Alpayana Announces Intention to Make All-Cash Takeover Bid to Acquire Outstanding Common Shares of Sierra Metals at C$0.85 Per Common Share

Canada NewsWire

TORONTO, Dec. 16, 2024

   -- 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. 
 
   -- 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:

   -- 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 
 
   -- 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:

   -- 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. 
 
   -- 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. 
 
   -- 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. 
 
   -- 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. 
 
          -- 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. 
 
          -- 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. 
 
          -- 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. 
 
          -- 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. 
 
          -- 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. 
 
          -- 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. 
 
   -- 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. 

The Offer will be made as Alpayana believes that acquiring the Common Shares directly from Shareholders is the only course of action available to Alpayana. Alpayana respects the current CEO and Chairman; however, during the past few years, Alpayana has observed certain actions taken by Sierra's leadership and its influence over the operations of Corona, that Alpayana believes did not respect the interest of Corona's public minority shareholders.

In addition, in January 2023, Alpayana submitted a non-binding offer to the then Chair of the Board to participate in a capitalization of Sierra that was not made public. Shortly after the submission of such confidential letter, the share price of Sierra's Common Shares increased substantially and Alpayana determined that it was unable to continue to pursue its offer.

As such, Alpayana believes that making the offer directly to Shareholders is the most effective, transparent and efficient way for Shareholders to receive a compelling offer and to have an opportunity to determine what is best for their investment. In addition, the Offer will provide Shareholders with the ability to realise immediate and certain value for their Common Shares.

(MORE TO FOLLOW) Dow Jones Newswires

December 16, 2024 08:00 ET (13:00 GMT)