Sierra Metals Inc.
Q2 2019 Earnings Call Transcript

Published: 15 Aug 2019

[Operator:]

Good morning. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sierra Metals Q2 2019 Consolidated Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you.Mike McAllister, VP Investor Relations, you may begin your conference.

[Mike McAllister:]

Thank you, operator, and good morning, everyone.Welcome to Sierra Metals Q2 2019 Results Conference Call. On today's call, we are joined by Igor Gonzales, 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 Web site at sierrametals.com. Yesterday's press release, the financial statements and the management discussion and analysis document are also posted on the company's Web site.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. 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 the 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 on the company's Web site.Please note that all dollar amounts mentioned on today's call are in U.S. dollars, unless otherwise noted.With that, I would now like to turn the call over to Igor Gonzáles, our President and CEO. Please go ahead, Igor.

[Igor Gonzales:]

Thanks, Mike, and good morning, everyone.I will begin the call on Slide #4 with some highlights from our consolidated results for the second quarter of 2019. After that, we will open the call for questions where myself, Gordon and Ed will be happy to answer your questions.Turning now to the highlights, the second quarter continued to build on the first and the company realized the solid quarter production. We continued to overcome the challenges we have encountered to this day including lower metal prices and illegal strike at Yauricocha and a slower-than-expected ramp up of throughput at the Bolivar and Cusi mines.Despite these challenges, the company realized record consolidated quarter throughput during the second quarter. With record throughput at both the Bolivar and Cusi mines, which contributed to a strong cash flows in order to reduce debt levels. One, capital expenditures and maintain liquidity. Furthermore, we continue to realize good returns on capital invested in our growth projects.Revenues from metals payable in Q2 2019 were $50.7 million with $12.8 million of operating cash flows before movement in working capital on consolidated throughput of 662,490 tonnes and metal production of 4.7 million silver equivalent ounces or 25.2 million copper equivalent pounds or 57.6 million zinc equivalent pound.Looking to Slide #5, you can see that on a consolidated basis we still had a relatively solid quarter of operating performance with 10% increase in the total tonnes processed as well as increases to the production of all metals except zinc.Despite the challenges we continue to face in the second quarter, we still saw increases in zinc, copper and silver equivalent pounds and ounces produced.Turning now to Slide #6, and taking a closer look at each mine now. Yauricocha saw a throughput reduce by 10% in Q2 2019 versus Q2 2018, as a result of an illegal strike which took place at the mine. I'm happy to report that the strike was resolved on April 12. That resulted in 12 days of loss production during the second quarter. However, we continued to make up production tonnage and management expects that the company will still be within the annual production guidance provided.Higher head grades and recoveries for all metal except zinc resulted in a 4% increase in zinc equivalent pounds produced during Q2 2019 compared to Q2 2018. However, the mine sustained its exceptional performance into July and the remaining of the year continue to look very promising despite the significant decline in base metal prices.Cash cost of $0.5 per zinc equivalent payable were lower at Yauricocha this quarter over the same period in 2018.But, there was a slight increase in the all-in sustaining costs to $0.86 per zinc equivalent payable pounds during Q2 2019 as compared to Q2 2018.This increase was primarily due to the increase in treatment and refining charges related to the zinc concentrate produced as well as higher general and administrative costs due to higher labor costs.Despite the strike, Yauricocha continues to be a solid performer for the company. Having now received permits, we are currently working on completing the construction of the tailings dam expansion and continue with the Yauricocha shaft deepening, loading spill buckets being added this year.Work will also commence on the ramp connecting the 920 level with the 720 level of the Yauricocha mine providing for an additional 10,000 tonnes per month of increased capacity to move or from waste from the mine. These projects will enable us to reach the 3600 tonnes per day level at Yauricocha in 2020.Additionally, recently received permits will allow us to drill new high value targets such as Don Leona and Kilkaska. From the surface and the drills are currently turning and we look forward for the first results in the coming months. On July 30, we press released that the management team has revised the release date for the Yauricocha NI 43-101 reserve and resource update to Q4 2019.In order to allow the company to include the results from additional drilling currently taking place at key high priority targets as well as improve the quality of our resource and reserve at the Yauricocha property. We are confident that we have the right team in place to manage these projects and the planning needed to see these projects and exploration programs move ahead as planned.Turning now to Slide #7, at Bolivar in Q2 2019 compared to Q2 2018, we saw a 20% reduction in copper head grades offset by higher gold and silver head grade. However, we have experienced improved copper and silver recoveries and had record quarterly throughput which led to a 19% increase in copper equivalent pounds produced. Cash cost and all-in sustaining cost decreased from Q1 2019 that were higher in Q2 2019 versus the same period in 2018 at a cash cost of $1.51 per copper equivalent payable pound and all-in sustaining costs were also higher at $2.55 were copper equivalent payable pound.This is attributable to higher labor and contractor costs related to stope and ramp development additional equipment purchases, mine development costs, exploration drilling and plant improvements.Bolivar did reach an average throughput of 3700 tonnes per day and it's expected to reach 4000 tonnes per day in Q3 and increased to 40 to 50 per day in the fourth quarter this year, with continued development and infrastructure improvements. Additionally, copper head grades are expected to improve during the second half as more ore resource from the Bolivar West zone.Finally, we continue working towards and expected to release an updated NI 43-101 report for the Bolivar mine at the end of Q4 2019.Turning now to Slide 8, during Q2 Cusi again had a record quarterly throughput and realized an increase of 76% as compared to Q2 2018 increasing to 938 tonnes per day level as the company continued to work towards 1200 tonne per day level. The increase in throughput resulted in a 41% increase in silver equivalent ounces produced.Despite the lower head grades and recoveries realized for all metals. The increase to 1200 tonne per day had been slower than expected due to poor contractor performance, equipment availability issues, delays in development and stope preparation and issues with subsidence. We're actively working on these issues and we're changing to mining contractors who can provide their own equipment and significantly increase development to a level of 90 meters per month.We're also focusing on the 1704 and 1720 levels of the Santa Rosa de Lima zone to provide or with silver head grades of 175 grams per tonne. Work also continues enlarging the ramp size to 4 meters allowing for larger trucks to home more ore from the mine to the plant. With these changes, Cusi can reach the 1200 tonne per day level of throughput and become profitable.Cusi cash costs for silver equivalent payable ounce was $16.49 and the all-in sustaining cost was $25.67 per silver equivalent payable loss which was higher in Q2 2019 compared to Q2 2018. The increase in all-in sustaining costs was due to higher sustaining capital expenditures and lower silver equivalent payable ounces due to concentrate build up inventory at the quarter-end with high moisture content that wasn't shipped until after the quarter-end. If the build up of concentrated inventory during H1 2019 had been sold, it would have resulted in this all-in sustaining cost per silver payable ounce decreasing by $5.5 for Q2 2019 and by $4 for H1 2019.The company expects to have an updated NI 43-101 technical report for the Cusi mine during Q2 2020, which has been pushed back two quarters from the original estimate of Q4 2019. The reason for the delay is to include the results from additional drilling currently being completed at the mine to improve the quality and classification of the resource reserve contained within the NI 43-101 technical report.Management is also evaluating a delay in the expansion of Cusi from 1200 tonne per day to the 2400 tonne per day to allow the company to stabilize operating rates at 1200 tonne per day level for us, while increasing silver metallurgical recoveries as well as improving dilution control and these were critical issues during the recent ramp up to 1200 tonne in H1 2019. Additionally, the revised NI 43-101 technical report will allow to for improved strategic mine planning, development and stope preparation.As such the $10 million of capital expenditures planned for 2019 relating to the plant and tailings dam expansions will be deferred until expansion timetable is redefined. It is important to note that the capital investment already made at the mine and plant during 2018 and the first half of 2019 were necessary to achieve the throughput increases to 1200 tons per day which is required to make the mines profitable at current spot silver prices. Peer metals remains at an inflection point. We continue working to improve fair share value and continue to work to be profitable at today's metal prices. By improving throughput, head grade and recovery rates, which in turn will help lower costs.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 future cash flows. We are continuing with our aggressive exploration programs with a goal of improving the quality of our resources and adding additional resources.The company continues to have a solid financial position and the liquidity to support our growth programs, which always represent a prudent use of capital and provides for an excellent return on investment for the company and its shareholders.With that, I will like to review our cash flows for Q2 2019 in more detail.Turning to the Slide #9, during Q2 2019 our operating cash flows before moments in working capital were 12.8 million. We have negative working capital adjustments of 4.1 million, we paid 3.5 million and taxes improve and we invested 16.7 million in capital expenditures in Mexico and Peru. We paid 1.5 million to repurchase 1.1 million shares of the company. And we paid, 49.4 million in principle repayment and interest in our credit facilities in Peru and Mexico.We also had proceeds from the issuance of our senior secured credit facility of 78.6 million leaving us with a cash balance of 40.2 million as of June 30, 2019. We have a Board and management team [Technical Difficulty] price reflects the value of the company and initiated and a normal course issuer bid in December 2018 with a 1.5 million share target. To-date, the company has repurchased and cancelled a total of approximately 1.2 million shares at an average VWAPO of CAD$1.97.The company is in good financial health and we maintain a strong balance sheet with $40 million in cash. Our total debt was 99.5 million at the end of Q2 2019 with net debt of 59 million. During Q1 2019, the company announced the closing of a 100 million senior security copper grade facility in March. The facility has a six year term with a two year grace period and has a rate of LIBOR plus 3.15%.This facility will provide the company with additional liquidity and will offer financial flexibility to fund future capital projects in Mexico as well as working capital requirement. The company will also use the proceeds of the corporate facility to repay existing debt in the near-term. During the second quarter, on May 9, the company repaid the remaining $33.2 million existing on the Corona acquisition facility with BCP and the 15 million existing on the revolving credit facility with BCP. After drawing funds from the senior secured property credit facility.For 2019, the company remains focused on allocating operating cash flows though with existing growth capital to provide funding for the significant capital expenditures planned this year. Management will continue to review metal prices and retain the option to adjust the capital expenditures should metal prices experience any dramatic changes within the year.With that, I will now turn the call to Mike.

[Mike McAllister:]

Thank you, Igor.That ends the presentation portion of this call. Operator, we would not like to open the call to questions from participants. Please open the line.

[Operator:]

Thank you. [Operator Instructions] Your first question comes from the line of Mark Reichman from Noble Capital Markets. Your line is open. Mr. Reichman, your line is open.

[Mark Reichman:]

Thank you and good morning. I wanted to focus on the Cusi mine, first and given the fact that the expansion to 2400 tonnes per day has been delayed and the technical report will be available in the second quarter of 2020. Has there been any change with respect to how you're thinking about effecting that that expansion because there was originally you installed the refurbished ball mill at Mal Paso, but then there were plans for a proposed processing plant at Cusi that was closer to the mine than Mal Paso which would result in some savings. And then, I think that was originally going to be constructed at 1500 tonnes per day but that would be expandable. And then, there was also the plans for the tailings facility that the planned and permitted increases would provide I think about a year and a half of additional storage capacity based on that 1200 tonnes per day. And then, you were looking at for the proposed plant there was kind of a new site that would accommodate. I think it was a little over 5.4 million tonnes of waste ore. Do you expect that any of those plants will be affected by the updated technical report or I was just kind of thinking about how you're now thinking about that expansion and maybe the timing?

[Igor Gonzales:]

I will respond a part of it and Gordon will complement. The refurbished mill has been installed in its operating and that's precisely the equipment that is, we are trying to ramp up to reach the 1200 tonne per day level. We are also working on improving the recovery of the plant and this expansion took place at the Mal Paso site, where we have an existing tailings facility and now we also have purchased some land for an additional tailings facility very close to the to the Mal Paso site.

[Gordon Babcock:]

Yes. And another thing to mention there as well as, we have another ball mill present on the property we've got a 12.5 by 168 ball mill. So, the main -- the elements to get to the bump up in production are essentially there. We've added in another crushing, another cone crusher to the circuit and we're making improvements to the infrastructure with screens and so on. So, the idea is to stabilize the operation at 1200 tonnes per day and then layers out for more development in the mine and above the grade going into the mill solidify those recoveries and then carry on and organically move up to 2400 in the future.And to answer the question about the Cusi site, after these improvements are done to the Mal Paso site then the company would have to do an evaluation of the merit of another plant close to the mine. First of all, the priority is to get the 43-101 complete.

[Mark Reichman:]

Okay. Well, that's really helpful. Just one other, given the fact that the capital expenditures will be deferred, I think that $10 million. What does that do? I mean I know that it's hard to put a firm date because it's all going to depend on how you're operating at that 1200 tonnes per day, but at a minimum, I guess with the shift in the capital expenditures, what would be kind of the thought on that timeframe to 2400 tonnes per day or do you think it's just too early to tell?

[Gordon Babcock:]

In my opinion, right now it's a little early to tell. I mean the mine, these are the whole thing hinges on mine development and mine production. So, I think the portion on the plant side is, it's all workable, it's the timelines to do that. But, the key is to get the muck out of the mine and get consistency coming into the plant. That will help immensely.

[Mark Reichman:]

Okay. Thank you very much.

[Operator:]

Your next question comes from the line of Jacob Sekelsky from ROTH Capital Partners. Your line is open.

[Jacob Sekelsky:]

Hey, guys. Thanks for taking my question. You've been focused on increasing throughput across the portfolio during the first half. A lot of that has already been completed. Can you just maybe walk us through the remainder of the CapEx spend on this front for Q3 and Q4?

[Igor Gonzales:]

Yes. As you know we initially had $83 million CapEx for the full year. We have revisited the entire number of projects for each one of the mines. And given the strike in Yauricocha, we will see some capital deferral in Yauricocha for 2020. And also this deferral of the capital in Cusi and some savings in the Bolivar capital, so that's -- we are committed to the project that were initially announced in February. There has been some timing issue in the deployment of the capital.In the case of Yauricocha, we continue to build the tailings facility, which was one of our primary responsibility. And we also continue with the shaft and the [MSO] [ph] and some ventilation projects. In the case of Bolivar, we're essentially done with the expansion of the mill. And in Cusi, as I said we're deferring the capital. [Indiscernible].

[Gordon Babcock:]

Well, I think that sums it up pretty much. The thing is that the capital targets have been -- if anything they may be delayed and deferred out to 2020, but the projects themselves haven't stopped there. They're all on track. They're all moving forward. Basically that's the delta and the difference in the capital expenditure, the grand total. Projects are ongoing in all cases, three operations.

[Jacob Sekelsky:]

Okay. That's helpful. And then, lastly just more of a high level question, obviously, base metal prices have come off a bit here over the last few months and with you guys being a polymetallic producer, you've got exposure there. Should we be surprised to see you put any hedges in place to lock-in some type of margin or is that something you're planning on staying fully exposed to going forward?

[Gordon Babcock:]

Thanks, Jac. Yes. It's something we plan on staying fully exposed to the fact that we are polymetallic and exposed to five metals and different metal prices. We've got a built in natural hedge there. You can see silver, silver popping up a little bit kind of offsetting a little bit of the copper decline. But right now, we're comfortable being fully exposed to metal prices.

[Jacob Sekelsky:]

Makes sense. Thanks for that. That's all from me.

[Operator:]

Your next question comes from the line of Heiko Ihle from H.C. Wainwright. Your line is open.

[Heiko Ihle:]

Hey, thanks for taking my questions. And its Ihle. As for Cusi, I'm trying to read between the lines here and that's been coming up in every single other question that you've gotten on this call so for. I mean I understand we've had somewhat similar conversations about Yauricocha in the past. But, I mean you still reported record quarterly throughput, but now you're also delaying the expansion, you're pushing back to 43-101 for the extra drilling that you want to do and you're talking about improving the dilution control. All this is coming up in a single paragraph of the release.I mean you're also delaying the investments and you sort of talked about that in your answer to Jac, but I mean what are we missing here? Has your medium and longer term outlook for the mine changed in a market way compared to where we maybe stood at the beginning at a year? Can you maybe get some color on what exactly is different from your expectations and maybe some of the not so obvious factors, I mean [Technical Difficulty] those things that really have changed their?

[Igor Gonzales:]

Okay. First of all, the revision in capital spend at Cusi was prompted by a regular review of capital in all fronts given the press the metal prices that we were experiencing. And so, we analyze a number of scenarios and we think that -- at this point in time, the best scenario is to stay in the 1200 tonne per day range and optimize the plant and the mine. And then, once we're ready we'll do the next move also watching the metal prices very carefully. You want to comment?

[Gordon Babcock:]

Yes. With regards to Cusi, one of the key factors is getting the operations on track, development on track Third and most important is to get the plant stabilized. Our recoveries have gone considerably up in the last three months now. So, a lot of the changes that happened to the ore zones and so on are now -- they're implemented in the plants and we have to better grind. We've got good recoveries and we've got good gradation in our milling. So, that was the target, once that's stabilized then we could move forward from that point.

[Heiko Ihle:]

Got it. And thanks for the color, I appreciate it. And can you just give us some more additional color on your future plans for your balance sheet please. I mean you're sitting on 40 million in cash and a 33 million of trade and receivables, you also got 100 million of debt. I mean, if you think, if you look at a year-to-date, I mean the cash has doubled since the beginning of the year, obviously due to that loan. I mean philosophically what do you consider to be a good amount of cash to keep on your books going forward. I mean the BCP loan, you're paying LIBOR plus, I think 3.15% or something like that.Now you have done a million six of repurchases as part of this release. But, I mean a lot of cash is sitting there idle and essentially collecting no interest, right? Maybe just some medium to longer term plans that you have in place.

[Ed Guimaraes:]

Thanks for the question Heiko. I think just to answer the -- in terms of optimal cash balance, I think for Yauricocha where it is with its operations, I think the cash balance of 25 to 30 million is optimal. The 100 million, the 40 million that we have we will deploy given our recent share price compared to our net asset value was extremely undervalued. Any excess cash would obviously go to continue with a share buyback program. Take advantage of these -- of the lower share price be opportunistic. And then, the rest would be just be to fund further growth at these three mines and we're just scratching the surface here. There's a lot of growth CapEx that could still go forward to continue to expand, definitely at Yauricocha and Bolivar.

[Heiko Ihle:]

Got it. Given that you just brought up the share repurchase in your answer. Is there a limit on the share price that you're willing to pay to repurchase shares at the present moment?

[Ed Guimaraes:]

Well, definitely a $2, I think 250, anything below 250, we would certainly want to take advantage of and that's -- I'll leave it at that.

[Heiko Ihle:]

That's helpful. Thank you, guys.

[Operator:]

Your next question comes from the line of Leon Cooperman from Omega Advisors. Your line is open.

[Leon Cooperman:]

One unintended question is 250, throughout, is that U.S. or Canadian? That's not my primary question.

[Ed Guimaraes:]

That would be in Canadian.

[Leon Cooperman:]

Canadian. Okay, fine. My questions or if I said to you present metals prices would persist for the rest of the year. I'll give you all my questions in advance. What kind of EBITDA would you anticipate for the year assuming present metal prices persist for the rest of the year? Second, the buyback is relatively insignificant. But I think what you said you bought million two, your authorization was a million five. So, 300,00 shares left which is negligible. Do you intend to reauthorize, when this is complete and do you think you'll complete the remainder of the program this year? Third, a little confused on page four of your handout, you show a cash position of 40.2 million, the net debt position is 68.9 and a net debt of 59.2. If you take the cash you have debt that number is like 20 odd million. So, there must be a different number that are missing. So, if you could address that.And then, finally, do you intend - do you expect to generate free cash flow this year. So, you burn cash, if you're burning cash while you're buying back stock?

[Ed Guimaraes:]

Thanks Leon. Lots of questions there. That's fine. So, in terms of EBITDA, we -- as I've said on previous conference calls, we don't typically provide guidance. But, if you were to see where metal prices, if they were to stay where they are now, again, it's basically we're in H1. I don't think you'd be that far off to take it and double it. With the increased expansion being offset by possibly reduced metal prices.So, in terms of the buyback, we do plan to complete the full amount and given metal prices where we are, we will look at whether it makes sense to expand or to initiate a new share buyback program. But again, that that depends on and as you were alluding to, where a free cash flow is going to be? At these metal prices and what we have planned our free cash flow should come in pretty much, it should be coming in as a wash that might be anywhere, it could be a $5 million, but let's just say, it's going to be pretty much not significant.And in terms of 100 million debt, it's 100 million in debt that we have outstanding 99.5. We've got 40.2 million in cash. So the net debt is 59 million. I don't know where you're getting your…

[Leon Cooperman:]

Page 4 of the presentation says debt position 68.9. Okay. But, it's really a 100 hundred million. Okay. No problem. It's a little bit deceptive. But, I can understand. Okay, thank you very much for your responses.

[Operator:]

Your next question comes from the line of Mark Reichman from Noble Capital Markets. Your line is open.

[Mark Reichman:]

Just a quick follow-up on the commentary about the valuation of the stock. And I just wanted to get management's thoughts on why they might think the stock is persistently undervalued and whether liquidity and flow might have something to do with that in which case repurchasing the stock isn't going to probably help that as much. So, has there been any thought in terms of actions that might be taken to improve liquidity or flow, just interested in your thoughts? Thank you.

[Igor Gonzales:]

There have been some actions in the past. As you know, we got an ATM last year, as a vehicle to improve that. And we have the repurchase program and maybe Ed, would you want to complement that?

[Ed Guimaraes:]

Yes. I think -- Mark, thanks for your question. I think Sierra is still at that inflection point where we're growing so a lot of these growth projects, it's taken a lot of capital. Cusi to be blunt really hasn't delivered over the past three or four years. We were hoping to get to Cusi on track. I think there's some performance issues, reputational issues related to Cusi and it's just really never being able to get there, but we still believe very much that it can spending on metal prices.And there's always been, if you look at it from a free cash flow basis, there really hasn't been a lot of excess cash generated. A lot of the cash has gone back into the assets. That's really the extent of it from my side.

[Mark Reichman:]

Thank you.

[Operator:]

And your next question comes from the line of Jim Young from West Family Investments. Your line is open.

[Jim Young:]

Hi. First of all, I'd like to thank Gord for your work at Sierra and building a strong team to provide the future leadership in a seamless transition. And I just want to wish you well in the future and for also putting up with all my questions in the past. Couple of questions, number one is regarding Yauricocha, can you address what future permits are needed going forward in order to enable the growth that you've outlined. You're looking at 3150 today up to 3600 the following year and then beyond. Thank you.

[Gordon Babcock:]

Sure. Thanks a lot Jim. Thanks for your good words. Appreciate that. On the subject of permits at Yauricocha, the next step is of course to get to the 3600 per day mark. There's a series of permits that have to go through. Number one, we have to elaborate on our EIA to include this new tonnage rate. We have to have some more work done on an internal document called an ITFs.So, basically we're on track for doing that. And then, as things go on in the future, for instance the possibility of discovering a new ore zone in the area of the drilling that's going on right now [indiscernible] is very promising. That would be another process another EIA and another complete process in developing a mine plan and so on at a detailed level of pre-phase or ease level. So, all these things are forthcoming.The process in Peru is somewhat tedious. It's taken us better than a year and a half almost a year and three quarters to get our permits to drill, but if we have them now and we've got a group of people here that can execute that. So, I think the permit process in Peru, Jim is going to be an ongoing question and it's going to be highly dependent on how the government reacts to a lot of these processes. I think that's about the best I can put on paper here right now.

[Jim Young:]

Okay, great. So, the 3600 tons per day that you're expecting in 2020, how likely is it that you'll be able to achieve those levels?

[Gordon Babcock:]

I think that's very achievable. With the plant can handle it, the mine can handle it. We need to do some improvements in extraction in the mine. But, basically breaking muck in the mine, we can break the muck. The challenge for us is of course there's the old challenge of waste and waste removal. And the big one is getting the paperwork done with our Peruvian government. Basically, all of the elements are there. It's just a matter of working through all the details now.

[Igor Gonzales:]

The Creek, El Paso is going to be there. The permit line not so much the execution and the operation of the mine itself. We've tested both the plant and the mine at higher rates already, but it is in the Creek, El Paso is [indiscernible].

[Jim Young:]

Okay. Then likewise at Bolivar, can you address, you'd mentioned that you expect to see higher grades coming from Bolivar West in the second half of the year. Can you just elaborate a little bit and quantify the impact of Bolivar West. What's your advantage of ore is being processed at the mill today. What do you expect in the second half of the year and the expected grade that you think that you'll be processing in Bolivar. Thank you.

[Gordon Babcock:]

Great. Thanks. Again, on the basis of Bolivar West contribution, Bolivar West contribution averages around 1.2%, that's just Bolivar West by the time you average that into the whole mind feed. We're talking a little bit over 1%. The percentage of mill feed coming from Bolivar West, I would estimate probably close to about 30%. Maybe coming up to highs of 40%. As development progresses and as the plan works forward in getting the Longwall stopes developed in Bolivar West, I believe that number is going to increase.Right now it's -- there's some challenges that we have to look at -- in that area of Bolivar West as well as the [indiscernible] area, the main mine, it's ventilation, but they're driving a ventilation raise right now. The pilot should be pretty much complete and they will be starting reaming. Once that's in place, the ventilation issues in that sector of the mine will be handled and then they can move forward and getting the development done and getting along drilling started. But, it's very promising, it looks very good.

[Jim Young:]

Okay. So, the expansion from 3000 tonnes a day to 4000 tonnes a day that you have on Page 7 in the presentation. Are there any other permits or another issues that you in order to be deliver on those numbers. And similarly, to drive it from 4000 to 5000 tonnes today in 2020. Thank you.

[Gordon Babcock:]

Jim, no. In the case of Mexico; Mexico is, let's say, it's a paradise compared to Peru as far as permits are concerned. Once you have an operating license in Mexico, the Mexican government could care less if you run in 5000 tonnes or a thousand tonnes a day. All they want is to have your license -- to have your environmental permit and your mining permit in place. Those are all in place. The infrastructure at the mine as is in Yauricocha, this has to be improved ventilation is one, the ramps are there, everything is driven in large with you driving things five by five. We have a lot of capacity with the equipment. So, it's an organic growth curve and it's a very, very doable item.

[Jim Young:]

Okay, great. Well, those are all on the question for now. So, thanks very much.

[Gordon Babcock:]

Thank you.

[Operator:]

There are no further questions at this time. Mr. Mike McAllister, I turn the call back over to you.

[Mike McAllister:]

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

[Operator:]

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