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spk05: Good morning and welcome to today's Sierra Metals fourth quarter and full year end 2021 financial results. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Christiana Papadopoulos, Manager of Investor Relations. Christiana, please go ahead.
spk00: Thank you, Operator, and good morning, everyone. Welcome to Sierra's year-end 2021 results conference call. On today's call, we are joined by Louise Marchese, our CEO, Ed Gumeris, our CFO. In addition, our VP, Sustainability and Corporate Affairs, Gabrielle Pinto, will be available for any questions. Today's call will be followed by a question and answer period. The accompanying presentation for today's call is also available for download through the webcast or from the company's website at sierrametals.com. Yesterday's press release, the financial statements, and the management discussion and analysis are also posted on the company's website. I would like to note that this earnings call contains forward-looking information that is based on the company's current expectations, estimates, and beliefs. This forward-looking information is subject to a number of risks, uncertainties, and other factors. Actual results could differ materially from our conclusions, forecasts, or projections as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts, and projections in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the company's annual information form, which is publicly available on CDAR or EDGAR or via Form 40-F on our company's website. Please note that all dollar amounts mentioned on today's call are in U.S. dollars unless otherwise noted. I would now like to turn the call over to our CEO, Luis Marchesi, for an overview of the year's highlights, followed by Ed Gimérez, our CFO, for the financial highlights. Then we'll return back to Luis for a look ahead in 2022.
spk01: Luis Marchesi Thank you, Christiana, and good morning, everyone. Looking at slide four, as you are aware, 2021 brought many complications due to the impact of COVID-19. of our workforce and operations. Sierra was successful in keeping our operations from closure due to our outbreak during the pandemic and led a very successful vaccination campaign with almost 100% of our employees and contractors fully vaccinated. While quarantine requirements have been dropped, safety protocols remain in place and the health and safety of employees remains our top priority. I am pleased to say that staffing operations are well underway to normal levels. During 2021, we emerged from our strategic review process with the goal of positioning the company to focus on growing the production of copper and steel-making metals. In that context, changes were made to the Board of Directors, with Jose Vizquerra appointed as chairman and the addition of three new independent directors to our board. We welcome Oscar Cabrera, Carlos Santacruz, and Don Whitaker to our board of directors. Their combined expertise and experience will provide important perspective as we execute our strategy and deliver maximum value for all shareholders. In terms of operational development, The agriculture received its IPM permit in June, allowing for a 20% increase in throughput to 3,600 tonnage per day. The higher throughputs partially compensated for lower grades at the mine due to regulatory limitations on mining areas. But overall, upper equivalent metal production declined by 21% compared to 2020. The decline was particularly felt in Q4 when the mine reached maximum annual permitted capacity and production was halted before the end of the year. At Bolívar, we conducted an extensive review of operations and initiated a program that will cause a fast-forward to a successful turnaround of the mine in the coming year. We are focused on ensuring the right processes and people are in place, with the right checks and balances to optimize operations and realize Bolivar's true value. A cumulative backlog of infield drilling and development is being addressed, as well as lagging mine infrastructure, such as ventilation, auxiliary services, labs, mining camps, and others. We also filed an updated PEA with the inclusion of item of production, providing for a potential additional revenue scheme in the future. At CUSI, the strategic review continues in order to determine appropriate next steps for the mine. And with that, I will turn to Ed to review the financial highlights for the year.
spk04: And good morning, everyone. Turning to slide five, the company achieved relatively solid results in 2021, given the impact of COVID-19 on our employees and operations. We reported a 3% increase to our consolidated throughput, although a decline in grades equated to a 24% decrease in consolidated copper equivalent production compared to 2020. Revenue from metals payable was up 10% due to the strength in metals prices throughout the year. We met our revised adjusted EBITDA guidance with a reported 105 million. Cashflow remained strong as did adjusted net income. We reported a net loss attributed to shareholders for 2021 of 27.4 million or 17 cents per share which included the non-cash impairment charge of $35 million related to the Coosie mine. We finished the year with approximately $35 million in cash. Our revenue mix by metal continues to be led by copper at 35%, followed by zinc and silver at 26% and 24%, respectively, Lead and gold continue to contribute revenue in line with previous years at 10% and 5% respectively. In 2021, we saw continued improvement in realized prices for all metals compared to 2020, particularly with copper, which was driven by strong global demand and is expected to continue in 2022 with the growth in demand for electric vehicles and renewable energy. Precious metals realized prices lagged in the second half of the year, but remained relatively strong, with a 22% and 7% increase in silver and gold, respectively. Turning now to slide six. Compared to 2020, cash costs increased at both Yauticocha and Bolivar, attributable to higher operating costs, which increased mostly due to higher labor costs and a 21% decrease in copper equivalent payable pounds at Yauticocha, as well as a 42% decrease in copper equivalent payable pounds at Bolivar. At CUSI, cash costs were in line with 2020, driven by the 41% increase in silver equivalent payable ounces, which offset increased operating costs. All-in sustaining costs were higher across each mine. At Yauticocha, we saw a 31% increase related to the increased cash costs and sustaining capital expenditures, which were partially offset by the decrease in treatment and refining charges that we had anticipated in 2021. At Bolivar, we had a 125% increase in all in sustaining costs which resulted from higher cash costs combined with a 95% increase in treatment and refining charges and 117% increase in sustaining capital as capital projects that had been deferred in 2020 due to COVID were reinstated. At CUSI, we saw a 10% increase in the all-in sustaining costs, again, due to higher cash costs, combined with higher treatment and refining charges, and again, from the advancement of capital projects that were deferred in 2020. With that, I will now turn the call back to Luis.
spk01: Thanks, Ed. Turning to slide seven, I'm looking ahead in 2022. At Jauricocha, we will benefit from running the plant at an increased capacity of 3,620 per day for the full year. Access to higher targeted ways will still remain a challenge until permitting is obtained to mine below current levels. So, higher throughput will compensate for the lower rates we are mining at current levels. We plan to focus on mine development including the zone between Cachecache and Esperanza, continuing work on the Yoricocha shaft, ventilation infrastructure, and the expansion of the tailings dam, with additional capital allocated to the mine camp. Browsing exploration will focus on targets located along the Yoricocha fault system. At Bolivia, as indicated previously, we have started a deep turnaround process at the mine. This includes an in-field drilling program planned with the goal of improving the certainty of the resource base, as well as mine development to gain access to different areas of the mine and regain flexibility during mining operations. We also plan to continue work on a low-capacity expansion of the plant facility, with the of achieving an average throughput rate of 6,000 tonnage per day once concluded. Operational issues are expected to be reduced by the end of Q2, with production performance improving in the second half of the year. Work will also continue on the panel connecting the mine with the mill, which will improve efficiencies by lowering haulage costs as well as upgrading in mine deflation, auxiliary services, lab facilities, mine camps, and requires technical expansion. With improved operating efficiencies, a run-time pre-production, and continued strength in metal prices, we are optimistic that we will see a stronger revenue contribution from Bolivar by the end of the year and into 2023. At both the records from Bolivar we also expect to complete further studies, including the Mineral Resources Update this year. At CUSI, we continue to allocate capital expenditures towards mine and dam development, as well as equipment replacement. As mentioned, the TE review continues to examine options for CUSI. As part of the company's new strategy, we have also placed a heightened emphasis on ESG, We have already completed the carbon emissions Scopes 1 and 2 for Mexico and Peru for the last three years with the objective of further defining our strategy and targets. In 2022, we plan to report our inaugural sustainability report. We are committed to the delivery of a well-defined ESG strategy and ensuring the sustainability of our operations for our workforce as well as our surrounding communities. This year, as I mentioned, we expect to develop and publish Sierra's first sustainability report. In conclusion, on slide eight, the company remains healthy financially. We have a strong balance sheet with $35 million in cash. Our total debt at the end was $80.8 million. with a net debt of $45.9 million. Cash and cash equivalents decreased during 2021 as the $70.9 million used in investing activities and $36.9 million used in financing activities exceeded cash generated from operating activities of $71.4 million. Cash used in financing activities included repayment of the PCP loan amounting to $19 million, interest payment of $3.2 million, dividend payment of $4.9 million to shareholders, and $9 million to non-controlling interests. For 2022, the company's focus will be on improved operating cash flows to improve production and cost reduction. supported by what analysts anticipate will continue to be a strong base metal price environment. We are committed to the physical allocation of operating cash flows to our growth projects that will advance demand and ultimately to the purchase value benefiting all shareholders. Management will continue to limit our prices and retain the option for adjusted capital expenditures should metal prices experience any changes within the year. With that, I will now send the call back to Christiana.
spk00: Thanks, Luis. That ends the presentation portion of this call. We would now like to open the call to questions from participants. In the interest of time and fairness, we ask participants to keep their questions to a limit of two to give all participants an opportunity. Management is always available. Following the call, Should there be further questions? Operator, please go ahead and open the line.
spk05: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that is star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question of today comes from Mark Reichman of Noble Capital Partners. Mark, please go ahead. Your line is now open.
spk02: Thank you for taking my question. So the first question is, could you discuss your plans for QC, including the current carrying value following the write-down? You know, how realistic are the after-tax NPV values in the most recent PEA? And then the implications of the strategic review on your 2022 guidance.
spk04: Thanks, Mark, for your question. So in terms of the process, we decided in Q4, as you know, to divest CUSI. We are now in a formal process. There is interest with various parties. Due diligence is underway. of site visits so that that is progressing in terms of the the impairment and uh and and the npv in terms of the the pda that we had outstanding in terms of the expansion to 2400 times per day it really became um a likelihood exercise and not to get too detailed or technical on the accounting side of things, but really it was what are the, for the company, what's the most likely situation for CUSI? And given that we were in a divestiture, the likelihood of us maintaining CUSI at current levels was really the norm, so to speak. And the probability of going to an expansion was much less than that. And even the ore sorting was, you know, given that that was still very much in the conceptual stage. And that was the reasoning why an impairment was taken because it doesn't, it's not saying that there isn't potential to that expansion scenario is still not there. But in terms of Sierra, that's not our focus. Our focus is on turning around Bolivar. getting those on track and focusing on green metals, steelmaking opportunities. So that's really the crux of the impairment. But for somebody who potentially, if there is a successful bid, that scenario in terms of expansion, it will be more likely in their hands than it will in ours, just in terms of the prioritization we gave to that asset.
spk02: Okay. And then the second question is, is just looking at EBITDA expectations by mine, you know, it would appear that you're expecting kind of big improvements at both QC and Yoro Kocha versus 20, or QC and Bolivar versus 2021, but a decline at Yoro Kocha. So could you just kind of address the expected decline at Yoro Kocha?
spk04: Yeah. On that point, Yoro Kocha really, the 11-20 restriction where we're not expecting to get permitting for that until late in 2023. So we're into areas of the mine, because of that restriction, that ultimately have lower grades. So we're expecting lower grades for this year and into next year at Gallaudet Glacier. That's the primary reason.
spk02: Okay. Well, thank you very much.
spk05: No problem, Mark. Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from Heiko Ehle from Wainwright. Heiko, please go ahead. Your line is now open.
spk03: Hey, everyone. It's Heiko from HC Wainwright. You mentioned earlier on this call that staffing levels are well back en route to normal levels. Great to hear, obviously, but can you talk a bit what you're seeing with wage inflation and maybe you can expand on that answer a bit and talk about just general inflation factors that you're seeing at your mind's eye?
spk01: Thank you, Michael. This is Luis. We are seeing some inflation, but it's not that noticeable yet. I guess the industry is still on hold there. But what we're seeing is an actual difficulty on getting equipment and parts and actually recruiting people. That's where we're feeling it. I guess that's going to turn into inflation in the next coming months. But what we are seeing is a difficult supply chain for many of the consumables and obviously our human resource for the operations.
spk03: You mentioned in the operational improvements at Bolivar earlier on this call, it also talked about the same thing in your press release. and and then you laid out a bit of a strategy for the site in q4 you put the pal back in august 16th i just went through it again um can you sort of provide some color on a quarter by quarter basis of what specific improvements you've been seeing and and maybe if you'd be so kind you can walk us through the expectations for the remainder of the year okay thank you thank you for the question michael
spk01: And in Bolivia, as I mentioned during the presentation as well, we have a backlog of, a flexible backlog of infant breeding and marine development that's been coming in for years and got worse with COVID. So now we are, you know, catching up on that backlog, and that's going to take us for the full year, I guess. in terms of more drilling and more mine development. And the focus on that is to reduce the uncertainty on the ore and also increase the mine development so we can have more flexibility on how we mine. And that's going to be accompanied by an improvement on the infrastructure. We are going to... to bring these three wastebores to create three new ventilation circuits into the three areas of the mine. We are improving the auxiliary services. We are improving the labs. We are expanding the mine camps. So it's a whole turnaround in terms of expenditures to bring the mine where it should be. That's going to... to take us, I guess, the full year and eventually early next year. Now, at the same time, in terms of production, we are currently mining in Bolivar West and Mina del Fierro. But a couple of weeks ago, we finished our tunnel into Bolivar Northwest, which is a new area of the mine which has better rates than what we have been mining. So starting April with the development, and June with the actual mining itself, we will be able to bring that ore into production. So that's going to help us in terms of tonnage and in terms of grain. So that's why we made this difference between the H1 and H2, because we feel that Bolivar Northwest is going to make a a difference between in terms of production. And that's going to help us also with the cash flow to keep funding this turnaround for Bolivar. On top of that, we are bringing this low-cap expansion. We have this mill available for installation at Bolivar, so we will be doing that And by late this year or early next year, we should be able to have a plant capacity of 6,000 tons per day instead of 5,000 with a very low capex. So this whole turnaround should start giving us better results on the second house. By next year, they should work fully. Having said that, on top of that, we are looking at the IROMO. We are doing the engineering for that, the IROMO. And eventually, we will bring it to the board and get approved for installing the magnetic plate, which we have announced for quite some time now.
spk03: Very comprehensive, very good answer. And I just got one quick follow-up, if I may. It doesn't sound like the question queue is all that full. Your production cost of sales was 66.2% in 2021 compared with 45.6% in 2020 for Boulevard, I guess. Assuming all these improvements come to fruition, maybe give some ideas on what you think your cost of sales might be for the year. I mean, at least for Q1, given that there's really only two weeks left in the quarter,
spk04: Michael, thank you. Yeah, our cost of sales, I think for Q1, they're going to continue to stay relatively high, and we're only really going to see an improvement there in the second half of 2022.
spk03: Okay. So not in Q2, but second half?
spk04: Second half is when we'll likely see the biggest improvements, yes.
spk03: Gotcha. Thank you, Et, and thank you all. Stay well.
spk05: Thank you. Thank you. Next up, we have a follow-up question from Mark Reitman from Noble Capital Partners. Mark, please go ahead.
spk02: Thank you. I was just wondering if you could clarify the difference between the first half and the second half of 2022 gold production and which mine accounts for the uplift in the second half. I was... Just kind of curious whether that was, you know, you've got that deposit at Yuracocha, whether that was kind of the driver there or whether it was one of the other two mines. It seemed like a pretty hefty production in the second half for gold.
spk01: Yeah. Thank you, Michael. Thank you, Mark. I'm sorry. The difference is in Bolivia. As I mentioned in my previous answer, we are going to start mining Bolivia northwest And Bolivar Northwest has a higher gold and silver grain than the rest of Bolivar. So that's going to give us a fairly good priceable byproduct gold and silver byproduct credit from Bolivar, starting on the second half.
spk02: I see. Okay. And then on the magnetite processing plant, have you put any time – you know, dates out there in terms of, I mean, you've kind of narrowed the window down in terms of when you expect, you know, that the magnetite processing plant to be completed and when it might be producing at Bolivar?
spk01: Yeah, we are expecting to have the engineering done by Q3. Okay. And we should be taking it to the board then, Mark. if if we get eventually we could take it in q2 uh depending on how we see the the actual numbers coming out and and eventually start building but uh with more certainty it will be in q3 but we we are fairly confident that it's going to be a good project uh it's got the right economics it's got the right uh There are conditions. It's 500,000 tonnage of good iron ore concentrate in North America. We have the right infrastructure nearby. We can take it to the port. There are customers in North America that will benefit not from bringing iron ore from, you know, from faraway places. And the rate is really high.
spk02: That's great. Thank you very much.
spk05: Thank you. There are currently no further questions registered. So as a reminder, it is star followed by 1 to ask a question. As there are no further questions registered, I'd like to pass the call back to Christiana Papadopoulos for closing remarks. Christiana, please go ahead.
spk00: Thank you, Operator. That concludes today's call. On behalf of the management team, I would like to thank all participants for joining us today. A replay of the webcast and all materials can be found on our website at sierrametals.com. If there are any further questions or concerns, you may reach out to us after today's call. Our contact information can be found in today's presentation as well as on the company's website. Thank you, Operator. We now conclude the call.
spk05: Thank you all for today's participation. You may now disconnect your laptops.
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