Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Sierra Metals (TSX: SMT; NYSE-AM: SMTS) has updated the resource for its Bolivar underground mine in Chihuahua state, Mexico based on 13,698 metres of infill drilling and 41,553 metres of exploration drilling between November 2017 and September 2019.
Bolivar’s indicated resources now stand at 11.63 million tonnes averaging 0.95% copper, 18.1 grams silver per tonne and 0.24 gram gold, or 1.17% copper-equivalent. Inferred resources add 16.69 million tonnes averaging 0.93% copper, 16.8 grams silver and 0.30 gram gold, or 1.16% copper-equivalent.
The company says it plans to update the resource again before the end of the first quarter of 2020 to incorporate 1,377 metres of infill drilling and 4,149 metres of exporation drilling completed after the Sept. 30, 2019 cut-off date.
The 3,600 tonne per day mine produced 21,323 copper-equivalent lb. at all-in sustaining costs (AISCs) of $2.55 per lb. copper equivalent sold in 2018. The company’s guidance for 2019 is between 29,877 and 33,449 lb. copper equivalent at AISCs of $2.08 per lb. copper equivalent sold.
Sierra expects to release an updated preliminary economic assessment (PEA) in the third quarter of this year that will examine increasing tonnage throughput from 3,600 tonnes per day to 5,000 tonnes per day by the end of 2020.
Sierra expects to release an updated preliminary economic assessment in the third quarter of this year
The Bolivar mine, 6 km from the Piedras Verdes plant, consists of 12 mining concessions over 152 sq. km in Mexico’s Piedras Verdes mining district. The company achieved its first full year of commercial production at Piedras Verdes in 2012. The plant started production at 1,000 tonnes per day, before expanding in September 2013 to 2,000 tonnes per day and reached the 3,600 tonnes per day mark during the second quarter of 2019.
The ore is treated using a flotation process in a copper circuit and is extracted from various copper skarn deposits that also contain zinc, silver and gold.
The Piedras Verdes mining district lies within the Sierra Madre precious metals belt that extends across the states of Chihuahua, Durango and Sonora in northwestern Mexico. In general, rocks in the area trend northwest and dip gently to the northeast. These rocks are also cut by several northwest and northeast-trending faults.
Skarn-type copper-zinc-silver-gold mineralization in the Bolivar area is structurally controlled and forms mineralized zones that are close to structures. Mineralized zones occupy pre-existing fault structures and extensional openings formed during mineralization.
In addition to the Bolivar mine, Sierra Metals owns the Cusi underground mine, also in Mexico’s Chihuahua state, 135 km from Chihuahua City, and the Yauricocha underground mine in west-central Peru, 12 km west of the Continental Divide.
The company’s exploration work at all three assets includes brownfield programs within and close to existing mines to exploit near-mine targets that can be converted into resources and reserves and brought into the existing mine plans. It is also developing a pipeline of open pit and underground opportunities through a district-scale study that incorporates various geological data layers, historical drill hole and mine data.
As of Sept. 30, the company had $40.4 million in cash and equivalents and net debt of $58.8 million.
In the third quarter, Sierra posted adjusted earnings before interest, tax, depreciation and amortization of $21.6 million, an 18% year-on-year increase, primarily due to increased revenues from all three mines.
The company reported consolidated copper production of 11.1 million lb. (an increase of 34% compared to the third quarter of 2018), silver production of 1 million oz. (an increase of 34%), consolidated zinc production of 22.5 million lb. (an increase of 8%), consolidated lead production of 10.5 million lb. (an increase of 65%), and consolidated gold production of 3,490 oz. (an increase of 83%).
Over the last year, Sierra’s shares have traded in a range of $1.33 and $2.86. At press time the company was trading at $2.28 per share. The company has 163 million common shares outstanding for a C$371-million market capitalization.
(This article first appeared in The Northern Miner).
