SMTS - Sierra Metals (SMTS)(SMT:CA) - Virtual Road Show Take-Aways
Virtual Roadshow. Noble and Channelchek recently hosted a virtual roadshow featuring Mr. Luis Marchese, Chief Executive Officer, who provided an overview of operations and planned growth initiatives. While the pandemic had reduced the company’s operating work force levels during the first half of 2021, staffing has returned to normal. However, the company is still playing catch up on certain projects that had been planned earlier in the year, including mine development to access higher grade ore bodies. Because the inauspicious start of the new President in Peru has elevated anxiety among investors, the new administration should provide greater certainty with respect to planned mining policies and taxation.Strategic growth opportunities. While Sierra is undergoing a strategic review that could contemplate a sale, the company has significant growth opportunities, including expansion potential at Bolivar utilizing the existing mill, and exploration potential at the Reyna and Batopilas properties in Mexico that could potentially support another mine and mill. Given that Cusi is small and primarily a silver producer, it could have greater value to a junior precious metals producer. During Q&A, Mr. Marchese’s comments about capital market access led us to think that perhaps Sierra could consider base-metal acquisitions outside of Peru.Increasing production profile. We expect the company to exit 2021 with aggregate capacity of 9,800 tonnes per day across all three mines. Longer-term expansions could increase capacity to nearly 18,000 tonnes per day by year-end 2024. An iron ore processing plant at Bolivar is expected to be completed in early 2022 and in full production by the end of the first half. The plant will produce 500 thousand tonnes per year of 62% iron ore fines. In addition to iron ore concentrate, the company may add a higher margin DMS grade magnetite product.Rating remains Outperform. In our opinion, Sierra Metals offers an attractive valuation and favorable long-term growth outlook driven by the company’s increasing production profile. We think the company is well-positioned to benefit from growing demand for its metals driven by economic growth, infrastructure spending, and for use in clean energy and renewable power technologies. Read More >>