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spk07: Thank you for standing by. This is the conference operator. Welcome to the Sierra Metals Inc. 4th Quarter 2023 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode, and 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 John Pierre Fort del Rio, Manager of Business Development and Investor Relations for Sierra Metals. Please go ahead, sir.
spk05: Good morning, everyone. I'd like to note that this earnings call contains forward-looking information that is based on the company's current base 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 on 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 statement, and the MD&A are posted on our website and on CIRA+. Please note that all dollar amounts are mentioned today in today's call are in U.S. dollars unless otherwise noted. I will also point out that the Kushi mine was deemed a non-core asset in 2023 placed on current maintenance on September 20, 2023, and thus the results of the mine are not included in the consolidated results or in our 2023 and 2024 guidance, and has been declassified as a discontinued operation in our financial statements, with all historical results related to CUSI also declassified. Speakers on today's call are Ernesto Valareso, our CEO, and Jose Fernandez Bata, our CFO. Following management's prepared remarks, a Q&A period will follow. And now I would like to turn the call over to Ernesto.
spk04: Thank you, Jean-Pierre, and good morning, everyone. Let me begin, as we always do, by discussing our company's number one priority, safety. It is without a doubt that our strong operating performance this past year is due in large part to our improved approach to safety. Our focus is to continuously ensure we provide a workplace environment where all our employees and contractors are safe, and as a result, are able to maximize their productivity. As you 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 improved focus on safety. Excuse me. For 2023, each buy trended in the right direction. We aspire to be a leader amongst our peer group within our industry. Before I get into the details of the quarter, let me provide some highlights of the past year. I joined Sierra Metals 15 months ago, knowing the company had strong assets and with the right team, strategy and hard work, we could turn the company around in short order. During this time, With the support of the board and many of our shareholders, we recruited a new senior management team with the goals of improving safety, increasing efficiency, and reducing costs throughout our business. It hasn't been easy, but we can now see our hard work being realized. While there are many initiatives that I'm very proud of, some specific ones to highlight include ramping Bolivar's production close to 5,000 tons per day, This has proven to be the backbone of our operational improvements. Our team obtained the permit to mine below the 1120 level at Yauricocha, which will be a great source of growth for the company going forward. This will allow to ramp up Yauricocha's production by 40% by year-end. Putting CUSI on current maintenance and starting the divestment process. We replaced our mined mineral resources by more than 100% ensuring our sustained production. And at the corporate level, we improved our financial position through refinancing our debt, completed a $16 million Canadian equity finance, and uplisted to the OTCQX in the US, thereby expanding our shareholder base. And as such, We are pleased to see our stock price respond by increasing over 200%, thus validating our strategy. Now let's move on to an overview of our results. We released our fourth quarter 2023 production results on February 1st 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, Yalicocha and Bolivar, processed nearly 774,000 tons of ore in the fourth quarter of 2023, which was 59% higher than in the same quarter a year ago. For the full year of 2023, Our two mines processed nearly 2.5 million pounds of ore, which was 24% higher than in 2022. All metals produced in Q4 2023 and food year 2023 were significantly higher than in 2022. All of these resulted in 21.1 million copper equivalent pounds produced in the fourth quarter of 2023. which was a 78% increase over the same quarter last year. For 2023, we produced 76.7 million copper equivalent pounds, which was 37% higher than in 2022. Needless to say, operationally, 2023 was a tremendous year for Sierra Meras. Through the hard work by everyone throughout the company, we turned around our operations. Our hands-on approach created a safe, dynamic, and responsive operating environment which has stabilized operations and builds a platform for growth. Now, let me move on to some specific highlights of Bolívar and Yauricot. Bolívar achieved a throughput of 410,000 times in Q4 2023, a 52% increase from Q4 2022. For the year 2023, the mine increased throughput by 57% over 2022. Our team did a great job during the year of getting the mine throughput levels back to its capacity of close to 5,000 tons per day. This was a key factor for Shura Metals in achieving our goals last year. Some of the initiatives undertaken in 2023 that helped boost productivity and reduce costs in Bolívar includes starting new tailings dam projects increase development improving ability of available sorry improving availability of soils improving water recovery using 50 less fresh water upgrading definition drilling that improves the modeling process and purchasing new blasting equipment As a result of the increased throughput levels, copper equivalent production was higher and costs were lower in 2023 versus 2022. Copper equivalent production was 36.6 million pounds in 2023, which was 116% higher than 2022. We met our 2023 guidance. When comparing 2023 to 2022, Grades for all metals and recovery rates were higher. Cash costs and all-in sustaining costs for 2023 were $1.87 and $3.29, respectively, per cover equivalent time. Cash costs were lower than 2023 guidance, while all-in sustaining costs were 4 cents higher than guidance. The agriculture highlights. The agriculture processed nearly 264,000 pounds during Q4 2023, an increase of 73% over Q4 2022. On each quarter throughout 2023, the agriculture increased its throughput rate and increased the amount of metal produced. Corporate equivalent production for Q4 last year of 10.9 million pounds represented a 100% increase over the fourth quarter of 2022. As a result of higher grades mined, higher recovery, and increased throughput rates, copper equivalent pounds produced was 40 million pounds, or 2% higher than a year ago, thereby meeting 2023 production guidance. As well as gold, copper, zinc, silver, and lead production were higher in 2023 than in 2022. In the fourth quarter of 2023, the agriculture had a cash cost per copper equivalent payable pound of $1.84 and an all-in sustaining cost per copper equivalent payable pounds of $3.47. For 2023, cash costs per copper equivalent payable pound of $2.05 was above guidance, and in all sustaining costs per copper equivalent payable pound of $3.56, which met guidance. I want to take you through all the significant productivity and cost reduction initiatives that we undertook at the agriculture during the quarter, other than to highlight the following. Increased availability of scopes. improve main ventilation and pumping infrastructure, optimize mine haulage cycle with damper trucks, improve mine development, and improve copper recoilless. All in all, Latina Yabicocha did a great job maximizing production and reducing costs where possible until we are able to mine the ore body below the 1120 level. As we announced on February 21st, 2024, we obtained this permit to develop the mine below the 1120 level. The permitting team did a fantastic job in obtaining the permit in less than a year. Mining below the 1120 level will be a game changer for Yabicocha and Sierra Meros. To put it simply, the ore body below 1120 is huge. Access to it will allow us to implement bulk mining techniques utilizing sub-level cable mining methods. This will increase throughput and lower costs, allowing the mine to reach its full potential of 3,600 tons per day, a 40% increase from current run rates within six to nine months with a modest investment in development capital of between $4 million to $5 million. Now let me hand the call over to Pepe, our CFO.
spk03: Thank you, Ernesto. I will now provide highlights on how improved operations impacted our financial position. Consolidated revenue from methods payable of $50.6 million in the fourth quarter of last year was an increase of 58% from the fourth quarter of 2022. For 2023, revenues were $229.5 million, or a 79% increase from the previous year. Adjusted EBITDA in Q4 2023 was $12.2 million compared to a negative adjusted EBITDA in the same quarter of 2022. For the year, we generated $50.3 million of adjusted EBITDA, a fourfold increase from 2022. Cash flow generated from the operations reform movement in working capital was $12.8 million for Q4 2023. resulting in another positive quarter of cash flow from our mines. On a full year, 2023 basis, cash flow generated from operations before movement in working capital was $43.3 million. Cash at year end was $9.1 million. While the improved operational results have helped to improve our financial position, we continue to look for ways to further strengthen our balance sheet. This includes reducing cash outflows by around $8 million per year by putting koozies on carry maintenance, the potential sale of the koozie mine, opportunities to surface hidden value from our more than 90,000 hectares of mining concession in Mexico, and the ongoing and very productive talks with our lenders on a refinancing package. We expect the refinancing package will offer the company relief on its repayment schedule and help fund future growth opportunities. Our lenders have been very strong partners and show a tremendous amount of support for our achievements to date and our growth initiatives. We hope to be able to speak further about all these initiatives in due course. In summary, the private placement of $16.4 million Canadian dollars in Q4, along with the refinancing of our debt announced in the second quarter, and improvement in our operations ability to generate positive cash flow throughout the year, has allowed us to enter 2024 with a significantly threatened improved financial position from what it was a year ago. Now back to you, Ernesto.
spk04: Thanks, Pepe. Looking ahead, we see 2024 as a year to consolidate the optimization efforts that started in 2023 and to establish the platform for growth. I'll just let everyone know that starting 2024, the company modified its definition of cash costs to include treatment and refining charges, selling costs, and G&A costs. We think this is more accurate and more transparent to the market. Now we can clearly identify the sustaining capex portion of the total costs. Mentioned earlier, at Yauricocha, we will be focused on developing the mine below the 1120 level. At Bolivar, we will continue our project to expand our tailings facilities with a goal of having them up and running within three years. That expansion should increase production by 50% to 7,500 tons per day throughput from current rates. And one last item to note, we expect to publish for both mines an updated NI 43-101 Mineral Reserve and Resource Report shortly. Shifting now to a very important part of our success, which is to partner with our local communities. Listed on this slide are some images of the events and initiatives in Mexico and Peru will remain committed to ensure their safety, wellness, and environment are a top priority. As I finish up my remarks, I'd like to take a moment to remind everyone that our success in generating shareholder value this year and the years to come are supported in the following four pillars on this slide. Given the challenges in 2022, our focus in 2023 was to stabilize and optimize our operations with much of our attention on the first two pillars, safety, health, environment, and our communities of interest, and operational excellence to improve efficiency and further reduce costs. As such, we now believe we have the foundation and platform to grow our company and focus more on the other two pillars, organic growth, which will come from within the company, This includes increasing capacity to such major initiatives, such as mining below level 1120 at Yalvicocha, and increasing the capacity of our tailings at Bolivia, and always finding mineral resource expansion. But it also includes the last pillar of inorganic growth, where we will look outside of the company for growth. And as Pepe already mentioned, one such area of potential growth is servicing value from the large greenfield land package we have in Mexico and Peru through partnerships and joint ventures. Rest assured, while we want to grow, we will continue to seek value across our very strong base of assets by generating positive cash flow from the operations, increasing production and lowering costs, all in a safe and responsible manner. We appreciate the ongoing support of our shareholders, board, dedicated employees, financial institutions, 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?
spk07: 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're using the speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue.
spk06: The first question is from Randy Rockman of West. Please go ahead. I'm sorry, we're not... Pardon me.
spk07: Pardon me, sir. Randy's line dropped off. We have Kate Nakagawa of CIBC. Please go ahead.
spk01: Hi, good morning. Thanks for taking my question. So towards the end of the call, you briefly mentioned that you modified your cash cost calculation method. Could you please provide a bit more color around this change?
spk04: Yes. Greta, you want to go into more detail?
spk03: We thought that it was much easier and transparent to include in our wind caps, our current calculations, the commercial terms, and the tailings, so that the market would have a better idea of how the sustainable capex is in our numbers.
spk04: Yeah, note that for 2024 we are already using this new method. Like Pepe said, we think it's much more transparent, to put it like that.
spk01: Okay, great. Thank you.
spk06: Sure. Once again, if you have a question, please press star then 1.
spk07: The next question comes from Ben Pyrie of Atrium Research. Please go ahead.
spk02: Hi, guys. Ben from Atrium. Firstly, I just want to say congrats on the quarter and the good year. Just going back to the environmental permit you received last month and the production that we're expecting to ramp up by Q4, when will we start seeing these efficiencies taking effect? And, yeah, can we start seeing production numbers begin to tick up as early as next quarter? Okay.
spk04: Thank you for the congrats. First of all, we are aiming by Q4 to have already production from below 1120 level. We are ramping up, so you're going to see some increase in Q3 probably, but Q4 we should be at full production, 3,600 tons, 40% increase of last year.
spk02: okay thank you and just one more at bolivar is there any opportunity to ramp the production further prior to the tailings dam completion or is there no ramp up until the tailings dam is completely finished okay thanks for the question we don't plan on increasing the capacity of bolivar until we get this new tailings dam in place we have a few years
spk04: of tailings dam capacity at 5,000 tons. We expect to have the new tailings dam in two to three years, but we want to keep a little bit extra time just in case something goes wrong. So we are not planning on increasing that capacity right now. Yeah, that makes sense. Okay, that's all for me. Thank you.
spk06: Sure. Once again, if you have a question, please press star then one now. The next question is from Randy Rockman of West.
spk07: Please go ahead.
spk00: Hello, Ernesto. Congratulations. You've done it. You and your team have done a wonderful job writing this company from the prior management. My question is the following. Once you get production from 1120, you know, let's assume we're talking about 2025 where you get a full year of production. What kind of cost savings do you think we will see at Yara Coach? Because as you pointed out, you're absorbing unused mill capacity currently. And so I'm just kind of curious where you'll see the cost falling to once we have this rising production from below 1120?
spk04: Okay. First of all, thanks, Randy, for the congratulations to the team. Once we get a full year of production, 2025, as you say, we should be looking at cost numbers the same as we had them in 2020, When we were a food production, those were in the mid-twos. I don't know exactly how much it will be, but they're going to be very, very good. We're going to be in the first quartile of costs market-wise, for sure.
spk00: Terrific. Thank you very much.
spk06: Thank you. The next question is from Ben Priory of Aquarium Research.
spk07: Please go ahead.
spk02: Hi, guys. Sorry, just one more question here, and I might be getting into the weeds a little bit, but I understand you're doing a raised border project in Mexico, and I'm just curious how that's going and if there's going to be any material effect to mining productivity following this project.
spk04: Okay. You meant, sorry, a raised border, you said? Yes. Correct. OK. What we are doing there is, yes, we are building a rail border that is going to connect the underground mine to the mill. So instead of going by road, right now we take the mineral out of the mine and take it by road to the mill, we're going to take it underground straight to the mill. This project, we should have it finished by Q3, Q4 this year, and it's gonna reduce our haulage costs. So we'll tell you all about it as soon as we get it done, but we're working on that. And thanks for the question.
spk06: Okay, thank you. Oh, sorry.
spk04: This is gonna decrease the haulage distance by around 12K. So, this is going to be very material.
spk06: Great. Thank you very much. Sure. As there are no more questions from the phones, management will now take questions sent by email.
spk05: So, operator, we have received a couple of questions on our email.
spk06: Do you mind me if I go through those? Please go ahead, sir.
spk05: So the first one is, why are you seeking partners on your Greenfield project in Mexico and Peru?
spk04: OK, thank you. The idea is to maximize the value of our assets. We have a potential in Peru. And like Pepe mentioned, we have more than 80,000 in Mexico to explore in seven projects. We don't have that financial ability to do so alone. As you know, a corporate project may involve hundreds or hundreds of millions of dollars to assess and a lot of time. And so our financial capability is going to be put this year more in our core assets. So we want partners to develop the organic and inorganic growth of our pillars.
spk05: The next question we have is, what's the objective of the refinancing package currently being negotiated?
spk03: Pepe, do you want to answer that? Yes, thank you, Ernesto. Yes, this will enhance our balance sheet position. Even though the size of the debt is still low for a company like ours, we need to adjust the terms and be able to extend that loan down to five years. By doing that, Sierra will be able to focus on deploying capital in its core assets and creating value out of those.
spk06: Okay. Thank you.
spk04: No more questions on this end, Operator.
spk07: Thank you. This concludes the question and answer session. I would like to turn the conference back over to Ernesto Belarrezo for any closing remarks.
spk06: Thank you for taking the time to join us today.
spk04: 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. Thanks again.
spk07: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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