Sierra Metals shares jump on takeover offer from Peruvian firm

Alpayana SAC, a private Peruvian mining company, said Friday it would bypass Sierra Metals‘ (TSX: SMT) board and make a direct, all-cash offer of 85¢ per share to shareholders.

The about US$180 million bid, rejected earlier by Sierra’s board, values the Canadian miner at a 10% premium to its closing price of 77¢ last Friday. It is 26% above its 30-day volume-weighted average price of 68¢.

By Monday afternoon, Sierra’s shares had risen 9.1% to 84¢ on the TSX, pushing its market capitalization to $175.1 million. Over the past year, Sierra’s stock has ranged between 61¢-$1.05.

In a press release Monday, Alpayana, with over US$500 million in annual revenue, called its offer “attractive.” It said it provides liquidity to Sierra’s shareholders. “Sierra shareholders deserve the opportunity to decide what is best for their investment,” the company said.

Alpayana criticized Sierra’s financial health, citing US$153 million in net losses since 2013 and gross debt of US$120.2 million as of September 30. It argued that these liabilities and a working capital deficit impair Sierra’s ability to pay dividends.

Alpayana also accused Sierra’s management of delaying past takeover attempts. This included a failure to disclose a January 2023 non-binding offer. That bid briefly boosted Sierra’s share price, making an acquisition more expensive. The Peruvian miner cited Sierra’s proposed one-for-twenty share consolidation, announced last week, as a threat to shareholder value. Sierra claims it would attract new investors.

Sierra Metals operates two copper mines: Yauricocha in Peru and Bolivar in Mexico. Together, the mines are projected to produce between 44,600-48,500 lb. of copper in 2025 at all-in sustaining costs ranging from US$2.91 to US$3.62 per pound.

Alpayana has expanded aggressively in Peru by acquiring distressed assets. Recent purchases include the Yauliyacu and Iscaycruz mines from Glencore (LSE: GLEN), and the Morococha mine from Pan American Silver (TSX: PAAS; NYSE: PAAS). The company, which has no debt, aims to add Sierra Metals to its portfolio.

Sierra Metals did not respond to requests for comment.