SIERRA METALS INC.
Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2023 and 2022
(unaudited)
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November 9, 2023
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 Audit Committee reviews the results of the condensed interim consolidated financial statements prior to their submission to the Board of Directors for approval. The condensed interim consolidated financial statements have not been audited.
"Ernesto Balarezo" | "Jose Fernandez-Baca Llamosas" |
Ernesto Balarezo | Jose Fernandez-Baca Llamosas |
Chief Executive Officer | Chief Financial Officer |
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Sierra Metals Inc.
Condensed Interim Consolidated Statements of Financial Position
As at September 30, 2023 and December 31, 2022
(In thousands of United States dollars, unaudited)
Note | September 30, 2023 | December 31, 2022 | |
$ | $ | ||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | 6,052 | 5,074 | |
Restricted cash | 9 (a) | 12,113 | - |
Trade and other receivables | 3 | 22,381 | 25,110 |
Income tax receivable | 14,431 | 16,423 | |
Prepaid expenses | 2,331 | 2,233 | |
Inventories | 4 | 22,255 | 22,428 |
79,563 | 71,268 | ||
Assets held for sale | 2 (d) | 5,505 | 6,589 |
Total current assets | 85,068 | 77,857 | |
Non-current assets: | |||
Property, plant and equipment | 5 | 240,281 | 232,586 |
Total assets | 325,349 | 310,443 | |
LIABILITIES | |||
Current liabilities: | |||
Accounts payable and accrued liabilities | 6 | 65,722 | 57,989 |
Loans payable | 7 | 81,098 | 82,800 |
Decommissioning liability | 3,008 | 2,314 | |
Other liabilities | 8 | 16,223 | 12,567 |
Liabilities related to assets held for sale | 2 (d) | 392 | 329 |
166,443 | 155,999 | ||
Non-current liabilities: | |||
Deferred income tax | 15,376 | 19,591 | |
Decommissioning liability | 12,062 | 12,843 | |
Other liabilities | 8 | 9,022 | 5,816 |
Total liabilities | 202,903 | 194,249 | |
EQUITY | |||
Share capital | 9 | 233,686 | 233,576 |
Amount raised through private placement | 9 | 12,113 | - |
Accumulated deficit | (167,199) | (161,589) | |
Other reserves | 9,810 | 9,627 | |
Equity attributable to owners of the Company | 88,410 | 81,614 | |
Non-controlling interest | 10 | 34,036 | 34,580 |
Total equity | 122,446 | 116,194 | |
Total liabilities and equity | 325,349 | 310,443 |
Going Concern (note 2(c))
Contingencies (notes 7 and 16)
Approved on behalf of the Board and authorized for issue on November 9, 2023
"Oscar Cabrera" | "Miguel Aramburu" |
Oscar Cabrera | Miguel Aramburu |
Chairman of the Board | Chairman 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 (Loss)
For the three and nine months ended September 30, 2023 and 2022
(In thousands of United States dollars, except per share amounts, unaudited)
Three months ended September 30 | Nine months ended September 30 | |||||
2023 | 2022 | 2023 | 2022 | |||
Note | $ | $ | $ | $ | ||
Revenue | 15 | 56,963 | 35,198 | 168,911 | 126,959 | |
Cost of sales | ||||||
Mining costs | 11 | (39,578) | (33,083) | (105,306) | (103,120) | |
Depletion, depreciation and amortization | 11 | (9,036) | (8,634) | (24,202) | (25,023) | |
(48,614) | (41,717) | (129,508) | (128,143) | |||
Gross profit (loss) from mining operations | 8,349 | (6,519) | 39,403 | (1,184) | ||
General and administrative expenses | (7,158) | (5,332) | (18,204) | (14,903) | ||
Selling expenses | (2,884) | (1,676) | (8,173) | (5,269) | ||
Asset impairment | - | (25,000) | - | (25,000) | ||
Income (loss) from operations | (1,693) | (38,527) | 13,026 | (46,356) | ||
Other incomes and gains (expenses and losses) | 103 | (999) | (488) | (1,495) | ||
Foreign currency exchange gain (loss) | 972 | 405 | (869) | (1,657) | ||
Interest expense and other finance costs | (2,624) | (1,390) | (7,536) | (3,057) | ||
Income (loss) before income tax | (3,242) | (40,511) | 4,133 | (52,565) | ||
Income tax recovery | 484 | 2,409 | 566 | 421 | ||
Net income (loss) from continuing operations | (2,758) | (38,102) | 4,699 | (52,144) | ||
Net loss from discontinued operations | 2 (d) | (6,608) | (9,012) | (10,853) | (8,580) | |
Net loss | (9,366) | (47,114) | (6,154) | (60,724) | ||
Net income (loss) attributable to: | ||||||
Shareholders of the Company | (9,301) | (46,150) | (5,610) | (61,047) | ||
Non-controlling interests | 10 | (65) | (964) | (544) | 323 | |
(9,366) | (47,114) | (6,154) | (60,724) | |||
Weighted average shares outstanding (000s) | ||||||
Basic | 164,593 | 163,934 | 164,507 | 163,768 | ||
Diluted | 164,593 | 163,934 | 164,507 | 163,768 | ||
Basic income (loss) per share | ||||||
Continuing operations | (0.02) | (0.22) | 0.04 | (0.32) | ||
Discontinued operations | (0.04) | (0.06) | (0.07) | (0.05) | ||
Total | (0.06) | (0.28) | (0.03) | (0.37) | ||
Diluted income (loss) per share | ||||||
Continuing operations | (0.02) | (0.22) | 0.04 | (0.32) | ||
Discontinued operations | (0.04) | (0.06) | (0.07) | (0.05) | ||
Total | (0.06) | (0.28) | (0.03) | (0.37) |
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 (Loss) For the three and nine months ended September 30, 2023 and 2022
(In thousands of United States dollars, unaudited)
Three months ended September 30 | Nine months ended September 30 | |||
2023 | 2022 | 2023 | 2022 | |
$ | $ | $ | $ | |
Net loss | (9,366) | (47,114) | (6,154) | (60,724) |
Other comprehensive income (loss) | ||||
Items that may be subsequently classified to net income: | ||||
Currency translation adjustments on foreign operations | 23 | (300) | 4 | (490) |
Total comprehensive income (loss) | (9,343) | (47,414) | (6,150) | (61,214) |
Total comprehensive income (loss) attributable to: | ||||
Shareholders | (9,278) | (46,450) | (5,606) | (61,537) |
Non-controlling interests | (65) | (964) | (544) | 323 |
Total comprehensive income (loss) | (9,343) | (47,414) | (6,150) | (61,214) |
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
For the nine months ended September 30, 2023 and 2022
(In thousands of United States dollars, unaudited)
Common Shares | Private | Other | Accumulated | Total attributable | Non-controlling | Total Shareholder's | ||
Shares | Amounts | placement (1) | 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) | - | - | - | - |
Proceeds from private placement | 12,113 | 12,113 | 12,113 | |||||
Share-based compensation expense | ||||||||
(related to RSUs) | - | - | 289 | - | 289 | - | 289 | |
Total comprehensive income (loss) | - | - | 4 | (5,610) | (5,606) | (544) | (6,150) | |
Balance at September 30, 2023 | 164,593,066 | 233,686 | 12,113 | 9,810 | (167,199) | 88,410 | 34,036 | 122,446 |
Common Shares | Other | Accumulated | Total attributable | Non-controlling | Total Shareholder's | |||
Shares | Amounts | reserves | deficit | to shareholders | Interest | equity | ||
$ | $ | $ | $ | $ | $ | |||
Balance at January 1, 2022 | 163,428,150 | 232,915 | 10,420 | (74,086) | 169,249 | 35,383 | 204,632 | |
- | - | |||||||
Exercise of RSUs | 513,315 | 603 | (603) | - | - | - | - | |
Share-based compensation expense | - | |||||||
(related to RSUs) | - | 579 | - | 579 | - | 579 | ||
Total comprehensive income (loss) | - | (490) | (61,047) | (61,537) | 323 | (61,214) | ||
Balance at September 30, 2022 | 163,941,465 | 233,518 | 9,906 | (135,133) | 108,291 | 35,706 | 143,997 |
(1) See note 9(a). No shares were issued as at September 30, 2023 due to the pending approval from the TSX.
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 For the three and nine months ended September 30, 2023 and 2022 (In thousands of United States dollars, unaudited)
Note | |
Operating Activities | |
Net loss from operations | |
Decomissioning liabilities settled | |
Items not affecting cash: | |
Depletion, depreciation and amortization | |
Share-based compensation | |
Asset impairment | |
Loss on disposals and write-offs | |
Interest expense and other finance costs | |
Other non-cash items | |
Income tax recovery | |
Unrealized foreign currency exchange gain | |
Operating cash flows before movements in working capital | |
Net changes in non-cash working capital items | 14 |
Decomissioning liabilities settled | |
Income tax paid | |
Cash generated from operating activities | |
Investing Activities | |
Capital expenditures | |
Cash used in investing activities | |
Financing Activities | |
Proceeds from loans and credit facilities (net) | 7 (a) |
Proceeds from private placement | 9 (a) |
Repayment of loans and credit facilities | 7 (a) & (c) |
Interest paid |
Repayment of leases
Cash generated from financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Additional information related to discontinued operationsOperating cash flows from discontinued operations
Cash used in investing activities
Three months ended September 30 | Nine months ended September 30 | ||
2023 | 2022 | 2023 | 2022 |
$ | $ | $ | $ |
(9,366) | (47,114) | (6,154) | (60,724) |
9,580 | 9,765 | 26,390 | 28,381 |
460 | 253 | 648 | 579 |
2,500 | 32,000 | 2,500 | 32,000 |
441 | 48 | 520 | 778 |
2,641 | 968 | 7,628 | 2,243 |
357 | - | 357 | - |
(484) | (2,409) | (566) | (421) |
(116) | (279) | (871) | (533) |
6,013 | (6,768) | 30,452 | 2,303 |
2,547 | 11,069 | 8,609 | 25,076 |
(116) | (102) | (638) | (655) |
(1,079) | (3,556) | (3,119) | (20,601) |
7,365 | 643 | 35,304 | 6,123 |
(10,727) | (8,675) | (32,484) | (31,223) |
(10,727) | (8,675) | (32,484) | (31,223) |
9,699 | 12,500 | 10,746 | 25,000 |
12,113 | - | 12,113 | - |
(2,083) | (6,250) | (4,167) | (18,750) |
(1,941) | (699) | (6,646) | (1,728) |
(538) | (227) | (1,724) | (685) |
17,250 | 5,324 | 10,322 | 3,837 |
(116) | (6) | (51) | 24 |
13,772 | (2,714) | 13,091 | (21,239) |
4,393 | 16,404 | 5,074 | 34,929 |
18,165 | 13,690 | 18,165 | 13,690 |
(3,506) | (1,098) | (6,921) | 1,841 |
860 | 389 | 3,119 | 2,707 |
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
For the three and nine months ended September 30, 2023 and 2022
(In thousands of United States dollars, unless otherwise stated, unaudited)
-
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 shares are listed on the Toronto Stock Exchange ("TSX") and its registered office is 77 King Street West, Suite 400, Toronto-Dominion Centre, Toronto, Ontario M5K 0A1 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.
- Significant accounting policies, going concern and assets held for sale
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, 2022. The Company's significant accounting policies were presented in note 2 to the consolidated financial statements for the year ended December 31, 2022, 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 November 9, 2023. - 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 September 30,
2023 are as follows:
- Basis of preparation
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Sierra Metals Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2023 and 2022
(In thousands of United States dollars, unless otherwise stated, unaudited)
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
On October 18, 2022, the Company announced that it was facing liquidity challenges as a result of the recurring operating losses from its Bolivar and Cusi operations and the temporary suspension of operations at the Yauricocha Mine, following a mudslide incident in September 2022.
As a result of these events the Company has been in breach of its debt covenants since Q4 2022, 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 disclose the entire balance as short-term loan (Note 7). The shares in Sociedad Minera Corona S.A. are held as a collateral for these loans. The Company has obtained waivers from the lenders related to the covenant breaches for its credit facilities as of December 31, 2022, March 31, 2023 and June 30, 2023. If the Company is unable to obtain such waivers for the Q3 2023 breach or any 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.
Despite the successful refinancing of part of the corporate credit facility and improved operational performance, the Company continues to be in breach of some of its debt covenants, since these are calculated on a rolling four-quarter basis. Hence the working capital continues to be negative due to the result of the reclassification of the long-term portion of the corporate facility and term loan to current. On September 30, 2023, the Company reported a negative working capital of $78.9 million.
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'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 exploration projects and meet its ongoing corporate overhead costs. During Q2 2023, the Company announced finalization of its definitive agreement with the lenders to refinance $18.8 million of the $25.0 million principal debt repayment obligations that are due in 2023 under the Company's Corporate Facility (note 7(a)). In Q3 2023, the Company raised $12.1 million through a non-brokered private placement. (note 9(a)). Although the Company has been successful in obtaining debt or equity financing, 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
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Sierra Metals Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2023 and 2022
(In thousands of United States dollars, unless otherwise stated, unaudited)
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.
(d) 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 as of September 30, 2023 and consisted of the following:
September 30, 2023 | December 31, 2022 | |
$ | $ | |
ASSETS | ||
Non-current assets: | ||
Property, plant and equipment | 5,505 | 6,589 |
Total non-current assets | 5,505 | 6,589 |
Total assets held for sale | 5,505 | 6,589 |
LIABILITIES | ||
Non-current liabilities: | ||
Decommissioning liability | 392 | 329 |
Total non-current liabilities | 392 | 329 |
Total liabilities related to assets held for sale | 392 | 329 |
Net loss from the Cusi Mine for the three and nine-months ended September 30, 2023 and 2022 was calculated as follows:
Three months ended September 30 | Nine months ended September 30 | |||||
2023 | 2022 | 2023 | 2022 | |||
Note | $ | $ | $ | $ | ||
Revenue | 14 | 2,502 | 3,589 | 11,745 | 19,010 | |
Cost of sales | ||||||
Mining costs | 10 | (5,852) | (3,655) | (17,072) | (15,708) | |
Depletion, depreciation and amortization | 10 | (482) | (1,115) | (1,607) | (3,172) | |
(6,334) | (4,770) | (18,679) | (18,880) | |||
Gross profit from mining operations | (3,832) | (1,181) | (6,934) | 130 | ||
General and administrative expenses | (294) | (312) | (706) | (1,557) | ||
Selling expenses | (186) | (154) | (682) | (770) | ||
Asset impairment | (2,500) | (7,000) | (2,500) | (7,000) | ||
Income from operations | (6,812) | (8,647) | (10,822) | (9,197) | ||
Other incomes and gains (expenses and losses) | 29 | (116) | 89 | 416 | ||
Foreign currency exchange gain (loss) | 192 | (258) | (28) | 242 | ||
Interest expense and other finance costs | (17) | 9 | (92) | (41) | ||
Income before income tax | (6,608) | (9,012) | (10,853) | (8,580) |
The net assets of the disposal group classified as held for sale were measured at the lower of its carrying amount and fair value less costs to sell as at September 30, 2023, resulting in the recognition of a write-down of $2.5 million, included as part of the discontinued operations in the statement of profit or loss. 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 12 November 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 November 2023 09:43:13 UTC.