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Hello, everyone, and a warm welcome to the Sierra Metals First Quarter 2022 Financial Results Call. My name is Stephanie, and I will be your operator today.[Operator Instructions]
I will now hand the floor over to Christiana Papadopoulos, Manager of Investor Relations at Sierra Metals. Christiana, over to you.
Thank you, and good morning, everyone. Welcome to Sierra's First Quarter 2022 Results Conference Call. On today's call, we are joined by Luis Marchese, our CEO; and Ed Guimaraes, our CFO. Today's call will be followed by a question-and-answer period. The accompanying presentation for today's call is available to download through the webcast or from the company's website at sierrametals.com.
Yesterday's press release, the financial statements and the management's discussion and analysis are also posted on the company's website.
I'd like to note that this earnings call contains forward-looking information that is based on the company's current expectations, estimates and beliefs. The forward-looking information is subject to a number of risks, uncertainties and other factors. Actual results could differ materially from our conclusions, forecasts or projections as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts or projections in the forward-looking information and the material factors or assumptions that are applied in drawing a conclusion or making a forecast or projected as -- reflected in the forward-looking information is contained in the company's annual information form, which is publicly available on SEDAR, EDGAR via Form 40-F or the company's website. Please note that our -- all dollar amounts mentioned on today's call are in U.S. dollars unless otherwise noted.
I'd now like to turn the call over to our CEO, Luis Marchese, for an overview of the quarter's highlights as well as a summary of what's ahead for the remainder of 2022, followed by Ed Guimaraes, our CFO, for financial highlights.
Thank you, Christiana, and good morning, everyone. Looking at Slide 4. During the first quarter, the company's operations continue to feel some impact from COVID related issues. In particular with agriculture, we had a significant reduction in mine and service presence, which prompted further delays in mine development and effective preparation of areas to be mined. This reflection, coupled with the expected reduced ore-grade due to limitations of accessing high-grade ore areas, met a 38% decrease in copper equivalent production during the quarter.
With continued effort to safeguard the health of our employees to operate safely, we have seen a significant improvement in consistent safety. Vaccination efforts continue with 100% of personnel are fully vaccinated with 3 doses. At Bolivar and Cusi, most personnel are vaccinated with at least 2 doses with plans to achieve full vaccination by the end of Q3 2022.
During the second quarter of the year, at Yauricocha, we expect to be able to make up for the lower production we experienced early in the year due to the personnel challenges and plan to operate a throughput level that will allow us to target our permitted capacity of 3,600 tonnes per day. The discovery of the new high-grade Fortuna zone will help boost our throughput levels as well as grades. The new zone is adjacent to the current mining operation located laterally between the Cachi Cachi and Esperanza zones and can be easily incorporated into the mine plant. We expect to access these ore volumes as early as Q3 2022.
At Bolivar, the full turnaround program continues and as we progress, we expect to see same improvement throughout the year. The first quarter was particularly difficult as we reached the [ far rim ] of the Bolivar West zone, our reduced ore zone within Mina de Fierro. With a 50% reduction in throughputs at a 64% decrease in copper equivalent [ production ]. With the backlog in drilling and mine development, we have experienced during the previous quarters and years, both throughputs and grades have suffered.
As we move into the full turnaround of operations, we were expecting that performance may worsen before we saw improvement. However, by the end of the first quarter, mining began at the Bolivar Northwest zone and is expected to provide ore for the next several quarters, which will support our plans for incremental production increases with improved grades at Bolivar and up to 5,000 tonnes per day by year end. While production increases at the mine, further investment is done at the mine to correct this drilling and development backlog, update the operating facilities and ancillary services, improved processes and upgrade housing facilities among several other initiatives.
And finally, we have seen a substantial improvement at our Cusi operations so far this year. Investments into the mine infrastructure last year, improved in dilation with the addition of our raised bore, alleviating high temperatures at depth where most operations are taking place. A 15% increase in throughput during the first quarter, coupled with the mining of slightly higher grades resulted in a 57% increase in silver equivalent production over the same period last year. Cusi's performance has no doubt helped support the consolidated production profile of the company during the quarter, especially as we continue our operational recovery at Bolivar.
We have anticipated the timeline of at least 2 quarters before our value operations saw an improvement, and we planned our guidance accordingly. We can report that despite a 38% decrease in consolidated copper equivalent production during the first quarter, we are on track to reach the company's first half production guidance of 34 to 39.5 million copper equivalent pounds. Looking ahead to 2022. Turning to Slide 5. At Yauricocha, the [ alternative infrastructure ] to mining lower levels of the mine where higher grade exists. We are focused on meeting marking on levels of throughput at 3,600 tonnes per day. Higher throughput along with mining the accessible ore from the new high grade Fortuna zone, positively impact our ability to reach yearly target. Our focus at Yauricocha remains the same. Finding new innovative ways to produce and deliver a full capacity within our current mining constraints, especially with a continued strength in metals prices. We expect that we will make up for reduced production during the early part of the first quarter at Yauricocha and are on track to meet our guidance of between 45 million and 49 million copper equivalent pounds.
While the new Fortuna zone is expected to provide an increase in ore grade for the next year, our exploration drilling campaign continues with a focus on additional high-value targets. Moreover, a drilling project of at least 1,500 additional meters is proposed for Fortuna to further analyze the orebody and potentially find correlations between its structural patterns and geophysical information that may lead to finding additional high-value targets. Infrastructure price also continued at Yauricocha, including work on the Yauricocha shaft, ventilation infrastructure and there required expansion of the tailings dam.
At Bolivar, we continue toward our plan to increase throughput on a quarterly basis with an end-of-year target of 5,000 tonnes per day. Improved production is anticipated in the second half of the year with the Bolivar Northwest zone supporting the bulk of production. Additionally, with the reduction of the development backlog at the mine and installation of a mill are already in our position. The objective is to get Bolivar to a point where we can achieve a rate of 6,000 tonnes per day in 2023. However, our strategy is fluid and the actual planning may change as priorities in our operational turnover shift.
For the time being, our focus is to continue our equipment replacement program to upgrade the classification of ore and improve the quality of research estimation. We continue with additional mine development to regain access to ore and provide mining [ tools we need ]. We continue with critical infrastructure projects, including ventilation, communication, [indiscernible], the integration plan connecting the mine to the plant, development grants and plant improvements.
In terms of operation, the company is focused on 2 areas: Bolivar East, an area of high grade zinc, silver and gold, where we expect to initiate a drilling campaign later this year and La Sidra, a high grade epithermal system of silver and gold, which can provide mineral value to support the Bolivar mine. With improved operating efficiencies, a ramp up to production and continued strength in metal prices, we are optimistic that we will see a stronger revenue contribution from Bolivar by the end of the year and into 2023.
At Cusi, the focus is on continued mine development and processing optimization. The target of throughput of 1,200 tonnes per day. Intense drilling continues in order to support the development of the Santa Rosa de Lima vein and Northeast trend. Additional projects include equipment replacement and tailings dam development.
We can report that the mine is on track to meet its production guidance between 1.75 million and 1.85 million silver equivalent ounces and that we expect that we will continue to provide a positive contribution towards the company's EBITDA.
And with that, I will now turn to Ed to review the first quarter financial highlights.
Thanks, Luis, and good morning, everyone. Turning to Slide 6. With the continued impact of COVID-19, our employees and operations during the early months of the year, we reported a 24% decrease to our consolidated throughput. And with a decline in all grades except for copper, this equated to a 38% decrease in consolidated copper equivalent production compared to the first quarter of 2021. Although strong metal prices continued, they were not able to fully offset the decline in production and revenue from metals payable which decreased 18% when compared to Q1 2021.
Adjusted EBITDA was $16 million, a 43% decrease resulting from lower revenues and lower gross margins when compared to Q1 2021. We reported a net income attributable to shareholders of $0.4 million or $0.00 per share and adjusted net income of $5.9 million or $0.04 per share. We finished the quarter with approximately $19.5 million in cash. Our 3-month revenue mix by metal continues to be led by copper, followed by silver and zinc at 41%, 28% and 19%, respectively. Lead and gold continued to contribute revenue in line with previous quarters at 7% and 5%, respectively.
Looking at the average realized prices compared to Q1 2021. We continue to see an improvement in copper driven by global infrastructure supply demands and the green energy revolution. Silver realized prices lagged slightly with a 9% decrease, while gold increased a modest 5%. Zinc and lead saw a strong increase of 36% and 15%, respectively.
Turning now to Slide 7. Compared to Q1 2021, a 48% increase in cash costs and a 41% increase in [ pounds ] cost were driven by a 37% decrease in copper equivalent payable pounds at Yauricocha. Given our inability to mine in higher-grade zones over the past few quarters, we have seen a downward trend in grades at Yauricocha which continued to result in increased costs when comparing Q1 2022 to last quarter. In addition to lower grades, throughput in the first quarter of 2022 was also impacted by poor performance of a mining contract.
Mines tonnes were below targets, and the mine has to resort to stockpiles, which also negatively impacted [ higher ] grades. Costs were also impacted to some extent by a nationwide transportation strike during the last week of March that resulted in an increase in unsold concentrate inventory at quarter end. Had this event not developed, cash costs would have been closer to $2 per pound.
At Bolivar, cash costs increased by 187% and all-in sustaining costs by 152% driven by a 56% decrease in copper equivalent payable pounds, which resulted in higher operating costs per tonne. When compared to Q4 2021, Bolivar's cash costs have improved by 14% and all-in sustaining costs by 15%. While tonnage decreased by 18%, higher grades this quarter, while still significantly lower compared to Q1 2021, compensated slightly and improved costs. Overall, this is a positive trend for our turnaround program as we are seeing improvements quarter-over-quarter.
At Cusi, as mentioned earlier, investments into the mine last year have provided for increased operating efficiencies so far this year. A 49% increase in silver equivalent payable ounces resulted in the decline to both cash costs and all-in sustaining costs by 28% and 34%, respectively, when compared to Q1 2021.
Looking at a comparison to Q4 2021. Cash costs increased 14% while throughput increased by 4% quarter-over-quarter. The cost of inputs also increased. Global inflation and the impact of the ongoing Russia-Ukraine conflict, the cost of fuel, explosives and drilling equipment have also increased. Silver equivalent payable ounces reported during the quarter are in line with the previous quarter. However, the increase in cash costs resulted in higher cash cost per unit. On the other hand, all-in sustaining costs decreased by 5% when compared to Q4 2021. Costs related to treatment and refining charges and general and administrative products as well as sustaining capital expenditures decreased, resulting in a lower all-in sustaining cost per ounce.
In conclusion, on Slide 8, the company reported $19.5 million in cash as of March 31, 2022. Our total debt at the end of the first quarter was $81.1 million with a net debt of $61.6 million. Cash and cash equivalents decreased during the quarter due to $3.9 million used in operating cash activities, $10.7 million used in investing activities and $0.9 million used in financing activities.
The company has further access to available credit lines with local banks as well as other short-term lines and prepayment facilities with its commercial offtakers. For the remainder of 2022, the company's focus would be on improved operating cash flows through improved production and cost reduction supported by a strong base metals price environment. Management will continue to review metal prices and retains the option to adjust the capital expenditures, should metal prices experience any dramatic changes within the year.
With that, I will now turn the call back to Christiana.
Thanks, Ed. That is the presentation we have for this call. We now like to open the call to questions [ from our participants ]. [indiscernible] Operator, you may open the lines.
[Operator Instructions] The first question comes from Mark Reichman from NOBLE Capital Markets.
I just had 2 questions. First is with the recovery in production over the balance of the year, do you still expect to meet the cash and all-in sustaining cost by mine guidance?
Mark, thanks for the question. Yes, we expect to still meet those guidance notes.
Yes, it's a little hard to tell because sometimes if you experienced some inflation in some of the particular line items, I was just thinking, well, I think Cusi was fine for the first quarter, but Bolivar and Yauricocha quite a bit higher than the guidance, and I thought, well, maybe there might be some stickiness to some of those costs, but it sounds like it's really just a function of production.
And then just the second question is if you could provide just a little more clarity. In your corporate presentation, you've got Slides 11 and 12 and 22 to talk about the Yauricocha production growth and brownfield opportunities. So if you could just maybe provide a little more clarity on Fortuna, kind of what that means in terms of a grade uplift and then kind of longer-term plans to bridge to the mining at depth after 2023 once you get the permit?
Mark, this is Luis. Yes. Fortuna, it's -- we've been [ down working ] all the areas above the 1120 level mark, which is our current mining restriction. So by doing that and doing some reinterpretation, we were successful in finding the Fortuna area, which is within the Cachi Cachi, Esperanza. There is a large open area there in the levels above 1120. So this is, I guess, a very good development because we found this high grade zone and we are, as we said in the presentation, looking into hopefully finding other areas like that.
Now what does this mean in terms of the mine production? As you are aware, over the years, Yauricocha has benefited from what has been called the of Cuerpos Chicos, which are small body -- smaller bodies with high grade. So this smaller body with high grade would usually mix with the lower grade larger orebodies, and that will give you the mix that makes Yauricocha solvent or have made Yauricocha profitable over the years.
What happens is that most of Cuerpos Chicos now are below the current grade, actually, almost all of them. So by finding Fortuna, above 1120, we are replacing the high grade that we would usually mine from the Cuerpos Chicos below the mine grade. So this is very good news. The other very good news is that it's at the same pricing level, which is where we have our main construction panel. So it's very easy to access. We've got all the facilities there, we've got ventilation with the power so we are now developing and we can put it into production in a few months. But this is very good news as we've highlighted in our presentation.
Our next question comes from Heiko Ihle from Wainwright & Co.
It's Heiko from H.C. Wainwright. I saw some news with the protest and related food energy costs in [ core ], just given your commodity price spikes and then obviously, inflation is an issue we have just about anywhere, it comes up in every single earnings call I've been on so far. What are you seeing? And what are you doing to mostly or if at all mitigate it as much as you can? And also, how much have your fuel costs actually gone up?
Yes. We actually [ take concern ] cycle as well as the exchange rate. Now the exchange rate when we're doing the budgeting process was slightly about [ 4 ] per dollar and now it's closer to [ $3.80 ] and around 65% of our costs are [ in salt ]. So we are carrying a bit of a spike from exchange rate. And we are also having on fuel, but we are not so fuel intensive as much as power intensive. And power has remained very fairly similar. And so that has been affecting us so much. We are looking at explosives and other items that we are price takers, to a large extent something that we can manage. But if the market is moving up, there is not much we can do a lot. But certainly, we are time to improve the effectiveness of the use of those [ Cusi loans ].
Earlier on this call, you talked about the expiration of Bolivar East. And obviously, high-grade zinc is very good in this market. How much are you actually spending on exploring this area? And I guess that's an impossible question to answer. But how much material do you think might be located in this area, please?
We are happy as well. We haven't guided on what we can expect Heiko, but certainly, we are just starting to do that now -- that really. One is called [ La Fila ] but that has been in the works for some time. But it wasn't comparable to what we could get from -- in terms of volume and grade on copper, but now it's become quite relevant. So we are targeting that. And the other is the Bolivar East, which was before called the Manuelita, actually because it's [ a varying ] tight deposit. How much we're going to spend? So far, I think we have close to $1 million there, depending on how good we guess, we might increase it and try to bring it into production quite soon. We will have to budget with the processing plant together with our copper product.
The next question comes from Lee Cooperman at Omega Family Office.
I hope everybody is safe and healthy. So maybe this is directed to Ed Guimaraes. Maybe you could help us tie this together. Give us a range that you comfortable with EBITDA for this year, and your range of CapEx and therefore, where we could look towards free cash flow. That would be my first question.
Second, and I think we're a much better company that $0.78 stock price, and I think that the price of stock kind of gives us a cheapened image. Have we thought about the virtues of the reverse split as a way of elevating the stock price and maybe getting us out of the category of a cigar butt?
And finally, based upon your budgets, last year, you went to a dividend with the hope of the dividend being sustainable. I know this is determined by the Board rather than management. But do you think you'll be in a position to pay a dividend at the end of this year based upon your budgets if things go along with your expected lines? Thank you and wish you good luck.
Thanks, Lee. Thanks for those questions. So in terms of EBITDA, we're maintaining our guidance of between $90 million and $105 million. In terms of Q1 EBITDA, there was a be a little bit better than expected. And so we're definitely tracking [ as well as other ] things. CapEx guidance was $71 million. Now depending on really the turnaround at Bolivar, we will have the option to reduce that. I believe we'll probably come under CapEx the $71 million, probably somewhere between $50 million to $60 million. Again, wanting to ensure that we have sufficient liquidity to meet any production shortfalls that we may have. We're still not out of the woods yet with respect to the turnaround, but we hope to be over the next couple of months.
In terms of NAV, that there's no question, our share price has gotten hammered. And more so even though if you look at the whole mining space, I think it's fair to say that mining companies globally have seen depressed share prices. But Sierra has definitely suffered more -- most than the rest. So I don't really want to speculate in terms of what an NAV is. I would -- again, I believe our analysts have done a really good job. And you can -- I encourage everyone on the call to really review the analysts' coverage research reports where they do provide the target and providing and NAV and target share price. And in terms of...
And I asked you that -- to your reverse split the dividend intentions.
Yes. Yes. No, I'll get to that now. I just wanted to mention that as well. In terms of the reverse split, yes, that is something. It is a little bit of -- it's really from an arithmetic perspective. There's really not a lot going on there, but it is something we can look at. It's more cosmetic than anything else, but it is something I'm happy to speak to you more about that in terms of the best way to go above that and really the advantages of doing that. But it is something that I know we have discussed in the past and it's on my list.
In terms of the dividend, the dividend really will depend on the turnaround on the strength of the metal prices. It's not a big dividend. But given where we are now, I think it's too early to make that call. We'll be in a much better position when we get through close to, let's say, August, September to make that call.
Remind me about your debt. You have a quarterly amortization of debt?
That's correct, Lee. It's $6.25 million per quarter, so $25 million a year. We're in the process of refinancing the $25 million for 2022. We have very good relations with our Peruvian banks. And those discussions are going very well, and we hope to make an announcement soon, but they've been extremely supportive.
[Operator Instructions] Next question comes from Jim Young at Midwest (sic) [ West Family ] Investments.
Couple of questions here. Number 1 is could you just give us and update as to what the status is with Cusi, please? Because my impression is that the management team was focused on investing in this asset.
Thanks, Jim. Yes. Cusi, we are in a process for Cusi. But as you know, Cusi really is -- it represents 10% of our revenues. It's not our focus, our primary focus right now. Cusi, the investment that we made last year on infrastructure really paid off. You can see that in the Q1 results. There -- from our perspective, there would have to be a buyer with good financial wherewithal, willing to pay cash, willing to continue to invest in Cusi because I think it does need investments yearly, given the epithermal [ pinch ] as well, [ bank ] characteristics. And we'd also be looking for some sort of a royalty. So all these things need to play out. Whether we're going to -- even though we are in a process, again, it's really not our priority. We're certainly happy to retain Cusi, especially with the financial results that we're seeing this year, and we should be able to provide an update during our next conference call. The process should be done by then, for sure.
Okay. And secondly, regarding your EBITDA. I think, Ed, you said that the first quarter EBITDA of $15 million was a little bit ahead of your expectations. Is that correct?
Yes. Yes. Certainly, metal price has helped as well, with spot metal prices.
Okay. So then could you please give us the quarterly progression for the remainder of 2022 for the June quarter, September and December that would get us to the low end of the $90 million guidance range?
I think you should see Q2 being somewhat in line with Q1. And then you're really going to see the significant uptick in the second half, Jim. So we're really still sticking to -- if you look at the guidance broken by first half and second half, I believe we'll be in the -- in those ranges for sure.
Okay. Well, if you're looking for a similar level of EBITDA for the second quarter, that suggests that the third and fourth quarter shows significant ramp-ups. I'm not quite clear as to what's going to drive the significant ramp-up in the third quarter and the fourth quarter. So can you help us understand what's going to drive that improvement, please?
It's really a scale. It's really a scale. Bolivar being at the 5,000 working up to the 6,000 tonnes per day. That's going to be significant.
The next question comes from Chen Lin at Lin Asset Management.
Most of my questions have been answered. I'm just curious, one of the issues for Peru is the water level. How challenging do you see to get the permit to mine below the water map? What level and how long that would take?
Thank you, Chen. The issue that initially limited the permitting for Yauricocha was the fact that there is underground water at the mine site. So in order to reach into those levels, we've got to do a full environmental impact statement. And that process is a fairly robust and complicated and lengthy process, which can take up to 3 years as history has told. So we started that process last year, and we expect that process to finish late into next year, and then we would apply for the mining permit and that could allow us to go into these new areas. We don't foresee any major issues or I think in those periods because Yauricocha has been mining wet areas for quite a number of years. So we just have to follow the process and keep up with the communities and with the government on this.
Okay. Great. And then for the -- congratulations for your recent high-grade discovery in underground. So how -- do you have the size relatively -- size of that discovery? Or is -- right now, it's too early to tell?
It's at the early stage -- thank you for your congratulations. Yes, it is too early. But as I said, we believe that it's more about the grade than the tonnage. And that it's going to help us replace this high grade Cuerpos Chicos that we've be mining over the years, which are below [ the grade point ]. So it's going to give us some relevant tonnage, but more particularly the higher grade. And I don't want to understate that we are still looking in that area. So we are still hopeful that we might be able to find some other similar orebodies, but nature will tell.
We have a follow-up question from Lee Cooperman at Omega Family Office.
I was just curious, any insight into latest moves in the government of Peru? Are they company-friendly, industry-friendly, industry negative? What's going on in terms of the leadership of the country?
That's a difficult question for me because the government have shown different faces of how they deal with constructive industry. On one hand, the state that they are supportive and on the other hand, that has not necessarily been the case. So it's a moving target. Our concern is more now with the experience of the people that is now in the Ministry [ of Energy ] and mines in particularly, and other ministries. But it's a very technical entities. Our concern is that the new appointees don't have that acquired experience. But they've been only a few months on the job. So we'll see how it works. But that is a difficult question to answer for me.
You have an easy question you want me to ask you? Good luck. Thank you for your response. Appreciate it.
We have no further questions, so I'll hand it back for any final remarks.
Thank you, operator. That concludes today's call. On behalf of the management team, I'd like to thank all participants for joining us today. A replay of the webcast and all materials can be found on our website at sierrametals.com. If there are any further questions or concerns, you may reach out to us after today's call. Our contact information can be found in today's presentation as well as on the company's website. Thank you, operator. Please conclude [ this call ].
This concludes the Sierra Metals First Quarter 2022 Financial Results Call. Thank you for joining us. You may now disconnect your lines.