Interview: Sierra rebounds under ex-Gold Fields exec

Sierra Metals (TSX: SMT) is targeting a 10-fold earnings increase this year compared with 2022 as it attracts potential “white knight” investors after rejecting a hostile takeover bid, its CEO said in an interview.

The company, which operates two copper mines – Yauricocha in Peru and Bolivar in Mexico – forecasts earnings before interest, tax, amortization and depreciation of $130 million (C$186 million) this year versus $13 million three years ago and $74 million in 2024.

Sierra has cut costs by increasing mill capacity at Bolivar by 2.5 times and nearly double at Yauricocha, while higher copper and gold prices have also helped widen margins. In December, the company refused a buyout offer at 85¢ a share – amounting to about $180 million – from private Peruvian miner Alpayana SAC.

The offer expires April 14 and CEO Ernesto Balarezo said on Tuesday he doesn’t expect Alpayana to increase its offer. Sierra is preparing for what could be a new stage, he said.

“It’s a great turnaround story now we have a solid company producing,” Balarezo said by phone while visiting Toronto. “After being in this [bid] process for almost four months, I can tell you it’s been good for the company. It has put us on the on the radar of many more companies.”

Shares in Sierra Metals have gained 2.6% over the past month to close at 79¢ apiece in Toronto on Wednesday, valuing the company at $167.4 million. Over the past year, the stock has ranged from 62¢ to $1.05.

Ex-Gold Fields

Sierra hired BMO to contend with the offer and the bank has brought prospective “white knight” investors who support Sierra’s efforts, Balarezo said. He replaced management as CEO in 2023 after joining from Gold Fields (NYSE, JSE: GFI), where he worked as chief operating officer in the Americas. Sierra lifted Bolivar’s mill operation to 5,000 tonnes per day (tpd) from 2,000 tpd, and Yauricocha to 3,700 tpd from 2,000 tpd.

The company is budgeting $70 million in capital spending this year – up from $60 million last year and $44 million in 2023 – on infrastructure and new stopes through this year and early 2026. The company needs “catch-up capex” after being neglected while previous management awaited a potential sale, Balarezo said. Capital spending could fall next year to around $25 million, a “usual amount” for the mines, he said.

Together, the mines are projected to produce between 44,600 to 48,500 lb. of copper in 2025 at all-in sustaining costs ranging from $2.91 to $3.62 per lb., according to an outlook issued on Dec. 5.

Sierra has $95 million in debt due by 2030 it plans to refinance this year. It first secured the amount in 2023 to repay a $75 million loan and provide $20 million for capital spending.

Should Alpayana’s offer die this month and no new deals emerge, Sierra would consider seeking M&A in the Americas and wouldn’t limit itself to copper, gold and silver, the CEO said.

“We stopped looking to grow the company in-organically, but it’s something that we need to do,” Balarezo said. “We will continue to be in that process.”