Sierra Metals Inc.

Good morning and welcome to today's Sierra Metals second quarter 2022 financial results. My name is Candice and I will be your moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press start followed by one on your telephone keypad. As a reminder, if you can limit your questions to two questions only, please. I'd now like to hand the conference over to our host, Christiana Papadopoulos, Manager of Investor Relations, to begin.

Thank you, Operator, and good morning, everyone. Welcome to Sierra's second quarter 2022 results conference call. On today's call, we are joined by Louise Marchese, our CEO, and Ed Dumaris, our CFO. Today's call will be followed by a question and answer period, as mentioned. The accompanying presentation for today's call is available for download through the webcast or from the company's website at sierrametals.com. Yesterday's press release, the financial statements, and management discussion and analysis are also posted on the company's website. I'd like to note that this morning's 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, or 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 effective in the forward-looking information is contained in the company's annual information form which is available publicly on CDAR or EDGAR via Form 40F or the company's website. Please note that all 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, Louise Marchese, for an overview of the quarter's highlights. as well as a summary of what's ahead for the second half of 2022, followed by Ed Guimaraes, our CFO, for the financial highlights.

Thank you, Christiana. Good morning, everyone. Looking at slide four, following the release of our Q2 results and the summary in the press release, you can see that this quarter provided for mixed results. At Jaricocha, Although the main process, 317,000 tons during Q2, in line with throughput in Q1 2022, high grade in all metals, with the exception of lead, resulted in an 11% increase to copper equivalent pounds produced. Also to highlight, during the quarter, we reached the new high grade Fortuna area, which has started supplying ore to the plant feed. Nonetheless, improvement of the agriculture on a quarter-over-quarter basis has helped offset lower production coming out of Bolivar. On a consolidated basis, copper equivalent production has achieved within guidance for the first half of the year. The turnaround effort continues at Bolivar and dates at a slower pace than expected. Restricted space for operations Unlimited ventilation due to the delays on the new space port in the Bolivar northwest zone contributed to the overall delay, which resulted in lower throughput and grades than we had anticipated. The Bolivar mine processed 256,000 tons during Q2, or 37% higher as compared to Q1 2022. In the ground, mining is being slowly discontinued at the Bolivar West Zone due to depletion and facing into the Bolivar North West Zone and El Gallo Inferior. Tired copper, silver, and gold rates resulting in a 52% increase in copper production when compared to the previous quarter. When compared to Q2 2021, throughput at Bolivar was 33% lower and grades were lower for all metals except for gold, resulting in a 46% decrease in copper equivalent produced. The change in grade profile is due to the depletion of Bolivar West and the new contribution of the Bolivar Northwest ore body together with the low grade at El Gallo. I would like to mention that Bolivar has been operating in a difficult security environment over the last few months due to intense police and military presence in the area following recent criminal activity. Our priority is to ensure the well-being of all personnel and appropriate measures are being taken by Sierra Metals in this regard. At QC, throughput was 66,722 tonnage during Q2 2022, or 34% lower as compared to Q1, due to the unexpected flooding in the underground mine. Lower throughput and lower grades resulted in a 38% decrease in silver equivalent production. When comparing Q2 2022 to Q2 2021, the mine processed 9% lower tonnage of ore. Silver production decreased 4% to 0.3 million ounces. Gold production increased 17% and lead production increased 112%. Silver equivalent production of 283,000 ounces for the quarter was in line with Q2 2021. The unexpected progression of sales by Q2 coupled with lower metal prices resulted in a 17% decrease in quarterly revenue over the last quarter. and 37% over the same quarter in 2021. Specifically, closing prices for Q2 for copper, zinc, lead, and silver were 20%, 24%, 22%, and 18% lower than the closing prices at the end of Q1, resulting in 11 million mark-to-market adjustments to the unsettled open-sell position at the end of this quarter and impacted revenue. And finally, by analyzing the overall picture, one cannot ignore the global inflationary cost pressures affecting the sector right now. In the second quarter, we were not immune to this. We experienced constant pressures related to inputs, such as fuel and plant consumables, reagents used in chemical analysis, explosives, and buildings. This also impacted costs related to the hiring of contractors during the quarter for increased micropartition work and positive throughput. particularly at Yabicocha and Bolivia. As a result of all these factors, EBITDA, net income, and cash flow generation were all negatively impacted. Adjusted EBITDA per quarter was $1.4 million. Now, turning to slide five. Turning to slide five and looking ahead, in the second half of 2022, at Yabicocha, We are focused on meeting maximum levels of throughput at 3,600 times per day and continue making up for lost production earlier in the year. Higher throughput along with higher grades from the new high-grade Fortuna stone will help maximize our metal production within our current mining constraints. We expect that the agriculture copper equivalent production will now fall within 49 and 53 million copper equivalent pounds. and infrastructure projects also continue in the agriculture, including work on the agriculture shaft, ventilation infrastructure, and the required expansion of the stainless steel. At Bolivar, we continue our plan to increase plant growth while still in a difficult and highly uncertain operating environment. To reflect the delays in the first half of the year and continued operating difficulties, Bolivar's production guidance has been provided to a range of 14 to 16 million coppery 200 pounds for the year. In addition, with the continued monitoring of the process of our turnaround plan for the mine, we have scaled back on our capital expenditure guidance for the year, reducing bolivar expenditures by 10 million. This includes the deferral of the project's planned planning capacity. We will continue with critical infrastructure projects, including ventilation, communication, and tailings of films. At CUSC, we have also been providing low-seed air quality production to a range of 1 to 1.2 million ounces. The area of focus remains on mine development into hybrid areas. Tailing projects, including equipment replacement and tailings and development.