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Edited Transcript of SMT.TO earnings conference call or presentation 29-Mar-19 2:30pm GMT

Q4 2018 Sierra Metals Inc Earnings Call

MONTREAL Apr 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Sierra Metals Inc earnings conference call or presentation Friday, March 29, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Edmundo Gontardo Guimaraes

Sierra Metals Inc. - CFO

* Gordon J. Babcock

Sierra Metals Inc. - COO

* Igor Alcides Gonzáles Galindo

Sierra Metals Inc. - President, CEO & Director

* Michael McAllister

Sierra Metals Inc. - VP of Corporate Development

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Conference Call Participants

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* Heiko Felix Ihle

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst

* Jacob G. Sekelsky

Roth Capital Partners, LLC, Research Division - Director & Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Sharon, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sierra Metals Inc. Fourth Quarter and Year-end 2018 Financial Results Conference Call. (Operator Instructions) Thank you.

Mike McAllister, VP of Corporate Development, you may begin your conference.

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Michael McAllister, Sierra Metals Inc. - VP of Corporate Development [2]

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Thank you, operator, and good morning, everyone. Welcome to Sierra Metals Q4 Year-end 2018 Results Conference Call. On today's call, we are joined by Igor Gonzãles, our President and CEO; Ed Guimaraes, our CFO; and Gordon Babcock, our COO. Today's call will be followed by a question-and-answer period. Today's accompanying presentation is available for download both through the webcast and from the company's website at www.sierrametals.com. Thursday's press release, the financial statements and the management's discussion and analysis are also posted on the company's website.

Before I turn the call over to Igor, I would like to indicate that this earnings call contains forward-looking information that is based on the company's current expectations, estimates and beliefs. This forward-looking information is subject to a number of risks, uncertainties and other factors. Actual results could differ materially from our conclusions, forecasts or projections as reflected in the forward-looking information. Additionally -- sorry, additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the company's annual information form, which is publicly available on SEDAR or EDGAR via the Form 40-F or on the company's website. Please note that all dollar amounts mentioned on today's call are in U.S. dollars, unless otherwise noted.

With that, I would like to now turn the call over to Igor Gonzáles, our President and CEO.

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Igor Alcides Gonzáles Galindo, Sierra Metals Inc. - President, CEO & Director [3]

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Thanks, Mike, and good morning, everyone. I will begin today with Slide #4 with some highlights from our fourth quarter and year-end results, followed by Gordon Babcock, our COO, who will (inaudible) results. Then we will have Ed Guimaraes, our CFO, who will provide information on our financial results. We will conclude with a Q&A session where myself, Gordon and Ed will be happy to answer questions.

Before I begin Q4 and year-end highlights, I would like to provide an update on the strike currently taking place at our Yauricocha Mining Group in Peru. On March 7, Minera Corona, which is our company that runs the Yauricocha Mine, dismissed 2 of its mine contractors as part of its operation's decisions. March 11, the union announced a strike for March 19. The claim was to reinstate contracted workers, which is normally a responsibility of contractor management, not a responsibility of Corona management. We have been in conversation with the union on a regular basis, almost on a daily basis since that day. On March 15, the Labor Authority declares the corporate strike nonproceeding. March 19, the union goes on a strike. March 19, the Labor Authority declared the strike illegal.

On March 19, Corona stops all activities to ensure personal safety of our nonunion workers, which is about roughly 40% of the workforce, so 60% of the workforce is on strike while the other 40% is not. On March 26, the Labor Authority, however, declares the nullity of the illegality, which is immediately appealed by Corona. And that's where we're at, and we continue the conversations both with Labor Authority and the union to try to settle this dispute as soon as possible. We cannot provide an estimate end date at the moment as there are several parties involved, and we have to follow an established legal process here in Peru.

Turning now to the highlights for the (inaudible). Sierra Metals had a strong year of financial performance with revenues (inaudible) and $90 million of operating cash flows before movements in working capital. The company also reported net income attributable to shareholders of $0.12 per share.

Looking to Slide #5. You can see that we had a solid year of operating performance with an increase in total tonnes processed as well as increase to the production of all metals payable except for lead. These increases in production helped to lower our all-in sustaining costs across all 3 mines.

Turning now to Slide #6. During 2018, the company released the results for 3 positive Preliminary Economic Assessment for all of our mines. This study provides a basis for our growth program on all 3 mines, which were initiated in 2018. The capital expenditure budget, approved by our Board of Directors for 2019, is in the order of $83 million. It's our largest to date with $44 million of that going towards growth and exploration. This program will be funded through 2019 EBITDA and existing cash balance. Furthermore, the company recently put in place a $100 million senior credit facility, which provides the company with ample flexibility to make prudent investments. These capital investments support our growth plans and provide excellent returns on the investments being made.

Turning now to Slide #7. We're pleased with the expansion plan progress made (inaudible). At Yauricocha, we have completed work on a new 7-kilometer underground tunnel and all the ancillary facilities associated with, which communicates the entire mine with the mill and allows for far faster turnaround times and the ability to move greater volumes of ore and waste from the mine to the mill and to the waste dumps. We also completed the first refurbishment of the Mascota shaft on time and on budget.

Looking ahead into 2019, represents a critical year at Yauricocha for project improvements and explorations. We continue to work on expansion plans, which should see the first phase of expansion completed in 2019, having now received approval for the EIA study. We can now move forward with obtaining the construction permit for the next phase of the tailing deposition facility and a permit for an expanded waste rock facility. Once those 2 permits are in hand and the work completed, we can then complete the final submission for an ITS permit, which is required for any potential expansions at Yauricocha.

At our Bolivar Mine, we completed construction -- we have an early construction completion at the Piedras Verde mill and expect to deliver on our goal of 20% increase in production to 3,600 tonnes per day within the first half of 2019. Additionally, further infrastructure and development improvements will see the production push to approximately 4,000 tonnes per day in the second half of 2019.

At our Cusi Mine, the successful addition of an addition ball mill will see the capacity increase from 650 tonnes per day to approximately 1,200 tonnes per day during the first half of 2019. Development plans are in place to further increase production to approximately 2,400 tonnes per day by Q1 2020.

Looking now at Slide #8. Exploration remains a key component of our growth plans, and we continue to have success in 2018. At Yauricocha, we have the discovery of a porphyry at depth, which we continue to drill and further define. The discovery of Contacto Oriental and Contacto Sur Medio zones as well as a new zone between Cuye and Esperanza are demonstrating the potential for larger continual ore bodies at depth. At Bolivar, we discovered an extension to the Bolivar Northwest zone called the Cieneguita zone. And at Cusi, we continue to develop and explore the Santa Rosa de Lima zone and discovered a large mid-grade silver stock ore within -- area within that zone. Drilling will continue in 2019 with many high-value targets set to be drilled with new discoveries and extensions expected.

Sierra Metals is at an inflection point. We continue to improve our per share value and are profitable at today's metal prices. And we're still planning for further growth at all 3 mines. We continue with our aggressive exploration programs with a goal of adding additional reserves and resources and extending our mine lives. The company has a solid financial position and the liquidity to support our growth programs, which always represents a very prudent use of capital and provides for excellent return on investment for the company and its shareholders.

With that, I will now ask Gordon Babcock to provide us with operational update.

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Gordon J. Babcock, Sierra Metals Inc. - COO [4]

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Thanks, Igor. Turning now to the operational highlights as seen on Slide 9. In 2018, the company had strong annual -- consolidated annual production of 2.3 million tonnes, 16% increase over 2017. This was achieved with the help of the record consolidated quarterly ore throughput in Q4 2018 with a record quarterly throughput from both Bolivar and Cusi. The company achieved this increase despite significant rainfall events experienced at the Bolivar Mine, which caused interruptions to production during Q3 2018. In 2018, consolidated production of copper increased 27% to 34 million pounds, silver increased 17% to 2.7 million ounces, zinc was flat at 76.8 million pounds, lead decreased 7% to 27.7 million pounds and gold increased 25% to 7,743 ounces compared to 2017.

The Yauricocha Mine maintained solid production rates in 2018 with an 8% throughput increase compared to 2017. Zinc equivalent metal production increased 7% due to higher ore throughput, higher grades for all metals except zinc and higher recoveries of lead and zinc. Bolivar had a tougher third quarter, as previously mentioned, with significant rainfall events but still realized the 16% annual increase in production over 2017. Higher ore throughput, higher gold and silver head grades resulted in a 16% increase in copper equivalent production in 2018 as compared to 2017. At Cusi, the mine was able to see the benefit existing mill operating at a capacity rate of 650 tonnes per day for the second half of the year and saw total ore process increase 112% in 2018 as compared to 2017. Silver equivalent production increased 48% compared to 2017, thanks to the 108% increase in silver production offset by lower production of other metals.

Turning to Slide 10 and looking at the accomplishments in 2018 and outlook for 2019 having completed the PEA studies for the 3 mines, which had very favorable economics. We're working on expansions of production at all 3 mines. Additionally, we're also working to complete current life-of-mine plans by midyear 2019. The company is also focused on including reviews of plant optimization strategies, mineshaft and infrastructure improvements and review of processing plant efficiencies.

I'd like to take the opportunity now to speak to the current situation in Yauricocha and offer some highlights via an updated forecast. With regards to Yauricocha, we made an assessment based on a worst-case scenario solely on Yauricocha, now bearing in mind that we do have the opportunity of third-party ore to supplement what we have on a shortfall basis for Yauricocha. We've set a date at April 15 for a restart. We're looking very pessimistically at the view here. So we're looking at a 4% reduction in production of tonnage in the operation with the opportunity coming from outside sources. Generally, we run between 12,000 to 20,000 tonnes coming from outside sources, so that number would probably go down to 2%. In the case of metal production, the forecast has been redone based on a higher NSR, and what we're predicting is our metal production will be within the guidance position.

We have the third-party opportunity, as I mentioned before. We also have plans to improve the contractor position in the operation to improve development advance. Recently, we've just completed an optimization plan with Jarek Jakubec of SRK in sublevel cave techniques and blockade techniques. So he's a mining practice leader in North America for this methodology. We made a site visit, too, in Yauricocha where we spent a week at site plus 2 days in a workshop in Vancouver. So we're moving forward to optimize the operation and carry on improving the whole asset.

At the Yauricocha Mine, the Yauricocha tunnel has now been completed. This new tunnel will enable the mine to have a direct run to the mill, as mentioned before, which will result in a faster turnaround in the [cycle] time of the trolley locomotives. In the long run, this will allow us more capacity to handle larger volumes of waste and ore. This tunnel also provides another ventilation inlet to the mine, which will benefit the current ventilation system. Future plans in the next few years are to change locomotives to 40 tonne capacity Clayton locomotives with 220 cubic foot Granby cars. And that's how we're planning to make those improvements.

Turning now please to Slide 11. Work continues to progress at Yauricocha on the sinking of the Yauricocha shaft to the targeted 1270 level and to cut the loading pocket below the 1170 working level. At this time, we are at the loading pocket construction. We're in the phase of excavation. This pocket will handle waste and ore from 2 streams in a multifeed raise configuration. Three loading points will be excavated on the 1170 level, each having a grizzly cover and independent discharge points for locomotive, track haulage and trackless haulage equipment. The infrastructure on the 1170 level, as noted, will feed 3 raises, 2 dedicated for ore and 1 dedicated for waste and related apron feeders on the 1210 level. And that will also include a conveyer loading pocket drip to feed the loading pocket on that level at 1210. The mine will be able to accommodate, as mentioned before, waste, high-humidity ore, polymetallic ore and have the optionality of dealing with different ore qualities such as copper ores and oxides. A mobile rock breaker will be handling the oversized muck encountered on the grizzly platforms, and the company estimates this facility would be operational in 2021.

Please turn to Slide #12 and it concerns Bolivar. The installation of new refurbished mill at Bolivar's Piedras Verdes plant was completed ahead of schedule and now provides the company with flexibility in the term of grind size and tonnage. The company expects to deliver on our goal of a 20% increase in production to 3,600 tonnes per day within the first half of 2019. Additionally, further infrastructure and development improvements will see production push to 4,000 tonnes per day in the second half of 2019.

Please turn to Slide 13. The successful addition of an additional ball mill at the Cusi plant in Malpaso will see the capacity increase to approximately 1,200 tonnes per day during the first half of 2019, allowing for an 85% increase in production. Furthermore, development plans are in place to further increase production to approximately 2,400 tonnes per day by Q1 2020. I may add some comment here. Our plans are to improve the crushing circuit. We have in place and in hand a grizzly feeder; a new crusher, C96 Metso crusher; and in plans are a purchase of another HP300 crusher from Metso; as well as the screen and the installation of a 12.5x16 ball mill.

Please turn to Slide 14. Exploration has been and continues to be a very important part of the company's growth strategy. We have committed significant resources to exploration in the past and continue that commitment going forward with a view to grow the mineral reserves and resources for the company. Sierra Metals drilled over 125,000 meters of drilling in 2018 across all 3 mines and plans to drill over 50,000 meters in 2019. This recent development and meter drilling program will be added to mineral reserves and resources calculations at all 3 mines with upcoming NI 43-101 Technical Reports are completed. And we're expecting those completions to be at the end of Q2 for Yauricocha, at the end of Q4 2019 for both Bolivar and Cusi. We expect to see a significant growth in reserves and resources as well as the extension on the mine lives of all 3 mines. Additionally, we expect to include a new reserve for the Cusi Mine, which is a change from the previous resource position within this next update.

Please turn to Slide 15. During Q4 2018, the company drilled 58 holes, totaling 10,537 meters at Yauricocha. Exploration drilling was carried out at the copper moly porphyry mineralized zone at Cuye and Catas orebodies as well as

(technical difficulty)

definition drilling continued at the Antacaca Sur zone, Esperanza zone, Angelita zone as well as the Yoselin zone within the Cachi Cachi area. Initial highlights at Yoselin, which is a small orebody in Cuerpos Chicos, included a 1.2% ounces of silver, 4.8% lead, 0.9 in -- 0.09 copper and 8.5 in zinc. Further assay results were pending, but we continue to drill the Yoselin zone in 2019. Part of the program for 2019 will include the level development on the 1070 level, with drill platforms to highlight areas such as Yoselin.

Please turn to Slide 16. At Bolivar, the company drilled 6,258 meters from surface and within the mine. 2,183 meters were drilled within the mine at the El Gallo area, which is in [our mantos]; and 3,865 meters at Bolivar West to explore the extension of the orebody to the north and west.

Please turn to Slide 17. At Cusi, the company drilled 1,781 meters to support the development of the Santa Rosa de Lima system in Promontorio to further verify the size and continuity of the ore zone. We also drilled 2,497 meters of surface diamond drilling to explore the depth of the mineralized structure of San Nicolas in the area of the San Juan mine.

With that, now I turn the call over to Ed Guimaraes, our CFO, for financial update.

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Edmundo Gontardo Guimaraes, Sierra Metals Inc. - CFO [5]

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Thanks, Gordon. Turning now to Slide 18. The company finished 2018 on a very strong note with record ore throughput along with strong metal production, enabling the company to earn revenues of $232 million compared to $205 million in 2017. Adjusted EBITDA also increased to $90 million, which is $10 million more than the $80 million achieved in 2017.

In 2018, the company, through operating efficiencies and higher production, was able to reduce its all-in sustaining cash costs across all mines when compared to 2017. Yauricocha's all-in sustaining cash costs were $0.73 per zinc equivalent pound compared to $0.78 in 2017. Bolivar's were $2.13 per copper equivalent pound compared to $2.68 in 2017. And Cusi's were $22 per silver equivalent ounce versus $34 in 2017.

Looking now at Slide 19 and our cash flows. During 2018, our operating cash flows before movements in working capital were $90.1 million. We paid $29.5 million in taxes in Peru, invested $49.3 million on capital expenditures in Mexico and Peru and paid $36.6 million in principal repayments and interest on our credit facility, mostly in Peru and in Mexico, and paid dividends to noncontrolling shareholders of $2.9 million. We also had proceeds from the issuance of revolving credit facilities of $25 million, leaving us with a cash balance of $21.8 million as at December 31, 2018.

Sierra's board and management team do not believe that the current stock price reflects the value of the company and initiated a normal course issuer bid in December 2018 with a 1.5 million share target. To date, the company has repurchased and canceled a total of approximately 40,000 shares at an average price of CAD 2.51. The company has been in a blackout period during February and March until we filed our year-end financials. Now that, that has been done, the share buyback program is expected to recommence. And with the credit facility proceeds, we should be able to steadily buy back our shares throughout the whole year.

The company's financial position and liquidity remain healthy, and the board and the management team are committed to investing in its operating mines to improve future cash flows. The company is in good financial health, and we maintain a strong balance sheet with $21.8 million in cash, our total debt is $56 million at the end of the year with a net debt of $34 million.

Subsequent to year-end, the company announced the closing of $100 million senior secured corporate credit facility in March. The facility has a 6-year term with a 2-year principal repayment grace period and has a rate of 3-month LIBOR plus 3.15%. This corporate facility will provide the company with additional liquidity and will offer financial flexibility to fund future capital projects in Mexico as well as corporate working capital requirements. The company will also use certain proceeds of the corporate facility to repay existing debt in the near term. Also of note, the company, subsequent to year-end, fully repaid the Corona notes payable to BBVA Banco Continental as of January 2019 and has also fully repaid its FIFOMI loan in Mexico as of February 2019.

The company's focus for 2019 remains on allocating operating cash flows towards efficient growth capital, provide funding for the significant capital expenditures plan in 2019 as well as mine development, plant improvements, deepening of the Yauricocha shaft and brownfield exploration drilling. Management will continue to review metal prices and adjust the capital expenditures should metal prices experience any dramatic changes within the year.

With that, I will now turn the call back to Mike.

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Michael McAllister, Sierra Metals Inc. - VP of Corporate Development [6]

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Thanks, Ed. That ends the presentation portion of this call. We would now like to open the call to questions from participants. Operator, if you could please open the lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Jake Sekelsky with Roth Capital Partners.

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Jacob G. Sekelsky, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [2]

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Looking at the throughput increase at Cusi of 1,200 tonnes a day, can you just provide some color on the source of the increased tonnage? I mean, it looks like development work at Santa Rosa has been ongoing, so should we expect the majority of the increased amount of materials to come out of that zone?

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Gordon J. Babcock, Sierra Metals Inc. - COO [3]

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Yes. That's correct, Jake. That's exactly where it's going to come from. If we have the opportunity to pick up some other zones such as San Nicolas, we'll move on that front. But basically all the development that's been done on the sublevel cave plus the sublevel stoping is in Santa Rosa de Lima.

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Jacob G. Sekelsky, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [4]

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And I guess, just dovetailing off that a bit. Has enough development work been done at Santa Rosa thus far to support the 1,200 tonne a day rate? Or is that something that's still ongoing?

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Gordon J. Babcock, Sierra Metals Inc. - COO [5]

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Development in any mining operation is always ongoing. But to answer your question on the 1,200 tonne per day basis, yes, there's enough development that's been done. Trough points are set up, and it's a matter of drilling the stope. So...

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Jacob G. Sekelsky, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [6]

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Okay. Perfect. And what are the expansion plans at Cusi for the remainder of the year? I mean, it looks like you guys expect to have a reserve update towards the end of the year. Have you set a drill cutoff date for this?

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Gordon J. Babcock, Sierra Metals Inc. - COO [7]

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Yes. Basically speaking, we're going to max out -- the reason we're going for Q4 is trying to max out our drilling on the ore zone. We want to fill in definition drilling to give us a better overview of where we can go in the future. The onset for Cusi is to operate in excess of 2,100 tonnes per day. That gives us a positive cash flow at the grades that we have in that central zone. Now remember that this is a district, so there's a great deal of opportunity that we haven't touched yet.

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Jacob G. Sekelsky, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [8]

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Okay. That's helpful. And then just lastly on the new credit facility. It looks like you guys consolidated some of the debt that you previously had under that. The remainder of the proceeds, I mean, has that been earmarked for specific capital projects or is that just more for general working capital?

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Edmundo Gontardo Guimaraes, Sierra Metals Inc. - CFO [9]

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Jake, so essentially, $30 million will be earmarked more for Mexican capital projects. Nothing specific, but any shortfalls will go towards Mexico in that regard as well as the balance will go towards corporate in terms of just the -- its working capital requirements.

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Operator [10]

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(Operator Instructions) And we have a question from Heiko Ihle with H.C. Wainwright.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [11]

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So in your 2019 cost and CapEx guidance, you mentioned an additional $8 million for the deepening of the Yauricocha shaft. You're attempting to reach a 1270 level this year as per your MD&A and past statements, but then your presentation on Slide 11 also states that the loading pocket below the 1270 level in the fourth quarter. So I'm a little confused. What level exactly are we on right now? What are we doing right now? And how is that work progressing given that the plan still seems to be to spend an additional high 7 figures at site? And at what point in time do you think the cash flow impact will start to show?

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Gordon J. Babcock, Sierra Metals Inc. - COO [12]

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Heiko, to answer your question on the shaft, the concept, the idea was that we would take the shaft down to the 1270 level. Right now we're at the 1210 level. We're cutting the excavation for the loading pocket. So the loading pocket is between the 1170 level and the 1270 level. And then with the lower part of the loading pocket complete, then you'll have a spill pocket below that. So it's a fairly large excavation process that's going on right now.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [13]

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Okay. So we're at 1210 right now?

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Gordon J. Babcock, Sierra Metals Inc. - COO [14]

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Yes. And we have to slash out the whole area to provide enough room to install all the steel infrastructure. And that steel infrastructure installation is in plan for this year. So once the installation is complete, then we go below that, continue sinking to terminate at the 1270 level.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [15]

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Fair enough. And the cash flow question. I mean, I guess, with the strike at Yauricocha, is that delaying completion of any of the work or are these not the same unionized people that are striking?

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Gordon J. Babcock, Sierra Metals Inc. - COO [16]

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It's for -- well, the whole operation is on standby right now. We're doing that for safety reasons. So in essence, if we're down for a week, no one's working in the mine for a week. So it will slow us down. But once we get back in the work program, we'll be able to pick it up, we'll pick up the pace and carry on. The thing is, Heiko, these programs are slated to be completed over the next 2 years. So what we don't do this year, we'll move to next year. But the main focus is to get the loading pocket in place, get that set up and running. And as I mentioned before, our offset in production, based on the worst-case scenario, is not that far off the mark. We're still going to be able to maintain our guidance on metal production.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [17]

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Got it. Got it. And the guys that are not striking, but still not working, are you paying them?

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Gordon J. Babcock, Sierra Metals Inc. - COO [18]

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Most of those guys that are not striking, they are working on maintenance programs at the mill and in the mine. So we have a small crew of people. So yes, they would be compensated for their work.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [19]

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Got it. Okay. Fair enough. And then so on Page 6 of your slide deck, you highlight -- and this is a very philosophical question, I'm not sure how much of an answer I'm going to get out of you. On Page 6 of your slide deck, you highlight the NPVs for your 3 main assets. And adding them all together, the $400 million (sic) [$393 million] for Yauricocha, $214 million for Bolivar and $92 million for Cusi, it's just under $700 million. This compares to less than $300 million in the market cap as we're speaking here right now. Would you venture a guess to estimate the change in NAV given the depletion you've seen since those NAVs were put into place? I mean, my gut feeling is that the depletions should be much more than offset by all the drilling that has been done in the second half of 2018 and the commensurate extended mine life. I mean, especially -- and I think the question is especially pertinent that you -- since you anticipate a new 43-101 for your biggest asset here to be released in the next 3 months.

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Gordon J. Babcock, Sierra Metals Inc. - COO [20]

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That's correct, Heiko. With the drilling program that we've conducted and the development program in Yauricocha, Bolivar and Cusi, we expect to cover our depletion, our mine depletion. And we're going to be increasing resources at Bolivar as well as Yauricocha, similarly at Cusi. And Cusi will move from a resource state. The idea is to move it into a reserve state. So we'll have a reserve in the basis of Cusi. So we've covered our tracks. In the case of Bolivar, there's some excellent opportunity off to the west and improvements in grade and also the presence of [more] gold values. And in the case of Yauricocha, the focus has been to maintain our production, maintain covering our production depletion and move the asset forward with resources on an M&I basis.

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Igor Alcides Gonzáles Galindo, Sierra Metals Inc. - President, CEO & Director [21]

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Just to complement Gordon's response, we must keep in mind that the previous 43-101 had a cutoff date of mid-2017 and late 2017 -- third quarter of 2017. So all the drilling performed since mid-2017 to date will be incorporated in this new 43-101 that Gordon announced.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [22]

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Reading between the lines of what you guys just answered to my question, the answer that you're hinting at is the NAV should be higher, but you're unwilling to give -- you're unwilling to quantify it. I mean, I assume there's some internal calculations you guys are doing.

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Gordon J. Babcock, Sierra Metals Inc. - COO [23]

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Well, Heiko, we believe that these assets are really undervalued. We're dealing with 3 different mining districts. So there's opportunity that we can't even discuss that we haven't touched yet. In the case of Yauricocha, there's huge opportunity; and in case of Bolivar, similar situation. In the case of Cusi, we're just starting to move forward.

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Operator [24]

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(Operator Instructions) And we do not have any telephone questions at this time. I will turn the call over to the presenters.

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Michael McAllister, Sierra Metals Inc. - VP of Corporate Development [25]

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Thank you, operator. That will conclude today's call. On behalf of the management team, I would like to thank all participants for joining us today. A replay of the webcast and materials can be found on our website at www.sierrametals.com. If there are any further questions or concerns, you can reach out to the management team any time after today's call. Our contact information can be found in today's presentation as well as on the company's website. Thank you.

Operator, please conclude the call.

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Operator [26]

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This concludes today's conference call. You may now disconnect.