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Metal prices, strike flatten Sierra result

Sierra Metals has felt the effects of lower base metal prices and the March strike at the Yauricocha polymetallic mine in Peru, with second-quarter operating cash flow and earning less than half what they were in the same period last year.
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Yauricocha in Peru

Staff reporter

The company reported Q2 EBITDA of US$12.6 million, compared with $28.9 million in the June quarter last year, while operating cash flows before movements in working capital of $12.8 million in Q2 2019 dipped from $29.5 million in Q2 2018.

Sierra said revenues fell $12 million year-on-year to $50.7 million in Q2 2019 "due to lower throughput and higher treatment and refining charges incurred at Yauricocha, and lower realised metal prices for all metals, except gold".

The company had $40.2 million of cash and cash equivalents on hand at June 30, but its net debt was $59.2 million at that time.

"Building on the first quarter, we have continued to overcome the challenges encountered to date this year including lower metal prices, a strike at Yauricocha, and a slower than expected ramp-up of throughput at Bolivar and Cusi," Sierra CEO and president Igor Gonzales said.

"However, the company realised record consolidated quarterly throughput during the second quarter, with record throughput at both the Bolivar and Cusi mines which contributed to strong cash flows and good returns on the capital invested in our growth projects.

"Management expects that the company will still be within its annual production guidance provided. Furthermore, we remain very focused on improving all three mines to reduce costs where possible while reaching higher throughput rates."

Jefferies wasn't convinced by the results or Gonzales' full-year guidance assurance, noting the company's recovery from the Q1 missteps had been "slower than expected and potentially puts at risk the company's ability to meet its 2019 production guidance".

"Based on the midpoint of the company's full-year guidance, 1H19 production volumes are tracking well below 50% in copper, silver and zinc. It will be an uphill battle for Sierra to achieve its 2019 operational targets. The macro backdrop is also clearly a risk."

The investment bank said Sierra's ongoing cost-cutting initiatives should bear fruit in 2020, according to management.

"Until then, however, these high operating costs will remain a headwind for Sierra, particularly in the face of the current weak commodity price environment. Longer term, Sierra should benefit from a recovery in base metals prices, including a multi-year period of high copper prices, and higher production volumes."

But with less than 45% of full-year copper, zinc, and silver volumes delivered in the first half, "Sierra has some work to do in 2H if it is to achieve its full-year production targets".