the extent of the newly discovered silver vein system.
Other catalysts for Sierra include:
- A safe return to business and to preserve cash during uncertainty
- Ramp-up of production at Yauricocha and Bolivar
- Maximize revenue with increased copper production (and less zinc).
- Seek permits for the expansion of Yauricocha beyond 3150ktp to 3600tpd in 2020.
- Consider expansion at Bolivar to >5ktpd (requires PEA in 2021) and Yauricocha to 5.5ktpd.
Sierra Metals is a market awareness client of Capital 10X.
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