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Cormark Research: Sierra Metals upgrade to 2.50 CAD target price

Upgrade To Buy Rating, Increase Target To C$2.50 From C$1.95

Investment Thesis:

Sierra Metals stands out for its: (1) historically high margin polymetallic production, (2) low overall debt leverage, and (3) high organic growth potential. After the changes in Management in 2015, we suggest investors revisit the name and are comfortable Yauricocha and the company have now turned the corner operationally.

Highlights:
• Esperanza – The Value Proposition From Brownfield Exploration

Yesterday, SMT provided an update and hosted a conference call to discuss development plans at all three of its producing mines. For us, the highlights from the call were: (1) Esperanza’s maiden resource/reserve is likely to grow and is increasingly important to Yauricocha’s mine plan, (2) each mine still offers high brownfield exploration potential (as demonstrated by the Esperanza discovery), and (3) Management has a much better handle on operations after a challenging transitional period late last year.

Expect Performance To Continue To Improve Into 2017

For Q2, we saw a continuation of the improvement seen in Q1 as Yauricocha’s throughput remained at design and EBITDA recovered. However, these improvements were outdone by the updates at the Esperanza zone which is already beginning to feed the Yauricocha mill. With the higher grade (4% CuEq) ore from Esperanza and better metals prices (ex-copper), we now expect to see a much stronger back half to 2016. 

Upgrade To Buy Rating, Increase Target To C$2.50 From C$1.95
To Management’s credit, the company has done a good job at both improving operations and outlining a clear exploration strategy to add value at each mine. With the shares still trading at a discount (5.5x EV/EBITDA) and much higher confidence in operations and the balance sheet, we are upgrading Sierra Metals to a Buy from Buy  

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PDAC 2019

Always up to date with the newsletter from SRC

Swiss Resource Capital AG will use the information you provide in this form to keep in touch with you and to provide you with updates and marketing information. To receive our news, you still have to give us permission to send you E-Mails below.

You can change your mind at any time by clicking on the Unsubscribe link, which you can find in the footer of every email you receive from us, or by contacting us at info@resource-capital.ch. We will treat your information with care and respect. For more information about our privacy practices, visit our website. By clicking below, you agree that we may process your information in accordance with these Terms.

We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp's privacy practices here.

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