Sierra Metals Inc. (TSX:SMT, BVL:SMT) announced the discovery of a new high grade silver zone within the Santa Rosa de Lima structure at its Cusi mine
in Mexico. Given the significantly higher average grade of today’s results over Cusi’s resource grade, we believe this discovery could materially improve
this mine’s economics in the same way the discovery of the Esperanza zone was for Sierra’s Yauricocha mine in Peru. We expect this discovery to add
value to the Cusi asset and potentially positively impact the mine’s cash flow in the near term. However, in light of that Cusi only contributed 6%
of Sierra’s consolidated Q4 2016 AgEq production, the impact of this discovery on Sierra’s overall cash flow is likely to be limited. However, this
discovery may allow Sierra to monetize this asset. We continue to expect that Sierra’s performance in 2017 is going to be underpinned by operational
improvements at Yauricocha, which in our view is key to enhancing the company’s value and positioning to bring about the necessary capital structure
High grade results highlight the new potential for Cusi. The NW-SE ranging Santa Rosa de Lima structure was identified as a high priority
target following drilling in 2012 and is likely contained within a regional structure that extends along ~64 km, thereof a 12 km segment likely passes
through the Cusi property. Today’s results returned a weighted average grade of 387.0 g/t AgEq over 2.55m, which is significantly higher than Cusi’s
resource grade of 246.8 g/t AgEq (I + I). The results were highlighted by hole Cusi-6 which returned 1,243 g/t AgEq over 1.50m and Cusi-14 which returned
1,154 g/t AgEq over 3.10m. Considering that the company is already sourcing development feed from this new zone, we expect this discovery to positively
impact Cusi’s cash flow in the near term and improve the mine’s economics.
Follow up drilling underway. Sierra commenced a 15km drill campaign in Q4 2016 targeting an area defined by the 2012 drill holes. With
~79% now drilled, the drill campaign is expected to be completed by the end of Q1 2017. The current drilling targets an area that is 1km x 500m (Figure
1) and drilling to date demonstrates that mineralization is consistent across the targeted area and at a depth of 150 to 550m. The zone remains undrilled
to the NW and SE of the current study area and Sierra anticipates conducting follow-up drill programs to potentially expand the zone along the entire
12 km. We expect the zone to increase the size and grade of Cusi’s current resource.
Derek Macpherson | VP Mining Analysis
Sunneva Bernhardsdottir | Associate, Mining Analysis
Victoria Ellis Hayes | Associate
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Sierra Metals Inc. - TSX:SMT, BVL: SMT - 2
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