Sierra Metals Reports Fourth Quarter and Year-End 2017 Financial Results

2018-03-22

TSX - Toronto Stock Exchange · Copper · Molybdenum · Gold · Silver · Sulfur · Zinc · Canada

Canada NewsWire

TORONTO, March 22, 2018

CONFERENCE CALL MARCH 26, 2018AT 10:30 AM (EDT)

(All $ figures reported in USD)

Adjusted EBITDA of $81.0 millionin 2017 increased 93% from $41.9 millionin 2016

Operating cash flows before movements in working capital of $79.8 millionin 2017 increased 80% from $44.3 millionin 2016

Revenue from metals payable of $205.1 millionin 2017 increased by 43% from $143.2 millionin 2016

2017 silver equivalent production of 14.9 million ounces or copper equivalent production of 90.4 million pounds or zinc equivalent production of 193.2 million pounds; a 26% increase, 1% decrease, and 9% decrease, respectively, from 2016, and close to production guidance(1)

Record throughput at Yauricocha in 2017 with 1,023,491 tonnes processed, representing a 14% increase over 2016

Completion of key aspects of operational improvements and turnaround plan in Mexico

$23.9 millionof cash and cash equivalents as at December 31, 2017

Net Debt of $41.0 millionas at December 31, 2017

Shareholder conference call to be held Monday March 26, 2018at 10:30 AM (EST)

(1) Silver equivalent ounces and copper and zinc equivalent pounds for Q4 2017 were calculated using the following realized prices: $16.77/oz Ag, $3.13/lb Cu, $1.11/lb Pb, $1.45/lb Zn, $1,282/oz Au. Silver equivalent ounces and copper and zinc equivalent pounds for Q4 2016 were calculated using the following realized prices: $16.82/oz Ag, $2.38/lb Cu, $0.95/lb Pb, $1.16/lb Zn, $1,210/oz Au. Silver equivalent ounces and copper and zinc equivalent pounds for 12M2017 were calculated using the following realized prices: $17.14/oz Ag, $2.82/lb Cu, $1.06/lb Pb, $1.32/lb Zn, $1,265/oz Au. Silver equivalent ounces and copper and zinc equivalent pounds for 12M2016 were calculated using the following realized prices: $17.08/oz Ag, $2.21/lb Cu, $/0.85lb Pb, $0.95/lb Zn, $1,254/oz Au.

TORONTO, March 22, 2018/CNW/ - Sierra Metals Inc. (TSX:SMT)(BVL:SMT) ("Sierra Metals" or the "Company") today reported revenue of $205.1 millionand adjusted EBITDA of $81.0 millionon throughput of 1,988,738 tonnes and metal production of 14.9 million silver equivalent ounces, 90.4 million copper equivalent pounds, and 193.2 million zinc equivalent pounds for the year ended December 31, 2017.

During 2017, silver equivalent production increased by 26%, copper equivalent production decreased 1%, and zinc equivalent production decreased by 9% compared to 2016. During Q4 2017, silver equivalent production increased by 15%, copper equivalent production decreased 12%, and zinc equivalent production decreased by 8% compared to Q4 2016. The decrease in metal production was due to lower production in Mexico, partially offset by record throughput, which led to an increase in production, in Peru. The temporary decrease in metal production in Q4 2017 compared to Q4 2016 was primarily due to lower throughput, head grades, and recoveries at the Bolivar Mine, and decreases in throughput and recoveries at the Cusi Mine.

Similar to the successful program at Yauricocha in Peru, which began in 2015, the Company has engaged in an operation turnaround program in Mexicoto modernize operations, improve production, and lower costs. The Company has already realized a 2% increase in throughput at Bolivar and a 23% increase at Cusi in Q4 2017 compared to Q3 2017, and further throughput increases are expected to continue during the first half of 2018. Equivalent metal production variances are partially the result of differences in realized metal prices used in the equivalent metal calculations for both periods.

Mexican operations have seen quarterly improvements over the last two quarters. At Bolivar, there have been increases in tonnage as a result of new equipment purchases, which have allowed more minable stopes to be incorporated into the mine plan. At Cusi, the Company has changed its focus from mining the existing narrow vein structures to the recently discovered Santa Rosa de Limazone, which has significantly larger widths and higher grades. Cusi reported a significant improvement in metal recoveries, and the 2018 guidance is based on projections which reflect the potential for record silver production and lower costs, as a result of the restructuring program performed during the second half of 2017, which focused on the mining of the Santa Rosa de Limastructure. Both mines have also benefitted from successful improvement efforts in metallurgical recoveries, which have increased during Q4 2017 compared to previous quarters.

Igor Gonzales, President and CEO of Sierra Metals stated:_"The Company remains focused on improving operating performance through the production of higher value ore, strengthening its asset base, and continuing to increase its mineral reserves and resources at each of its mines."_

"At Yauricocha the company had record throughput leading to increases in production in 2017. The Mine continues to deliver and is poised for further improved productivity in 2018 with completion of the Yauricocha tunnel expected to be up and running at the beginning of Q3 2018. The new tunnel will provide a direct run to the mill from the mine, which will result in a faster turn-around in the cycle time of the trolley locomotives. In the long run this means more capacity to handle larger volumes of waste and ore. Also, in 2018 the Yauricocha shaft will be sunk to the 1270 level, with a loading pocket added below the 1170 working level. The Company will also commence the addition of three loading points with independent discharge points for haulage on the 1170 level with expected completion in 2020. Last but certainly not least, exploration continued to play a very important for the Company in 2017 and the Yauricocha Mine saw a significant increase in its reserves and resources with the mine life more than doubling."

He continued "At Bolivar the Company saw a temporary decrease in metal production primarily due to lower throughput, head grades, and recoveries. Improvements were made through the implementation of new equipment purchases, metallurgical recoveries were improved at the mill, and the hiring of additional staff and technical expertise helped to improve production in Q4 2017 over Q3 2017 with continued improvements being seen in Q1 2018. Also, an additional, refurbished ball mill was recently purchased which will provide flexibility pertaining to grind size and tonnage at the Bolivar operations. Production is expected to reach 3,000 tonnes per day in Q1 2018 and grow to 3,500 tonnes per day in the second half of 2018. Exploration also continued in 2017 and an update on reserves and resources for the Bolivar mine in Mexicoin expected in the coming month."

"At Cusi, the Company remained focused on completing ramp access, development, and production from the Santa Rosa de Limazone which contains structures that are more than two times the width, and nearly twice the silver head grades than what has been previously mined closer to surface. This resulted in lower than planned production, however, similar to Bolivar we have seen improved throughput in Q4 2017 over Q3 2017 as the Company continues to ramp up production at the Mal Paso mill expecting to reach mill capacity of 650 tonnes per day in Q2 2018. The Company also saw remarkable improvements to the metallurgical recoveries at the mill. Future production growth is important to Sierra Metals and the Company has recently purchased a refurbished ball mill to be installed which will allow production to be ramped up to 1,200 tonnes per day by January 2019. Exploration continues to play an important role in the growth strategy at Cusi and the Company saw a significant increase in resources at Cusi from a successful exploration program completed in 2017."

He Concluded:_"Sierra Metals continues to have a very strong balance sheet, thanks in part to a stronger metal price environment which provides us with the liquidity needed for continued operational successes, growth opportunities and development that has been planned for this year. Brownfield exploration programs remain a growth component at all three of our mines in 2018 and we are very optimistic that these programs will continue to add high value tonnage going forward. When combined with our continued production optimization program, it should result in substantial growth, not only in production with lower costs, but most importantly in shareholder value."_

The following table displays selected financial and operational information for the three months and year ended December 31, 2017:

| | | | | | | | | | | | | | Three Months Ended | Year Ended | | | | | | | | | | _(In thousands of dollars, except per share and cash cost amounts, consolidated figures unless noted otherwise)_ | | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | | | | | | | Operating | | | | | | | | | | | | | Ore Processed / Tonnes Milled | | 509,488 | 517,705 | 1,988,738 | 2,034,465 | | | | | | | Silver Ounces Produced (000's) | | 496 | 789 | 2,317 | 2,979 | | | | | | | Copper Pounds Produced (000's) | | 7,471 | 6,153 | 26,775 | 23,390 | | | | | | | Lead Pounds Produced (000's) | | 5,736 | 9,990 | 29,704 | 40,551 | | | | | | | Zinc Pounds Produced (000's) | | 19,545 | 17,039 | 76,088 | 56,610 | | | | | | | Gold Ounces Produced | | 1,591 | 1,867 | 6,197 | 8,604 | | | | | | | Copper Equivalent Pounds Produced (000's)1 | | 21,856 | 24,969 | 90,354 | 91,398 | | | | | | | Zinc Equivalent Pounds Produced (000's)1 | | 47,287 | 51,229 | 193,152 | 211,583 | | | | | | | Silver Equivalent Ounces Produced (000's)1 | | 4,078 | 3,533 | 14,865 | 11,798 | | | | | | | | | | | | | | | | | | | Cash Cost per Tonne Processed | | $ | 50.57 | $ | 40.05 | $ | 46.87 | $ | 40.47 | | | Cost of sales per AgEqOz | | $ | 7.91 | $ | 7.17 | $ | 7.75 | $ | 8.72 | | | Cash Cost per AgEqOz2 | | $ | 7.54 | $ | 6.84 | $ | 7.41 | $ | 8.58 | | | AISC per AgEqOz2 | | $ | 12.42 | $ | 12.92 | $ | 12.34 | $ | 15.11 | | | Cost of sales per CuEqLb2 | | $ | 1.48 | $ | 1.01 | $ | 1.27 | $ | 1.02 | | | Cash Cost per CuEqLb2 | | $ | 1.41 | $ | 0.97 | $ | 1.22 | $ | 1.00 | | | AISC per CuEqLb2 | | $ | 2.32 | $ | 1.83 | $ | 2.03 | $ | 1.77 | | | Cost of sales per ZnEqLb2 | | $ | 0.68 | $ | 0.49 | $ | 0.60 | $ | 0.45 | | | Cash Cost per ZnEqLb2 | | $ | 0.65 | $ | 0.47 | $ | 0.57 | $ | 0.44 | | | AISC per ZnEqLb2 | | $ | 1.07 | $ | 0.89 | $ | 0.95 | $ | 0.80 | | | | | | | | | | | | | | | Cash Cost per ZnEqLb (Yauricocha)2 | | $ | 0.57 | $ | 0.43 | $ | 0.50 | $ | 0.42 | | | AISC per ZnEqLb (Yauricocha)2 | | $ | 0.90 | $ | 0.74 | $ | 0.78 | $ | 0.71 | | | Cash Cost per CuEqLb (Bolivar)2 | | $ | 1.72 | $ | 1.00 | $ | 1.49 | $ | 1.12 | | | AISC per CuEqLb (Bolivar)2 | | $ | 3.03 | $ | 2.59 | $ | 2.68 | $ | 2.21 | | | Cash Cost per AgEqOz (Cusi)2 | | $ | 18.67 | $ | 12.88 | $ | 15.38 | $ | 9.37 | | | AISC per AgEqOz (Cusi)2 | | $ | 36.33 | $ | 24.42 | $ | 33.90 | $ | 18.60 | | Financial | | | | | | | | | | | | | Revenues | | $ | 51,170 | $ | 41,825 | $ | 205,118 | $ | 143,180 | | | Adjusted EBITDA2 | | $ | 19,208 | $ | 15,985 | $ | 81,034 | $ | 41,887 | | | Operating cash flows before movements in working capital | | $ | 17,812 | $ | 16,197 | $ | 79,785 | $ | 44,303 | | | Adjusted net income attributable to shareholders2 | | $ | 3,241 | $ | 3,516 | $ | 23,482 | $ | 7,006 | | | Net income (loss) attributable to shareholders | | $ | 2,118 | $ | (5,076) | $ | (4,645) | $ | (12,265) | | | Cash and cash equivalents | | $ | 23,878 | $ | 42,145 | $ | 23,878 | $ | 42,145 | | | Working capital | | $ | (6,784) | $ | 9,576 | $ | (6,784) | $ | 9,576 |

| (1) Silver equivalent ounces and copper and zinc equivalent pounds for Q4 2017 were calculated using the following realized prices: $16.77/oz Ag, $3.13/lb Cu, $1.11/lb Pb, $1.45/lb Zn, $1,282/oz Au. Silver equivalent ounces and copper and zinc equivalent pounds for Q4 2016 were calculated using the following realized prices: $16.82/oz Ag, $2.38/lb Cu, $0.95/lb Pb, $1.16/lb Zn, $1,210/oz Au. Silver equivalent ounces and copper and zinc equivalent pounds for 12M 2017 were calculated using the following realized prices: $17.14/oz Ag, $2.82/lb Cu, $1.06/lb Pb, $1.32/lb Zn, $1,265/oz Au. Silver equivalent ounces and copper and zinc equivalent pounds for 12M 2016 were calculated using the following realized prices: $17.08/oz Ag, $2.21/lb Cu, $/0.85lb Pb, $0.95/lb Zn, $1,254/oz Au. | | | | | (2)This is a non-IFRS performance measure, see Non-IFRS Performance Measures section of the MD&A. | | | |

2017 Financial Highlights

Revenue from metals payable of $205.1 millionin 2017 increased by 43% from $143.2 millionin 2016. Higher revenues are primarily attributable to the 14% increase in throughput, the increase in copper, and zinc head grades, and higher recoveries for all metals, except gold, at Yauricocha; and the increase in the prices of copper (26%), lead (26%), and zinc (35%) in 2017 compared to 2016; this was partially offset by a 7% decrease in throughput and lower head grades and recoveries for all metals, except gold recoveries, at Bolivar; and a 53% decrease in throughput and lower head grades for all metals, except gold, and lower recoveries of all metals, except zinc, at Cusi.

Yauricocha's cash cost per zinc equivalent payable pound was $0.50(2016 - $0.42), and all-in sustaining cash cost ("AISC") per zinc equivalent payable pound was $0.78(2016 - $0.71) for 2017 compared to 2016. The increase in the AISC per zinc equivalent payable pound for 2017 compared to 2016 were the result of increased sustaining capital expenditures, which included a substantial amount of infill drilling, ventilation improvements, equipment purchases, and plant improvements. The increase was also a result of temporary increases to the mining costs, partially due to timing; as well as slight increases related to infill drilling and drift development costs that will be utilized within one year, and thus are included in operating costs. This was partially offset by lower treatment and refining costs incurred during 2017 compared to 2016, resulting from improved terms on re-negotiated sales contracts with our off-takers, which helped offset higher sustaining capital expenditures.

Bolivar's cash cost per copper equivalent payable pound was $1.49(2016 - $1.12), and AISC per copper equivalent payable pound was $2.68(2016 - $2.21) for 2017 compared to 2016. The increase in the AISC per copper equivalent payable pound during 2017 was due to a decrease in copper equivalent payable pounds as a result of 7% lower throughput, as well as an increase in sustaining capital expenditures related to the various equipment purchases made by the Company during the year in an effort to improve equipment availability and increase tonnage. With the expected increase in tonnage at Bolivar in 2018, the Company expects the all-in sustaining cost per copper equivalent pound sold to be approximately $1.96versus $2.68in 2017.

Cusi's cash cost per silver equivalent payable ounce was $15.38(2016 - $9.37), and AISC per silver equivalent payable ounce was $33.90(2016 - $18.60) for 2017 compared to 2016. AISC per silver equivalent payable ounce increased due to the 53% decline in throughput which resulted in fewer silver equivalent payable ounces as the Company continued its refocused efforts on completing access, development and production from the Santa Rosa de Limazone which contains wider structures and higher silver grades. With the expected increase in tonnage at Cusi in 2018, the Company expects the all-in sustaining cost per silver equivalent ounce sold to be approximately $14.28versus $33.90in 2017.

Adjusted EBITDA (1) of $81.0 millionfor 2017 increased compared to $41.9 millionin 2016. The increase in adjusted EBITDA in 2017 was primarily due to the $56.9 millionincrease in revenues at Yauricocha, discussed previously.

Cash flow generated from operations before movements in working capital of $79.8 millionfor 2017 increased compared to $44.3 millionin 2016. The increase in operating cash flow is mainly the result of higher revenues generated and higher gross margins realized.

Cash and cash equivalents of $23.9 millionand working capital of $(6.8) millionas at December 31, 2017compared to $42.1 millionand $9.6 million, respectively, at the end of 2016. Cash and cash equivalents have decreased by $18.3 millionduring 2017 due to $54.5 millionof operating cash flows being offset by capital expenditures incurred in Mexicoand Peruof $(51.6) million, repayment of loans, credit facilities and interest of $(47.5) million, dividends paid to non-controlling interest shareholders of $(3.4) million, and proceeds from issuances of loans and credit facilities of $29.8 million. Included in the $54.5 millionof operating cash flows were negative changes in non-cash working capital items of $7.9 milliondue to the increase accounts receivable and decrease in deferred revenue as at December 31, 2017.

| (1) | This is a non-IFRS performance measure, see Non-IFRS Performance Measures section of the MD&A. |

Project Development

The Company provided an updated Mineral Reserve Estimate at the Company's Yauricocha Mine (press release dated October 26, 2017). Previously the Company had also provided an updated Mineral Resource Estimate at the Company's Yauricocha Mine (press release dated September 28, 2017). The NI 43-101 Technical Report was filed on SEDAR and was prepared by SRK Consulting (U.S.) Inc.

The Company provided an updated NI 43-101 Technical Report on the Cusi Mine (press release dated February 12, 2018). Previously, the Company had also provided an updated Mineral Resource Estimate at the Cusi Mine (press release dated December 29, 2017). The NI 43-101 Technical Report was filed on SEDAR and was prepared by SRK Consulting (U.S.) Inc.

Mine development at Bolivar during Q4 2017 totaled 963 meters. Most of these meters (663) were developed to prepare stopes for mine production. The remainder of the meters (232) were related to the deepening of ramps and developing service ramps to be used for ventilation and pumping, and 68 meters of raises.

During Q4 2017, at the Cusi property, mine development totaled 1,172 meters, and 846 meters of infill drilling was carried out inside the Mine.

Exploration Update

Exploration Highlights

Peru:

During Q4 2017, the Company drilled 204 holes totaling 9,424 meters at Yauricocha. The drilling included the following:

Exploration Drilling:

Cuye (Levels 1320 & 1370): 5 holes totaling 1,748 meters have intercepted the mineralized structure and economic mineral; Contacto Sur Medio II (Level 1070 Central Mine Zone): 3 holes totaling 525 meters to explore the area on levels 1120 & 170, has intercepted mineralized sections with high grade mineralization; Huamanrripa (Level 720 Central Mine Zone): 1 hole of 1,149 meters with the objective of exploring and verifying geological anomalies based on the Titan 24 geophysical study; Escondida West (870 level Cachi Cachi): 1 hole totaling 759 meters with the objective of exploring and verifying geological anomalies based on the Titan 24 geophysical study;

Definition Drilling:

Antacaca (Level 970): 15 holes totaling 1,329 meters to define the orebody on the 970 level, floors 16 and 8; Esperanza (920 levels): 8 holes totaling 992 meters to define and provide higher certainty on the size and quality of the orebody; Esperanza North(920 level): 7 holes totaling 685 meters to determine the continuity of the orebody from the 920 level to floor 8 on the 870 level; Antacaca Sur (970 level): 11 holes totaling 1,002 meters which have intercepted lead and silver oxides, and structures with polymetallic mineral; Mascota(1120 level, piso 8): 3 holes totaling 292 meters to further define the orebody; Catas (Levels 970 & 1020): 10 holes totaling 943 meters to further define the orebody; Karlita (870 Level): 5 holes totaling 535 meters to further define the orebody.

Mexico:

Bolivar

At Bolivar during Q4 2017, 10,402 meters were drilled from surface as well as diamond drilling within the mine. 1,766 meters were drilled within the mine, 328 meters within Bolivar Northwest and 1,438 meters from Chimney 2. Diamond drilling from surface totaled 8,636 in the Bolivar Northwest area, exploring the extension of the orebody to the North and West, exploring the skarn orebody with semi-massive magnetite, and disseminated nodules of chalcopyrite. This area will continue to be explored during 2018.