Arias expresses concern for the Board of Sierra's apparent
lack of urgency in solving Sierra's financial challenges
TORONTO, Nov. 11,
2022 /CNW/ - Compañia Minera
Kolpa ("Kolpa"), in conjunction with Arias Resource
Capital and its affiliates ("Arias", and together with
Kolpa, "we" or "us"), which are the largest
shareholder of Sierra Metals Inc. ("Sierra") (TSX: SMT)
(NYSE American: SMTS) (BVL or Bolsa de Valores de Lima: SMT),
today announced the delivery of a new letter to the Board of
Directors of Sierra (the "Board") highlighting certain key
terms of the proposed business combination between Sierra and
Kolpa, with a concurrent financing aimed at solving the financial
and liquidity concerns at Sierra, following their submission of a
letter of intent to the Board on October 27,
2022.
"We believe that our letter of intent presents substantially
advantageous terms to Sierra and a compelling opportunity to
preserve and generate value for all shareholders during this
manifestly difficult period for both the Company's business and its
stakeholders", said Alberto Arias,
founder and portfolio manager of Arias Resource Capital Management
LP and previous Chairman of the Board of Directors of Sierra. "We
are concerned that Sierra has not permitted any relevant progress
on the proposed transaction that we presented 14 days ago,
especially given the October 18, 2022
press release of Sierra which stated that the Company was facing
liquidity challenges such that its ability to continue operating
may be impacted. The Board has not given us the necessary access to
start our due diligence, highlighting a lack of urgency. We are
eager to work with the Company to resolve the issues that Sierra
has publicly disclosed that it is facing in Peru and Mexico, and more broadly."
On November 11, 2022, Kolpa, in
conjunction with Arias, sent a letter to the Board, reiterating
certain of the key terms of our proposal, with the goal of moving
rapidly to the negotiation and closing of a transaction in order to
efficiently solve the financial and liquidity crises at Sierra. The
full text of such letter is set forth below, made public for the
benefit of all Sierra's stakeholders:
****************************************
November 11, 2022
Board of Directors
Sierra Metals Inc.
161 Bay Street
Suite 4260
Toronto, Ontario M5J 2S1
Canada
Attention: Oscar Cabrera,
Chair of the Board
Re: Letter of Intent, Dated
October 27,
2022
Dear Mr. Cabrera:
As you know, Compañía Minera Kolpa
S.A. ("Kolpa"), with the support of its shareholders
and its financing partner, presented a letter of intent, dated
October 27, 2022 (the "LOI"),
to the Board of Directors (the "Board") of Sierra Metals
Inc. ("Sierra" or the "Company"). As you are also
aware, Arias Resource Capital and its affiliates (together,
"Arias," and together with Kolpa, "we" or
"us") beneficially own 43,742,624 common shares, no par
value (the "Common Shares"), of Sierra, representing an
approximately 27% ownership interest and making Arias the largest
shareholder of the
Company.
We appreciated the opportunity to speak with you, as well as with
Ed Guimaraes, the Company's CFO, and
a representative of your Company's financial advisor recently
regarding a potential business combination between Sierra and Kolpa
and a concurrent fully funded US$30
million financing, as set forth in the LOI. However,
we are extremely disappointed and concerned by the Company's
refusal to immediately engage with us and by the rejection of our
request to begin performing due diligence in support of the
transactions proposed in the LOI.
We believe
that the LOI presents substantially advantageous terms to Sierra
and that the contemplated transactions represent a compelling
opportunity to preserve and generate value for all shareholders
during this manifestly difficult period for both the Company's
business and its stakeholders. From our vantage point, the
terms presented in the LOI are far superior to what Sierra can
reasonably expect to obtain in the market. As we outlined in
the LOI and reiterate here, we offer:
- An operational merger of the Kolpa assets, in which common
shares of Kolpa would be exchanged for common shares of Sierra.
Given the proximity and similarity to Sierra's Yauricocha Mine in
Peru, we estimate there to be
significant operating and administrative synergies between the two
operations that will reduce overall costs at each mine. In
addition, we expect the experience and knowledge of key executives
and operators at Kolpa, many of whom previously worked at Sierra,
to contribute significantly to the turnaround of the Yauricocha and
Bolivar mines.
- Indicative consideration for Sierra shares of C$0.33 per share, which represents a 27% premium
to the closing market price as of Nov. 10,
2022.
- Concurrent US$30 million
financing by an unaffiliated strategic investment firm in the form
of the purchase of unsecured convertible debentures (the
"Convertible Debentures"), with a 5-year term and 5% interest rate,
a rate lower than Sierra's current senior secured credit
facility.
- Additional financing may be provided, subject to a full
understanding of Sierra's liquidity needs.
- Expedited due diligence process, given our historical knowledge
of the Company and familiarity with its business, leadership, and
stakeholders.
With a
financing package in place together with a transformational
corporate reorganization that will add a new cash-flowing,
synergistic asset, we expect that Sierra's current financial
hardship could be resolved and an operational turnaround
achieved.
In light of
the attractiveness of our proposal to Sierra and its stakeholders
and the Company's October 18, 2022
press release underscoring the uncertainty of Sierra's financial
wellbeing, we are deeply troubled by the demonstrable lack of
urgency on the part of the Board, the Special Committee of the
Board (the "Special Committee"), and their advisors. As of
this letter, we have not been permitted to advance in any relevant
way on the proposed transactions. We are, frankly, alarmed by the
message received from Sierra's representatives and advisors that we
may not be able to commence due diligence for a "few weeks", which
would represent one month from the date of our LOI and six weeks
from your October 18, 2022 press
release. This is concerning because the Sierra press release
advised that "the Company faces liquidity challenges" and that
"absent additional support and increased funding, the Company's
ability to continue operations in the ordinary course may be
impacted." Engaging with us so that we can perform our due
diligence as quickly as possible has the benefit of creating
alternatives for Sierra's shareholders, especially in view of the
Special Committee's publicly-announced process to evaluate and
consider the Company's current financial and liquidity position,
operational challenges, and possible financing paths.
We are
available to meet at any time to answer questions of the Special
Committee or the Board, management, and their advisors, so that you
are in a position to validate the attractiveness of the proposal
that we, along with our partners, have put before
you.
It continues
to be our strong preference to work together with the Special
Committee to reach a mutually agreeable transaction in an
expeditious manner.
We look
forward to working with the Board, the Special Committee, and their
advisors as soon as possible to complete the critical transactions
detailed in the LOI and avoid further, and potentially irreparable,
destruction of shareholder value.
Sincerely,
COMPAÑIA MINERA
KOLPA S.A.
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ARIAS RESOURCE
CAPITAL MANAGEMENT
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LP., as investment
manager to its funds, ARIAS
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RESOURCE
CAPITAL FUND II L.P. and ARIAS
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(signed) "Alberto
Pescetto"
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RESOURCE
CAPITAL FUND II (MEXICO) L.P
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By: Alberto
Pescetto
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Director
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(signed) "Ernesto
Raffo"
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(signed) "J. Alberto
Arias"
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By: Ernesto
Raffo
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By: J. Alberto
Arias
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Director
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Director
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****************************************
About Arias Resource
Capital
Arias Resource Capital ("ARC"), founded in 2007, is a
Miami-based private equity firm
that invests in the metals and mining sector.
About Kolpa
Kolpa is a cash-flowing, mining company which operates the
Huachocolpa Uno mine, a 1,800 tpd+ capacity, high quality
underground polymetallic asset in the prolific Huachocolpa region
in Peru with a history of
continuous operations since 1948 and that is currently going under
a fully funded expansion to 2,500 tpd. Kolpa generates
approximately a third of its revenue from copper and silver and two
thirds from lead and zinc.
Important Information
This communication does not constitute a proxy statement or
solicitation of a proxy, an offer to buy or solicitation of an
offer to sell any securities. This communication relates to a
proposal that ARC and Kolpa have made to Sierra in respect of the
proposed business combination between Sierra and Kolpa, with a
concurrent financing at Sierra (the "Transactions"). In furtherance
thereof and subject to future developments, Sierra may file
documents with the Securities and Exchange Commission (the "SEC").
This communication is not a substitute for any document that Sierra
may file with the SEC in connection with the Transactions.
Investors and security holders of Sierra are urged to read any
documents filed with the SEC carefully in their entirety if and
when they become available, as they will contain important
information about the Transactions.
Forward-Looking
Statements
This press release contains forward-looking information within
the meaning of Canadian and United
States securities legislation. Forward-looking statements
are statements that are not historical facts and may include
projections and estimates and their underlying assumptions,
statements regarding plans, objectives, intentions and expectations
with respect to future financial results, events, operations,
services, product development and potential, and statements
regarding future performance. Forward-looking statements are
generally identified by the words "expects", "anticipates",
"believes", "intends", "estimates", "plans", "will be" and similar
expressions. These forward-looking statements include, without
limitation, statements regarding the Transactions. Although
ARC and Kolpa believe that the expectations reflected in such
forward-looking statements are reasonable, investors are cautioned
that forward-looking information and statements are subject to
various risks and uncertainties, many of which are difficult to
predict and generally beyond the control of Sierra, ARC, and Kolpa,
that could cause actual results and developments to differ
materially from those expressed in, or implied or projected by, the
forward-looking information and statements, including, without
limitation, the risks described under the heading "Risk Factors" in
Sierra's annual information form dated March
16, 2022 for its fiscal year ended December 31, 2021 and other risks identified in
Sierra's filings with Canadian securities regulators and the SEC,
which filings are available at www.sedar.com and www.sec.gov,
respectively. The forward-looking statements speak only as of the
date hereof and, other than as required by applicable law, ARC and
Kolpa do not undertake any obligation to update or revise any
forward-looking information or statements.
SOURCE Compañia Minera Kolpa