Sierra Metals : Condensed Interim Consolidated Financial Statements (Form 6-K)

Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020

(unaudited)

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August 5, 2021

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 of the Board of Directors approved the Company's unaudited condensed interim consolidated financial statements.

'Luis Marchese'		'Ed Guimaraes'
Luis Marchese		Ed Guimaraes
Chief Executive Officer		Chief Financial Officer

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Sierra Metals Inc.

Condensed Interim Consolidated Statements of Financial Position

As at June 30, 2021 and December 31, 2020

(In thousands of United States dollars, unaudited)

		Note			June 30, 2021			December 31, 2020
					$			$
ASSETS
Current assets:
Cash and cash equivalents							76,102				71,473
Trade and other receivables			4				45,020				38,694
Income tax receivable							489				438
Prepaid expenses							1,598				1,968
Inventories			5				29,938				23,476
							153,147				136,049
Non-current assets:
Property, plant and equipment			6				311,454				301,786
Deferred income tax							1,928				1,757
Total assets							466,529				439,592
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities			7				44,159				30,317
Income tax payable							9,862				7,545
Loans payable			8				24,822				18,480
Decommissioning liability							3,283				1,260
Other liabilities							8,730				7,562
							90,856				65,164
Non-current liabilities:
Loans payable			8				68,501				80,903
Deferred income tax							29,742				29,903
Decommissioning liability							18,393				21,207
Other liabilities							3,324				2,207
Total liabilities							210,816				199,384
EQUITY
Share capital			9				232,915				230,980
Accumulated deficit							(29,652	)			(41,820	)
Other reserves							10,571				11,840
Equity attributable to owners of the Company							213,834				201,000
Non-controlling interest			10				41,879				39,208
Total equity							255,713				240,208
Total liabilities and equity							466,529				439,592

Contingencies (notes 3, 8 and 17)

Approved on behalf of the Board and authorized for issue on August 5, 2021:

'Jose Vizquerra'		'Koko Yamamoto'
Jose Vizquerra		Koko Yamamoto
Chairman of the Board		Chairperson 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 six months ended June 30, 2021 and 2020

(In thousands of United States dollars, except per share amounts, unaudited)

				Three Months Ended June 30,			Six Months Ended June 30,
				2021			2020			2021			2020
		Note								$			$
Revenue		16			79,449			41,901			149,073			97,459
Cost of sales
Mining costs		11			(35,549	)		(21,643	)		(72,666	)		(59,391	)
Depletion, depreciation and amortization		11			(10,725	)		(8,562	)		(21,973	)		(18,155	)
					(46,274	)		(30,205	)		(94,639	)		(77,546	)
Gross profit from mining operations					33,175			11,696			54,434			19,913
General and administrative expenses					(5,187	)		(4,588	)		(11,183	)		(10,078	)
Selling expenses					(2,858	)		(1,979	)		(5,578	)		(4,577	)
Income from operations					25,130			5,129			37,673			5,258
Other income (loss)					(464	)		501			(703	)		817
Foreign currency exchange gain (loss)					(1,229	)		(2,049	)		(497	)		1,395
Interest expense and other finance costs					(863	)		(954	)		(1,743	)		(2,386	)
Derivative instruments gains		13			-			-			451			-
Income before income tax					22,574			2,627			35,181			5,084
Income taxes (expense) recovery:
Current tax (expense)					(11,875	)		(2,082	)		(20,667	)		(4,093	)
Deferred tax (expense) recovery					380			(244	)		325			(2,438	)
					(11,495	)		(2,326	)		(20,342	)		(6,531	)
Net income (loss)					11,079			301			14,839			(1,447	)
Net income (loss) attributable to:
Shareholders of the Company					9,084			154			12,168			(1,715	)
Non-controlling interests		10			1,995			147			2,671			268
					11,079			301			14,839			(1,447	)
Weighted average shares outstanding (000s)
Basic					163,428			162,811			163,121			162,463
Diluted					164,740			164,220			164,504			163,872
Basic income (loss) per share					0.06			0.00			0.07			(0.01	)
Diluted income (loss) per share					0.06			0.00			0.07			(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 (Loss)

For the three and six months ended June 30, 2021 and 2020

(In thousands of United States dollars, unaudited)

		Three Months Ended June 30,			Six Months Ended June 30,
		2021			2020			2021			2020
		$			$			$			$
Net income (loss)			11,079				301				14,839				(1,447	)
Other comprehensive loss
Items that may be subsequently classified to net loss:
Currency translation adjustments on foreign operations			161				532				(58	)			(204	)
Total comprehensive income (loss)			11,240				833				14,781				(1,651	)
Total comprehensive income (loss) attributable to shareholders			9,245				686				12,110				(1,919	)
Non-controlling interests			1,995				147				2,671				268
Total comprehensive income (loss) attributable to shareholders			11,240				833				14,781				(1,651	)

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 six months ended June 30, 2021 and 2020

(In thousands of United States dollars, unaudited)

		Common Shares			Other			Retained earnings			Total attributable			Non-controlling			Total
		Shares			Amounts			reserves			(accumulated deficit)			to shareholders			Interest			shareholders' equity
					$			$			$			$			$			$
Balance at January 1, 2021			162,810,553				230,980				11,840				(41,820	)			201,000				39,208				240,208
Exercise of RSUs			617,597				1,935				(1,935	)			-				-				-				-
Share-based compensation expense							-				724				-				724				-				724
Total comprehensive income (loss)							-				(58	)			12,168				12,110				2,671				14,781
Balance at June 30, 2021			163,428,150				232,915				10,571				(29,652	)			213,834				41,879				255,713

		Common Shares			Other			Retained earnings			Total attributable			Non-controlling			Total
		Shares			Amounts			reserves			(accumulated deficit)			to shareholders			Interest			shareholders' equity
					$			$			$			$			$			$
Balance at January 1, 2020			162,115,379				230,456				11,566				(65,239	)			176,783				35,236				212,019
Exercise of RSUs			695,174				524				(524	)			-				-				-				-
Share-based compensation expense			-				-				266				-				266				-				266
Total comprehensive income			-				-				(204	)			(1,715	)			(1,919	)			268				(1,651	)
Balance at June 30, 2020			162,810,553				230,980				11,104				(66,954	)			175,130				35,504				210,634

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 six months ended June 30, 2021 and 2020
(In thousands of United States dollars, unaudited)

					Three Months Ended June 30,			Six months ended June 30,
		Note			2021			2020			2021			2020
					$			$			$			$
Cash flows from operating activities
Net income (loss) from operations							11,079				301				14,839				(1,447	)
Adjustments for:
Items not affecting cash:
Depletion, depreciation and amortization							12,027				8,597				23,809				18,299
Share-based compensation							287				(107	)			724				266
Loss on disposals and write-offs							-				751				-				953
Interest expense and other finance costs							792				954				1,672				2,386
NRV adjustment to inventory							385				-				741				1,216
Current income tax expense							11,875				2,082				20,667				4,093
Deferred income taxes expense (recovery)							(380	)			244				(325	)			2,438
Unrealized foreign currency exchange (gain) loss							(217	)			362				(653	)			690
Operating cash flows before movements in working capital							35,848				13,184				61,474				28,894
Net changes in non-cash working capital items			15				(11	)			(4,612	)			3,253				(8,379	)
Decomissioning liabilities settled							(300	)			(205	)			(358	)			(243	)
Income tax paid							(7,119	)			(217	)			(17,791	)			(5,592	)
Cash generated from operating activities							28,366				8,150				46,578				14,680
Cash flows used in investing activities
Capital expenditures							(19,499	)			(3,226	)			(34,051	)			(14,461	)
Cash used in investing activities							(19,499	)			(3,226	)			(34,051	)			(14,461	)
Cash flows used in financing activities
Repayment of BCP loan							(6,250	)			-				(6,250	)			-
Loans interest paid							(850	)			(1,049	)			(1,693	)			(2,322	)
Cash used in financing activities							(7,100	)			(1,049	)			(7,943	)			(2,322	)
Effect of foreign exchange rate changes on cash and cash equivalents							(46	)			(47	)			45				(134	)
Increase (decrease) in cash and cash equivalents							1,773				3,828				4,629				(2,237	)
Cash and cash equivalents, beginning of period							74,329				36,915				71,473				42,980
Cash and cash equivalents, end of period							76,102				40,743				76,102				40,743

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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Sierra MetalsInc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020
(In thousands of United States dollars, unless otherwise stated, unaudited)

1	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 Canadian and Peruvian listed 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 TSX, NYSE American Exchange, and the Bolsa de Valores de Lima ('BVL') and its registered office is 161 Bay Street, Suite 4260, Toronto, Ontario, M5J 2S1, 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. In addition to its producing mines, the Company also owns various exploration projects in Mexico and Peru.

2	Significant accounting policies

The significant accounting policies used in the preparation of these condensed interim consolidated financial statements are as follows:

(a)	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, 2020. The Company's significant accounting policies were presented in note 2 to the consolidated financial statements for the year ended December 31, 2020, 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 August 5, 2021.

(b)	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.

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Sierra MetalsInc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020
(In thousands of United States dollars, unless otherwise stated, unaudited)

2	Significant accounting policies (continued)

The principal subsidiaries of the Company and their geographical locations as at June 30, 2021 are as follows:

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
Servicios de Minería de la Sierra, S. A. de C. V.			100	%			México
Bolívar Administradores, S. A. de C. V.			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.

3	COVID-19 estimation uncertainty

In preparing the Company's consolidated financial statements, the management makes judgments in applying its accounting policies. The areas of policy judgment are consistent with those reported in the Company's 2020 annual consolidated financial statements. In addition, the Company makes assumptions about the future in deriving estimates used in preparing our consolidated financial statements. As disclosed in the 2020 annual consolidated financial statements, sources of estimation uncertainty include estimates used to determine the recoverable amounts of long-lived assets, recoverable reserves and resources, the provision for income taxes and the related deferred tax assets and liabilities and the valuation of other assets and liabilities including decommissioning and restoration provisions.

Since March 2020, the global economic activities have been impacted by the spread of the Coronavirus, also known as COVID-19. While commodities and stock markets have recovered from the earlier shocks of the pandemic, there is still some uncertainty due to the new variants of the virus. The impact of this pandemic could include placing sites into care and maintenance, significant COVID-19 specific costs, volatility in the prices for gold and other metals, logistical challenges shipping our products, delays in product refining and smelting due to restrictions or temporary closures, additional travel restrictions, other supply chain disruptions and workforce interruptions, including loss of life. Depending on the duration and extent of the impact of COVID-19, this could materially impact the Company's results of operations, cash flows and financial condition and could result in material impairment charges to the Company's property, plant and equipment and inventories.

The Company continues to take proactive and reactive mitigation measures to minimize any potential impacts COVID-19 may have on its employees, communities, operations, supply chain, and finances. Costs for Q2 2021 included additional $2.2 million spent in Peru ($4.2 million for H1 2021) and $0.7 million spent in Mexico ($1.7 million for H1 2021) on these measures, which include COVID testing and quarantining employees and contractors.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020
(In thousands of United States dollars, unless otherwise stated, unaudited)

4	Trade and other receivables

		June 30,			December 31,
		2021			2020
		$			$
Trade receivables			34,583				28,750
Sales tax receivables			10,437				9,944
			45,020				38,694

5	Inventories

		June 30,			December 31,
		2021			2020
		$			$
Stockpiles			3,877				1,047
Concentrates			6,423				4,185
Supplies and spare parts			19,638				18,244
			29,938				23,476

Cost of sales are comprised of production costs of sales and depletion, depreciation and amortization, and represent the cost of inventories recognized as an expense for the three and six-month periods ended June 30, 2021 and 2020 of $46,274 and $94,639 (2020 - $30,205 and $77,546), respectively. During the three and six months ended June 30, 2021, the Company wrote down stockpile and concentrate inventory to its net realizable value ('NRV'), recording a charge $385 and $741 (2020 - $nil & $1,216), respectively.

6	Property, plant and equipment

Cost		Plant and equipment			Mining properties			Assets under construction			Exploration and evaluation expenditure			Total
		$			$			$			$			$
Balance as of January 1, 2020			269,669				447,075				50,152				69,259				836,155
Additions			5,180				6,348				13,218				11,184				35,930
Change in estimate of decomissioning liability			5,427				-				-				-				5,427
Disposals			(4,514	)			-				-				(2,032	)			(6,546	)
Transfers			24,783				25,979				(10,909	)			(39,853	)			-
Balance as of December 31, 2020			300,545				479,402				52,461				38,558				870,966
Additions			1,139				8,719				17,650				6,543	#			34,051
Change in estimate of decomissioning liability			(574	)															(574	)
Transfers			1,061				2,345				(1,044	)			(2,362	)			-
Balance as of June 30, 2021			302,171			490,466				69,067				42,739			904,443

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020
(In thousands of United States dollars, unless otherwise stated, unaudited)

6	Property, plant and equipment (continued)

Accumulated depreciation		Plant and equipment			Mining properties			Assets under construction			Exploration and evaluation expenditure			Total
		$			$			$			$			$
Balance as of January 1, 2020			166,946				351,053				-				13,041				531,040
Depletion, depreciation and amortization			27,475				13,958				-				-				41,433
Disposals			(3,293	)			-				-				-				(3,293	)
Transfers			12,310				731				-				(13,041	)			-
Balance as of December 31, 2020			203,438				365,742				-				-				569,180
Depletion, depreciation and amortization			15,352				8,457				-				-				23,809
Balance as of June 30, 2021			218,790				374,199				-				-				592,989
Net Book Value - June 30, 2021			83,381				116,267				69,067				42,739				311,454
Net Book Value - December 31, 2020			97,107				113,660				52,461				38,558				301,786
Net Book Value - December 31, 2019			102,723				96,022				50,152				56,218				305,115

7	Accounts payable and accrued liabilities

		June 30,			December 31,
		2021			2020
		$			$
Trade payables			27,097				16,949
Other payables and accrued liabilities			17,062				13,368
			44,159				30,317

All accounts payable and accrued liabilities are expected to be settled within 12 months

8	Loans payable

		June 30,			December 31,
		2021			2020
		$			$
Senior Secured Corporate Credit Facility with Banco de Credito del Peru ('BCP')
Current Portion			24,822				18,480
Long term Portion			68,501				80,903
Total loans payable			93,323				99,383

On March 11, 2019, the Company entered into a six-year senior secured corporate credit facility ('Corporate Facility') with BCP that provides funding of up to $100 million effective March 8, 2019. The Corporate Facility provided the Company with additional liquidity and the financial flexibility to fund future capital projects in Mexico as well as corporate working capital requirements. The Company also used the proceeds of the new facility to repay existing debt balances. The most significant terms of the agreement were:

·	Term: 6-year term maturing March 2025

·	Principal Repayment Grace Period: 2 years

·	Principal Repayment Period: 4 years

·	Interest Rate: 3.15% + LIBOR 3M

The Corporate Facility is subject to customary covenants, including consolidated net leverage and interest coverage ratios and customary events of default. The Company is in compliance with all covenants as at June 30, 2021.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020
(In thousands of United States dollars, unless otherwise stated, unaudited)

Interest is payable quarterly and interest payments began on the drawn and undrawn portions of the facility starting in June 2019. During the six months ended June 30, 2021, DBP made interest payments of $1,693 (2020 - $2,322).

On February 17, 2020, BCP entered into a syndication agreement with Banco Santander S.A for $30.0 million of this credit facility. BCP continues to remain as the principal lender and there were no changes to the terms and conditions of the original agreement. Principal payments on the amount drawn from the facility began in June 2021. The loan is recorded at amortized cost and is being accreted to face value over 6 years using an effective interest rate of 3.29%.

9	Share capital and share-based payments

(a)	Authorized capital

The Company has an unlimited amount of authorized common shares with no par value.

(b)	Restricted share units ('RSUs')

The changes in RSU's issued during the six months ended June 30, 2021 and the year ended December 31, 2020 was as follows:

		Number of RSUs
		June 30,			December 31,
		2021			2020
Outstanding, beginning of period			1,409,058				1,630,423
Granted			617,187				898,857
Exercised			(617,597	)			(695,174	)
Forfeited			(96,407	)			(425,048	)
Outstanding, end of period			1,312,241				1,409,058

On June 30, 2020, the Company's shareholders approved the RSU plan, whereby RSUs may be granted to directors, officers, consultants or employees at the discretion of the Board of Directors. The RSU plan provides for the issuance of common shares from treasury upon the exercise of vested RSUs at no additional consideration. There is no cash settlement related to the vesting of RSU's as they are all settled with equity. The current maximum number of common shares authorized for issue under the RSU plan is 5% of the number of issued and outstanding common shares of the Company at the time of grant. The RSUs have vesting conditions determined by the Board of Directors, and the vesting conditions are non-market conditions and are not performance based.

During the six months ended June 30, 2021, the Company granted RSU's totaling 617,187 which had a fair value of C$3.95 based on the closing share price at grant date. RSUs exercised during the six months ended June 30, 2021 had a weighted average fair value of C$1.81 (2020 - C$2.60) and the RSUs forfeited had a weighted average fair value of C$1.88 (2020 - C$1.88). As at June 30, 2021, the weighted average fair value of the RSUs outstanding is C$2.55 (2020 - C$1.57).

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020

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

10	Non-controlling interest

Set out below is the summarized financial information of our subsidiary Corona which has a material non-controlling interest (note 2(b)). The information below is before intercompany eliminations.

Summarized balance sheet
		June 30,			December 31,
		2021			2020
		$			$
Current
Assets			140,024				118,045
Liabilities			(37,384	)			(26,890	)
Total current net assets			102,640				91,155
Non-current
Assets			170,801				170,277
Liabilities			(42,328	)			(45,145	)
Total non-current net assets			128,473				125,132
Net assets			231,113				216,287

Summarized income statement
		For the three months ended June 30,			For the six months ended June 30,
		2021			2020			2021			2020
		$			$			$			$
Revenue			50,830				23,405				92,755				57,123
Income before income tax			19,206				3,181				28,940				7,872
Income tax expense			(8,221	)			(2,381	)			(14,231	)			(6,404	)
Total income			10,986				800				14,709				1,468
Total income attributable to non-controlling interests			1,995				147				2,671				268

Summarized cash flows
		For the three months ended June 30,			For the six months ended June 30,
		2021			2020			2021			2020
		$			$			$			$
Cash flows from operating activities
Cash generated from operating activities			25,620				7,263				42,116				17,319
Net changes in non cash working capital items			(5,139	)			(1,750	)			(3,976	)			(2,964	)
Decomissioning liabilities settled			(231	)			(204	)			(289	)			(243	)
Income taxes paid			(5,312	)			(218	)			(12,486	)			(5,328	)
Net cash generated from operating activities			14,938				5,091				25,365				8,784
Net cash used in investing activities			(7,329	)			(1,824	)			(13,721	)			(9,667	)
Net cash used in financing activities			(3,100	)			(695	)			(4,100	)			(1,030	)
Effect of foreign exchange rate changes on cash and cash equivalents			1				(17	)			(22	)			(41	)
Decrease in cash and cash equivalents			4,510				2,555				7,522				(1,954	)
Cash and cash equivalents, beginning of period			68,039				30,495				65,027				35,004
Cash and cash equivalents, end of period			72,549				33,050				72,549				33,050

11	Expenses by nature

Mining costs include mine production costs, milling and transport costs, royalty expenses, site administration costs but not the primary mine development costs which are capitalized and depreciated over the specific useful life or reserves related to that development and ore included in depreciation and amortization. The mining costs for the three and six months ended June 30, 2021 and 2020 relate to the Yauricocha, Bolivar and Cusi Mines.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020

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

11	Expenses by nature (continued)

Mining costs

		Three months ended June 30,			Six months ended June 30,
		2021			2020			2021			2020
		$			$			$			$
Employee compensation and benefits			8,112				6,067				15,219				12,490
Third party and contractors costs			17,306				6,252				35,905				24,021
Depreciation			10,725				8,562				21,973				18,155
Consumables			8,934				3,771				16,878				14,708
Changes in inventory and other			1,197				5,553				4,664				8,172
			46,274				30,205				94,639				77,546

12	Segment reporting

The Company primarily manages its business on the basis of the geographical location of its operating mines. The Company's operating segments are based on the reports reviewed by the senior management group that are used to make strategic decisions. The Chief Executive Officer considers the business from a geographic perspective considering the performance of the Company's business units. The corporate division only earns income that is considered to be incidental to the activities of the Company and thus it does not meet the definition of an operating segment; as such it has been included within 'other reconciling items.'

The reporting segments identified are the following:

·	Peru - Yauricocha Mine

·	Mexico - Bolivar and Cusi Mines

The following is a summary of the reported amounts of net income (loss) and the carrying amounts of assets and liabilities by operating segment:

		Peru			Mexico			Mexico			Canada
		Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Six months ended June 30, 2021		$			$			$			$			$
Revenue (1)			92,755				44,083				12,235				-				149,073
Production cost of sales			(42,598	)			(19,128	)			(10,940	)			-				(72,666	)
Depletion of mineral property			(4,898	)			(2,616	)			(794	)			-				(8,308	)
Depreciation and amortization of property, plant and equipment			(8,234	)			(3,613	)			(1,818	)			-				(13,665	)
Cost of sales			(55,730	)			(25,357	)			(13,552	)			-				(94,639	)
Gross profit (loss) from mining operations			37,025				18,726				(1,317	)			-				54,434
Income (loss) from operations			29,702				13,275				(2,520	)			(2,784	)			37,673
Derivative gains			-				-				451				-				451
Interest expense and other finance costs			(1,116	)			(32	)			(6	)			(589	)			(1,743	)
Other income (expense)			(1,008	)			260				50				(5	)			(703	)
Foreign currency exchange gain (loss)			(124	)			(467	)			(91	)			185				(497	)
Income (loss) before income tax			27,454				13,036				(2,116	)			(3,193	)			35,181
Income tax expense			(14,231	)			(5,134	)			(977	)			-				(20,342	)
Net income (loss) from operations			13,223				7,902				(3,093	)			(3,193	)			14,839

		Peru			Mexico			Canada			Total
June 30, 2021		$			$			$			$
Total assets			286,382				178,693				1,454				466,529
Non-current assets			170,927				142,421				34				313,382
Total liabilities			144,520				37,021				29,275				210,816

(1) Includes provisional pricing adjustments of: ($1,129) for Yauricocha, ($983) for Bolivar, and ($291) for Cusi.

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Sierra MetalsInc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and six months ended June 30, 2021 and 2020
(In thousands of United States dollars, unless otherwise stated, unaudited)

		Peru			Mexico			Mexico			Canada
		Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Six months ended June 30, 2020		$			$			$			$			$
Revenue (1)			57,123				35,346				4,990				-				97,459
Production cost of sales			(34,156	)			(17,702	)			(7,533	)			-				(59,391	)
Depletion of mineral property			(3,745	)			(1,676	)			(708	)			-				(6,129	)
Depreciation and amortization of property, plant and equipment			(5,438	)			(4,756	)			(1,832	)			-				(12,026	)
Cost of sales			(43,339	)			(24,134	)			(10,073	)			-				(77,546	)
Gross profit (loss) from mining operations			13,784				11,212				(5,083	)			-				19,913
Income (loss) from operations			7,036				6,203				(5,765	)			(2,216	)			5,258
Interest expense and other finance costs			(1,663	)			(42	)			(6	)			(675	)			(2,386	)
Other income (expense)			(598	)			1,286				142				(13	)			817
Foreign currency exchange gain (loss)			36				750				83				526				1,395
Income (loss) before income tax			4,811				8,197				(5,546	)			(2,378	)			5,084
Income tax expense			(6,404	)			(114	)			(13	)			-				(6,531	)
Net income (loss) from operations			(1,593	)			8,083				(5,559	)			(2,378	)			(1,447	)

		Peru			Mexico			Canada			Total
June 30, 2020		$			$			$			$
Total assets			234,157				154,405				5,121				393,683
Non-current assets			172,995				130,354				68				303,417
Total liabilities			130,384				21,824				30,841				183,049

(1) Includes provisional pricing adjustments of: $(749) for Yauricocha, $861 for Bolivar, and $80 for Cusi.

		Peru			Mexico			Mexico			Canada
		Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Three months ended June 30, 2021		$			$			$			$			$
Revenue (1)			50,830				22,555				6,064				-				79,449
Production cost of sales			(21,132	)			(8,711	)			(5,706	)			-				(35,549	)
Depletion of mineral property			(2,522	)			(1,503	)			(283	)			-				(4,308	)
Depreciation and amortization of property, plant and equipment			(3,924	)			(1,545	)			(948	)			-				(6,417	)
Cost of sales			(27,578	)			(11,759	)			(6,937	)			-				(46,274	)
Gross profit (loss) from mining operations			23,252				10,796				(873	)			-				33,175
Income (loss) from operations			19,748				7,883				(1,320	)			(1,181	)			25,130
Derivative gains			-				-				-				-				-
Interest expense and other finance costs			(513	)			(21	)			(3	)			(326	)			(863	)
Other income (expense)			(691	)			198				31				(2	)			(464	)
Foreign currency exchange gain (loss)			(294	)			(871	)			(215	)			151				(1,229	)
Income (loss) before income tax			18,250				7,189				(1,507	)			(1,358	)			22,574
Income tax expense			(8,221	)			(2,928	)			(346	)			-				(11,495	)
Net income (loss) from operations			10,029				4,261				(1,853	)			(1,358	)			11,079
Adjusted EBITDA			25,503				11,135				(58	)			(781	)			35,799

(1) Includes provisional pricing adjustments of: $(1,705) for Yauricocha, $(1,414) for Bolivar, and $(160) for Cusi.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020 (In thousands of United States dollars, unless otherwise stated, unaudited)

		Peru			Mexico			Mexico			Canada
		Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Three months ended June 30, 2020			$				$				$				$				$
Revenue (1)			23,405				16,786				1,710				-				41,901
Production cost of sales			(12,462	)			(7,822	)			(1,359	)			-				(21,643	)
Depletion of mineral property			203				(645	)			31				-				(411	)
Depreciation and amortization of property, plant and equipment			(4,191	)			(2,789	)			(1,171	)			-				(8,151	)
Cost of sales			(16,450	)			(11,256	)			(2,499	)			-				(30,205	)
Gross profit (loss) from mining operations			6,955				5,530				(789	)			-				11,696
Income (loss) from operations			3,407				3,222				(747	)			(753	)			5,129
Interest expense and other finance costs			(628	)			(37	)			-				(289	)			(954	)
Other income (expense)			(588	)			1,129				109				(149	)			501
Foreign currency exchange gain (loss)			(25	)			(1,622	)			(403	)			1				(2,049	)
Income (loss) before income tax			2,166				2,692				(1,041	)			(1,190	)			2,627
Income tax expense			(2,260	)			(63	)			(3	)			-				(2,326	)
Net income (loss) from operations			(94	)			2,629				(1,044	)			(1,190	)			301

(1) Includes provisional pricing adjustments of: $(876) for Yauricocha, $1,144 for Bolivar, and $(81) for Cusi.

For the six months ended June 30, 2021, 62% of the revenues ($92,755) were from seven customers based in Peru and the remaining 38% of the revenues ($56,318) were from two customer based in Mexico. In Peru, two major customers accounted for 50% and 23% of the revenues, while the two customers in Mexico accounted for 59% and 41% of the revenues.

For the six months ended June 30, 2020, 59% of the revenues ($57,123) were from six customers based in Peru and the remaining 41% of the revenues ($40,336) were from one customer based in Mexico. In Peru, two major customers accounted for 44% and 35% of the revenues.

As at June 30, 2021, the trade receivable balance of $34,583 includes amounts outstanding of $26,636 from the two major customers in Peru and $7,947 from the customer in Mexico.

13	Derivative instruments

In accordance with IFRS 9, the Company records the fair value of the derivative instruments (fixed price contracts) at the end of the reporting period as an asset (in the money) or liability (out of the money). The mark-to-market fair value of the Company's outstanding derivative instruments is based on independently provided market rates and determined using standard valuation techniques. At the end of the reporting period, a corresponding gain or loss is recorded in the Condensed Interim Consolidated Statements of Income (Loss) as 'Derivative Instruments Gains'.

The Company had no outstanding derivative instruments at June 30, 2021.

For the six-month period ended June 30, 2021, the Company received $451 ($nil for six-month period ended June 30, 2020), in settlement of the derivative instruments that matured in the period.

Changes in the fair value of the Company's outstanding derivative instruments are recognized through the Company's income statement as non-cash derivative instrument unrealized gains or losses. At maturity of each contract, a cash settlement takes place resulting in a corresponding reduction in the carrying value of the derivative instruments.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020 (In thousands of United States dollars, unless otherwise stated, unaudited)

14	Financial instruments and financial risk management

The Company's financial instruments include cash and cash equivalents, trade receivables, financial assets, accounts payable and loans payable.

(a)	Fair value of financial instruments

As at June 30, 2021 and December 31, 2020, the fair value of the financial instruments approximates their carrying value.

(b)	Fair value hierarchy

Financial instruments carried at fair value are categorized based on a three-level valuation hierarchy that reflects the significance of inputs used in making the fair value measurements as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities

Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

The Company's metal concentrate sales are subject to provisional pricing with the selling prices adjusted at the end of the quotational period. The Company's trade receivables are marked-to-market at each reporting period based on quoted forward prices for which there exists an active commodity market.

Level 3 - inputs for the asset or liability that are not based on observable market data.

At June 30, 2021 and December 31, 2020, the levels in the fair value hierarchy into which the Company's financial assets are measured and recognized on the Consolidated Statement of Financial Position are categorized as follows:

		June 30, 2021			December 31, 2020
Recurring measurements		Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
			$				$				$				$				$				$				$				$
Trade receivables (1)			-				34,583				-				34,583				-				28,750				-				28,750
			-				34,583				-				34,583				-				28,750				-				28,750

⁽¹⁾ Trade receivables exclude sales and income tax receivables.

There were no financial liabilities measured at fair value. There were no transfers between Level 1, Level 2, and Level 3 during the six months ended June 30, 2021 and 2020.

15	Supplemental cash flow information

Changes in working capital

		Three months ended June 30,			Six months ended June 30,
		2021			2020			2021			2020
			$				$				$				$
Trade and other receivables			(4,017	)			(1,278	)			(6,326	)			6,157
Financial and other assets			376				779				370				996
Income tax receivable			-				(377	)			-				(377	)
Inventories			(5,080	)			3,849				(7,203	)			4,025
Accounts payable and accrued liabilities			6,876				(6,750	)			13,937				(16,746	)
Income taxes payable			-				40				-				-
Other liabilities			1,834				(875	)			2,475				(2,434	)
			(11	)			(4,612	)			3,253				(8,379	)

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2021 and 2020 (In thousands of United States dollars, unless otherwise stated, unaudited)

16	Revenues from mining operations

The Company has recognized the following amounts related to revenue in the consolidated statements of income:

		Three Months Ended			Six Months Ended
		June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
											$				$
Revenues from contracts with customers			82,728				41,714				151,476				97,267
Provisional pricing adjustments on concentrate sales			(3,279	)			187				(2,403	)			192
Total revenues			79,449				41,901				149,073				97,459

The following table sets out the disaggregation of revenue by metals and form of sale:

		Three Months Ended			Six Months Ended
		June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
											$				$
Revenues from contracts with customers:
Silver			20,669				8,275				38,459				19,328
Copper			30,915				17,673				52,580				40,087
Lead			6,991				4,356				14,074				9,959
Zinc			20,077				7,025				38,386				18,342
Gold			4,076				4,385				7,977				9,551
Total revenues from contracts with customers			82,728				41,714				151,476				97,267

17	Contingencies

The Company and its subsidiaries have been named as defendants in certain actions incurred in the normal course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of Management, these matters will not have a material effect on the consolidated financial statements of the Company.

These matters include an ongoing personal action filed in Mexico against Dia Bras Mexicana S.A de C.V ('DBM') by an individual, Carlos Emilio Seijas Bencomo, claiming the annulment and revocation of the purchase agreement of two mining concessions, Bolívar III and IV between Minera Senda de Plata S.A. de C.V. and Ambrosio Bencomo Casavantes, and with this, the nullity of purchase agreement between DBM and Minera Senda de Plata S.A. de C.V. Carlos Emilio Seijas Bencomo passed away in 2020 and his heirs appointed Mr. Emilio Ambrosio Bencomo Portillo as legal representative to pursue this case. As per latest development, on March 21, 2021, the first Civil Court of Chihuahua absolved DBM of all claims raised by the plaintiff. Although the plaintiff filed an appeal against this ruling on April 7, 2021, the Company believes that there is no merit in this appeal and the possibility of reversal of the March 12, 2021 ruling is very unlikely.

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