Sierra Metals 6K Condensed Interim Consolidated Financial Statements | SMTSF 11 Aug 22

Exhibit 99.1

SIERRA METALS INC.

Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022 and 2021

(unaudited)

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August 10, 2022

Management’s Responsibility for Financial Reporting

Management is responsible for the preparation of the unaudited condensed interim consolidated financial statements. These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting” using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

The Board of Directors of the Company is responsible for ensuring that Management fulfills its responsibilities for financial reporting. The Board of Directors carries out this responsibility through its Audit Committee, which is composed of three members. The committee meets various times during the year and at least once per year with the external auditors, with and without Management being present, to review the financial statements and to discuss audit and internal control related matters.

The Audit Committee reviews the results of the condensed interim consolidated financial statements prior to their submission to the Board of Directors for approval. The condensed interim consolidated financial statements have not been audited.

“Luis Marchese”		“Ed Guimaraes”
Luis Marchese		Ed Guimaraes
Chief Executive Officer		Chief Financial Officer

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Sierra Metals Inc.

Condensed Interim Consolidated Statements of Financial Position

As at June 30, 2022 and December 31, 2021

(In thousands of United States dollars, unaudited)

	Note	June 30, 2022			December 31, 2021
		$			$
ASSETS

Current assets:
Cash and cash equivalents			16,404			34,929
Trade and other receivables	3		26,173			37,122
Income tax receivable			10,394			4,857
Prepaid expenses			2,405			2,538
Inventories	4		24,537			26,677
			79,913			106,123

Non-current assets:
Property, plant and equipment	5		292,746			289,615
Deferred income tax			1,758			1,086
Total assets			374,417			396,824

LIABILITIES

Current liabilities:
Accounts payable and accrued liabilities	6		50,664			44,308
Income tax payable			3,325			7,444
Loans payable	7		24,979			24,855
Decommissioning liability			1,994			1,012
Other liabilities			5,377			11,183
			86,339			88,802

Non-current liabilities:
Loans payable	7		55,814			55,949
Deferred income tax			21,770			26,824
Decommissioning liability			15,191			17,140
Other liabilities			4,145			3,477
Total liabilities			183,259			192,192

EQUITY
Share capital	8		233,518			232,915
Accumulated deficit			(88,983	)		(74,086	)
Other reserves			9,953			10,420
Equity attributable to owners of the Company			154,488			169,249
Non-controlling interest	9		36,670			35,383
Total equity			191,158			204,632

Total liabilities and equity			374,417			396,824

Contingencies (notes 7 and 15)

Approved on behalf of the Board and authorized for issue on August 10, 2022:

“Oscar Cabrera”		“Koko Yamamoto”
Oscar Cabrera		Koko Yamamoto
Chairman of the Board		Chairperson of the Audit Committee

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

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Sierra Metals Inc.

Condensed Interim Consolidated Statements of Income (Loss)

For the three and six months ended June 30, 2022 and 2021

(In thousands of United States dollars, except per share amounts, unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021			2022			2021
	Note	$			$			$			$
Revenue	14		49,941			79,449			107,182			149,073

Cost of sales
Mining costs	10		(44,501	)		(35,549	)		(82,088	)		(72,666	)
Depletion, depreciation and amortization	10		(9,436	)		(10,725	)		(18,448	)		(21,973	)
			(53,937	)		(46,274	)		(100,536	)		(94,639	)
Gross profit (loss) from mining operations			(3,996	)		33,175			6,646			54,434

General and administrative expenses			(5,553	)		(5,187	)		(10,816	)		(11,183	)
Selling expenses			(2,156	)		(2,858	)		(4,209	)		(5,578	)
Income (loss) from operations			(11,705	)		25,130			(8,379	)		37,673

Other incomes (expenses and losses)			584			(464	)		36			(703	)
Foreign currency exchange gain (loss)			301			(1,229	)		(1,562	)		(497	)
Interest expense and other finance costs			(950	)		(863	)		(1,717	)		(1,743	)
Derivative instruments gains			-			-			-			451
Income (loss) before income tax			(11,770	)		22,574			(11,622	)		35,181

Income taxes (expense) recovery:
Current tax expense			(4,936	)		(11,875	)		(7,640	)		(20,667	)
Deferred tax recovery			966			380			5,652			325
			(3,970	)		(11,495	)		(1,988	)		(20,342	)

Net income (loss)			(15,740	)		11,079			(13,610	)		14,839

Net income (loss) attributable to:
Shareholders of the Company			(15,266	)		9,084			(14,897	)		12,168
Non-controlling interests	9		(474	)		1,995			1,287			2,671
			(15,740	)		11,079			(13,610	)		14,839

Weighted average shares outstanding (000s)
Basic			163,934			163,428			163,683			163,121
Diluted			163,934			164,740			163,683			164,504

Basic income (loss) per share			(0.09	)		0.06			(0.09	)		0.07
Diluted income (loss) per share			(0.09	)		0.06			(0.09	)		0.07

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

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Sierra Metals Inc.

Condensed Interim Consolidated Statements of Comprehensive Income (Loss)

For the three and six months ended June 30, 2022 and 2021

(In thousands of United States dollars, unaudited)

	Three months ended June 30,					Six months ended June 30,
	2022			2021		2022			2021
	$			$		$			$
Net income (loss)		(15,740	)		11,079		(13,610	)		14,839

Other comprehensive income (loss)
Items that may be subsequently classified to net loss:
Currency translation adjustments on foreign operations		(175	)		161		(190	)		(58	)
Total comprehensive income (loss)		(15,915	)		11,240		(13,800	)		14,781

Total comprehensive income (loss) attributable to:
Shareholders		(15,441	)		9,245		(15,087	)		12,110
Non-controlling interests		(474	)		1,995		1,287			2,671
Total comprehensive income (loss)		(15,915	)		11,240		(13,800	)		14,781

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

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Sierra Metals Inc.

Condensed Interim Consolidated Statements of Changes in Equity

For the six months ended June 30, 2022 and 2021

(In thousands of United States dollars, unaudited)

	Common Shares				Other			Retained earnings			Total attributable			Non-controlling		Total
	Shares		Amounts		reserves			(accumulated deficit)			to shareholders			Interest		shareholders’ equity
			$		$			$			$			$		$
Balance at January 1, 2022		163,428,150		232,915		10,420			(74,086	)		169,249			35,383		204,632

Exercise of RSUs		513,315		603		(603	)		-			-			-		-
Share-based compensation expense				-		326			-			326			-		326
Total comprehensive income (loss)				-		(190	)		(14,897	)		(15,087	)		1,287		(13,800	)
Balance at June 30, 2022		163,941,465		233,518		9,953			(88,983	)		154,488			36,670		191,158

	Common Shares				Other			Retained earnings			Total attributable		Non-controlling		Total
	Shares		Amounts		reserves			(accumulated deficit)			to shareholders		Interest		shareholders’ equity
			$		$			$			$		$		$
Balance at January 1, 2021		162,810,553		230,980		11,840			(41,820	)		201,000		39,208		240,208
												-				-
Exercise of RSUs		617,597		1,935		(1,935	)		-			-		-		-
Share-based compensation expense		-		-		724			-			724		-		724
Total comprehensive income (loss)		-		-		(58	)		12,168			12,110		2,671		14,781
Balance at June 30, 2021		163,428,150		232,915		10,571			(29,652	)		213,834		41,879		255,713

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

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Sierra Metals Inc.

Condensed Interim Consolidated Statements of Cash Flows

For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unaudited)

			Three months ended June 30,						Six months ended June 30,
	Note		2022			2021			2022			2021
			$			$			$			$
Cash flows from operating activities
Net income (loss) from operations				(15,740	)		11,079			(13,610	)		14,839

Items not affecting cash:
Depletion, depreciation and amortization				9,453			12,027			18,616			23,809
Share-based compensation				131			287			326			724
Loss on disposals and write-offs				18			-			730			-
Interest expense and other finance costs				508			792			1,275			1,672
Current income tax expense				4,936			11,875			7,640			20,667
Deferred income taxes recovery				(966	)		(380	)		(5,652	)		(325	)
Unrealized foreign currency exchange gain				30			(269	)		(254	)		(705	)
Operating cash flows before movements in working capital				(1,630	)		35,411			9,071			60,681
Net changes in non-cash working capital items		13		17,022			374			14,007			3,994
Decomissioning liabilities settled				(463	)		(300	)		(553	)		(358	)
Income tax paid				(5,575	)		(7,119	)		(17,045	)		(17,791	)
Cash generated from operating activities				9,354			28,366			5,480			46,526


Cash flows used in investing activities
Capital expenditures				(11,817	)		(19,499	)		(22,548	)		(34,051	)
Cash used in investing activities				(11,817	)		(19,499	)		(22,548	)		(34,051	)

Cash flows used in financing activities
Proceeds from the term loan facility		7 (b)		6,250			-			12,500			-
Repayment of Senior Secured Corporate Credit facility with BCP				(6,250	)		(6,250	)		(12,500	)		(6,250	)
Loan interest paid				(358	)		(850	)		(1,029	)		(1,693	)
Repayment of leases				(234	)		-			(458	)		-
Cash used in financing activities				(592	)		(7,100	)		(1,487	)		(7,943	)

Effect of foreign exchange rate changes on cash and cash equivalents				(52	)		6			30			97

Increase (decrease) in cash and cash equivalents				(3,107	)		1,773			(18,525	)		4,629
Cash and cash equivalents, beginning of period				19,511			74,329			34,929			71,473
Cash and cash equivalents, end of period				16,404			76,102			16,404			76,102

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

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Sierra Metals Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unless otherwise stated, unaudited)

Description of business and nature of operations

Sierra Metals Inc. (“Sierra Metals” or the “Company”) was incorporated under the Canada Business Corporations Act on April 11, 1996, and is a Canadian and Peruvian listed mining company focused on the production, exploration and development of precious and base metals in Peru and Mexico. The Company’s key priorities are to generate strong cash flows and to maximize shareholder value.

The Company’s shares are listed on the TSX, NYSE American Exchange, and the Bolsa de Valores de Lima (“BVL”) and its registered office is 161 Bay Street, Suite 4260, Toronto, Ontario, M5J 2S1, Canada.

The Company owns an 81.84% interest in Sociedad Minera Corona S.A (“SMC”), operating the polymetallic Yauricocha Mine in Peru. The shares of SMC are listed on the BVL. The Company also owns a 100% interest in the Bolivar and Cusi Mines in Mexico. In addition to its producing mines, the Company also owns various exploration projects in Mexico and Peru.

Significant accounting policies

The significant accounting policies used in the preparation of these condensed interim consolidated financial statements are as follows:

(a)

Basis of preparation

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. These unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021. The Company’s significant accounting policies were presented in note 2 to the consolidated financial statements for the year ended December 31, 2021, and have been consistently applied in the preparation of these condensed interim consolidated financial statements except for the following:

As of June 30, 2022, as a result continuous evaluation of the consolidated financial statements management revisited the tax expense for the three-month ended March 31, 2022 and the three- month ended June 30, 2022. As a result, management adjusted the tax expense for the six-month ended June 30, 2022, increasing the tax expense by $2.3 million ($3.7 million were related to the three-month ended March 31, 2022).

These condensed interim consolidated financial statements were authorized for issuance by the Board of Directors on August 10, 2022.

(b)

Basis of consolidation

These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries, which are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date that control commences until the date that control ceases.

Non-controlling interests represent equity interests in subsidiaries owned by outside parties. Changes in the parent company’s ownership interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.

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Significant accounting policies (continued)

The principal subsidiaries of the Company and their geographical locations as at June 30, 2022 are as follows:

Name of the subsidiary	Ownership interest			Location
Dia Bras EXMIN Resources Inc.		100	%		Canada
Sociedad Minera Corona, S. A. (“Corona”) ¹		81.84	%		Perú
Dia Bras Peru, S. A. C. (“Dia Bras Peru”) ¹		100	%		Perú
Dia Bras Mexicana, S. A. de C. V. (“Dia Bras Mexicana”)		100	%		México
EXMIN, S. A. de C. V.		100	%		México
Servicios de Produccion Y Extraccion de Chihuahua, S.A. de C.V		100	%		México

¹The Company, through its wholly owned subsidiary Dia Bras Peru, holds an 81.84% interest in Corona, which represents 92.33% of the voting shares. The Company consolidates Corona's financial results and records a non-controlling interest for the 18.16% that it does not own.

Trade and other receivables

	June 30,		December 31,
	2022		2021
	$		$
Trade receivables		16,806		27,001
Sales tax receivables		9,367		10,121
		26,173		37,122

Inventories

	June 30,		December 31,
	2022		2021
	$		$
Stockpiles		693		4,092
Concentrates		4,186		3,630
Supplies and spare parts (net of obsolescence provision)		19,658		18,955
		24,537		26,677

Cost of sales are comprised of production costs of sales and depletion, depreciation and amortization, and represent the cost of inventories recognized as an expense for the three and six-month periods ended June 30, 2022 and 2021 of $53,937 and $100,536 (2021 - $46,274 and $94,639), respectively. Supplies and spare parts inventory as at June 30, 2022 is stated net of provision of $5,356 (as at June 30, 2021 - $3,984) to write down inventories down due to obsolescence or infrequent use. During the three and six months ended June 30, 2022, the Company wrote down stockpile and concentrate inventory to its net realizable value (“NRV”), recording a charge $2,678 and $5,218 (2021 - $385 & $741), respectively, which is included in our mining costs as per note 10.

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Property, plant and equipment

Cost	Plant and equipment			Mining properties		Assets under construction			Exploration and evaluation assets			Total
	$			$		$			$			$
Balance as of January 1, 2021		300,545			479,402		52,461			38,558			870,966

Additions		4,137			16,830		36,825			17,410			75,202
Change in estimate of decomissioning liability		(3,870	)		-		-			-			(3,870	)
Disposals		(8,033	)		-		(3	)		(1,312	)		(9,348	)
Transfers		20,414			2,345		(17,508	)		(5,251	)		-
Balance as of December 31, 2021		313,193			498,577		71,775			49,405			932,950

Additions		6,231			5,622		5,087			5,916	#		22,856
Change in estimate of decomissioning liability		(692	)		-		-			-			(692	)
Disposals		(4,514	)		-		-			-			(4,514	)
Transfers		7,026			1,693		-			(8,719	)		-
Balance as of June 30, 2022		321,244			505,892		76,862			46,602			950,600

Accumulated depreciation	Plant and equipment			Mining properties		Assets under construction		Exploration and evaluation assets		Total
	$			$		$		$		$
Balance as of January 1, 2021		203,438			365,742		-		-		569,180

Depletion, depreciation and amortization		29,327			16,747		-		-		46,074
Disposals		(6,919	)		-		-		-		(6,919	)
Impairment		9,588			20,828		-		4,584		35,000
Balance as of December 31, 2021		235,434			403,317		-		4,584		643,335

Depletion, depreciation and amortization		12,619			5,684		-		-		18,303
Disposals		(3,784	)		-		-		-		(3,784	)
Balance as of June 30, 2022		244,269			409,001		-		4,584		657,854

Net Book Value - June 30, 2022		76,975			96,891		76,862		42,018		292,746
Net Book Value - December 31, 2021		77,759			95,260		71,775		44,821		289,615

The Company performs impairment indicators assessments for its property, plant and equipment at all sites, using life of mine (“LOM”) plans at the end of each quarter. These LOMs incorporate current operational practices, long term metal prices based on recent analyst consensus and productivity assumptions, based on recent operating experience at the mines. The LOMs are not a National Instrument 43-101 technical report, but management's best estimate of future expected cash flows.

On December 31, 2021, management, based on the uncertainties around the ability of the company to expand the production levels and higher production costs at the Cusi cash generating unit (“CGU”), developed three LOM scenarios at different throughput levels, incorporating alternative design approaches and processing methods. The company assigned weighted probabilities to each of these scenarios to estimate the Fair Value Less Costs of Disposal (“FVLCD”) as on December 31, 2021 and concluded that a $35,000 impairment was required for the Cusi CGU. The key assumptions used to forecast the cash flows included the silver price and the weighted average of the scenarios considered. On June 30, 2022, the Company updated the three production scenarios using the most current metal price assumptions as of that date and revisited the probabilities assigned to each of the scenarios. Based on the updated information, management concluded that no further impairment was required for the Cusi CGU as of June 30, 2022.

Future forecasted silver prices were obtained from independent sources and range between $21.77 and $24.35 during the lifetime of the CGU. All other assumptions remaining the same, if the prices used by management were to decrease by 10%, the company would have to recognise an impairment of $19.0 million ($18.9 million as of December 31, 2021).

All other assumptions remaining the same, if the probabilities of the different scenarios were to become 10% more negative than management’s estimate (base case scenario to increase by 10% and best case scenario reduced by 10%), the Company would have to recognise an impairment of $3.7 million ($3.0 million as of December 31, 2021).

Accounts payable and accrued liabilities

	June 30,		December 31,
	2022		2021
	$		$
Trade payables		30,285		28,436
Other payables and accrued liabilities		20,379		15,872
		50,664		44,308

All accounts payable and accrued liabilities are expected to be settled within 12 months

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Loans payable

		June 30,		December 31,
		2022		2021
		$		$
Current Portion
Senior Secured Corporate Credit Facility with Banco de Credito del Peru ("BCP")	(a)		24,979		24,855
			24,979		24,855

Long term Portion
Senior Secured Corporate Credit Facility with Banco de Credito del Peru ("BCP")	(a)		43,314		55,949
Term loan from BCP and Santander	(b)		12,500		-
Total long term portion			55,814		55,949
Total loans payable			80,793		80,804

On March 11, 2019, the Company entered into a six-year senior secured corporate credit facility (“Corporate Facility”) with BCP that provides funding of up to $100 million effective March 8, 2019. The Corporate Facility provided the Company with additional liquidity and the financial flexibility to fund future capital projects in Mexico as well as corporate working capital requirements. The Company also used the proceeds of the new facility to repay existing debt balances. The most significant terms of the agreement were:

Term: 6-year term maturing March 2025

Principal Repayment Grace Period: 2 years

Principal Repayment Period: 4 years

Interest Rate: 3.15% + LIBOR 3M

The Corporate Facility is subject to customary covenants, including consolidated net leverage and interest coverage ratios and customary events of default. The Company is in compliance with all covenants as at June 30, 2022.

Interest is payable quarterly and interest payments began on the drawn and undrawn portions of the facility starting in June 2019. During the six months ended June 30, 2022, the Company made interest payments of $974 (2021 - $1,693).

On February 17, 2020, BCP entered into a syndication agreement with Banco Santander S.A for $30.0 million of this credit facility. BCP continues to remain as the principal lender and there were no changes to the terms and conditions of the original agreement. Principal payments on the amount drawn from the facility began in June 2021. The loan is recorded at amortized cost and is being accreted to face value over 6 years using an effective interest rate of 3.26%.

On June 7, 2022, the Company, through its subsidiary, Corona, received approval for a $25.0 million credit facility from BCP and Banco Santander S.A to refinance the quarterly installments payable in 2022 by the Company. Accordingly, $12.5 million was used to repay the two installments that became due during the first half of the year. This loan facility carries an annual variable interest rate of Secured Overnight Financing Rate (“SOFR”) (3 months) + 3.65%. During the six months ended June 30, 2022, the Company made interest payments of $55 (2021 - $nil).

As of June 30, 2022, the Company has the following approved unutilized credit facilities:

• line of credit for $14.0 million from Scotiabank, Lima.

• line of credit for $5.0 million from Banco Santander, Mexico

• line of credit for 30.0 million Mexican Pesos from Banco Santander, Mexico

• Working capital line of credit of up to $5.0 million from HSBC, Mexico

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Share capital and share-based payments

(a)

Authorized capital

The Company has an unlimited amount of authorized common shares with no par value.

(b)

Restricted share units (“RSUs”)

The changes in RSU’s issued during the six months ended June 30, 2022 and the year ended December 31, 2021 was as follows:

	Number of RSUs
	June 30,			December 31,
	2022			2021
Outstanding, beginning of period		1,045,831			1,409,058
Granted		1,235,534			617,187
Exercised		(513,315	)		(617,597	)
Forfeited		(189,328	)		(362,817	)
Outstanding, end of period		1,578,722			1,045,831

On June 30, 2020, the Company’s shareholders approved the RSU plan, whereby RSUs may be granted to directors, officers, consultants or employees at the discretion of the Board of Directors. The RSU plan provides for the issuance of common shares from treasury upon the exercise of vested RSUs at no additional consideration. There is no cash settlement related to the vesting of RSU’s as they are all settled with equity. The current maximum number of common shares authorized for issue under the RSU plan is 5% of the number of issued and outstanding common shares of the Company at the time of grant. The RSUs have vesting conditions determined by the Board of Directors, and the vesting conditions are non-market conditions and are not performance based.

During the six months ended June 30, 2022, the Company granted RSU’s totaling 1,235,534 which had a fair value of C$1.10 based on the closing share price at grant date. RSUs exercised during the six months ended June 30, 2022 had a weighted average fair value of C$2.30 (2021 – C$1.81) and the RSUs forfeited had a weighted average fair value of C$2.41 (2021 – C$1.88). As at June 30, 2022, the weighted average fair value of the RSUs outstanding is C$1.56 (as at December 31, 2021 – C$2.55).

(c)

Deferred Share Units (“DSUs”)

On June 10, 2022, the Compensation Committee approved a director’s retainer, whereby the members of the Company’s board were entitled to 2/3^rd of their annual retainer in the form of DSUs. These DSUs have a vesting schedule of 25% each quarter and would vest completely prior to the next Annual General Meeting. Accordingly, on June 11, 2022, the Company issued 777,333 DSUs which had a weighted average fair value of C$1.17.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unless otherwise stated, unaudited)

Non-controlling interest

Set out below is the summarized financial information of our subsidiary Corona which has a material non-controlling interest (note 2(b)). The information below is before intercompany eliminations.

Summarized balance sheet

	June 30,			December 31,
	2022			2021
	$			$
Current
Assets		101,364			97,988
Liabilities		(30,187	)		(38,845	)
Total current net assets		71,177			59,143

Non-current
Assets		180,692			178,610
Liabilities		(49,434	)		(42,558	)
Total non-current net assets		131,258			136,052
Net assets		202,435			195,195

Summarized income statement

	For the three months ended June 30,						For the six months ended June 30,
	2022			2021			2022		2021
	$			$			$		$
Revenue		32,055			50,830			67,849		92,755
Income before income tax		(1,165	)		19,206			6,781		28,940
Income tax expense		(1,446	)		(8,221	)		307		(14,231	)
Total income (loss)		(2,611	)		10,985			7,088		14,709
Total income (loss) attributable to non-controlling interests		(474	)		1,995			1,287		2,671

Summarized cash flows

	For the three months ended June 30,						For the six months ended June 30,
	2022			2021			2022			2021
	$			$			$			$
Cash flows from operating activities
Cash generated from operating activities		4,393			25,620			15,473			42,116
Net changes in non cash working capital items		8,688			(5,139	)		7,075			(3,976	)
Decomissioning liabilities settled		(463	)		(231	)		(553	)		(289	)
Income taxes paid		(5,840	)		(5,312	)		(14,417	)		(12,486	)
Net cash generated from operating activities		6,778			14,938			7,578			25,365
Net cash used in investing activities		(4,493	)		(7,329	)		(10,671	)		(13,721	)
Net cash used in financing activities		(4,541	)		(3,100	)		(15,012	)		(4,100	)
Effect of foreign exchange rate changes on cash and cash equivalents		(9	)		1			11			(22	)
Increase (decrease) in cash and cash equivalents		(2,265	)		4,510			(18,094	)		7,522
Cash and cash equivalents, beginning of period		17,041			68,039			32,870			65,027
Cash and cash equivalents, end of period		14,776			72,549			14,776			72,549

Expenses by nature

Mining costs include mine production costs, milling and transport costs, royalty expenses, site administration costs but not the primary mine development costs which are capitalized and depreciated over the specific useful life or reserves related to that development and ore included in depreciation and amortization. The mining costs for the three and six months ended June 30, 2022 and 2021 relate to the Yauricocha, Bolivar and Cusi Mines.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unless otherwise stated, unaudited)

Mining costs

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	$		$		$		$
Employee compensation and benefits		7,614		8,112		13,911		15,219
Third party and contractors costs		25,361		17,306		44,625		35,905
Depreciation		9,436		10,725		18,448		21,973
Consumables		9,605		8,934		18,163		16,878
Changes in inventory and other		1,921		1,197		5,389		4,664
		53,937		46,274		100,536		94,639

Segment reporting

The Company primarily manages its business on the basis of the geographical location of its operating mines. The Company’s operating segments are based on the reports reviewed by the senior management group that are used to make strategic decisions. The Chief Executive Officer considers the business from a geographic perspective considering the performance of the Company’s business units. The corporate division only earns income that is considered to be incidental to the activities of the Company and thus it does not meet the definition of an operating segment; as such it has been included within “other reconciling items.”

The reporting segments identified are the following:

Peru – Yauricocha Mine

Mexico – Bolivar and Cusi Mines

The following is a summary of the reported amounts of net income (loss) and the carrying amounts of assets and liabilities by operating segment:

	Peru			Mexico			Mexico			Canada
	Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Six months ended June 30, 2022	$			$			$			$			$
Revenue ⁽¹⁾		67,849			23,912			15,421			-			107,182

Production cost of sales		(43,754	)		(26,281	)		(12,053	)		-			(82,088	)
Depletion of mineral property		(3,100	)		(2,631	)		(371	)		-			(6,102	)
Depreciation and amortization of property, plant and equipment		(6,855	)		(3,805	)		(1,686	)		-			(12,346	)
Cost of sales		(53,709	)		(32,717	)		(14,110	)		-			(100,536	)

Gross profit (loss) from mining operations		14,140			(8,805	)		1,311			-			6,646

Income (loss) from operations		7,711			(10,389	)		(2,819	)		(2,882	)		(8,379	)
Interest expense and other finance costs		(1,237	)		(38	)		(32	)		(410	)		(1,717	)
Other income (expense)		(604	)		353			300			(13	)		36
Foreign currency exchange gain (loss)		(1,319	)		(19	)		(16	)		(208	)		(1,562	)
Income (loss) before income tax		4,551			(10,093	)		(2,567	)		(3,513	)		(11,622	)

Income tax expense		(1,992	)		88			(84	)		-			(1,988	)

Net income (loss) from operations		2,559			(10,005	)		(2,651	)		(3,513	)		(13,610	)

	Peru		Mexico		Canada		Total
June 30, 2022	$		$		$		$
Total assets		229,490		143,560		1,367		374,417
Non-current assets		180,699		113,768		37		294,504
Total liabilities		130,102		31,820		21,337		183,259

(1) Includes provisional pricing adjustments of: $(5,136) for Yauricocha, $(1,316) for Bolivar, and $190 for Cusi.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unless otherwise stated, unaudited)

	Peru			Mexico			Mexico			Canada
	Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Six months ended June 30, 2021	$			$			$			$			$
Revenue ⁽¹⁾		92,755			44,083			12,235			-			149,073

Production cost of sales		(42,598	)		(19,433	)		(10,635	)		-			(72,666	)
Depletion of mineral property		(4,898	)		(2,616	)		(794	)		-			(8,308	)
Depreciation and amortization of property, plant and equipment		(8,234	)		(3,613	)		(1,818	)		-			(13,665	)
Cost of sales		(55,730	)		(25,662	)		(13,247	)		-			(94,639	)

Gross profit (loss) from mining operations		37,025			18,421			(1,012	)		-			54,434

Income (loss) from operations		29,702			12,970			(2,215	)		(2,784	)		37,673
Derivative gains		-			-			451			-			451
Interest expense and other finance costs		(1,116	)		(32	)		(6	)		(589	)		(1,743	)
Other income (expense)		(1,008	)		260			50			(5	)		(703	)
Foreign currency exchange gain (loss)		(124	)		(467	)		(91	)		185			(497	)
Income (loss) before income tax		27,454			12,731			(1,811	)		(3,193	)		35,181

Income tax expense		(14,231	)		(5,134	)		(977	)		-			(20,342	)

Net income (loss) from operations		13,223			7,597			(2,788	)		(3,193	)		14,839

	Peru		Mexico		Canada		Total
June 30, 2021	$		$		$		$
Total assets		286,382		178,693		1,454		466,529
Non-current assets		170,927		142,421		34		313,382
Total liabilities		144,520		37,021		29,275		210,816

(1) Includes provisional pricing adjustments of: ($1,129) for Yauricocha, ($983) for Bolivar, and ($291) for Cusi.

	Peru			Mexico			Mexico			Canada
	Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Three months ended June 30, 2022	$			$			$			$			$
Revenue ⁽¹⁾		32,055			12,323			5,563			-			49,941
														-
Production cost of sales		(24,235	)		(13,887	)		(6,379	)		-			(44,501	)
Depletion of mineral property		(93	)		(1,013	)		222			-			(884	)
Depreciation and amortization of property, plant and equipment		(5,451	)		(1,822	)		(1,279	)		-			(8,552	)
Cost of sales		(29,779	)		(16,722	)		(7,436	)		-			(53,937	)

Gross profit (loss) from mining operations		2,276			(4,399	)		(1,873	)		-			(3,996	)

Income (loss) from operations		(1,481	)		(4,447	)		(4,697	)		(1,080	)		(11,705	)
Interest expense and other finance costs		(690	)		(26	)		(21	)		(213	)		(950	)
Other income (expense)		(91	)		371			315			(11	)		584
Foreign currency exchange gain (loss)		13			349			298			(359	)		301
Income (loss) before income tax		(2,249	)		(3,753	)		(4,105	)		(1,663	)		(11,770	)

Income tax expense		(3,744	)		(36	)		(190	)		-			(3,970	)

Net income (loss) from operations		(5,993	)		(3,789	)		(4,295	)		(1,663	)		(15,740	)

(1) Includes provisional pricing adjustments of: $(8,360) for Yauricocha, $(2,396) for Bolivar, and $(218) for Cusi.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unless otherwise stated, unaudited)

	Peru			Mexico			Mexico			Canada
	Yauricocha Mine			Bolivar Mine			Cusi Mine			Corporate			Total
Three months ended June 30, 2021	$			$			$			$			$
Revenue ⁽¹⁾		50,830			22,555			6,064			-			79,449

Production cost of sales		(21,132	)		(9,016	)		(5,401	)		-			(35,549	)
Depletion of mineral property		(2,522	)		(1,503	)		(283	)		-			(4,308	)
Depreciation and amortization of property, plant and equipment		(3,924	)		(1,545	)		(948	)		-			(6,417	)
Cost of sales		(27,578	)		(12,064	)		(6,632	)		-			(46,274	)

Gross profit (loss) from mining operations		23,252			10,491			(568	)		-			33,175

Income (loss) from operations		19,748			7,578			(1,015	)		(1,181	)		25,130
Derivative gains		-			-			-			-			-
Interest expense and other finance costs		(513	)		(21	)		(3	)		(326	)		(863	)
Other income (expense)		(691	)		198			31			(2	)		(464	)
Foreign currency exchange gain (loss)		(294	)		(871	)		(215	)		151			(1,229	)
Income (loss) before income tax		18,250			6,884			(1,202	)		(1,358	)		22,574

Income tax expense		(8,221	)		(2,928	)		(346	)		-			(11,495	)

Net income (loss) from operations		10,029			3,956			(1,548	)		(1,358	)		11,079

For the six months ended June 30, 2022, 63% of the revenues ($67,849) were from eight customers based in Peru and the remaining 37% of the revenues ($39,333) were from two customers based in Mexico. In Peru, two major customers accounted for 45% and 16% of the revenues, while the two customers in Mexico accounted for 65% and 35% of the revenues.

For the six months ended June 30, 2021, 62% of the revenues ($92,755) were from seven customers based in Peru and the remaining 38% of the revenues ($56,318) were from two customers based in Mexico. In Peru, two major customers accounted for 50% and 23% of the revenues, while the two customers in Mexico accounted for 59% and 41% of the revenues.

As at June 30, 2022, the trade receivable balance of $16,806 includes amounts outstanding of $4,765 from the two major customers in Peru and $4,018 from the two customers in Mexico.

Financial instruments and financial risk management

The Company’s financial instruments include cash and cash equivalents, trade receivables, financial assets, accounts payable and accrued liabilities, and loans payable.

(a)

Fair value of financial instruments

As at June 30, 2022 and December 31, 2021, the fair value of the financial instruments approximates their carrying value.

(b)

Fair value hierarchy

Financial instruments carried at fair value are categorized based on a three-level valuation hierarchy that reflects the significance of inputs used in making the fair value measurements as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities

Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

The Company’s metal concentrate sales are subject to provisional pricing with the selling prices adjusted at the end of the quotational period. The Company’s trade receivables are marked-to-market at each reporting period based on quoted forward prices for which there exists an active commodity market.

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unless otherwise stated, unaudited)

Level 3 – inputs for the asset or liability that are not based on observable market data.

At June 30, 2022 and December 31, 2021, the levels in the fair value hierarchy into which the Company’s financial assets are measured and recognized on the Consolidated Statement of Financial Position are categorized as follows:

	June 30, 2022								December 31, 2021
Recurring measurements	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	$		$		$		$		$		$		$		$
Trade receivables ⁽¹⁾		-		16,806		-		16,806		-		27,001		-		27,001
		-		16,806		-		16,806		-		27,001		-		27,001

⁽¹⁾Trade receivables exclude sales and income tax receivables.

There were no financial liabilities measured at fair value. There were no transfers between Level 1, Level 2, and Level 3 during the six months ended June 30, 2022 and 2021.

Supplemental cash flow information

Changes in working capital

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	$			$			$			$
Trade and other receivables		8,416			(4,017	)		10,650			(6,326	)
Financial and other assets		151			376			133			370
Inventories		1,846			(4,695	)		1,827			(6,462	)
Accounts payable and accrued liabilities		9,123			6,876			7,457			13,937
Other liabilities		(2,514	)		1,834			(6,060	)		2,475
		17,022			374			14,007			3,994

Revenues from mining operations

The Company has recognized the following amounts related to revenue in the consolidated statements of income:

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
	$			$			$			$
Revenues from contracts with customers		60,915			82,728			113,444			151,476
Provisional pricing adjustments on concentrate sales		(10,974	)		(3,279	)		(6,262	)		(2,403	)
Total revenues		49,941			79,449			107,182			149,073

The following table sets out the disaggregation of revenue by metals and form of sale:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	$		$		$		$
Revenues from contracts with customers:
Silver		12,355		20,669		26,889		38,459
Copper		29,082		30,915		50,895		52,580
Lead		3,317		6,991		6,766		14,074
Zinc		12,036		20,077		22,017		38,386
Gold		4,125		4,076		6,877		7,977
Total revenues from contracts with customers		60,915		82,728		113,444		151,476

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Sierra Metals Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended June 30, 2022 and 2021
(In thousands of United States dollars, unless otherwise stated, unaudited)

Contingencies

The Company and its subsidiaries have been named as defendants in certain actions incurred in the normal course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of Management, these matters will not have a material effect on the consolidated financial statements of the Company.

These matters include an ongoing personal action filed in Mexico against Dia Bras Mexicana S.A de C.V (“DBM”) by an individual, Carlos Emilio Seijas Bencomo, claiming the annulment and revocation of the purchase agreement of two mining concessions, Bolívar III and IV between Minera Senda de Plata S.A. de C.V. and Ambrosio Bencomo Casavantes, and with this, the nullity of purchase agreement between DBM and Minera Senda de Plata S.A. de C.V. Carlos. Emilio Seijas Bencomo passed away in 2020 and his heirs appointed Mr. Emilio Ambrosio Bencomo Portillo as legal representative to pursue this case. On March 12, 2021, the first Civil Court of Chihuahua complied with the order of the Collegiate Court absolving DBM of all claims raised by the plaintiff. The plaintiff filed an appeal against this ruling on April 7, 2021, which was dismissed by the Second Collegiate Federal on April 6, 2022, leaving the plaintiff with the only option of appealing to the Supreme Court.

Subsequent events

The Management has evaluated all events that occur after the financial reporting date through the date when the financial statements were issued and determined that there were no reportable subsequent events to be disclosed.

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Sierra Metals (SMTSF) 6-KCondensed Interim Consolidated Financial Statements