Sierra Minerals Inc.
TSX : SIM

Sierra Minerals Inc.

May 15, 2009 16:04 ET

Sierra Minerals Earns US$611,837 in Q1 2009 (US$0.01 Per Share)

TORONTO, ONTARIO--(Marketwire - May 15, 2009) - Sierra Minerals Inc. (TSX:SIM) ("Sierra" or the "Company") today announced its unaudited financial results for the three months ended March 31, 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.

Q1 2009 - Highlights

- Net earnings for the first quarter were $611,837 or $0.01 per share versus Q1 2008 earnings of $680,739 or $0.01 per share.

- Ounces produced rose 9% to 4,599 compared to 4,232 in Q1 2008.

- Ounces sold rose 5% to 4,911 compared to 4,661 in Q1 2008.

- Realized gold price per ounce was $909 compared to $904 in Q1 2008.

- Revenue increased to $4,496,701 from $4,380,013 in Q1 2008.

- Cost of sales per ounce was $572 in Q1 2009 vs. $527 in Q1 2008 but fell 7% from $615 in Q4 2008.

- Proceeds from non-brokered private place of $1,360,769 (C$1,730,000) received during Q1 2009.

- Cash and cash equivalents balance at March 31, 2009 was $1,033,697

- Total of working capital deficiency plus debt declines by $1,943,556 in Q1 2009 from $2,294,421 as at December 31, 2008 to $350,865 as at March 31, 2009.

Commentary

Michael Farrant, President and CEO of Sierra Minerals, made the following comments in relation to the 2009 first quarter results:

"On June 30, 2008, we had a working capital deficiency of $3.3 million, including our debt. During the past nine months we have managed to reduce this amount to approximately $350,000. We are extremely pleased with what we were able to accomplish during the first quarter as $2.0 million of this reduction came during Q1 2009. This was done in part through raising $1.4 million by way of a non-brokered private placement and $0.6 million through operating cash flow. A further $0.3 million of operating cash flow funded our capital expenditures. We paid off two of our debt arrangements and successfully renegotiated the Warman loan. Subsequent to the end of 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. 170,144 ounces of gold are estimated to be contained in 9.7 million tonnes at an average grade of 0.55 grams per tonne gold ("g/t Au") in measured and indicated categories with an additional 74,177 ounces of gold estimated to be contained in 5.6 million tonnes at an average grade of 0.41 g/t Au in an inferred category, at a 0.25 g/t Au cut-off. 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. We were also able to lower our cash cost per ounce of gold sold from $615 in Q4 2008 to $572 in Q1 2009. We sold gold at an average of $909 per ounce during the quarter giving us a margin of $337 per ounce on each ounce of gold sold. At our current market capitalization of approximately $12.0 million, the value of our entire Company could be realized through the sale of approximately 35,600 ounces of gold at these margins. This leaves incredible upside for us to increase shareholder value as we expect to produce well in excess of this level over the life of the mine. I am extremely excited about our prospects moving forward and proud of our accomplishments to date."

Summary of financial and operating results



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Three months ended
March 31,
------------------------
2009 2008
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Gold ounces - produced 4,599 4,232
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Gold ounces - sold 4,911 4,661
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Average realized gold price ($/oz.) $ 909 $ 904
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Total cash costs per ounce sold ($/oz.) (a) $ 572 $ 527
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Metal sales $4,496,701 $ 4,380,013
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Cost of sales (b) $2,841,498 $ 2,509,455
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Accretion, depreciation, depletion and amortization $ 271,668 $ 309,385
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Mine operating earnings $1,383,535 $ 1,561,173
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Net earnings for the period $ 611,837 $ 680,739
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Earnings per share (basic and diluted) $ 0.01 $ 0.01
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Cash flow provided by operating activities before
Changes in non-cash working capital $ 858,974 $ 1,240,668
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Cash flow (used in) provided by operating
activities $ (16,819) $ 1,130,476
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March 31, December 31,
2009 2008
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Cash and cash equivalents $1,033,697 $ 740,360
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Working capital deficiency $ (350,865) $(1,844,421)
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Long-term debt in addition to working capital
deficiency $ - $ (450,000)
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(a) See "Supplemental Information on Non-GAAP Financial Measures"
(b) Cost of sales excludes, accretion, depreciation, depletion and
amortization


Revenue from metal sales increased 3% in the first quarter of 2009 compared to the first quarter of 2008 from $4,496,701 to $4,380,013 as of result of a 5% rise in the number of ounces sold from 4,661 to 4,911 and a modest 1% increase in the average realized price of gold sold from US$904 to US$909 per ounce.

First quarter 2009 production was 4,599 ounces compared to 4,232 in the first quarter of 2008. Cost of sales was $572 per ounce sold for the first quarter of 2009 compared to $527 for the first quarter of 2008. While costs were higher than the same period last year, this represents a drop of $43 per ounce from the fourth quarter of 2008. Cost of sales excluding the royalty was $549 per ounce for the quarter.

General and administrative costs for the quarter were $264,434 compared to $343,342 during the first quarter of 2008. $93,827 in exploration expenditures were incurred during the quarter compared to $nil in the first quarter of 2008. Interest expense for the first quarter of 2009 was $39,025 compared to $61,004 in 2008. Lower interest costs were primarily the result of successful loan renegotiations resulting in the forgiveness of some interest and lower loan balances. The Company incurred a foreign exchange gain during the first quarter of 2009 of $13,942 primarily related to the a slight strengthening of the Canadian dollar relative to the US dollar following the raising of Canadian dollar funds through the private placement. This compares to a loss of $30,680 during the first quarter of 2008. Non-cash gain on settlement relates to certain amounts included in accounts payable at December 31, 2008 that were forgiven during the first quarter through successful negotiations with the other party.

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 increased during the quarter from $740,360 as at December 31, 2008 to $1,033,697 as at March 31, 2009. The Company reduced its working capital deficiency plus debt during the quarter by $1,943,556 to $350,865.

During Q1 2009, the Company successfully paid off the Warman II loan ($105,000 including principal and interest) and paid off the Aggra Performance Ltd. loan ($112,516 including principal and interest). $20,000 was also paid toward the Piggott loan including principal and interest. The Warman I loan was successfully renegotiated commensurate with the Company making payments of $190,000 against outstanding interest and $500,000 against outstanding principal. The loan now stands at $1,450,000 and bears interest at 8% with first scheduled loan repayment of $150,000 due on or before June 30, 2009. Sierra expects to make this payment out of operating cash flow.

During Q1 2009, the Company successfully raised $1,360,769 (C$1,730,000) through a non-brokered unit financing at $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. Sierra issued 8,000,000 common shares and 4,000,000 common share purchase warrants prior to March 31, 2009 in connection with the closing of the first tranche and issued a further 650,000 common shares and 325,000 common share purchase warrants subsequent to March 31, 2009 in connection with the closing of the second tranche. Following the closing of the second tranche, the Company now has 80,128,331 common shares outstanding.



Results of Mining Operations

Cerro Colorado Gold Mine (100% ownership)

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Three months ended
March 31,
------------------------
2009 2008
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Operating Statistics
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Tonnes mined 1,024,364 861,125
Waste 630,931 503,201
Ore - placed on leach pad 393,433 357,924
Grade (g/t Au) 0.75 0.63
Gold ounces placed on the pad 9,534 7,305
Gold ounces - produced 4,599 4,232
Gold ounces - sold 4,911 4,661
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Financial Data
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Metal sales $ 4,496,701 $ 4,380,013
Cost of sales 2,841,498 2,509,455
Depreciation, depletion and amortization 261,464 302,160
Accretion 10,204 7,225
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Mine operating earnings before
exploration and income taxes 1,383,535 1,561,173
Exploration 93,827 -
Income taxes 376,905 413,282
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Net segment earnings $ 912,803 $ 1,147,891
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Capital expenditures $ 282,283 $ 949,158
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Gold production for the quarter was 4,599 ounces compared to 4,232 in year earlier period representing a 9% increase over Q1 2008. Average grade mined during the first quarter of 2009 increased to 0.75 g/t Au compared to 0.63 g/t Au in the year earlier period. Tonnes mined increased 19% over the prior year quarter due to improvements in truck fleet availability. As a result, gold ounces placed on the leach pad increased 31% from 7,305 in Q1 2008 to 9,534 in Q1 2009.

Subsequent to the end of the quarter, Sierra purchased three additional CAT773B haul trucks in excellent condition at auction for $315,600 including the cost of transportation to the mine. These trucks have arrived at site and are being scheduled into mining operations. They augment the existing fleet of three CAT773B and two CAT769C haul trucks. The addition of these trucks almost doubles the hauling capacity of the mining fleet at Cerro Colorado and was necessary in order to ramp mining rate up to 30,000 ounces on an annualized basis.

Coincident with plans to expand mining rates, capital improvements continue to be made to the plant in order to be able to process at an annualized rate of 30,000 ounces. There are now 24 carbon columns in circuit, up from 18 with a plan to increase to this number to 30. Increasing the gold production at the Cerro Colorado mine is now the Company's primary initiative. Sierra continues to target production of approximately 25,000 ounces of gold in 2009 as mining rates increase and plant upgrades are completed.

As noted earlier, subsequent to the end of the quarter, the Company announced its initial National Instrument 43-101 mineral resource estimate for the Cerro Colorado gold mine.

Mineral Resource Estimate Cerro Colorado Mine - 0.25 g/t Au Cut-Off



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Measured + Indicated Inferred
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Cut-off Avg. Contained Avg. Contained
Grade Tonnes Grade Gold Tonnes Grade Gold
(g/t Au) (000's) (g/t Au) (ounces(1)) (000's) (g/t Au) (ounces(1))
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0.25 9,706 0.55 170,144 5,599 0.41 74,177
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(1) Mineral resources that are not mineral reserves do not have
demonstrated economic viability. The estimate of mineral resources may
be materially affected by environmental, permitting, legal, title,
taxation, sociopolitical, marketing or other relevant issues.
(2) ounces calculated using the following conversion rate: 1 troy ounce
equals 31.103 grams


This initial current mineral resource estimate has been completed Michelle Stone, P.Geo., of CCIC. Ms. Stone has reviewed pertinent geological information in sufficient detail to support the data incorporated in the mineral resource estimate. Ms. Stone is an Independent Qualified Person as defined under NI 43-101 and is responsible for the mineral resource estimate presented in this release.

Corporate Development

During Q1 2009, the Company also received an unsolicited business combination proposal from Treasury Metals Inc. ("Treasury"), who currently owns approximately 8% of Sierra (see news release February 2, 2009). In response to this bid and in order to appropriately deal with other corporate development initiatives and matters, the Board of Directors unanimously approved the formation of a Strategic Review Committee comprised of three independent directors (see news release March 5, 2009). After reviewing the merits of the proposal put forth by Treasury, the Board of Directors unanimously rejected the proposal as inadequate and determined that it was not fair from a financial point of view to the shareholders of Sierra or in the best interests of Sierra.

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.

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 regional land package which covers over 34,000 hectares 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.



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Three months ended
March 31,
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(unaudited) 2009 2008
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Cost of sales (excluding accretion, depreciation,
depletion and amortization) $ 2,841,498 $ 2,509,455
Silver by-product credit (31,331) (55,273)
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$ 2,810,167 $ 2,454,182

Gold ounces sold 4,911 4,661

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Total cash costs ($/oz. sold) $ 572 $ 527
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Breakdown of cost per ounce sold

Direct operating costs $ 555 $ 507

Non-cash amortization of deferred stripping - 13

2.5% NSR Royalty 23 19

Less: silver by-product credits (6) (12)
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Total cash costs ($/oz. sold) $ 572 $ 527
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