Sierra Metals (SMTS) Reports In-Line Q2 EPS, Revenues Beat

Sierra Metals (NYSE: SMTS) reported Q2 EPS of $0.01, in-line with the analyst estimate of $0.01. Revenue for the quarter came in at $41.29 million versus the consensus estimate of $38.23 million.

Q2 2020 Financial Highlights

• Revenue from metals payable of $41.9 million in Q2 2020 decreased by 17% from $50.7 million in Q2 2019. Revenues declined due to the COVID-19 pandemic, which impacted mine production and metal prices during the quarter. Average realized prices in Q2 2020 for copper, zinc and lead were 13%, 26% and 11% lower respectively as compared to realized prices in Q2 2019. Silver and gold prices were 11% and 30% higher than their respective average realized prices in Q2 2019;
• Yauricocha’s cost of sales per copper equivalent payable pound was $0.94 (Q2 2019 - $1.27), cash cost per copper equivalent payable pound was $0.91 (Q2 2019 - $1.16), and AISC per copper equivalent payable pound of $1.80 (Q2 2019 - $1.98). The decrease in the AISC per copper equivalent payable pound for Q2 2020 compared to Q2 2019 was due to lower cash costs and lower sustaining costs, which were partially offset by increase in treatment and refining charges and lower number of equivalent copper pounds sold;
• Bolivar’s cost of sales per copper equivalent payable pound was $1.01 (Q2 2019 - $1.77), cash cost per copper equivalent payable pound was $1.02 (Q2 2019 - $1.51), and AISC per copper equivalent payable pound was $1.60 (Q2 2019 - $2.55) for Q2 2020. The decrease in the AISC per copper equivalent payable pound was largely due to lower cash costs, lower sustaining costs and higher copper equivalent pounds sold as compared to Q2 2019;
• Cusi’s cost of sales per silver equivalent payable ounce was $16.33 (Q2 2019 - $10.99), cash cost per silver equivalent payable ounce was $18.66 (Q2 2019 - $16.49), and AISC per silver equivalent payable ounce was $26.25 (Q2 2019 - $25.67) for Q2 2020. AISC per silver equivalent payable ounce increased largely due to lower amount of equivalent silver sold as compared to Q2 2019, as concentrate inventory at the end of Q1 2020 was sold during Q2 2020. There was no production at Cusi throughout the quarter;
• Adjusted EBITDA(1) of $12.6 million for Q2 2020 was in-line with Q2 2019;
• Net income (loss) attributable to shareholders for Q2 2020 was $0.2 million (Q2 2019: $(0.2) million) or $0.00 per share (basic and diluted) (Q2 2019: $(0.00));
• Adjusted net income attributable to shareholders (1) of $1.3 million, or $0.01 per share, for Q2 2020 compared to the adjusted net income of $1.6 million, or $0.01 per share for Q2 2019;
• A large component of the net income for every period is the non-cash depletion charge in Peru, which was $1.6 million for Q2 2020 (Q2 2019: $2.4 million). The non-cash depletion charge is based on the aggregate fair value of the Yauricocha mineral property at the date of acquisition of Corona of $371.0 million amortized over the total proven and probable reserves of the mine;
• Cash flow generated from operations before movements in working capital of $13.2 million for Q2 2020 increased compared to $12.8 million in Q2 2019. The increase in operating cash flow is mainly the result of COVID-19 related reductions in general and administrative costs (“G&A”), as gross margins remained in-line with Q2 2019; and
• Cash and cash equivalents of $40.7 million and working capital of $49.4 million as at June 30, 2020 compared to $43.0 million and $49.9 million, respectively, at the end of 2019. Cash and cash equivalents decreased due to $14.5 million of capital expenditures and interest payment of $2.3 million were partially offset by $14.7 million of operating cash flows.

“The Company was able to maintain essential activities while fully complying with the government protocols during the state of emergency,” stated Luis Marchese, CEO of Sierra Metals. “We achieved remarkable results and reported solid revenue, cashflow and positive EBITDA in the second quarter despite the negative implications of the COVID-19 related shutdowns. We also achieved lower costs at the Bolivar and Cusi mines which are attributable to higher operating efficiency and the prudent management of capital expenditures to protect the balance sheet, while also realizing improved head grades and more favorable foreign exchange rates. A good portion of the credit for these results is owed to the employees at Yauricocha and Bolivar who were able to maintain a high level of productivity with a reduced workforce. Also, to the management team, who led the Company through what we consider its biggest challenge in its history, while all operations were curtailed or placed into care and maintenance during the quarter as metal prices dropped sharply during the crisis. We are currently running our three operations at high operating rates. However, we remain cognizant that COVID-19 cases remain high in Peru and Mexico. As such, we continue proceeding cautiously, adhering to strict health protocols to protect our employees and the communities in which we operate, as well as to mitigate the potential for further work stoppages.”

He continued, “Looking ahead to the second half of the year, due to our operating flexibility, we have the potential to recover some of the lost production experienced during the shutdowns at Yauricocha. We are also excited to see Bolivar continue in its strides towards the 5,000 tpd throughput level. Cusi having restarted earlier than anticipated is on track and performing well on its way to the 1,200 tpd throughput level. Metals prices have strengthened at the start of the third quarter especially for copper and precious metals. We are optimistic that with improved operating efficiencies and potential higher metal prices we will see a stronger second half for 2020. Furthermore, we will continue seeking the required permits to increase Yauricocha’s throughput to 3,600 tonnes per day for next year.”

He concluded, “Sierra Metals’ balance sheet, working capital and cash position remain strong. Considering that we remain in a vulnerable environment due to the COVID-19 pandemic, we are optimistic that further cash flow and liquidity improvements should be realized in the second half of 2020, due to higher production rates and improved metal prices. This would allow the Company to complete more of the deferred required capital expenditures and potential returns of capital which had been originally planned for this year. Management remains committed to the prudent and sustainable growth plan for the Company and more importantly to improving the per share value benefiting all shareholders now and, in the years to come.”

For earnings history and earnings-related data on Sierra Metals (SMTS) click here.

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