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Sierra Metals Inc. (SMTS) Q2 2019 Earnings Call Transcript

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SMTS earnings call for the period ending June 30, 2019.

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Sierra Metals Inc. (SMTS -5.28%)
Q2 2019 Earnings Call
Aug 15, 2019, 10:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sierra Metals Q2 2019 consolidated financial results conference call. [Operator instructions] Thank you.

Mike McAllister, VP investor relations, you may begin your conference.

Mike McAllister -- Vice President of Investor Relations

Thank you, operator, and good morning, everyone. Welcome to Sierra Metals Q2 2019 results conference call. On today's call, we are joined by Igor Gonzales, our president and CEO; Ed Guimaraes, our CFO; and Gordon Babcock, our COO. Today's call will be followed by a question-and-answer period.

Today's accompanying presentation is available for download both through the webcast and from the company's website at Yesterday's press release, the financial statements and the management discussion and analysis document are also posted on the company's website. Before I turn the call over to Igor, I would like to indicate that this earnings call contains forward-looking information that is based on the company's current expectations, estimates, and beliefs. This forward-looking information is subject to a number of risks, uncertainties and other factors.

Actual results could differ materially from our conclusions, forecasts or projections as results -- as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the company's annual information form, which is publicly available on SEDAR or EDGAR by a Form 40-F on the company's -- or on the company's website. Please note that all dollars amounts mentioned on today's call are in U.S. dollars unless otherwise noted.

With that, I would now like to turn the call over to Igor Gonzales, our president and CEO. Please go ahead, Igor.

Igor Gonzales -- President and Chief Executive Officer

Thanks, Mike, and good morning, everyone. I will begin the call on Slide No. 4 with some highlights from our consolidated results for the second quarter of 2019. After that we will open the call for questions, where myself, Gordon and Ed will be happy to answer questions.

Turning now to the highlights. The second quarter continues to build on the first and the company realized the solid quarter production. We continue to overcome the challenges we have encountered to this date, including lower metal prices and illegal strike at Yauricocha and a slower-than-expected ramp up of throughput at the Bolivar and Cusi Mine. Despite these challenges, the company realized record consolidated quarter throughput during the second quarter, with lateral throughput at both the Bolivar and Cusi mines, which contributed to strong cash flows in order to reduce debt levels, fund capital expenditures and maintain liquidity.

Furthermore, we continue to realize good returns on capital invested in our growth projects. Revenues from metals payable in Q2 2019 were $50.7 million, with $12.8 million of operating cash flows before movement in working capital on consolidated throughput of 652,490 tonnes and metal production of 4.7 million silver equivalent ounces or 25.2 million copper equivalent pounds or 57.6 million zinc equivalent pounds. Looking to Slide No. 5, you can see that on a consolidated basis, we still had a relatively solid quarter of operating performance with a 10% increase in the total tonnes processed, as well as increases to the production of all metals except zinc.

Despite the challenges we continue to face in the second quarter with steel, so increases in zinc, copper and silver equivalent pounds and ounces produced. Turning now to Slide No. 6 and taking a closer look at each mine now. Yauricocha, so throughput reduction -- throughput reduced by 10% in Q2 2019 versus Q2 2018 as a result of an illegal strike, which took place at the mine.

I'm happy to report that the strike was resolved on April 12, but resulted in 12 days of lost production during the second quarter. However, we continue to make up production tonnage and management expects that the company will still be within the annual production guidance provided. Higher head grades and recoveries for all metals except zinc resulted in a 4% decrease in zinc equivalent pounds produced during Q2 2019 compared to Q2 2018. However, the mine sustain its exceptional performance into July and the remainder of the year continue to look very promising despite the significant decline in base metal prices.

Cash costs of $0.5 per zinc equivalent payable were lower at the Yauricocha this quarter over the same period in 2018, that there was a slight increase in the all-in sustaining cost to $0.86 per zinc equivalent payable pound during Q2 2019 as compared to Q2 2018. This increase was primarily due to the increase in treatment and refining charges related to the zinc concentrate produce, as well as higher general and administrative cost due to higher labor costs. Despite the strike, Yauricocha continues to be a solid performer for the company. Having now receive a permit, we are currently working on completing the construction of the tailings dam expansion and continue with the Yauricocha sharp deepening with loading us bill buckets being added this year.

Work will also commence on the round connecting the 920 level with the 720 level of the Yauricocha Mine providing for an additional 10,000 tonnes per month of increased capacity to move ore from -- waste from the mine. These projects will enable us to reach the 3,600 tonnes per day level at Yauricocha in 2020. Additionally, recently received permits will allow us to drill new, high-value targets such as Doña Leona and Kilcaska from the surface. And the drills are currently turning, and we look forward for the first results in the coming months.

On July 30, we press released that management team has revised the release date for the Yauricocha NI 43-101 Reserve and Resource Update to Q4 2019 in order to allow the company to include the results from additional drilling currently taking place at key high-priority targets, as well as improve the quality of our resource and reserve at Yauricocha property. We are confident that we have the right team in place to manage these projects and the planning needed to see this project and exploration programs move ahead of time. Turning now to Slide No. 7.

At Bolivar in Q2 2019 compared to Q2 2018, we saw a 20% reduction in copper head grades offset by higher gold and silver head grades. However, we have experienced improved copper and silver recoveries and have record quarterly throughput, which will add to a 19% increase in copper equivalent pounds produced. Cash cost and all-in sustaining cost decreased from Q1 2019 that were higher in Q2 2019 versus the same period in 2018 at a cash cost of $1.51 per copper equivalent payroll pound and all-in sustaining costs were also higher at $2.55 per copper equivalent payable pound. This is attributable to higher labor and contractor costs related to stope and ramp development, additional equivalent purchases, mine development costs, exploration drilling, and plant improvement.

Bolivar did reach an average throughput of 3,700 tonnes per day and it's expected to reach 4,000 tonnes per day in Q3 and increase to 4,250 per day in the fourth quarter this year, with continued development and infrastructure improvements. Additionally, copper head grades are expected to improve during the second half as more ore is resourced from the Bolivar West zone. Finally, we continue working toward an expected to release an updated NI 43-101 report for the Bolivar Mine at the end of Q4 2019. Turning now to Slide 8.

During Q2, Cusi again had a record quarterly throughput and realized an increase of 76% as compared to Q2 2018, increasing to 938 tonnes per day level as the company continue to work toward the 1,200 per tonne -- 1,200 tonne per day level. The increase in throughput resulted in a 41% increase in silver equivalent ounces produced. Despite the lower head grades and recovers realized for all metals. The increase to 1,200 tonne per day have been slow and expected due to poor contractor performance, equipment availability issues, delays in development and stope preparations and issues with subsidence.

We're actively working on these issues and we are changing to mining contractors who can provide their own equipment and significantly increase development to a level of 90 meters per month. We are also focusing on the 1704 and 1720 levels of the Santa Rosa de Lima zone to provide ore with silver head grades of 175 gram per tonne. Work also continues enlarging the ramp size to four by four meters allowing for larger trucks to haul more ore from the mine to the plant. With these changes, Cusi can reach to 1,200 tonne per day level of throughput and become profitable.

Cusi cash cost for silver equivalent payable ounce was $16.49 and the all-in sustaining cost was $25.67 per silver equivalent payable ounce, which was higher in Q2 2019 compared to Q2 2018. The increase in all-in sustaining cost was due to higher sustaining capital expenditures and lower silver equivalent payable ounces due to concentrate buildup inventory at the quarters and with high emotional content that wasn't shaped until after quarter end. If the buildup of concentrate inventory during H1 2019 had been sold, it would have resulted in a -- in this all-in sustaining cost per silver payable ounce decreasing by $5.5 for Q2 2019 and by $4 for H1 2019. The company expects to have an updated NI 43-101 Technical Report for the Cusi Mine during Q2 2020, which has been pushed back two quarters from the original estimate of Q4 2019.

The reason for the delay is to include the results from additional drilling currently being completed at the mine to improve the quality and classification of the resource reserve contained within the NI 43-101 Technical Report. Management is also evaluating a delay in the expansion of Cusi from 1,200 tonnes per day to the 2,400 tonne per day to allow the company to stabilize operating rates at the 1,200 tonne per day level first, while increasing silver metallurgical recovery, as well as improving dilution control and these were critical issues during the recent ramp up to 1,200 tonne in H1 2019. Additionally, the revised NI 43-101 Technical Report would allow to -- for improved strategic mine planning, development and stope preparation. As such, the $10 million of capital expenditures plan for 2019 relating to the plant and tailing ramp expansions will be deferred until expansion timetable is redefined.

It's important to note that the capital investment already made at the mine and plant during 2018 and the first half of 2019 were necessary to achieve the throughput increases to 1,200 tonnes per day, which is required to make the mine profitable at current spot silver prices. Sierra Metals remains at an inflection point. We continue working to improve per-share value and continue to work to be profitable at today's metal price. By improving throughput, head grades and recovery rates, which in turn will help lower costs.

The company's financial position and liquidity remain healthy and the Board and the management team are committed to investing in its operating mines to future the cash flows. We are continuing with our aggressive exploration programs with a goal of improving the quality of our resources and adding additional resources. The company continues to have a solid financial position and the liquidity to support our growth programs, which always represent improvement in use for capital and provides for an excellent return on investment for the company and its shareholders. With that, I will like to review our cash flows for Q2 2019 in more detail.

Turning to Slide No. 9. During Q2 2019 our operating cash flows before movements in working capital were $12.8 million. We had negative working capital adjustments of $4.1 million.

We paid $3.5 million in taxes in Peru and we invested $16.7 million in capital expenditures in Mexico and Peru. We paid $1.5 million to repurchase one -- to repurchase 1.1 million shares of the company. And we paid $49.4 million in principle repayments and interest in our credit facilities in Peru and Mexico. We also have proceeds from the issuance of our senior secured credit facility of $78.6 million, leaving us with a cash balance of $40.2 million as of June 30, 2019.

Sierra Board and management team do not believe that the current foot price reflects the value of the company and initiated a normal course issuer bid in December 2018 with a 1.5 million share target. To date, the company has repurchased and canceled a total of approximately 1.2 million shares at an average VWAP of CAD 1.97. The company is in good financial health and we maintain a strong balance sheet with $40 million in cash. Our total debt was $9.5 million at the end of Q2 2019 with net debt of $59 million.

During Q1 2019, the company announced the closing of $100 million senior security corporate credit facility in March. The facility has a six-year term with a two-year grace period and has a rate of LIBOR plus 3.15%. This facility will provide the company with additional liquidity and will offer financial flexibility to fund future capital projects in Mexico, as well as working capital requirement. The company will also use the proceeds of the corporate facility to repay existing debt in the near term.

During the second quarter, on May 9, the company repaid the remaining $33.2 million existing on the Corona acquisition facility with BCP. And the $15 million existing on the revolving credit facility with BCP after drawing funds from the senior secured corporate credit facility. For 2019, the company remains focused on allocating operating cash flows toward efficient growth capital to provide funding for the significant capital expenditures planned this year. Management will continue to review metal prices and retain the option to adjust the capital expenditures, should metal prices experience any dramatic changes within the year.

With that, I will now turn the call to Mike.

Mike McAllister -- Vice President of Investor Relations

Thank you, Igor. That ends the presentation portion of this call. Operator, we would now like to open the call to questions from participants. Please open the line.

Questions & Answers:


[Operator instructions] Your first question comes from the line of Mark Reichman from NOBLE Capital Market. Your line is open, Mr. Reichman. Your line is open.

Mark Reichman -- NOBLE Capital Market -- Analyst

Thank you, and good morning. I wanted to focus on the Cusi Mine first, and you have given the fact that the expansion to 2,400 tonnes per day has been delayed and the Technical Report will be available the second quarter of 2020. Has there been any change with respect to how you're thinking about affecting that expansion, because there was originally -- you installed the refurbished ball mill at Mal Paso, but then there were plans for a proposed processing plant at Cusi that was closer to the mine than Mal Paso, which would result in some savings and then I think that was originally going to be constructed at 1,500 tonnes per day but would be expandable. And then there was also the plans for the tailings facility that the plant and permitted increases would provide, I think, about 1.5-year of additional storage capacity based on 1,200 tonnes per day.

And then you were looking at, for the proposed plant, there was a new site that would accommodate, I think over a little over 5.4 million tonnes of waste ore. Do you expect that any of those plans will we affected by the updated Technical Report or I was just kind of thinking about how you're now thinking about that expansion, and maybe the timing?

Igor Gonzales -- President and Chief Executive Officer

I will respond part of it and Gordon will complement. The refurbished mill has been installed. It's operating and that's precisely the equipment that is we are trying to ramp up to reach the 1,200 tonne per day level. We are also working on improving the recovery of the plant and this expansion took place at the Mal Paso site, where we have an existing tailings facility and we also have purchased a -- some land for an additional tailings facility very close to the Mal Paso site.

Gordon Babcock -- Chief Operating Officer

Yes. Another thing to mention there, as well as we have the another ball mill present on the property, we've got 12.5 by 16.8 ball mill. So the main -- the elements to get to the bump up in production were essentially there. We were added -- we've added another crushing, another cone crusher to the circuit.

We're making improvements to the infrastructure with screens and so on. So the idea is to stabilize the operation at 1,200 tonnes per day and then lay ourselves out for more development in the mine and bump up going into the mill, solidify those recoveries and then carry on and organically move up to 2,400 in the future. And to answer the question about the Cusi site. After these improvements are done to the Mal Paso site, then the company would have to do an evaluation of the merit of another plant close to the mine.

First of all, the priority is to get to 43-101 complete.

Mark Reichman -- NOBLE Capital Market -- Analyst

OK. Well, that's really helpful. Just one other, given the fact that the capital expenditures will be deferred, I think that $10 million. What does that do? I mean I know that it's hard to put a firm date because it's all going to depend on how you're operating at the 1,200 tonnes per day, but at a minimum, I guess, with the shift in the capital expenditures, what would be kind of the thought on the timeframe to 2,400 tonnes per day? Or do you think it's just too early to tell?

Gordon Babcock -- Chief Operating Officer

In my opinion, right now it's a little too early to do. I mean the mine -- the whole thing hinges on mine development and mine production. So I think the portion on the plant side, it's all workable, it's the timelines to do that. But the key is to get the muck out of the mine and get consistency coming into the plant.

That's -- that'll help immensely.

Mark Reichman -- NOBLE Capital Market -- Analyst

OK. Thank you very much.


Your next question comes from the line of Jake Sekelsky from ROTH Capital Partners. Your line is open.

Jake Sekelsky -- Roth Capital Partners , LLC -- Analyst

Hey, guys. Thanks for taking my question. You've been focused on increasing throughput across the portfolio during the first half, a lot of that has already been completed. Can you just maybe walk us through the remainder of the capex spend on this front for Q3 and Q4?

Igor Gonzales -- President and Chief Executive Officer

Yes. The -- as you know we initially had a $83 million capex for the full year. We have revisited the entire number of projects for each one of the mine. And given the strike in Yauricocha, we will see some capital deferral in Yauricocha for 2020, and also this deferral of the capital in Cusi and some savings in the Bolivar capital.

So that's -- we are committed to the project that were initially announced in February. There's been some timing issue in the deployment of the capital. In the case of Yauricocha, we continue to build the tailings facility, which was one of our primary responsibilities that we also continue with the shaft and the metal and some ventilation projects. In the case of Bolivar, we are essentially done with the expansion of the mill.

And in Cusi as I said, we're deferring the capital. I don't know, Gordon, do you have any comments?

Gordon Babcock -- Chief Operating Officer

I think that sums it up very much. The thing is is that the capital targets has been, if anything, they may be delayed and deferred out to 2020. But the projects themselves haven't stopped. They're all on track, they're all moving forward.

Basically, that's the delta and the difference in the capital expenditure, the grand total. Projects are ongoing in all cases, in all three operations.

Jake Sekelsky -- Roth Capital Partners , LLC -- Analyst

OK. That's helpful. And then lastly, just more of a high-level question. Obviously, base metal prices have come off over the last few months, and if you guys are being metallic producer, you got exposure there.

Should we be surprised that -- to see any hedges in place to lock in some type of margins? Or is that something you're planning on staying full exposed to, going forward?

Gordon Babcock -- Chief Operating Officer

Yes. That's something that we plan on staying exposed to. The fact that we are pulling metallic and exposed to five metals and different metal prices that we've got a built-in natural hedge there. You can see silver popping up a little bit, kind of offsetting a little bit of the copper decline.

But right now we're comfortable being fully exposed to metal prices.

Jake Sekelsky -- Roth Capital Partners , LLC -- Analyst

Makes sense. Thanks for that assortment.


Your next question comes from the line of Heiko Ihle from H.C. Wainwright. Your line is open.

Heiko Ihle -- H.C. Wainwright -- Analyst

Hey, thanks for taking my questions. As for Cusi, I'm trying to read between the lines here as that's been coming up in every single other question that you've gotten on this call so far. I mean as I understand we had somewhat similar conversations about your culture in the past. But you still reported record quarterly throughputs, but now you are also laying the expansion you're pushing back to 43-101 for the extra drilling that you want to do and your talk about improving the dilution control.

All this is coming up in a single paragraph, the release, I mean, you're also delaying the investments and you sort of talked about that in your answer to Jake. But I mean, what are we missing here? Has your medium and longer-term outlook for the mine changed in the market why -- compared to where we may be stood in the beginning of the year? Can you maybe give some color on what exactly is different from your expectations, and maybe some of the not-so-obvious factors, I mean, despite our commodity price and all of that stuff. Those things that really have changed there?

Igor Gonzales -- President and Chief Executive Officer

OK. First of all, the revision in capital spend of Cusi was prompted by a regular review of capital in all fronts, given the base metal prices that we were experiencing. And so we analyze a number of scenarios and we think that at this point in time, the best scenario is to stay in the 1,200 tonne per day range, optimize the plant and the mine and then once we're ready, we'll do the next move, also watching the metal prices very carefully. You want to comment on that?

Gordon Babcock -- Chief Operating Officer

Yes. With regards to Cusi, one of the key factors is getting the operations on track, development on track. Third and most important is just to get the plant stabilized. Our recoveries have gone considerably up in the last three months now.

So a lot of the changes that happened to the ore zones and so on are now -- they're implemented in the plant. And we have a better grind. We've got good recoveries and we got good gradation in our milling. So that was the target.

Once that phase is stabilized, then we can move forward from that point on.

Heiko Ihle -- H.C. Wainwright -- Analyst

Got it. And thanks for the color. I appreciate it. And can you just give us some more additional color on the future plans for your balance sheet, please? I mean you're sitting on $40 million in cash and another $33 million of trade receivables.

You've also got $100 million in debt. I mean if you think -- if you look at it year to date, I mean the cash has doubled since the beginning of the year, obviously due to that loan. I mean philosophically, what do you consider to be a good amount of cash to keep on your books going forward? I mean the BCP loan, you're paying LIBOR plus I think 3.15% or something like that. Now you've done 1.6 million of repurchases as per this release.

I mean a lot of cash is sitting there idle and essentially collecting no interest, right? Maybe just some medium or longer-term plans that you have, please?

Ed Guimaraes -- Chief Financial Officer

Yes. Thanks for the question, Heiko. I think just to answer in terms of the optimal cash balance, I think for Yauricocha and where it is with its operations, I think a balance, a cash balance of $25 million to $30 million is optimal. The $100 million, the $40 million that we have, we will deploy.

Given our recent share price and compared to our net asset value, it's extremely undervalued. Any excess cash would obviously go to continue with the -- our share buyback program to take advantage of this -- of the lower share price, be opportunistic. And then the rest would be just be to fund further growth at these three mines, and we're just scratching the surface here. There's a lot of growth capex that could still go forward to continue to expand, definitely at Yauricocha and Bolivar.

Heiko Ihle -- H.C. Wainwright -- Analyst

Got It. Given that you just brought up the share purchase in your answer, is there a limit on share price that you're willing to pay to repurchase shares at the present moment?

Ed Guimaraes -- Chief Financial Officer

Well, definitely at $2, I think $2.50, anything below $2.50 we would certainly want to take advantage of. And yes, that's -- I'll leave it at that.

Heiko Ihle -- H.C. Wainwright -- Analyst

Right. That's helpful. Thank you, guys.


Your next question comes from the line of Lee Cooperman from Omega Advisors. Your line is open.

Lee Cooperman -- Omega Advisors -- Analyst

This wasn't my intended question. The $2.50 you threw out, is that U.S. or Canadian? That's not my primary question?

Ed Guimaraes -- Chief Financial Officer

That would be in Canadian.

Lee Cooperman -- Omega Advisors -- Analyst

Canadian, OK, fine. My questions are if I said to you present metals prices would persist the rest of the year -- I'll give you all my questions in advance. What kind of EBITDA would you anticipate for the year, assuming present metal prices persisted for the rest of the year? Second, the buyback is relatively insignificant. But I think what you said, you bought 1.2 million.

The authorization was 1.5 million, so 300,000 shares left, which is negligible. Do you intend to reauthorize when this is complete? And do you think you'll complete the remainder of the program this year? Third, I'm a little confused. On Page 4 of your handout, you showed a cash position of 40.2 million. The debt position is 68.9, and net debt of 59.2.

If you take the cash off debt, that number is like $20-odd million. So there must be a different number that I'm missing. So if you could address that? And then finally, do you intend -- do you expect to generate free cash flow this year? Or you would borrow in cash? If you're borrowing cash, why are you buying back stock?

Ed Guimaraes -- Chief Financial Officer

Thanks, Lee. There's a lot of questions there. That's fine. In terms of EBITDA as I've said on previous conference calls, we don't typically provide guidance.

But if you were to see where metal prices if they were to stay where they are now, again it's basically where in H1, I don't think you'd be that far off to take it and double it with the increased expansion being offset by possibly reduced metal prices. So in terms of the buyback, we do plan to complete the full amount. And given metal prices, where we are, we will look at whether it makes sense to expand or to initiate a new share buyback program. But again that depends on, and as you were alluding to, where our free cash is going to we.

At these metal prices and what we have planned, our free cash flow should come in pretty much -- it should be coming in as a watch -- a wash. Might be anywhere, could be $5 million, but let's just say it's going to be pretty much not significant. And in terms of the $100 million debt, it's -- I -- it's $100 million in debt that we have outstanding, $99.5 million. We've got $40.2 million in cash, so the net debt's $59 million.

It's -- I don't know where you're getting your --

Lee Cooperman -- Omega Advisors -- Analyst

Page 4 of your presentation says debt position 68.9. OK, but it's really $100 million. OK. No problem.

It's a little bit deceptive, but OK, I understand it. Thank you very much for your responses.


Your next question comes from the line of Mark Reichman from NOBLE Capital Market. Your line is open.

Mark Reichman -- NOBLE Capital Market -- Analyst

Yeah. Just a quick follow up on the commentary about the valuation of the stock, and I just wanted to get management's thoughts on why they might think the stock is persistently undervalued? And whether liquidity and float might have something to do with that, in which case repurchasing the stock isn't going to probably help that as much. So has there been any thought in terms of actions that might be taken to improve liquidity or float? Just interested in your thoughts.

Igor Gonzales -- President and Chief Executive Officer

There have been some actions in the past. As you know, we got an ATM last year as a -- to be able to improve that. And we have the repurchase program. And maybe, Ed, do you want to complement that?

Ed Guimaraes -- Chief Financial Officer

Yes. I think -- Mark, thanks for your question. I think Sierra's still at that inflection point. We're growing, so a lot of these growth projects, it's taking a lot of capital.

Cusi, to be blunt, really hasn't delivered over the past three or four years. We're hoping to get Cusi on track. I think there's some performances issues, reputational issues related to Cusi and just really never being able to get there. But we still believe very much that it can, depending on metal prices.

And there's always been, if you look at it from a free cash flow basis, there really hasn't been a lot of excess cash generated. A lot of the cash has gone back into the assets. So that's really the extent of it from my side.


And your next question comes from the line of Jim Young from West Family Investments. Your line is open.

Jim Young -- West Family Investments -- Analyst

Yeah. Hi. First of all, I'd like to thank Gord for your work at Sierra and building a strong team to provide this future leadership and a theme of transition. And I just want to wish you well in the future and for also putting up with all my questions in the past.

My question, a couple of questions. Number one is regarding Yauricocha, can you address what future permits are needed going forward in order to enable the growth that you've outlined? You're looking at 3,150 today, up to 3,600 in the following year and then beyond.

Gordon Babcock -- Chief Operating Officer

Sure. Thanks. Thanks a lot, Jim. Thanks for your good words.

Appreciate that. On the subject of permits at Yauricocha, the next step is, of course, to get to the 3,600 tonne per day mark. There's a series of permits that have to go through. Number one, we have to elaborate on our EIA, include this new territory.

We have to have some more work done on the -- on an internal document called an ITS. So basically we're on track for doing that. And then as things go on in the future, for instance the possibility of discovering a new ore zone in the area of the drilling that's going on right now in Doña Leona is very promising. That would be another process, another EIA and another complete process in developing a mine plan and so on at a detailed level of prefeas or feas level.

So all these things are forthcoming. And the process in Peru is somewhat tedious. It's taken us better than a year and a half, almost a year and three-quarters to get our permits to drill. But we think we have them now.

And we've got a group of people here that can execute that. So I think the permit process in Peru, Jim, is going to be an ongoing question and it's going to highly dependent on how the government reacts to a lot of these processes. I think that's about the best I can put on paper here right now.

Jim Young -- West Family Investments -- Analyst

OK. Great. So the 3,600 tonnes per day that you're expecting in 2020, how likely is -- are you -- how likely that you'll we able to achieve those levels?

Gordon Babcock -- Chief Operating Officer

I think that's very achievable. I mean the plant can handle it, the mine can handle it. We need to do some improvements in extraction in the mine. But basically breaking muck in the mine, we can break the muck.

The challenge for us is, of course, is the old challenge of waste and waste removal. And the big one is getting the paperwork done with our Peruvian government. Basically, all of the elements are there, and now it's just a matter of working through all the details now.

Igor Gonzales -- President and Chief Executive Officer

Yes. The critical path is going to be the permit line, not so much the execution on the operation of the mine itself. We've tested the -- both the plant and the mine at a higher rate already. But it is in the -- the critical path is on the permit.

Jim Young -- West Family Investments -- Analyst

OK. And then likewise at Bolivar, can you address -- you had mentioned that you expect to see higher grades coming from Bolivar West in the second half of the year. Can you just elaborate a little bit and quantify the impact of Bolivar West? What grade of your ore is being processed at the mill today? What do you expect in the second half of the year in the expected grade that you think that you'll be processing at the -- in Bolivar?

Gordon Babcock -- Chief Operating Officer

Great. Thanks, again. On the basis of Bolivar West contribution, Bolivar West contribution averages around 1.2%. That's just Bolivar West.

By the time you average that into the whole mine feed, we're talking a little bit over 1%. The percentage of feed, mill feed coming from Bolivar West, I would estimate probably close to about 30%?

Igor Gonzales -- President and Chief Executive Officer

Thirty, forty.

Gordon Babcock -- Chief Operating Officer

Maybe coming up to highs of 40%. As development progresses and as the plan works forward in getting the long hole stopes developed in Bolivar West, I believe that number is going to increase. But right now it's -- there's some challenges that we have to look at in that area of Bolivar West, as well as the Gallo area in main mine at ventilation. But they're driving ventilation rates right now.

The pilot should be pretty much complete. They'll be starting reaming. Once that's in place, the ventilation issues in that sector of the mine will be handled. And then they can move forward in getting the development done and getting long hole drilling started.

But it's very promising. It looks very good in that area.

Jim Young -- West Family Investments -- Analyst

OK. So the -- in the expansion from 3,000 tonnes a day to 4,000 tonnes a day that you have on Page 7 in the presentation, are there any permits or any other issues that you need in order to be able to deliver on those numbers, and similarly to drive it from 4,000 to 5,000 tonnes a day in 2020?

Gordon Babcock -- Chief Operating Officer

Jim, no. In the case of Mexico, Mexico is let's say, it's a paradise compared to Peru as far as permits are concerned. Once you have an operating license in Mexico, the Mexican government could care less if you're running 5,000 tonnes a day or 1,000 tonnes a day. All they want is to have your license, to have your environmental permit and your mining permit in place.

Those are all in place. The infrastructure at the mine as is in Yauricocha, this has to be improved. Ventilation is one. The ramps are there.

Everything is driven large. We're driving things side by side. We have a lot of capacity with the equipment. So it's an organic growth curve and it's a very, very doable item.

Jim Young -- West Family Investments -- Analyst

OK. Great. Well, those are all the questions for now. So thanks very much.


There are no further questions at this time. Mr. Mike McAllister, I turn the call back over to you.

Mike McAllister -- Vice President of Investor Relations

Thank you, operator. That concludes today's call. On behalf of the management team, I would like to thank all the participants for joining us today. A replay of the webcast and all materials can be found on our website at

If there are any further questions or concerns, you may reach out to us at anytime after today's call. Our contact information can be found in today's presentation, as well as in the company's website. Thank you, operator. Please conclude the call.


[Operator signoff]

Duration: 48 minutes

Call participants:

Mike McAllister -- Vice President of Investor Relations

Igor Gonzales -- President and Chief Executive Officer

Mark Reichman -- NOBLE Capital Market -- Analyst

Gordon Babcock -- Chief Operating Officer

Jake Sekelsky -- Roth Capital Partners , LLC -- Analyst

Heiko Ihle -- H.C. Wainwright -- Analyst

Ed Guimaraes -- Chief Financial Officer

Lee Cooperman -- Omega Advisors -- Analyst

Jim Young -- West Family Investments -- Analyst

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