This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: 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.
spk03: 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.
spk02: 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.
spk08: And with that, I will turn to Ed to review the second quarter financial pilots. Thanks, Luis, and good morning, everyone. Turning to slide six, in Q2, we reported a 19% decrease to our consolidated throughput, and with a decline in all grades, this equated to a 28% decrease in consolidated copper production compared to the second quarter of 2021. With lower production and metal prices declining over the quarter, revenue from metals payable decreased 37% when compared to Q2-21, as discussed earlier. The adjustments on the open sales position as of June 30, relative to the end of the first quarter of the year, was $11 million. This impacted revenues from the first quarter, sorry, this impacted revenues from Yodicocha, Bolivar, and Cusi by negative $8.4 million, negative $2.4 million, and negative $0.2 million, respectively. Adjusted EBITDA was $1.4 million, a 97% decrease resulting from lower revenues and lower gross margins when compared to Q2 2021. We reported a net loss attributable to shareholders of $15.3 million, or negative $0.09 per share, and an adjusted net loss of $11.6 or negative $0.07 per share. We finished the quarter with approximately $16.4 million in cash. Our three-month revenue mix by metals continues to be led by copper, followed by silver and zinc at 48%, 20%, and 20%, respectively. Lead and gold continue to contribute revenue in line with previous orders at five percent and seven percent respectively looking at the average realized prices compared to q2 2021 copper had gained much strength during this time last year but more recently increased fears of a global recession and declining demand in china impacted copper demand resulting in a two percent decline in q2 2022. zinc and light on the other hand increased by 34 percent and three percent respectively in the precious metals category silver declined by 15 percent with gold increasing by three percent turning now to slide seven to review balance sheet and financing and liquidity highlights for the quarter the company reported 16.4 million in cash as of june 30 2022 Our total debt at the end of the second quarter was 80.8 million, with a net debt of 64.4 million. Cash and cash equivalents decreased during the six-month period due to 22.5 million used in investing activities, 1.5 million used in financing activities, offset by 5.5 million of cash generated from operating activities. For the remainder of 2022, the company's focus will be on improving operating cash flows to improve production and cost reduction management will continue to review metal prices and retains the option to adjust the capital expenditures should metal prices experience any further dramatic changes within the year in june 2021 the company commenced the quarterly repayment installments on its 100 million six-year credit facility with banco creditor the Peru and Banco Santander. The repayment period is four years from its installments in the amount of $6.25 million for a total of $25 million annually and ending in March 2025. In June of this year, through our subsidiary Minera Corona, the company received approval for a $25 million loan facility to refinance the quarterly installments payable in 2022. $12.5 million has been used to repay the installments that were due in March and June, with the remaining $12.5 million to be used to repay the installments due in September and December of this year. The $25 million loan facility will become payable beginning in June 2025 with quarterly installments of $6.25 million ending in March 2026. Interest on this $25 million facility is a three-month standard overnight rate, which at the end of June 30, 2022, is 99%. $1 million in loan interest was paid during the six months on the loan facilities during the six months ended June 30, 2022. The company also has further access to approximately $25 million of available credit lines with local banks as well as opportunities for other short-term lines and prepayment facilities with its commercial uptakers should it be necessary. Turning now to At Yauticocha, while we saw an improvement to cash and all-in sustaining costs over the first quarter of the year when compared to Q2 2021, a 46% increase in cash costs and a 32% increase in all-in sustaining costs were driven by an 18% decrease in copper equipment payable pounds, in addition to higher operating costs. At Bolivar, Again, unit costs improved over the first quarter of 2022, but when compared to Q2 2021, cash costs increased by 93% and all in sustaining costs by 43%, driven by higher operating costs and a 40% decrease in copper equivalent payable town. Sustaining costs, including treatment and refining costs, paid for the decrease in copper equivalent payable pounds.
spk07: Copper equivalent payable pound of $5.49, a 43% increase from the all-in sustaining cost of $3.85 during the same quarter of 2021.
spk08: We are seeing some improvements quarter over quarter, and we hope to see that trend speed up during the remainder of 2022. At CUSI, cash costs are up by 15% due to higher operating costs, while Walden's sustaining costs decreased by 5% when compared to the same quarter in 2021. Silver equivalent payable amounts as reported during the quarter went along with Q2 2021. All-in sustaining costs decreased by 5% when compared to the same period as a result of lower treatment and refining charges and general and administrative costs, as well as sustained capital expenditures. Turning to slide nine, given the delay in the turnaround program at Bolivar, the decline in metal prices and rising costs due to inflationary pressures We have revised production costs and CapEx guidance to reflect the company's current positioning.
spk07: Production guidance has been lowered to a range between 70 and 78 million copper equipment pounds per year from the original guidance of 80 million to 90 million copper equipment pounds.
spk08: While the delays in development and and the flooding events in Coosie are still considered temporary issues, we believe that this required downward revision of the production estimates for these sites for the second half of the year. That's appropriate. At Yawdikotcha, though, throughput and grades are expected to improve due to the mining in the Fortuna zones, resulting in positive adjustments to the mines production lower to a range between 60
spk07: from a previous amount of 90 to 105 million to reflect the decrease in expected revenues. Cost guidance revision have also been applied.
spk08: At Yaudikocha, a decrease in cash costs is expected for the remainder of the year, given that we expect an increase in copper
spk07: equivalent production.
spk08: However, we have revised all sustaining costs slightly upward. While sustaining costs, such as treatment and refining charges, actually declined at Yodikarch in the first half of the year, it was not.
spk07: We expect this will be the case in the second half of the year. We have adjusted cash costs as well plus the all-in sustaining cost to reflect higher costs associated with the lower production guidance.
spk08: We have made efforts to reduce expenditures and preserve cash in order to position the company to weather any additional events that we cannot control. As a result, capital expenditures guidance has been lowered to 59 million from original guidance of 69 million this includes a reduction anticipated ramp up of plant throughput initially planned for 6 000 tons as we continue to focus on the turnaround program at foley bar we have decided to suspend the dividend for 2022 and allocate the funds internally so they can generate returns at a higher level than what would be realized if the dividend was paid out. Our priority is to ensure we can get the company back on track operationally and improve our cash position and ultimately return to declaring a dividend payment. With that, I will now turn the call back to Christina.
spk05: Thanks, Ed. presentation portion of this call.
spk03: We would now like to open the call to questions from participants. Again, we ask participants to keep their questions to a limit up to to give all participants an opportunity. Operator, if you can open the line, please.
spk01: Thank you. If you'd like to ask a question, please press start followed by one on your telephone keypad. If for any reason you'd like to remove your question, please press star followed by 2. Again, it is star 1 to ask your question. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. So our first question comes from the line of Heiko Ihili of HC Wainwright. Your line is now open. Please go ahead.
spk09: Hey there. Thanks for taking my questions. bolivar is progressing unquote unsurprisingly here but arguably the site has been a turnaround story for quite a while and so just thinking bigger picture here i mean what tangible changes the changes have happened in q3 dust farming work we're halfway through the quarter on token what do you think you'll accomplish at the site by the end of the quarter, maybe even by the year, given that you're currently also talking about, and I quote again, an uncertain operating environment.
spk02: Thank you, Michael. This is Nathan. be going on for some time still cycle because we uh there is quite a number of issues that we are addressing in bolivar to bring it to the required efficiency changes we have during the year is basically that we we are moving from the bolivar west zone which is pretty much depleted there is only some recovery areas into the new Bolivar Northwest salt for the bulk of the production. So as we move into Bolivar Northwest and we can develop that area, we can increase production from it. And we are adding to the production from Bolivar Northwest what we have remaining also from El Gallo. So that's going to to go on for some time as we can bring more and more production from Bolivian Northwest. Eventually, next year, we'll be able also to develop an area which is further up from Bolivian Northwest. So by next year, we should have both Bolivian Northwest and Seneguita driving better grades than what we have now.
spk07: This takes time because of the and the appropriate infrastructure.
spk02: Certainly, we are referring to the resource. You are aware we have quite a a large part of our resource in the inferred category.
spk07: So as we move from inferred, we have a very aggressive greening product.
spk02: As we move from inferred to indicated to measured, then we have more certainty. But in that process, we are still mining. So we are indeed more certainty into the resources that we might.
spk07: But this has all sorts of ramifications in what we do.
spk09: Building on the last question, I think it's a great asset, so I'm really sorry to keep picking on Boulevard here. But just looking at the guidance that you put out, you see essentially you cut guidance a decent upside for Q2. At the million pounds of corporate equivalents, so then deducting the 6.8 that you have at a 21% growth rate, given that you need 8.2 million, obviously. That actually leads to two questions that build on my prior one. what's the mental planning looking like for next year, and what do you think this asset could realistically do once all your, you know, transformational changes and whatnot are completed in a couple of years? In other words, how do you think the analyst community should look at the asset longer term?
spk07: What we have now, I think, which has better rates. increasing the throughput, reaching for the 5,000 tons per day.
spk02: And then, when it's appropriate, we can expand it into 6,000 tons per day. I think that improving efficiency and productivity by adding the adequate infrastructure that the mine requires. the integration tunnel, the drainage, ventilation, and the rest. So as we move into the future, we should have a fairly operating at full capacity. But we are still some time from that. Side of the equation here is that we've had a hit on the price.
spk07: As I highlighted during my presentation, the drop has been over 20% in most of our metals. So that's taking
spk02: flexibility out of how we do this process into the new position, operating position. So we're looking at other options to manage this transition more effectively and having this reduced flexibility and reduced options on the waveform.
spk09: Right. That's very helpful. I appreciate it. You can get back in queue.
spk01: Thank you. Our next question comes from the line of... Thank you.
spk10: I guess on the bright side, with the delay at Bolivar, you might be bringing new production on in a better pricing environment in a couple of years. But my question is really, would you elaborate on the security situation at Bolivar that you mentioned earlier and its impact on operations and your mine development initiatives?
spk07: A month ago, there was a very bad incident in nearby Bolivar, in a town called Cerro Cawi, which is between Bolivar, it's like one hour from Bolivar, and it's on a road.
spk02: access road, pretty much, to the mine.
spk07: Black Lord is being blamed for having killed an 80-year-old Jesuit priest and a couple of local residents. This certainly has highlighted the
spk02: the security issues that we've been facing over time in the area.
spk07: Now we have very strong military and police presence in the area for a thousand officers.
spk02: And this has obviously impacted the way we operate. We've got to be very careful on on the movement of our people, our suppliers, our contractors. And for a few days when this happened, it also impacted our operations and couldn't move some of our security issues.
spk07: So now it's better, but it's still ongoing.
spk02: So that's something that we address very soon. We have a plan in place. We are talking with authorities and they have been quite an issue.
spk07: It's less risky that we have something to check into the future.
spk10: Okay. Just on the deferral of the $10 million of the capital expenditures, I understand that that will help you in terms of financial flexibility, but does that delay the ramp up at Bolivar in terms of the turnaround, or do you think it just better times the ramp up?
spk07: In other words, the expenditures that you're delaying.
spk02: Okay. Okay. No, that's helpful. Yeah. Yeah. Thank you. Thank you very much. Thank you. Thank you.
spk01: A reminder, if you'd like to ask a question, please press Start followed by 1 on your telephone keypad. Our final question comes from the line of Lee Cooperman of Omega Family Office. Your line is now open. Please go ahead.
spk04: Two questions and a suggestion. Question number one, do you have any concern about your financial sovereignty, the ability to pay all your bills? And question number two, as a best guess, look at all the moving parts, Do you have any kind of sense of what the capability of the way is, you know, a sense per share to trade stock.
spk07: Price of the stock is cost of commissions.
spk04: And I would suggest that the company consider a reverse split and put us back in the world of respectability.
spk07: This is your first question on solvency.
spk08: There are no going concern uncertainties at this time with our expected production and cash generation over the next 12 to 15 months. We're still focused very much on our. We have secured more lines of credit to
spk07: to help should those production estimates fall off somewhat. We have recently seen strengthening in the metal prices environment from the lows that we saw in June. So that's all helpful.
spk08: But to answer your question, number one, No. And as far as question number two, we're in the process of revising our life of mine plans. So I'm reluctant to comment on 2023 EBITDA until we have our strategic meetings and complete our 2023 budget. Okay. Considering all options, that's certainly something we're looking at. Internally, we have talked about it. To do something like that right now, it would be better to do something like that on a more positive uptrend.
spk07: My concern is you still potentially haven't come. We're not out of it. That could even cause a further share price decline. subsequent to the reverse split, but it is something we're looking at for sure. Okay.
spk06: Thank you. Question from Mark.
spk01: Your line is now open. Please go ahead.
spk10: I just wanted to know if you could just kind of touch on that mark-to-market adjustment. the unsettled open sales position, you know, how can you kind of manage that, and how much of that would you expect to realize?
spk08: Thanks, Mark.
spk07: So we have, with our off-takers, we have sales positions where once we deliver trades, so that's at the port,
spk08: They have the options either pay us either one month up, and they've been choosing one month up.
spk07: So you do have that exposure.
spk08: The significant declines from March to June, we had copper drop 24%, silver were also around 20% mark.
spk07: So it's an accounting adjustment, essentially, where if they haven't finalized, these have somewhat reversed, but it's a point-in-time mark.
spk08: So some of that should be reversed should metal prices continue where they are now.
spk07: You'd get a reversal of that $11 million coming in
spk10: Okay, well, that's very helpful. And then just to follow up on that, is that a change in behavior that you've seen from, you know, that one month versus the three to four months out? Are they just choosing to do that because of the uncertainty, or do you think that's becoming more normal?
spk07: I can't really speak for you. Yeah, I can't speak on behalf of the traders and their views on that one.
spk10: Okay. Well, thank you very much. That's helpful.
spk07: Thank you.
spk01: Thank you. As there are no more questions registered at this time, I'd like to hand the conference call back over to the management team for closing remarks.
spk03: Thank you, operator. That concludes today's call. On behalf of the management team, I'd like to thank all participants for joining us for this call.
spk05: Our contact information is available.
spk03: can be found in today's presentation as well as on the company's website. Thank you, Operator.
spk01: Please conclude the call. This concludes today's conference call. Have a great day ahead. You may now disconnect your lines.
Disclaimer