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Tuesday, October 17, 2017 Derek Macpherson

Sierra Reports Higher Q3 2017 Results


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Sierra Metals Inc. (TSX:SMT, BVL:SMT, NYSE:SMTS) reported modestly improved production results for Q3 2017 with an increase in CuEq production of 2% versus Q2 2017. However, metal production remains weaker than Q3 2016 due to lower production from its projects in Mexico. The QoQ decrease in metal production at Cusi is a result of shifting resources to develop recently discovered higher grade zones. An operational improvement program, which has already been successful at Yauricocha, is currently underway at Bolivar and Cusi and is expected to improve production, modernize operations and lower costs by early 2018. We note the company is likely to need a strong Q4, to achieve 2017 production guidance. In our view, the ongoing operational improvements in addition to ongoing exploration are key to enhancing the company’s value and liquidity.



Yauricocha reaches record throughput (Figure 2). Throughput at Yauricocha reached a record level of 268,178 tonnes in Q3 2017, a 13% QoQ increase. As the company’s flagship asset, this represents a significant achievement for Sierra and reflects the success of the operational improvement program. The mine’s sharp decrease in QoQ silver and lead grades was offset by a 14% increase in copper and gold grades, which resulted in overall CuEq production of 18.25 Mlbs, a QoQ increase of 2.7%. Management has stated that they believe throughput and metal production will remain stable throughout the remainder of 2017.


Bolivar low grades offset by higher throughput (Figure 3). Throughput at the Bolivar mine increased QoQ (by 16%) but remains low, relative to historical performance. Increased throughput offset lower QoQ grades, allowing for increased metal production QoQ. Management is focusing on increasing production volume, through the procurement of new underground equipment, with the goal of increasing throughput (Figure 3).


Cusi production to increase as reinterpretation of geology and mine development continues (Figure 4). As seen in Figure 4, AgEq production at Cusi continues to decline with throughput at only 151 tpd, compared to 558 tpd in Q3 2016. However, management is continuing to reinterpret the geology and develop the Santa Rosa de Lima zone in an effort to improve head grades and increase production to approximately 400 tpd. By re-establishing a production rate of 400 tpd, Cusi’s contribution to the company’s production profile will increase significantly.



Priced as of close October 16, 2017

Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
Alex Pitcher | Associate
 
Red Cloud Klondike Strike Inc.
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Priced as of prior trading day's market close, EDT (unless otherwise noted).
All values in USD unless otherwise noted.

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Sierra Metals Inc. - TSX:SMT, BVL:SMT, NYSE:SMTS - 2

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