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spk01: Thank you for standing by. This is the conference operator. Welcome to the Sierra Metals Inc. Third Quarter 2023 Consolidated Financial Results Conference Call. As a reminder, all participants are in listen-only mode. The conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. I would now like to turn the conference over to Jean-Pierre Fortelrio, Manager of Business Development and Investor Relations for Sierra Metals. Please go ahead.
spk03: Good morning, everyone. 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. Please review this slide and other forward-looking information contained in the company's annual information form. which is publicly available on Cedar Plus and the company's website. The accompanying presentation for today's call is available for download from the company's website at sierrametals.com. This morning's press release, the financial statements, and the MD&A are posted on our website and on Cedar Plus. Please note that all dollar amounts mentioned on today's call are in U.S. dollars, unless otherwise noted. I will also point out that the CUSI mine was deemed a non-core asset earlier this year, placed on current maintenance on September 20, 2023, so the results of the mine are not included in the consolidated results in our 2023 guidance and has been reclassified as a discontinued operation in our financial statements, with all historical results related to CUSI also reclassified. We are well along the process to sell the mine, and we'll have more to report in due course. Speakers on today's call are Ernesto Valareso, our CEO, and Jose Fernandez Vaca, our CFO. Following management's prepared remarks, a question and a period will be followed. And now I would like to turn the call over to Ernesto.
spk04: Thank you, JP, and good morning, everyone. Let me begin, as we always do, by discussing our number one priority, safety. Our strong operating performance inside Joint as CEO is due in large part to our improved approach to safety. Our focus is to relentlessly ensure we provide a workplace environment where all our employees and contractors are safe and, as a result, able to maximize their productivity. As you'll hear me always say, a safe mind is an operating mind. As shown on this slide, we can see how everyone at Sierra Metals has embraced our renewed focus on safety. On a consolidated 2023 year-to-date basis, we continue to trend in the right direction. I know we will do everything we can to ensure this positive trend continues. Now, let's move onto an overview of our results. We released our third quarter 2033 production results on October 19, and our financial results earlier today. I will assume everyone has had a chance to review them, so I will not be going into detail on each mine, but will instead provide these highlights. On a consolidated basis, our two operating mines, Yauricocha and Bolivar, processed 623,000 tons of ore in the third quarter of 2023. which was 25% higher than in the third quarter of 2022. All metals produced in the quarter were higher on a year-to-year basis, most notably copper, which was up 50%. This resulted in 18.5 million copper equivalent pounds produced in the third quarter of 2023, which was a 27% increase over the same quarter last year. In fact, In just nine months this year, we have produced 55.3 million copper equivalent pounds, which is almost as much as we did in all of last year. Bolívar achieved a throughput of almost 363,000 tons in Q3 2023, a 59% increase from Q3 2022, and an 11% decline from Q2 2023. This decline was anticipated in our life of mine plans. We expect to return to higher throughput rates in Q4 2023, like we achieved earlier in the year. Copper equivalent production of 8.1 million pounds in Q3 2023 was 113% higher than in Q3 2022, and 24% lower than in Q2 2023. Bolivar's cash cost per copper equivalent payable pound decreased 36% to $2.15, and all in sustaining cost per copper equivalent payable pound decreased 30% to $3.57 when compared to Q3 2022. I won't take you through all the significant productivity and cost reduction initiatives shown on this slide that we undertook at Bolivar during the quarter. other than to highlight the initiatives with the biggest impact, the replacement of the primary crusher and the hiring of an additional specialized mining contractor. At our other cooperation, Yauricocha processed 260,000 tons during Q3 2023, an increase of 6% over Q2 2023, and a decrease of 3% from Q3 2022. Copper equivalent production for Q3 2023 of 10.4 million pounds represented a 9% increase over the previous quarter and a decline of 4% when compared to Q3 2022. I'll point out when compared to Q3 2022, the 4% decrease in the copper equivalent pounds produced is largely due to the change in metal prices. particularly because of lower sink and higher copper prices when calculating copper equivalency. When compared to Q3 2022, we have produced more fine metals, specifically in copper and zinc. This was Yauricocha's best quarter of the year. In Q3 2023, Yauricocha had a cash cost per copper equivalent pay of pound of $2.08, and an all-in sustaining cost per copper equivalent payable pound of $3.75, both of which were slight increases from Q3 2022. Again, I won't take you through all the significant productivity and cost reduction initiatives shown in this slide that we undertook at Yaudicocha during the quarter, other than to mention that we have hired a new operations manager, Mr. Carlos Trillo, Mr. Trillo brings more than 35 years of vast experience in underground mining in companies such as Pan American Silver, Hawkshield Mining, Vulcan, and Glencore. We continue to maximize production and reduce costs where we can until we obtain the permit to mine below the 1120 level. More on that permit later. Now, let me hand the call over to Jose, our CFO.
spk02: Thank you. Following the comment just discussed by Ernesto, let me provide the following financial highlights. Consolidated revenue from metal payables of $57 million in the third quarter of 2023 was an increase of 62% from the third quarter of 2022. The increase was mostly through higher metal sales at Bolívar and increased metal prices. In Q3 2023, consolidated cash cost per corporate equivalent payable pound was $2.11, and holding sustaining cost per corporate equivalent payable pound was $3.66. These were respectively 12% and 5% lower than the same quarter in 2022, again, primarily due to increased production levels and our cost efficiency. Adjusted EBITDA in Q3 2023 was $8.1 million compared to a negative adjusted EBITDA of $6.2 million in the same quarter 2022. The improved adjusted EBITDA is primarily driven by higher revenues attributable to higher production and improved operating costs. Excluding discontinued operations, net loss to a shareholder was $2.8 million in Q3 2022 versus a loss of $38.1 million in Q3 2022. Note that net loss discontinued operations for QC was $6.6 million in Q3 2023. Cash flow generated from operations before movement in working capital of $6 million for QC 2023 resulted in another positive quarter of cash flows from our mines. On a year-to-date basis, cash flow generated from operations before movement in working capital was over $30 million. Subsequent to quarter end, and as announced on October 13th, we closed a private placement of $16.4 million Canadian dollars. This plan, along with the refinancing of our debt announced in the second quarter and improvement in our operations' ability to generate cash flow, has significantly strengthened and improved our financial position from what it was at year end. Meanwhile, we continue to look for ways to strengthen our balance sheet, which includes reducing cash outflows by putting CUSI on carry maintenance, the potential sale of the Cruzi mine, ongoing and very productive talks with our lenders on a refinancing package, and opportunities to surface hidden value from over 90,000 hectares of mine concession in Mexico. We hope to be able to speak further about all these initiatives in due course. Now, back to you, Ernesto.
spk04: Thanks, Pepe. As a result of the hard work by everyone at Sierra Metals this year, I'm pleased to confirm that we are on track to meet our 2023 guidance. We are trending to be somewhere between the lower end and midpoint of our production guidance. As for costs, both mines are expected to achieve 2023 all-in sustaining cost targets, and on a company-wide basis, we expect to be near the higher end of our 2023 cash cost guidance. And while much has been done to reduce spending and increase production, Everyone will continue to be diligent, to do more to preserve cash, a hallmark of our team and part of the renewed culture at Sierra Metals. An important part of the company's growth is to increase our mineral resources. At Bolivar, as announced on August 22nd, we increased the mineral resources by adding 15.5 million copper equivalent pounds in the Dulce ore body on the property. Exploration at Bolívar is the foundation for its future growth, so during Q3 2023, we drilled over 18,000 meters in the Bolívar, Cieneguita, and Dulce zones, where we were very encouraged to encounter scarring intersections with mineralization. These assays results are being analyzed and we expect to announce them shortly. At Yauricocha, surface exploration continues near the mine, having the potential to increase geological resources. Meanwhile, in Q3, we drilled almost 2,300 meters underground, where we have been encouraged with a polymetallic mineralization fund. Our goal is to add mineral resources until we have the permit in place to mine below the 1120 level. Mining below the 1120 level will be a game changer for Yauricocha and Sierra Metals. To simply put it, the ore body below 1120 is large. Access to it will allow us to implement bulk mining techniques utilizing sub-level caving mining methods, thereby increasing throughput and lowering costs, allowing the mine to reach its full potential. The permitting team is making great progress, and we continue to be on track to obtain this very important permit before year-end. Once the permit is in place with a modest investment in development capital, we expect it will take between six to nine months for first production below 1120 level. We continue and will always continue to partner and invest within our local communities. In Q3 2023, near Yauricocha, we undertook a genetic improvement initiative where we donated 20 stallions and 40 alpacas that were of value to our local communities. In both Peru and Mexico near operations, we sponsor several community health learning workshops and water care awareness campaigns. In summary, we have four pillars in place to underpin our business to successfully generate shareholder value for the long term. This foundation is supported by processes, systems, and human capital, which drive the implementation of our strategy. In less than a year, we've built a team that has been able to surface value across our very strong base of assets by generating positive cash flow from the operations, increasing production, lowering costs, and growing mineral resources, all in a safe and responsible manner. A very clear turnaround is underway at Sierra Metals, a testament and validation of our strategy is the support we received from the $16 million Canadian dollar financing that Jose already commented on. I want to take a moment to discuss this in a little more detail. The financing was mainly driven by existing shareholders with a number of insiders from management and the board also participating with nearly 10% of the placement. We see this as a major vote of confidence as it shows that, in short order, we have earned the trust of key shareholders. And it has also provided myself, colleagues, and certain members of the Board the opportunity to increase our personal holdings in Sierra Medell, therefore further aligning our interests by investing alongside our shareholders. We all recognize the strong work that has been driven in proof results in the past year, but more importantly, we all see the potential of this company to do more and create even more value for shareholders. In closing, we appreciate the ongoing support of our shareholders, board, dedicated employees, and all stakeholders as we continue the positive momentum in moving Sierra Metals forward. With that, I'll hand the call back to the operator to start the Q&A session. Operator?
spk01: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. The first question comes from Bryce Adams with CIBC. Please go ahead.
spk05: Good morning, Ernesto and Jose. Thanks for taking my questions. So related to the 1120 level permit, you mentioned this is still on track for year end and that the timeline for development is six to nine months. I was wondering, what's the capex needed for that development? And then subsequent to that, what does it mean for the grade profile? I understand you'll have improved throughput from sub-level caving. but is it also higher grade below that 1120?
spk04: Okay, hello Bryce, and thank you for the question. We're still on track to achieving the permit by year end. Everything is going, well, I wouldn't say as planned because we wanted earlier this permit, but everything is going on track. The mineralization below the 1120 line level is very much the same as it was on top. Similar grades, but huge ore bodies, as we had many years and a few years ago in Yauricocha. So we are changing the mining method instead of being right now 80% probably cut and fill and 20% sub-level caving. It's going to be the other way around. Six to nine months, to get to the mineralization, and the capex involved in this first month is gonna be around three to five million dollars. Not much, we have the money to do it, so we are confident that we'll get there by Q3, Q4 of 2024.
spk05: I'm sorry, I missed it. It's three to five million to develop below 1120?
spk04: Yeah, to reach mineralization. Once we reach mineralization, then that mineral will produce cash flow and will use that cash flow to continue the deepening of the mine.
spk05: Okay.
spk04: Thank you so much.
spk05: I appreciate the extra color there. Sure.
spk01: Once again, if you have a question, please press star, then 1. This concludes the question and answer session. I would like to turn the conference back over to Ernesto Valarazo for any closing remarks. Please go ahead.
spk04: Thank you for taking the time to join us today. We appreciate your continued support. I'm proud of what the team has accomplished to date. I believe the momentum we've built is heading in the right direction in growing our business in a safe and responsible manner. Have a good day, everyone.
spk01: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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