Sierra receives business combination proposal

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Sierra Metals Inc. [SMT-TSX, BVL] said Compania Minera Kolpa, a Peruvian polymetallic mining company has delivered a letter of intent to Sierra’s board of directors, indicating the terms of a strategic transaction with Sierra.

The LOI also contains details of a concurrent financing aimed at solving Sierra’s current financial and operational challenges.

The proposed strategic transaction would entail the operational merger of Kolpa and Sierra assets in Peru, following a business combination transaction that would result in Sierra owning all of the shares or assets of Kolpa.

Sierra said the financing will be provided by a strategic investment firm that is not an affiliate of Kolpa or its shareholders. It said the transactions have the full support of Sierra’s largest shareholder, affiliates of Arias Resource Capital that together own 27% of the issued and outstanding Sierra common shares.

The proposed transactions also have the support of Kolpa shareholders, Arias Resource Capital Fund 11 LP, and Arias Resource Capital Fund 11 (Mexico) LP (together ARC Fund 11), and GR Holding SA.

Sierra Metals is a diversified Canadian mining company with a focus on development of its Yauricocha Mine in Peru and Bolivar and Cusi Mines in Mexico. In a press release on October 18, 2022, Sierra disclosed that it faces liquidity challenges as a result of the recent previously announced suspension of operations at the Yauricocha Mine and operating losses and negative cash flows that have accumulated primarily from the Bolivar and Cuso operations.

While mining operations have re-commenced at areas of Yauricocha, a majority of the operation remains suspended. A precise timeline for achieving full plant throughput has not yet been established, the company said.

On October 25, 2022, Sierra reported its third quarter 2022 production results and said it has voluntarily decided to delist its common shares from the New York Stock Exchange American and Bolsa de Valores de Lima (BVL).

It said the delisting is intended to reduce costs and simplify Sierra’s administrative and compliance structure associated with these listings. However, it said the shares would continue to be listed and traded on the TSX.

On October 27, 2022, Sierra shares closed at 23 cents and currently trade in a 52-week range of $2.72 and 21.5 cents.

The Yauricocha Mine is located in the Allis district, Yauyos province, department of Lima. Polymetallic mineralization has been mined from Yauricocha for more than 50 years.  The majority of the mining is executed through mechanized sub-level caving with a relatively small portion of the mining using cut and fill.

Mineralized material is transported via rail to a processing facility, located roughly one kilometre from the mine site.


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