Q4 2016 Sierra Metals Inc Earnings Call

Mar 31, 2017 AM EDT
SMT.TO - Sierra Metals Inc
Q4 2016 Sierra Metals Inc Earnings Call
Mar 31, 2017 / 02:30PM GMT 

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Corporate Participants
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   *  Mike McAllister
      Sierra Metals Inc. - VP, Corporate Development
   *  Ed Guimaraes
      Sierra Metals Inc. - CFO
   *  Gordon Babcock
      Sierra Metals Inc. - COO
   *  Alberto Arias
      Sierra Metals Inc. - Chairman

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Conference Call Participants
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   *  Lee Cooperman
      Omega Advisors - Analyst
   *  Heiko Ihle
      Rodman & Renshaw - Analyst
   *  Randy Rochman
      West Family Investments - Analyst

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Presentation
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Operator   [1]
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 Good morning. My name is Carol and I will be your conference operator today. At this time I would like to welcome everyone to the Sierra Metals Q4 and 2016 year-end financial and operational results call. (Operator Instructions)

 At this time I would like to turn the call over to Mike McAllister, VP, Corporate Development.

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 Mike McAllister,  Sierra Metals Inc. - VP, Corporate Development   [2]
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 Thank you, operator, and good morning, everyone. Welcome to Sierra's year-end and Q4 2016 results conference call. On today's call we are joined by Alberto Arias, Chairman of the Board; Ed Guimaraes, CFO; and Gordon Babcock, COO.

 Today's call will be followed by a question-and-answer period. Today's presentation is available for download, both through this webcast and from the Company's website at www.SierraMetals.com. Thursday's press release and the financial statements, as well as the management discussion and analysis are also posted at the Company's website.

 Before we start I would like to remind everyone about our disclaimer and that certain statements made today by the executive management team may contain forward-looking information. Anything not historical is considered forward looking. For more information, please refer to our detailed cautionary note in yesterday's press release and to the disclaimer on slide two of today's presentation.

 Please note that all dollar amounts mentioned on the call are US dollars unless otherwise noted.

 With that I will now turn the call over to Ed Guimaraes, Chief Financial Officer.

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [3]
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 Thanks, Mike, and good morning, everyone. I would like to begin with an overview of the 2016 results for Sierra, as well as discuss the operational and exploration highlights for the quarter.

 That said, I must say we are very excited and encouraged by the significant progress made in the financial, operational, and exploration results at Sierra in 2016 and, in particular, the fourth quarter. We believe that 2017 will be a year of exponential growth at all three projects and for Sierra Metals as a whole.

 Following my summary highlights, Gordon Babcock will take us through the operational and explorational highlights and then I will take us through the 2016 financial highlights. And then we will open the call to questions.

 Looking at slide 4; 2016 has been a transformational year for Sierra Metals having achieved significant improvements in our financial performance, operations, and production capacities, as well as in our brownfield exploration program with several important new discoveries. In 2016, the Company reported revenue of $143.2 million and adjusted EBITDA of $41.9 million on throughput of 2,034,465 tons with metal production of 11.9 million silver equivalent ounces, or 79.5 million copper equivalent pounds.

 Sierra Metals had a second consecutive exceptional quarter in its operational and financial results aided by the rise in metal prices. During Q4, the Company maintained significant improvements in revenue and adjusted EBITDA realized during the previous quarter. The Company achieved excellent year-over-year improvements in the fourth quarter with revenues up 67%, adjusted EBITDA up by $17.9 million, and the all-in sustaining cash costs for silver equivalent payable ounce was lower by 27% to $12.51 at the Yauricocha mine.

 In 2016, consolidated metal production increased by 4% compared to 2015, which represented the second-highest level of annual metal production in the Company's history. In Q4 2016, consolidated metal production increased by 31% when compared to Q4 2015 and resulted in Sierra achieving its second-highest level of quarterly metals production in the Company's history.

 Continuing on slide 5; in 2016, the Company successfully completed an operational improvement process at the Yauricocha mine, including the installation of a new Hepburn hoist, which has increased skipping capacity by 30,000 metric tons per month. As a result, Sierra continues to see a substantial positive impact from the programs implemented at the Yauricocha mine, which have continued to strongly contribute to operational results during the second half of 2016.

 Plant improvements completed at the Bolivar mine during the second half of 2016 included the installation of a new vibrating screen and cyclones, which resulted in improved recoveries. At the Cusi mine, the installation of a new vibrating screen, a new zinc circuit, and an improved cyclone rack resulted in recovery and grade improvements in the lead and zinc circuits.

 Significant new discoveries and exploration were also paramount with the discovery of the Esperanza and Cuye-Mascota zones at the Yauricocha Mine; the development of higher-grade ore zones such as Bolivar West, Northwest, and La Sidra at Bolivar mine; and the reinterpretation of the geology and announcement of the Santa Rosa de Lima zone at the Cusi Mine. The importance of the brownfield program is demonstrated by the Esperanza zone, which went from discovery to production in less than one year. Our brownfield program continues to identify multiple targets that can be brought into the mine plan in a timeframe of approximately one year.

 Sierra is continuing with its brownfield exploration program and definition drill program at all three mines. We shall continue to provide further proofs of concept for several key areas, in addition to further successes and expected resource growth for all three mines.

 With that, I will now turn the call over to Gord Babcock for the operations and exploration update.

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 Gordon Babcock,  Sierra Metals Inc. - COO   [4]
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 Thanks, Ed. Good morning, everyone. Please turn over to slide number 7, please, for the operational highlights.

 In 2016, Sierra processed a total of in excess of 2 million tons, which represented a 9% increase over 2015. In Q4 2016, Sierra processed a total of 517,705 tons, representing a 13% increase over Q4 2015. The Company produced 11.9 million silver equivalent ounces, or 79.5 million copper equivalent pounds, in 2016, representing an overall 4% increase from 2015.

 In Q4 2016, the Company produced 3.2 million silver equivalent ounces, or 21.2 million copper equivalent pounds, which represents a 31% increase over Q4 2015's production levels. This was a result of increased throughput, higher head grades, higher recoveries at the Yauricocha Mine in Peru, but partially offset by a decrease in head grades and recoveries at the Bolivar and the Cusi operations in Mexico.

 The Company continues to benefit from the operational improvement programs completed at Yauricocha and this is a continual improvement program. It is continuing with a similar program at Bolivar and Cusi Mines in Mexico today.

 Looking now at Yauricocha, silver equivalent production in 2016 was 7.7 million ounces, representing a 9% increase over 2015. In Q4 2016, silver equivalent production was 2.2 million ounces, which was 65% higher than production levels of Q4 2015. In 2016, Sierra saw higher metal production of silver, 3%; the copper, 13%; and zinc, 30%, which was partially offset by decreased metal production of lead and gold, 8% in the lead case and 7% in gold.

 For Q4 2016, Sierra saw increases in the production of all metals except gold at Yauricocha over Q4 2015 with increases in the production of silver, 92%; copper, 64%; zinc, 81%; and lead, 36%.

 At Bolivar, the Company had another record of annual plant throughput of 950,938 tons processed, which represents a 14% increase in volume in comparison to 2015. Bolivar also had a strong fourth quarter of throughput with 245,000 tons processed, which represented a 16% increase when compared to Q4 2015. The record throughput helped to offset the lower head grades encountered and resulted in a 4% decrease in copper equivalent production year over year with just a 1% decrease in copper equivalent production in Q4 2016 compared to Q4 2015. And that is all attributed to head grades.

 Metal production at Bolivar decreased in 2016 with lower production of copper, 3%; silver, 10%; and gold, 7%. In Q4 2016 versus Q4 2015 copper production was flat while silver and gold production was 4% lower. The Company's focus at Bolivar in 2017 will be to improve production volume, higher throughput, improve ore, improve on grades and recoveries. As well we are investing in a new equipment fleet, so when this equipment is in place we have the means of moving forward.

 At Cusi, this again is based on concentrating on our development and extraction of ore from our known mineralized areas within the Bolivar concession. That is the assets that we have internally. At Cusi, the Company processed a total ore of 186,898 tons in 2016, which is a 7% decrease from 2015.

 For Q4 2016 total ore processed was 36,055 tons, which represents a 30% decrease in comparison to Q4 2015 due to lower head grades and recoveries for raw metals combined with lower throughput, which was caused by a series of weather-related events and significant rainfall in the fourth quarter which caused flooding in the ramps which led to stope unavailability. In the case of Cusi and the Cusi area, the Cusi River had overflown its -- overgrown its banks and we were getting water coming in from the river right into the mine. Recall that this is a very old operation.

 Please turn to slide 8. Exploration continues to be a critical part of our growth plan and during Q4 2016 the Company drilled 42 holes totaling 7,284 meters at Yauricocha. Exploration drilling accounted for 13 holes, or 3,931 meters, at the Esperanza zone to test continuity; at Cuye-Mascota zone to test continuity of depth and to explore new areas; and at the Cachi Cachi zone to explore new mineralized zones. Definition drilling accounted for the remaining 29 holes, or 3,652 meters, at the Rosaura, Esperanza, and in the Cuerpos Pequenos zones. And also, I may add, in the central mine zone.

 On November 17, 2016, Sierra announced the discovery of the new Cuye-Mascota sulfide deposit, which is located 200 meters to the north of the central mine area along strike and adjacent to current mining activities. A total of seven holes have been drilled to date and, as a result of this drilling program, continued mineralization has been identified and provided the Company with an important information base that we previously did not have any information on. Cuye was one of the main cash flow generators 10 years ago and this appears to be at depth with similar widths and grades.

 Please turn to slide 9. Slide 9 depicts the discovery of the Mascota zone transition. You see where we are going from oxide to sulfide and at depth this is important because of the higher recovery rates that are associated with processing sulfide ores. The company is optimistically continuing with exploration drilling activities in the areas below the Cuye and Mascota ore bodies and will continue to report as the results become available.

 We still see far greater opportunity to expand our high-value, near-mine tonnage in the near term and the opportunities are numerous and by no means exhausted. As I mentioned before, this is a mining district, this Yauricocha asset.

 At Bolivar, combined with an aggressive focus to optimize operations, brownfield exploration will be a critical component to improve grade and value per ton by bringing new areas such as Bolivar West, Bolivar Northwest, La Sidra into production schedule as quickly as possible. During Q4 exploration drilling continued along Bolivar West fault area with a total of 11,749 meters drilled in this area. 3,472 meters were also drilled at the El Gallo Inferior.

 Subsequent to year-end on March 6, 2017, the Company announced the results of an initial drill program at the La Sidra vein on the Bolivar property. Drilling is now picking up and is ongoing and continues to define high-grade silver, gold, and poly metallic mineralization. The mineralized zone currently extends to over 500 meters in length and to approximately 300 meters in depth. It is open on strike and downhill.

 Please turn to slide 10. At Cusi, we are in the process now of reevaluating the opportunity as we gain greater insight to the geological setting and the possible ramifications of that evaluation. Drilling continues at the Santa Rosa de Lima zone, as well as definition drilling in other areas of the mine.

 On February 27, 2017, Sierra announced the discovery of a new high-grade silver intercept zone occurring in the Santa Rosa de Lima complex located within the current Cusi mine operational area. The Santa Rosa de Lima complex lies within the regional structure, extending some 64 kilometers. This extension on the Cusi property has an anticipated length of approximately 12 kilometers.

 The discovery comes as part of a reinterpretation of the hydrothermal model and a drilling campaign consisting of 15,000 meters which began in December 2016. To date, the Company has drilled 10,200 meters, about 79% of the planned program, which is expected to come to completion by the end of March.

 2016 has been a transitional and a significant year, laying the seeds of growth for Sierra Metals as we recognize continued improvements to production grade recoveries as we completed a very successful series of operational improvement programs at the Yauricocha mine. We look forward to accessing and include production from the lower levels of the Esperanza and Cuye-Mascota zones. Additionally, we anticipate further brownfield exploration successes at Yauricocha, Bolivar, and Cusi.

 Sierra Mines is now on track to see strong production growth and exploration success. The past year's preparation has led to the execution of a solid plan which is expected to lead to a stronger future benefiting the Company and its shareholders.

 With that I will now turn over the call to Ed Guimaraes, our CFO, for the financial overview. Thank you very much.

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [5]
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 Thanks, Gord. Turning to slide 12; as mentioned, the Company had an exceptional fourth quarter and benefited from the continued rise in metal prices, as well as near record throughput at the Yauricocha mine and record throughput at the Bolivar Mine. Along with the strong operational results realized during the quarter, cash flow generation continues to improve and provide the Company with a healthier balance sheet and increased liquidity.

 The Company realized annual revenue of $143.2 million for 2016, which increased by 7% when compared to 2015. Revenues were $41.8 million in the fourth quarter of 2016, which represented a 67% increase compared to the fourth quarter of 2015. Annual realized metal prices in 2016 were higher for all metals with the exception of copper, including 9% higher for silver, 2% higher for lead, 10% higher for zinc, 9% higher for gold, and 11% lower for copper.

 In addition to the higher metal prices realized, the increase in annual revenues are primarily attributable to the 8% increase in throughput and the increase in copper head grades at Yauricocha, the increase in gold throughput and recoveries at Bolivar, as well as the introduction of a zinc concentrate and higher gold and lead grades and recoveries at Cusi. This was partially offset by lower head grades at Bolivar and, as mentioned, the 11% lower copper prices.

 Annual adjusted EBITDA for 2016 was $41.8 million, up from $32.3 million in 2015. Adjusted EBITDA in Q4 2016 was $16 million, compared to $1.9 million in Q4 2015. The annual increase in adjusted EBITDA was primarily due to a $7.4 million increase in revenue at Yauricocha.

 Yauricocha's 2016 cash cost per silver equivalent payable ounce was $7.77 versus $7.10 in 2015 and the all-in sustaining cash cost per silver equivalent payable ounce was $13.11 versus $13.25 in 2015. The decrease in the annual all-in sustaining cash cost per silver equivalent payable ounce during 2016 was due to an increase in silver equivalent payable ounces as a result of higher throughput and ore feed head grades from the increase in available production from higher grade zones in the mine.

 Also, lower treatment and refining costs incurred during 2016 resulting from improved terms within renegotiated sales contracts with our off-takers offset some of the additional sustaining capital costs and costs related to the mechanization and water management controls implemented at the mine during 2016. Bolivar's 2016 cash cost per copper equivalent payable pound was $1.15 versus $1.33 in 2015 and the all-in sustaining cash cost per copper equivalent payable pound was $2.28 versus $2.29 in 2015.

 The annual all-in sustaining cash cost per copper equivalent payable pound remained consistent during 2016. The decreased cash costs offset an increase of $2.2 million in sustaining capital expenditures related to mine development and equipment purchases, as well as a decrease in copper equivalent pounds sold which was due to lower head grades and recoveries of all metals except gold recoveries.

 Cusi's 2016 cash cost per silver equivalent payable ounce was $10.28 versus $8.82 in 2015 and the all-in sustaining cash cost per silver equivalent payable ounce was $20.41 versus $26.47 in 2015. Annual all-in sustaining cash cost per silver equivalent payable ounce decreased due to the significant decrease of $8.5 million in sustaining capital expenditures related to stope and drift development within the mine during 2016 as a significant amount of mine development work was completed during last two years, which has resulted in reduced sustaining capital cost required to drift and develop the necessary amount of mining faces required to maintain current production levels.

 The decline in throughput in silver head grades and recoveries resulted in fewer silver equivalent payable ounces, which also contributed to the higher annual cash cost per silver equivalent payable ounce in 2016 when compared to 2015. Cash flow generated from operations before movements in working capital was $44.3 million for the year ended December 31, 2016, compared to $32.5 million in 2015. The increase in operating cash flow is mainly the result of higher revenues generated and higher gross margins incurred.

 I would now like to review our cash flows which I believe provide the clearest perspective on our financial performance. I have summarized the changes in cash during 2016 on slide 13.

 During 2016 our operating cash flow before working capital adjustments was $44.3 million and proceeds from the issuance of credit facilities was $12.8 million. We spent $25.4 million on capital expenditures in Mexico and Peru, had negative working capital adjustments of $1.5 million, and we paid $13.2 million of interest and principal repayments on our credit facilities in both Peru and Mexico. We also paid $0.5 million in dividends to noncontrolling interest shareholders.

 These items increased our cash balance from $25.1 million as at December 31, 2015, to $42.1 million as at December 31, 2016.

 Turning to the balance sheet and liquidity on slide 14; we have ended 2016 in a strong financial position with $42.1 million in cash and total debt of $78.6 million. The Company's net debt was $36.5 million, which represents less than 1 times trailing adjusted EBITDA as at the December 31, 2016.

 The Company has principal payment obligations on its loans and credit facilities of approximately $16 million to be paid in 2017, $14 million to be paid in 2018, $8 million to be paid in 2019, and $29 million to be paid in 2020.

 I would also like to highlight the sensitivity of our profit to changes in exchange rates. Approximately 70% of our costs at Yauricocha our denominated in Peruvian nuevo soles and approximately 60% of our cost in Mexico are denominated in Mexican pesos. At December 31, 2016, the sol to US dollar exchange rate was 3.4 and the Mexican peso to US dollar exchange rate was 20.74. Thus far in 2017, the sol has remained relatively unchanged against the US dollar; however, the peso has realized a 9% increase against the US dollar.

 A 10% decrease in the value of the sol and peso against the US dollar would result in an increase of $4.2 million and $1.4 million in the Company's net income, respectively, assuming that our operational performance during 2017 is consistent with 2016. We are confident that our financial position, together with the potential future cash flow generation from our three producing mines, including the recently discovered Esperanza and Cuye-Mascota zones, will be sufficient to support the Company's financial commitments in 2017 and beyond.

 I will now turn the call back to Mike.

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 Mike McAllister,  Sierra Metals Inc. - VP, Corporate Development   [6]
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 Thanks, Ed. That ends the presentation portion of this call. We would now like to open the call to questions from participants. Operator, can you please open the lines?

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Lee Cooperman, Omega Advisors.

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 Lee Cooperman,  Omega Advisors - Analyst   [2]
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 Thank you very much. I was curious if you guys have ever considered doing an appraisal of the asset holdings of the corporation; if you took the approach of proven, probable, potential reserves. Because it would seem that the stock is not reflecting the true value of the business. It would be helpful to the shareholders if some objective third-party with knowledge of appraising value -- assets of the kind we have would be engaged. What do you think about that?

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [3]
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 Hi, Lee; sorry. With Alberto and Gordon in Lima and I'm in Toronto, I'm not sure who is going to take the call.

 Thanks very much for the call and -- for the question, I should say. I will start off by saying every year we do look, especially now with the 43-101 updates, so that really is a third-party assessment of our reserves and resources. And that's really all I can answer to.

 Alberto, is there anything else you wanted to add to that?

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 Alberto Arias,  Sierra Metals Inc. - Chairman   [4]
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 Thank you for your question. Your question goes to having the market recognize the value, the underlying value that our assets have and we are completely on the same page as you are. I believe that that will be accomplished by having more visibility, having more research coverage.

 Right now we have very few analysts that cover the stock. But, as you know, and we have made public that our intention is to go to the New York Stock Exchange; have more visibility in the public market. And I think that the market will start to recognize the value that the Company's assets have and compare it with the value of other publicly-traded companies and make their own conclusions. But certainly I am on the same page as you are that this is perhaps the most important issue how the market is going to recognize the value we have.

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 Lee Cooperman,  Omega Advisors - Analyst   [5]
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 The only reason I suggested it is because 51% of the stock is owned by the private equity fund which has liquidity event that has got to provide in October 2018. It would seem to me it would be to everyone's interest to get out there we think to value or some independent appraiser thinks the value of the business is, because you have done a great job in assembling some attractive properties with terrific production profiles. And that if the economy continues reasonably strong here, I would assume we are going to get a benefit of rising commodity prices as well. But just a thought; let you reflect on it.

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 Alberto Arias,  Sierra Metals Inc. - Chairman   [6]
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 Thank you, Lee, and just to conclude on that point is that we have a lot of interest for shareholder value, obviously. That is shareholder value for all the shareholders of Sierra Metals. So something that sets apart this company relative to other things that are -- other mining companies is that we have a huge incentive to uncover as much value as possible, because our intention is to crystallize that value obviously over a reasonable period of time.

 So we are fully aligned. The management team is aligned with that objective of uncovering value quickly. So that is why we are seeing the results that you are seeing and we are very excited about the future of this company. Thanks.

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Operator   [7]
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 Heiko Ihle, Rodman & Renshaw.

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 Heiko Ihle,  Rodman & Renshaw - Analyst   [8]
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 So I was just going through my quarter-by-quarter production model, the one that we have, and you had a planned shutdown in November for the high-capacity hoist at Yauricocha. I just wanted to see if there is anything planned like that for 2017. Obviously there is growth everywhere, but is there any shutdown that is more than call it three or four days planned for 2017?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [9]
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 Right now, with regards to that comment, we have got a program right now -- we have got to do some maintenance on our shafts. One of the maintenance programs that we're undergoing right now as we speak is the central mine shaft, but these things are going to be a day, two-day, three-day delays. It is a standard maintenance program, but nothing like the shut down for the Hepburn hoist overview. That work went without a hitch and we have made our budget promises; we brought both to fruition so, no, nothing like that.

 The focus is on development; trying to get the development program going, moving them along. That is going to help us in maintaining our production flow. Our objective is to try and pump up our production.

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 Heiko Ihle,  Rodman & Renshaw - Analyst   [10]
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 Fair enough. So just longer term, I mean Cusi has seen some of the biggest improvements over the past year. I mean you called it the reinterpretation of the geology there. And at least in our model, the value for that asset has increased quite a bit.

 I mean down to the head type of question; what mine do you think has the best chances to repeat that type of success in 2018 and beyond?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [11]
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 Well, I have -- my heart is set in Peru. So, for me, I think one of the assets that truly undeveloped is this Yauricocha asset because it is a mining district.

 In the case of Mexico, now that we have uncovered our Santa Rosa de Lima zone that is going to take a lot of drilling, but the upside for that, if it does extend to a 12-kilometer strike length, it is going to be phenomenal. The assays that we showed were quite promising. We are looking at basically resource in the inferred category, but we have to do an M&I program to fast-track this. That is going to be a big plus for the Company. That is going to have a great deal of value in the reserve bank for the Company.

 And the other one that's a study performer is Bolivar. Bolivar, the whole secret of Bolivar is move on production level, production increases and improve the plant recoveries, things like that; improve our TDFs. I think really it is a kind of an interesting mix.

 The two that really stand out a lot right now with a lot of potential are Cusi, Yauricocha. Yauricocha is a district that has been a producer since the 1940s so that one has to be number one in my list as an operator. Then with the potential to bump up production in a mine like Bolivar, we've got opportunity there.

 Actually I think all three are fairly good, but for me just being someone that has lived in part of Peru for all of my life, I tend to go with the Yauricocha asset. That's just my opinion.

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 Heiko Ihle,  Rodman & Renshaw - Analyst   [12]
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 No, that is fair. Obviously this was a very loosey-goosey question and intentionally it was phrased as such. Thank you guys so much and keep up the good work.

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Operator   [13]
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 Randy Rochman, West Family.

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 Randy Rochman,  West Family Investments - Analyst   [14]
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 Gordon or Ed, I don't know which of you wants to take this; I have got a question regarding the balance sheet and then a couple of questions regarding exploration. The one regarding the balance sheet is basically with the substantially increased cash flows you are now seeing, when do you think the company will be debt free, or effectively debt free from a net debt position? And what will you do with that cash when it starts piling up?

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [15]
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 Thanks, Randy, for your question. I think right now with the debt that we have on the books it is extremely manageable. It's very low interest rates. As you know, $24 million of that debt isn't due until 2020 in the form of a bullet payment.

 I think the objective will be to start to pay down some of that debt and increase the repayment schedule. But there is still -- given the brownfield potential on our properties, I think there will be a lot more drilling taking place and a significant amount of cash will go towards that effort, as well as improving our equipment, modernizing our mines with a focus in Mexico, similar to what we did at Yauricocha.

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 Randy Rochman,  West Family Investments - Analyst   [16]
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 Couple of exploration questions. With the seven drill holes you have conducted at Cuye-Mascota down in Yauricocha, when do you think the results will be released and how significant could this be?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [17]
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 We are in the process right now, Randy -- thanks for the question. We are in the process right now -- like all the mining operators in the world, the exploration business has picked up. So when the exploration business picks up, then what happens with the laboratories? The laboratory businesses pick up and then all of a sudden your turnaround time is now doubled or tripled.

 So now we are waiting for assays; it takes -- and we are paying high-priority dollars to get the information out quickly. Sometimes it comes back as late as a month. We have got -- we are in the process right now of adding to the information that we just recently published, so there will be another publication coming out. And in that publication we will be speaking about Cuye, we will be speaking about the Mascota zone, as well we will be speaking about a new discovery in the Cachi Cachi zone.

 Cachi Cachi, as you probably know, is the area to the north of the mine and it is generally responsible from 13,000 to 18,000 tons a month. And we were concerned because Cachi Cachi seem to be petering out, but after our initial drilling program we discovered some new zones that are at depth and all of these structures are trending further at depth. They are open at strike and they're also open at depth. So it's all been very positive.

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 Randy Rochman,  West Family Investments - Analyst   [18]
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 That's great. Moving on to Cusi, I suspect the same issue: the labs are busy so you are just kind of waiting for results. Is that when we are going to get --?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [19]
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 Yes.

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 Randy Rochman,  West Family Investments - Analyst   [20]
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 If there is any connection between Santa Rosa and the Los Gatos mine further away?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [21]
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 There is a good geological possibility that they are on the same trend. Like if you look at the geology, the regional geology, of that area, Randy, the trends are there; the geology is there. In our opinion, we are in the (inaudible); we are right on that fringe so it is very, very positive. It's very positive.

 Now it is the fast track to get our asset into an M&I position quickly. And after that in order to get it to reserve status, we got to do a mine plan, so on, so we have to move it along.

 But the point that I'm trying to make in Cusi is that we have done our work, based on the information that was available before. Now we have defined that area so now we know that area is what it is supposed to be or what we were thinking it was. Now it is a matter of doing our infill and improving the allocation of the resource and after that it is focus on reserve.

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 Randy Rochman,  West Family Investments - Analyst   [22]
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 My last question then has to do with the 43-101 reports. Are those, we'll say, a condition precedent to have those out prior to the NYSE listing? And if so, what kind of delay might be incurred as a result of those?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [23]
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 I am sitting on two draft copies of the 43-101s for the Company. Got one that is due to me today and I have got the Bolivar one in my hands right now. Just tidying things up and then we will be publishing them, so they're in-hand.

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 Randy Rochman,  West Family Investments - Analyst   [24]
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 So you think you can make the listing date that you are shooting for?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [25]
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 That is our objective. That is our objective to do that.

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 Randy Rochman,  West Family Investments - Analyst   [26]
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 Okay. Given the higher head grades and some of the productivity enhancement you put in, is it reasonable to assume that at all three mine locations we will see costs trending lower?

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 Gordon Babcock,  Sierra Metals Inc. - COO   [27]
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 Well, we are going to see cost trending lower once we get our production levels to where I want them to be in Bolivar; that will definitely be an end. In the case of Cusi, Cusi is a little bit of a different animal. Cusi's focus is going to be on the M&I and the resource allocation. We have to concentrate on where we can get the best bang for the buck. So in the case of Cusi we are going to try and maintain our current status, but we are really going to be focusing on where the added value comes in to the Company and that is going to be in that Santa Rosa de Lima area.

 In the case of Yauricocha, our production for this month, for instance, was probably about a good 3% above what we were anticipating. We closed the mill -- I think today we were at 85,000 tons produced with a really impressive revenue number. So that's more or less where we are going.

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 Randy Rochman,  West Family Investments - Analyst   [28]
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 Okay. Thank you very much. Great job, guys.

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Operator   [29]
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 Lee Cooperman, Omega Advisors.

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 Lee Cooperman,  Omega Advisors - Analyst   [30]
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 I'm going to try this. I don't know what your policy is on guidance, so forgive me if I ask you an inappropriate question. But if you look at exhibit page 8 where you have your five-year record, in 2012 you had adjusted EBITDA of about $84 million, which is about twice what you had this past year. Is it your expectation that given your plans and current outlook that you could get close to that record level of 2012?

 And then also, what is your CapEx plans for 2017 and what would that derive in the way of free cash flow?

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [31]
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 Thanks, Lee, for the question. I don't think it is a stretch at all to beat the 2012 EBITDA numbers. You could take a look at 2012 and just what the prices were at the time, what the throughput levels and what the costs were and compare that to what you are seeing at the end of the fourth quarter of 2016. That should give you a fairly good indication that I am confident, and I know we have expressed that already -- I know Mark has -- that 2012 should be achievable.

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 Lee Cooperman,  Omega Advisors - Analyst   [32]
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 Good. And then the CapEx that you are planning for the current year?

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [33]
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 CapEx for the current year is -- believe it is -- I think it's around $25 million.

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 Lee Cooperman,  Omega Advisors - Analyst   [34]
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 So if you take in those numbers together, the free cash flow will be quite enormous, which getting to Randy's question, theoretically unless you did a new acquisition or some major new unforeseen capital expenditure, you will be debt free and have excess cash at the end of this year.

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [35]
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 Well, I can't really speak to that because there are plans, but that's not privy for this Q4 conference call, Lee. I don't know, Alberto, if you want to add anything there on that?

------------------------------
 Alberto Arias,  Sierra Metals Inc. - Chairman   [36]
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 Lee, the math is the math, right? Given if you put together the guidance on EBITDA and the guidance on CapEx, you get those free cash flows. So the issue is what to do with those free cash flows and it's pretty obvious: either you put more money on the ground or you distribute it back in some way or another.

 We were last week in Chihuahua, Mexico, the whole management team, and we had a great discussion in terms of where we are as a company, in terms of the different exploration projects at all of our properties. And as you know, I have been involved with this company for the past 10 years and I can tell you that I have never been more excited than I am today in terms of what the prospects are.

 So if you connect what I said before of accelerating the daylight of values and the cash flows that are being generated, you could anticipate that perhaps we are going to accelerate some of this daylighting of critical projects. So I think that is where probably strategically we would like to go.

 Obviously, the objective is always to maximize value and so we have to decide, do we put additional emphasis on some exploration that are very close to our production centers or do we distribute back to the shareholders? So we will take that decision in the coming months.

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 Lee Cooperman,  Omega Advisors - Analyst   [37]
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 Good luck. You're doing a terrific job for us. We appreciate it.

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [38]
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 I just wanted to clarify as well, Lee, when I mentioned the $25 million CapEx, I was referring to sustaining CapEx.

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 Lee Cooperman,  Omega Advisors - Analyst   [39]
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 No, I understand.

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 Ed Guimaraes,  Sierra Metals Inc. - CFO   [40]
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 There is an additional $25 million which will be for what I consider growth and that's exploration drilling and so forth.

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 Lee Cooperman,  Omega Advisors - Analyst   [41]
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 As Alberto said, the math is the math. Thank you. Good luck and thanks for the job you're doing for us.

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Operator   [42]
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 And we have no one further in queue at this time. I will turn the call back over to the presenters for closing remarks.

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 Alberto Arias,  Sierra Metals Inc. - Chairman   [43]
------------------------------
 Well, maybe I should do the closing remarks. I wanted to thank everyone on the call for participating. I am here in Peru with the management team in Peru seeing the operations, but I just wanted to add that, as you have probably seen on the press release, that we had the resignation of Mark Brennan. And I just wanted to say that I want to thank him for all the hard work that he has put into this company. Mark is a person that I have worked with for the past approximately seven years, eight years since he was with Largo Resources.

 We actually -- the (inaudible) helped him finance his project, the vanadium Maracas mine in Brazil, which is the best quality vanadium mine in the world. And he did an excellent job after that. When he resigned out of Largo Resources, we quickly hired him to be part of Sierra Metals and over the past couple of years he did a great job. He left to pursue other interests and I think whatever he does he's probably going to do it well, because he is an excellent manager to work with.

 Thank you very much, Mark. And thank you all for participating on this call.

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 Mike McAllister,  Sierra Metals Inc. - VP, Corporate Development   [44]
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 Thank you, operator. Please end the call.

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Operator   [45]
------------------------------
 Certainly. This concludes today's conference.




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