Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sierra Metals Inc (SMTSF, Financial) reported a strong cash flow from operations, reaffirming their 2024 guidance.
- The company successfully refinanced its debt, enhancing financial flexibility and extending the maturity profile.
- Production levels are expected to increase in the second half of 2024, with full capacity production at Yauricocha anticipated by Q4 2024.
- The new primary crusher at Bolivar is operational, and water availability issues have been resolved, which should boost production.
- Sierra Metals Inc (SMTSF) has a significant amount of mineral reserves and resources, providing a foundation for growth at Yauricocha and Bolivar mines.
Negative Points
- Production at both Yauricocha and Bolivar mines was lower in Q2 2024 compared to Q1 2024 and Q2 2023 due to lower grades and throughput.
- Cash costs and all-in sustaining costs per pound increased due to lower grades and throughput, leading to higher unit costs.
- The company experienced a decrease in metal sales, resulting in a drop in corporate development payments.
- Bolivar's lower grades during Q2 2024 were a result of the mining program sequence, impacting overall production.
- The company is still in the pre-engineering phase for the expansion of the tailings facility at Bolivar, which may take two to three years to complete.
Q & A Highlights
Q: Can you elaborate on the significance of the drilling results on the porphyry at Yauricocha?
A: We are looking for a major partner to develop the Triada porphyry. No new drill holes have been drilled recently; the last ones were done a few years ago. We are in discussions with major companies to get them interested. The significant intercepts mentioned were likely from the Sumitomo era, and we will provide more details soon.
Q: Will the expansion of the tailings dam at Bolivar be funded from the operation's cash flow, or will you need to raise capital?
A: We believe we can manage the investment from the operation's cash flow. The expansion will be done in stages, so we do not anticipate needing to raise additional capital.
Q: How confident is management in achieving full capacity at Yauricocha by Q4 2024?
A: We are very confident. We started mining below the 1120 level earlier this quarter, which gives us confidence that we will reach full capacity by Q4 2024.
Q: Where do you see Sierra's growth coming from?
A: Our growth will come from our two core mines, Yauricocha and Bolivar. Yauricocha is set to grow its capacity by 40% by year-end, and Bolivar is on track to increase production by 50% upon completion of the tailings dam. Additionally, we have a large greenfield portfolio in Mexico and Peru that we hope to develop through partnerships. We are also scouting the market for accretive opportunities.
Q: Can you provide more details on the new credit facility and its impact on the company's financial position?
A: The new $95 million credit facility enhances our working capital, increases financial flexibility, provides covenant relief, and extends our maturity profile. It will fund high-return capital projects, including development below level 1120, new ventilation and mining equipment, and the completion of the new ore shaft at Yauricocha. Our net debt-to-LTM EBITDA ratio is around 1.6x, which is manageable, and we expect it to improve as we progress our operational and cost efficiency plans.
Q: What are the major operational initiatives undertaken at Bolivar during Q2 2024?
A: Major initiatives include the successful installation of a new primary jaw crusher, increasing the long drilling ratio with new mining equipment, and infill drilling that has enhanced predictive grades and tonnes. Expansion drilling in the Dulce body zone is expected to increase mineral resources.
Q: What are the financial highlights for Q2 2024?
A: Consolidated net revenue was $57.5 million, in line with Q2 2023. Cash flow from operations before movements in working capital was $15 million. Adjusted EBITDA from continuing operations was $12.9 million for Q2 and $30.8 million for the first half of the year, 3% higher than last year. The company's cash position as of June 30 was $22.5 million, significantly higher than in previous periods.
Q: What are the company's plans for the remainder of the year?
A: We have closed the sale of the Cusi mine, which will add cash and reduce maintenance costs. At Bolivar, we will continue the phased expansion of our tailings facility, aiming to increase production by 50% within three years. We are also seeking partners to develop our greenfield projects in Mexico and Peru. Overall, we aim to consolidate our optimization efforts and establish a platform for growth and long-term value creation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
