SIERRA METALS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED MARCH 31, 2024

Corporate Office

200 Bay Street, South Tower,

TSX: SMT

Suite 2800

OTCQX: SMTSF

Toronto, Ontario

www.sierrametals.com

M5J 2J3

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

TABLE OF CONTENTS

1.

INTRODUCTION

3

2.

COMPANY OVERVIEW

3

3.

Q1 2024 OPERATING AND FINANCIAL HIGHLIGHTS

4

4.

OUTLOOK

6

5.

RESULTS OF OPERATIONS

10

6.

SUMMARIZED FINANCIAL RESULTS

15

7.

QUARTERLY FINANCIAL REVIEW

18

8.

LIQUIDITY AND CAPITAL RESOURCES

19

9.

SAFETY, HEALTH AND ENVIRONMENT

20

10.

OTHER RISKS AND UNCERTAINTIES

20

11.

NON-IFRS PERFORMANCE MEASURES

21

12.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

25

13.

OFF BALANCE SHEET ARRANGEMENTS

27

14. DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

("ICFR")

27

15. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

28

2

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

1. INTRODUCTION

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with Sierra Metals Inc.'s (the "Company" or "Sierra" or "Sierra Metals") unaudited condensed interim consolidated financial statements for the three months ended March 31, 2024 and related notes thereto (the "Financial Statements"), which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). References herein to "$" or "USD" are to the United States dollar and "C$" or "CAD" are to the Canadian dollar and all tabular amounts are expressed in thousands of $ unless otherwise stated. All information contained in this MD&A is current as of May 10, 2024, unless otherwise noted.

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". Additional information relating to the Company, including the Company's Annual Information Form ("AIF") for the year ended December 31, 2023 dated March 15, 2024, is available on SEDAR+ at www.sedarplus.caand on the Company's website at www.sierrametals.com. A cautionary note regarding forward-looking information follows this MD&A.

QUALIFIED PERSONS

Ricardo Salazar Milla, Corporate Manager of Mineral Resources is a member of the Australian Institute of Geoscientist and is a Qualified Person under National Instrument 43-101 - Standards of Disclosure for Mineral Projects.

2. COMPANY OVERVIEW

Sierra Metals is a Canadian mining company focused on copper production with additional base and precious metals by-product credits. The Company has two producing mining properties and manages its business on the basis of the geographical location of its mining projects. The Peruvian Operation ("Peru") is comprised of the Yauricocha Mine ("Yauricocha"), located in the province of Yauyos, its near-mine concessions, and exploration and early-stage properties. The Mexican Operation ("Mexico") is comprised of the Bolivar Mine ("Bolivar") located in Chihuahua State, Mexico, its near-mine concessions, and exploration and early-stage properties. The Company plans to continue growing its production base through brownfield exploration investments within its properties.

In Q1 2023, the Cusi Mine ("Cusi") in Mexico was deemed a non-core asset by the Company and on September 20, 2023, was placed on care and maintenance, and a divestment process is currently underway.

The Company is focused on the safety and productivity of its producing mines. Sierra also owns large land packages with several prospective regional targets providing longer-term exploration upside and mineral resource growth potential. The Company is willing to consider and pursue growth opportunities at and surrounding its operating projects to enhance and deliver shareholder value.

3

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

3. Q1 2024 CONSOLIDATED OPERATING AND FINANCIAL HIGHLIGHTS

(In thousands of dollars, except per share and cash cost amounts, consolidated

Q1 2024

Q4 2023

Q1 2023

figures unless noted otherwise)

Operating

Ore Processed / Tonnes Milled

638,916

673,846

518,162

Copper Pounds Produced (000's)

11,247

12,096

8,285

Zinc Pounds Produced (000's)

10,132

9,629

10,579

Silver Ounces Produced (000's)

427

468

389

Gold Ounces Produced

4,505

4,708

3,791

Lead Pounds Produced (000's)

3,049

2,481

2,778

Copper Equivalent Pounds Produced (000's)1

19,973

20,902

16,465

Cash Cost per CuEqLb (Yauricocha)2,3

$

3.27

$

2.88

$

3.00

AISC per CuEqLb (Yauricocha)2,3

$

3.69

$

3.47

$

3.12

Cash Cost per CuEqLb (Bolivar)2,3

$

2.44

$

2.63

$

2.58

AISC per CuEqLb (Bolivar)2,3

$

3.12

$

3.47

$

3.10

Financial

Revenues

$

63,140

$

60,632

$

53,537

Net income (loss)

- Continuing operations

$

1,630

$

(11,266)

$

3,709

- Discontinued Operations

$

(865)

$

(1,907)

$

(1,570)

Net income (loss) attributable to shareholders, including discontinued operations

$

1,159

$

(13,724)

$

2,053

Adjusted EBITDA2 from continuing operations

$

17,913

$

12,233

$

15,482

Operating cash flows before movements in working capital

$

16,486

$

12,845

$

12,851

Adjusted net income (loss) attributable to shareholders2

- Continuing operations

$

5,174

$

(8,470)

$

5,688

- Discontinued Operations

$

(865)

$

(1,829)

$

(942)

Cash and cash equivalents

$

11,220

$

9,122

$

3,864

  1. Copper equivalent produced pounds were calculated using the following weighted average realized prices for Q1 2024 - $3.84/lb Cu, $1.12/lb Zn, $23.41/oz Ag, $2,069/oz Au, $0.94/lb Pb. Copper equivalent production for Q4 2023 and Q1 2023 have been recalculated at the same prices for proper comparison.
  2. This is a non-IFRS performance measure, see Non-IFRS Performance Measures section of the MD&A.
  3. Copper equivalent payable pounds used for the cash cost and AISC calculations were calculated at the following prices:

Q1 2024 - $3.84/lb Cu, $1.12/lb Zn, $23.41/oz Ag, $0.94/lb Pb, $2,069/oz Au.

Q4 2023 - $3.70/lb Cu, $1.13/lb Zn, $23.22/oz Ag, $0.96/lb Pb, $1,976/oz Au.

Q1 2023 - $4.06/lb Cu, $1.42/lb Zn, $22.57/oz Ag, $0.97/lb Pb, $1,891/oz Au.

Q1 2024 Consolidated Production Highlights

  • In Q1 2024 consolidated copper, silver, gold, and lead production were all higher than Q1 2023 by 36%, 10%, 19%, and 10%, respectively.
  • Consolidated Q1 2024 production reaffirms annual 2024 guidance targets for all metals.
  • The Bolivar Mine continued its trend of quarter-over-quarter production increases, achieving another record quarter of metal production in Q1 2024.
  • The underground development below the 1120 level at Yauricocha is progressing as planned and is expected to operate at full capacity by Q4 2024.

4

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

Q1 2024 Operational Highlights

  • Consolidated quarterly throughput during Q1 2024 was 638,916 tonnes, a 23% increase from the same quarter of 2023, as both mines registered increases in throughput during Q1 2024 compared to Q1 2023.
  • Grades from the Bolivar Mine during Q1 2024 were higher than Q1 2023, while Yauricocha experienced declines in grades for precious metals compared to Q1 2023. These lower grades from the Yauricocha Mine were primarily due to the limited available ore above the 1120 level. However, the Company expects that grades will improve as the development below 1120 level progresses.
  • Consolidated production for all metals increased in Q1 2024 compared to Q1 2023, excluding zinc. When compared to Q4 2023, consolidated production for copper, silver, and gold were lower by 7%, 9% and 4%, respectively.
  • Yauricocha's cash cost per copper equivalent payable pound(1) was $3.27 (Q1 2023 - $3.00), and AISC per copper equivalent payable pound(1) of $3.69 (Q1 2023 - $3.12). The increase in cash costs was attributable to higher treatment and refining costs, and lower grades, resulting in a 4% decline in copper equivalent payable pounds. Higher AISC was a combined result of higher cash costs and the increase in sustaining capital focused on developing below the 1120 level during Q1 2024.
  • Bolivar's cash cost per copper equivalent payable pound(1) was $2.44 (Q1 2023 - $2.58), and AISC per copper equivalent payable pound(1) was $3.12 (Q1 2023 - $3.10) for Q1 2024. Cash costs improved during Q1 2024 versus Q1 2023 mainly driven by the 59% increase in copper equivalent payable pounds. AISC for Q1 2024 was slightly higher than Q1 2023, driven by the increase in sustaining capital due to the intensive efforts in mine development meters.

Q1 2024 Consolidated Financial Highlights

    • Consolidated revenue from metals payable amounted to $63.1 million in Q1 2024, marking an 18% increase from the $53.5 million recorded in Q1 2023, mainly attributed to enhanced metal sales at Bolivar, driven by higher grades and increased production volumes when compared to Q1 2023.
    • Adjusted EBITDA(1) of $17.9 million for Q1 2024 increased 16% compared to $15.5 million in Q1 2023.
    • Adjusted net income attributable to shareholders(1) of $4.3 million, or $0.02 per share, for Q1 2024 as compared to the adjusted net income of $4.7 million, or $0.03 per share for Q1 2023.
    • A large component of the net income for every period is the non-cash depletion charge in Peru, which was $1.0 million for Q1 2024 (Q1 2023: $1.1 million). The non-cash depletion charge is based on the aggregate fair value of the Yauricocha mineral property at the date of acquisition of Sociedad Minera Corona S.A. ("Corona") of $371.0 million amortized over the total proven and probable reserves of the mine.
  2. This is a non-IFRS performance measure, see non-IFRS Performance Measures section of this MD&A

5

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

    • Cash flow generated from operations before movements in working capital of $16.5 million for Q1 2024 increased compared to $12.9 million in Q1 2023.
    • Cash and cash equivalents of $11.2 million as at March 31, 2024 compared to the $9.1 million and the $3.9 million, at the end of 2023 and March 31, 2023, respectively. Cash and cash equivalents increased during Q1 2024 as a result of cash generated from operating activities of $16.5 million offset by cash used in investing activities of $11.4 million and cash used in financing activities of $2.9 million.
  2. This is a non-IFRS performance measure, see non-IFRS Performance Measures section of this MD&A

Project Development

  • Mine development at Bolivar during Q1 2024 of 4,241 meters included 1,942 meters of development to prepare stopes for mine production and 2,299 meters were related to development ramps. All development was focused on Bolivar NW and Cieneguita zones.
  • At Yauricocha, development during Q1 2024 included 2,283 meters of development to prepare mining zones and 4,171 meters related to infrastructure and development ramps, including 86 meters below the 1120 level.

Exploration Highlights

Peru

  • During Q1 2024, surface exploration was carried out near the Yauricocha Central mine, specifically in the Doña Leona and La Estación areas. The work mainly consisted of detailed geological mapping and sampling as well as geochemistry works. With these results the diamond drilling programs will be defined.
  • Underground infill exploration continued during Q1 2024 with the aim to replace and increase mineral resources. Approximately 5,537 meters of diamond drilling were executed, mainly in the areas of Fortuna, Fortuna Norte, Prometida, Esperanza Norte II, Maricielo, Privatizadora Sur, and Kimberly.

Mexico:

  • At Bolivar during Q1 2024, 9,787 meters were drilled as part of an infill drilling program in the Bolivar NW, Cieneguita and Dulce areas, with the main purpose of recategorizing inferred resources to indicate and extend the ore body to the northeast of Dulce.

4. OUTLOOK

Management expects 2024 to be the year to consolidate the optimization efforts that started in 2023 and to establish a platform for growth. In 2023, under the guidance of the new management team, the Company began a process of stabilization and optimization of the business.

Prioritizing safety, employee engagement and streamlining operations have helped restore production levels to capacity, while the strategic debt refinancing and private placement in 2023 has stabilized the Company's financial position. The Company remains on track for a further refinancing of its debt which is expected to lead to a formal contract with a syndicate of banks before the end of Q2 2024.

6

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

In February 2024, the Company obtained the environmental permit to develop and mine below the 1120 level at the Yauricocha Mine. This permit provides several significant catalysts for Sierra Metals, such as operational enhancements, maximized operating capacity and cost efficiencies. Using a modest development capital investment, the Company anticipates ramping up to full production levels of 3,600 tonnes per day ("tpd") (40% higher than current levels) by Q4 2024.

At Bolivar, the Company will continue the construction of the new tailings dam, which is expected to be completed over the next three years, allowing the mine to increase its production capacity to 7,500 tpd in the future.

Identifying additional mineral resources at the Company's core operating mines, Yauricocha and Bolivar, is another key priority. Accordingly, on May 7, 2024, the Company announced the results of an updated mineral reserves and resources under National Instrument 43-101 ("NI 43-101") for both its mines. These updated results indicate that the Company has converted resources to reserves and replaced what has been mined. The Company will file the corresponding NI 43-101 technical reports within 45 days of this announcement, which will be available on SEDAR+ and the Company's website.

After the robust Q1 2024 results at the Bolivar Mine and with the development activities below the 1120 level at Yauricocha progressing as planned, the Company remains on track to achieve previously announced production, costs, and capital expenditure guidance for 2024. The tables below summarize the 2024 production guidance from the Yauricocha and the Bolivar mines.

Production Guidance

2024 Guidance

Low

High

Copper (000 lbs)

37,500

43,300

Zinc (000 lbs)

38,600

44,500

Silver (000 oz)

1,500

1,750

Gold (oz)

10,100

11,600

Lead (000 lbs)

10,200

11,800

By Mine

Yauricocha

2024 Guidance

Low

High

Copper (000 lbs)

13,600

15,700

Zinc (000 lbs)

38,600

44,500

Silver (000 oz)

850

1,000

Gold (oz)

2,100

2,400

Lead (000 lbs)

10,200

11,800

Bolivar

2024 Guidance

Low

High

Copper (000 lbs)

23,900

27,600

Silver (000 oz)

650

750

Gold (oz)

8,000

9,200

7

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

2024 Cost Guidance

A mine by mine breakdown of 2024 production guidance, cash costs and all-in sustaining costs ("AISC") are included in the table below. Starting 2024, the Company is modifying its definition of cash cost to include treatment and refining charges, selling costs and, site G&A costs. AISC includes cash costs and sustaining capital expenditure and is calculated on the basis of copper equivalent payable pounds.

Cash costs(1) range

AISC(1) range

Mine

per CuEqLb

per CuEqLb

Yauricocha

$3.31 - $3.41

$3.75 - $3.86

Bolivar

$2.56 - $2.72

$3.28 - $3.36

  1. This is a non-IFRS performance measure, see Non-IFRS Performance Measures section of the MD&A. Cash Cost comprise of: operating costs, selling expenses, administrative expenses, commercial terms and discounts. All In Sustaining Costs (AISC) comprise of Cash Costs and sustaining capex. Copper equivalent payable pounds for guidance AISC were calculated using the following metal prices: $3.91/lb Cu, $1.20/lb Zn, $23.66/oz Ag, $0.94/lb Pb, $1,921/oz Au.

2024 Capex Guidance

A breakdown by mine of the throughput and planned capital investments is shown in the following table:

Yauricocha

Bolivar

Consolidated

(Amounts in $M)

Low

High

Low

High

Low

High

Sustaining

12.5

15.6

17.4

21.8

29.9

37.4

Growth

1.9

2.3

7.4

9.3

9.3

11.6

Total

14.4

17.9

24.8

31.1

39.2

49.0

Total capital for 2024 is expected to range between $39.2 million to $49.0 million, with Management retaining the option to adjust the capital expenditure plan depending on the business conditions. Sustaining capital mainly comprises of mine development of up to $14.7 million ($8.9 million in Bolivar and $5.8 million in Yauricocha) mainly targeted towards building mine infrastructure needed to access and develop future mining zones. The remaining sustaining capital expenditure consists of infill drilling and replacement of equipment at the mines.

Growth capital for 2024 is expected to range between $9.3 million to $11.6 million, focusing on the new tailings dam at Bolivar.

Market Review and Trends

Metal Prices

The following table provides the London Metal Exchange ("LME") average prices for Q1 2024 and the four quarters of 2023:

8

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

LME Average Prices (In US dollars) Copper (lb)

Zinc (lb)

Silver (oz)

Gold (oz)

Lead (lb)

2024

2023

Q1

Q4

Q3

Q2

Q1

$

3.83

$

3.71

$

3.79

$

3.84

$

4.05

$

1.11

$

1.13

$

1.10

$

1.15

$

1.42

$

23.32

$

23.23

$

23.57

$

24.18

$

22.56

$

2,068

$

1,977

$

1,929

$

1,978

$

1,888

$

0.94

$

0.96

$

0.98

$

0.96

$

0.97

Copper prices in Q1 2024 built on the momentum from China's late 2023 infrastructure stimulus with LME spot prices ranged between $3.67 - $4.07 per pound. Although a stronger bullish sentiment was perceived, the "moderation" on prices reflected a slower pace of Chinese spending and global economic uncertainties. Also, the Lunar New Year holiday, typically leading to a slowdown in economic activity, may have also contributed to the price moderation in Q1 2024. However, the ongoing shift towards renewable energy, a significant driver of copper demand for electrical components, provided support throughout the quarter. The outlook is optimistic due to the anticipated copper deficit and a bullish macro environment for commodities through the rest of 2024 and beyond.

The zinc market presented a mixed picture in Q1 2024. Infrastructure spending and green initiatives, particularly in renewable energy where zinc is used in solar panels, boosted demand. However, supply constraints kept prices volatile, with LME spot prices averaging around $1.04 - $1.18 per pound. Similar to copper, the Lunar New Year likely caused a temporary dip in zinc demand due to reduced industrial activity. The outlook for zinc remains positive in the short-term. While Chinese smelters are not restricting production as much as some hoped, mine supply disruptions in other regions could still push prices higher in the short run.

Lead prices mirrored the zinc prices fluctuations, averaging $0.89 - $0.99 per pound on the LME. The electric vehicle battery market provided some support, but concerns about a potential global slowdown and uncertainties surrounding the Chinese car market weighed on prices. As with copper and zinc, the Lunar New Year likely caused a temporary pause in lead demand. Overall, the outlook on lead is looking weaker. Rising LME stocks and fewer Chinese exports are pressuring prices downward.

Geopolitical tensions and inflationary pressures remained as the primary drivers for gold in Q1 2024. LME spot prices averaged around $2,060 per ounce.

The Lunar New Year likely caused a temporary dip in silver demand due to reduced industrial activity in China. However, silver prices ranged between $22 to $26 per ounce in Q1 2024. Unlike gold, the industrial applications of silver in electronics, solar panels (alongside copper), and other sectors provided a consistent demand.

Currency Exchange Rates

The results of Sierra's operations are affected by US dollar exchange rates. Sierra's largest exposures are to the US dollar/Peruvian Sol ("PEN") exchange rate and the US dollar/Mexican Peso ("MXN") exchange rate which impacts operating and administration costs in Peru and Mexico incurred in PEN and MXN while revenues are earned in US dollars. As at March 31, 2024 the USD/PEN exchange rate was 3.72 (December 31, 2023: 3.71) and the USD/MXN exchange rate was 16.68 (December 31, 2023: 16.89). The Company also has a minor exposure to the Canadian dollar through corporate administrative costs.

9

Sierra Metals Inc.

Management's Discussion and Analysis

For the three months ended March 31, 2024

(In thousands of United States dollars, unless otherwise stated)

5. RESULTS OF OPERATIONS

Selected Production Results on a Mine-by-Mine Basis for the Past Eight Quarters

2024

2023

2022

Production Highlights

Q1

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Ore Processed/tonnes milled

Yauricocha

240,686

263,851

259,732

244,315

219,145

152,586

269,057

317,087

Bolivar

398,230

409,995

362,890

405,987

299,017

270,313

227,669

256,372

Consolidated

638,916

673,846

622,622

650,302

518,162

422,899

496,726

573,459

Cash cost per tonne processed

Yauricocha

$

75.53

$

73.81

$

75.89

$

80.63

$

78.38

$

99.67

$

74.75

$

69.31

Bolivar

$

47.12

$

46.43

$

47.52

$

41.57

$

43.99

$

41.05

$

54.37

$

55.38

Consolidated

$

57.82

$

57.15

$

59.36

$

56.24

$

58.54

$

62.20

$

65.41

$

63.08

Silver ounces produced (000's)

Yauricocha

223

289

310

316

249

134

256

267

Bolivar

204

179

148

207

140

93

71

83

Consolidated

427

468

458

523

389

227

327

350

Copper pounds produced (000's)

Yauricocha

3,288

5,036

3,807

2,808

2,895

1,621

3,514

5,127

Bolivar

7,959

7,060

5,671

7,651

5,390

4,549

2,785

3,207

Consolidated

11,247

12,096

9,478

10,459

8,285

6,170

6,299

8,334

Lead pounds produced (000's)

Yauricocha

3,049

2,481

4,084

3,930

2,778

1,749

3,579

3,060

Consolidated

3,049

2,481

4,084

3,930

2,778

1,749

3,579

3,060

Zinc pounds produced (000's)

Yauricocha

10,132

9,629

11,176

12,228

10,579

6,367

10,815

10,426

Consolidated

10,132

9,629

11,176

12,228

10,579

6,367

10,815

10,426

Gold ounces produced

Yauricocha

503

951

686

633

754

439

743

1,179

Bolivar

4,002

3,757

2,965

3,678

3,037

2,801

1,267

1,283

Consolidated

4,505

4,708

3,651

4,311

3,791

3,240

2,010

2,462

Consolidated Production

Q1 2024

Q4 2023

Q1 2023

Tonnes processed

638,916

673,846

518,162

Daily throughput

7,302

7,701

5,922

Copper pounds (000's)

11,247

12,096

8,285

Zinc pounds (000's)

10,132

9,629

10,579

Silver ounces (000's)

427

468

389

Gold ounces

4,505

4,708

3,791

Lead pounds (000's)

3,049

2,481

2,778

Metals payable in concentrates

Copper pounds (000's)

11,023

11,310

7,814

Zinc pounds (000's)

8,684

7,407

9,394

Silver ounces (000's)

370

399

318

Gold ounces

4,084

4,087

3,297

Lead pounds (000's)

2,957

2,473

2,668

Copper equivalent payable pounds (000's) (1)

18,736

18,901

15,040

  1. Copper equivalent payable pounds were calculated using the following realized prices: Q1 2024 - $3.84/lb Cu, $1.12/lb Zn, $23.41/oz Ag, $0.94/lb Pb, $2,069/oz Au.
    Q4 2023 - $3.70/lb Cu, $1.13/lb Zn, $23.22/oz Ag, $0.96/lb Pb, $1,976/oz Au. Q1 2023 - $4.06/lb Cu, $1.42/lb Zn, $22.57/oz Ag, $0.97/lb Pb, $1,891/oz Au.

10

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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 11:17:04 UTC.