Sierra Metals Inc. (SMT) Q1 2019 Earnings Call Transcript

Sierra Metals, Inc. (NYSEMKT: SMTS) Q1 2019 Earnings Call May 14, 2017, 10:30 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sierra Metals Q1 2019 Consolidated Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you.

Mike McAllister, Vice President, Investor Relations, you may begin your conference.

Mike McAllister -- Vice President, Investor Relations

Thank you, Operator, and good morning, everyone. Welcome to Sierra Metals Q1 2019 Results Conference Call. On today's call, we are joined by Igor Gonzáles, our President and CEO; Gordon Babcock, our COO; and Ed Guimaraes, our CFO.

Today's call will be followed by a question and answer period. Today's accompanying presentation is available for download through both the webcast and through the company's website at www.sierrametals.com. Yesterday's press release, the financial statements, and the management discussion and analysis are posted on the company's website.

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Before I turn the call over to Igor, I would like to indicate that this earnings call contains forward-looking information that is based on the company's current expectations, estimates, and beliefs. This forward-looking information is subject to a number of risks, uncertainties, and other factors. Actual results could differ materially from our conclusions, forecasts, or projections as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the company's annual information form, which is publicly available on SEDAR or EDGAR via the Form 40-F on the company's website. Please note that all dollar amounts mentioned on today's call are in U.S. dollars, unless otherwise noted.

I would now like to turn the call over to Igor Gonzáles, our President and CEO. Please go ahead, Igor.

Igor Gonzáles -- President and Chief Executive Officer

Thanks, Mike, and good morning, everyone. I will begin the call on slide number four with some highlights from our consolidated results for the first quarter of 2019. After that, we will open up the call for questions, where myself, and Gordon Babcock, and Ed Guimaraes will be happy to answer questions.

Turning now to the highlights. Sierra Metals faced several challenges in the first quarter of 2019, including an illegal strike at our Yauricocha mine, as well as a slower than expected ramp-up at Bolivar and Cusi, and also experienced lower head grades and recoveries. However, the company has continued to be successful in maintaining positive operating cash flow generation in order to reduce debt levels, fund capital expenditures, and maintain liquidity.

Revenues from metals payable in Q1 2019 were $49 million, with $12 million of operating cash flows before movements in working capital on consolidated throughput of 568,401 tonnes and metal production of 4.0 million silver equivalent ounces, or 21.8 million copper equivalent pounds, or 50.6 million zinc equivalent pounds. The company reported a net loss attributable to shareholders of $0.01 per share.

Looking on to slide five, you can see that, on a consolidated basis, we still had a relatively solid quarter of operating performance, with a 2% increase in total tonnes processed, as well as an increase to the production of silver, lead, and gold, with minor decreases in copper and zinc pounds produced. Despite the challenges we faced during the quarter, we still saw an increase in zinc equivalent production at Yauricocha, record throughput at Cusi, and a 1% increase in throughput at Bolivar over Q1 2018.

Turning to slide six, and taking a closer look at each mine now. Yauricocha. So, throughput reduced by 14% in Q1 2019 versus Q1 2018 as a result of the illegal strike which took place at the mine. I'm happy to report, however, that the strike had -- was resolved on April 12, 2019, but resulted in 12 days of lost production during this first quarter. However, management expects that the company will still be within the annual production guidance provided. Also, as noted previously, the higher head grades and recoveries of all metals except gold head grades resulted in a 3% increase in zinc equivalent pounds produced during Q1 2019 compared to Q1 2018.

Cash costs of $0.54 per zinc equivalent payable were lower at Yauricocha this first quarter over the same period in 2018. But there was a slight increase the all-in sustaining costs to $0.85 per zinc equivalent payable pounds during Q1 2019 compared to Q1 2018, primarily due to the increase in equipment and refining charges related to the zinc concentrate produced.

Despite the illegal strike, 2019 still represents a critical year for project improvement and exploration at Yauricocha. We received our environmental impact assessment permit for the mine to complete the next level of the tailing deposition facility, and we have begun planning and are waiting for our construction permit for this facility. We're also continuing to sink the Yauricocha shaft toward that 1270 level, which will provide access to further reserves and resources at the mine, with loading pockets to be added on the 1210 level and a spill pocket to be added on the 1230 level. Work will also commence on the ramp, connecting the 920 level with the 720 level of the Yauricocha mine, providing for an additional 10,000 tonnes per month of increased capacity to move ore and waste from the mine.

Finally, we continue to work toward the completion of a life of mine and also an updated NI 43-101 Technical Report for reserves and resources at Yauricocha expected by mid-year 2019. We are confident that we have the right team in place to manage these projects and the planning needed to see projects and exploration programs move ahead as planned.

Turning now to slide number seven. At Bolivar in Q1 2019 compared to Q1 2018, we saw a 14% reduction in copper head grade, with a slightly higher gold and silver head grade. We did, however, experience improved copper recoveries and increase in throughput. But overall, we saw a 7% decrease in copper equivalent pounds produced. Cash costs were higher, at $2.04 per copper equivalent payable pound. And all-in sustaining costs were also higher at $3.59 per copper equivalent payable pound in Q1 2019 versus the same quarter in 2018. This is attributable to higher labor and contractor costs incurred related to stope and ramp development in the mine, which are required to increase the throughput at the mine to 3,600 tonnes per day, and subsequently, the 4,000 tonnes per daily level.

Additionally, we saw an increase in sustaining capital expenditure of $3.6 million related to the purchase of mine equipment, development costs, exploration drilling within the mine, and plant improvements needed to reach production rates of 3,600 tonnes per day, and subsequently, 4,000 tonnes per day level, which is expected to occur in the second half of this year.

Exploration continues to be successful at Bolivar, and on April 3rd of 2019, the company reported high-grade mineralized extensions to the Bolivar West Zone, called Extension West. Four drill holes were executed in an area highlighted by a Titan 24 Geophysical Survey previously completed. The result was the identification of new, wide, higher-grade copper structure, which extends the continuity of the Bolivar West Zone approximately 500 meters apart. Average grade of the intercepts were 1.15% copper with 2.09% copper equivalent, with an average true width of 8.2 meters was noted.

Development and infrastructure improvements will continue at Bolivar in an effort to push the mine to the 4,000 tonne per day level in the second half of 2019. Additionally, a life of mine plan is nearing completion, and we expect to have an updated NI 43-101 report for the Bolivar mine during Q4 2019.

Turning now to slide number eight. During Q1 2019, Cusi's record throughput increased 165% to the 815 tonne per day level as the company continues working toward the 1,200 per day level during Q2 2019. The increase in throughput resulted in a 64% increase in silver equivalent ounces produced, despite the lower head grades and recoveries realized for all metals.

We continued development into the deeper levels at the Santa Rosa de Lima, which has higher-grade head grades.

Cusi cash costs per silver equivalent payable ounce was $16.53 in Q1 2019, which was lower when compared to Q1 2018. However, the all-in sustaining cost of $30.57 per silver equivalent payable ounce in Q1 2019 was slightly higher when compared to Q1 2018. The increase in all-in sustaining costs was primarily due to higher sustaining capital expenditures as a result of investments made in the concentrator plant in order to reach the 1,200 tonne per day level expected to take place in Q2 2019.

Development and infrastructure improvements will continue at Cusi in an effort to push the mine to run at the 1,200 tonne per day level in the second half of 2019. Additionally, a life of mine plan is near completion, and we expect to have an updated NI 43-101 Report for the Cusi mine during Q4 2019. Furthermore, additional plant improvements during Q3 2019 will include the installation of an additional ball mill, as well as the installation of new tank cells to improve flotation. Both of these are needed to push throughput at Cusi to the 2,400 tonne per day level expected to occur in early 2020.

Sierra Metals remains at an inflection point. We continue working to improve our per share value and continue to work to be profitable at today's metal price by improving head grades and recovery rates, which in turn will help lower costs. The company's financial position and liquidity remain healthy, and the board and the management team are committed to investing in its operating mines to improve future cash flows. We are continuing with our aggressive exploration programs, with a goal of adding additional reserves and resources, and extending our mine life. The company continues to have a solid financial position and the liquidity to support our growth programs, which always represent a very prudent use of capital and provide for an excellent return on investment for the company and its shareholders.

With that, and looking now at slide number nine, I would like to review our cash flows in more detail. During Q1 2019, our operating cash flows before movements in working capital were $11.8 million. We had negative working capital adjustments of $1.3 million. We paid $8.9 million in taxes in Peru. We invested $11.3 million in capital expenditures in Mexico and Peru, and we paid $8.7 million in principal repayments and interest of our credit facilities in Peru and Mexico. We also had proceeds from the issuance of loans and credit facilities and notes issued of $20.7 million, leaving us with a cash balance of $23.9 million as of March 31, 2019.

On slide 10, Sierra's board and management team do not believe that the current stock price reflects the value of the company, and initiated a normal course issuer bid in December 2018 with a 1.5 million share target. To date, the company has repurchased and canceled a total of approximately 907,266 shares at an average VWAPO CAD 2.04. During April 2019, the company was able to take advantage of the block exception rule and was able to purchase a block of 800,000 shares at a price of CAD 2.02 per share.

The company has been in blackout period since April 15, 2019, but subsequent to the normal course issuer bid announced in December 2018, the company has entered into an automatic share repurchase plan with its designated broker CIDC, allowing them to purchase shares of the company at times when Sierra would not be active in the market due to insider trading rules or in blackout periods.

The company is in good financial health, and we maintain a strong balance sheet, with $24 million in cash. Our total debt was $69 million at the end of Q1 2019, with a net debt of $45 million. During Q1 2019, the company announced the closing of a $100 million senior secured corporate credit facility in March. The facility has a six-year term with a two 2-year grace period, and has a rate of LIBOR plus 3.15%. This facility will provide the company with additional liquidity and will offer financial flexibility to fund future capital projects in Mexico, as well as working capital requirements.

The company will also use proceeds of the corporate facility to repay existing debt in the near term. Subsequent to the end of the first quarter, on May 9th, the company repaid the remaining $33.2 million existing on the Corona acquisition facility with BCP and the $15 million existing on the revolving credit facility with BCP after drawing funds from the senior secured corporate credit facility.

For 2019, the company remains focused on allocating operating cash flows toward efficient growth capital to provide funding for the significant capital expenditures planned this year. Management will continue to review metal prices and retain the option to adjust the capital expenditures should metal prices experience any dramatic changes within the year.

With that, I will turn the call back to Mike.

Mike McAllister -- Vice President, Investor Relations

Thank you, Igor. That ends the presentation portion of this call. We would now like to open up the call to questions from our participants. Operator, if you could please open the lines.

Questions and Answers:

Operator

Thank you. At this time, I would like to remind everyone that in order to ask a question, press * then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

And your first question comes from the line of Jake Sekelsky from Roth Capital Partners. Your line is open.

Jacob Sekelsky -- Roth Capital Partners -- Analyst

Hey, guys. Thanks for taking my questions. It looks like cash costs were somewhat elevated at Cusi during the quarter, and all-in sustaining costs, for that matter, as well. Do we expect these to moderate as you develop deeper into the higher-grade Santa Rosa zone and throughput increases in the second half of this year?

Gordon Babcock -- Chief Operating Officer

Yes, we do.

Mike McAllister -- Vice President, Investor Relations

Go ahead, Gordon.

Gordon Babcock -- Chief Operating Officer

Yes. Yes, we do. Just to elaborate, the development program has been in place now. We have a new contractor. So, the access to the lower portion of the Santa Rosa, the Lima area, is going to happen a lot sooner than originally expected. So, as soon as we get through these zones and then prepare the stopes for mining, we'll be able to see some increases in our head grades going into the mill at Malpaso. So, the objective right now, we've already started to see changes in our head grades.

Jacob Sekelsky -- Roth Capital Partners -- Analyst

Got it. So, that's something you could see toward the middle or end of Q2, early Q3.

Gordon Babcock -- Chief Operating Officer

Yes. The objective is to produce more silver ounces, and that's the target.

Jacob Sekelsky -- Roth Capital Partners -- Analyst

Okay. That's fair. And then, just at Yauricocha, you received the permit for the new tailings facility. Is there a timeline for that last permit to come in to reach 3,600 tonnes a day?

Gordon Babcock -- Chief Operating Officer

The 3,600 tonne per day timeline is based on a series of different events. Number one, we have -- the EIA has been completed, and that enables us to construct the tailings dam extension. Prior to the 3,600 tonne per day, there are more requirements. We're gonna need to work on the expansion of our waste handling facilities; we're gonna need to add to the footprint of the tailings facility. So, basically speaking, all these other items have to come into play first, and then we can jump up to -- the increase to 3,600 tonnes per day. I don't know if I'm clear, but that's where we're at.

Jacob Sekelsky -- Roth Capital Partners -- Analyst

Yeah, no, that was helpful. That's all of mine. Thanks, guys. I'll hop back in the queue.

Operator

Our next question comes from the line of Heiko Ihle from H.C. Wainwright. Your line is open.

Heiko Ihle -- H.C. Wainwright -- Analyst

Hey there. Thanks for taking my questions. Your sustaining capital at Bolivar during the quarter was pretty high. You had $4.2 million. Can you just sort of provide us more of a breakdown than what the MD&A provides? Because all it really says is it's related to the purchase of mining equipment, mine development costs, exploration drilling within the mine, and plant improvements. Can you just sort of break that out with a little bit more detail, please?

Igor Gonzáles -- President and Chief Executive Officer

Yes. Sure. I will start the response, Heiko, and then Gordon and Ed will go into further details. Yes, it has to do with the additional mine equipment. Gordon will mention, for example, the scraper and so forth. And also, we are installing, for example, a new filter at the mill, and a new fine ore bin, and some flash location cells. So, go ahead, Gordon and Ed.

Gordon Babcock -- Chief Operating Officer

Yes. Okay, As Igor was mentioning, we purchased a scalar. As you know, the Bolivar Mine is -- from your trip, Heiko, it's pretty high in the stoping complex. So, we've got a scalar now that came from Cannon Equipment. That was approximately a little bit over $600,000.00 for that. We've installed a new filter press for filtering our concentrates. We're in the process right now of commissioning that. We're working on the fine ore bin, which is an extension to the two ore bins that we have in place now. We're adding another larger one. So, that fine ore bin, the future plan is that that ore bin's gonna be feeding the 12.5 by 16 mill. We've installed the whole flotation backup system with these flotation flash cells. We've got three flash cells. We've got two installed already, and we're in the process of adding the automation for it, even beyond the third flash cell.

So, the idea is all of the mill circuit, all of the flotation, will receive product after the flash cells. So, we're gonna be able to create some concentrates straight off the top of those flash cells, and then the rest of the circuit will have much more residence time. We'll be able to pick up recoveries in that sense. We've also installed a series of cyclone towers, plus we've added more pumps to the circuit. And the big part is, we pushed the development in the Bolivar West portion of the ramp, so we've accessed the upper part of the Bolivar West zone, and we're continuing with the development plans to push the bottom section of Bolivar West.

As well, development was hit hard in the Gallo and Fierro areas. So, we are at the -- we were working on level number 10. We developed level number 11, which is downstream, and then level 12. So, right now, we're doing development on level 12. So, the development program is moving forward pretty quickly now. That's where the dollars are spent.

Heiko Ihle -- H.C. Wainwright -- Analyst

Very, very helpful and very colorful answer. I appreciate that. In the revised mine plans for Bolivar that you're expecting to be done soon -- I'm not sure how many drafts and other items you hold or you're seeing. But I mean. even that we'll see NI 43-101 by 4Q. and by your own admittance. in the release and the presentation. you say, the mine plans are gonna be done soon. I expect, at least, some of the things have already been seen. Is there anything in there that should surprise us, especially as it relates to mine life and costs?

Gordon Babcock -- Chief Operating Officer

No, Heiko. In fact, on the new 43-101 resource statement, we're gonna see an increase in resources. I can comfortably say that. And I believe that our reserve is going to remain similar after we've deleted the production. So, in essence, Bolivar is looking very promising as far as a long-term perspective. As we go to the west of the zone, we're picking up more silver and more gold values. So, Bolivar is really starting to prove to all of us that there's more opportunity here. So, if you want to call it a surprise, it's a good one.

Heiko Ihle -- H.C. Wainwright -- Analyst

The reserves answer is actually more than I thought I'd get out of you, so thank you for that. And just this last quick question. I mean, this question hit me while Igor was talking about slide five in your presentation earlier. And this is just conceptually, but I mean, given that multiples for precious metals firms tend to be quite a bit higher, and where we're sort of in a buyer's market for those types of assets right now, currently the rise is 82% of its revenue from base metals, and only 15% from silver, and 3% from gold. Should we be shocked to see you guys do some sort of M&A transaction that increases your precious metals ratio? Thank you.

Igor Gonzáles -- President and Chief Executive Officer

Well, Heiko, I will answer part of your question. Our precious metal production is steadily increasing by the ramp-up of Cusi. In other words, we're adding more silver ounces to our mix. And we're also getting into an area in Bolivar, which is Bolivar West, which has shown to have more silver and gold in its composition, more so than the Gallo and Fierro. So, that's, I guess, to answer the general question. And then, I will let Ed and Gordon to respond in detail.

Ed Guimaraes -- Chief Financial Officer

Heiko, I think just to elaborate a little bit on what Igor is saying, I think our increases in precious metals are gonna come from -- organically, going to come from both Bolivar and Cusi. And we're not anticipating any M&A activity to increase that -- our precious metal tonnes. And at least in the near term, we're we're focusing on building out our assets that we currently have and meeting our expansion from it.

Gordon Babcock -- Chief Operating Officer

Heiko, I'll also concur with Ed.

Heiko Ihle -- H.C. Wainwright -- Analyst

Thank you.

Operator

Our next question comes from the line of Mark Reichman from Noble Capital Market. Your line is open.

Mark Reichman -- Noble Capital Market -- Analyst

Well, good morning. Just as a polymetallic producer, I'd be interested in kind of hearing your thoughts on the state of the markets for each of the metals that you produce -- your outlook on pricing, any nuances in the market between suppliers and producers? For example, you had the refining and treatment charges with zinc -- with respect to zinc go up. But just kind of your overall outlook on those metals, and any issues that you see arising in the markets.

Ed Guimaraes -- Chief Financial Officer

Hi, Mark. Thank you for your question. I'll take this one on. In terms of -- I think you're seeing a little bit of a hit across all metals, and given the U.S.-China tariff situation. But I think long-term, copper and zinc -- in particular, copper, the fundamentals really haven't changed that much. You are gonna see some supply shortages. There are some mines coming on-stream. But I expect copper to maintain above $3.00 long-term, and zinc as well should see -- should maintain prices for the -- at least the next two to three years. At least, that's what the market seems to be saying.

With gold, gold is really -- it looks like $1,300.00 seems to be that threshold mark. Long-term, I think you'll see we'll maintain that. And silver should start to catch up too. I think silver is really out of whack still in terms of the gold/silver ratio. And silver should be probably up around the $18.00 mark. But outside of that, I'm confident, or at least the market -- what the market seems to be portraying, that fundamentally, the metals should remain solid.

Operator

Our next question comes from the line of Lee Cooperman from Omega Advisors. Your line is open.

Leon Cooperman -- Omega Advisors -- Analyst

Thanks. I was wondering if you have any guidance you're prepared to give on EBITDA for 2019, because we had been running in excess of a $100 million rate. And based upon the first quarter, we were below $50 million. I realized it was some unusual circumstances. But do you have an expectation for your EBITDA for 2019? And I have some other questions as well.

Ed Guimaraes -- Chief Financial Officer

Hi, Lee. Thank you for your question. We don't give guidance on EBITDA. We haven't in the past. That's just been a corporate policy. There's just too many variables that can take place. It's not something we want to do.

Leon Cooperman -- Omega Advisors -- Analyst

Fine. Okay. I'm not surprised by the answer. Fine. Let me ask you a philosophical question. First of all, I understand you published an NPV of 428 U.S. Stock is roughly a little bit more than a third of that price. It's below the price you paid for the million shares you bought back. Why did you assume in there 100% ownership of Yauricocha when you own only 82%? Why didn't you give an NPV with your assumption of an 82% ownership, which is what you exactly have? Hello? Not a trick question.

Ed Guimaraes -- Chief Financial Officer

Yeah. No, we clearly state that everything's on 100% basis, and that's just the way we account for Yauricocha. And then the minority interest shows up on that line. But I haven't --

Leon Cooperman -- Omega Advisors -- Analyst

What would the 428 be if you only used 82% of your ownership, do you know? It relates to my next question.

Ed Guimaraes -- Chief Financial Officer

So, 428 should be the 82% interest. It should be -- that should be --

Leon Cooperman -- Omega Advisors -- Analyst

No. The footnote says 100%, but maybe the footnote is misleading. Let me get to the real question. Your stock is a little bit more than a third of asset value. It looks like you're planning a huge increase in capex this year, about $83 million, including growth capex, basically. Are you better off doing an abnormal course issuer bid, and buying back some serious amount of stock, and cutting back on capex? Because I don't think what you're drilling for has the same economics of buying what you already know at a material discount to what it's worth. Have you guys thought about that? In other words, the million-and-a-half share authorization is nothing. It's 1% of outstanding shares. It's immaterial. Probably not terribly different than your stock options or whatever for a year. But if you're able to buy back a material amount of stock with less than half of NAV or a third of NAV, is that better than stepping up your capex dramatically? Have you thought about that?

Ed Guimaraes -- Chief Financial Officer

Yeah. We are limited to the number of shares we can buy, Lee. And that's just the Canadian guidelines.

Leon Cooperman -- Omega Advisors -- Analyst

That's only -- no, that's normal course issuer bid. There's another way of doing it through a tender offer and tender at a price range you're comfortable with for 5% or more of the company.

Ed Guimaraes -- Chief Financial Officer

That applies in the U.S., not in Canada. We can't do that under the --

Leon Cooperman -- Omega Advisors -- Analyst

You can do it in Canada. Excuse me. You can. There is a -- it's not called normal course issuer bid. It's something that gives you more flexibility, but it's in the form of a tender offer.

Ed Guimaraes -- Chief Financial Officer

Yes. And that's something that would have to be discussed at the board level.

Leon Cooperman -- Omega Advisors -- Analyst

Yeah. I understand. Well, I'm suggesting that you might want to think about the economics of spending $82 million, $83 million, when your stock -- every dollar you're spending is being priced at a significant discount in the market. Do you follow? In other words, you have a 428 NPV, and the stock is trading, in the U.S. terms, I don't know, $1.30, $1.40, $1.50, whatever it is. So, you're a third of NPV, and every dollar you spend is being priced at a discount. So, why not capture that discount by reducing the amount of capex and buying a lot more stock back through a tender offer? Just something to think about. You don't need to give me an answer now.

Ed Guimaraes -- Chief Financial Officer

Yeah. We'll do that, Lee. Thanks, Lee.

Operator

Again, if you'd like to ask a question, *1 on your telephone keypad. Our next question comes from the line of Jim Young from West Family Investment. Your line is open.

James Young -- West Family Investments -- Analyst

Yeah, hi. Thanks for taking my question. A couple of items. First of all, at Yauricocha, have you received a permit yet to enable you to start drilling on the Chonta Fault area?

Gordon Babcock -- Chief Operating Officer

No. We have not received a permit yet.

Igor Gonzáles -- President and Chief Executive Officer

What I would like to add, Jim, is that we have completed all the responses to all the agencies that are involved in that permitting process. And so, now the ball is with the Ministry of Energy and Mines.

James Young -- West Family Investments -- Analyst

Okay. Have they communicated at all what the issue -- are there any issues other than just bureaucratic procedures, or are there other issues that they feel that need to be addressed and followed up with? And then, lastly, when you do receive the permit, how long will it take you to start your drilling program on Chonta Fault?

Igor Gonzáles -- President and Chief Executive Officer

Gordon?

Gordon Babcock -- Chief Operating Officer

I can take that call. I can take that piece. Listen, Lee -- pardon me, Jim. On the basis of all of our permits, all of the prerequisites that the Ministry of Mines have requested, as well as the other entities, like SNAM and SNASI, the environmental side, we've answered all of those questions. And right now, we're waiting for their responses to come back. And we're dealing with the Peruvian bureaucracy in this whole system. So, it -- when we get the permits, we're actually ready to go. We've got two drills on standby ready to drill, two deep rigs. So, as soon as that permit comes into play, we're on -- done nearly in the Kalkaska area. We're moving on that front. The road's access -- the accesses are ready. It's just a matter of getting the permit, and we're ready to go.

James Young -- West Family Investments -- Analyst

Okay, great. Thank you. And then, moving over to the production side, can you help us understand what are your current production levels at the Yauricocha mine today, Bolivar, and Cusi, and where would you expect it to be by the end of the year?

Gordon Babcock -- Chief Operating Officer

Well, in the case of Yauricocha, right now, we're averaging between 3,200 tonnes per day to 3,300 tonnes per day. We do get peaks up to 3,500 tonnes per day. We have a forecast to yearend that was made public in the last discussion that we had when were talking about the strike. In the case of Bolivar, as we speak now, we're averaging 3,600 tonnes per day, and we do see bumps going up to 4,000 tonnes per day. And the focus is to get to 4,000 tonnes per day in the next two quarters for Bolivar.

In the case of Cusi, we've gone from where we were last year to approximately 1,000 tonnes per day, and we do hit 1,100 tonnes per day. There's growing pains in both Bolivar and Cusi. We're in a ramp-up situation in the mine as well as the plant. So, as we move forward and we make improvements, for instance, in Bolivar, the flash cells -- in the case of Cusi, we added a new crusher to the circuit, and we've got some series of improvements to that handling facility in the crushing plant with belts and speed reducers, things like that. So, that's the focus. And yearend, in the case of Cusi, our target is to get to 1,200 tonnes per day.

As soon as the new mill is on its way from Canada, that will be installed, and then will be moving forward to make improvements to the crushing circuit for Cusi, to the Cusi plant, as well as more screening capacity, so we'll be in a good position to take us to the 2,400 tonne per day mark for next year/ That's the focus. And the improvement in grade in the mine as we get into new areas of the mine, and we get grade improvements, our target is to improve those silver ounces we produce.

James Young -- West Family Investments -- Analyst

Okay, great. And Gordon, is -- others have asked about the cost structure at the different mines. Can you give us -- can you help us understand. as you move forward at Yauricocha and continue to deliver at the 3,200, 3,300 tonnes a day before you're able to expand up to 3,600 tonnes, can you give us a sense as to what the all-in sustaining costs will be by the end of the year? And likewise at Bolivar, if you're operating at 3,600 tonnes a day today, but you expecting it be to 4,000 tonnes a day by -- over the next couple of quarters, where would all-in sustaining costs be for Bolivar? And then, lastly, similar question at Cusi.

Gordon Babcock -- Chief Operating Officer

Well, I think the answer to that question is the more -- in the case of Cusi, the more silver ounces produced, you'll see a reduction in the cost per ounce. What I don't follow with many of the comments is that when you're in a ramp-up situation and you're making a capital investment to improve the situation in an asset, a mining asset, the initial capital that goes into the ground, you can't look at that on the basis of a quarter. You have to look at that on the basis of a year or two years of input. We're going into a process where we've taken a mine from 400 tonnes per day and we're moving up to 850 tonnes per day, and we went to 1,000 tonnes per day. And we're gonna bump it up, and we're gonna double that to 2,400 tonnes per day. In order to do that, there's an influx of capital that has to go into preparing the operation for that steady state process. It's the same thing that goes for Bolivar.

Now, in the case of Bolivar, we have a lot more tonnage, a lot larger area. So, your bang for the buck is really well spent in Bolivar. When you do a ramp and you take it down another 10 meters or 20 meters, you're getting more pounds of copper available. I mean, you have to mine that out. So, that's gonna cost you money. It's gonna cost money in the sense of ventilation, preparation, and so on.

In the case of Yauricocha, our focus right now for the next part of year with the forecast, with our losses of time with the strike, we've changed the forecast to encompass more material coming out of our Cuerpos Chicos, enhance our metal production. In our metal production, we're gonna have more metal produced -- more than what we had budgeted. So, that's how we're covering our course of action in Yauricocha.

And the big focus for Yauricocha in the future here is a new pilot plan to improve the steel preparation -- that's the installation of all the steel sets. We're gonna add some new equipment, so we have to do a trial, do a pilot, a project, and put it into a production plan, and see how that fits. That's one area. We plan to run another pilot plan in utilization of a road header to do the development next to the ore zones and take us into the area of the Central Mine zone and Esperanza.

As well, we're on a focus to change the methodology of waste removal in the mine. As was discussed before, we have to remove 0.6 tonnes of waste to every tonne of ore to access our production. Now, what we're planning to do is to run another pilot to keep a percentage of that waste in the mine. If we can do -- if that comes to fruition and it's successful, that means that we can add more tonnes of material going out of the mine to the surface. Now, that means we'll have a stockpile on the surface in the future. Now, will give the plant a lot more flexibility, so we'll be able to tackle things like high-grade copper and things like that that we have in Esperanza. Right now, everything depends on development. So, all these three mines are based on that focus.

So, in this year and the next year, our push is to reduce our all-in sustaining costs. But when you look at the overview, you spend the money now, and the years in the future, you've already spent those dollars. Your steel dollars have been spent, and you're at a more steady state production of operation. It'd be more like our operations in Mexico. That's the target.

James Young -- West Family Investments -- Analyst

Right. And Gordon, I truly appreciate the work that the management team has done and how well you've executed as you are in this ramp-up phase. But the question, though, is -- I'm just trying to get an understanding, as you get to that scale, as production levels increase to the targeted range and you've already spent the capital, what would be all-in sustaining cost? So, for example, Yauricocha, in the March quarter, you reported $0.85 in all-in sustaining cash cost for zinc equivalent pound. Where do you think that $0.85 goes when you get up to that 3,600 tonne per day level that you're expecting to get to by the -- once the issued permits and everything is all squared away?

Gordon Babcock -- Chief Operating Officer

Well, I am optimistic that it's going to reduce. That would be the focus. To give you an exact number, there are other elements in here that are moving targets. So, number one, one of our biggest problems we have in the Yauricocha operation ,as well as the Mexican operations, is all the steel preparation and development. That's a big focus in every operation. So, once that is in place, we have to -- we're in the process now of reviewing all of our human resource requirements for these assets. We want to run the Yauricocha mine with less people, more productivity, and more mechanization. And that's gonna -- there's a timeline there that we have to consider when that happens. And I'm optimistic that when that happens, our cost of labor will slowly come down.

Now ,we do have a union, so we do have the prerequisites of the union, and always looking at salary increases and things like that to consider. But the long-term focus is to change the methodology in the operation, get more tonnage out of the areas that we're mining now, with the same or less people. That's the focus on the steel preparation plan that will allow us to do that.

Igor Gonzáles -- President and Chief Executive Officer

We cannot predict what the cost is going to be, Jim. We can say it's gonna be lower. There's too many variables right now that, as we expand the operations ,that can impact the cost. And it would be irresponsible for us to say it's gonna be this much and then miss the both.

James Young -- West Family Investments -- Analyst

Well, I understand that we can't -- you're not going to be able to give us an exact number. But can you just give us from order of magnitude because, again, at Bolivar, for example, you're at $3.59 per copper equivalent pound in the March quarter. So, again, as you're -- as Gordon said, that if you're now operating at 3,600 tonnes a day, and you're gonna hit the 4,000 tonnes a day by the end of the -- over next couple of quarters, there's got to be some sense of magnitude as to where that number goes where it's helpful for us.

Igor Gonzáles -- President and Chief Executive Officer

Jim, we run forecasts every three months or so. Our next forecast is coming in June, and we'll have some updated numbers for internal use. And maybe at that point, I can give you something very, very general. But it's very difficult, and that's the reason why we run forecasts, because we budget, and then as many things move, like the strike, or costs, or labor, then costs start moving in different directions. So, that's something we've got to bear in mind. But we do forecasts on a regular basis in order to precisely -- to ascertain the impact of the different variables in our costs.

James Young -- West Family Investments -- Analyst

Okay. And then, I guess, the last question would be, Gordon, you were kind enough to give us a sense as to the 43-101 results, that you'd expect to see reserves staying flat, but resources increasing. Can you give us a sense as to how you feel the -- I believe that's at Bolivar -- how things are proceeding at Yauricocha, where you have that 43-101 coming up by the end of June?

Gordon Babcock -- Chief Operating Officer

Yup. In the sense of Yauricocha, Yauricocha will maintain its position in the resource bases. Our resource, we're expecting, will increase. As the resource increases, we have replaced the ore that we mined. So, I'm expecting a similar situation to Bolivar. The work that was done since 2017 to date, we've got a lot of expansion of zones. So, in the case of Yauricocha, it's comfortable to say the Yauricocha is gonna have a similar situation as Bolivar.

James Young -- West Family Investments -- Analyst

Okay, perfect. Thank you very much. And that's all my questions for now.

Gordon Babcock -- Chief Operating Officer

All right. Thanks, Jim.

Operator

We have no further questions in queue. I'll turn the call back to the presenters for closing remarks.

Mike McAllister -- Vice President, Investor Relations

Thank you, Operator. That concludes today's call. On behalf of the management team, I would like to thank all the participants for joining us today. A replay of the webcast and all materials can be found on our website at www.sierrametals.com. If there are any further questions or concerns, you may reach out to us at any time after today's call. Our contact information can be found in today's presentation as well as on the company's website.

Thank you, Operator. Please conclude the call.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

Duration: 52 minutes

Call participants:

Mike McAllister -- Vice President, Investor Relations

Igor Gonzáles -- President and Chief Executive Officer

Gordon Babcock -- Chief Operating Officer

Ed Guimaraes -- Chief Financial Officer

Jacob Sekelsky -- Roth Capital Partners -- Analyst

Heiko Ihle -- H.C. Wainwright -- Analyst

Mark Reichman -- Noble Capital Market -- Analyst

Leon Cooperman -- Omega Advisors -- Analyst

James Young -- West Family Investments -- Analyst

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