Sierra Metals Shareholders Reject Alpayana's Bid: A Closer Look at the Reasons Behind the Decision

Ever since Alpayana SAC announced its intention to acquire Sierra Metals Inc. (TSX: SMT) in an unsolicited all-cash take-over bid, a big question has loomed over the potential $180 million deal: Is the proposed bid price of C$0.85 per share adequate? The answer, according to a majority of Sierra Metals' shareholders, is a resounding no. Here's a closer look at the reasons behind their decision to reject the offer.

Sierra Metals' shareholders have expressed their view that the proposed bid price is inadequate, as it significantly undervalues the company. This perception can be attributed to several factors, including the relatively low premium offered compared to recent takeover bids in the mining sector and the significant undervaluation of Sierra Metals' assets and future growth potential.

Firstly, the bid price represents a 10.4% premium over Sierra Metals' closing price of C$0.77 on December 16, 2024, and a 26% premium over the company's 30-day volume-weighted average price of C$0.68. While this may seem attractive at first glance, it is essential to consider the context of recent takeover bids in the mining sector.

For instance, in 2021, Lundin Mining Corporation (TSX: LUN) acquired Nevsun Resources Ltd. (TSX: NSU) for C$1.4 billion, or C$4.75 per share, representing a 65% premium over Nevsun's closing price on the day before the announcement. Similarly, in 2020, Newmont Corporation (NYSE: NEM) acquired Goldcorp Inc. (TSX: G) for US$10 billion, or US$11.90 per share, representing a 17% premium over Goldcorp's closing price on the day before the announcement.

In comparison, Alpayana's bid for Sierra Metals appears to be significantly lower, both in terms of the premium offered and the overall valuation of the company. This low bid price may be seen as an opportunistic attempt to acquire Sierra Metals at a discounted rate, given the company's recent financial struggles and the perceived undervaluation of its assets.

Secondly, Sierra Metals' shareholders may view the bid as inadequate due to the company's significant growth potential and the substantial progress made over the past two years. The company operates two copper mines, Yauricocha in Peru and Bolivar in Mexico, which are projected to produce between 44,600-48,500 lb. of copper in 2025 at all-in sustaining costs ranging from $2.91 to $3.62 per pound. Additionally, Sierra Metals has recently had several new key discoveries and still has many more exciting brownfield exploration opportunities in Peru and Mexico that are within close proximity to the existing mines.

Furthermore, Sierra Metals has large land packages at each of its mines with several prospective regional targets providing longer-term exploration upside and mineral resource growth potential. These factors contribute to the perception that the proposed bid price significantly undervalues the company and does not reflect its true potential.

In conclusion, the proposed bid price of C$0.85 per share by Alpayana SAC for Sierra Metals Inc. is perceived as inadequate by a majority of the company's shareholders due to the relatively low premium offered compared to recent takeover bids in the mining sector and the significant undervaluation of Sierra Metals' assets and future growth potential. The company's shareholders have expressed their view that the proposed bid price is inadequate and have committed not to tender their shares in the event that Alpayana formalizes its proposed unsolicited all-cash take-over bid.