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: SMTS) has updated the preliminary economic assessment for its Bolivar copper-silver mine to include production of a saleable iron ore concentrate. The underground mine and the mill are located in Chihuahua, Mexico.
The mine and mill achieved their first full year of production in 2012. Since then, capacity has been increased to 5,000 t/d, and the updated PEA looks at a further increase to 10,000 t/d in stages. In 2020 the operation produced 35,804 lb. of copper equivalent at an all-in sustaining cost of $1.88 per lb. sold.
The project carries an after-tax net present value with an 8% discount rate of $361 million, and an internal rate of return of 69%. The net after-tax cash flow would be $650 million. The life of mine and sustaining capital cost would be $345 million, according to the updated PEA.
The sale of magnetite as a by-product represents a new revenue stream for Sierra. Annual production of 62% iron concentrate would be 5.7 million tonnes. The company approved the iron ore project in April based on the PEA of October 2020, and the project is being fast tracked.
A new tailings storage facility to serve the mill through 2025 will be built west of the existing facility. The PEA includes the cost of a backfill plant for storing some tails underground, thus extending the life of the pond.
A new adit next to the mill is being developed to shorten the length of ore haulage and save costs. It has the added benefit of protecting the trucks from weather they currently encounter traveling on the surface.
At the end of 2019, the Bolivar mine had indicated resources of 19.4 million tonnes grading 0.77% copper, 15.1 g/t silver, 0.21 g/t gold, and 13.8% iron. The inferred portion was 21.4 million tonnes grading 0.78% copper, 14.2 g/t silver, 0.21 g/t gold, and 13.5% iron. Together, both resource categories contain a total of 316,193 tonnes of copper, 19.2 million oz. of silver and 270,400 oz. of gold.
Sierra will file the technical report on Sedar within 45 days.
(This article first appeared in the Canadian Mining Journal)
