- 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.
Full details of the Offer will be provided in a formal offer and
take-over bid circular, letter of transmittal and notice of
guaranteed delivery (collectively, the "Offer Documents") to
be filed with Canadian securities regulatory authorities and mailed
to Shareholders. The Offeror will request a list of security
holders from Sierra and expects to mail the Offer Documents as soon
as practicable after receipt of such list. The Offer will be open
for acceptance for a period of 105 days following formal
commencement, unless the Offer is extended, accelerated or
withdrawn in accordance with its terms.
Sierra has announced that it will hold a special meeting to
approve a consolidation of its Common Shares on the basis of one
new Sierra common share for up to every 20 Common Shares of Sierra.
Alpayana believes that this is a clear sign that Sierra has lost
faith in its ability to increase its share price based on
performance. In addition, many share consolidations have had mixed
results, with the share price often not increasing to a level
equivalent to the consolidation ratio. If Sierra proceeds with the
share consolidation, the consideration per share offered by the
Offeror will be adjusted proportionately to any such share
consolidation.
It is possible that the current Canada Post strike may still be
continuing at the time of the Offeror's mailing of the Offer
Documents. Shareholders that have not consented with their
financial intermediary for electronic delivery may not receive the
material in the mail until after the strike ends. The Offer
Documents will also be accessible under Sierra's profile on SEDAR+.
Shareholders are encouraged to check SEDAR+ and visit
www.sierrametalscashoffer.com, which will be updated as the
offer process proceeds.
The Offer will be conditional upon certain conditions being
satisfied or, where permitted, waived at or prior to the expiry of
the Offer. Such conditions will include, among others to be
described in the formal offer and take-over bid circular:
(i) there having been validly deposited under the Offer and not
withdrawn that number of Common Shares, representing more than 50%
of the outstanding Common Shares, excluding those Common Shares
beneficially owned, or over which control or direction is
exercised, by the Offeror or by any person acting jointly or
in concert with the Offeror, which is a non-waivable condition;
(ii) there having been validly deposited under the Offer and not
withdrawn that number of Common Shares, representing at least 66
2/3% of the outstanding Common Shares (calculated on a fully
diluted basis), excluding those Common Shares beneficially owned,
or over which control or direction is exercised, by
the Offeror or by any person acting jointly or in concert with
the Offeror, which the Offeror may determine to waive in its
absolute discretion;
(iii) the delivery of an unqualified audit opinion by its
auditors, PricewaterhouseCoopers LLP, in connection with
Sierra's consolidated audited financial statements (without
restatements and/or further asset impairments) for and as at the
year ended December 31, 2024;
(iv) the achievement by Sierra of certain financial metrics for
and as at the year ended December 31,
2024;
(v) certain government and regulatory approvals having been
obtained that the Offeror considers necessary or desirable in
connection with the Offer. Alpayana expects to complete the
necessary fillings in Peru and
Mexico within the next few
days;
(vi) Sierra not undertaking certain operational or corporate
changes and the Board not using its broad powers in the case of a
prospective Change of Control; and
(vii) the Offeror having determined, in its sole judgment,
that there does not exist and there shall not have occurred or been
publicly disclosed since the date of the Offer, a material adverse
effect.
The Offer is not subject to any due diligence, financing or
Alpayana or Offeror shareholder approval conditions.
If the statutory minimum is satisfied and the other conditions
to the Offer are satisfied or waived at or prior to the expiry of
the Offer such that the Offeror takes up the Common Shares validly
deposited under the Offer, it will make a public announcement of
the foregoing and extend the period during which Common Shares may
be deposited and tendered to the Offer for a period of not less
than 10 business days after the date of such announcement.
Following completion of the Offer, the Offeror intends (but is
not required) to enter into one or more transactions to enable it
to acquire all Common Shares not acquired under the Offer,
including a compulsory acquisition or subsequent acquisition
transaction. If the Offeror is able to complete such a transaction,
the Offeror intends to seek to delist the Common Shares from the
Toronto Stock Exchange and the Bolsa de Valores de Lima and to cause Sierra to cease to
be a reporting issuer if permitted under applicable law.
Full details of the Offer will be provided in the Offer
Documents to be filed with Canadian securities regulatory
authorities and mailed to Shareholders. This news release is not a
substitute for the Offer Documents. The Offer Documents are not
currently available, but once they are made available, will contain
important information relating to the Offer, the Offeror and Sierra
and should be reviewed carefully.
Shareholders should consult their own tax advisors having regard
to their own particular circumstances to determine the particular
tax consequences to them of a disposition of Common Shares pursuant
to the Offer, a compulsory acquisition or subsequent acquisition
transaction.
Readers are cautioned that the Offeror may determine not to make
or proceed with the Offer and there can be no assurance that the
Offer will be made or that the final terms of the Offer will be as
described in this news release.
This press release does not constitute an offer to buy or the
solicitation of an offer to sell any securities of the Offeror,
Alpayana or Sierra.
ABOUT THE OFFEROR AND ALPAYANA
The Offeror is a Canadian wholly-owned subsidiary of Alpayana
S.A.C. ("Alpayana") and was incorporated for the sole
purpose of making the Offer.
Alpayana is a family-owned private mining company committed to
the development and promotion of sustainable and responsible
mining. It strives to leave a positive and meaningful legacy by
prioritizing the well-being of its employees, the communities it
impacts and the environment. Alpayana has been operating mines in
Peru for over 38 years, has a
successful M&A track record, and experience in developing
projects with a view on intrinsic value. Alpayana successfully
acquired Empresa Minera Los Quenuales (Yauliyacu mine and Iscaycruz
mine) from Glencore in 2022 and Compañía Minera Argentum (Morococha mine) from Pan
American Silver in 2023. Alpayana is currently debt-free and
has annual revenues over US$500
million.
ADVISORS
McCarthy Tétrault LLP is acting as Canadian legal counsel to the
Offeror and Alpayana. Rebaza, Alcázar & De Las Casas is acting
as Peruvian legal counsel and Creel, García-Cuéllar, Aiza y Enriquez, S.C. is acting as Mexican legal
counsel to the Offeror and Alpayana. Shorecrest Group is acting as
the Depositary and Information Agent to the Offeror and
Alpayana in respect of the Offer. LXG Capital is acting as the sole
financial advisor to Alpayana.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This document contains "forward-looking statements" (as
defined under applicable securities
laws). These statements relate to future events or future performance and reflect the Offeror and
Alpayana's expectations, beliefs, plans, estimates, intentions, and
similar statements concerning anticipated future events, results,
circumstances, performance or expectations that are not
historical facts. Forward-looking statements include, but are not limited to, statements regarding:
the Offer, including the anticipated timing of the Offer; reasons
to accept the Offer and expectations that such reasons
continue to be prevailing; risks and
challenges facing Sierra. Such forward-looking statements reflect the Offeror
and Alpayana's current beliefs and are based on
information currently available. In some cases, forward-looking
statements can be identified by terminology such as "may", "will",
"should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential", "continue", "target", "intend", "could" or
the negative of these terms or other comparable
terminology.
By their very nature, forward-looking statements involve
inherent risks and uncertainties, both general and specific, and a
number of factors could cause actual events or results to differ
materially from the results discussed in the forward-looking
statements. In evaluating these statements, readers should
specifically consider various factors that may cause actual results
to differ materially from any forward-looking statement. These
factors include, but are not limited to, market and general
economic conditions (including slowing economic growth, inflation
and rising interest rates) and the dynamic nature of the industry
in which Sierra operates.
Although the forward-looking information contained in this
document is based upon what the Offeror and Alpayana believe are
reasonable assumptions, there can be no assurance that actual
results will be consistent with
these forward-looking statements. The forward-looking
statements contained in this document are made as of the date of
this document and should not be relied upon as representing views
as of any date subsequent to the date of this document. Except as
may be required by applicable law, the Offeror and Alpayana do not
undertake, and specifically disclaim, any obligation to update or
revise any forward-looking information, whether as a result of new
information, further developments or otherwise.
Neither the Offeror, Alpayana nor any of their
subsidiaries, affiliates, associates, officers, partners,
employees, representatives and advisers, make any representation or
warranty, express or implied, as to the fairness, truth, fullness,
accuracy or completeness of the information contained in this
document or otherwise made available, nor as to the reasonableness
of any assumption contained herein, and any liability therefore
(including in respect of direct, indirect, consequential loss or
damage) is expressly disclaimed. Nothing contained herein is, or
shall be relied upon as, a promise or representation, whether as to
the past or the future and no reliance, in whole or in part, should
be placed on the fairness, accuracy, completeness or correctness of
the information contained herein.
SOURCE Alpayana S.A.C.