In This Article:
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The cash consideration under the Offer represents a premium of approximately 26% based on the volume weighted average trading price of C$0.676 per Common Share on the TSX over the 30-trading days prior to December 13, 2024 and 10% based on the closing price of C$0.770 per Common Share on the TSX on December 13, 2024.
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Shareholders with questions about the Offer can contact Shorecrest Group at 1-888-637-5789 (North American Toll-Free Number) or +1 647-931-7454 (outside North America) or email: contact@shorecrestgroup.com or visit www.sierrametalscashoffer.com.
TORONTO, Dec. 16, 2024 /CNW/ - Alpayana S.A.C. ("Alpayana"), announces today that it intends to commence an all-cash takeover bid (the "Offer") to acquire all of the issued and outstanding common shares (the "Common Shares") of Sierra Metals Inc. (TSX: SMT) ("Sierra") at a price of C$0.85 per Common Share through its newly formed wholly-owned Canadian subsidiary (the "Offeror"). The Offeror intends to make the Offer directly to the shareholders of Sierra (the "Shareholders") so that they can determine the outcome of their investment.
The cash consideration under the Offer represents premiums of approximately:
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26% to the 30-day volume weighted average trading price of C$0.676 per Common Share on the TSX over the 30 trading days ended December 13, 2024 (the last trading day prior to today's announcement of the Offer); and
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10% based on the closing price of C$0.770 per Common Share on the TSX on December 13, 2024.
The Offeror believes that Shareholders should have the opportunity to determine what is best for their investment and will be offering immediate and certain value in the form of C$0.85 in cash per Common Share from a credible transaction partner. The Offeror is a Canadian wholly-owned subsidiary of Alpayana which is a family-owned private mining company that is debt free and has annual revenues over US$500 million and a commitment to the development and promotion of sustainable and responsible mining. Alpayana strives to leave a positive and meaningful legacy by prioritizing the well-being of its employees, the communities it impacts and the environment.
In addition to the premium, the Offeror believes that the proposed Offer is attractive to Shareholders for reasons that include:
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Opportunity to Redeploy Funds. Based on its publicly available annual audited financial statements from 2013 to September 30, 2024, Sierra has reported accumulated net losses of an aggregate of US$153 million. The Offer provides Shareholders with an opportunity to monetize their investment and redeploy such funds into other investments, including dividend paying investments and/or in other mining companies with assets in Latin America that may have more liquid stock, more critical mass and a better financial position.
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Weak Balance Sheet. Sierra has expensive liabilities, a working capital shortfall, a large asset base subject to potential impairments, and outsized corporate expenses relative to total assets and revenues. The funding of future capital expenditures could result in earnings per share dilution, free cash flow per share dilution, value per share dilution, and continued constraint to establish a dividend program. Accepting the Offer eliminates these balance sheet related risks for Shareholders.
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Liquidity and Certainty of Value. The Offer provides a compelling liquidity event and an opportunity for Shareholders to realize cash proceeds and certainty of value for their entire investment in an entity that has low liquidity.
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Risk of the Status Quo. There is considerable risk to Shareholders if the Sierra Board of Directors (the "Board") and management team continue to pursue their current strategy which has resulted in a weak and weakening balance sheet with restrictive bank covenants, failed M&A attempts, and a lack of critical mass capable of absorbing potential mining risks. The Offer provides Shareholders with the ability to fully monetize and derisk their investment and, ultimately, redeploy their capital into the market. The Offeror will be required to pay for Common Shares taken up by it at the expiry time of the Offer (the "Expiry Time"), not later than three business days after the Expiry Time. Provided the conditions to the Offer are satisfied or, where permitted, waived, the Offeror will be required to take up Common Shares validly deposited and not withdrawn at the Expiry Time.
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High Debt Load. Based on its publicly available information, as at September 30, 2024, Sierra had US$97.1 million in gross bank debt. In addition, Sierra also had another US$23.1 million in structural gross financing through working capital deficit, discounted sales of minerals which generate implicit interest costs, and leases. This total amount of US$120.2 million in structural gross financings needs to be serviced which will continue to impair Sierra's ability to pay future dividends. Furthermore, Sierra owes Sociedad Minera Corona S.A. ("Corona"), a controlled publicly traded subsidiary with minority shareholders, US$56.5 million as at September 30, 2024.
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Expensive Debt Load. Based on publicly available information, Sierra´s cost of funds remains high. The syndicated loan was priced at a floating rate of 3-month SOFR + 6.5% and at a fixed rate of 12%. The constant refinancings, restructurings and waiver requirements increase the real financing costs. As Sierra has recently experienced a weak balance sheet, this combined with restrictive covenants and only two mining units in a volatile mining sector that has significant inherent risks leads to a high quantity of financial distress.
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Impaired Dividend Capacity. Sierra's press releases focus on Net Debt to EBITDA. Such ratio ignores the high capex requirements (sustaining and growth), the high working capital requirements (both ordinary course and to replenish the deficit), the high interest expense, the upcoming principal amortizations, and the non-bank structural financings. Under a dividend discount model (DDM) there does not seem to be value in Sierra's stock in the status quo scenario unless corporate expenses are eliminated and the balance sheet is adequately strengthened.
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Restrictive Covenants Put Shareholders at Risk. Based on publicly available information, Sierra's senior secured credit agreement entered into in June 2024 contains restrictive financial covenants and amortization starting next year. Such credit agreement is restrictive of dividend payments and capex. Under such credit agreement, Sierra pledged its key mining assets as collateral, including the Yauricocha Mine in Peru and the Bolivar Mine in Mexico. In this context, considering that Sierra has only two assets, has a weak balance sheet and operates in the volatile mining environment, such restrictions put the Shareholders at risk.
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Failed M&A Attempts. Based on publicly available information, Sierra has conducted strategic reviews which have failed to result in any accretive acquisitions or mergers.
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Lack of Scale. We recognize management´s competency and commitment. However, Sierra does not seem to have the critical mass to absorb inherent mining risks, further asset impairments, or current corporate expenses. Furthermore, the lack of scale contributes to the high production cost of Sierra. In recent quarters the All in Sustainable Cost at the Yauricocha and Bolivar mines has ranged from US$3.23 to US$3.75 per copper-equivalent pound. These figures are well above industry averages.
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Fully Funded Cash Offer. Alpayana is a credible counterparty with the resources and capability to close this acquisition based on its available cash. The Offer is not subject to any financing condition.