press release

Sierra Metals Reports Consolidated Results for the Second Quarter 2016

2016-08-15

TSX - Toronto Stock Exchange

Canada NewsWire

TORONTO, Aug. 15, 2016

Second quarter consolidated highlights:

Updated mineral reserve and resource estimate at the Yauricocha Mine, Peru, including a maiden reserve and resource estimate for the recently discovered Esperanzazone. Initial production from the Esperanzazone. Silver equivalent production of 3.0 million ounces compared to 3.2 million ounces or copper equivalent production of 19.7 million pounds compared to 21.6 million pounds in Q2 2015's record quarter. Revenue of US$36.9 millioncompared to US$45.9 millionand adjusted EBITDA of US$5.4 millioncompared to US$18.2 millionin Q2 2015's record throughput quarter. Benefits of modernization program at Yauricocha taking hold as an increase of 24% in silver equivalent production compared to Q1 2016 due to the focus on mining higher value ore. Record throughput at both the Bolivar and Cusi Minesduring Q2 2016 US$20.6 millionof cash and cash equivalents and US$4.7 millionof restricted cash as at June 30, 2016 Conference Call to be held August 17that 10:30 AM (EDT)

TORONTO, Aug. 15, 2016/CNW/ - Sierra Metals Inc. (TSX:SMT)(BVL:SMT) ("Sierra Metals" or the "Company") today reported revenue of $36.9 millionand an adjusted EBITDA of $5.4 millionon throughput of 503,988 tonnes and metal production of 3.0 million silver equivalent ounces or 19.7 million copper equivalent pounds for Q2 2016.

The Company continues to successfully work through the operational improvement process at its Yauricocha Mine, and has seen metal production improve dramatically, quarter over quarter from Q1 2016 and Q4 2015. The Company has increased silver equivalent ounce and copper equivalent pound production by 24% despite only a 4% increase in throughput in Q2 2016 compared to Q1 2016. The Company has successfully focused on producing higher value ore which, along with the upturn in metal prices, has contributed to a significant increase in revenues and adjusted EBITDA in Q2 2016 compared to the previous two quarters.

The Company continues to focus on the operational improvement and modernization of its Mines. The benefits of these implementations are already being realized but will be most visible in the second half of the year. These efforts are also expected to help improve the Company's operating margins and cash flow generation while benefiting from a recently improved metals price environment.

At the Bolivar Mine in Mexico, the Company had another quarter of record plant throughput in Q2 2016 with a 13% increase compared to Q2 2015. Despite the record throughput, lower head grades for all metals and lower recoveries for all metals, except gold, were encountered which resulted in a 5% decrease in copper equivalent production in Q2 2016 compared to Q2 2015. Head grades are expected follow throughput and improve in the second half of the year.

The Cusi project, also in Mexico, realized a 23% increase in silver equivalent production in Q2 2016 over Q2 2015. Additionally, the AISC per silver equivalent payable ounce decreased to $18.55in Q2 2016 compared to $30.64in Q2 2015, mainly due to lower sustaining capital expenditures and higher silver equivalent production. Cusi also began zinc production in H1 2016 with production of 1,147,000 lbs. which helped contribute to the increase in silver equivalent production compared to the same period in 2015.

_"The operational improvements at Yauricocha are working and we are seeing the benefits. Yauricocha increased silver equivalent production by 24% with a 4% increase in throughput, demonstrating that the Company's focus on extraction of higher value ore has been successful. When combined with the increase in metal prices, the Company saw a significant boost in revenues and EBITDA compared to Q1 2016" _stated Mark Brennan, President and CEO of Sierra Metals. "At Bolivar, we saw another record quarter of throughput however encountering lower grades. We continue to be optimistic that we will see higher metal production as we begin accessing higher grade ore by the end of the year. At Cusi, silver equivalent production increased 23% over the same quarter last year and the Mine began shipments of zinc with over 1 million pounds produced for the quarter. Sierra continues to have a strong balance sheet and liquidity to drive operations and remains determined to increase production in the future while reducing costs at all three Mines."

He Continued_"Sierra also updated its reserve and resource report for the Yauricocha mine, including a statement of mineral reserves and resources for the Esperanzazone coming less than one year from initial discovery. With a relatively small amount of drilling we have established 2.5 tonnes of mineral resources in the M&I category representing 30% of the total M&I resource and 1.5 million tonnes in the Inferred category, representing 41% of total Inferred resources. Management believes that we are still in the early stages of delineation drilling and that our aggressive exploration programs will continue to add high quality tonnage to our resources at Yauricocha in the coming months. Esperanzais one of many high value brownfield targets the company is currently evaluating and I believe there will be much more positive developments coming from all of our three mines this year."_

The following table displays selected unaudited financial and operational information for the three and six months ended June 30, 2016:

| | | | | | | | | | | | | | | Three Months Ended | Six Months Ended | | | | | | | | | | | _(In thousands of dollars, except per share and cash cost amounts, consolidated figures unless noted otherwise)_ | June 30, 2016 | March 31, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | | | | | | | | Operating | | | | | | | | | | | | | | Ore Processed / Tonnes Milled | 503,988 | 476,219 | 483,374 | 980,207 | 955,781 | | | | | | | | Silver Ounces Produced (000's) | 780 | 588 | 911 | 1,368 | 1,811 | | | | | | | | Copper Pounds Produced (000's) | 5,245 | 5,836 | 6,508 | 11,081 | 12,992 | | | | | | | | Lead Pounds Produced (000's) | 10,655 | 8,256 | 11,116 | 18,911 | 23,232 | | | | | | | | Zinc Pounds Produced (000's) | 14,218 | 10,919 | 13,019 | 25,137 | 23,480 | | | | | | | | Gold Ounces Produced | 2,197 | 2,235 | 2,177 | 4,432 | 4,838 | | | | | | | | Copper Equivalent Pounds Produced (000's)1 | 19,714 | 17,164 | 21,589 | 36,878 | 42,797 | | | | | | | | Silver Equivalent Ounces Produced (000's)1 | 2,965 | 2,582 | 3,247 | 5,547 | 6,437 | | | | | | | | | | | | | | | | | | | | | Cash Cost per Tonne Processed | $ | 40.48 | $ | 41.57 | $ | 38.17 | $ | 41.01 | $ | 38.11 | | | Cash Cost per AgEqOz2 | $ | 9.20 | $ | 8.10 | $ | 6.22 | $ | 8.73 | $ | 6.07 | | | AISC per AgEqOz2 | $ | 15.22 | $ | 14.51 | $ | 13.40 | $ | 14.92 | $ | 12.98 | | | Cash Cost per CuEqLb2 | $ | 1.40 | $ | 1.22 | $ | 0.94 | $ | 1.32 | $ | 0.91 | | | AISC per CuEqLb2 | $ | 2.32 | $ | 2.18 | $ | 2.02 | $ | 2.26 | $ | 1.95 | | | | | | | | | | | | | | | | Cash Cost per AgEqOz (Yauricocha)2 | $ | 9.30 | $ | 8.47 | $ | 5.76 | $ | 8.98 | $ | 5.64 | | | AISC per AgEqOz (Yauricocha)2 | $ | 14.27 | $ | 14.78 | $ | 11.72 | $ | 14.47 | $ | 11.53 | | | Cash Cost per AgEqOz (Cusi)2 | $ | 10.63 | $ | 3.77 | $ | 6.27 | $ | 7.91 | $ | 6.37 | | | AISC per AgEqOz (Cusi)2 | $ | 18.49 | $ | 12.50 | $ | 27.92 | $ | 16.14 | $ | 24.59 | | | Cash Cost per CuEqLb (Bolivar)2 | $ | 1.25 | $ | 1.32 | $ | 0.99 | $ | 1.29 | $ | 1.05 | | | AISC per CuEqLb (Bolivar)2 | $ | 2.41 | $ | 2.21 | $ | 1.78 | $ | 2.31 | $ | 1.92 | | Financial | | | | | | | | | | | | | | Revenues | $ | 36,858 | $ | 23,740 | $ | 45,867 | $ | 60,598 | $ | 80,607 | | | Adjusted EBITDA2 | $ | 5,265 | $ | 4,373 | $ | 18,249 | $ | 9,638 | $ | 32,239 | | | Operating cash flows before movements in working capital | $ | 6,226 | $ | 5,010 | $ | 18,796 | $ | 11,236 | $ | 33,461 | | | Adjusted net income (loss) attributable to shareholders2 | $ | 454 | $ | (1,967) | $ | 7,274 | $ | (1,513) | $ | 11,353 | | | Net income (loss) attributable to shareholders | $ | (3,440) | $ | (5,116) | $ | 1,209 | $ | (8,556) | $ | 542 | | | Cash and cash equivalents | $ | 20,564 | $ | 19,147 | $ | 29,829 | $ | 20,564 | $ | 29,829 | | | Restricted cash | $ | 4,653 | $ | - | $ | - | $ | 4,653 | $ | - | | | Working capital | $ | 7,936 | $ | 11,920 | $ | 22,747 | $ | 7,936 | $ | 22,747 |

| (1) | Silver equivalent ounces and copper equivalent pounds were calculated using the following metal prices: $14.96/oz Ag, $2.25/lb Cu, $0.75/lb Pb, $0.73/lb Zn, $1,113/oz Au. | | | Cu price is higher than the Company's realized selling price and thus has caused CuEqb cost metrics to be higher than anticipated. | | (2) | This is a non-IFRS performance measure, see Non-IFRS Performance Measures section of the MD&A. |

Q2 2016 Financial Highlights

Revenue from metals payable of $36.9 millionin Q2 2016 decreased by 20% from $45.9 millionin Q2 2015. Lower revenues are primarily attributable to the decrease in the prices of lead (11%), copper (22%), and zinc (13%) in Q2 2016 compared to Q2 2015; a 4% decrease in throughput and a decrease in head grades and recoveries at Yauricocha. The 4% decrease in plant throughput at Yauricocha was due to additional work being performed to drill drainage holes to de-water certain areas of the Mine as well as a continued focus on operational improvements implementation and in the mechanization of the mine. At Bolivar there was a decrease in head grades and recoveries of all metals, except gold, and at Cusi, a decrease in silver recoveries. This decrease was partly offset by record throughput at Bolivar and Cusi and a 5% increase in silver prices realized in Q2 2016 compared to Q2 2015.

Yauricocha's cash cost per silver equivalent payable ounce was $9.30vs $5.76in Q2 2015 and all-in sustaining cash cost ("AISC") per silver equivalent payable ounce was $14.27vs $11.72in Q2 2015. The increase in AISC per silver equivalent payable ounce during Q2 2016 was due to the decrease in plant throughput and ore feed head grades due to the decrease in available production from higher grade zones in the mine, and additional costs related to the mechanization and water management controls continuing to be implemented at the Mine.

Bolivar's cash cost per copper equivalent payable pound was $1.25vs $0.99in Q2 2015 and AISC per copper equivalent payable pound was $2.41vs $1.78in Q2 2015. The increase in AISC per copper equivalent payable pound during Q2 2016 was mainly due to the decrease in head grades and recoveries for all metals, except gold, and the increase in mining costs and equipment maintenance costs.

Cusi's cash cost per silver equivalent payable ounce was $10.63vs $6.27in Q2 2015 and AISC per silver equivalent payable ounce was $18.49vs $27.92Q2 2015. AISC per silver equivalent payable ounce decreased due to the increase in plant throughput, the addition of a zinc concentrate in H1 2016 which increased the silver equivalent ounces sold, the increase in head grades and recoveries of all metals, except silver recoveries, which resulted in a higher percentage of payable metal relative to tonnes of ore processed, and a decrease in sustaining capital expenditures related to stope and drift development within the mine as the Company incurred significant development costs during 2015 which are expected to be much lower during 2016.

Adjusted EBITDA of $5.3 millionfor Q2 2016 decreased compared to $18.2 millionin Q2 2015. The decrease in adjusted EBITDA in Q2 2016 is due to the $5.0 milliondecrease in revenue at Yauricocha and $5.2 milliondecrease in revenue at Bolivar, partially offset by the $1.1 millionincrease in revenue at Cusi. The decrease in revenues at Yauricocha and Bolivar were due to declines in metal prices and head grades and recoveries, as discussed previously.

Cash flow generated from operations before movements in working capital of $6.2 millionfor Q2 2016 compared to $18.8 millionin Q2 2015. The decrease in operating cash flow is mainly the result of lower revenues generated and lower gross margins received.

Cash and cash equivalents of $20.6 million, restricted cash of $4.7 million, and working capital of $7.9 millionas at June 30, 2016compared to $25.1 million, $Nil, and $13.6 million, respectively, at the end of 2015. Cash and cash equivalents have decreased by $4.5 millionduring Q2 2016 due to placement of $(4.7) millioninto an escrow account classified as restricted cash, the capital expenditures incurred in Mexicoand Peruof $11.5 million, repayment of loans, credit facilities and interest of $5.3 million; partially offset by $4.2 millionof operating cash flows, and proceeds from the issuance of credit facilities of $12.8 million. Included in the $4.2 millionof operating cash flows were negative changes in non-cash working capital items of $4.4 milliondue to the increase accounts receivable as at June 30, 2016.

Operational Update

The Company is continuing to successfully work through the operational improvement process at its Yauricocha Mine and has seen improved production and throughput, quarter over quarter from Q4 2015. The program has led to a temporary decline in throughput and head grades resulting in lower production of all metals from its beginning in Q3 2015. The Company successfully continues to focus on these operational improvements and introduction of mechanized mining methods in mine operations. The benefits of these implementations are already being realized but will be most visible in the second half of the year.

The Company continued to make strong progress on development at its Esperanzazone at Yauricocha during Q2 2016 as recent exploration, development and test stope programs have provided material which is currently being produced at the Chumpe Plant. Exploration drilling is ongoing at the Esperanzazone from the 1070 level to further extend the zone which remains open to the north, south and at depth.

Mine development at Bolívar during Q2 2016 totaled 2,733 m. Most of the development was to prepare stopes for the El Fierro deposit on the main levels 753 and 757. El Galloalso saw development to provide further access to mineralization.

At the Cusi property, mine development totaled 2,402 meters and 1,570 meters of infill drilling was carried out during the quarter.

The Cusi operations in Mexicomined 52,226 tons of ore with average head grades of: 197.0 g/t Ag; 1.55% Pb and 2.61% Zn and 0.25 g/t. Au. Most of this ore was sourced from the Moctezuma, Contact and San Nicolasveins. The Company began shipping a zinc concentrate from the Cusi Mine in April 2016which will enhance the cash flows from the operation.

Esperanza Zone Development and Exploration Program Update

Subsequent to the quarter end the Company updated its Mineral Reserve and Resources Estimate at the Company's Yauricocha Mine, located in Yauyos Province, Peru. The Company also provided a maiden Reserve and Resource Estimate for the recently discovered Esperanza Zone (Please see press release dated August 10, 2016)

The maiden Reserve and Resources Estimate at Esperanzawas the result of a successful exploration drill program detailed in Press Releases dated January 15, 2016, May 13, 2016and May 24, 2016and it now represents a material proportion of the mine's overall reserves and resources.

A Technical Report is currently being prepared by SRK Consulting in accordance with 43-101 and will be filed on SEDAR within 45 days of the August 10, 2016news release.

Total Proven and Probable Mineral Reserves for Yauricocha (including Esperanza) contained 3,787,000 tonnes averaging 61.1 g/t silver, 0.84% copper, 1.15% lead, 2.92% zinc and 0.62 g/t gold. Total Measured and Indicated Mineral Resources for Yauricocha (including Esperanza) contained 3,745,000 tonnes averaging 60.8 g/t silver, 1.12% copper, 0.94% lead, 2.70% zinc and 0.67 g/t gold. Total Inferred Mineral Resources for Yauricocha (including Esperanza) contained 3,774,930 tonnes averaging 49.1 g/t silver, 1.33% copper, 0.58% lead, 1.86% zinc and 0.53 g/t gold.

The maiden Resources Estimate for the recently discovered Esperanzazone contained 2,534,000 tonnes averaging 69.8 g/t silver, 1.71% copper, 1.26% lead, 3.23% zinc and 0.55 g/t gold classified as Measured and Indicated Resources as at June 30, 2016. The Esperanza Zone includes an additional 1,541,800 tonnes in Inferred Mineral Resources averaging 69.0 g/t silver, 1.87% copper, 0.92% lead, 2.49% zinc and 0.63 g/t gold.

The Updated Reserves and Resources Estimate varies from the 2015 Technical Report due to an increase in the Net Smelter Return (NSR) cut off grades resulting in higher value material, reduction in commodity prices and depletion by production since the Report was completed. The updated Reserve and Resource Estimate has incorporated new exploration drilling, sampling, and face mapping information into the geologic interpretation and grade estimations providing more refined resource models.

Notes for the Measured, Indicated and Inferred Resources Estimates

Mineral resources are reported inclusive of ore reserves. Mineral resources are not ore reserves and do not have demonstrated economic viability. All ﬁgures rounded to reﬂect the relative accuracy of the estimates. Gold, silver, copper, lead, and zinc assays were capped where appropriate. Mineral resources are reported at unit value cut-offs (CoG) based on metal price assumptions*, variable metallurgical recovery assumptions (variable metallurgical recoveries as a function of grade and relative metal distribution in individual concentrates), generalized mining/processing costs. Metal price assumptions considered for the calculation of unit values are: Gold (US$/oz 1,251.00), Silver (US$/oz 16.76), Copper (US$/lb 2.28), Lead (US$/lb 0.86), and Zinc (US$/lb 0.94).

Mina Central

Metallurgical recovery assumptions for the Mina Central area are 77% Ag, 18% Au, 76% Cu, 88% Pb, and 94% Zn (polymetallic material).

The unit value COG for the Mina Central area is a consistent US$40

Esperanza

Metallurgical recovery assumptions for the Esperanzaarea are 77% Ag, 18% Au, 76% Cu, 88% Pb, and 94% Zn (polymetallic material).

The unit value COG for the Esperanzaarea is a consistent US$44.

Cachi Cachi

Metallurgical recovery assumptions for the Cachi-Cachi area are 77% Ag, 18% Au, 76% Cu, 88% Pb, and 94% Zn (polymetallic material).

The unit value COG for the Cachi-Cachi area is variable by area: US$40= Angelita; US$44= Elissa & Escondida; US$38= Karlita; and US$51= Zulma

Mascota

Metallurgical recovery assumptions for the Mascotaarea are 53% Ag, 24% Au, 0% Cu, 66% Pb, and 0% Zn (lead oxide material).

The unit value COG for the Mascotaarea is a consistent US$38.

Cuerpos Pequenos

Metallurgical recovery assumptions for the Cuerpos Pequenos area are variable:

Metallurgical recovery assumptions for the Cuye area are 66% Ag, 35% Au, 90% Cu, 0% Pb, and 0% Zn (copper sulfide material); Metallurgical recovery assumptions for the Contacto Occ. and Violeta areas are 53% Ag, 24% Au, 0% Cu, 66% Pb, and 0% Zn (lead oxide material); and Metallurgical recovery assumptions for the remaining areas are 77% Ag, 18% Au, 76% Cu, 88% Pb, and 94% Zn (polymetallic material).

The unit value COG for the Cuerpos Pequenos area is variable by area. US$43= Violeta; US$38= Cuye; and US$51= Contacto Occ., Contacto, Ori., CSM II, CSM I, CSM, Cuye Sur, Marita, Juliana, Gallito, Butz, Pozo Rico.

Notes for the Proven and Probable Mineral Reserve Estimates

All ﬁgures rounded to reﬂect the relative accuracy of the estimates. Totals may not sum due to rounding. Ore reserves are reported at NSR cutoffs (CoG) based on metal price assumptions*, grade adjustments made to the resource model, metallurgical recovery assumptions*, mining costs, processing costs, general and administrative (G&A) costs, and treatment and refining charges.

Metal price assumptions considered for the calculation of NSR are: Gold (US$/oz 1,251.00), Silver (US$/oz 16.76), Copper (US$/lb 2.28), Lead (US$/lb 0.86), and Zinc (US$/lb 0.94)