SMTS - Sierra Metals (SMTS)(SMT:CA) - Third Quarter Production Impacted by Transitory Operational Challenges
SMTS reports third quarter production results. During the third quarter, Sierra Metals produced 8.3 million pounds of copper, 7.8 million pounds of lead, 19.1 million pounds of zinc, 2.3 thousand ounces of gold, and 807 thousand ounces of silver. Compared with the prior year period, third quarter production of copper, lead, zinc, gold, and silver declined 32.1%, 20.4%, 23.1%, 43.3%, and 21.1%. Sequentially, production fell 13.4%, 1.5%, 9.6%, 19.6%, and 15.4%, respectively. Production was hindered by the inability to develop higher grade ore sources during the pandemic, unexpected equipment unavailability, and operational constraints at the Cusi mine due to high temperatures. While these issues are expected to be temporary, management now expects 2021 production to be at the low end of its guidance.Updating estimates. We are lowering our 2021 EPS and EBITDA estimates to $0.25 and $127.6 million from $0.30 and $137.5 million, respectively, to reflect lower full year production. While our EBITDA estimate is modestly below guidance, there may offsets we haven't considered and we think upside may exist for our fourth quarter estimates. We also trimmed our 2022 EPS and EBITDA estimates to $0.46 and $186.2 million from $0.48 and $200.2 million, respectively.Third quarter production and financial results. The company will release third quarter 2021 financial results after the market close on November 8 and will host an investor call on November 9 at 10:30 am ET. We look forward to management’s discussion of the dividend policy, capital allocation, and thoughts on planned capacity expansions. Moreover, management may elaborate on the potential for M&A, partnerships, and greenfield exploration joint ventures.Rating is Outperform. While third quarter production declined relative to the prior quarter and prior year period, higher commodity prices may partially offset the financial impact and we think many of the operational issues have or are being addressed and will prove transitory. Our rating remains Outperform and is based on Sierra Metals’ attractive valuation and favorable long-term growth outlook. Read More >>