Mike McAllister
VP Corporate Development
Sierra Metals
View from the Top

Surprise Discovery Erases Cusi Mine Doubts

Wed, 10/18/2017 - 14:17

Q: How are Sierra Metals’ Mexico mines performing?

A: We recently discovered that our Cusi mine in Chihuahua is more than just an epithermal deposit with narrow veins of approximately 200g/t silver. We were doubting its viability but then we found that the veins are larger at depth than we thought and that they have increased lead and zinc at depth. We have already started to ship some lead along with our silver production.

Following discussions with Sunshine Silver Mines, we made an exciting discovery that has plenty of room for expansion. Sunshine Silver has a project named Los Gatos just south of ours that is developing a facility to process 3,500t/d. We reviewed the technical reports and we advised it to investigate at greater depth. After studying the reports and our own drill logs, we saw that between a space of 400m and 700m there were eight drill holes with 350g/t silver with better quality veins that have an average width of 5-6m. Our drilling programs continue to display positive results and we expect to develop a large silver deposit along a 1km strike length that is 500m deep in our property. The area is particularly interesting as we still have 12km of potential strike length to work.

Q: Which financial tools does the company use to mitigate the risks associated with exploration?

A: An efficient management of costs and capital is the most effective way to mitigate risks. Companies should not spend unnecessarily. With this strategy, our three properties remained cash-flow positive, even during the downturn. We took on some debt but only a reasonable amount that can be paid back quickly in more financially stable times or a better metal-price environment. Typically, we use credit facilities such as FIFOMI to help finance our projects but our cash flow funds most of our exploration work. This strategy is feasible considering that metal prices have improved and we are increasing our production and value per ton in our mills. We find governmental loans to be quite helpful as the rates are reasonable. It is an attractive feature that retains foreign investment and projects. We also increased our drilling programs at a quite manageable pace and in a way that allowed us to make quick discoveries.

Our methodology is part of an overall industrial trend that is pushing companies to be more selective about capital expenditure. Operators are learning to save money during bull periods to be better prepared during bear markets. Mines can achieve the same amount of growth and results with fewer drill holes only through careful planning. It makes the industry more competitive.

Q: Why prioritize brownfield projects over greenfields, considering the amount of mineral resources that are left to explore in Mexico?

A: The country has many opportunities to offer when it comes to greenfield exploration, even more than brownfield. But we are focused on brownfield because there is a lot of untapped potential close to the existing mines. Prior to the current management team joining the company, it had not spent much on exploration or looked much at hosted environments. We benefit more from brownfield exploration close to mine heads as these projects can generate mines in less than a year. Bolivar has three exploration areas that are within 1km of a mine, which allows Sierra Metals to invest a small amount while delivering significant amounts of additional resources. The company focuses on both discovering and producing projects, and our discoveries are made with the intention of incorporating them into our pipeline within one year to boost our portfolio.

Q: What are your main priorities in Mexico for the next five years?

A: Thanks to its established mining code, we are happy to do business in Mexico. The country has the benefit of having an easy permitting process and although we find that dealing with ejidos and land acquisition issues can be problematic, the environment remains very workable. Local and federal authorities need to be more synchronized.