Sierra Metals Inc.
Q4 2016 Earnings Call Transcript

Published: 31 Mar 2017

[Operator:]

Good morning. My name is Carol and I will be your conference operator today. At this time, I would like to welcome everyone to the Sierra Metals’ Q4 and 2016 Year End Financial and Operational Results 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]. At this time, I would like to turn the call over to Mike McAllister, Vice President, Corporate Development.

[Mike McAllister:]

Thank you, Operator and good morning everyone. Welcome to Sierra’s year end and Q4 2016 results conference call. On today's call, we are joined by Alberto Arias, Chairman of the Board; Ed Guimaraes, CFO; and Gordon Babcock, COO. Today’s call will be followed by a question-and-answer period. Today’s presentation is available for download both through this webcast and from the Company’s Web site at www.sierrametals.com. Thursday's press release and the financial statements, as well as the Management Discussion and Analysis are also posted at the Company’s Web site. Before we start, I would like to remind everyone about our disclaimer, and that certain statements made today by the executive management team, may contain forward-looking information. Anything not historical is considered forward-looking. For more information, please refer to our detailed cautionary note and yesterday's press release and to the disclaimer on slide two of today’s presentation. Please note that all dollar amounts mentioned on the call are in U.S. dollars unless otherwise noted. With that, I will now turn the call over to Ed Guimaraes, Chief Financial Officer.

[Ed Guimaraes:]

Thanks, Mike, and good morning, everyone. I would like to begin with an overview of the 2016 results for Sierra, as well as discuss the operational and exploration highlights for the quarter. That said, I must say we are very excited and encouraged by the s significant progress made in the financial, operational and exploration results at Sierra in 2016 and in particular the fourth quarter. We believe that 2017 will be a year of exponential growth at all three projects and for Sierra Metals as a whole. Following my summary highlights, Gordon Babcock will take us through the operational and explorational highlights, and then I will take us through the 2016 financial highlights and then we’ll open the call to questions. Looking at slide four, 2016 has been a transformational year for Sierra Metals, having achieved significant improvements in our financial performance, operations and production capacities, as well as in our Brownfield exploration program with several important new discoveries. In 2016, the Company reported revenue of $143.2 million and adjusted EBITDA of $41.9 million on throughput of 2,034,465 tonnes with metal production of 11.9 million sliver equivalent ounces or 79.5 million copper equivalent pounds. Sierra Metals had a second consecutive exceptional quarter in its operational and financial results, aided by the rise in metal prices. During Q4, the Company maintained significant improvements in revenue and adjusted EBITDA, realized during the previous quarter. The Company achieved excellent year-over-year improvements in the fourth quarter with revenues up 67%, adjusted EBITDA up by $17.9 million and the all-in sustaining cash cost for sliver equivalent payable ounce was lower by 27% to $12.51 at the Yauricocha mine. In 2016, consolidated metal production increased by 4% compared to 2015, which represented the second highest level of annual metal production in the Company's history. In Q4 2016, consolidated metal production increased by 31% when compared to Q4 of 2015, and resulted in Sierra leading at the [technical difficulty] quarterly metals production in Company's history. Continuing on slide five, in 2016, the Company successfully completed an operational improvement process at the Yauricocha Mine, including the installation of a new Hepburn Hoist, which has increased skipping capacity by 30,000 metric tonnes per month. As a result, Sierra continues to see a substantial positive impact from the programs implemented at the Yauricocha Mine, which have continued to strongly contribute to operational results during the second half of 2016. Plant improvements completed at the Bolivar Mine during the second half of 2016 included the installation of a new vibrating screen and cyclones, which resulted in improved recoveries. At the Cusi Mine, the installation of a new vibrating screen, a new zinc circuit, and an improved cyclone rack, resulted in recovery in grade improvements in the lead and zinc circuits. Significant new discoveries in exploration were also paramount with this discovery of the Esperanza and Cuye/Mascota zones at the Yauricocha Mine, the development of higher grade ore zones such as Bolivar West, North West and La Sidraat at Bolivar Mine and the reinterpretation of the geology and announcement of the Santa Rosa de Lima zone at the Cusi Mine. The importance of the Brownfield program has demonstrated by the Esperanza zone, which went from discovery to production in less than one year. Our Brownfield program continues to indentify multiple targets that can be brought in to the mine plan in a timeframe of approximately one year. Sierra is continuing with its Brownfield exploration program and definition drill program at all three Mines. We shall continue to provide further proof-of-concepts for several key areas in addition to further successes and expected resource growth for all three mines. With that, I will now turn the call over to Gord Babcock for the operations and exploration update.

[Gordon Babcock:]

Thanks, Ed. Good morning everyone. Please turn over to slide number seven please for the operational highlights. In 2016, Sierra processed the total of an excess of 2 million tonnes which represented a 9% increase over 2015. In Q4 2016, Sierra processed the total 517,705 tonnes, representing 13% increase over Q4 2015. The Company produced 11.9 million silver equivalent ounces or 79.5 million copper equivalent pounds in 2016, representing an overall 4% increase from 2015. In Q4 2016, the Company produced 3.2 million silver equivalent ounces or 21.2 million copper equivalent pounds, which represents a 31% increase over Q4 2015 production levels. This was a result of increased throughput, higher head grades, higher recoveries at Yauricocha Mine in Peru, but partially offset by a decrease in head grades and recovery at the Bolivar and Cusi operations in Mexico. The Company continues to benefit from the operational improvement programs completed at Yauricocha, and this is a continual improvement program. And it's continuing with a similar program at Bolivar and Cusi mines in Mexico. Looking now at Yauricocha, silver equivalent production in 2016 was 7.7 million, ounces representing a 9% increase over 2015. In Q4 2016, silver equivalent production was 2.2 million ounces, which was 65% higher than production levels of Q4 2015. In 2016, Sierra saw higher metal production of; silver, 3%; copper, 13%; and zinc, 30%, which was partially offset by decreased metal production of lead and gold, 8% in lead case and 7% in gold. For Q4 2016, Sierra saw increases in the production of all metals, except gold at Yauricocha, over Q4 2015 with increases in the production; of silver, 92%; copper, 64%; zinc, 81%; and lead, 36%. At Bolivar, Company had another record of annual plant throughput of 950,938 tonnes, the process which represents 14% increase in volume in comparison to 2015. Bolivar also had a strong fourth quarter of throughput with 245,000 tonnes process, which represented a 16% increase when compared to Q4 2015. The record throughput helped to offset the lower head grades encountered and resulted in the 4% decrease in copper equivalent production year-over-year, which is 1% decrease in copper equivalent production in Q4 2016 compared to Q4 2015 and that’s all attributed to head grades. Metal production in Bolivar decreased in 2016 with lower production of; copper, 3%; silver, 10%; and gold 7%. In Q4 2016 versus Q4 2015, copper production was flat while silver and gold production was 4% lower. The Company's focus at Bolivar in 2017 would be to improve production volume, higher throughput, improve ore, improve on grades and recoveries, as well we’re investing in new equipment space or when this equipment is in place, we have the means of moving forward. At Cusi, this again is based on concentrating on our development and extraction of ore from our non-mineralized areas within the Bolivar concession of the assets that we have internally. At Cusi, the Company processed the total ore of 186,898 tonnes in 2016, which is a 7% decrease from 2015. For Q4 2016, total ore processed was 36,055 tonnes, which represents a 30% decrease in comparison to Q4 2015. Due to lower head grades and recoveries for raw metals combined with lower throughput, which was caused by a series of weather related events and significant rainfall in the fourth quarter which caused flooding in the ramps which led to stope unavailability. In the case of Cusi and the Cusi area, the Cusi River had overgrown its banks and we were getting water coming in from the river right into the mine. Recall that this is a very old operation. Please turn to slide number eight, exploration continues to be a critical part of growth plan, and here in Q4 2016, the Company drilled 42 holes, totaling 7,284 meters at Yauricocha. Exploration drilling accounted for 13 holes or 3,931 meters; at the Esperanza zones to test continuity; at Cuye/Mascota zone to test continuity of depth; and to explore new areas; and at Cachi Cachi zone, to explore new mineralized zones. Definition drilling accounted for the remaining 29 holes or 3,652 meters; at Rosaura, Esperanza and in the Cuerpos Pequenos zones; and also I may in the Central mine zone. On November 17, 2016 Sierra announced discovery of the new Cuye/Mascota sulphide deposit, which is located 200 meters to the north of the Central mine area along strike and adjacent to current mining activities. A total of seven holes have been drilled to-date and as a result of this drilling program, continued mineralization has been identified and provided the Company with an important information base, previously did not have any information on. Cuye was one of the main cash flow generators 10 years ago and this appears to be at depth with similar widths and grades. Please turn to slide nine. Slide nine depicts the discovery of the Mascota zone transition. You see where we’re going from oxide to sulphide, and at depth this is important because of the higher recovery rates that are associated with processing sulphide ores. The Company is optimistically continuing with exploration drilling activities in the areas below the Cuye and Mascota ore bodies, and will continue to report results as they become available. We still see far great opportunity to expand our high value new mine tonnage in the near term and the opportunities are numerous and by no means to exhaust it. As I’ve mentioned before, this is a mining district, this Yauricocha asset. At Bolivar, combined with an aggressive focus to optimize our operations, Brownfield exploration will be critical component to see great and value per tonne by bringing new areas, such as Bolivar West, Bolivar Northwest, La Sidra into production schedule as quickly as possible. Here in Q4, exploration drilling continued along Bolivar West fault area with a total of 11,749 meters drilled in this area, 3,472 meters were also drilled at the El Gallo inferior area. Subsequent to year end on March 6, 2017, the Company announced the results of an initial drill program at the La Sidra vein on the Bolivar property. Drilling is now picking up and is ongoing, and continues to define high grade silver-gold and polymetallic mineralization. The mineralized zone currently extends to over 500 meters in length and to 300 meters in depth, its open along strike and down dip. Please turn to slide 10. At Cusi, we are in the process now of reevaluating the opportunity as we gain greater insight to geological setting and the possible ramification to that evaluation. Drilling continues at the Santa Rosa de Lima zone, as well as definition drilling in other areas within the mine. On February 27, 2017, the Sierra announced the discovery of a new high grade silver intercepts zone occurring in the Santa Rosa de Lima complex located within the current Cusi mine operational area. The Santa Rosa de Lima complex lies within the regional structure, extending some 64 kilometers. This extension on the Cusi property has an anticipated length of approximately 12 kilometers. The discovery comes as part of a reinterpretation of the hydrothermal model, and a drilling campaign consisting of 15,000 meters which began in December 2016. To date, the Company has drilled 10,200 meters or about 79% of the planned program, which is expected to come to completion by the end of March. 2016 has been a transitional and a significant year, laying future growth for Sierra Metals as we recognize continued improvements to the production grade and recoveries as we completed a very successful series of operational improvement programs at the Yauricocha mine. We look forward to accessing an improved production from the lower levels of the Esperanza and Cuye/Mascota zones. Additionally, we anticipate further Brownfield exploration successes at Yauricocha, Bolivar and Cusi. Sierra Mines is now on track to see strong production growth and exploration success. The past year’s preparation has lead the execution of the solid plant which is expected to lead to a stronger future, benefitting the Company and its shareholders. With that, I will now turn over the call to Ed Guimaraes, our CFO, for the financial overview. Thank you very much.

[Ed Guimaraes:]

Thanks, Gord. Turning to slide 12, as mentioned, the Company had an exceptional fourth quarter and benefitted from the continued rise in metal prices, as well as near record throughput at the Yauricocha mine and record throughput at the Bolivar mine, along with the strong operational results realized during the quarter. Cash flow generation continues to improve and provide the Company with a healthier balance sheet and increased liquidity. The Company realized annual revenue of $143.2 million for 2016, which increased by 7% when compared to 2015. Revenues were $41.8 million in the fourth quarter of 2016, which represented a 67% increase compared to the fourth quarter of 2015. Annual realized metal prices in 2016 were higher for all metals with the exception of copper, including 9% higher for sliver, 2% higher for lead, 10% higher for zinc, 9% for higher for gold and 11% lower for copper. In addition to the higher metal prices realized, the increase in annual revenues during are primarily attributable to the 8% increase in throughput and the increase in copper head grades at Yauricocha, the increase in gold throughput and recoveries at Bolivar, as well as the introduction of a zinc concentrate and higher gold and lead recoveries -- grades and recoveries at Cusi. This was partly offset by lower head grades at Bolivar and as mentioned, the 11% lower copper prices. Annual adjusted EBITDA for 2016 was $41.8 million, up from $32.3 million in 2015. Adjusted EBITDA in Q4 2016 was $16 million compared to $1.9 million in Q4 2015. The annual increase in adjusted EBITDA was primarily due to $7.4 million increase in revenue at Yauricocha. Yauricocha's 2016 cash cost per silver equivalent payable ounce was $7.77 versus $7.10 in 2015, and the all-in sustaining cost was per silver equivalent payable ounce was $13.11 versus $13.25 in 2015. The decrease in annual all-in sustaining cash cost per silver equivalent payable ounce during 2016 was due to an increase in silver equivalent payable ounces as a result of higher throughput and ore feed head grades from the increase in available productions from higher grade zones in the mine. Also, lower treatment and refining costs incurred during 2016, resulting from improved terms within renegotiated sales contracts with our off takers, offset some of the additional sustaining capital costs and costs related to the mechanization and water management controls implemented at the mine during 2016. Bolivar's 2016 cash cost per copper equivalent payable pound was $1.15 versus $1.33 in 2015, and the all-in sustaining cost per copper equivalent payable pounds was $2.28 versus $2.29 in 2015. The annual all-in sustaining cash cost per copper equivalent payable pounds remained consistent during 2016. The decreased cash costs offset an increase of $2.2 million in sustaining capital expenditures related to mine development and equipment purchases, as well as the decrease in copper equivalent pound sold, which was due to lower head grades and recoveries of all metals, except gold recoveries. Cusi's 2016 cash cost per silver equivalent payable ounce was $10.28 versus $8.82 in 2015 and the all-in sustaining cost per silver equivalent payable ounce was $20.41 versus $26.47 in 2015. Annual all-in sustaining costs per silver equivalent payable ounce decreased due to the significant decrease of $8.5 million in sustaining capital expenditures related to stope and drift development within the mine during 2016; as the significant amount of mine development work was completed during the last two years, which has resulted in reduced sustaining capital cost required to drift and develop the necessary amount of mining spaces, required to maintain current production levels. The decline in throughput and silver head grades and recoveries resulted in fewer silver equivalent payable ounces, which also contributed to the higher annual cash cost per silver equivalent payable ounce in 2016 when compared to 2015. Cash flow generated from operations before movements in working capital was $44.3 million for the year ended December 31, 2016 compared to $32.5 million in 2015. The increase in operating cash flow was mainly the result of higher revenues generated and higher gross margins incurred. I would now like to review our cash flows, which I believe provide the clearest perspective on our financial performance. I have summarized the changes in cash during 2016 on slide 13. During 2016, our operating cash flow before working capital adjustments was $44.3 million and proceeds from the issuance of credit facilities, was $12.8 million. We spent $25.4 million on capital expenditures in Mexico and Peru, at negative working capital adjustments of $1.5 million and we paid $13.2 million of interest in principal repayments on our credit facilities in both Peru and Mexico. We also paid $0.5 million in dividends to non-controlling interest shareholders. These items increased our cash balance from $25.1 million as at December 31, 2015 to $42.1 million as at December 31, 2016. Turning to the balance sheet and liquidity on slide 14, we have ended 2016 in a strong financial position with $42.1 million in cash and total debt of $78.6 million. The Company's net debt was $36.5 million, which represents less than one-times drilling adjusted EBITDA as at December 31, 2016. The Company has principal payment obligations on its loans and credit facilities of approximately $16 million to be paid in 2017, $14 million to be paid in 2018, $8 million to be paid in 2019 and $29 million to be paid in 2020. I would also like to highlight the sensitivity of our profit to changes in exchange rates. Approximately 70% of our costs at Yauricocha are denominated in Peruvian Nuevo Soles and approximately 60% of our costs in Mexico are denominated in Mexican Pesos. At December 31, 2016, the Sol to U.S. dollar exchange rate was 3.4 and the Mexican Peso to U.S. dollar exchange rate was 20.74. Thus far in 2017, the Sol has remained relatively unchanged against the U.S. dollar; however, the peso has realized a 9% increase against the U.S. dollar. A 10% decrease in the value of the Sol and Peso against the U.S. dollar would result in an increase of $4.2 million and $1.4 million in the Company’s net income respectively, assuming that our operational performance during 2017 is consistent with 2016. We are confident that our financial position, together with potential future cash flow generation from our three producing mines, including the recently discovered Esperanza and Cuye Mascota zones, will be sufficient to support the Company’s financial commitments in 2017, and beyond. I’ll now turn the call back to Mike.

[Mike McAllister:]

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

[Operator:]

[Operator Instructions] And your first question today comes from Lee Cooperman from Omega Advisors. Please go ahead.

[Lee Cooperman:]

I was curious if you guys have ever considered doing an appraisal of the asset holdings to the corporation. And if you take your approach to proven probable potential reserves, because it would seem that the stock is not reflecting the true value of the business. It’d be helpful to the shareholders of some objective third party with now praising value assets of the kind we have would be engaged. What do you think about that?

[Ed Guimaraes:]

With Alberto and Gordon, and Lima and I am in Toronto, I am not sure who is going to take the call. Thanks very much for the call, and for the question, I should say. And I'll start off by saying, so every year we do look, especially now with the 43-101 updates so that really is a third party assessment of our reserves and resources. And that’s really all I can answer to -- Alberto, if there is anything else you want to add to that?

[Alberto Arias:]

Your question was to having the market recognize the value, the underlying value that our assets have. And we’re completely on the same page as you are. I believe that that will be accomplished by having more visibility, having more research coverage. Right now, we have very few analysts that cover the stuff. But as you know and we've made public that our intention is to go through New York Stock Exchange, have more visibility in the public market. And I think that the market will start to recognize the value that the Company's asset have and compare it with the value of other publicly traded companies, and make their own conclusions that certainly, I am on the same page as you are that this is perhaps the most important issue how the market is going to recognize the value we have.

[Lee Cooperman:]

The only reason I suggested is because 51% of the stock is owned by the private equity fund, which has liquidities that this can provide in October 2018 it would seem to me would be to everyone's interest to get out there. We think the value with some independent appraiser things to value of the businesses because you’ve done a great job in assembling some attractive properties with terrific production profiles. And if you kind of continues reasonably strong here, I would assume we’re going to get a benefit of rising commodity prices, as well. But just a thought on what you reflect on it?

[Alberto Arias:]

To conclude on that point is that we have a lot of interest for shareholder value obviously that is shareholder value for all the shareholders of Sierra Metals to something that takes apart this Company relative to other things at our, other set of minds companies is that we have a huge incentive to, I would call, the recognized value a positive role because our intention is to crystallize that value obviously over a reasonable period of time. So we are fully aligned. The management team is aligned with our objective of uncovering value quickly. So, that's why we are seeing the results that you are seeing and we’re very excited about the future of this Company. Thanks.

[Operator:]

Your next question comes from Heiko Ihle from Rodman and Renshaw. Please go ahead.

[Heiko Ihle:]

I just going through my quarter-by-quarter production model the one that we have. And you had a plan shaft in November for the high capacity hoist at Yauricocha. I just wanted to see if there is anything planned like that's for 2017. And obviously there is growth everywhere, but is there any shutdown that’s more than call it three or four days, planned for 2017?

[Gordon Babcock:]

Right now with regards to that comment, we've got a program right now. We've got to do some maintenance on our shafts, one of the maintenance programs that we’re undergoing right now, as we speak, is the central mind shaft. But these things are going to be a day, two, day, three days delays it's a standard maintenance program. But nothing like the shutdown for the Hepburn Hoist overview. That work went without a hitch, and we made our budget promises. We brought those to fruition; so no, nothing like that. The focus is on development, trying to get the development programs going, moving them along that can help us in maintaining our production flow. Our objective is to trying to up our production.

[Heiko Ihle:]

Just longer-term, Cusi seen some of the biggest improvements over the past year, I mean you called the reinterpretation of the geology there. And at least in our model, the value for that asset has increased quite a bit. I mean down to the head type of question. What mine do you think has the best chances to repeat that type of success in 2018 and beyond?

[Gordon Babcock:]

Well, I have my heart to set in Peru. So for me, I think that one of the assets that’s truly undeveloped as this Yauricocha asset, because it is a mining district. In the case of Mexico, now that we’ve uncovered our Santa Rosa de Lima zone, that’s going to take a lot of drilling. But the upside for that, if it does extend to 12 kilometer strike length, this is going to be phenomenal. The assets that we showed were quite promising. We’re looking at basically resources in the inferred category. So we have to do an M&I program to fast track this. That’s going to be a big plus for the Company. That’s going to add a great deal of value in the Reserve Bank for the Company. And the other one that’s steady performer is Bolivar. In Bolivar, the whole secrets of Bolivar is move on the production level, production increase and we improved the plant recoveries, things like that, improved our TDFs. I think really it's kind of an interesting mix; so the two that really come out stand- out a lot right now and a lot of potential at Cusi. Yauricocha is a district that’s been a producer since the 1940; so that one has to be number one in my list as an operator. Then with the potential to buff up production in a mine like Bolivar, we’ve got opportunity there. There is actually I think all three are fairly good. But for me just being someone that’s lived in part of Peru for all my life, I tend to go with the Yauricocha asset, that’s just my opinion.

[Operator:]

Our next question today comes from Randy Rochman from West Family. Please go ahead.

[Randy Rochman:]

Gordon or Ed, I don’t know which you want to take the question regarding the balance sheet and then couple of questions regarding exploration. The one regarding the balance sheet is basically with the substantial increased cash flows you’re now seeing. When do you think the Company will be debt free or effectively debt free for net debt position? And what we do with that cash when it starts trailing up?

[Ed Guimaraes:]

I think right now with the debt that we have, on the books; it's extremely manageable; it's very low interest rates. As you know $24 million of that debt isn’t due until 2020, and in the form of a bullet payment. I think the objective will be to start to pay down some of that debt and increase the repayment schedule. But there is still, given the Brownfield potential on our properties, I think there will be a lot more drilling taking place and a significant amount of cash will go towards that effort, as well as improving our equipment, modernizing our mines with the focus in Mexico, similar to what we did at Yauricocha.

[Randy Rochman:]

Couple of exploration questions, with the seven drill holes you’ve drilled -- conducted at Cuye/Mascota down to Yauricocha. When do you think the results would be released and how significant could this be?

[Gordon Babcock:]

We’re in the process right now, like all the mining operators in the world. The exploration business has picked up. So when the exploration business picks up then what happens at the laboratory, so laboratory business does pick up and then all the sudden your turnaround time is now doubled or tripled. So now we’re waiting for assets to take and we’re paying high priority dollars to get the information quickly; sometimes it comes back late in the month. We’ve got -- we’re in the process right now of adding to the information that we just recently published, so there will be another publication coming out; and in that publication, we’ll be speaking about Cuye, we’ll be speaking about the Mascota zone, as well we’ll be speaking about our new discovery in the Cachi Cachi zone. Cachi Cachi, as you probably know, is the area to the north to the mine, and it's generally responsible from 13,000 to 18,000 tonnes a month. And we were concerned because Cachi Cachi seems to repeat right now. But after our initial drilling program, we discovered some new zones that are at depth. And all these structures are trending further at depth, they’re open at strike and they’re also open at depth. So it's all been very positive.

[Randy Rochman:]

Moving on to Cusi, I suspect the same issue, the labs are busy, so you just kind of waiting for results. Is that when we’re want to get…

[Gordon Babcock:]

Yes…

[Randy Rochman:]

If there is any connection between the Santa Rosa and Los Gatos mine further away?

[Gordon Babcock:]

There is a good geological possibility that they’re on the same trend. Like, if you look at the geology, the regional geology of that area, Randy; the trends are there; the geology is there. In our opinion, we’re at the site close we’re right on that trench. So it's very, very positive, now like the fast track to get our asset into an M&I position quickly. And after that in order to get it to reserve status, we got to do a mine plan so on; so we have to move it along. But the point I am trying to make in Cusi is that we’ve got -- we’ve done our work based on the information that was available before to know we find that area. So now we know that area is what it's supposed to be, where what we were thinking it was. So now it’s a matter of doing our infield and improving the allocation of the resource, and after that focus on reserve.

[Randy Rochman:]

So my last question then has to do with the 43-101 reports. Are those, let's say, condition president to have those out prior to the NYSE listing? And if so, what kind of delays might be incurred as a result of those?

[Gordon Babcock:]

I am sitting on a two draft copies of the 43-101s for the Company. We have got one that due to meet today, and I’ve got the Bolivar one in my hands right now, so siding things up and then we’ll be publishing.

[Randy Rochman:]

So you think you can make the kind of the listing data you’re shooting for?

[Gordon Babcock:]

That's our objective to do that.

[Randy Rochman:]

And given the higher head grades and some of the productivity enhancement you put in. Is it reasonable to assume that all three mine locations, we will see cost trending lower?

[Gordon Babcock:]

Well, we’re going to see cost trending lower once we get our production levels to where I want them to be in Bolivar that will definitely be by the end. In the case of Cusi, Cusi is a little bit of the different animal. Cusi's focus is going to be on the M&I and the resource allocation. We have to concentrate on where we can get the best bank for the buck. So in the case of Cusi, we're going to try and maintain our current status. But we’re really going to be focusing on where they add the added value comes in to the Company, and that’s going to be in that Santa Rosa de Lima area. In the case of Yauricocha, our production for this month, for instance, was probably about 3% above what we were anticipating, and we’ll close the mill -- I think today we were at 85,000 tonnes produced with a really impressive revenue number; so that's more or less where we're going.

[Operator:]

[Operator Instructions] And your next question comes from Lee Cooperman from Omega Advisors. Please go ahead.

[Lee Cooperman:]

I am going to try this I don’t what your policy is on guidance, so forgive me if I ask you an appropriate question. But if you look and exhibit to page eight, where you have your five year record; in 2012 you had adjusted EBITDA about $84 million, which is about twice what you had this past year. Is it your expectation that given your plans and current outlook that you could get close to that record level of 2012? And then also, what is your CapEx plans for 2017 and what would that derive in the way free cash flow?

[Ed Guimaraes:]

I don’t think it's a stretch at all to beat the 2012 EBITDA numbers. And you could take a look at 2012 and just what the prices were at the time, what the throughput levels and what the costs were, and compare that to what you’re seeing at the end of or at the fourth quarter of 2016. That’s just to give you a fairly good indication that I'm confident and I know we have expressed that already. And I know Mark has and that 2012 should be achievable…

[Lee Cooperman:]

And then the CapEx that you’re planning for the current year?

[Ed Guimaraes:]

CapEx for the current year is I believe it's around the $25 million.

[Lee Cooperman:]

So when taking those numbers together, the free cash flow will be quite enormous, which came to Randy's question; theoretically, unless you did an acquisition or some major new unforeseen capital expenditure, you will be debt free and have excess cash at the end of this year.

[Ed Guimaraes:]

I can't really speak to that, because there are plans. But that’s not clearly for this Q4 conference call. I don’t know Alberto if you want to add anything there, on that?

[Alberto Arias:]

Lee, the math is math, right. Given the -- if you put together the guidance on EBITDA and the guidance on CapEx, you get those free cash flows. So the issue is what to do with those free cash flows, and it's pretty obvious; either you put more money on the ground or you distribute it back in some way or another. We were last week in Chihuahua, Mexico, the whole management team, and we had like a great discussion in terms of where we are as the Company in terms of the different exploration projects at all of our properties. And as you know I’ve been involved with this Company for the past 10 years. And I can tell you that I have never been more excited than I am today in terms of what the prospects are. So if you connect what I said before or accelerating the daylight of values and the cash flows that are being generated, you could anticipate that perhaps we’re going to accelerate some of this day lighting of critical projects. So I think that’s we’re proud strategically. We would like to roll and obviously the objective is always to maximize value. So, we have to decide did we put additional emphasis on some exploration and that are very close to our production centers or do we distribute it back to the shareholders. So we’ll take that decision in the coming months.

[Lee Cooperman:]

Terrific. Well, good luck. You’re doing a terrific job for us, we appreciate it.

[Ed Guimaraes:]

I just wanted to clarify as well, Lee, when I mentioned the $25 million CapEx that I was referring to sustaining CapEx. There is an additional $25 million which will be for what I consider growth and that’s exploration drilling and so forth.

[Lee Cooperman:]

As Alberto said, the math is the math.

[Operator:]

And we have no one further in queue, at this time. I’ll turn the call back over to presenters for closing remarks.

[Alberto Arias:]

Well, maybe I can do the closing remarks. I wanted to thank everyone in the call for participating. I am here in Peru with management team in Peru, seeing the operations I just wanted to add that as you probably seen on the press release that we had resignation of Mark Brennan. And I just wanted to say that I want to thank him for all the hard work that he put up in this Company. Mark is the person that I have worked with for the past approximately seven years, eight years, since he was with Largo Resources. We actually, we are from helping finance, its project, the vanadium Maracás mine in the field, which is the best quality vanadium mine in the world. And he done excellent job after that when he resigned of Largo Resources, we quickly hired him to be part of Sierra Metals. And over the past couple of years, did a great job. He left with solid interest and I think whatever he got, he’s probably going to be do as well because he’s an excellent manager to work with. Thank you very much, Mark. And thank you all for participating on this call.

[Mike McAllister:]

Thank you, Operator. Please end the call.

[Operator:]

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