Sierra Metals Inc. is a Canadian mining company focused on the production, exploration, and development of precious and base metals in Mexico and Peru.
Could you tell us a little bit about yourself and your journey to Sierra Metals?
I have been in the mining industry for almost 30 years, starting my career at Hochschild Mining where I worked for nearly 17 years. After that, I joined Gold Fields, a South African company and the fourth-largest gold producer globally. My role as VP for the Americas included overseeing operations in Ghana, Australia, and South Africa. I enjoyed the operational side of the business, having held the COO position at Hochschild, focusing on costs, efficiencies, and people.
In 2022, Sierra Metals was facing some operational challenges, and the board asked me to assess the situation. I visited the Bolivar and Cusi mines in Mexico and Yauricocha in Peru and saw significant opportunities for operational improvements. The company had been up for sale for years, which affected mid-term goals and investments. After sharing my findings with the board, they asked me to stay on as CEO to help turn the company around, which we have been doing quite successfully since then.
What were the issues with the company's performance in 2022?
Our performance issues were more related to internal operational factors, rather than general market conditions. We have two world-class assets, Bolivar in Mexico and Yauricocha in Peru. We recently published a 43-101 report on reserves and resources, showing almost 15 years of mine life for each deposit, which is remarkable for underground mines.
The main issue was that the company had been for sale for many years, leading to a lack of focus on mid-term goals and necessary investments. When I visited the sites, I saw that better care and operational improvements were needed. Coming from companies that focus on operating and making their assets profitable, I knew we had to stabilize and invest in these assets rather than preparing them for sale.
Given the current focus on Peru and Mexico, what is the long-term strategy for Sierra Metals?
Our strategy involves both organic and inorganic growth. We inherited two great deposits when I joined the company, and we have been working on stabilizing operations and extending the mine life.
For example, we placed Cusi in care and maintenance and are divesting it, while keeping a 2% NSR royalty.
We recently refinanced our debt, and now with a solid cash flow from our operations, our focus is on safety and operational stability. We aim to grow beyond our current operations. This year, we are looking for acquisition and merger opportunities across the Americas, from Canada to Argentina and Chile. We are metal agnostic, but currently focused on copper, and we are also exploring opportunities in precious metals.
What is the plan for organic growth within the company's existing operations?
For Bolivar, we plan to increase production from 5,000 tonnes per day to 7,500 and eventually to 10,000 by improving operational efficiencies and building new infrastructure like a tailings dam. The current dam will last four more years at the current production rate, giving us time to construct a new one that will support higher production levels for the next 10-15 years.
At Yauricocha, we have obtained a permit to mine a new area that will extend the mine's life by another 10-15 years. We are developing this area now and expect to reach full production by Q4 this year, increasing current production by 40%. Additionally, we have several other projects in Mexico and Peru that we are looking to develop in partnership with other companies.
How do you view the political risk in Peru and Mexico, and what is your relationship with local authorities?
Currently, local authorities in Peru are pro-mining and working to streamline the permitting process. They aim to facilitate new investments in mining by consolidating the permit acquisition process. Peru has a significant pipeline of potential mining investments, and the government is making efforts to make it easier for these investments to materialize.
I am confident in saying that Peru's institutions are the most solid in the region. Despite political turmoil, the country has adhered to its institutional framework, correcting any deviations effectively. This stability has been beneficial for us, as we can rely on the system to function properly even during challenging times. While we might not be at the levels of North America or Europe, Peru stands out in the region for its institutional solidity.
In Mexico, although there have been recent political changes, we are optimistic about the continuity of existing operations. The permitting process in Mexico is generally simpler than in Peru, with most permits being handled at the state level. We remain positive about the future of our operations in both countries, despite the challenges that come with political changes and environmental considerations.
What drives the current high prices of copper?
The current high prices of copper are driven by a supply-demand imbalance. At a recent metals conference in Lima, data was presented showing that for the next 10-15 years, supply will not meet demand, and the gap is expected to widen. This makes me very bullish on copper, especially given its critical role in construction, housing, and the energy transition to greener technologies.
The fundamentals for copper are strong and tangible. It is not influenced by speculative factors like inflation or currency fluctuations. The demand is real and growing, particularly from industries like automotive, where copper is essential for electric vehicles. We even met with someone who physically holds and sells copper to the auto industry, which highlights the robust demand and potential for higher prices.
What efforts are you making to ensure your operations are sustainable and environmentally friendly?
Sustainability in mining means prioritizing safety, maintaining good relations with communities and stakeholders, and being proactive about health and environmental impacts. We comply with all necessary regulations to ensure long-term sustainability. These aspects, once considered soft skills, are now crucial for the industry's success.
We have an excellent team at Sierra Metals, all aligned with the same goals and values. We have built a new management team that focuses on long-term, sustainable operations. We are all shareholders in the company, which aligns our interests with its success. The market is starting to recognize our efforts, which is reflected in our growing success.
If you could resolve one challenge for Sierra Metals today, what would it be?
The biggest challenge in mining is managing costs, as we cannot control market prices. We focus on lowering our costs and capital expenditures while also seizing growth opportunities. Our priorities include expanding operations at Bolivar, restoring Yauricocha to full production, and finding a third operation to enhance our portfolio.
Mining is inherently challenging due to the dangerous and remote nature of the work, but we thrive on these challenges. We focus on the opportunities they present and strive to grow the company despite daily hurdles. Regular visits to mining sites are crucial for understanding and managing operations effectively.
Do you consult with miners on the ground?
Yes, I visit our sites regularly. Last week I was in Bolivar, and next week I will be at Yauricocha. It is essential for me to know what is happening on-site to lead effectively. I encourage all executive committee members to visit the mines frequently, and they do so without prompting, which reflects our hands-on management approach.
Last year, we completely changed our management team, bringing in experienced operators who prefer being on the ground and have a long-term vision for mining. We even shut down our office in Toronto to focus more on on-site operations. This approach ensures we stay connected with our operations and maintain effective oversight.
