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spk07: Hello everyone and a warm welcome to the Sierra Metals first quarter 2022 financial results call. My name is Bethany and I will be your operator today. If you would like to ask a question after the speaker's prepared remarks, you may do this by pressing star 1 on your telephone keypad. I will now hand the floor over to Christiana Papadopoulos, Manager of Investor Relations at Sierra Metals. Christiana, over to you.
spk05: thank you and good morning everyone welcome to sierra's first quarter 2022 results conference call on today's call we are joined by luis marchese our ceo and ed jamirez our cfo today's call will be followed by a question and answer period the accompanying presentation for today's call is available to download through the webcast or from the company's website at sierra metals.com yesterday's press release the financial uh statements and the management's discussion and analysis are also posted on the company's website i'd like to note that this earnings call contains forward-looking information that is based on the company's current expectations estimates and beliefs the 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, or projections in the forward-looking information in the material factors or assumptions that are applied in drawing a conclusion on making a forecast or projective as reflected in the forward-looking information is contained in the company's annual information form, which is publicly available on CDAR, EDGAR, via Form 40F, or the company's website. Please note that our full dollar amounts mentioned on today's call are in U.S. dollars, unless otherwise noted. I'd now like to turn the call over to our CEO, Luis Marchesi, for an overview of the quarter's highlights, as well as a summary of what's ahead for the remainder of 2022.
spk08: Luis Marchesi Thank you, Christiana, and good morning, everyone. Looking at slide four, During the first quarter, there were related issues. In particular, at Jaricocha, we had a significant reduction in mine and service personnel, which prompted further delays in mine development and affected preparation of areas to be mined. These restrictions, coupled with the expected reduced ore grade and duty limitations on accessing high-grade ore areas, made a 38% decrease in copper equivalent production during the course. It continued effort to say that they have seen a significant improvement in consistent staffing. Vaccination efforts continue with 100%. Most personnel are vaccinated with at least two doses.
spk01: It plans to achieve full vaccination by the end of Q3 2022.
spk08: During the second quarter and beyond of the agriculture, we expect to be able to make up for the lower production we experienced early in the year due to the personnel challenges and plan to operate at throughput levels that will allow us to target our permitted capacity of 3600 tons per day. The discovery of a new high-grade Fortuna zone will help boost our throughput levels as well as grades. The new zone is adjacent to the current mining operation. Located laterally between the Cachicachi and Esperanza zones, we expect to access these four bodies as early as Q3 2022.
spk01: At Bolívar, the full turnaround program continues. And as we progress,
spk08: we expect to see time improvement throughout the year. The first quarter was particularly difficult, as we reached the tail end of the Bolivar West Zone and reduced our zone within Mina de Sierra, with a 50% reduction in throughput and a 54% decrease in copper equivalent production. With a backlog of increased quarters and years, both throughput and grades have suffered.
spk01: However,
spk08: By the end of this first quarter, mining began at the Bolivar northwest zone.
spk01: It is expected to provide ore for the next several quarter plans for incremental production rates at Bolivar and up to 5,000 tons per day by year end.
spk08: While production increases at the mine, further investment is needed
spk01: update the operating facilities, improve processes, and upgrade housing facilities among several other initiatives.
spk08: And finally, we have seen a substantial improvement of our advocacy operations so far this year. With investments into the mining infrastructure last year, to the addition of a rate board, alleviating high temperatures at depth where most operations are taking place.
spk01: A slightly higher rate resulted in a 75% increase in silver equivalent production over the same period last year. This performance has no doubt helped support the consolidated production profile of the company during the quarter. We have anticipated a timeline of at least two quarters before we plan our guidance accordingly.
spk08: We can report that despite a 38% decrease in consolidated copper equivalent production during the first quarter, we are on track to reach the company's first half production guidance of 74 to 79.5 million copper equivalent pounds. Looking ahead into 2022, turning to slide five. At Yaldecocha, despite the permitting restrictions to mine lower levels of the mine where higher grade exists, we are focused on meeting maximum levels of throughput at 3,600 tons per day. Higher throughput, along with mining the accessible ore from the new high-grade fortuna zone, will positively impact our ability to reach yearly targets. Our focus at the agriculture remains the same, finding new, innovative ways to produce and deliver at full capacity within our current mining constraints, especially with the continued strength in metals price. We expect that we will make up for reduced production during the early part of the first quarter of the agriculture, and are on track to meet our guidance of between 45 and 49 million copper equivalent pounds. While the new Fortuna zone is expected to provide an increasing upgrade for the next year, our exploration drilling campaign continues with a focus on additional high-value targets. Moreover, a drilling program of at least 1,500 additional meters is proposed for Fortuna to further analyze the ore value and potentially find correlations between its structural that may lead to finding additional high-value targets. Infrastructure projects also continue agriculture, including work on the agriculture shaft, ventilation infrastructure, and they require expansion of the 10-year plan. At Bolivia, we continue our plan to increase throughput on a quarterly basis, with an end-of-year target of 5,000 tons per day. Improved production is anticipated in the second half of the year with the Bolivar Northwest Zone supporting the bulk of production. Additionally, with the reduction of the development backlog at the mine and installation of a mill already in our possession, the objective is to get Bolivar to a point where it can achieve a rate of 6,000 times per day in 2023. However, our strategy is fluid and the actual timing may change as priorities in our operational turnover shift. For the time being, our focus is to continue our input drilling program to upgrade the classification of ore and improve the quality of resource estimation. We continue with additional mine development to regain access to ore and provide mining flexibility. We continue with critical infrastructure projects, including ventilation, communication, state facilities, the integration tunnel connecting the mine to the plant, development ramps, and plant improvements. In terms of operations, the company is focused on three areas. Bolivar East, an area of high-grade things, silver and gold, where we expect to initiate a drilling campaign later this year. and La Cider, a hydrate epithermal system of silver and gold, which can provide mineral value to support the Bolivar mine. With improved operating efficiencies, a ramp-up in 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 CUSI, The focus is on continued mine development and processing optimization to target a throughput of 1,200 tons per day. Incense drilling continues in order to support the development of the Santa Rosa Lima Range and Northeast train. Additional projects include equipment replacement and tailings dam development. We can report that the Magnuson track meets its production guidance within 1.75 or 1.85 million silver-growing ounces, and that we expect that it will continue to provide a positive contribution towards the company's EBITDA. And with that, I will now turn to Ed to review this as part of financial guidance.
spk09: Thanks, Luis, and good morning, everyone. Turning to slide six, With the continued impact of COVID-19 on our employees and operations during the early months of the year, we reported a 24% decrease to our consolidated throughput. And with a decline in all grades except for copper, this equated to a 38% decrease in consolidated copper equipment production compared to the first quarter of 2021. Although those strong metal prices continued, they were not able to fully offset the decline in production and revenue from metals payable, which decreased 18% when compared to Q1 2021. Adjusted EBITDA was $16 million, a 43% decrease, resulting from lower revenues and lower gross margins when compared to Q1 2021. We reported a net income attributable to shareholders of $0.4 million, or $0 per share, and adjusted net income of $5.9 million, or $0.04 per share. We finished the quarter with approximately $19.5 million in cash. Our three-month revenue mix by middle continues to be led by copper, followed by silver and zinc at 41%, 28%, and 19%, respectively. lead and gold continue to contribute revenue in line with previous quarters at seven percent and five percent respectively looking at the average realized prices compared to q1 2021 we continue to see an improvement in copper driven by global infrastructure supply demands and the green energy revolution silver realized prices lag slightly with a nine percent decrease while gold increased a modest 5%. Zinc and lead saw a strong increase with 36% and 15% respectively. Turning now to slide seven, compared to Q1 2021, a 48% increase in cash costs and a 41% increase in homes and costs were driven by a 37% decrease in corporate program payable panels at Yogyakarta. Given our inability to mine in higher-grade zones over the past few quarters, we have seen a downward trend in grades at Yauikotcha, which continued to result in increased costs when comparing Q1 2022 to last quarter. In addition to lower grades, throughput in the first quarter of 2022 was also impacted by poor performance of a mining contractor. Mines' tons were below targets and the mine had to resort to stockpiles, which also negatively impacted grades. Costs were also impacted to some extent by a nationwide transportation strike during the last week of March that resulted in an increase in unsold concentrate inventory at quarter end. Had this event not developed, cash costs would have been closer to $2 per pound. At Bolivar, cash costs increased by 187 percent and all in sustaining costs by 152 percent driven by a 56 percent decrease in copper footprint payable pounds which resulted in higher operating costs per time when compared to q4 2021 olivar's cash costs have improved by 14 percent and all in sustaining costs by 15 percent while tonnage decreased by 18%, higher grades this quarter, while still significantly lower compared to Q1 2021, compensated slightly and improved costs. Overall, this is a positive trend for our turnaround program as we are seeing improvements quarter over quarter. At QC, as mentioned earlier, investments into the mine last year have provided for increased operating efficiencies so far this year. A 49% increase in silver equivalent payable allowances resulted in a decline to both cash costs and all-in sustaining costs by 28% and 34%, respectively, when compared to Q1 2021. Looking at a comparison to Q4 2021, increased 14%, while throughput increased by 4% quarter over quarter. The cost of inputs also increased. Global inflation and the impact of the ongoing Russia-Ukraine conflict, the cost of fuel, explosives, and drilling equipment have also increased. Silver equivalent payable ounces reported during the quarter are in line with the previous quarter. However, the increase in cash costs resulted in a higher cash cost per unit. On the other hand, all-in sustaining costs decreased by 5% when compared to Q4 2021. Costs related to treatment and refining charges and general and administrative costs, as well as sustaining capital expenditures, decreased, resulting in a lower all-in sustaining cost per annum. In conclusion, on slide eight, the company reported $19.5 million in cash as of March 31, 2022. Our total debt at the end of the first quarter was $81.1 million with a net debt of $61.6 million. Cash and cash equivalents decreased during the quarter due to $3.9 million used in operating cash activities, $10.7 million used in investing activities, and $0.9 million used in financing activities. The company has further access to available credit lines with local banks, as well as other short-term lines and prepayment facilities with its commercial offtakers. For the remainder of 2022, the company's focus will be on improved operating cash flows through improved production and cost reduction, supported by a strong base metals price environment. Management will continue to review metal prices and retains the option to adjust the capital expenditures should metal prices experience any dramatic changes within the year. With that, I will now turn the call back to Christiane.
spk06: Thanks, Ed. That ends the presentation for this call. We now would like to open the call to questions from the panel.
spk07: Thank you. To ask a question, please press star 1 on your telephone keypad now. The first question comes from Mark Reitman from Noble Capital Markets. Mark, please go ahead.
spk11: Thank you. Good morning. Just had two questions. First is, With the recovery in production over the balance of the year, do you still expect to meet the cash and all in sustaining costs by mine guidance?
spk09: Hi, Mark. Thanks for the question. Yes, we expect to still meet those guidance numbers.
spk11: Okay. Okay. Yeah, because it was a little hard to tell because sometimes, you know, if you experience some inflation in some of the particular line items, I was just thinking, well, you know, I think QC was fine for the first quarter, but Bolivar and Yarra Coach were quite a bit higher than the guidance, and I thought, well, you know, maybe there might be some stickiness, you know, to some of those costs, but it sounds like it's really just a function of production. And then just the second question is, is If you could provide just a little more clarity, you know, in your corporate presentation, you've got slides 11 and 22 that talk about the Yurikocha, you know, production growth and brownfield opportunities. So if you could just maybe provide a little more clarity on Fortuna, kind of what that means in terms of a great uplift, and then, you know, kind of longer-term plans to bridge to the mining at depth, you know, after 2023 once you get the permit.
spk08: Hello, Mark. This is Luis. Fortuna, we've been double-clicking all the areas above the 1120 level mark, which is our current mining restriction. By doing that and doing some reinterpretation, we were successful in finding the Fortuna area, which is within the Cachicacha and Esperanza. There is a large open area there in the levels above 1120. This is, I guess, a very good development because we found this high-grade zone and we are, as we said in the presentation, looking into hopefully finding other areas like that. Now, what does this mean in terms of the mine production? As you are aware, over the years, Jalicocha has benefited from what has been called the Cuerpos Chicos, which are smaller bodies with high grade. so these smaller bodies with hydrate would usually mix with the lower grade larger bodies and that would give you the mix that make the agriculture so or have made agriculture profitable over the years what happens is that most of the particular now are below the limit Actually, almost all of them. So, to an extent, by finding Fortuna above the 920, we are replacing the high-grade that we would usually mine from the Corpus Chicus below 920. So, this is very good news. The other very good news is that it's at the 730 level, which is where we have our main extraction panel. So it's very easy to access. We've got all the facilities there. We've got ventilation. We've got power. So we are now developing, and we can put it into production in a few months. So this is very good news, as we've highlighted in our presentation.
spk11: Thank you very much. That's really helpful.
spk07: Our next question comes from Heiko from Wainwright and Co.
spk02: Hey, it's Heiko from HCLW. I saw some news, you know, with protests of rising food energy costs in Peru, just given, you know, commodity price spikes, and obviously, you know, inflation is an issue we have just about anywhere, and it comes up in every single earnings call I've been on so far. What are you seeing and what are you doing to mostly, or if at all, mitigate it as much as you can? And also, how much have your fuel costs actually gone up?
spk08: Yeah, well, inflation is a concern cycle, as well as its change rate. Now, the change rate when we knew the budgeting process was slightly above $4,000 per dollar. and now it's closer to 3 solid 80, and around 65% of our costs are in solid. So we're having a bit of a spike from exchange rates, and we're also having some on fuel, but we are not so fuel-intensive as much as power-intensive, and power has been fairly similar. So that hasn't affected us so much. We are looking at explosives and other items. We are price takers to a large extent. Certainly we can manage, but if the market is moving up, there is so much we can do about it. But certainly we are trying to improve the effectiveness of the unit.
spk02: Early on this call, you talk about the exploration of Bolivar East, and obviously Hydroexencus is very good in this market. How much are you actually spending on exploring this area? And I guess that's an impossible question to answer, but how much material do you think might be located in this area, please?
spk08: We're starting to, well, we have some guidance on what we can expect with HICO. Certainly, we are just starting to do that. One is called La Hidra. That has been in the works for some time, but it wasn't comparable to what we could get from volume and grade from copper, but now it's become quite relevant. We are targeting that. And the other is the Bolivar East. which was before called La Narizona, actually, because it's a very tight deposit. How much we're going to spend? So far, I think we have close to a million dollars there. Depending on how good it gets, we might increase it and try to bring it into production quite soon.
spk02: That's it for me. Thanks so much. I'll get back to you. Thank you.
spk07: The next question comes from Lee Cooperman at OMEG Family Office. Lee, please go ahead.
spk03: Thank you. Thank you very much, and I hope everybody is safe and healthy. So maybe, Ed, this is directed to Ed Kamaris. Maybe you can help us tie this together. Give us a range that you're comfortable with, EBITDA for this year, and your range of CapEx, and therefore where we could look towards free cash flow. That would be my first question. Second, and I think we're a much better company than the $0.78 stock price, and I think that the price of stock kind of gives us a cheapened image. Have we thought about the virtues of a reverse split? as a way of elevating the stock price and maybe getting us out of the category of cigar butt. And finally, based upon your budgets, last year you went to a dividend with the hope of the dividend being sustainable. I know this is determined by the board rather than management, but do you think you'll be in a position to pay a dividend at the end of this year based upon your budgets if things go along with your expected lines? Thank you and wish you good luck.
spk09: Thanks, Lee. Thanks for those questions. So in terms of EBITDA, we're maintaining our guidance between 90 and 105 million. In terms of Q1 EBITDA, it was a little bit better than expected. And so we're definitely tracking well. CapEx guidance was 71 million. Now, depending on really the turnaround at Bolivar, um we we will have the option to to reduce that um i i believe we'll probably come under capex uh the 71 million um probably somewhere between 50 to 60 million um again wanting to to ensure that we have sufficient liquidity to uh to meet any any uh production shortfalls that we may have we're still not out of the with respect to the turnaround, but we hope to be over the next couple of months. In terms of NAV, there's no question that our share price has gotten hammered. More so, even though if you look at the whole mining space, I think it's fair to say that mining companies globally have seemed depressed. share prices but sierra has definitely suffered more most than than than the rest so i don't really want to speculate on in terms of what an nad is i would again i believe our analysts have done a really good job and you can uh and i encourage everyone on the call to to really review the the coverage research research reports where they do provide the target and provide an ad and target share price yes you bet the reverse split their dividend intentions oh yeah yep no oh i'll get to that now we just wanted to mention that as well in terms of the reverse split yes that's that is something you know it is a little bit of uh You know, it's really from an arithmetic perspective, there's really not a lot going on there, but it is something we can look at. It's more cosmetic than anything else, but it is something I'm happy to speak to you more about that in terms of, you know, the best way to go about that and really the advantages of doing that. But it is something that I know we have discussed in the past and it's on my list. In terms of the dividend, the dividend really will depend on the turnaround, on the strength of the metal prices. It's not a big dividend, but given where we are now, I think it's too early to make that call. We'll be in a much better position when we get through close to, I'd say, August, September, to make that call.
spk03: But for now – MR. Remind me the terms of your debt. You have a quarterly amortization of debt?
spk09: MR. That's correct, Lee. It's $6.25 million per quarter, so $25 million a year. We're in the process of refinancing the $25 million for 2020. We have very good relations with our Peruvian banks, and those discussions are going very well, and we hope to make an announcement soon. But they've been extremely supportive.
spk03: Thank you very much for your responses. I appreciate it.
spk09: Thank you.
spk07: A final reminder to press star 1 if you would like to ask a question. The next question comes from Jim Young at Midwest Investments. Jim, please go ahead.
spk10: Yeah, hi. Number one is, could you just give us an update as to what the status is with CUSI, please? It was my impression that the management team was focused on divesting its asset. Yeah.
spk09: Thanks, Jim. Yeah, CUSI, we are in a process for CUSI, but as you know, CUSI really represents 10% of our revenue. It's not our focus, our primary focus right now. CUSI, the investments that we made last year on infrastructure really paid off. You can see that in Q1 results. From our perspective, there would have to be a buyer with good financial wherewithal, willing to pay cash, willing to, you know, to continue to invest in CUSI because I think it does need investments yearly given the epithermal, you know, And we'd also be looking for some sort of a royalty. So all these things need to play out. Whether we're going to fund, even though we are in a process, again, it's really not our priority. We're certainly happy to retain CUSI, especially with the financial results that we're seeing this year. And we should be able to provide an update during our next meeting. our next conference call. The process should be done by then, for sure.
spk10: Okay, thank you. And secondly, regarding your EBITDA, I think, Ed, you said that the first quarter EBITDA of $16 million was a little bit ahead of your expectations. Is that correct? Yes.
spk09: Yeah, and that's certainly metal prices. So that's why it's about metal prices.
spk10: Okay, so then could you please give us the quarterly progression for the remainder of 2022 or the June quarter, September and December, they would get to the low end of the $90 million guidance range?
spk09: I think you should see Q2 being somewhat in line with Q1. And then you're really going to see the significant uptick in the second half, Jim. Okay. Really, I'm still sticking to it. If you look at the guidance broken by first half and second half, I believe we'll be in those ranges for sure.
spk11: Okay.
spk10: Well, if you're looking for a similar level of EBITDA for the second quarter, that suggests that the third and fourth quarters should show significant ramp-ups They're not quite clear as to what's going to drive the significant ramp up in the third quarter and the fourth quarter. So can you help us understand what's going to drive that improvement, please?
spk09: It's really scale. It's really scale. Bolivar being at the 5,000, looking up to the 6,000 tons per day, that's going to be significant.
spk10: Okay, thank you.
spk07: The next question comes from Chen Lin at Lin Asset Management. Chen, please go ahead.
spk04: Hi. Thank you for taking my questions. Most of my questions have been answered. I'm just curious. One of the issues for Peru is the water levels. How challenging do you see to get the permit to mine below the water level and how long that would take? Thank you.
spk08: Thank you, Chen. The issue that initially limited the permitting for So in order to reach into those levels, you've got to do a full environmental impact statement. And that process is a fairly robust and complicated and lengthy process, which can take up to three years. as history has told us. So we started that process last year, and we expect that process to finish late into next year. And then we would apply for the mining permit, and that would allow us to go into the new areas. We don't foresee any major issues of accessing those areas because the agriculture has been mining in wet areas for quite a number of years. So we just have to follow the process and keep up with the communities and with the government on this.
spk04: Okay, great. Thank you. And then for the congratulations for your recent high-grade discovery, So how do you have the size, relative size of that discovery or right now it's too early to tell?
spk08: It's still early. Thank you. Thank you for your congratulations. Yeah, it's still early. But as I said, we believe that it's more about the grades and the tonnage. and that it's going to help us replace these high rate that we've been mining over the years. So it's going to give us some relevant but more particularly the high rate. And I don't want to understate that we are still looking in that area. We are still hopeful that we may be able to find some other similar bodies, but nature will tell.
spk04: Okay, great. Thank you. Yeah, that's a major question. Maybe the others I'll take it offline. Thank you. Okay, thank you.
spk07: We have a follow-up question from Lee Cooperman at OMEG Family Office. Lee, please go ahead.
spk03: Thank you. Thank you. I'm just curious, any insight into latest moves in the government in Peru? Are they company-friendly, industry-friendly, industry-negative? What's going on in terms of the leadership of the country?
spk08: That's a difficult question to me because the government has shown different cases on how they deal with extractive industries. On one hand, they state that they are supportive, but on the other hand, that has not necessarily been the case. So it's a moving target. Our concern is more now with the experience of the people that is now in the Ministry of Community Advice in particular, These are very technical entities and our concern is that the new appointees don't have that required experience, but they've been only a few months on the job, so we'll see how it works. But it's a difficult question to answer. Thank you.
spk03: Got you. You have an easy question you want me to ask you? Good luck. Thank you for your response. I appreciate it.
spk07: We have no further questions, so I'll hand it back for any final remarks.
spk05: Thank you, operator. That concludes today's call. On behalf of the management team, I'd 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. Please continue.
spk07: This concludes the Sierra Metals First Quarter 2022 Financial Results Call. Thank you for joining us. You may now disconnect your lines.
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