Sierra Metals (NYSE:SMTS, TSX:SMT) released Q2 2021 results; solid production and EBITDA growth year-over-year in the face of COVID-19 headwinds.
Sierra Metals: Attractive Commodity Exposure and Best-in-Class Costs
Sierra’s operations consist of 3 mines in 2 geologically prospective mining jurisdictions:
- Mexico: Bolivar Mine (copper) and Cusi Mine (silver)
- Peru: Yauricocha Mine (copper/zinc)
Metals that provide inflation protection versus inflation made up 67% of total revenue for the quarter: copper (37%), silver (25%) and gold (5%).
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.
Q2 2021 Operational Results
Sierra Metals delivered solid production and profitability results in Q2 in the face of COVID-19 headwinds.
- Revenue for the quarter came in at $79.4 million, an increase of 90% from the previous year and 14% from Q1 2021.
- EBITDA rose 173% from the previous year to $37.7 million, and increased 47% from Q1 2021.
On a copper equivalent basis Sierra Metals produced 24.8 million pounds, delivering +9% year-over-year growth for the quarter despite the headwinds of COVID-19.
- Copper production decreased by 2% from 9.7 million pounds to 9.5 million pounds.
- Silver production increased by 67% from 572 thousand ounces to 954 thousand ounces.
- Zinc production increased by 54% from 13.7 million pounds to 21.1 million pounds.
- Gold production increased by 2% from 2.76 thousand ounces to 2.81 thousand ounces.
- Lead production increased by 24% from 6.4 million pounds to 8.0 million pounds.
Processing throughput continues to ramp up at all mines, the company recorded record throughput at its Yauricocha Mine in Peru.
Looking ahead to the remainder of 2021 the company has provided investors the following outlook:
- Yauricocha Mine: Received the final permit required for the construction and operation of the expansion of throughput to 3,600 tonnes per day.
- Bolivar Mine: Implementation on a 500,000 tonne per year magentite concentrate plant which will be operational next year.
- The Strategic review process is still ongoing; the company expects to be able to provide a more detailed report on the process in the coming weeks.
- Completion of Preliminary Feasibility Studies for all three mines to support planned expansions at all mines starting in 2024:
- Yauricocha: +53% throughput expansion
- Bolivar: Doubling of production
- Cusi: Doubling of production
Revised 2021 Guidance
In the first half of 2021 Sierra Metals was impacted by operational challenges in relation to COVID-19, which resulted in lower workforce availability and additional costs. Management believes these issues are transitory and will not impact the company’s results in the medium and longer term.
The company has accordingly lowered its 2021 guidance to account for these near term headwinds. Copper equivalent production is now expected in the range of 110 to 115 million pounds for the full year.
2021 EBITDA guidance was lowered to $130 – $140 million from the previous guidance of $155 – $170 million. The mid-point of the new range represents a 2021 EBITDA increase of +39% from 2020.
Sierra Versus Copper Peers
Looking at updated valuation metrics (Bloomberg consensus, August 11th, 2021), Sierra Metals trades at a deeply discounted valuation multiple relative to its copper peers across all metrics.
- 75% discount on forward price-to-cashflow
- 72% discount on forward EV-to-EBITDA
- 65% discount on forward price-to-sales
Sierra Metals is a market awareness client of Capital 10X.
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