Sierra Metals Reports 2017 Production Results and Announces 2018 Production, Cost, and Capex Guidance

2018-01-18

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

Canada NewsWire

TORONTO, Jan. 18, 2018

UPDATE PROVIDED FOR OPTIMIZED CAPEX PROFILE AT YAURICOCHA VERSUS RECENTLY PUBLISHED NI 43-101 TECHNICAL REPORT

TORONTO, Jan. 18, 2018/CNW/ - Sierra Metals Inc. (TSX: SMT) (BVL: SMT) (NYSE AMERICAN: SMTS) ("Sierra Metals" or "the Company") is pleased to report fourth quarter 2017 and full year 2017 production results, as well as 2018 production, cost, and capex guidance.

Results are from Sierra Metals' three underground mines in Latin America: The Yauricocha polymetallic mine in Peru, and the Bolivar copper and Cusi silver mines in Mexico.

2017 Consolidated Production Highlights

Silver equivalent production of 14.9 million ounces; a 26% increase from 2016 Copper equivalent production of 90.4 million pounds; a 1% decrease from 2016 Zinc equivalent production of 193.2 million pounds; a 9% decrease from 2016 Total of 2.0 million tonnes processed; a 2% decrease from 2016 Completion of key aspects of operational improvements and turnaround plan in Mexico

Fourth Quarter 2017 Production Highlights

Silver equivalent production of 4.1 million ounces; a 15% increase from Q4 2016 Copper equivalent production of 21.9 million pounds; a 12% decrease from Q4 2016 Zinc equivalent production of 47.3 million pounds; an 8% decrease from Q4 2016 Total of 498,199 tonnes processed; a 4% decrease from Q4 2016 Tonnage at Bolivar and Cusi increased during Q4 2017 as key components of the operational improvement and turnaround plan were completed

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.

Igor Gonzales, President and CEO of Sierra Metals, commented:_"The Company ended 2017 with sound production due to a very strong performance at Yauricocha, where we continue to reap the benefits of a successful operational improvements program resulting in higher tonnages, in addition to higher-grade material discovered through our successful brownfield exploration programs._

Mexican operations have seen a quarter over quarter improvement compared to Q3 2017. At Bolivar, there have been increases in tonnages 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."

He concluded, "The groundwork has been set for an important year at Sierra in 2018. The modernizing and implementation of best operational practices should allow the Company to increase metal production and EBITDA to new highs. Our ongoing aggressive brownfield exploration programs at all mines should also lead to further significant growth in reserves and resources, and add to the value of our assets during the year ahead."

Consolidated Production Results

| | | | | | | | | | Consolidated Production | 3 Months Ended | 12 Months Ended | | | | | | | | Q4 2017 | Q4 2016 | % Var. | Q4 2017 | Q4 2016 | % Var. | | | | | | | | | | | | Tonnes processed (mt) | 498,199 | 517,705 | -4% | 1,998,738 | 2,034,465 | -2% | | | | Daily throughput | 5,694 | 5,917 | -4% | 5,711 | 5,813 | -2% | | | | | | | | | | | Silver ounces (000's) | 496 | 789 | -37% | 2,317 | 2,979 | -22% | | | Copper pounds (000's) | 7,471 | 6,153 | 21% | 26,775 | 23,390 | 14% | | | Lead pounds (000's) | 5,736 | 9,990 | -43% | 29,704 | 40,551 | -27% | | | Zinc pounds (000's) | 19,545 | 17,039 | 15% | 76,088 | 56,610 | 34% | | | Gold ounces | 1,591 | 1,867 | -15% | 6,197 | 8,604 | -28% | | | | | | | | | | | | Silver equivalent ounces (000's)(1) | 4,078 | 3,533 | 15% | 14,865 | 11,798 | 26% | | | Copper equivalent pounds (000's)(1) | 21,856 | 24,969 | -12% | 90,354 | 91,398 | -1% | | | Zinc equivalent pounds (000's)(1) | 47,287 | 51,229 | -8% | 193,152 | 211,583 | -9% | | | | | | | | | | | | (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. | | | | | | | |

Yauricocha Mine, Peru

The Yauricocha Mine processed a total of 1,023,491 tonnes during 2017, representing a 14% increase from 2016. The mine processed a total of 254,933 tonnes in Q4 2017, representing an 8% increase compared to Q4 2016. Higher metal production was driven by increased throughput, higher copper and zinc head grades, and higher recoveries of all metals, except gold, which were a consequence of higher head grades in the ore sources available to be mined, as the Esperanza Zone and Cuerpos Chicos continued to contribute to the metal production.

Year over year zinc equivalent production was 4% higher in 2017 compared to the prior year. Copper Production was 87% higher and zinc production 37% higher. This was offset by a 10% decrease in silver production, a 23% decrease in lead production and a 38% decrease in gold production from 2016. The Company continued to see positive improvements from the restructuring at Yauricocha with increased throughput; however, slightly lower grades were noted with increased contribution from the Esperanzazone into the production schedule in Q4 2017, as evidenced a 3% decrease in zinc equivalent production over Q4 2016. During Q4 2017, the Company saw a significant 107% increase in the production of copper and a 16% increase in the production of zinc, offset by decreases in production of silver (40%), lead (42%) and gold (20%) compared to Q4 2016.

A summary of production from the Yauricocha Mine for Q4 2017 has been provided below:

| | | | | | | | | | Yauricocha Production | 3 Months Ended | 12 Months Ended | | | | | | | | Q4 2017 | Q4 2016 | % Var. | Q4 2017 | Q4 2016 | % Var. | | | | | | | | | | | | Tonnes processed (mt) | 254,933 | 236,650 | 8% | 1,023,491 | 897,169 | 14% | | | | Daily throughput | 2,914 | 2,705 | 8% | 2,924 | 2,563 | 14% | | | | | | | | | | | | Silver grade (g/t) | 53.57 | 100.37 | -47% | 67.13 | 97.69 | -31% | | | Copper grade | 0.80% | 0.51% | 58% | 0.79% | 0.54% | 48% | | | Lead grade | 1.19% | 2.18% | -45% | 1.48% | 2.52% | -41% | | | Zinc grade | 3.91% | 3.63% | 8% | 3.74% | 3.18% | 18% | | | Gold Grade (g/t) | 0.55 | 0.59 | -7% | 0.54 | 0.64 | -16% | | | | | | | | | | | | Silver recovery | 75.13% | 72.05% | 4% | 74.82% | 65.34% | 15% | | | Copper recovery | 78.86% | 64.75% | 22% | 65.45% | 59.26% | 10% | | | Lead recovery | 81.32% | 81.72% | 0% | 83.64% | 73.07% | 14% | | | Zinc recovery | 88.25% | 88.49% | 0% | 89.14% | 87.18% | 2% | | | Gold Recovery | 16.02% | 20.06% | -20% | 16.30% | 25.19% | -35% | | | | | | | | | | | Silver ounces (000's) | 330 | 550 | -40% | 1,653 | 1,841 | -10% | | | Copper pounds (000's) | 3,567 | 1,720 | 107% | 11,719 | 6,281 | 87% | | | Lead pounds (000's) | 5,431 | 9,295 | -42% | 27,934 | 36,440 | -23% | | | Zinc pounds (000's) | 19,393 | 16,776 | 16% | 75,151 | 54,805 | 37% | | | Gold ounces | 723 | 908 | -20% | 2,894 | 4,664 | -38% | | | | | | | | | | | | Zinc equivalent pounds (000's)(1) | 35,758 | 36,841 | -3% | 146,816 | 140,928 | 4% | | | | | | | | | | | | (1) 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. 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. 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. 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. | | | | | | | |

Bolivar Mine, Mexico

The Bolivar Mine processed 887,237 tonnes in 2017, representing a 7% decrease over 2016. Q4 2017 throughput was 226,986 tonnes, which was 7% lower when compared to Q4 2016. The lower throughput and recoveries, along with lower head grades encountered, resulted in a 16% decrease in copper equivalent production in Q4 2017 compared to Q4 2016. The decrease in throughput was due to the lack of availability of equipment required to mine current production stopes and minable ore zones, as well as a lack of development within the mine. The focus remains on increasing tonnage at Bolivar through the commissioning of the newly acquired equipment, all of which has arrived was commissioned during Q4 2017. We continue to define higher grade ore sources through further development, which are expected to come into the mine plan in the future.

Metal production at the Bolivar Mine decreased in 2017 compared to 2016 with copper production 12% lower, silver production 18% lower and gold production 4% lower. In Q4 2017, copper production decreased by 12% to 3,904,000 pounds, silver production decreased 15% to 84,000 ounces, and gold production decreased 1% to 791 ounces compared to Q4 2016. The 16% decrease in metal production was driven by lower throughput, lower head grades and lower recoveries for all metals, with the exception of gold recoveries.

A summary of production for the Bolivar Mine for Q4 2017 has been provided below:

| | | | | | | | | | Bolivar Production | 3 Months Ended | 12 Months Ended | | | | | | | | Q4 2017 | Q4 2016 | % Var. | Q4 2017 | Q4 2016 | % Var. | | | | | | | | | | | | Tonnes processed (mt) | 226,986 | 245,000 | -7% | 887,237 | 950,398 | -7% | | | | Daily throughput | 2,594 | 2,800 | -7% | 2,535 | 2,715 | -7% | | | | | | | | | | | | Copper grade | 0.94% | 0.99% | -5% | 0.96% | 1.00% | -3% | | | Silver grade (g/t) | 14.67 | 15.53 | -6% | 14.93 | 16.72 | -11% | | | Gold grade (g/t) | 0.16 | 0.18 | -13% | 0.17 | 0.19 | -12% | | | | | | | | | | | | Copper recovery | 83.03% | 83.03% | 0% | 79.82% | 81.73% | -2% | | | Silver recovery | 78.35% | 80.42% | -3% | 76.88% | 77.84% | -1% | | | Gold recovery | 68.42% | 55.62% | 23% | 59.50% | 50.55% | 18% | | | | | | | | | | | Copper pounds (000's) | 3,904 | 4,433 | -12% | 15,056 | 17,109 | -12% | | | Silver ounces (000's) | 84 | 98 | -15% | 327 | 398 | -18% | | | Gold ounces | 791 | 801 | -1% | 2,880 | 2,986 | -4% | | | | | | | | | | | | Copper equivalent pounds (000's)(1) | 4,677 | 5,536 | -16% | 18,338 | 21,889 | -16% | | | | | | | | | | | | (1) Copper 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. Copper 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. Copper 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. Copper 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. | | | | | | | |

Cusi Mine, Mexico

Annual production at the Cusi Mine was 88,011 tonnes in 2017, which was 53% lower than 2016. Total ore processed decreased 55% to 16,280 tonnes during Q4 2017 compared to Q4 2016. The lower throughput was partially offset by increased head grades for gold and silver and increased recoveries of all metals except gold, and resulted in a 42% decrease in silver equivalent production in Q4 2017 compared to Q4 2016. Recovery improvements at Cusi also helped, with metallurgical recoveries increasing in Q4 2017 compared to previous quarters.

Metal production decreased in 2017 compared to 2016 for all metals including silver (54%), gold (56%), lead (57%) and zinc (48%). Silver production decreased 41% to 82,000 ounces, gold production decreased 51% to 77 ounces, lead production decreased 56% to 305,000 pounds and zinc production decreased 42% to 152,000 pounds during Q4 2017 compared to Q4 2016.

The lower throughput was the result of the Company refocusing its efforts away from the existing structures to the recently discovered Santa Rosa de Limastructure, which is wider and has higher silver grades compared to the narrow veins currently being mined. The Company remains focused on the development of the Santa Rosa de Limazone, developing drifts to mine this area and with production ramping up from this area, which is expected to continually increase into Q2 2018 when full mill feed capacity will come from this new zone.

A summary of production for the Cusi Mine for Q4 2017 has been provided below:

| | | | | | | | | | Cusi Production | 3 Months Ended | 12 Months Ended | | | | | | | | Q4 2017 | Q4 2016 | % Var. | Q4 2017 | Q4 2016 | % Var. | | | | | | | | | | | | Tonnes processed (mt) | 16,280 | 36,055 | -55% | 88,011 | 186,898 | -53% | | | | Daily throughput | 186 | 412 | -55% | 251 | 534 | -53% | | | | | | | | | | | | Silver grade (g/t) | 178.60 | 172.70 | 3% | 164.93 | 171.78 | -4% | | | Gold grade (g/t) | 0.25 | 0.23 | 8% | 0.26 | 0.26 | 0% | | | Lead grade | 0.97% | 1.13% | -14% | 1.12% | 1.21% | -7% | | | Zinc grade | 1.00% | 1.04% | -4% | 1.13% | 1.16% | -2% | | | | | | | | | | | | Silver recovery | 88.15% | 70.04% | 26% | 72.17% | 71.66% | 1% | | | Gold recovery | 58.09% | 58.16% | 0% | 58.40% | 61.82% | -6% | | | Lead recovery | 87.65% | 77.43% | 13% | 81.26% | 82.24% | -1% | | | Zinc recovery | 42.50% | 31.86% | 33% | 42.56% | 37.72% | 13% | | | | | | | | | | | Silver ounces (000's) | 82 | 140 | -41% | 337 | 740 | -54% | | | Gold ounces | 77 | 158 | -51% | 423 | 954 | -56% | | | Lead pounds (000's) | 305 | 695 | -56% | 1,769 | 4,110 | -57% | | | Zinc pounds (000's) | 152 | 263 | -42% | 937 | 1,804 | -48% | | | | | | | | | | | | Silver equivalent ounces (000's)(1) | 122 | 209 | -42% | 549 | 1,114 | -51% | | | | | | | | | | | | (1) Silver equivalent ounces 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 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 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 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. | | | | | | | |

2018 Production and Cost Guidance

The Company anticipates that 2018 silver equivalent production will range between 13.9 and 16.2 million ounces, copper equivalent production will range between 89.2 and 104.0 million pounds, and zinc equivalent production will range between 183.8 and 214.5 million pounds. The forecasted range is a result of increased throughput, production, and higher recoveries at Bolivar and Cusi. Yauricocha will see consistently strong, albeit flat levels of throughput in 2018 due to a rehabilitation of the lower part of the Mascotashaft in Q2 2018, which will slightly lower throughput rates during that time period.

A summary of realized metal pricing for Q4 2017 has been provided below:

| | | | | | | | | Realized Prices | 3 Months Ended | 12 Months Ended | | | | | | | Q4 2017 | Q4 2016 | % Var. | Q4 2017 | Q4 2016 | % Var. | | Ag $/oz | 16.77 | 16.82 | 0% | 17.14 | 17.08 | 0% | | Cu $/lb | 3.13 | 2.38 | 31% | 2.82 | 2.21 | 28% | | Pb $/lb | 1.11 | 0.95 | 17% | 1.06 | 0.85 | 25% | | Zn $/lb | 1.45 | 1.16 | 25% | 1.32 | 0.95 | 38% | | Au $/oz | 1,282 | 1,210 | 6% | 1,265 | 1,254 | 1% |

A table summarizing 2018 production guidance has been provided below:

| | | | | | | 2018 Guidance | 2017 | | | | Low | High | Actual | | Silver ounces (000's) | 2,474 | 2,886 | 2,317 | | Copper pounds (000's) | 32,700 | 38,100 | 26,775 | | Lead pounds (000's) | 19,100 | 22,300 | 29,704 | | Zinc pounds (000's) | 62,900 | 73,400 | 76,088 | | Gold ounces | 6,700 | 7,800 | 6,197 | | Silver equivalent ounces (000's)(1) | 13,900 | 16,210 | 14,865 | | Copper equivalent pounds (000's)(1) | 89,184 | 104,005 | 90,354 | | Zinc equivalent pounds (000's)(1) | 183,830 | 214,468 | 193,152 | | (1) Silver equivalent ounces, copper and zinc equivalent pounds for 2018 were calculated using the following metal prices: $18.25/oz Ag, $3.00/lb Cu, $1.38/lb Pb, $1.05/lb Zn, $1,291/oz Au. Silver equivalent ounces, 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. | | | |

A mine by mine breakdown of 2018 production guidance, cash costs and all-in sustaining costs ("AISC") are included in the table below. Cash costs and AISC guidance is shown per payable zinc equivalent pound at Yauricocha, copper equivalent pound at Bolivar, and silver equivalent ounce at Cusi.

| | | | | | | Mine | | Equivalent Production Range | Cash Costs per ZnEqLb or CuEqLb or AgEqOz Sold | AISC ($)* per ZnEqLb or CuEqLb or AgEqOz Sold | | Yauricocha | Zinc Eq Lbs (000's) | 123,897 - 144,546 | $0.62/lb | $0.78/lb | | Bolivar | Copper Eq Lbs (000's) | 21,986 - 25,651 | $1.60/lb | $1.96/lb | | Cusi | Silver Eq Ozs (000's) | 1,205 - 1,406 | $11.12/oz | $14.28/oz | | *AISC includes Treatment and Refining Charges, Selling Costs, G&A Costs and Sustaining Capex | | | | | | (1) 2018 Silver equivalent ounces, copper and zinc equivalent pounds were calculated using the following metal prices: $18.25/oz Ag, $3.00/lb Cu, $1.05/lb Pb, $1.38/lb Zn, $1,291/oz Au | | | | |

2018 Capital Expenditures

In 2018, the Company plans to invest a total of $49 millionon capital expenditures, including $13.1 millionfor sustaining capital requirements and $35.7 millionfor expansion, growth projects and exploration expenses. These capital expenditures will allow Sierra Metals to continue to significantly grow mineral resources and increase production, which will provide increased cash flow and lower cash costs. This program will be funded by operating cash flow.