Sierra Minerals Inc.
TSX : SIM

Sierra Minerals Inc.

August 14, 2009 12:30 ET

Sierra Minerals Earns US$307,163 in Q2 2009

Achieves Quarterly Production Record at Cerro Colorado

TORONTO, ONTARIO--(Marketwire - Aug. 14, 2009) - Sierra Minerals Inc. (TSX:SIM)("Sierra" or the "Company") today announced its unaudited financial results for the second quarter ended June 30, 2009. The consolidated interim financial statements along with management's discussion and analysis are available on SEDAR at www.sedar.com and on the Company's website at www.sierraminerals.ca. All currency references are to United States dollars unless otherwise noted.

 Q2 2009 - Highlights
  • Net earnings for the second quarter were $307,163 or $0.00 per share versus a Q2 2008 loss of $418,087 or $0.01 per share.
  • Ounces produced rose 3% to 5,447 compared to 5,284 in Q2 2008 and resulted in a new quarterly production record at the Cerro Colorado mine.
  • Ounces sold rose 1% to 5,063 compared to 4,999 in Q2 2008.
  • Realized gold price per ounce was $924 compared to $902 in Q2 2008.
  • Revenue increased to $4,719,280 from $3,745,808 in Q2 2008.
  • Cost of sales per ounce was $635 in Q2 2009 vs. $722 in Q2 2008.
  • Debt reduced by $150,000 during Q2 2009
  • Cash and cash equivalents balance at June 30, 2009 was $902,297
  • National Instrument 43-101 compliant mineral resource estimate established at Cerro Colorado comprised of 170,144 ounces of gold contained in 9.7 million tonnes at a grade of 0.55 g/t Au in measured and indicated and 74,177 ounces of gold contained in 5.6 million tonnes at a grade of 0.41 g/t Au in an inferred category reported at a cut-off grade of 0.25 g/t Au.
Commentary
 
Michael Farrant, President and CEO of Sierra Minerals, made the following comments in relation to the 2009 second quarter results:
"I am extremely proud of the operating team at Cerro Colorado who turned in the best ever quarter in terms of production in the history of the mine at 5,447 ounces of gold produced. The Company continues to report positive bottom line earnings and significant cash flow from operations before changes in working capital. This provides us with the means of completing the expansion of mining activities and processing facilities at Cerro Colorado out of internally generated cash flow and meeting all of the repayment requirements on our debt obligations. In fact, we are on schedule to become debt free on or before March 31, 2010. During the quarter we also delivered on our promise to obtain an independent mineral resource estimate for our Cerro Colorado mine in compliance with National Instrument 43-101 standards. We can now comfortably increase annualized production rates to 30,000 ounces of gold knowing that we will have a number of years of production ahead of us. In respect of achieving this annualized production target, I am also very pleased to announce that just last week we completed and commissioned the last of the major upgrades to our processing plant and look forward to seeing new quarterly production records set as we move forward. I want to thank our shareholders for their patience over the last four quarters as we embarked down the road of delivering on our promises of improving production, earnings and cash flow, legitimizing the estimate of our mineral resources and positioning the Company for significant growth. As a fellow shareholder, I look forward to enjoying the benefits of our hard work alongside all of you."
 
Summary of financial and operating results
 Three months ended
 June 30,
Six months ended
 June 30,
 20092008 20092008
Gold ounces – produced5,4475,284 10,0469,516
Gold ounces – sold5,0634,999 9,9749,660
Average realized gold price ($/oz.)$924$902 $917$903
Total cash costs per ounce sold ($/oz.) (a)$635$722 $604$628
Metal sales$ 4,719,280$ 3,745,808 $ 9,215,981$ 8,125,821
Cost of sales (b)$ 3,257,245$ 3,678,536 $ 6,098,743$ 6,187,991
Accretion, depreciation, depletion and amortization$  279,139$  116,791 $  550,807$  426,176
Mine operating earnings (loss)$ 1,182,896$ (49,519)$ 2,566,431$ 1,511,654
Net earnings (loss) for the period$  307,163$ (418,087)$  919,000$  262,652
Earnings per share (basic and diluted)$   0.00$  (0.01)$   0.01$   0.00
Cash flow provided by operating activities before
  Changes in non-cash working capital
$  787,886$ 211,080 $ 1,646,860$ 1,451,748
Cash flow provided by operating activities$  682,143$ 1,190,448 $ 665,324$ 2,320,924

(a) See "Supplemental Information on Non-GAAP Financial Measures"
(b) Cost of sales excludes, accretion, depreciation, depletion and amortization

 June 30, 2009 December 31, 2008 
Cash and cash equivalents$  902,297 $  740,360 
Working capital deficiency$ (123,015)$ (1,844,421)
Long-term debt in addition to working capital deficiency$    - $  (450,000)

Net earnings for the second quarter of 2009 were $307,163 compared to a net loss of $418,087 during the second quarter of 2008.

Revenue from metal sales increased in the second quarter of 2009 compared to the second quarter of 2008 from $3,745,808 to $4,719,280. Gold ounces sold rose from 4,999 to 5,063 and the average realized price of gold sold rose from $902 to $924 per ounce.

Second quarter 2009 production was 5,447 ounces compared to 5,284 in the second quarter of 2008. This represented a new quarterly production record for the Cerro Colorado mine. Cost of sales was $635 per ounce sold for the second quarter of 2009 compared to $722 for the second quarter of 2008. The 2008 amount included an $81 per ounce charge for amortization of deferred stripping. The Company no longer defers or amortizes waste stripping. Costs rose over from the first quarter of 2009 due to a strengthening of the Mexican peso in the second quarter and as a result of discretionary bonuses paid to the employees in Mexico during the quarter. Cost of sales excluding the royalty was $612 per ounce for the second quarter 2009.

General and administrative costs for the second quarter were $289,955 compared to $197,318 during the second quarter of 2008. $88,090 in exploration expenditures were incurred during the quarter compared to $nil in the second quarter of 2008. These expenditures represent the cost of work being performed on concessions comprising the Company's 34,000 ha land package within 25 km of Cerro Colorado. Interest expense for the second quarter of 2009 was $32,516 compared to $56,107 in 2008. Lower interest costs were primarily the result of lower principal loan balances and a lower weighted average rate of interest on the loans. The Company incurred a foreign exchange loss during the second quarter of 2009 of $35,000 primarily related to a strengthening of the Mexican peso relative to the US dollar. This compares to a loss of $56,930 during the second quarter of 2008.

Cash flow used in operating activities for the first quarter of 2009 was $16,819 compared to cash flow provided by operating activities of $1,130,476 in the first quarter of 2008. This reduction is primarily the result of using operating cash flow to strengthen the balance sheet. During the first quarter of 2008, the Company reduced accounts payable and accrued liabilities by $991,881 and interest payable by $188,703. During the first quarter of 2008, the majority of the cash flow from operations was put back into capital expenditures.

Liquidity and Capital Resources

Cash and cash equivalents decreased during the quarter from $1,033,697 as at March 31, 2009 to $902,297 as at June 30, 2009. However, the Company continued to improve its working capital position during the quarter by $227,850 principally through a $150,000 principal repayment on the Warman loan.

During July 2009, the Company made further principal repayments totaling $250,000 against the Warman loan the balance of which now stands at $1,050,000. The Company also spent approximately $484,000 on capital additions at Cerro Colorado during the second quarter. All of these payments have been made out of operating cash flow.

On April 3, 2009, the Company completed the closing of the second tranche of a C$1,730,000 non-brokered unit financing at C$0.20 per unit. Each unit consisted of one common share and one half of one common share purchase warrants, each full warrant entitling the holder to purchase an additional common share at $0.30 until February 27, 2011. Following the closing of the second tranche, the Company now has 80,128,331 common shares outstanding and 4,325,000 warrants outstanding.

Results of Mining Operations
Cerro Colorado Gold Mine (100% ownership)

 

 Three months ended
June 30,
Six months ended
June 30,
2009200820092008
Operating Statistics    
Tonnes mined1,268,586846,2032,292,9501,707,328
 Waste673,956396,9081,304,887900,109
 Ore – placed on leach pad594,630449,295988,063807,219
Grade (g/t Au)0.640.510.690.57
Gold ounces placed on the pad11,7307,43121,17514,736
Gold ounces – produced5,4475,28410,0469,516
Gold ounces – sold5,0634,9999,9749,660
Financial Data    
Metal sales$4,719,280$3,745,808$9,215,981$8,125,821
Cost of sales3,257,2453,678,5366,098,7436,187,991
Depreciation, depletion and amortization268,934109,567530,398411,727
Accretion10,2057,22420,40914,449

Mine operating earnings (loss) before exploration and income taxes
1,182,896(49,519) 2,566,4311,511,654
Exploration88,090-
 
181,917-
Income taxes344,780
 
63,841721,685
 
477,123
 
Other51,697(86,774)95,39983,292
 
Net segment earnings (loss)$698,329
 
($26,586)$1,567,430
 
$951,239
 
Capital expenditures$567,112$1,111,820 $849,395$2,060,978
     
Gold production for the second quarter was 5,447 ounces compared to 5,284 in year earlier period representing a 3% increase over Q2 2008. Average grade mined during the second quarter of 2009 increased to 0.64 g/t Au compared to 0.51 g/t Au in the year earlier period. Tonnes mined increased 50% over the prior year quarter due to improvements in truck fleet availability and the addition of three CAT733B haul trucks purchased in April 2009. As a result, gold ounces placed on the leach pad increased 58% from 7,431 in Q2 2008 to 11,730 in Q2 2009.

During the quarter ended June 30, 2009, the Company entered Phase 3 of construction of its new 5.0 million tonne leach pad which commenced midway through 2008. In relation to Sierra's stated goal of expanding production from an annualized rate of 20,000 ounces of gold to 30,000 ounces of gold, the Company has substantially completed all of the upgrades necessary to achieve these new production targets. In April 2009, the Company purchased three additional haul trucks for the Cerro Colorado Mine at a cost of $315,600, including $30,600 in delivery costs. The increased haulage capacity will enable Sierra to mine more ore and more importantly, perform necessary waste removal to access higher grade areas without sacrificing ore volume in order to reach the new annualized, targeted mining rates. In June 2009, the Company commissioned the final additional carbon columns at its plant, bringing the total number of carbon columns in circuit up to 30 from the old level of 18. In addition, in early August 2009, the mine completed the installation and commissioning of a new strip boiler designed to increasing the daily rates of stripping gold off of carbon. For 2009, Sierra expects to produce approximately 25,000 ounces of gold based on the timing of these improvements.

Corporate Development

Management has received expressions of interest from a number of parties with respect to exploring the merits of undertaking a corporate transaction. The Company continues to evaluate certain of these opportunities but offers no guarantee as to the successful completion of a transaction. In addition, Sierra is seeking to retain advisors with a view to finding and successfully completing a corporate transaction.

About Sierra Minerals

Sierra Minerals is a Canadian based gold production and exploration company. The Company owns and operates the Cerro Colorado Gold Mine in Sonora, Mexico. All gold production is un-hedged and the Company expects to produce approximately 25,000 ounces of gold in 2009. The Company's exploration pipeline includes an extensive 34,000-hectare regional land package in Sonora, Mexico. Further information about Sierra Minerals and the Cerro Colorado Gold Mine can be found on the Company's website at www.sierraminerals.ca.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This news release includes "forward-looking information", as such term is defined in applicable securities laws. The forward-looking information includes, without limitation, the success of exploration activities and other similar statements concerning anticipated future events, conditions or results that are not historical facts including the extent of future production from the Cerro Colorado Gold Mine. These statements reflect management's current estimates, beliefs, intentions and expectations; they are not guarantees of future performance. The Company cautions that all forward looking information is inherently uncertain and that actual performance may be affected by a number of material factors, many of which are beyond the Company's control. Such factors include, among others, risks and uncertainties relating to exploration and development; the ability of the Company to obtain additional financing; the Company's limited operating history; the need to comply with environmental and governmental regulations; political and economic instability and general civil unrest in Mexico, if any; potential defects in title to the Company's properties; fluctuations in currency exchange rates; fluctuating prices of commodities; operating hazards and risks; competition; and other risks and uncertainties, including those described in the Company's other regulatory filings filed with the Canadian Securities Administrators and available at www.sedar.com. Accordingly, actual future events, conditions and results may differ materially from the estimates, beliefs, intentions and expectations expressed or implied in the forward-looking information. All statements are made as of the date of this news release and the Company is under no obligation to update or alter any forward-looking information.

SUPPLEMENTAL INFORMATION ON NON-GAAP FINANCIAL MEASURES

Cash Costs

The Company's MD&A often refers to cash costs per ounce, a non-GAAP performance measure in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the producing gold mine(s) are performing compared to plan and prior periods, and also to assess the overall effectiveness and efficiency of gold mining operations. "Cash cost" figures are calculated in accordance with a standard developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is still an accepted standard of reporting cash costs of gold production in North America. Adoption of the standard is voluntary and the cost measures presented herein may not be comparable to other similarly titled measures of other companies. Costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are exclusive of amortization, reclamation, capital, exploration and development costs. These costs are then divided by ounces of gold sold to arrive at the total cash costs per ounce of gold sold. The measure, along with sales, is considered to be a key indicator of a company's ability to generate operating earnings and cash flow from its mining operations.
These gold cash costs differ from measures determined in accordance with GAAP. They are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. These measures are not necessarily indicative of net earnings or cash flow from operations as determined under GAAP.

The following table provides a reconciliation of total cash costs per ounce sold for the Cerro Colorado gold mine to the cost of sales, excluding accretion, depreciation, depletion and amortization as per the unaudited interim consolidated statements of operations.

      
  Three months ended
 June 30,
 Six months ended
 June 30,
 
(unaudited) 2009 2008 2009 2008 
          
Cost of sales (excluding accretion, depreciation, depletion and amortization) 
$ 3,257,245
 
$ 3,678,536
 
$ 6,098,743
 
$ 6,187,991
 
Silver by-product credit (41,236)(70,700)(72,567)(125,973)
  $ 3,216,009 $ 3,607,836 $ 6,026,176 $ 6,062,018 
          
Gold ounces sold 5,063 4,999 9,974 9,660 
          
Total cash costs ($/oz. sold) $635 $722 $604 $628 
          
Breakdown of cost per ounce sold         
          
Direct operating costs $620 $636 $588 $577 
          
Non-cash amortization of deferred stripping - 81 - 43 
          
2.5% NSR Royalty 23 19 23 21 
          
Less: silver by-product credits (8)(14)(7)(13)
          
Total cash costs ($/oz. sold) $635 $722 $604 $628 

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