Resource World Magazine

MINI NG Sierra Metals expanding production and resources by Ellsworth Dickson Sierra Metals Inc. [SMT-TSXV, Lima; DBEXF-OTC], formerly Dia Bras Exploration, is in an enviable position. Not only is the company increasing metals production at its three mines, the company is also building resources while it extracts ore. Silver accounts for 35% of Sierra's metal production; the cost of that silver production is a negative number (-$27) at its Yauricocha Mine for 2012 as other metals – copper, lead, zinc and gold – carry the cost of silver production. The company purchased the Yauricocha Mine, located in central Peru, for $286 million in May of 2011. During 2012, the Yauricocha Mine produced 2,143,971 ounces of silver, 9.1 million lbs copper, 35.2 million lbs lead, 49.9 million lbs zinc and 10,491 ounces gold. During Q1 2013, Yauricocha production was 474,601 oz of silver, 2.2 million lbs of copper, 8.4 million lbs of lead, 13.0 million lbs of zinc and 1,598 oz of gold. Yauricocha mill capacity will be expanded from 75,000 tonnes per month to 100,000 tpm by 2015. Exploration at Yauricocha is also under way with 10,000 metres of drilling planned in the Central Mine area with the intent of adding another 5-6 million tonnes of reserves/resources. Development of a new internal shaft and infrastructure is also planned in order to access the deeper un-mined areas of the mine. In addition, a $1.5 million regional exploration program is scheduled for 2013. As well, 13,200 metres will be drilled with the objective of upgrading resources to reserves. Proven and probable reserves at Yauricocha are pegged at 4,163,000 tonnes grading 119.7 grams silver/tonne, 0.70% copper, 2.81% lead, 2.58% zinc and 0.93 grams gold/tonne, for a silver equivalent of 420.8 grams/tonne. Measured and indicated resources stand at 4,181,000 tonnes grading 121.8 grams silver/ tonne, 0.72% copper, 2.91% lead, 2.54% zinc and 0.93 grams gold/tonne, for a silver equivalent of 420.8 grams/tonne. Sierra Metals has a 100% interest in the Bolivar Mine in northern Mexico where commercial production at the new Piedras Verdes mill, located 6 km from the mine, was achieved in November 2011. The mill is currently processing over 30,000 tonnes per month with capacity to be increased to 60,000 tpm this year. The past-producing Bolivar Mine hosts two relatively flat-lying skarn deposits where, for Q1 2013, production was 54,062 oz of silver and 1.9 million lbs of copper. Bolivar has proven and probable ore reserves totaling 7,456,806 tonnes grading 1.044% copper equivalent averaging 19.5 grams silver/tonne, 0.759% copper and 0.329% zinc. Gold contents average 0.226 gram per tonne but were not included in the copper equivalent calculation, though were included in the project's economics. Based on a recent Pre-Feasibility Study, Bolivar has an esti40 www.resourceworld.com The Chumpe mill, Yauricocha Mine, Peru. Photo courtesy Sierra Metals Inc. mated pre-tax NPV of US $135.6 million and a post-tax, base case NPV of US $91.7 million, at an 8% discount rate. Capital costs are estimated to be US $43 million, with an initial cost of approximately US $7 million and sustaining capital over the life-of-mine of approximately US $36 million. At a production rate of 2,000 tonnes per day, reserves provide a 10-year mine life with an additional year of processing from the stockpile for a total of 11 years. In addition, there is an open, down-dip potential totaling over 1,500 metres to the northeast and over 6,000 m along strike. About 200 km northeast of the Bolivar Mine is the Cusi Mine where, during the first quarter of 2013, Cusi produced 81,744 oz of silver compared to 44,705 oz of silver in 2012. The disseminated, stockwork-breccia mineralized zone at the Promontorio Mine of Cusi has large tonnage potential as the prospect area is 150 metres by 200-300 metres and is open to depth. A new NI 43-101 resource report is due in Q3 2013. An exploration and development program is under way at Cusi to expand production. During 2012, Sierra Metals had revenues of $179,723,000 with an operating cash flow of $60,487,000. At the end of 2012, cash in the treasury was $79.8 million. Sierra Metals is headed by J. Alberto Arias, Chairman. Arias Resource Capital has a 51.7% interest in Sierra Metals. The company paid a cash dividend of approximately $2.5 million or $0.016 per common share on April 30, 2013. Simultaneously, the company's 82%-owned subsidiary, Sociedad Minera Corona S.A., has approved a dividend to its shareholders of US $40 million. Sierra will receive US $32.7 million of this dividend. Sierra has recently begun a share buyback program. n JUNE 2013

• Cover