Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund
II (Mexico) L.P. (the “Nominating Shareholders”), together with
other affiliates of Arias Resource Capital and its principal
(together with the Nominating Shareholders, “ARC”) holding
approximately 27% of the outstanding shares of Sierra Metals Inc.
(“Sierra” or the “Company”) (TSX: SMT), announces the filing and
mailing of its dissident proxy circular (the “Circular”) in advance
of the Company’s annual meeting of shareholders scheduled to be
held on at 2:00 p.m. (Eastern time) on June 28, 2023 (the
“Meeting”).
ARC is soliciting proxies for the election of five highly
qualified and competent nominees – J. Alberto Arias, Derek White,
Daniel Tellechea, Ricardo Arrarte, and Alonso Checa (collectively,
the “ARC Nominees”) – to the Company’s Board of Directors (the
“Board”). ARC is Sierra’s largest shareholder holding approximately
27% of the outstanding shares in the Company and has been a
committed long-term investor since 2008. ARC understands Sierra’s
assets and its long-term potential as well as the importance of a
refreshed Board to urgently turnaround the Company.
ARC nominees intend to act swiftly to resolve Sierra’s mounting
losses, share price collapse and financial liquidity challenges,
and to restore the Company to its previous track record of
excellence and value creation prior to mid-2021.
TIME TO SIGNIFICANTLY RECONSTITUTE THE
BOARD
The current Sierra Board owns less than 1% of
the Company’s outstanding shares and is not motivated to protect
shareholder investments. It is responsible for the destruction of
over 91% shareholder value in the two years since ARC
representatives left the Board in mid-2021.
Under the current Board, the Company’s share price has been in a
freefall. Sierra’s recent public announcements have made it clear
that the Company’s operational and financial problems persist. The
incumbent Board has an inadequate plan to turnaround the Company
and to restore shareholder value while choosing to shift blame on
others for their poor performance.
ARC NOMINEES ARE THE RIGHT CHOICE
ARC believes that shareholders should reconstitute the Sierra
Board by electing the ARC Nominees, who have the right mix of
skills and prior experience in turning around the Company. When ARC
representatives previously served on the Board, Sierra shareholders
saw returns of 93.12% in 2020 and 188.33% cumulative (9.64%
annualized) from 2010 until mid-2021. The Company’s market cap grew
to more than US$600 million in Q2 2021 when ARC representatives
were on the Board compared to the current market cap of below US$50
million.
The ARC Nominees have in-country experience in the mining and
metals industry in Peru and Mexico, expertise in geological, mining
and metallurgical engineering, experience in permitting and
community engagement, and expertise in mining finance and M&A
transactions in the metals sector. ARC believes that there is no
better group of people to restore Sierra to its prior levels of
profitability, as we have achieved previously.
Details of ARC’s five-point plan, its five nominees, its case
for change, its information circular and previous press releases
related to this matter, are available on
www.ProtectYourSierraInvestment.com.
SIERRA’S REFINANCING UNDERCUTS SHAREHOLDERS IN FAVOUR OF
MANAGEMENT
Sierra recently announced that it has agreed to covenants in a
material credit facility that effectively entrench management for
the foreseeable future. This blatant entrenchment tactic during the
pendency of ARC’s proxy solicitation campaign has undercut the
ability of shareholders and future directors to make managerial
decisions.
BOARD REJECTED AN OFFER IN EXCESS OF US$400 MILLION;
ATTEMPTED TO KEEP THIS INFORMATION FROM SHAREHOLDERS
All shareholders should be very aware that an offer for more
than eight times the current market value of Sierra was rejected by
the Board in Fall 2021, being subsequent to ARC representatives
leaving the Board. In its May 12, 2023 press release, Sierra told
shareholders “[t]he strategic review concluded in October 2021
without having identified a buyer for the Company or other
strategic alternatives.”
After being publicly called out by ARC, the Company later
admitted in its May 18, 2023 press release that “[Sierra] did enter
into negotiations with another party which offered a cash and share
deal with no premium to the market price of Sierra’s shares at the
time of the bid. [Sierra] further negotiated with the proposed
buyer, resulting in a revised cash and share offer with a small
premium to the then market price" and that “it did not accept [such
offer].”
Accordingly, given that the Company’s market capitalization in
October 2021 was approximately US$400 million, there appears to
have been an offer valued at hundreds of millions of dollars that
the Board rejected. A Board that has failed twice in two different
strategic processes, rejecting valuable offers to shareholders,
should not be allowed to continue its mandate.
RECENT Q1 2023 FINANCIAL RESULTS TELL A DAMNING TALE,
NOTWITHSTANDING EFFORTS TO OBSURE THE TRUTH
Sierra says its Q1 2023 performance has “improved significantly”
by comparing its latest numbers with the worst period in the
Company’s recent history - a transparent tactic that ignores the
long-term value created by ARC during its leadership of the
Company. Here are the facts:
- Cash and cash equivalent balance
have been reduced to $3.9 million compared to US$74.33 million on
March 31, 2021, when ARC representatives were on the Board.
- Q1 2023 EBITDA is still 40% below Q1
2021 EBITDA – the last full quarter when ARC representatives were
still on the Board.
- Sierra has negative working capital
of $83.0 million, with current liabilities having ballooned to
$157.3 million.
- The Company had to take out a bridge
loan of $6.3 million to meet its first quarterly principal
repayment in 2023.
- Net income has risen by a paltry
US$9,000 over Q1 2022 and remains 43% below the Q1 2021 net income,
the last full quarter when ARC representatives were on the
Board.
- Operationally, consolidated
throughput is still well below the Company’s installed capacity,
while costs continue to be high by historical standards.
- All mines except Bolivar are
accumulating losses.
SIERRA MAY BE TRADING DILUTIVE FINANCING ARRANGEMENTS
FOR VOTES
Shareholders should be very concerned that, if re-elected, the
incumbent Board may provide a minority group of friendly
shareholders that vote in favour of them with the opportunity to
acquire Sierra shares at prices that are not reflective of Sierra’s
market value, while substantially diluting all other shareholders.
Why does ARC suspect these arrangements and why should shareholders
be concerned? Because Sierra effectively disclosed this quid pro
quo arrangement when it said:
“[Sierra] received unsolicited communications from shareholders
who collectively hold 24,728,870 Shares (approximately 15% of the
outstanding Shares) advising [Sierra] that they intend to support
the nominees of [Sierra] … certain of these shareholders have
indicated that they are willing to provide further financial support
to Sierra Metals.”1
Any such agreement, arrangement or understanding to this effect
is unconscionable in the current circumstances and, if these
arrangements exist, they should be publicly disclosed immediately
by Sierra.
TIME IS RUNNING OUT. VOTE TODAY.
The YELLOW proxy must be received prior to 5:00 p.m.
(Toronto time) on Friday, June 23, 2023 to make your vote count.
Don’t Wait, Vote Right Away.
Shareholders can call or text Kingsdale Advisors on
1.888.370.3955 (toll free in North America), email
contactus@kingsdaleadvisors.com, or chat with an advisor on
www.ProtectYourSierraInvestment.com for more information.
ADVISORS
ARC has retained Kingsdale Advisors as its strategic
shareholder, communications and proxy advisor and Stikeman Elliott
LLP as its legal advisor.
ABOUT ARC
Arias Resource Capital, founded in 2007, is a Miami-based
private equity firm in the metals sector that invests in critical
materials empowering the clean energy revolution.
CAUTIONARY NOTES AND FORWARD-LOOKING
STATEMENTS
This news release contains forward-looking information within
the meaning of applicable securities laws (“forward-looking
statements”) and are prospective in nature. These forward-looking
statements are not based on historical facts, but rather on current
expectations and may include projections about future events 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”, “may”, “should”, “could”, “believes”,
“potential” or “continue” and similar expressions, or the negative
thereof. Forward-looking statements in this news release include,
without limitation, statements regarding the potential benefits,
contributions and development of the ARC Nominees and the expected
impact and results of Sierra’s corporate governance practices, and
Sierra’s intentions regarding dilutive financings. There are
numerous risks and uncertainties that could cause actual results
and ARC’s plans and objectives to differ materially from those
expressed in, or implied or projected by, the forward-looking
information and statements in this news release, including, without
limitation, the risks described under the headings such as
“Cautionary Statement – Forward Looking Information” and “Risk
Factors” in Sierra’s annual information form dated March 28, 2023
for its fiscal year ended December 31, 2022, and other risks
identified in Sierra’s filings with Canadian securities regulatory
authorities which are available under Sierra’s profile on SEDAR at
www.sedar.com. The forward-looking statements speak only as of the
date hereof and, other than as required by applicable law, ARC
undertakes no duty or obligation to update or revise any
forward-looking information or statements contained in this news
release as a result of new information, future events, changes in
expectation or otherwise.
ADDITIONAL INFORMATION
In connection with the Nominating Shareholders’ solicitation of
proxies in respect of the Meeting, the Nominating Shareholders have
filed and mailed the Circular and the YELLOW form of proxy to
Sierra shareholders.
Any solicitation made by ARC will be made by it and not by or on
behalf of the management of Sierra. All costs incurred for any
solicitation will be borne by ARC, provided that, subject to
applicable law, ARC may seek reimbursement from Sierra of ARC’s
out-of-pocket expenses, including proxy solicitation expenses and
legal fees, incurred in connection with any successful result at a
meeting of Sierra shareholders. Proxies may be solicited by ARC
pursuant to the Circular. Solicitations may be made by or on behalf
of ARC by mail, telephone, fax, email or other electronic means as
well as by newspaper or other media advertising, and in person by
directors, officers and employees of ARC, who will not be
specifically remunerated therefor. ARC may also solicit proxies in
reliance upon the public broadcast exemption to the solicitation
requirements under applicable Canadian corporate and securities
laws, including through press releases, speeches or publications,
and by any other manner permitted under applicable Canadian laws.
ARC may engage the services of one or more agents and authorize
other persons to assist in soliciting proxies on its behalf, which
agents would receive customary fees for such services. In
particular, ARC has engaged Kingsdale Advisors (“Kingsdale”) to act
as ARC’s shareholder and communications advisor and to act as its
strategic shareholder advisor and proxy solicitation agent to
solicit proxies in the United States and Canada. Pursuant to this
engagement, Kingsdale will receive an initial fee of C$150,000,
plus a customary fee for each call to and from shareholders.
Proxies may be revoked by instrument in writing by a shareholder
giving the proxy or by its duly authorized officer or attorney, or
in any other manner permitted by law and the articles or by-laws of
Sierra. None of ARC nor, to its knowledge, any of its associates or
affiliates, has any material interest, direct or indirect: (i) in
any transaction since the beginning of Sierra’s most recently
completed financial year or in any proposed transaction that has
materially affected or would materially affect Sierra or any of its
subsidiaries; or (ii) by way of beneficial ownership of securities
or otherwise, in any matter proposed to be acted on by Sierra at
the Meeting, other than the election of directors to the board of
Sierra or as disclosed in accordance with applicable law.
See the Circular for further information regarding the
Nominating Shareholders, ARC and the ARC Nominees. A copy is
available under Sierra’s profile on SEDAR at www.sedar.com.
Sierra trades on the Toronto Stock Exchange under the symbol
“SMT”. Sierra’s head office is located at 77 King Street West,
Suite 400, Toronto, Ontario M5K 0A1.
CONTACT
Aquin GeorgeDirector, Special SituationsKingsdale
Advisors647-265-4528 ageorge@kingsdaleadvisors.com
1 Page 4 of the Cover Letter to Sierra’s Management Information
Circular dated May 29, 2023.
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/8c218e78-b95a-470d-81b7-61370668d4b1
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