Sierra Metals

Capitalising on South American assets

About This Project

Built on a merger of Dia Bras Metals and Minera Corona, Sierra Metals (TSX:SMT) is now perfectly positioned to capitalise on its assets in Mexico and Peru. The multi-commodity company has three mines in commercial production, Yauricocha in Peru producing silver, lead, zinc, copper and gold, the Bolivar mine in Mexico generating copper, silver and gold and also in Mexico the silver-lead Cusi mine.

Sierra Metals entered the Mexican market in 2004 with the acquisition of the Bolivar mine (15,000ha) with subsequent work taking place to bring the project into commercial production. Sierra’s Mexican position was strengthened with the expansion into the Cusihuiriachic (Cusi) region and the 2006 acquisition of 12 former silver mines (12,000ha).


Then in 2011 the TSX-listed company ventured into Peru with the US$286 million acquisition of 82% of Minera Corona and their Yauricocha mine (18,000ha). This deal signified Sierra’s transition from junior explorer to mid-tier precious and base metals producer.


So with three mines in commercial production Sierra CEO Mark Brennan’s priority is to build on the existing operations and manufacture growth through exploration within the properties they own today. He will be able to draw on his experience in the Latin American mining industry to do so.


Brennan has long standing experience in the mining and finance industries. Starting out working in investment banking with Canadian firms from London in the UK, Brennan ended up running a sales desk for First Marathon in Toronto, Canada. He was involved with a lot of financing for mining companies and re-joined the operational side of the mining industry in 2002 as a co-founder of Desert Sun. They developed the Jacobina project in Mexico which they sold to Yamana for $700 million.


After that Brennan ran Admiral Bay – which owned a project in Jalisco State, Mexico – before going on to head up Largo Resources and oversee the development, finance-raising and production of one of the highest grade, lowest cost vanadium mines in the world.


The three projects Sierra owns are essentially districts based on their size. They are all very big land masses and because of that Brennan firmly believes that there is significant upside to brownfield exploration within a close distance to the existing mines that can be brought into the production schedule rapidly.




“An example of that is the Esperanza discovery at Yauricocha that we announced in January and frankly its already entering production now. This discovery, while we have yet to categorise it, is going to be transformational for Yauricocha which has been producing for 65 years from an area called the central mine zone,” says Brennan.


The Esperanza zone is located 400m north of the central mine area at Yauricocha, along strike from current mining activities. The zone has returned the thickest sulphide intercepts in the 65-year mining history and it demonstrates the ‘untapped potential close to the existing mine workings at Yauricocha’.


While the central mine zone is quite old and faces operational and geological issues the deeper it gets, including becoming more expensive, Brennan anticipates the Esperanza discovery will most likely be the most significant contributor to operations at Yauricocha with its higher grade, low cost material. He called it the ‘most important discovery in the history of the Yauricocha mine and in the history of Sierra Metals’.


“What we are looking at with Esperanza is a brand new virgin zone with higher grade material, larger thicknesses, a more horizontal slope to the mine, less issues with respect to competency and stability. All around we see this potential deposit having a substantial impact going forward and I can’t describe how we should not underestimate the value of Esperanza.”


As part of Sierra’s strategy of developing growth from existing assets Brennan has led a programme of restructuring at Yauricocha to revamp the operations and bring in modernisation at the mine.


The commodity price downturn has forced Sierra to change their approach to maintain revenues and net smelter returns (NSRs). “That [price slump] has obviously had an impact, we had to make sure we could revamp the operations and bring in modernisation. In Q3 last year we started implementing ‘restructuring’ and basically it was to implement modernisation, mechanisation, remote mining, modern technologies.”


For example, they started using shock create, bolting and meshing as opposed to steel sets and revamped the engineering to make sure key infrastructure was able to efficiently process material at a faster and a more confident, efficient and safe rate.


This programme demonstrates Brennan’s philosophy to focus on high grade mining and high NSRs, the volume produced isn’t as important as it was in the past. Brennan says the whole approach was to upgrade the Yauricocha asset.


Yauricocha has been producing at around 2,500 tonnes per day average or just under historically. Through some restructuring of the mine that came down to around 2,200-2,300tpd however. Having recently marked record production levels of 2,700tpd for August, Brennan predicts with the Esperanza discovery Yuaricocha will breach the 3,000tpd mark.


“The construction that happened is a deliberate attempt to bring up our NSRs in light of the fact that we had lower prices in commodities.


“On the brownfield side, there was a very deliberate attempt to bring in new and fresh mineralisation. Higher grade and hopefully lower cost, cheaper to mine and to augment or replace the central mine zone.


“We are looking to shift the foundation of the mine from the central mine zone to Esperanza and continue the exploration at Esperanza. That we think is going to bring a lot more tonnage and a lot higher grade, higher quality material.”


The timeline for Yuaricocha will focus mainly on developing Esperanza but Sierra will continue to drill other areas that could be high value targets, it will be part of an overall aggressive brownfield exploration programme.


“We believe the Esperanza zone extends about 600-800m north and is open at depths so one of our programmes will be to push that forward, this is where we see Esperanza becoming more of a foundation of Yauricocha. But we will also look at other areas where we see high value, substantial economics.”




The copper-silver-zinc-gold Bolivar mine situated near Chihuahua, Mexico is 100% owned by Sierra Metals. The mine has been in production since 2011 when the company completed the construction of the Piedras Verdes mill, located 6km from the mine. According to Brennan it is a straightforward mining process at Bolivar using bulk mining cut and fill techniques, this approach has been successful as the mine has increased production from 400tpd in 2011 to now around 3,000tpd.


“The positive thing is we have good potential to expand our production capacity,” says Brennan referring to the expansion of the plant to 2,000tpd in 2013 and the further expansion to 2,500tpd in 2015. “We need to expand our capacity while retaining our grade and quality of material of copper in particular.


During this year Sierra has undertaken an exploration programme in a similar vein to that at Yauricocha to expand and upgrade the mineral reserves and resources at Bolivar as well as pursuing a number of high-priority exploration targets.


“Historically we’ve seen grade running at around 1.3-1.4% and in the last quarter it fell to about 1% on an equivalent basis. I see our brownfield programmes having the ability to increase the tonnage and drive up the average grade. I think we can get back to the 1.3% level.”


To summarise, Brennan says he is looking at a continuation of improving, increasing and ramping up the throughput while retaining quality – reviving the grade and quality should have a ‘substantial impact on the profitability of the mine’. Further to that Sierra will be adding tonnage and grade in the second half of 2016 in direct proximity to the mine.




The silver-lead Cusi mine was acquired as part of the deal with Dia Bras metals in 2006. Cusi is a large land mass made up of 12 inactive mines that lie within 40km of Sierra’s Malpaso mill on the property. While Sierra announced commercial production at Cusi in January 2013, the mine is still considered by the company to be in the development stage as the majority of the production comes from development rock.


Brennan is focused on bringing Cusi into full scale commercial production in the near future. The company has hired a third party consultant to complete a pre-feasibility study at the mine and mill to allow for a declaration of reserves for the first time and put the economics around building an on-site processing plant.


While the production has increased at Cusi from 100tpd in 2011 to around 600tpd today. Brennan’s target is to reduce to development at Cusi and focus operations on production.


“In 2015 the development was probably about 70% of our advancement and production was about 30%. This year we are looking to invert that relationship and see probably 60-70% production with 30-40% development.


“What that means is we are spending far less on capex, on our sustaining capex, on our development-growth capex and we are actually producing a lot more.”


Brennan says they are evaluating Cusi right now. While progressing with production he wants to put in place a conventional mine plan that has never existed at Cusi. His target is to have that in place by the second half of 2017.


The approach at Cusi contributes to the overall philosophy of the primary goal to increase the profitability at each mine over merely ramping up volume year-on-year.


“We have increased throughput in Bolivar, we have increased throughput at Cusi, with Yauricocha we have taken a step back with restructuring to focus more on NSR than the throughput. But what will naturally happen over time is that we will see the production from Esperanza at Yauricocha having a very substantive impact of driving higher volumes.”


Looking forward Brennan is changing the vision of the company to move away from a high output, low grade producer to place a new emphasis on becoming a ‘best of breed producer with best practices and the most efficient production possible’ with the endgame of maximising value for the shareholders.


“We want to make sure our engines are clean and finely tuned but we also want to make sure we are taking advantage of brownfield areas that are external to the current mining operations but within easy reach of exploiting.


“Through the efficient methodologies, mechanisation and modernisation that we brought in for our mining practices I think we can see the company growing 10-15% per year. However, at the brownfield exploration I can see a couple of hundred percentage increase because of the scope that’s available.”