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Sierra Metals Inc (TSX: SMT) is a precious and base metals producer in Peru and Mexico. The company acquires, explores, extracts, and produces mineral concentrates consisting of silver, copper, lead, zinc and gold. Sierra has interests in the Yauricocha Mine in Peru, and the Bolivar and Cusi Mines, Mexico.
Investment highlights
Source: Company Presentation
Source: Company Presentation
Source: REFINITIV, Analysis by Kalkine Group
Risks associated with investment: The group’s revenue is directly correlated with the prices of commodities in international market. Any volatility in commodity (Copper, Gold, Zinc, etc) prices could affect the group’s financial performance.
Financial overview of Q3 2021 (In 000 of USD)
Source: Company Filing
Top-10 Shareholders
The top 10 shareholders have been highlighted in the table, which forms around 68.48% of the total shareholding. Arias Resource Capital Management LP and BlackRock Investment Management (UK) Ltd. hold the company's maximum interests at 26.77% and 6.07%, respectively. The company's institutional ownership stood at 44.85%, and ownership of the strategic entities stood at 28.40%.
Valuation Methodology (Illustrative): EV to Sales based Valuation Metrics
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock recommendation
The Company had a particularly challenging third quarter due to sequencing challenges at its Mexican facilities. Over the previous year, the Bolivar Mine has faced challenges with mine development, infill drilling, and equipment availability, all of which have had a significant impact on throughput, head grades, and recoveries. For the quarter ended September 30, 2021, the firm reported revenue of USD 60.7 million and adjusted EBITDA of USD 17.4 million, based on throughput of 750,208 tonnes and metal output of 21.9 million copper equivalent pounds. Despite the challenges it has experienced this year, the Company has a strong balance sheet and is focused on improving operations. It is continuing to strive for production growth while optimizing operations at all three mines, with cost reductions a top emphasis.
Inflation has been high and is increasing, which might push gold demand and price considerably higher, which would be a significant plus for the company. On a sequential basis, the corporation is reducing its debt, which is a significant plus. Furthermore, on numerous parameters, the stock of SMT is selling at significantly discounted valuations. Institutional investors also possess a significant percentage of the company's stock, accounting for 44.85% of all outstanding shares. This, we believe, boosts retail investors' confidence. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the current market price of CAD 1.44 at 9:55 am Toronto time on January 26, 2022. We have considered Largo Inc, Amerigo Resources Ltd and Trevali Mining Corp etc., as a peer group for comparison purpose.
One-Year Technical Price Chart (as on January 26, 2022). Source: REFINITIV, Analysis by Kalkine Group
Technical Analysis Summary
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Disclaimer
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