SIERRA METALS INC.
Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (unaudited)
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May 10, 2024
Management's Responsibility for Financial Reporting
Management is responsible for the preparation of the unaudited condensed interim consolidated financial statements. These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").
The Board of Directors of the Company is responsible for ensuring that Management fulfills its responsibilities for financial reporting. The Board of Directors carries out this responsibility through its Audit Committee, which is composed of three members. The committee meets various times during the year and at least once per year with the external auditors, with and without Management being present, to review the financial statements and to discuss audit and internal control related matters.
The Board of Directors approved the Company's unaudited condensed interim consolidated financial statements.
"Ernesto Balarezo Valdez" | "Jose Fernandez-Baca Llamosas" |
Chief Executive Officer | Chief Financial Officer |
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Sierra Metals Inc.
Condensed Interim Consolidated Statements of Financial Position (unaudited)
As at March 31, 2024 and December 31, 2023
(In thousands of United States dollars)
Note | March 31, 2024 | December 31, 2023 | |
$ | $ | ||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | 11,220 | 9,122 | |
Trade and other receivables | 3 | 24,346 | 23,304 |
Income tax receivable | 6,621 | 6,870 | |
Prepaid expenses | 2,059 | 2,053 | |
Inventories | 4 | 26,104 | 24,912 |
70,350 | 66,261 | ||
Assets held for sale | |||
Total current assets | 5,111 | 5,591 | |
75,461 | 71,852 | ||
Non-current assets: | |||
Property, plant and equipment | 5 | 244,300 | 242,264 |
Total assets | 319,761 | 314,116 | |
LIABILITIES | |||
Current liabilities: | |||
Accounts payable and accrued liabilities | 6 | 71,362 | 64,048 |
Loans payable | 7 | 78,217 | 53,388 |
Decommissioning liability | 3,126 | 3,506 | |
Other liabilities | 14,473 | 17,191 | |
Liabilities related to assets held for sale | 395 | 395 | |
167,573 | 138,528 | ||
Non-current liabilities: | |||
Loans payable | 7 | - | 25,089 |
Deferred income tax | 13,246 | 14,492 | |
Decommissioning liability | 17,487 | 17,290 | |
Other liabilities | 9,232 | 8,866 | |
Total liabilities | 207,538 | 204,265 | |
EQUITY | |||
Share capital | 8 | 246,877 | 245,799 |
Accumulated deficit | (179,764) | (180,923) | |
Other reserves | 10,917 | 10,388 | |
Equity attributable to owners of the Company | 78,030 | 75,264 | |
Non-controlling interest | 9 | 34,193 | 34,587 |
Total equity | 112,223 | 109,851 | |
Total liabilities and equity | 319,761 | 314,116 |
Contingencies (notes 7 and 16)
Going Concern (note 2(c))
Approved on behalf of the Board and authorized for issue on May 10, 2024:
"Oscar Cabrera" | "Wendy Kaufman" |
Chair of the Board | Chair of the Audit Committee |
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
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Sierra Metals Inc.
Condensed Interim Consolidated Statements of Income (unaudited)
For the three months ended March 31, 2024 and 2023
(In thousands of United States dollars, except per share amounts)
Three months ended March 31, | |||
2024 | 2023 | ||
Note | $ | $ | |
Revenue | 15 | 63,140 | 53,537 |
Cost of sales | |||
Mining costs | 10 | (36,668) | (30,094) |
Depletion, depreciation and amortization | 10 | (9,383) | (6,730) |
(46,051) | (36,824) | ||
Gross profit from mining operations | 17,089 | 16,713 | |
General and administrative expenses | (6,574) | (5,660) | |
Selling expenses | (3,279) | (2,153) | |
Income from operations | 7,236 | 8,900 | |
Other income (expenses and losses) | 409 | (456) | |
Foreign currency exchange loss | (2,164) | (1,220) | |
Interest expense and other finance costs | (2,405) | (2,191) | |
Income before income tax | 3,076 | 5,033 | |
Income taxes expense | (1,446) | (1,324) | |
Net income from continuing operations | 1,630 | 3,709 | |
Net loss from discontinued operations | (865) | (1,570) | |
Net income | 765 | 2,139 | |
Net income (loss) attributable to: | |||
Shareholders of the Company | 1,159 | 2,053 | |
Non-controlling interests | 9 | (394) | 86 |
765 | 2,139 | ||
Weighted average shares outstanding (000s) | |||
Basic | 209,624 | 164,332 | |
Diluted | 214,388 | 165,366 | |
Basic income per share | 0.01 | 0.01 | |
Diluted income per share | 0.01 | 0.01 |
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
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Sierra Metals Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (unaudited) For the three months ended March 31, 2024 and 2023
(In thousands of United States dollars)
Three months ended March 31, | ||
2024 | 2023 | |
$ | $ | |
Net income | 765 | 2,139 |
Other comprehensive income | ||
Items that may be subsequently classified to net income: | ||
Currency translation adjustments on foreign operations | 1,348 | 4 |
Total comprehensive income | 2,113 | 2,143 |
Total comprehensive income (loss) attributable to: | ||
Shareholders | 2,507 | 2,057 |
Non-controlling interests | (394) | 86 |
Total comprehensive income attributable to: | 2,113 | 2,143 |
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
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Sierra Metals Inc.
Condensed Interim Consolidated Statements of Changes in Equity (unaudited) For the three months ended March 31, 2024 and 2023
(In thousands of United States dollars)
Common Shares | Other | Accumulated | Total attributable | Non-controlling | Total Shareholder's | ||
Shares | Amounts | reserves | deficit | to shareholders | Interest | equity | |
$ | $ | $ | $ | $ | $ | ||
Balance at January 1, 2024 | 207,700,426 | 245,799 | 10,388 | (180,923) | 75,264 | 34,587 | 109,851 |
Exercise of RSUs | 1,967,120 | 1,078 | (1,078) | - | - | - | - |
Share-based compensation expense | |||||||
(related to RSUs) | - | 259 | - | 259 | - | 259 | |
Total comprehensive income | - | 1,348 | 1,159 | 2,507 | (394) | 2,113 | |
Balance at March 31, 2024 | 209,667,546 | 246,877 | 10,917 | (179,764) | 78,030 | 34,193 | 112,223 |
Common Shares | Other | Accumulated | Total attributable | Non-controlling | Total Shareholder's | ||
Shares | Amounts | reserves | deficit | to shareholders | Interest | equity | |
$ | $ | $ | $ | $ | $ | ||
Balance at January 1, 2023 | 164,251,465 | 233,576 | 9,627 | (161,589) | 81,614 | 34,580 | 116,194 |
- | - | ||||||
Exercise of RSUs | 341,601 | 110 | (110) | - | - | - | - |
Share-based compensation expense | |||||||
(related to RSUs) | - | (67) | - | (67) | - | (67) | |
Total comprehensive income (loss) | - | 4 | 2,053 | 2,057 | 86 | 2,143 | |
Balance at March 31, 2023 | 164,593,066 | 233,686 | 9,454 | (159,536) | 83,604 | 34,666 | 118,270 |
The accompanying notes are an integral part of the condensed interim consolidated financial statements.
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Sierra Metals Inc.
Condensed Interim Consolidated Statements of Cash Flows (unaudited)
For the three months ended March 31, 2024 and 2023
(In thousands of United States dollars)
Three months ended March 31, | |||
Note | 2024 | 2023 | |
$ | $ | ||
Cash flows from operating activities | |||
Net income from operations | 765 | 2,139 | |
Items not affecting cash: | |||
Depletion, depreciation and amortization | 9,634 | 7,543 | |
Share-based compensation | 634 | 102 | |
Loss on disposals and write-offs | 39 | - | |
Interest expense and other finance costs | 2,405 | 2,199 | |
Income tax expense | 1,446 | 1,374 | |
Unrealized foreign currency exchange loss (gain) | 1,563 | (506) | |
Operating cash flows before movements in working capital | 16,486 | 12,851 | |
Net changes in non-cash working capital items | 14 | 2,955 | (4,070) |
Decomissioning liabilities settled | (441) | (283) | |
Income tax paid | (2,525) | (1,824) | |
Cash generated from operating activities | 16,475 | 6,674 | |
Cash flows used in investing activities | |||
Capital expenditures | (11,826) | (7,437) | |
Proceeds from sale of property, plant and equipment | 442 | - | |
Cash used in investing activities | (11,384) | (7,437) | |
Cash flows used in financing activities | |||
Proceeds from loans and credit facilities | 7 | 5,854 | 7,924 |
Repayment of Senior Secured Corporate Credit facility with BCP | 7 | (6,250) | (6,250) |
Interest paid | (2,003) | (1,602) | |
Repayment of leases | (529) | (528) | |
Cash used in financing activities | (2,928) | (456) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (65) | 9 | |
Increase (decrease) in cash and cash equivalents | 2,098 | (1,210) | |
Cash and cash equivalents, beginning of period | 9,122 | 5,074 | |
Cash and cash equivalents, end of period | 11,220 | 3,864 |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
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Sierra Metals Inc.
Notes to the Condensed Interim Consolidated Financial Statements (unaudited) For the three months ended March 31, 2024 and 2023
(In thousands of United States dollars, except per share amounts and unless otherwise stated)
-
Description of business and nature of operations
Sierra Metals Inc. ("Sierra Metals" or the "Company") was incorporated under the Canada Business Corporations Act on April 11, 1996 and is a diversified Canadian mining company focused on the production, exploration and development of precious and base metals in Peru and Mexico. The Company's key priorities are to generate strong cash flows and to maximize shareholder value.
The Company's common shares (the "Common Shares") are listed and traded on the Toronto Stock Exchange (the "TSX") under the symbol "SMT" and on the US Over-the-Counter "OTCQX" under the symbol "SMTSF". The registered office of the Company is 200 Bay Steet, South Tower, Suite 2800, Toronto, Ontario M5J 2J3 Canada.
The Company owns an 81.84% interest in the polymetallic Yauricocha Mine in Peru and a 100% interest in the Bolivar and Cusi Mines in Mexico. The Company placed Cusi in care and maintenance in Q3 2023 and initiated the process for the sale of the mine, which is subject to the corresponding legal and/or regulatory approvals. In addition to its producing mines, the Company also owns various exploration projects in Mexico and Peru.
- Material accounting policies and going concern
The significant accounting policies used in the preparation of these condensed interim consolidated financial statements are as follows: - Basis of preparation
These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. These unaudited condensed interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2023. The Company's material accounting policies were presented in note 2 to the consolidated financial statements for the year ended December 31, 2023, and have been consistently applied in the preparation of these condensed interim consolidated financial statements. These condensed interim consolidated financial statements were authorized for issuance by the Board of Directors on May 10, 2024. - Basis of consolidation
These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries, which are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date that control commences until the date that control ceases.
Non-controlling interests represent equity interests in subsidiaries owned by outside parties. Changes in the parent company's ownership interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.
The principal subsidiaries of the Company and their geographical locations as at March 31, 2024 are as follows:
- Basis of preparation
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Sierra Metals Inc.
Notes to the Condensed Interim Consolidated Financial Statements (unaudited) For the three months ended March 31, 2024 and 2023
(In thousands of United States dollars, except per share amounts and unless otherwise stated)
Name of the subsidiary | Ownership interest | Location |
Dia Bras EXMIN Resources Inc. | 100% | Canada |
Sociedad Minera Corona, S. A. ("Corona") 1 | 81.84% | Perú |
Dia Bras Peru, S. A. C. ("Dia Bras Peru") 1 | 100% | Perú |
Dia Bras Mexicana, S. A. de C. V. ("Dia Bras Mexicana") | 100% | México |
EXMIN, S. A. de C. V. | 100% | México |
Servicios de Produccion Y Extraccion de Chihuahua, S.A. de C.V | 100% | México |
1The Company, through its wholly owned subsidiary Dia Bras Peru, holds an 81.84% interest in Corona, which represents 92.33% of the voting shares. The Company consolidates Corona's financial results and records a non- controlling interest for the 18.16% that it does not own.
-
Going concern
As of March 31, 2024, the Company continues to be in breach of its debt covenants related to its senior secured corporate credit facility (the "Corporate Facility") and the term loan ("the Term Loan") with Banco de Credito del Peru ("BCP") and Banco Santander S.A. ("Santander") (together, referred to as "the lenders"), requiring the Company to reclassify $25.0 million of its long term debt into short- term (Note 7). The Company has obtained waivers related to the covenant breaches from the lenders for each of the quarters until the end of 2023. However, if the Company is unable to obtain such waivers for any current or potential future breaches of its debt covenants, it could materially and adversely affect the Company's future operations, cash flows, earnings, results of operations, financial condition and the economic viability of its projects.
On March 31, 2024, the Company reported a cash and cash equivalent balance of $11.2 million and a negative working capital of $92.1 million, which includes the reclassification of $25.0 million of the term loan as a current liability.
The conditions described above indicate the existence of material uncertainties that may cast significant doubt on the Company's ability to realize its assets and discharge its liabilities in the normal course of business and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern.
The Company is in an advanced stage of discussion with a syndicate of banks to refinance its credit facilities.
The Company's ability to continue as a going concern is dependent on its ability to repay or refinance its current loans, obtain the necessary financing to advance its operations, exploration projects and meet its ongoing corporate overhead costs. Although the Company has been successful in obtaining debt or equity financing in the past, there is no assurance that it will be able to do so in the future or that such arrangements will be on terms advantageous to the Company. These consolidated financial statements are prepared on a going concern basis which assumes that the Company will continue for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, these consolidated financial statements do not include adjustments to the recoverability and classification of recorded asset and liabilities and related expenses that might be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities and commitments in other than the normal course of business at amounts different from those in the accompanying consolidated financial statements. Such adjustments could be material.
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Sierra Metals Inc.
Notes to the Condensed Interim Consolidated Financial Statements (unaudited) For the three months ended March 31, 2024 and 2023
(In thousands of United States dollars, except per share amounts and unless otherwise stated)
-
Asset held for sale
During Q1 2023, the Company declared the Cusi Mine as a non-core asset. On September 20, 2023, the Company placed Cusi in care and maintenance, and initiated the process for the sale of the mine, which is subject to the corresponding legal and/or regulatory approvals.
The assets and liabilities of the Cusi Mine were classified as held for sale in the Company's consolidated statement of financial position and consisted of the following:
March 31, 2024 December 31, 2023 | ||
$ | $ | |
ASSETS | ||
Non-current assets: | ||
Property, plant and equipment | 5,111 | 5,591 |
Total non-current assets | 5,111 | 5,591 |
Total assets held for sale | 5,111 | 5,591 |
LIABILITIES | ||
Non-current liabilities: | ||
Decommissioning liability | 395 | 395 |
Total non-current liabilities | 395 | 395 |
Total liabilities related to assets held for sale | 395 | 395 |
Net loss from the Cusi Mine for the three-months ended March 31, 2024 and 2023 was calculated as follows:
Three months ended March 31, | ||
2024 | 2023 | |
$ | $ | |
Revenue | (79) | 4,989 |
Cost of sales | ||
Mining costs(1) | (746) | (5,230) |
Depletion, depreciation and amortization | - | (582) |
(746) | (5,812) | |
Gross loss from mining operations | (825) | (823) |
General and administrative expenses | - | (284) |
Selling expenses | (1) | (243) |
Income from operations | (826) | (1,350) |
Other expenses and losses | (39) | (10) |
Foreign currency exchange gain (loss) | - | (152) |
Interest expense and other finance costs | - | (8) |
Loss before income tax | (865) | (1,520) |
Income taxes | - | (50) |
Net loss | (865) | (1,570) |
- Care and maintenance costs for the three-months ended March 31, 2024.
The net assets of the disposal group classified as held for sale were measured at the lower of their carrying amount and fair value less costs to sell as at March 31, 2024. The fair value of the disposal group was determined based on current third party offers received by management.
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Sierra Metals Inc. published this content on 13 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 May 2024 11:03:09 UTC.