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spk04: Hello everyone and welcome to the Sierra Metals third quarter 2022 consolidated financial results. My name is Drew and I'll be coordinating your call today. During today's presentation if you would like to ask a question you may do so by pressing star followed by one on your telephone keypad. If you change your mind please press star followed by two. I would now like to turn the call over to Christina Papadopoulos, Manager Investor Relations. Please go ahead.
spk06: Thank you, operator, and good morning, everyone. Welcome to Sierra's third quarter 2022 results call. On today's call, we are joined by Louis Marchese, our CEO, and Ed Kamaras, our CFO. Today's call will be followed by a question and answer period.
spk07: The accompanying presentation for JJ's call is available for download through the webcast or from the company's website at sierrametals.com.
spk06: Yesterday's press release, the financial statements are all posted on today's website.
spk07: 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.
spk06: Additionally, information about material factors that could cause
spk07: 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 via the 40F or on the company's website. Please note that all dollar amounts mentioned on today's call are in U.S. dollars, unless otherwise noted. Before turning the call over to our CEO, Luis Marchese, followed by Ed Gumeris, our CFO, I would like to note that the earnings press release that was disseminated late yesterday evening has since been amended with a newly filed and disseminated version. The corrections refer to footnote number three, following the first table in the press release, that should read that the company is seeking accommodation from lending banks in the form of waivers for its noncompliance. In addition, there was a sentence added to the impairment charge section, noting that LOMs are not a national instrument 43-101 technical report, but management's best estimates of future expected cash flows. I would also like to note that it is the company's current intention to not disclose developments with respect to the special committee process unless and until the Board of Directors of Sierra Metals has approved a specific transaction or material theft or otherwise determines that disclosure is necessary. We will not be taking questions about the strategic process which is being overseen in a diligent, transparent, inclusive, and comprehensive manner by a special committee of the Board of Directors.
spk06: Luis?
spk09: Thank you, Christiana, and good morning, everyone.
spk01: Before we begin, I would like to convey our heartfelt condolences to the families of the victims involved in the tragic mass slide event that occurred at our Jauricocha mine in September. Our thoughts continue to be with our families and their loved ones during this difficult time. Sierra's primary objective remains the safety and well-being of all employees and contractors, and as such, we continue to work through our safety assurance program at the mine.
spk09: Looking at the slide, Five, for a review of operational highlights.
spk01: As you may have read in our Q3 results and the press release, the challenges during the quarter had a significant impact on the company's operations. With just under three weeks left in the quarter, we experienced devastating losses at Yorikocha, with three contract workers lost their lives as a result of the mass flight. As a result of the accidents and the blockade that took place at the mine's main entrance in the days that followed by a local community in an unrelated matter, mining activity was suspended for the remainder of the quarter and into Q4. The mine is now in a transition to full production. The agriculture mine had a 17% decrease in throughput when compared to Q3 2021. In addition to the declining throughput, ongoing restricted access to non-permitted areas at depth impacted grades in all metals and provided a 31% decrease in copper equivalent production. Bolivia's production also declined during the quarter when compared to Q3 2021. Underground flooding in the northwest zone during most of the quarter, in addition to the operational restrictions due to limited ventilation, resulted in a further delay in the production ramp up at Bolivar. Fiber and gold rates have improved by 9% and 159% respectively when compared to the third quarter of 2021, but were not enough to offset the 38% decrease in throughput, resulting in a 16% decline in copper equivalent pounds produced. At CUSI, on the other hand, when compared to the same quarter last year, A 7% increase in throughput and improved precious metal grades provided a 22% increase in silver equivalent ounces produced. While the underground flooding event at Pusi during the second quarter is now under control, access to the lower levels of the mine was still limited at the beginning of Q3. Throughput was slightly lower than in Q2, but it was offset by higher rates in all metals, resulting in a 72% increase in silver equivalent ounces produced. On a consolidated basis, throughput was 25% lower, and copper equivalent production was 24% lower than the third quarter of last year.
spk02: Turning to slide six.
spk01: The accumulation of operational losses and negative cash flows, primarily from our Mexican operations, coupled with the suspension of mining activity during this quarter, ultimately put the company in a difficult liquidity position. On October 15th, we filed a press release to inform our shareholders and stakeholders of the outlook for the company and the formation of a special committee made up of the board's independent directors and the initiation of a strategic review process. The special committee continues as mandated to explore, review, and consider all options to optimize the operations of the company and possible financing. and strategic options in the best interest of the company. In taking prudent steps toward cash conservation, on October 25th, we announced the company's decision to delist from the AYC American and the BDL. This decision was not made lightly as we recognize the challenges this presents to many of our smaller shareholders. The listing was something that we had been contemplating for some time, given the costs associated with these listings. The decision to move ahead with the listing from the exchanges coincided with the news that the company was facing financial and liquidity issues. The final day of trading in the NYSE America was November 14, 2022, with shares being suspended from trading today before the market commenced trading. We are continuing to pursue the VVL delisting and suspension from trading. This is anticipated later during the year. We will provide an update on a final trading date on the VVL once this has been confirmed.
spk02: Turning to slide seven and looking at our current focus as we continue to deal with existing challenges.
spk01: At Yaricocha, we are focused on our comprehensive safety assurance process following the incident. Full production will only resume once this process is complete. Drilling remains focused on upper areas of the mine to identify additional new mineable areas within the permitted levels of the mine. You are muted.
spk03: You can mute or unmute your microphone. The host would like you to unmute your microphone. You can press star six to unmute. The host would like you to unmute your microphone. You can press star six to unmute.
spk01: While the underground flooding that took place during the quarter is under control, we continue to work with operational constraints due to limited ventilation. The main plan is to focus into Bolivar Northwest and development into higher grade Tieneguita is ongoing. Other operational improvements in the whole process are also ongoing. Infiltration and development to reduce backlog and increase the knowledge and availability of ore continues. With the underground flowing under control, the goal remains to continue to mine at depth and continue with operational improvements that are in process. Across all three mines, we are certainly focused on sustainable cost management while dealing with inflationary pressures. Now, I want to turn to Ed to review the third quarter financial highlights.
spk08: Thanks, Luis, and good morning, everyone. Turning to slide eight, the company's financial results were impacted by the operational setbacks in Q3. For the quarter, we reported a 25 percent decrease to a consolidated throughput and a 24 percent decrease in consolidated copper equivalent production compared to the third quarter of 2021. Metal prices continued to decline during the quarter, and combined with lower production, revenues for metals payable decreased 36 percent when compared to Q3 2021. Adjusted EBITDA for the quarter was negative 3.9 million. We reported the net loss attributable to shareholders for Q3 of 46.2 million, or negative 28 cents per share, which includes an impairment charge of 32 million for the quarter. Given the company's reduced market capitalization, declining metals prices, lower production and profitability, the company performed an impairment analysis on all three of its mines using the life of mine or long analysis. The analysis of the life of mines is not a 43-101 technical report, but management's best estimate for future expected cash flows. The analysis of the Mexican operations concluded that an impairment charge of $25 million and $7 million is required for Bolivar and Cusi, respectively. An updated life of mine analysis for Yautikocha did not require an impairment as of September 30th, 2022. We reported an adjusted net loss of 10.7 million or negative 7 cents per share and finished the quarter with approximately 13.7 million in cash. Our three-month revenue mix by metal continues to be led by copper at 39%, followed by silver and zinc. 21% and 26% respectively, lead and gold continue to contribute equally to revenue at 7% and in line with previous quarters. Looking at the average realized prices compared to Q3 2021, global recession fears sparked by interest rate hikes and declining demand continue to drive metal prices lower, resulting in a 17% decline copper in Q3 2022. Silver, gold, and lead also declined by 20%, 3%, and 16%, respectively. Zinc, on the other hand, increased by 10% during the third quarter. Turning now to slide 9 to review the balance sheet, financing, and liquidity highlights for the quarter. The company reported $13.7 million in cash as of September 30, 2022. Total debt at the end of the second quarter was 87.3 million, which includes 62.3 million owing on the senior secured corporate facility with Banco de Crédito del Perú, or BCP, and 25 million for the Corona term loan with BCP and Santander, which was arranged during Q2 to refinance the quarterly installments payable for 2022. The company's net debt balance is 73.6 million. Cash and cash equivalents decreased to $13.7 million as of September 30th, 2022, due to $31.2 million used in investing activities, offset by $6.1 million generated from operating activities, and $3.8 million of cash generated from financing activities. During the third quarter, the company breached certain debt covenants related to its senior secured corporate credit facility, BCP, thereby requiring the company to reclassify $37 million as a short-term loan, consequently reporting a negative working capital of $52.3 million at the end of the quarter. The company is seeking accommodation from the lending banks in the form of waivers for this noncompliance. The company paid its final installment of $6.7 million to BCP and Santander and is proactively engaged in discussions in discussions with these senior secured credit facility lenders. The unexpected flooding at its Mexican operation and operational restrictions due to limited ventilation at Bolivar and the mudslide event at the Yoticocha Mine are not of usual nature and will have a temporary impact on the company's ability to generate sufficient cash to meet its financial obligations. These events have impacted the company's financial position and prior available lines of credit are now subject to further evaluation the company has secured short-term credit facilities with certain peruvian banks over the past several weeks and although there is no guarantee the company is in the in the process of finalizing repayments from an off-taker on the sale of its 2023 copper concentrates from the bolivar mine As Louise mentioned earlier, the company has formed a special committee of the Board of Directors to explore, review, and consider options to optimize the operation, financing, restructuring, and strategic options in the best interests of the company. The company has also engaged CIBC as a financial advisor to review various strategic options. I want to reiterate that it is the company's current attention. The host would like you to unmute your microphone. You can press star six to unmute. Unless and until the Board of Directors of Sierra Metals has approved a specific transaction or material steps or otherwise determines that disclosure is necessary. We will not be taking questions about the strategic process, which is being overseen in a diligent, transparent, inclusive, in a comprehensive manner by a special committee of the Board of Directors. Turning now to slide eight to look at the cost breakdown for each mine. At Diao de Cracha, we saw an increase to both cash, null and sustaining costs by 47% and 19%, respectively, when compared to Q3 2021, as a result of the 25% decrease in copper equipment payable pounds. Unit costs Decreased slightly relative to Q2 2022 as a result of lower cost of sales and sustaining costs. At Bolivar, again, both cash and all-in sustaining costs increased when compared to Q3 2021. Cash costs increased by 67% in all-in sustaining costs, increased by 18%, driven by higher operating costs, and an 8% decrease in copper equipment payable pounds. Bolivar's Q3 2022 cash costs and all-in sustaining costs for copper equivalent pound decreased, however, from 339 and 549, respectively, in Q2 2022. At 2C, cash costs declined by 15% and all-in sustaining costs decreased by 34% when compared to the same quarter in 2021. A decrease in unit costs as a result of lower operating costs and lower sustaining costs compared to Q3 2021, offset the 10% reduction in silver equipment payable ounces compared to Q3 2021. With that, I will now turn the call back to Christiane.
spk06: Thanks, Ned. That ends the presentation portion of this call.
spk07: We would now like to open the call to questions for participants In the interest of time and fairness, we ask to cast the question to a limit of two.
spk06: Give all participants an opportunity. Operator, please open the line.
spk04: Thank you. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. Our first question today comes from Lee Cooperman from Omega Family Office. Your line is now open.
spk05: Yeah, thank you. I had trouble hearing some of the comments made, so if I ask a question that you don't want to respond to, I apologize. But, you know, the stock price reflects, I think, the risk of bankruptcy, insolvency, or extremely dilutive equity financing. Are you far enough into this process where you could say that the market has overreacted to those kinds of risks, or you don't know the answer at this point in time?
spk09: Hello? Hello? Hello? Did you hear the question?
spk07: Hello? Can you hear me?
spk05: Hello, did you hear the question? I didn't hear any answer in response to the question. Hello?
spk07: Hi, we're just having some difficulty here.
spk09: You're continuing with your... Lower the shades when you can, okay?
spk03: The host would like you to unmute your microphone. You can press star six to unmute.
spk04: Our first question today is from Lee Cooperman from Omega Family Office. Your line is now open.
spk05: Yeah, I had asked a question. I said the stock price reflects the risk of insolvency or a very dilutive financing to rescue the company. Personally, I didn't think either one was likely. I'm just curious, can the company comment on that issue? Do you know enough about the process to say that insolvency or a very dilutive equity financing is not being considered.
spk07: Lee, unfortunately, we're having technical issues. I'm able to get management on the line. Unfortunately, we're probably going to have to end the call. I can certainly arrange a call separately for you.
spk05: Yeah, you can call my cell phone. I think they have the number. Thank you.
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