Sierra Metals: Strong Value Accretion from Doubling Output at Bolivar

Strong Economics Underpin Bolivar Expansion

On October 20th Sierra Metals (NYSE:SMTS, TSX:SMT) announced preliminary economic assessment (PEA) results for the proposed doubling of output at the Bolivar Mine in Mexico to 10,000 tonnes per day (TPD).

The PEA highlighted the Net Present Value (NPV) of the Bolivar Mine operating at 10,000 TPD would be US$283 million using a discount rate of 8%. This is substantially higher than the mine’s 2018 PEA of US$214 million at the 5,000 TPD operating rate.

Value Accretion

The PEA analysis found the incremental after-tax NPV benefit of increasing the production at Bolivar from 5,000 TPD to 10,000 TPD to be estimated at US$57.4 million with an internal rate of return (IRR) of 27.9%.

This is a very value accretive use of capital, given the high IRR and the high absolute value of NPV. To put it in perspective the value of the expansion (US$57.4M) represents 20% of the current market cap of Sierra Metals (US$293M).

Low Operating Costs

The total operating cost over the life of the mine (14 years) is US$827 million, which equates to $1.16/lb of copper equivalent.  This low cost of operation provides the company with a significant margin capture at the current copper price of $3.14/lb.

During the last 10 years, the average copper price was $3.00/lb and in the last 20 years the average copper price was $2.50/lb; there’s inherently a high operating margin of safety in at the Bolivar mine relative to historic copper prices.

Source: Bloomberg
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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.

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Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.
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