Sierra Metals Board of Directors Rejects Alpayana's Hostile Bid; Hostile Bid's Inadequate Offer Price Fails to Recognize Sierra Metals' Value and Growth Potential

Board Recommends that Shareholders REJECT the Hostile Bid and TO NOT TENDER THEIR SHARES

All dollar figures are in USD, except share prices noted as "C$" which are in CAD.

TORONTO--(BUSINESS WIRE)--January 14, 2025-- 

Sierra Metals Inc. (TSX: SMT | OTCQX: SMTSF | BVL: SMT) ("Sierra" or the "Company") today announced that its Board of Directors (the "Board"), following careful consideration and receipt of the unanimous recommendation of a special committee of its independent directors (the "Special Committee"), and after consultation with its financial and legal advisors, has recommended that Sierra shareholders reject the unsolicited all-cash take-over bid by an affiliate of Alpayana S.A.C. ("Alpayana"), to acquire all of the issued and outstanding common shares ("Common Shares") of Sierra for C$0.85 per share (the "Hostile Bid").

The Board unanimously recommends that Sierra shareholders REJECT the Hostile Bid and not tender their Common Shares to the Hostile Bid. Shareholders simply need to TAKE NO ACTION in order to REJECT the Hostile Bid.

Miguel Aramburu, Chair of the Board, commented:

"Alpayana is offering to buy your Common Shares at a price that undervalues the Company and is well below where prior transactions of a similar nature have transacted. At a time of growing worldwide demand for copper, Sierra owns two thriving copper-producing mines in proven jurisdictions. The Company has increased production significantly at both of the Yauricocha and Bolivar mines and expects to continue to grow mineral resources and production in 2025. As a result, the Company is positioned to deliver improvements in its operational results and create meaningful shareholder value by a significant expected increase in EBITDA."

Significant Expected EBITDA Increase in 2025

The Company has introduced a projection of approximately US$130 million of EBITDA(1) in 2025, as described in the Director's Circular (as defined herein). This represents significant year-over-year growth in EBITDA from US$72 million in 2024 (expected) and US$50 million in 2023(2) , representing an approximate 80% increase relative to 2024 (expected) EBITDA and an approximate 158% increase relative to 2023 EBITDA. This increase is expected to be driven by increased production at both Yauricocha and Bolivar and careful management of costs. While the Company does not typically provide EBITDA guidance, the Board determined that the information is essential to shareholders in the unique circumstances of the Hostile Bid. The EBITDA projection provides support for the Board's recommendation to reject the Hostile Bid.

Mr. Aramburu continued, "The Board's view is that selling your shares at the low price offered by Alpayana would deprive you of significant upside potential in your investment. One need not look further than the collective view of greater than fifty percent of Sierra's shareholders who have informed the Company that they are aligned with the view of the Board."

Reasons to Reject Alpayana's Inadequate Hostile Bid

The basis for the Board's recommendation that shareholders reject the Hostile Bid is set forth in the Sierra Directors' Circular (the "Directors' Circular"), which was filed today with Canadian securities regulatory authorities, is being mailed to shareholders, and is available on the Company's website and SEDAR+ (www.sedarplus.ca) under the Company's profile. The reasons for the Board's recommendation include, among other things, the following:

   -- 
 The Hostile Bid is dead on arrival. 
 

The Hostile Bid has already been rejected by a majority of shareholders, rendering the bid incapable of completion based on its non-waivable condition.

As announced by the Company on December 26, 2024, shareholders holding cumulatively more than 50% of the outstanding Common Shares have each informed the Company that the proposed C$0.85 per Common Share bid price is inadequate and that they do not intend to support the Hostile Bid. Accordingly, Sierra believes that Alpayana will not be able to satisfy the minimum tender condition to acquire control of the Company.

   -- 
 The Hostile Bid attributes no value to commodity and jurisdiction 
      upside. 
 

The Hostile Bid fails to recognize the strategic value of a copper producing company operating in proven mining jurisdictions.

The price of copper has been increasing due to global demand and tight supply conditions. With new copper supply constrained by the challenges of developing new mines, there has been an increase in valuations of copper-focused equities as well as proposed mergers and acquisitions. Mexico and Peru, where Sierra operates, are both globally established mining jurisdictions hosting some of world's largest producing metals deposits. As one of the Western world's few publicly traded copper producers operating in proven jurisdictions, Sierra is a highly strategic and coveted company in which to hold equity.

   -- 
 Shareholders should continue to capture the growth at Sierra. 
 

Sierra has a high-quality portfolio of assets with significant upside potential.

Sierra's two copper producing assets, the Yauricocha mine in Peru and the Bolivar mine in Mexico, both contain significant near mine, brownfield and greenfield exploration potential that could be leveraged to drive significant long-term value for the Company. At Yauricocha, the Company obtained the permit to mine below level 1120 where 95% of the mine's current mineral reserves sit, allowing the mine to operate at full capacity (currently 3,600 tonnes per day ("tpd")) since Q4 2024. The Company believes there is significant exploration opportunity below level 1120 as the geology appears open in all directions. Sierra is also confident in its exploration efforts at Bolivar and its ability to deliver additional resources to support the Company's plan to increase production capacity from 5,000 tpd to 7,500 tpd in the mid-term.

   -- 
 Sierra's plan to create value is working, Shareholders should keep the 
      upside. 
 

The Hostile Bid is opportunistic and clearly timed to deprive Sierra shareholders of a potential near-term uplift in the share price.

In the two years since current management was appointed, Sierra has successfully stabilized, optimized and improved its operations, resulting in a lower cost structure, increased efficiencies, higher production levels and profitability across the Company. The Board believes there is an opportunity for significant share price appreciation in 2025 based on the projected EBITDA growth. Applying the Company's existing EV / LTM EBITDA(3) multiple of 3.6x to the CIBC Capital Market's 2025 EBITDA estimate of US$130 million would imply an increase of 200% in share price at the end of next year, and an opportunity for further appreciation as Sierra approaches a valuation multiple more closely aligned with industry averages. Alpayana's C$0.85 per Common Share bid is opportunistically timed to deprive shareholders of this potential near-term uplift in the share price and falls short of the value creation the Board expects to see in the near term.

   -- 
 Shareholders should ignore the misleading statements and enjoy the 
      fruits of fiscal prudence. 
 

Contrary to Alpayana's assertion on Sierra's financial position, the Company has a manageable debt load and is well positioned to de-lever in the near-term.

Sierra's current debt financing has served its purpose by providing the Company with the time and financial flexibility it required to turn around its operations when management took over just two years ago. Management took actions to improve the debt profile in 2024 through a new credit agreement with enhanced financing terms that also provided US$20 million of capital deployed towards operational improvements at Yauricocha. The Company is now positioned to generate meaningful free cash flow in 2025. The Company's anticipated net debt / 2025E EBITDA ratio(4) of 0.6x is already below the industry median of 0.8x(5) . In 2025 it is anticipated that free cash flow (operating cash flow less capital expenditures) will exceed net debt, providing Sierra with the cash it will need to quickly re-pay debt should it so choose. Sierra continues to believe that it has used leverage constructively to enhance the returns of shareholders and will aim to continue effectively deploying leverage to amplify returns for shareholders in the future. In addition, given the Company's improved financial performance, the Company intends to pursue opportunities to refinance its debt on more favorable terms in the near future.

   -- 
 Alpayana has not made a serious offer to Sierra shareholders. 
 

The Hostile Bid is significantly below implied premiums of precedent transactions.

The Board believes that any change of control transaction should compensate Sierra's shareholders for the loss of exposure to the future earnings potential of its asset base, while also reflecting the relative undervaluation of the Sierra share price prior to the Hostile Bid announcement. The Hostile Bid price of C$0.85 per Common Share would represent one of the lowest 1-day and 30-day volume-weighted average price premiums in the comparable universe of successful copper-focused corporate transactions since 2011. Furthermore, the price of the Common Shares has been negatively affected by persistent selling by funds controlled by Arias Resource Capital ("Arias"), a significant shareholder that had its principal voted off the Board and subsequently lost a proxy battle in 2023. Over the past year, sales of Common Shares by Arias represent on average, 15% of total Canadian trading volume. The overhang created by the selling pressure renders the unaffected share price of C$0.77 not reflective of an appropriate basis to which a take-over premium should be referenced.

   -- 
 Sierra should not be sold at markdown prices while it continues to 

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January 14, 2025 08:00 ET (13:00 GMT)