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Good day. My name is Jack, and I'll be your conference operator today. At this time, I would like to welcome everyone to Sierra Metals' Fourth Quarter and Year-end 2017 Financial Results. [Operator Instructions] Thank you. Mike McAllister, VP of Corporate Development, you may begin your conference.
Thank you, operator. And good morning, everyone. Welcome to Sierra's Year-end and Q4 2017 Results Conference Call. On today's call, we are joined by Igor Gonzáles, President and CEO; 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 the company's website at www.sierrametals.com.Last Thursday's press release, the financial statements, the management discussion and analysis, as well as the Annual Information Form are also posted on the company's website.Turning to Slide 3. Before I turn the call over to Igor, I would like to indicate that this morning's call contains forward-looking information that is based on the company's current expectations, estimates and beliefs. This forward-looking information is subject to a number of risks, uncertainties and other factors. Also, 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 projection in this forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making forecast or projection as reflected in the forward-looking information is contained in the company's Annual Information Form, which is publicly available on SEDAR or EDGAR via the 40-F or on the company's website. Please note that all dollar amounts mentioned on today's call are in U.S. dollars unless otherwise noted. I would now like to turn the call over to Igor Gonzáles, President and CEO of Sierra Metals.
Thank you, Mike. And good morning, everyone. I would like to begin with an overview of 2017 results for Sierra Metals. I will also discuss the operational and exploration highlights for the quarter. Overall, as management, we're encouraged by the continued progress and achievements seen in the financial, operational and exploration results at Sierra in 2017. We're also optimistic that 2018 should be a strong operational and financial performance at Yauricocha in Peru and for our Mexican operations as the company continues to realize the benefits of the operational improvement program.Following my summary highlights, Gordon Babcock will take us through the operational and exploration highlights, and then Ed Guimaraes will take us through the 2017 year-end and fourth quarter financial highlights. And then we'll open the call to questions.Turning to Slide 4. In 2017 and moving into 2018, the company really focused on improving operating performance through the production of higher-value ore. We're strengthening our balance sheet and financial liquidity and continue to increase our mineral reserves and resources at each of our mines. In 2017, we continued to maintain the improvement in revenue and adjusted EBITDA seen during the first 3 quarters of 2017. The company achieved significant improvements in 2017 versus 2016 with a 43% increase in revenue to $205 million and a 93% increase in adjusted EBITDA to $81 million while maintaining strong liquidity with $23.9 million in cash and cash equivalents and $90 million of available credit facility.Moving to Slide 5. During 2017, the company processed 1.9 million tonnes, which represented a 2% increase (sic) [ decrease ] from 2016. The company saw a 26% increase in silver equivalent production of 14.9 million ounces and a 1% decrease in copper equivalent production of 90.4 million pounds and a 9% decrease in zinc equivalent production of 193.2 million pounds versus 2016 when using realized prices.The temporary decline in production in Mexico was mainly due to the implementation of a turnaround plan to improve operational performance and produce profitable silver ounces at Cusi while improving efficiency at our Bolivar copper mine. Lower production in Mexico is partially offset by a year-over-year increase of 4% in zinc equivalent production and 14% increase in throughput at Yauricocha. While Yauricocha experienced record throughput, higher copper and zinc grades and higher recoveries of all metals except gold, the decrease in metal production at Bolivar was due to lower throughput, head grades and recoveries for all metals except gold and lower throughput, head grades and low recoveries for all metals except silver at Cusi.Moving to Slide #6. Similar to the successful program completed at Yauricocha in Peru, we have engaged in an operational turnaround program in Mexico in August of 2017 to modernize operations, improve production, lower cost and upgrade management. Production improvements have already been noted at the Mexican operations with a 2% increase in throughput at Bolivar and 23% increase in throughput at Cusi. These improvements are expected to continue into the first half of 2018 and beyond.Improvements include new equipment purchases, which allows more minable stopes to be incorporated in the mine plan at Bolivar, a change in focus from existing narrow vein structures currently being mined in Cusi, to the Santa Rosa de Lima zone which has larger widths and higher grades as well as continuing the successful improvement made to the metallurgical recoveries at both mines during 2017.Continuing on to Slide 7. Sierra Metals continued to have good success in expanding our mineral reserves and resources and extending our mine life while continuing to find new, exciting discoveries through our brownfield exploration programs. On November 10, 2017, the company press released that it has filed a NI 43-101 Technical Report updating the mineral reserves and resources at the Yauricocha Mine, which was prepared by SRK Consulting (U.S.) and highlights of the report include: mineral reserve estimate increased 134% compared to prior reserve estimate with significant increases to the total proven and probable contained metals over the previous estimate; mineral resources increased 68% from the previous mineral resource estimate, again, with a significant increase in measured and indicated contained metals from the previous estimate; inferred mineral resources increased 77% from previous inferred resource estimate, and inferred contained metals also increased significantly over the previous estimate.Subsequent to the end of 2017, on February 12, 2018, the company filed an NI 43-101 Technical Report updating the mineral resources at the Cusi Mine, which was prepared again by SRK Consulting (U.S.) Inc. Highlights from the report include measured and indicated resources increased by 129% from the previous resource estimate; inferred mineral resources increased 30% from previous resource estimate. An update of mineral resource estimate is also expected for the Bolivar Mine in early April.Continuing to Slide 8. Brownfield exploration success continued in 2017 at all mines. Gordon will provide further details in his exploration update. However, highlights of the brownfield programs include the following. At Yauricocha, the company continued to have success at the Esperanza, Cuye and Mascota zones. At Bolivar, the company has also reported continued success at the Bolivar West and Bolivar Northwest zones. Finally, at Cusi, the company has and continues to have success at the Santa Rosa de Lima zone.In 2018, the company continued with its aggressive exploration program and definition drilling program at all 3 mines, and management expects that the company will continue to provide further extension to existing zones such as Esperanza and Cuye-Mascota at the Yauricocha Mine, Bolivar West and Bolivar Northwest at the Bolivar Mine, and Santa Rosa de Lima at the Cusi Mine; further, new discovery potential and expected mineral resource growth at all 3 mines. Additionally, we have -- we're reporting our technical teams to meet the upcoming challenges of putting our new brownfield findings into production in the near future.With that, I will now turn now the call over to Gordon Babcock, our Chief Operating Officer, for the operations and exploration update.
Thanks, Igor. Turning now to Slide #9. I'm going to detail the operational highlights. In 2017, Sierra processed a total of 1.9 million tonnes, which represented a 2% decrease year-over-year compared to 2016. The company produced 14.9 million silver equivalent ounces, representing a 26% increase or 90.4 million copper equivalent pounds, representing a 1% decrease, or 193.2 million zinc equivalent pounds, representing a 9% decrease compared to 2016. This was partially the result of differences in realized mineral prices during both periods.On normalizing the metal pricing used in equivalent metal calculations, there was a decrease in metal production, which was due to lower production in Mexico, which was partially offset by record throughput in Peru. The company had a strong year at Yauricocha where a record throughput led to an increase in production and was driven primarily by high copper and zinc head grades and higher recoveries of all metals, except for gold.Bolivar slightly lower throughput in 2017, which was primarily attributable to reduced equipment availability. However, there's a 2% increase in tonnage at Bolivar in Q4 as a result of the new equipment purchases. And these permitted mining more stopes and to incorporating in mine life.At Cusi, the company saw a significant reduction in throughput and recoveries in 2017 as the company continued to focus and develop the higher-grade, larger-width zones at Santa Rosa de Lima as well as targeting other zones, such as Promontorio, Azucarera, other areas and such. However, the company did realize a 24% increase in throughput in the fourth quarter as the company ramps up production from Santa Rosa de Lima as well as these other areas I just mentioned. And we expect to see existing mill capacity to come to 650 tonnes per day in April of 2018.The company continues to benefit from the operational improvements program being completed in Mexico. The results of the program will be coming more apparent in Bolivar in the first half of 2018 at Cusi. The company remains focused on completing access, development and production of the Santa Rosa de Lima zone, which has much wider structures and higher silver grades than the narrow veins previously mined closer to surface as well as these other areas I mentioned, the Promontorio, Azucarera and the San Nicolas. The company's reached the Santa Rosa de Lima structure as well that knowns something about the property. All of these structures are parallel structures so we can benefit from that development. So we have the development of 3 drifts, and we're working to complete the development of 3 more drifts to mine this area. The company is currently campaigning development ore from Santa Rosa de Lima structure, which contains, as mentioned before, improved head grades to the mill at Cusi. Company is gradually increasing tonnage from the Santa Rosa de Lima zone until the mill will be operating in its capacity of 650 tonnes per day using primarily ore from the Santa Rosa de Lima zone.Focusing now on the production at each of the mines. At Yauricocha, the company had the highest planned throughput in the plant's history of 1,023,491 tonnes processed, which represents a 14% increase compared to 2016. Zinc equivalent production in 2017 was 146.816 million pounds, representing a 4% increase over 2016. Sierra saw increases in the production of copper, 87%, and zinc, 37%, at Yauricocha in 2017 versus 2016 with decreases in production of silver, [ 10%; ] lead, 23%; and gold, 38%.At Bolivar, the company had plant throughput of 887 point -- 887 -- 237 tonnes, which represents a 7% decrease compared to 2016. Lower throughput and recoveries of all metals, except for gold, along with the lower head grades encountered resulted in a 16% decrease in copper equivalent production compared to 2016. Copper production decreased by 12% year-over-year at Bolivar along with 18% lower silver production and 8% lower gold production.At Cusi, the company processed a total of 88,011 tonnes, which represents a 53% decrease over year 2016. Lower head grades and recoveries for all metals except zinc and silver contributed to the 51% decrease in silver equivalent production. Silver production decreased 54%. Gold production decreased 56%. Lead production decreased 57%. And zinc production decreased 48% compared to 2016.Let's turn to Slide 10. The company anticipates that 2018 silver equivalent production will range from 13.9 million to 16.2 million ounces silver. Copper equivalent production will range from 89.2 million to 104 million pounds. And zinc equivalent production will range from 183.8 million to 214.5 million pounds. Copper is expected to see the largest growth in 2018, followed by silver and gold with zinc remaining relatively flat and lead decreasing. This is a result -- the mine plan is being focused on areas such as Esperanza and Yauricocha, which have demonstrated increased copper and Santa Rosa de Lima zone and Cusi with higher silver grades and wider widths. The forecasted range is a result of increased throughput, production, higher recoveries at Bolivar, Cusi. And Yauricocha will see consistently strong, albeit flat levels of throughput in 2018 due to a refurbishment plan of the lower part of the Mascota shaft in Q3 2018. The company also needs to drive a drift from the 1120 level to the bottom of the shaft in Mascota prior to completing the refurbishment plan. So we're anticipating that these taps will -- could cause a slowdown in production rates during that time period.So please turn to Slide 11. I'd like to take a few moments to discuss a few other growth and productivity initiatives not previously mentioned. The company's focus this year is to initiate several preliminary scoping/PEA studies for all 3 mines. The intent to production is optimization at all sites. These PEAs will be followed by prefeas and feasibility studies to finalize future operational production increases and/or to maintain operations at a status quo. In addition to these work programs, the company will also focus on including reviews of plant optimization strategies, mine shaft infrastructure improvements and review of all 3 processing plant efficiencies. Also, during 2018 at the Yauricocha Mine, the final infrastructure for the Yauricocha tunnel will be completed. This will enable the mine to have a direct run to the mill, which will result in faster turnaround in the cycle time of the trolley locomotives. In the long run, this will allow for more capacity to handle larger volumes of waste and ore from the 720 level to the plant. This tunnel also provides another ventilation inlet to the mine, and that will benefit our current ventilation system. The tunnel has been driven to the limestone host area of the mine and is in more favorable ground conditions as compared to the Klepetko Tunnel.Turning now please to Slide 12. The 2018 work program also includes deepening of the Yauricocha shaft to the 1270 level and to cut a loading pocket below the 1170 level. And that'll be at the 1200 level. And this pocket will handle ore and waste from 2 streams in a multifeed raise configuration. We're basically going to have 3 raises that are going to feed down to a central conveyor system, which will feed the loading pockets. Skip size will be 12x skips. We'll have an independent discharge point for both locomotive track haulage as well as trackless haulage equipment. And we're going to facilitate any necessities for breaking large rocks with a mobile rock-breaker. And this facility should be complete in 2020.The company's emphasis at Yauricocha will be to continue on the production of higher-value ore, including an estimated 450,000 tonnes of direct feed from the Esperanza zone during 2018. The effort is expected to continue to improve the company's operating margins and cash flow generation within a recently improved but historically softer metals price environment.Turning to Bolivar. Improvements planned for 2018 are the installation of a newly refurbished mill at Bolivar site. This will provide the company with flexibility in terms of grind size, tonnage and recoveries. And the company expects to reach a throughput of 3,000 tonnes per day at Bolivar in Q1 2018 but to grow that to 3,500 tonnes per day in the second half of 2018.As well at Cusi, improvements are planned for 2018 with the installation of another new refurbished mill, which will be installed and production to climb to 1,200 tonnes per day starting in January 2019.Please turn to Slide 13, please. Exploration remains a key aspect at all 3 of the mines and during Q4 of 2017. The company drilled a grand total of 204 holes totaling 9,424 meters at Yauricocha. Exploration drilling accounted for 10 holes at 4,181 meters at various zones, including Cuye, Contacto Sur Medio, Huamanrripa, Escondida West to explore and verify geological anomalies. So basically, we're talking about the area of Cachi Cachi, the central area of the mine in Cuye as well as the Central Mine zone. Definition drilling comprised of 54 holes at 5,778 meters at Antacaca, Esperanza, Esperanza North, Antacaca Sur, Mascota, Catas, Karlita to define and determine the continuity of orebodies.On December 19, 2017, the company announced drilling results demonstrating a new limestone replacement mineralization zone at the Cuye zone. This extension is located within the central portion of the Yauricocha Mine. This represents the existence of high-grade polymetallic mineralization at the northern extension of the Cuye zone and suggests the possibility of even further mineralization at depth, specifically from copper sulphide orebodies at significant widths.Please turn to Slide 14. On February 7, 2018, the company confirmed the extension of wide, high-grade structures at Cuye. We encountered copper sulphide mineralization. These areas have been defined containing intersections of more than 99 meters which remain open at depth. One hole in particular, hole #13, has intercepted over 120 meters of continued high-grade polymetallic and copper mineralization and included a 21-meter intercept of polymetallic mineralization followed by a 99-meter intersection of copper sulphide.At Bolivar, during Q4 2017, 10,402 meters were drilled from surface as well as diamond drilling within the mine. Diamond drilling from surface totaled 8,636 meters in Bolivar Northwest area, which enabled the exploration of the extension of the orebody to the north and to the west. At Cusi, the company drilled 846 meters in Q4 2017 inside the mines to verify continuity of the orebodies and support development work on various veins and 153 meters on surface.With that, I'll now turn the call over to Ed Guimaraes, our Chief Financial Officer, for a financial overview.
Thanks, Gord. Turning now to Slide 15. The company had another strong quarter in its operational and financial results, aided by stable metal prices and continued production increases at the Yauricocha Mine. During Q4 2017, the company earned revenues of $51.2 million, which was $0.3 million higher than Q3 2017, as well as adjusted EBITDA of $19.2 million and operating cash flows before movements in working capital of $17.8 million. During the fourth quarter, the company maintained the significant improvements in revenue and adjusted EBITDA realized during the previous quarters in 2017 when compared to 2016. There were slight increases to the all-in sustaining costs due to increased sustaining capital expenditures, which included a substantial amount of infill drilling, mine development, equipment purchases, ventilation and plant improvements. The increase was also a result of temporary increases to the mining costs partially due to timing as well as slight increases related to infill drilling and mine development costs that will be utilized within 1 year and thus are included in operating costs.The company earned annual revenues of $205.1 million in 2017, which represents a 43% increase compared to 2016. Higher revenues were primarily attributable to the 14% increase in throughput as well as the increase in copper and zinc head grades and higher recoveries for all metals except gold at Yauricocha. And the increases in the prices of zinc of 35%, copper of 26% and lead of 26% in 2017 compared to 2016. This was partially offset by a 7% decrease in throughput and lower head grades and recoveries for all metals except gold at Bolivar and a 53% decrease in throughput and lower head grades for all metals except gold and lower recoveries of all metals except zinc at Cusi.Annual adjusted EBITDA of $81 million in 2017 increased 93% compared to $41.9 million in 2016. The increase in adjusted EBITDA was primarily due to the $56.9 million increase in revenues at Yauricocha. Cash flow generated from operations before movements in working capital for 2017 of $79.8 million increased compared to $44.3 million in 2016. The increase in operating cash flow is mainly the result of higher revenues generated and higher gross margins realized.I would now like to review our cash flows in more detail. I have summarized the changes in cash during 2017 on Slide 16. During 2017, our operating cash flows were $54.5 million. We spent $51.6 million on capital expenditures in Mexico and Peru, paid $47.5 million in principal repayments and interest on our credit facilities in Peru and Mexico and paid dividends to noncontrolling shareholders of $3.4 million. We also had proceeds from the issuance of loans and credit facilities of $29.8 million. These items decreased our cash balance from $42.1 million as at December 31, 2016, to $23.9 million as at December 31, 2017.Along with the strong operational results realized during the quarter, the company's strong cash flow generation allows the company to be self-sufficient and fund its brownfield exploration and capital projects as well as reduce debt levels. The company has access to various lines of credit of $15 million. And when combined with the company's $23.9 million of cash and cash equivalents as at December 31, 2017, provide available liquidity of $38.9 million. The company's objective of reducing debt levels equal to or less than 1x EBITDA was reached during 2017 as 2017 adjusted EBITDA of $81 million was greater than the $65 million of debt on the books at year-end.The company's operating cash flow generation during 2017 provided the ability to perform extensive infill, definition and exploration drill campaigns at all 3 of our mines, which resulted in significant increases to the company's consolidated reserves and resources. There were also significant capital expenditures made during 2017 for equipment purchases, mine development, plant improvements and infrastructure work on mine shafts and tunnels.The company's focus for 2018 remains on allocating operating cash flows towards efficient growth capital in order to provide the infrastructure as well as complete scoping studies necessary to monetize these reserves and resource increases as quickly as possible.Slide 18 also provides details on the company's 2018 capital expenditure guidance of $49 million, including $13 million of sustaining capital requirements and $36 million of efficient growth capital expenditures and further brownfield exploration drilling. The 2018 guidance includes several capital investments for property, plant and equipment; underground development; exploration and projects including tunnel completion, shaft deepening and rehabilitation at the Yauricocha Mine; and improvements to existing tailings deposition facilities at the Bolivar and Cusi mines.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. The Yauricocha Mine plans to process up to 1 million tonnes at an average of 3,000 tonnes per day in 2018. Cash costs per zinc equivalent pounds sold are expected to be $0.62 per pound, and all-in sustaining costs per zinc equivalent pounds sold of $0.78 per pound. Sustaining CapEx will be approximately $8.4 million, and growth CapEx will be approximately $19.3 million for Yauricocha.The Bolivar Mine plans to process up to 1.2 million tonnes with initial production at an average of 3,000 tonnes per day with an objective to reach an average of 3,500 tonnes per day by the second half of 2018. Cash costs per copper equivalent pounds sold are expected to be $1.60 per pound, and all-in sustaining costs per copper equivalent pounds sold of $1.96 per pound. Sustaining CapEx will be approximately $2.8 million, and growth CapEx will be approximately $9 million for Bolivar.The Cusi Mine plans to process approximately 200,000 tonnes, ramping up from an average of 300 tonnes per day with an objective to reach an average of 650 tonnes per day in the second quarter of 2018. Cash costs per silver equivalent ounce sold are expected to be $11.12 per ounce and all-in sustaining costs per silver equivalent ounce sold of $14.28 per ounce. Sustaining CapEx will be approximately $1.9 million, and growth CapEx will be approximately $7.4 million for Cusi.The company has principal payment obligations on its loans and credit facilities of approximately $29 million to be paid in 2018, $8 million to be paid in 2019 and $29 million to be paid in 2020. The company expects to be able to fund its short-term capital and debt commitments through the continued generation of operating cash flow.With that, I will now turn the call back to Mike.
Thanks, Ed. That ends the presentation portion of this call. We'd now like to open the call to questions from participants. Operator, would you please open the lines?
[Operator Instructions] Your first question comes from the line of Mark Reichman with NOBLE Capital Markets.
Yauricocha is expected to operate at flat levels in 2018 due to the rehabilitation of the Mascota shaft. But I was just wondering, are there any opportunities to make up for some of that in the prior and post quarters? I mean, can you run a little harder before you start to rehabilitate that shaft or just trying to get an idea of whether there might be any upside there?
Thanks for the question, Mark. Yes, absolutely. The plan is, we're going to push our production levels to maximize our opportunity. And then when we're on our rehabilitation program, we'll have that in the bank. Yes, so that's the plan.
Okay. So you could do a little better than just flat levels versus 2017?
Yes. Yes. We're definitely going to be pushing the crews to do that.
Okay. And then during the recent investor...
Listen, right now our processing plant can handle over 4,000 tonnes a day, so we can push our production in the mine to feed the plant.
Well, and that's what I was trying to get at...
So in the processing side, we're in good shape.
I remembered from the Investor Day, there was a little bit of -- there was kind of a range there. And so you can operate up to 4,000 tonnes per day, you think. So I mean, how much in terms of in the period prior to the second quarter when you're rehabilitating that shaft, what would you say would be the maximum you would be running at? Would 4,000 be a good number? Or would you be...
Well, remember that Yauricocha's driven by development. So as long as the stopes are in good shape and we're ready to pull them, we can move forward in that point, but we have to prepare development to maximize our production. So in the case of the mine, we'll be shooting for better than the 3,000 tonne a day mark. There's certain limitations because you have to move quite a bit of ways to get that ore out. But we're going to be pushing our productivity as best we can with what we have available so that the production runs are going to come up from -- it's areas like Esperanza and Catas as well as a portion of -- a good portion coming from the area of Cachi Cachi. And our focus is to try and get the best NSR we can out of those areas.
Okay. And then also during the recent Investor Day, Slide 59 had discussed integrating Yauricocha and unlocking the potential for the Central Mine zone. I was wondering if you could just revisit that a bit and then discuss how the different opportunities at Yauricocha, Bolivar and then Cusi may rank in terms of priority. And there has been a lot of interest around Cuye and that Chonta fault, which I think you had mentioned that you might be doing some geophysical studies at a later point.
Sure. Sure. In the case of the Yauricocha zone, what we're seeing is the Central Mine zone seems to be merging with the area of Mascota, Cuye as well as Esperanza at depth. So this whole zone seems to be plunging off to the north. And as we go forward with our development plans in the 1070 level, we've got a tunnel that's going to be driven from the last portion of the Esperanza zone on that 1070 level, and we're headed to Cachi Cachi. We already have these intercepts during a program that we did last year from the 720 level. We have intercepts on the 1070 level and below the 1070 level between the Cachi Cachi zone and the Esperanza zone. So in my mind, what's happening is this whole zone, like this is a complete mineralized zone. There's a lot of good intersections and really good expressions on the geophysical anomalies that we've seen. So in my opinion, I think the whole structure is going to be plunging off to depth, and these zones are going to be merging together. And we have extremely high-grade polymetallic intersections that we didn't have before in the Cuye zone as well as the copper-bearing zone. So the main section of the mine, I believe, is just going to be merging together. And basically, you know that the Central Mine zone isn't 4 separate zones at all. It's just structured like that for nomenclature purposes, but it's really one mineralized zone. And then on the surface work that we did last year, the geophysical program that we completed, that geophysical program delineated really high grade -- or high potential conductivity and resistivity anomalies in the areas to the west of the Yauricocha fault. And one of these areas is the Chonta fault. And as you -- as I mentioned in the Investor Day, that Chonta fault is another potential Yauricocha Mine in our mind when we're talking some potential moves to really add value to the company. One of the programs that we have this year late April, early May will be drilling on the Chonta fault zone the areas of the mine where we have permits in place. So that's the plan.
Your next question comes from the line of Jake Sekelsky with Roth Capital Partners.
Can you just give some additional color on the ball mill you purchased for Bolivar, what you paid for it, how you plan on getting it to site, and when it should be down there?
Okay. We've actually purchased 2 ball mills, both came from the Noranda, Xstrata operations from Brunswick Mining and Smelting area in Bathurst. We have a 12.5 x 16 ball mill that we purchased at that site. And we have -- again, that came with 2 spare motors, a whole series of liners, chutes and so on. And we had an 8 x 14 ball mill as well that came from the same area. And the total purchase by the time we get it transported to site, I think we're going to be in the order of around $1 million here. The actual purchase was much less. And we're in the process right now of delivering some other components to Mexico, partially to Malpaso to the Cuye site and to Bolivar.
Perfect. Okay. And then just switching over to Cusi. We saw a strong increase in silver and lead recoveries at the mine in the fourth quarter. I mean, was this simply a function of higher-grade ore or are these levels that we should expect to see going forward there?
Actually, it was a result of a program that Augusto Chung had incorporated with the professionals at site. There was no twofer and the twofer team. So it was dividing the ore zones that we were treating into separate basically processing plants for each type of ore. Before all the ore was treated with one plant with certain reagents and so on for that one plant. So we didn't have any flexibility at all. And now we have a different plan to reach the ore zones. So we have areas like Promontorio, which are a little different from Santa Rosa, which are areas like San Nicolas and areas in Santa Edwiges that were different. So now she has 4 or 5 different well, let's call them recipes for treating the ore. And now we're sustainable.
I guess the short answer for your question is, yes, we expect similar recoveries at the first quarter of -- we are obtaining similar recoveries year-to-date.
Got it. Got it. Okay. And then lastly, just looking towards the studies being undertaken at each of the mines, can you just touch on how these are coming along and when we should maybe expect some news flow out of that?
Well, our target is to complete those PEAs by the end of Q2 and then move forward after that. So we have to do the first portion of the PEAs first and then we'll see where we go with the prefeas and feas added, of course.
Your next question comes from the line of Lee Cooperman with Omega Advisors.
Two questions. Excuse me, 52% of that stock is owned in a private equity fund, which I believe has an obligation to distribute October 1, but it has the ability to extend. I think given where we are in the calendar that some kind of comment from the company or the private equity fund regarding their intentions would be welcome. So that's question number one. Do you have any insight into their intentions? And number two, ever since we filed the shelf, the stock has kind of lost its look. I'm just wondering, with the kind of cash flow profile you project and the unused liquidity that we have, whether we should just take that shelf out because we basically have no interest in selling stock anywhere near the current levels. So 2 questions.
Okay. Lee, thanks for your question. I will answer the first part of your question and the second one -- the second part, I will let Ed to handle that. As you know, Sierra is the operating company. We presented a operating strategy to our board. Our board then approved our operating strategy. And of course, we're executing this and encompasses growth, growth by intense brownfield and planned expansion, which we're executing. I guess an additional proof of this execution of our strategy is that the results to-date on 2018 are on budget. So I think as Sierra, we're going to continue to do that. On the fund, we know that the fund is bullish on Sierra Metals. And they have been also a driving force on Sierra Metals' growth. So I think we're going to continue with that. We cannot speak for the fund as they do their own analysis on the current situation. And perhaps Mike can complement my response. Mike?
Yes. I can only say further to that, that the fund does have optionality. They'll do whatever is best to maximize value. No decisions have been made as of yet that we're aware of or know of. And I can only offer that if you would like to discuss further, we recommend that you reach out directly to the ARC Fund.
Ed, can you provide your comments on the second portion or the second question that was made?
Sure. Sure, Igor. Lee, yes, in terms of the shelf, we do have -- it was filed last -- summer of last year. There's a 26-month shelf life, if you will. So we've got approximately another 1.5 years. There's no intention to issue shares at these levels. I have stated in the past that it would take a significant increase in the share price before we would even consider taking down some proceeds from issuing shares. I mentioned $3. But just to reinstate, the $3 isn't where we would start to issue shares. It's where management and the board would contemplate. And based on where they saw metal prices headed and valuation would we contemplate issuing shares. But there's no obligation to issue any shares, and it's at the complete discretion of the board. And it is something that is in place until -- we've got another 1.5 years left.
Your next question comes from the line of Heiko Ihle with H.C. Wainwright.
I went through the 40-F earlier today and I noticed that the receivables have gone from $28 million at the end of '17 and that compares with $18 million at the end of '16, which is -- I mean, it's flat from Q3. But nonetheless, I would have thought that the balance at the end of the year would go down a bit. And then I did some digging, and I realized that both the trade and the sales tax receivables actually increased. And I guess the question is, why do things keep dragging out the way -- the receivable things keep dragging out the way they are. And are you doing anything on reining in receivables or is there credit risks that we should know about or anything like that?
Heiko, thanks for your question. In terms of the receivables, a significant amount of those receivables comes from obviously our metals trading receivables. And it's really a function of higher metal prices compared to the previous years. And the way the terms work is, it's essentially -- you're getting paid on an [ M ] plus a future date. I'm not going to specify. But there is a lag, if you will, between when you sell the material and when you receive cash for that material. And it's really a function of higher metal prices. So in terms of credit risk, I don't view it as any credit risk whatsoever. The traders that we're dealing with on our offtake, they have extremely -- they're -- they have -- well positioned in terms of liquidity and strong balance sheet, so that's not an issue there.
Okay. Fair enough. Also, can you walk us through cost expectations for the new underground tunnel at Yauricocha? I mean, the release stated that it's going to be completed in Q3. I assume the costs of going from mill to mine should be gradual expenses for boring mainly?
Gord, do you want to handle that one?
Yes. The tunnel, Heiko, is basically structured to improve our availability to replace the Klepetko tunnel. So the idea is the circuit would be complete. It would be a complete circle. So you come out with the Yauricocha tunnel and feed the mill and drop off the waste and then turn around the train to go straight back in the mine via the Klepetko tunnel. So right now, the way it goes, they go in and they come out the Klepetko tunnel. So it's going to give us some flexibility in terms of moving material to drive our costs down. I mean, we have to move more material, right. We have to -- that's the plan. So we have bottlenecks in the mine. And this was one of them. This is going to make huge improvement to our total facility.
Fair enough. And sort of the same question for the underground development. I mean, with the sinking of the shaft to the 1270 level, is there any downtime or more compressed production during any time period?
Basically, the way the plan is going to work out is we're going to sink down to the 1270 level. And at the 1270 level, we're going to set ourselves up for deepening the shaft in the future. The predominant plan is driving the level development on the 1170 level. That'll be the last working development at the bottom of the shaft and that enables us to access approximately 8.1 million tonnes of the roughly 9 million tonnes in reserves on that 1170 level, plus the remaining point -- 0.8 million tonnes is going to come from ramps in the Cuye zone and in the Catas zone as well as the Esperanza zone. As you know, from our investment day, we're planning an intense drilling program, both below the Esperanza zone, Cuye zones and Central Mine zone. And I'm very confident that the way this structure works here at Yauricocha, we're going to be adding to resources as well as to reserves. And the future for the mine is going to be, as we can see things prevailing here is going to be at depth. So our target is to hit to 1520 level, which is right below everything else that we have in the current intersections.
Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research.
As you expand different zones and make different development investments in the next several years, will the metals weightings, as posted on Slide 8, change very much or will they stay about the same?
Thanks for your question, John. Really, it depends on Cusi and how much potential Cusi can have in terms of that Santa Rosa de Lima zone. Right now we're kind of at a -- in terms of base metal to precious metal split, we're 80% base metal and 20%. So we could see, depending -- again, it's really the wildcard, I would say would be more towards Cusi. And with Bolivar and Yauricocha still having strong copper contributions, it's really in Cusi where we could see a significant more silver contribution.
If I could follow-up on Lee Cooperman's question earlier. If the company were to be sold or a strategic mining industry investor were to take a block, would you envision marketing Sierra Metals as one piece the way it's presented to the public? And you know how gold companies like gold and silver like silver and zinc is zinc and copper is copper. Would you envision selling Cusi as a silver mine to silver companies and Bolivar to copper companies and Yauricocha to zinc companies, trying to exploit the tendency to pay a bigger premium for the purer play?
I'll try to respond to your question. One of the attractive elements that Sierra Metals brings to the market is precisely the polymetallic nature. And when -- and metal prices go up and down, either metals, we have basically 4, 5 metals that we produce and then we have a natural protection there on price. My response to your question would be that we would try to keep Sierra Metals as one unit because I think we can -- well, we see in Sierra Metals is a combination of elements that make the 3 mines to protect each other in terms of pricing and market variation. All 3 mines have a very important potential in terms of exploration, which is normally the case with all mines. So we don't have to go very far on either mine to find additional resources. And they're a lower cost to obtain. So my response would be that to stay within one Sierra Metals company.
If I can ask another conceptual question and maybe it's a stupid question, but behavior of the large companies is confusing sometimes. In addition to being willing to pay premiums for pure-plays, many of the large base metal companies like big deposits. Many of the copper companies that had VMS deposits bought porphyries. And it excites them very, very much to have 100,000-tonne a day grinding mills and 400-tonne trucks. And they tend to not be interested in 3,000, 4,000, 5,000-tonne a day underground mines like you have. Do you think it's a good strategy to buy 2, 3 more mines like Yauricocha, Bolivar, Cusi, several thousand tonne a day, polymetallic. I don't know what the grinding mill people do to make these management so excited, but they all want to have big grinding mills and big trucks. And they don't have the respect for your kinds of mines. So maybe it's a market inefficiency for you to exploit.
I guess to summarize in our case, our ore deposits are obviously fit for underground development and have been a porphyry underground and Yauricocha will be very deep. And so the economics of that would have to be very carefully estimated for an open-pit operation as the overburden -- the cost of overburden would be significant. However, given the fact that we already have installations and infrastructure in Yauricocha, and we are already at the 1170 level, it'll be easier for us to access the deep ore. I guess a similar example is the Cusi Mine is an underground mine. And in the case of Bolivar, we're still in early days to see if we can expand the deposit so we can then look into a open-pit situation.
I'm sorry. I didn't speak well. I'm very content that your mines are underground. It's just that the big companies, they must get wonderful Christmas presents from the grinding mill people and the big truck people, so they don't care so much about your kinds of little mines that are underground. So why don't you buy more mines like this that are undervalued or develop more mines like this that are undervalued where you work hard and you get a good return, but you don't get a big Christmas present from the grinding mill people or the truck people. And the big companies, they pay too much for those things. And you operate in a very good niche that's profitable.
At the moment, what we're doing is, as I mentioned earlier, we are executing a strategy that was approved by our board. We're not looking at -- right now at mines -- open-pit-type mines at the moment. We're trying to maximize the value of our existing operation. And we just don't have that in our strategy at the moment. I think what we need to do first is to consolidate our economics and our growth program and then look outside our capability.
Your next question comes from the line of Jim Young with West Family Investments.
Speaking of profitability, I was wondering if you'd elaborate a little bit about -- on those 2 ball mills that, I believe, Gord mentioned you paid $1 million for or so. And what I'm just trying to get a sense of is, when will the mills arrive at both Cusi and Bolivar? How long is it going to take for them to get installed? And what's the total all-in cost of this investment? And it looks like the opportunity to expand your production is fairly significant just on these 2 ball mills. And so what's your IRR that you're generating from this investment? And of course, I do have others.
Ed, you want to highlight the IRR please for me?
Gord, I don't really want to get into specific IRR calculations. In terms of management, we view all capital expenditures in terms of -- it needs to be -- and I speak to it in terms of efficient capital. Growth potential needs to have an IRR, which comes with a hurdle rate that has to be above that for us to make an investment. And those mills have met that criteria. That's really all I have to say there, Gord.
That's fine. Jim, the whole focus on the ball mills is to improve our productivity, our recoveries, in in both properties, in both Malpaso in Cusi as well as in Bolivar. And the drive is to -- as we mentioned in the investment day is to drive our production up. Basically, Bolivar, we're going to get up to 3,500 tonnes a day. And we're slowly going to increase to 4,000 and work our way up. That's the plan.
I guess to complement to what Gord was saying. One of the assessments we made metallurgically speaking during 2017 was to make a review of our crushing facility. And as such, there were some upgrades done to our crushing facility that are obviously doing the process ahead of the grinding facility. And we saw that we had sufficient crushing capacity, both at Bolivar and Cusi. And so the component to that additional crushing capacity was, of course, adding more milling capacity. Subsequent to that, we lead a similar exercise for flotation capacity. And Bolivar also demonstrated to us that they had additional flotation capacity as well as Malpaso. So it was [ declining ] that needed the upgrade, plus the tailing management and the filtering of the concentrate. So that, I guess, to explain why we want just for the mills and not a full plant design. We had some of the elements already in place. And these 2 mills were a very good complement to increase capacity with a smaller capital investment.
Okay. And then if I'm hearing that one of the purposes for these ball mills is to address some of the recovery rates, could you just speak to the improved recovery rates that you've been able to achieve, which is due to, I know, man, it's hard work and focus on this issue at Cusi, Bolivar and Yauricocha. Are these sustainable? Or have they reached their peak? Or do you think there's even more opportunities on the upside for the recovery rates?
In -- right. On the recovery question, Jim, the Cusi operation is sustainable, as is Yauricocha. There's always room for improvement. One of our focuses at Yauricocha is to improve the copper recoveries. So we feel that there's opportunity there. In the case of Bolivar, there's definitely huge opportunity to increase from where we are to a much higher recovery rate. We know from studies that we've done on our grind that when we approach 60% passing 200 bench, we can get close to the operating line and percent recoveries to 90%. So that's our target.
Okay. And throughout the course of the MD&A and the presentations and the discussion so far today, you mentioned the improved opportunities, both at the operations at Yauricocha, increasing the production rates at Bolivar and likewise at Cusi, which clearly have significant opportunities to increase given where it started from. So I guess my question though is, relative to your expectations, how are things progressing for the first quarter this year, which you basically are done? And would you be disappointed if the first quarter EBITDA does not exceed first quarter of '17 of $25 million?
I think we're on target, Jim. Our budgets are on target. Our metal production is on target at all the sites. Our EBITDA should be as was mentioned before. I think we're in pretty decent shape. We're moving along quite well.
I guess to complement that, Jim, you have to bear in mind, we started our Mexico turnaround program in August of 2017. The later part of 2017, we monitor our Mexican operations with a forecast that we made in August. And both operations came very close at year-end 2017 to the forecast. And of course, during the last part of 2017, we prepared a 2018 budget for both Mexican operations. And today, we are essentially on budget, which means that the turnaround program has worked, and it's providing the results. And it will translate into a solid financial quarter.
This concludes the Q&A portion of our call. I would now like to turn the call back over to Mike McAllister for closing remarks.
Thank you, operator. As mentioned, that concludes today's call. On behalf of the management team, I would like to thank all participants for joining us today. A replay of the webcast and the materials can be found on our website at www.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 the call.
This concludes today's conference call. Thank you for your participation. You may now disconnect.