Sierra Metals (NYSE:SMTS, TSX:SMT) has recently completed preliminary economic assessments (PEAs) for all three of its major mines: Yauricocha, Bolivar and Cusi.
The geological technical reports highlight a very profitable production growth runway ahead for the company. Each of their expansion projects are very value accretive, given the high internal rates of returns (IRRs) and high absolute net present values. To put it in perspective the value of all three expansions (US$114M) represents 21% of the current market cap of Sierra Metals (US$530M).
The PEAs highlighted the Net Present Value (NPV) of each respective mine using a discount rate of 8%:
- The Yauricocha Mine operating at 5,500 TPD would have an NPV of US$359 million
- The Bolivar Mine operating at 10,000 TPD would have an NPV of US$283 million
- The Cusi Mine operating at 2,400 TPD would have an NPV of US$81 million
The Yauricocha Mine is a copper-zinc-silver mine located in Peru.
The PEA indicated the incremental benefit of a 45% increase in production (3,780 TPD to 5,500 TPD) would have an NPV of $28.4 million with a 35.7% associated internal rate of return (IRR).
Yauricocha has a 12 year mine life with a copper grade of 1.28% and a low operating cost of $1.19 per pound of copper equivalent. The inferred mineral resource for the mine is 11.6M tonnes, an increase of +76% from the previous 2018 PEA
The Bolivar Mine is a copper-gold-silver mine located in Mexico.
The PEA indicated the incremental benefit of doubling production (5,000 TPD to 10,000 TPD) would have an NPV of $57.4 million with a 27.9% associated IRR.
Bolivar has a 14 year life with an associated copper grade of 0.72% and a very attractive operating cost of $1.16 per pound of copper equivalent. The inferred mineral resource for the mine is 21.4M tonnes, an increase of +168% from the previous 2018 PEA.
The Cusi Mine is a silver mine located in Mexico, even though its the smallest of the three mines it delivers big value to the company.
The PEA found the incremental benefit of doubling production (1,200 TPD to 2,400 TPD) would have an NPV of $28.1 million with a 46.8% associated IRR.
Cusi has a 13 year life with an associated silver grade of 4.1 oz/t and low operating cost of $8.83 per ounce of silver equivalent. The inferred mineral resource for the mine is 4.9M tonnes, an increase of +200% from the previous 2018 PEA.
Attractive Production Growth Outlook at a Deep Discount vs. Commodity Peers
The company’s long-term production outlook is excellent, 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 Metals has a unique combination of superior production growth and below industry average cost structure, investors are able to get exposure to these attractive attributes at a deep discount versus the company’s commodity peers.
At 1.5x forward price-to-sales, Sierra trades at a 47% discount to its copper peers, a 82% discount to silver peers and a 80% discount to the gold miner peer group.
Sierra Metals is a market awareness client of Capital 10X.
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