SMTS - Sierra Metals (SMTS)(SMT:CA) - Darkest Before The Dawn
Fourth quarter and full year 2021 production. During the fourth quarter, Sierra Metals produced 6.1 million pounds of copper, 6.0 million pounds of lead, 14.9 million pounds of zinc, 1.9 thousand ounces of gold, and 805 thousand ounces of silver. Compared with the prior year period, fourth quarter production of copper, lead, zinc, gold, and silver declined 42.9%, 21.2%, 31.0%, 44.6%, and 12.7%, respectively, and declined 26.5%, 23.3%, 22.0%, 17.6%, and 0.2% sequentially. The quarter reflected operational challenges, and while Cusi and Yauricocha are approaching normalized operations, infill drilling and mine development is needed at Bolivar to normalize operations by the end of the second quarter. Compared to 2020, full year silver production increased 1.8%, while copper, lead, zinc, and gold production declined 28.3%, 6.5%, 3.2%, and 30.5%, respectively.Updating estimates. We are lowering our 2021 EPS and EBITDA estimates to $0.06 and $89.7 million from $0.13 and $105.7 million, respectively, to reflect lower production. We also lowered our 2022 EPS and EBITDA estimates to $0.22 and $121.8 million from $0.36 and $163.2 million, respectively, which reflects a steady improvement in operating performance that is back-end loaded. Our preliminary 2023 EPS and EBITDA estimates are $0.36 and $153.6 million, respectively.Yauricocha preliminary economic analysis. Sierra Metals recently reported the results of an updated preliminary economic analysis (PEA) for an expansion at the Yauricocha mine which contemplates increasing production in 2024 to 5,500 tonnes per day from 3,600 tonnes per day. Life of mine after-tax net present value is estimated to be US$273.1 million based on an 8% discount rate. The preliminary economic assessment assumes life of mine payable production of 332.9 million pounds of copper, 399.9 million pounds of zinc, 10.9 million troy ounces of silver, and 19.9 thousand troy ounces of gold. Rating remains Outperform. While 2021 was challenging, we suspect the fourth quarter of 2021 may represent a low point for production. While it may take a couple of quarters for Sierra to hit its stride, we think the valuation offers significant upside potential based on steady operational improvement in 2022 and a favorable long-term growth outlook. Read More >>