Board Recommends that Shareholders REJECT the
Hostile Bid and TO NOT TENDER THEIR SHARES
All dollar figures are in USD, except share prices noted as “C$”
which are in CAD.
Sierra Metals Inc. (TSX: SMT | OTCQX: SMTSF | BVL: SMT)
(“Sierra” or the “Company”) today announced that its Board of
Directors (the “Board”), following careful consideration and
receipt of the unanimous recommendation of a special committee of
its independent directors (the "Special Committee"), and after
consultation with its financial and legal advisors, has recommended
that Sierra shareholders reject the unsolicited all-cash take-over
bid by an affiliate of Alpayana S.A.C. (“Alpayana”), to acquire all
of the issued and outstanding common shares (“Common Shares”) of
Sierra for C$0.85 per share (the "Hostile Bid").
The Board unanimously recommends that Sierra shareholders
REJECT the Hostile Bid and not tender their Common Shares to
the Hostile Bid. Shareholders simply need to TAKE NO ACTION
in order to REJECT the Hostile Bid.
Miguel Aramburu, Chair of the Board, commented:
“Alpayana is offering to buy your Common Shares at a price that
undervalues the Company and is well below where prior transactions
of a similar nature have transacted. At a time of growing worldwide
demand for copper, Sierra owns two thriving copper-producing mines
in proven jurisdictions. The Company has increased production
significantly at both of the Yauricocha and Bolivar mines and
expects to continue to grow mineral resources and production in
2025. As a result, the Company is positioned to deliver
improvements in its operational results and create meaningful
shareholder value by a significant expected increase in
EBITDA.”
Significant Expected EBITDA Increase in 2025
The Company has introduced a projection of approximately US$130
million of EBITDA1 in 2025, as described in the Director’s Circular
(as defined herein). This represents significant year-over-year
growth in EBITDA from US$72 million in 2024 (expected) and US$50
million in 20232, representing an approximate 80% increase relative
to 2024 (expected) EBITDA and an approximate 158% increase relative
to 2023 EBITDA. This increase is expected to be driven by increased
production at both Yauricocha and Bolivar and careful management of
costs. While the Company does not typically provide EBITDA
guidance, the Board determined that the information is essential to
shareholders in the unique circumstances of the Hostile Bid. The
EBITDA projection provides support for the Board’s recommendation
to reject the Hostile Bid.
Mr. Aramburu continued, “The Board’s view is that selling your
shares at the low price offered by Alpayana would deprive you of
significant upside potential in your investment. One need not look
further than the collective view of greater than fifty percent of
Sierra’s shareholders who have informed the Company that they are
aligned with the view of the Board.”
Reasons to Reject Alpayana’s Inadequate Hostile Bid
The basis for the Board's recommendation that shareholders
reject the Hostile Bid is set forth in the Sierra Directors'
Circular (the “Directors’ Circular”), which was filed today with
Canadian securities regulatory authorities, is being mailed to
shareholders, and is available on the Company's website and SEDAR+
(www.sedarplus.ca) under the Company’s profile. The reasons for the
Board's recommendation include, among other things, the
following:
- The Hostile Bid is dead on
arrival.
The Hostile Bid has already been rejected by a majority of
shareholders, rendering the bid incapable of completion based on
its non-waivable condition.
As announced by the Company on December 26, 2024, shareholders
holding cumulatively more than 50% of the outstanding Common Shares
have each informed the Company that the proposed C$0.85 per Common
Share bid price is inadequate and that they do not intend to
support the Hostile Bid. Accordingly, Sierra believes that Alpayana
will not be able to satisfy the minimum tender condition to acquire
control of the Company.
- The Hostile Bid attributes no value to
commodity and jurisdiction upside.
The Hostile Bid fails to recognize the strategic value of a
copper producing company operating in proven mining
jurisdictions.
The price of copper has been increasing due to global demand and
tight supply conditions. With new copper supply constrained by the
challenges of developing new mines, there has been an increase in
valuations of copper-focused equities as well as proposed mergers
and acquisitions. Mexico and Peru, where Sierra operates, are both
globally established mining jurisdictions hosting some of world’s
largest producing metals deposits. As one of the Western world’s
few publicly traded copper producers operating in proven
jurisdictions, Sierra is a highly strategic and coveted company in
which to hold equity.
- Shareholders should continue to
capture the growth at Sierra.
Sierra has a high-quality portfolio of assets with
significant upside potential.
Sierra’s two copper producing assets, the Yauricocha mine in
Peru and the Bolivar mine in Mexico, both contain significant near
mine, brownfield and greenfield exploration potential that could be
leveraged to drive significant long-term value for the Company. At
Yauricocha, the Company obtained the permit to mine below level
1120 where 95% of the mine’s current mineral reserves sit, allowing
the mine to operate at full capacity (currently 3,600 tonnes per
day (“tpd”)) since Q4 2024. The Company believes there is
significant exploration opportunity below level 1120 as the geology
appears open in all directions. Sierra is also confident in its
exploration efforts at Bolivar and its ability to deliver
additional resources to support the Company’s plan to increase
production capacity from 5,000 tpd to 7,500 tpd in the
mid-term.
- Sierra’s plan to create value is
working, Shareholders should keep the upside.
The Hostile Bid is opportunistic and clearly timed to deprive
Sierra shareholders of a potential near-term uplift in the share
price.
In the two years since current management was appointed, Sierra
has successfully stabilized, optimized and improved its operations,
resulting in a lower cost structure, increased efficiencies, higher
production levels and profitability across the Company. The Board
believes there is an opportunity for significant share price
appreciation in 2025 based on the projected EBITDA growth. Applying
the Company’s existing EV / LTM EBITDA3 multiple of 3.6x to the
CIBC Capital Market’s 2025 EBITDA estimate of US$130 million would
imply an increase of 200% in share price at the end of next year,
and an opportunity for further appreciation as Sierra approaches a
valuation multiple more closely aligned with industry averages.
Alpayana’s C$0.85 per Common Share bid is opportunistically timed
to deprive shareholders of this potential near-term uplift in the
share price and falls short of the value creation the Board expects
to see in the near term.
- Shareholders should ignore the
misleading statements and enjoy the fruits of fiscal
prudence.
Contrary to Alpayana’s assertion on Sierra’s financial
position, the Company has a manageable debt load and is well
positioned to de-lever in the near-term.
Sierra’s current debt financing has served its purpose by
providing the Company with the time and financial flexibility it
required to turn around its operations when management took over
just two years ago. Management took actions to improve the debt
profile in 2024 through a new credit agreement with enhanced
financing terms that also provided US$20 million of capital
deployed towards operational improvements at Yauricocha. The
Company is now positioned to generate meaningful free cash flow in
2025. The Company’s anticipated net debt / 2025E EBITDA ratio4 of
0.6x is already below the industry median of 0.8x5. In 2025 it is
anticipated that free cash flow (operating cash flow less capital
expenditures) will exceed net debt, providing Sierra with the cash
it will need to quickly re-pay debt should it so choose. Sierra
continues to believe that it has used leverage constructively to
enhance the returns of shareholders and will aim to continue
effectively deploying leverage to amplify returns for shareholders
in the future. In addition, given the Company’s improved financial
performance, the Company intends to pursue opportunities to
refinance its debt on more favorable terms in the near future.
- Alpayana has not made a serious offer
to Sierra shareholders.
The Hostile Bid is significantly below implied premiums of
precedent transactions.
The Board believes that any change of control transaction should
compensate Sierra’s shareholders for the loss of exposure to the
future earnings potential of its asset base, while also reflecting
the relative undervaluation of the Sierra share price prior to the
Hostile Bid announcement. The Hostile Bid price of C$0.85 per
Common Share would represent one of the lowest 1-day and 30-day
volume-weighted average price premiums in the comparable universe
of successful copper-focused corporate transactions since 2011.
Furthermore, the price of the Common Shares has been negatively
affected by persistent selling by funds controlled by Arias
Resource Capital (“Arias”), a significant shareholder that had its
principal voted off the Board and subsequently lost a proxy battle
in 2023. Over the past year, sales of Common Shares by Arias
represent on average, 15% of total Canadian trading volume. The
overhang created by the selling pressure renders the unaffected
share price of C$0.77 not reflective of an appropriate basis to
which a take-over premium should be referenced.
- Sierra should not be sold at markdown
prices while it continues to grow.
The Hostile Bid is significantly below implied multiples of
precedent base metal transactions.
The Hostile Bid price of C$0.85 per Common Share implies a price
to net asset value6 (“P/NAV”) of 0.69x and an enterprise value to
2025E EBITDA ratio7 (“EV/EBITDA”) of 1.9x. Precedent producing
copper asset and corporate deals8 have transacted at a median P/NAV
multiple of 0.9x, and a median EV/EBITDA multiple of 5.9x.
Contested corporate-level transactions9 have been executed at a
significantly higher range, with medians of 1.1x P/NAV and 7.1x
EV/EBITDA. Applying the median EV/EBITDA multiple of 5.9x from
precedent transactions implies a valuation of C$4.34 per Common
Share for Sierra, which is over 400% higher than the Hostile Bid
price.
- Every alternative to the Hostile Bid
promises better value to shareholders.
The standalone case has strong upside potential for
shareholders and superior offers or other alternatives have the
potential to emerge.
The Board, consistent with its fiduciary duties, continuously
reviews and evaluates potential strategic alternatives to maximize
shareholders’ value. While the Board believes in the Company’s
stand-alone plan and the strength of its long-term strategy, the
Board acknowledges that the Hostile Bid may act as a catalyst to
uncover additional opportunities or interested parties. Sierra has
engaged BMO Capital Markets as its financial adviser to manage a
broader strategic review process for Sierra aimed at exploring and
considering potential strategic alternative transactions to the
Hostile Bid. Should a superior proposal or alternative transactions
arise, the Board is fully prepared to evaluate these options and
present them transparently to shareholders.
- Do not give away an asset for pennies
when it is worth dollars.
Independent Equity Research has agreed with the Board’s
assessment that the Hostile Bid is opportunistic and undervalues
the Company.
CIBC Capital Markets provided10 periodic, independent, equity
research coverage on Sierra. In a recent note titled “Unsolicited
Takeover Bid Is Undervalued” dated December 17, 2024 and in
response to the Alpayana proposal, analyst Bryce Adams expressed
the view that “the offer price undervalues the company, at a time
when the company has reported improved production results
highlighted by 3,600 tpd throughput rates at Yauricocha in Q4/24
QTD.”
- Shareholders should not grant free
cash flows to Alpayana.
Alpayana has a strong strategic imperative to secure
Yauricocha for itself and ample ability to pay a significantly
higher purchase price if it so chooses.
The acquisition of Sierra would be a large and transformative
acquisition for Alpayana, a family-owned Peruvian mining company
which has recently embarked on an M&A program to facilitate its
growth ambitions. Alpayana would benefit significantly from
operational synergies and drastically accelerate its growth plans
if it were to acquire Yauricocha. At the Hostile Bid price of
C$0.85, Alpayana would generate an exceptionally high internal rate
of return, an indication that Sierra shareholders are not being
afforded fair value for their Common Shares.
- The Hostile Bid is a free option to
Alpayana with unsatisfiable conditions.
The Hostile Bid contains extraordinary conditionality,
including certain conditions which cannot be satisfied. This calls
into question the seriousness and legitimacy of the Hostile
Bid.
The Hostile Bid contains a significant number of conditions (20)
which must be satisfied or waived before Alpayana is obligated to
take up and pay for any Common Shares tendered. Many of the
conditions are not subject to materiality thresholds or
reasonableness standards or any other objective criteria, but
rather are in Alpayana's sole discretion. Further, certain
conditions of the Hostile Bid, including a minimum tender of
two-thirds of the outstanding Common Shares and there being no
shareholder rights plan adopted by Sierra, cannot be satisfied. As
a result, tendering Common Shares to the Hostile Bid may, in
effect, constitute the grant to Alpayana of a unilateral and
discretionary option to acquire all of the Common Shares at a price
that the Board views as inadequate.
- The Hostile Bid is financially
inadequate.
Sierra has received an inadequacy opinion from BMO Capital
Markets that from a financial point of view the Hostile Bid is not
an adequate offer for shareholders.
Sierra’s financial advisor, BMO Capital Markets has delivered an
opinion to the Board and the Special Committee, to the effect that,
as of the date of the opinion, and based upon and subject to the
assumptions, limitations and qualifications contained therein and
such other matters as BMO Capital Markets considered relevant, the
consideration offered to the shareholders pursuant to the Hostile
Bid is inadequate from a financial point of view to the
shareholders (other than Alpayana and its affiliates).
Take No Action and Reject Alpayana's Hostile Bid
Sierra shareholders are urged to REJECT the Hostile Bid. To do
so, shareholders should TAKE NO ACTION.
Shareholders are encouraged to carefully review the Directors'
Circular in its entirety. This document has been mailed to Sierra
shareholders and is available on SEDAR+ (www.sedarplus.ca) under
the Company’s profile, and on the Company's website
(www.SierraMetals.com).
Sierra shareholders who have already tendered their Common
Shares to the Hostile Bid and who wish to obtain assistance in
withdrawing them are urged to contact their broker or Carson Proxy
Advisors, Sierra’s Information Agent and strategic shareholder
advisor, by North American toll-free phone at 1-800-530-5189, local
and text: 416-751-2066 or by email at info@carsonproxy.com.
Advisors
The Company has engaged BMO Capital Markets as financial
advisor, Mintz LLP as Canadian legal counsel, Miranda & Amado
Law Firm as Peruvian legal counsel, Carson Proxy Advisors as
securityholder communications advisor, and Oakstrom as media
relations advisor. The Special Committee of independent directors
of the Board has engaged Bennett Jones LLP as legal advisor.
Qualified Persons Statement
Ricardo Salazar Milla (AIG #8551), Corporate Manager – Mineral
Resources of Sierra, is a Qualified Person as defined under
National Instrument NI 43-101 - Standards of Disclosure for Mineral
Projects. Mr. Salazar has reviewed and approved the scientific and
technical content of this news release.
About Sierra Metals Inc.
Sierra Metals Inc. is a Canadian mining company focused on
copper production with additional base and precious metals
by-product credits at its Yauricocha Mine in Peru and Bolivar Mine
in Mexico. The Company is intent on safely increasing production
volume and growing mineral resources. Sierra has recently had
several new key discoveries and still has many more exciting
brownfield exploration opportunities in Peru and Mexico that are
within close proximity to the existing mines. Additionally, the
Company has large land packages at each of its mines with several
prospective regional targets providing longer-term exploration
upside and mineral resource growth potential.
Forward-Looking Statements
This news release contains forward-looking information within
the meaning of Canadian securities legislation. Forward-looking
information relates to future events or the anticipated performance
of Sierra and reflect management's expectations or beliefs
regarding such future events and anticipated performance based on
an assumed set of economic conditions and courses of action. In
certain cases, statements that contain forward-looking information
can be identified by the use of words such as "plans", "expects",
"is expected", "budget", "scheduled", "estimates", "forecasts",
"intends", "anticipates", "believes" or variations of such words
and phrases or statements that certain actions, events or results
"may", "could", "would", "might", or "will be taken", "occur" or
"be achieved" or the negative of these words or comparable
terminology. Forward-looking information in this news release
includes, without limitation, statements regarding: the strategic
value of Sierra’s portfolio; management's expectations regarding
the Company's future share price, production and growth;
management's expectations regarding future EBITDA; future demand
for copper; growth of mineral resources; expectations regarding
future cash flows; maintenance of production at full capacity in
2025; the ability to manage costs; the exploration potential of the
Company's properties; the intention of holders of more than 50% of
the Common Shares not tendering to the Hostile Bid; expectations
regarding debt repayment and capital expenditures; the ability to
refinance existing debt on more favourable terms; the ability to
complete potential strategic alternatives to maximize shareholder
value and the timing thereof; and statements regarding Alpayana and
the Hostile Bid. By its very nature forward-looking information
involves known and unknown risks, uncertainties and other factors
that may cause actual performance of Sierra to be materially
different from any anticipated performance expressed or implied by
such forward-looking information.
Forward-looking information is subject to a variety of risks and
uncertainties, which could cause actual events or results to differ
from those reflected in the forward-looking information, including,
without limitation, the risks described under the heading "Risk
Factors" in the Company's annual information form dated March 15,
2024 for its fiscal year ended December 31, 2023 and other risks
identified in the Company's filings with Canadian securities
regulators, which are available at www.sedarplus.ca.
The risk factors referred to above are not an exhaustive list of
the factors that may affect any of the Company's forward-looking
information. Forward-looking information includes statements about
the future and is inherently uncertain, and the Company's actual
achievements or other future events or conditions may differ
materially from those reflected in the forward-looking information
due to a variety of risks, uncertainties and other factors. The
Company's statements containing forward-looking information are
based on the beliefs, expectations, and opinions of management on
the date the statements are made, and the Company does not assume
any obligation to update such forward-looking information if
circumstances or management's beliefs, expectations or opinions
should change, other than as required by applicable law. For the
reasons set forth above, one should not place undue reliance on
forward-looking information.
Non-IFRS Performance Measures
Certain financial measures and ratios within this news release
including "EBITDA", "free cash flow", "net asset value (NAV)",
"IRR", "enterprise value to last twelve months EBITDA", "net debt
to EBITDA", "P/NAV" and "EV/EBITDA" are not measures or ratios
recognized by International Financial Reporting Standards, as
issued by the International Accounting Standards Board ("IFRS").
The non-IFRS measures and ratios presented do not have any
standardized meaning prescribed by IFRS and are therefore unlikely
to be directly comparable to similar measures or ratios presented
by other issuers. EBITDA is a non-IFRS measure that represents an
indication of the Company’s continuing capacity to generate
earnings from operations before taking into account management’s
financing decisions and costs of consuming capital assets, which
vary according to their vintage, technological currency, and
management’s estimate of their useful life. EBITDA comprises
revenue less operating expenses before interest expense (income),
property, plant and equipment amortization and depletion, and
income taxes (and in the case of 2024, 2023 and 2022, excludes the
Cusi Mine which was placed on care and maintenance and subsequently
sold by the Company). Adjusted EBITDA is calculated as net income,
adding back interest, taxes, depreciation, and amortization, and
excluding non-recurring, non-operational or non-cash items, which
the Company believes is useful for investors to assess a company’s
core operational performance without the impact of the capital
structure, tax regime, or non-operational items. Free cash flow is
calculated as operating cash flow minus capital expenditures, which
the Company believes is a useful measure to show how much cash is
available after reinvesting in the business, providing insight into
other capital allocation priorities. Net asset value (NAV) is
calculated as the net present value of future cash flows,
discounted at an appropriate discount rate minus liabilities, which
is a key valuation metric in mining as it is a proxy for intrinsic
value of reserves and resources. Internal Rate of Return (IRR) is
the discount rate that sets the net present value of all cash flows
from an investment to zero, which the Company believes is a useful
measure of profitability of a project, expressed as an annualized
percentage return. Enterprise Value to adjusted EBITDA is
calculated as enterprise value (market capitalization plus net debt
plus minority interest plus preferred equity less cash and cash
equivalents) divided by adjusted EBITDA and measures a company’s
enterprise value relative to its operational profitability. Net
debt to adjusted EBITDA is calculated as total debt minus cash and
cash equivalents divided by adjusted EBITDA and indicates a
company’s leverage and its capacity to service debt using
operational cash flow. Free cash flow / net debt is calculated as
free cash flow divided by debt minus cash and cash equivalents and
shows how efficiently a company generates cash relative to its debt
obligations. Price to Net Asset Value (P/NAV) is calculated as a
company’s market capitalization divided by its Net Asset Value and
helps investors assess whether a company is trading at a premium or
discount relative to its underlying asset value. Investors are
cautioned that non-IFRS financial measures and ratios should not be
construed as alternatives to other measures of financial
performance calculated in accordance with IFRS. The foregoing
non-IFRS financial measures and ratios are provided to assist
investors with their evaluation of Sierra. Management considers
these non-IFRS financial measures to be important indicators in
assessing its performance. See the "Non-IFRS Performance Measures"
section in Sierra's management's discussion and analysis for the
three and nine months ended September 30, 2024 for further
information on the definition, calculation and reconciliation of
certain non-IFRS financial measures.
Financial Outlook
This news release contains financial outlooks about Sierra's
prospective results of operations including, without limitation,
anticipated EBITDA for the 12 months ended December 31, 2024 and
December 31, 2025, which are subject to the same assumptions, risk
factors, limitations, and qualifications as set forth under
"Forward-Looking Statements" above. Readers are cautioned that the
assumptions used in the preparation of such financial outlooks,
although considered reasonable at the time of preparation, may
prove to be imprecise and, as such, undue reliance should not be
placed on financial outlooks. Sierra's actual results, performance
or achievement could differ materially from those expressed in, or
implied by, these financial outlooks. Sierra has included the
financial outlooks in order to provide readers with a more complete
perspective on Sierra's future operations and such information may
not be appropriate for other purposes. Sierra and the Board
disclaim any intention or obligation to update or revise any
financial outlooks, whether as a result of new information, future
events or otherwise, except as required by law.
Third Party Information
This press release includes market and industry data that has
been obtained from third party sources, including industry
publications. The Company believes that the industry data is
accurate and that its estimates and assumptions are reasonable, but
there is no assurance as to the accuracy or completeness of this
data. Third party sources generally state that the information
contained therein has been obtained from sources believed to be
reliable, but there is no assurance as to the accuracy or
completeness of included information. Although the data is believed
to be reliable, the Company has not independently verified any of
the data from third party sources referred to in this press release
or ascertained the underlying economic assumptions relied upon by
such sources. This press release has quoted from a publicly
available analyst report of CIBC Capital Markets. Such analyst has
not consented to the inclusion of all or any portion of its report
in this document. CIBC Capital Markets, the firm employing such
analyst, was not an advisor to Sierra as at the date of such
analyst report.
1 This is a non-IFRS performance measure and based on the
following consensus pricing: 2025 (US$4.34 / lb Cu, US$0.95 / lb
Pb, US$1.25 / lb Zn, US$31.14 / oz Ag, US$2,600 / oz Au). Please
refer to "Non-IFRS Financial Measures" and "Financial Outlook".
2 Reflects EBITDA from continuing operations and excludes the
Cusi Mine which was placed on care and maintenance and subsequently
sold by the Company.
3 This is a non-IFRS performance measure. Please refer to
"Non-IFRS Financial Measures" and "Financial Outlook".
4 This is a non-IFRS performance measure. Please refer to
"Non-IFRS Financial Measures" and "Financial Outlook".
5 Trading peers include 29 Metals, Adriatic, Aeris, Atalaya,
Buenaventura, Capstone, Centerra, Ero, Hudbay, Lundin, MAC, Nexa,
Sandfire and Taseko as at January 7, 2025.
6 This is a non-IFRS performance measure. Please refer to
"Non-IFRS Financial Measures" and "Financial Outlook".
7 This is a non-IFRS performance measure. Please refer to
"Non-IFRS Financial Measures" and "Financial Outlook".
8 Reflects producing copper corporate and asset transactions
since 2016.
9 Reflects contested copper corporate transactions over the last
15 years. Contested transactions include transactions that were
launched (a) without target board support; (b) with a public
release, either formally or informally, without target board
support; or (c) where a board-supported deal faced significant
shareholder resistance.
10 CIBC Capital Markets suspended coverage of Sierra due to a
re-allocation of analyst resources in December 2024.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20250114641631/en/
For further information regarding Sierra, please visit
www.SierraMetals.com or contact:
Investor Relations Sierra Metals Inc. +1 (866) 721-7437
info@sierrametals.com
Securityholder Communications Advisor Christine Carson
President & CEO Carson Proxy Advisors +1 (416) 804-0825
christine@carsonproxy.com
Media Relations John Vincic Principal Oakstrom Advisors
+1 (647) 402-6375 john@oakstrom.com
Sierra Metals (TSX:SMT)
Graphique Historique de l'Action
De Déc 2024 à Jan 2025
Sierra Metals (TSX:SMT)
Graphique Historique de l'Action
De Jan 2024 à Jan 2025
