Sierra Metals Inc.

Peru's securities regulator approved the voluntary removal of the shares from the Lima Stock Exchange effective 15 December 2022, leaving the Toronto listing. A retreat from the market of the country that hosts Yauricocha, taken while the company was in a strategic review and facing the Kolpa approach.

listing compliance notice

Kolpa and Arias Resource Capital pressed their proposal in further correspondence. The board's answer is to fold them into the wider strategic review run by CIBC Capital Markets rather than negotiate bilaterally, and to invite other interested parties to bid - the standard defence when a 27% shareholder is also the suitor.

material agreement

Received an unsolicited, non-binding letter of intent from Peru's Compania Minera Kolpa proposing a merger with a concurrent financing, submitted together with Arias Resource Capital Fund II, which the letter says already holds about 27% of Sierra's shares. A special committee of independent directors, formed as part of the strategic review that followed the Yauricocha shutdown, is considering it - so the company's largest shareholder is on the buyer's side of the table.

material agreement

The turn from an operating problem to a solvency one: a special committee of independent directors was formed to consider financing and restructuring alternatives because the company faces liquidity problems from the Yauricocha suspension plus accumulated operating losses and negative cash flow at Bolivar and Cusi. Most of Yauricocha remains shut with no timeline, and the company warns that without additional funding its ability to operate in the ordinary course may be affected - a year after paying its first dividend.

other material event

Reached agreement with the Alis residents and began a measured, progressive restart at Yauricocha, but the company states it cannot say when pre-suspension output will be reached and keeps production and financial guidance withdrawn.

production update

Residents of the nearby town of Alis blockaded the access road to Yauricocha, keeping production suspended beyond the safety shutdown, with only critical maintenance running. A community dispute now sits on top of the fatal accident.

production update

A mudslide underground at Yauricocha on 11 September 2022 killed three contractor employees and injured one. Mining was suspended pending an investigation by the Peruvian authorities. Yauricocha is the company's largest and most profitable mine, and this is the event from which everything that follows runs.

production update

Eight holes from the 720 level found the Fortuna zone next to existing Yauricocha workings, with 27.22% zinc over 4.90 metres and 12.94% zinc over 2.85 metres in ECF 10 22 02, and 6.41% copper with 3.51% zinc over 4.80 metres in ECF 10 22 05; true widths are not yet determined. It is the last exploration success reported before the mine's September 2022 collapse.

drilling result

Reworked the Yauricocha expansion case on the March 2021 resource and with prefeasibility-level cost estimates: after-tax net present value of US$273.1 million at 8%, down from the US$359 million filed in December 2020, on US$102.2 million of development capital in the first three years, US$312.1 million of total capital and an operating cost of US$44.01 a tonne. Better costings made the same project worth less, and the mine plan now leans on inferred resources.

resource reserve update

Reworked the 10,000 tonne-a-day Bolivar study to include iron ore concentrate as a saleable product, lifting the after-tax net present value from US$283 million to US$361 million at 8%. The incremental value of going from 5,000 to 10,000 tonnes a day rises from US$57.4 million to US$78.2 million, so most of the improvement comes from selling the magnetite rather than from the extra throughput.

resource reserve update

Board approved US$28 million to build a magnetite plant at Bolivar, with US$5.2 million released immediately for early procurement, to produce about 500,000 tonnes a year of 62% iron ore fines as a by-product of the existing copper concentrator. Construction was to start in June and take roughly six months - the first hard capital commitment behind any of the expansion studies.

material agreement

The third expansion study of the season, doubling Cusi to 2,400 tonnes a day for an after-tax net present value of US$81 million at 8%, assuming US$20 an ounce silver long term, and US$134 million of net after-tax cash flow. The step from 1,200 to 2,400 tonnes contributes US$28.1 million of that at a 46.8% return.

resource reserve update

Filing the Yauricocha report improved the headline: the after-tax net present value in the final document is US$359 million, 7.8% above the US$333 million announced three weeks earlier. Unusually for these filings, the report does differ from the press release, and in the company's favour.

resource reserve update

Yauricocha's measured and indicated resource tonnage rose 26% and inferred 79%, to 16 million and 12 million tonnes - the largest in the mine's history and, as management notes, achieved after mining 9.1 million tonnes since the 2011 acquisition, when indicated resources were 5 million tonnes. The accompanying study puts an after-tax net present value of US$333 million at 8% on expanding from the permitted 3,150 tonnes a day to 5,500, having tested cases up to 7,500 and settled on 5,500 as the optimum for the resource base.

resource reserve update

A fresh Bolivar study, this time for 10,000 tonnes a day rather than the 5,000 assumed two years earlier: after-tax net present value of US$283 million at 8%, US$521 million of net cash flow, US$317 million of life-of-mine and sustaining capital and an operating cost of US$19.77 a tonne. The incremental step from 5,000 to 10,000 tonnes is worth only US$57.4 million of that at a 27.9% return, so most of the value is in the first doubling, not the second.

resource reserve update

Restarted Cusi after the COVID-19 shutdown, with testing and quarantine protocols, aiming to ramp to 1,200 tonnes a day by year end - the rate the 2018 expansion study assumed. New chief executive Luis Marchese cites a better silver price and the new high-grade zone, and expects silver to become a meaningful part of the revenue mix again.

production update

A genuinely high-grade silver find at Cusi in a northeast-southwest epithermal vein system: 17.45 metres true width at 428 g/t silver, plus 4.90 metres at 1,140 g/t, 9.35 metres at 304 g/t and 8.75 metres at 303 g/t. It builds on the 40-metre stockwork announced in June 2018 and, like that, matters because width allows bulk mining at a mine that has struggled with narrow veins.

drilling result

With the litho-structural model and the fourth-quarter drilling added, Bolivar's indicated resource rebounded 68% from the December figure to 19.5 million tonnes at 0.78% copper, and inferred rose 29% to 21.5 million tonnes - but at lower grades again. Reserves are 7.5 million tonnes at 0.69% copper, 13.4 g/t silver and 0.22 g/t gold, 5% less tonnage than the 2017 estimate after two years of mining about 2.5 million tonnes, with contained silver down 34%. Bolivar is getting bigger and poorer at the same time.

resource reserve update

With three mines generating free cash flow, the board approved returning up to US$30 million to shareholders during 2020, half of it through a US$15 million substantial issuer bid by modified Dutch auction with the method for the other half still undecided. This is the peak of the producer's cash-return phase; COVID-19 shut two of the three mines within three months.

security holder rights change

A rare downgrade after two years of increases: Bolivar's indicated resource fell 12% by tonnage to 11.63 million tonnes, with copper grade down 9%, silver down 20% and gold down 17%, to 0.95% copper, 18.1 g/t silver and 0.24 g/t gold. Inferred more than doubled to 16.69 million tonnes but at similarly reduced grades. Lowering the net smelter return cut-off pulled in lower-value material, which is the mirror image of the cut-off changes that had inflated earlier updates.

resource reserve update

Received the construction permit for the next lift of the Yauricocha tailings dam, following the earlier environmental approval, plus a permit for surface drilling of four Titan 24 targets. Tailings capacity is the practical constraint on any throughput expansion, so this is the permitting step the 5,500 tonne-a-day study depends on.

drilling result

Closed a six-year senior secured corporate facility of up to US$100 million with Banco de Credito del Peru, effective 8 March 2019 and maturing March 2025, priced at three-month LIBOR plus 3.15% with a two-year principal grace period then four years of amortisation. Part goes to repaying existing debt, the rest to Mexican capital projects and working capital; it carries consolidated net leverage and interest cover covenants.

debt financing

A hole driven from the 720 level to 1,394.6 metres depth confirmed copper-molybdenum porphyry mineralisation in the quartz monzonite between the Cuye and Esperanza zones - 0.46% copper with 134 ppm molybdenum over 22 metres, and 0.54% copper over 18 metres. Grades are low against the polymetallic ore Yauricocha mines, but a porphyry is a different scale of target and it sits under an operating mine.

drilling result

The third expansion study in three weeks: Bolivar to 5,000 tonnes a day, with an after-tax net present value of US$214 million at 8%, US$96 million of life-of-mine capital, US$303 million of net cash flow and a 3.4-year payback. Taken together the Cusi, Yauricocha and Bolivar studies contemplate about US$439 million of life-of-mine capital across three mines.

resource reserve update

A second expansion study nine days later, this time for Yauricocha going to 5,500 tonnes a day: after-tax net present value of US$393 million at 8%, US$238 million of life-of-mine capital, US$532 million of net after-tax cash flow and a 4.1-year payback. Yauricocha is much the larger prize of the two, and the combined capital of the two studies is far beyond what the company was then spending.

resource reserve update

Preliminary economic assessment for expanding Cusi from 650 to 1,200 tonnes a day - a 315% output increase on the company's measure - showing an after-tax net present value of US$92.2 million at an 8% discount rate, a 75% return, US$104.5 million of life-of-mine capital and a 4.6-year payback at an operating cost of US$41.36 a tonne. It is a study, not a decision.

resource reserve update

Six holes at Contacto Sur Medio, 250 metres east of current production, hit very high grade zinc close to surface: 36% zinc, 9% lead and 175 g/t silver over 5 metres in E-CSM 17-18-03, and 24% zinc with 430 g/t silver over 2 metres in E-CSM 17-18-01. Like Contacto Oriental, its value is that it sits next to existing infrastructure.

drilling result

The deepest holes ever drilled at Yauricocha, 1.7 kilometres below surface and 650 metres below the current mine level, returned 120 g/t silver, 0.85% lead, 7.78% zinc and 0.34 g/t gold over 2.9 metres between the Esperanza and Cuye zones. Mineralisation continues well below the resource model, and the position between the two zones suggests they may link at depth, consistent with the Titan 24 geophysics.

drilling result

Four holes from the 1070 level found a new zone at Contacto Oriental, 220 metres east of current workings: 9.53% zinc, 0.28% copper and 0.54% lead over 57 metres, in copper sulphide widths over 50 metres and in hydrothermal breccias, a style of mineralisation not previously recorded at Yauricocha. Proximity to existing development is the point - it could be brought into the mine plan with little new capital.

drilling result

Bolivar's probable reserves rose 83% to 7,925,000 tonnes at 19 g/t silver, 0.86% copper and 0.25 g/t gold, with indicated resources up 42% to 13,267,000 tonnes and inferred down 11.5% to 8,012,000 tonnes. The company lists the causes plainly: a 24% higher copper price assumption, higher assumed metallurgical recoveries and a higher net smelter return cut-off, alongside new drilling and depletion - so a large part of this is assumption change rather than new metal.

resource reserve update

The widest copper intercept in the company's history: 99 metres at 1.48% copper, 12 g/t silver and 0.7 g/t gold at Cuye, part of a 120-metre run in hole 13 that began with 21 metres of polymetallic ore. Fourteen holes are now complete from the 1070 level, and the mineralised dioritic intrusive is being treated as a new and potentially much larger target than the vein-style ore Yauricocha has always mined.

drilling result

2017 output was 14.9 million silver-equivalent ounces, up 26%, from 2.0 million tonnes processed across Yauricocha, Bolivar and Cusi - but copper-equivalent production fell 1% and zinc-equivalent 9%, so the headline gain is largely a silver-equivalent effect. The release also revises the Yauricocha capital spending profile down from what the recently filed technical report assumed.

production update

Cusi's measured and indicated resources rose 129% to 4,557,000 tonnes - 362,000 measured at 225 g/t silver and 4,195,000 indicated at 217 g/t silver - with inferred up 36% to 1,633,000 tonnes at 158 g/t. The company states the increase reflects both new drilling around San Nicolas and Promontorio and a change to a silver-equivalent cut-off grade, so part of the gain is a change in how ounces are counted.

resource reserve update

Yauricocha's reserves more than doubled: 8,917,000 tonnes at 48.3 g/t silver, 1.2% copper, 0.8% lead, 2.4% zinc and 0.5 g/t gold, a 134% tonnage increase on the August 2016 estimate and, at current throughput, more than double the mine life. Contained copper is up 237%, partly from the new Cuye, Mascota and Esperanza zones and partly from a 14% higher copper price assumption. It follows through from September's resource increase and excludes the October Cuye holes, which came in after the cut-off.

resource reserve update

The first four holes testing targets from a Titan 24 geophysical survey at Bolivar hit copper in three zones not previously known to be mineralised: 3.10% copper-equivalent over 25 metres in DB17B602 and 3.03% over 29 metres in DB17B613. Twenty-two priority targets were identified and the top eight are being drilled, pointing to a northward extension of the mine.

drilling result

A step change at Yauricocha: measured and indicated resources rose 68% by tonnage to 13,206,000 tonnes at 62.3 g/t silver, 1.5% copper, 0.9% lead, 2.8% zinc and 0.6 g/t gold, with contained copper up 128% and silver up 72%; inferred rose 77% to 6,632,000 tonnes. Part of the copper gain is real - new copper-rich zones at Cuye, Mascota and Esperanza - and part is a 14% higher copper price assumption, which the release states.

resource reserve update

Twenty-eight holes for 12,300 metres at Bolivar West averaged 2.55% copper-equivalent over 9.1 metres true width, which the company says is well above both the current resource grade and the grade actually being fed to the mill. Individual holes ran to 8.05% copper-equivalent over 17.6 metres, and the zone is still open to the northeast.

drilling result

New Escondida zone found at the Cachi-Cachi area of Yauricocha, described as the largest orebody yet found there, with over 300 metres of strike and skarn mineralisation over 30 metres wide. Best intercepts are zinc-rich: 11.69% zinc over 5.5 metres in ESC 17-09 and 5.05% zinc over 30.2 metres in ESC 17-10. It extends the mine footprint towards Esperanza and is close enough to existing workings to add resources quickly.

drilling result