Sierra Metals CFO Quits Amid Strategic Review

Sierra Metals (TSX: SMT) continued its downward spiral today with the announcement of the resignation of its chief financial officer, Ed Guimaraes. The development follows the departure of the firms CEO, Luis Marchese, on November 22.

With the departure of Guimaraes, the top two roles at Sierra are being conducted on an interim basis. Jose Fernandez-Baca is taking on the role of interim CFO. Fernandez-Baca currently holds an MBA from Northern Illinois University, and has been with the company since 2020. The CEO role meanwhile is presently being held on an interim basis by Ernesto Balarezo Valdez.

Operational Issues

The executive departures follow operational issues experienced by the company that began last year. In September, the company experienced a mudslide at its Yauricocha Mine in Peru, resulting in three employees losing their lives. This was then followed by locals blocking the road to the mine in protest, loading to operations being shuttered at the mine for twenty consecutive days.

The mine however did not restart in full following the mudslide due to safety concerns, with full-scale production still not achieved at the time of the release of third quarter results in mid November.

The firms Bolivar Mine in Mexico meanwhile experienced flooding in the same quarter, further impacting the firms financial results and placing it into a position of balance sheet weakness.

Strategic Review

The events lead the company to begin a strategic review of its operations on October 18 as it looked to improve its financial and liquidity position, although management appeared to be unwilling to take action to actually improve the firms financials. A proposal put forth by Minera Kolpa on October 31 following the restructuring announcement effectively went ignored, with Sierra suggesting that it would need weeks to commence a sufficient due diligence process for a proposed transaction, despite liquidity concerns.

As of this letter, we have not been permitted to advance in any relevant way on the proposed transactions. We are, frankly, alarmed by the message received from Sierra’s representatives and advisors that we may not be able to commence due diligence for a ‘few weeks’, which would represent one month from the date of our LOI and six weeks from your October 18, 2022 press release. This is concerning because the Sierra press release advised that ‘the Company faces liquidity challenges” and that “absent additional support and increased funding, the Company’s ability to continue operations in the ordinary course may be impacted.’” Minera Kolpa commented on November 11, nearly two weeks after its initial letter of intent offer had been made.

The proposal put forth by Minera would see a merger of its Kolper assets with Sierra’s Yauicocha Mine, which employed many former employees of Sierra and sits in close proximity. A concurrent $30 million debt deal would be conducted to keep the company afloat, with options for further financing if needed. Sierra however, appeared uninterested, with no mention of the proposal occurring since.

Sierra, meanwhile, has further hampered its liquidity situation by electing to delist from the Peruvian Stock Market, as well as from the New York Stock Exchange. The delisting was conducted as a means to “reduce costs and simplify Sierra’s administrative and compliance structure associated with these listings.”

Sierra Metals last traded at $0.395 on the TSX.

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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