Please give an overview of your operations in Peru and Mexico over the past year. What were some of the challenges you faced?
The pandemic posed challenges for the company, particularly during government-ordered shutdowns in Q2 2020. We also had to operate with a reduced workforce after identifying several positive cases of infection when workers returned from holidays. However, the employees who remained worked harder and more efficiently, helping us to have a good year despite the pandemic. In 2020, Sierra Metals reported revenue of $246.9 million and adjusted EBITDA of $97.0 million on the throughput of 2.8M tonnes, and metal production of 118.2M copper-equivalent pounds.
We continued to increase production at our Mexican operations towards the recent throughput capacity expansions of 5,000 tonnes per day (TPD) at our Bolivar Mine and 1,200 TPD at our Cusi Mine. We also completed Preliminary Economic Assessments (PEAs) at all three mines studying potential expansions in production. This is scheduled to start in 2024, with 52% to 5,500 TPD at our Yauricocha mine in Peru, and a 100% expansion at both Mexican mines to 10,000 TPD at Bolivar and 2,400 at Cusi. Mineral resources were also expanded through our drilling programs at all three mines in 2020. Overall, we added 28.8M tonnes of mineral resources during the year, even though we were not able to complete our full programs due to COVID-19-related delays.
Since February 2020, Sierra Metals’ share price has increased significantly. Please highlight some of the key developments that have led to this success.
The largest contributing factors that have led to a higher share price include an increase in throughput and cash flow for the Company, as well as the positive economics and mineral resources growth from the completion of three PEAs. The NPV for all projects rose substantially and IRR for all projects were positive. Additionally, we reported a new high-grade silver zone discovery at our Cusi mine. It includes:
- 17.45 m @ 428 g/t silver
- 9.35 m @ 304 g/t silver
- 8.75 m @ 303 g/t silver
- 4.90 m @ 1,140 g/t silver
What impact will stronger EBITDA guidance for 2021 have on base metal explorers and producers?
Stronger EBITDA guidance will allow us to grow our balance sheet and complete our capital expenditure and expansion plans, which we hope to finance completely through cash flow.
It also draws more attention to the metals, particularly the copper space, where most investors are bullish on the copper price. This should result in more exploration and development within the sector in order to meet rising demand.
In terms of current copper trends, China is the largest consumer of copper, but recent data suggest manufacturing is easing off in the world’s second biggest economy. How do you foresee this situation playing out?
We are bullish on copper over the longer term. There are fewer tonnes being discovered, and these are generally of lower grades. Yet, there is a growing demand for the metal. China’s requirements may soften somewhat, but they are still large. When you factor in developments in electric cars, solar power, and battery infrastructure, we think demand for copper will remain strong for several years to come.
Copper prices are expected to rise in 2021. What scope is there for Sierra Metals to increase its production output during this period of growth?
Sierra Metals just completed a throughput capacity expansion at its Bolivar Copper Mine to 5,000 TPD from 3,800 TPD. Yauricocha, which also produces copper as part of its metal mix, is expected to receive permits in Q2 2020 to increase throughput by 20%. Furthermore, we are working towards a doubling of capacity at Bolivar and a 53% increase in throughput at Yauricocha by 2024. The company is expanding its production to meet increasing demand while capitalizing on the improved price for the metal.
Please give a brief overview of Sierra’s three recent PEAs, which should see a doubling of production by 2024.
The Company filed a PEA technical report for the Yauricocha Mine with favourable economics, including an incremental after-tax NPV (@8%) of $28.4 million and an IRR of 35.7% to increase the production to 5,500 TPD, up from 3,600 TPD.
The Company also filed a PEA for a doubling its output at the Bolivar Mine to 10,000 TPD. The PEA results indicated an incremental benefit of after-tax NPV (@8%) of $57.4 million and an IRR of 27.9%.
Finally, the Company reported results of a positive PEA to double its output at the Cusi Mine to 2,400 TPD, which indicated an after-tax incremental NPV (@8%) of $28.1 million and IRR of 46.8%.
Sierra Metals also produces other base metals, including zinc. How has the past year been for these commodities, and what are your thoughts about future trends?
At Sierra, our overall metal mix , from the greatest to the smallest proportion, comprises copper, silver, zinc, lead, and gold. As well as being bullish on copper, we are also optimistic about gold and silver as an inflationary hedge given the large government programs to overcome COVID-19. Zinc has continued to perform well, although given the expected build-up in supply, we do expect to see some reduction in its price.