EX-4.4



 Exhibit 4.4 

SIERRA METALS INC. 
 Condensed Interim
Consolidated Financial Statements 
 For the three months ended March 31, 2017 

(unaudited) 

  

	
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 May 11, 2017 

Management’s Responsibility for Financial Reporting 

Management is responsible for the preparation of the unaudited condensed interim consolidated financial statements. These consolidated interim 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 of the Board of
Directors approved the Company’s unaudited condensed interim consolidated financial statements. 
  

					
	 “Igor Gonzales”
	  		  	 “Ed Guimaraes”

	  Igor Gonzales
	  		  	  Ed Guimaraes

	  President and Chief Executive Officer
	  		  	  Chief Financial Officer



  

	
	
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 Sierra Metals Inc. 

Condensed Interim Consolidated Statements of Financial Position 

As at March 31, 2017 and December 31, 2016 
 (In
thousands of United States dollars, unaudited) 
  
  

													
	 	 	Note	 	 	March 31, 2017	 	 	December 31, 2016	 
	 	 	 	 	 	$	 	 	$	 
		 				 	  
	  
	 
	 ASSETS
	 				 				 			
				
	 Current assets:
	 				 				 			
	 Cash and cash equivalents
	 				 	 	37,959	 	 	 	42,145	 
	 Trade and other receivables
	 	 	4	 	 	 	27,083	 	 	 	17,854	 
	 Income tax receivable
	 				 	 	305	 	 	 	281	 
	 Prepaid expenses
	 				 	 	1,476	 	 	 	873	 
	 Inventories
	 	 	5	 	 	 	19,579	 	 	 	21,309	 
		 				 	  
	  
	 
		 				 	 	86,402	 	 	 	82,462	 
		 				 	  
	  
	 
				
	 Non-current assets:
	 				 				 			
	 Property, plant and equipment
	 	 	6	 	 	 	274,505	 	 	 	281,828	 
	 Other assets
	 				 	 	235	 	 	 	234	 
	 Deferred income tax
	 				 	 	648	 	 	 	288	 
		 				 	  
	  
	 
	 Total assets
	 				 	 	361,790	 	 	 	364,812	 
		 				 	  
	  
	 
				
	 LIABILITIES
	 				 				 			
				
	 Current liabilities:
	 				 				 			
	 Accounts payable and accrued liabilities
	 	 	7	 	 	 	33,254	 	 	 	29,828	 
	 Income taxes payable
	 				 	 	4,325	 	 	 	2,357	 
	 Deferred revenue
	 	 	9	 	 	 	1,042	 	 	 	4,904	 
	 Loans payable
	 	 	8	 	 	 	28,226	 	 	 	29,378	 
	 Decommissioning liability
	 				 	 	2,060	 	 	 	1,910	 
	 Other liabilities
	 				 	 	5,053	 	 	 	4,509	 
		 				 	  
	  
	 
		 				 	 	73,960	 	 	 	72,886	 
		 				 	  
	  
	 
				
	 Non-current liabilities:
	 				 				 			
	 Loans payable
	 	 	8	 	 	 	46,814	 	 	 	49,304	 
	 Deferred income tax
	 				 	 	38,578	 	 	 	43,569	 
	 Decommissioning liability
	 				 	 	12,040	 	 	 	11,942	 
	 Other liabilities
	 				 	 	1,307	 	 	 	1,149	 
		 				 	  
	  
	 
	 Total liabilities
	 				 	 	172,699	 	 	 	178,850	 
		 				 	  
	  
	 
				
	 EQUITY
	 				 				 			
	 Share capital
	 	 	10	 	 	 	229,969	 	 	 	228,326	 
	 Accumulated deficit
	 				 	 	(78,218	) 	 	 	(80,775	) 
	 Other reserves
	 				 	 	11,056	 	 	 	12,717	 
		 				 	  
	  
	 
	 Equity attributable to owners of the Company
	 				 	 	162,807	 	 	 	160,268	 
		 				 	  
	  
	 
	 Non-controlling interest
	 	 	11	 	 	 	26,284	 	 	 	25,694	 
		 				 	  
	  
	 
	 Total equity
	 				 	 	189,091	 	 	 	185,962	 
		 				 	  
	  
	 
		 				 				 			
		 				 	  
	  
	 
	 Total liabilities and equity
	 				 	 	361,790	 	 	 	364,812	 
		 				 	  
	  
	 

 Contingencies (note 16) 

Approved on behalf of the Board and authorized for issue on May 11, 2017: 

 

							
	     “Alberto Arias”
	 		  	    “Doug Cater”
	 	
				
	   Alberto Arias
	 		  	   Doug Cater
	 	
	   Chairman of the Board
	 		  	   Chairman 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 months ended March 31, 2017 and 2016 

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

 
  

													
	 	  	 	 	    	Three Months Ended March 31,	 
	 	  	 	 	    	2017	 	    	2016	 
	 	  	Note	 	    	$	 	    	$	 
		  				    	  
	  
	 
				
	 Revenue
	  				    	 	54,518	 	    	 	23,740	 
				
	 Cost of sales
	  				    				    			
	 Mining costs
	  	 	12	 	    	 	(23,664	) 	    	 	(16,072	) 
	 Depletion, depreciation and amortization
	  	 	12	 	    	 	(16,531	) 	    	 	(9,216	) 
		  				    	  
	  
	 
		  				    	 	(40,195	) 	    	 	(25,288	) 
		  				    	  
	  
	 
		  				    				    			
		  				    	  
	  
	 
	 Gross profit (loss) from mining operations
	  				    	 	14,323	 	    	 	(1,548	) 
		  				    	  
	  
	 
				
	 General and administrative expenses
	  				    	 	(3,622	) 	    	 	(2,981	) 
	 Selling expenses
	  				    	 	(2,004	) 	    	 	(1,470	) 
	 Exploration and evaluation expenditures
	  				    	 	(435	) 	    	 	(284	) 
	 Other operating expenses
	  				    	 	-    	 	    	 	(229	) 
		  				    	  
	  
	 
	 Income (loss) from operations
	  				    	 	8,262	 	    	 	(6,512	) 
		  				    	  
	  
	 
				
	 Other income
	  				    	 	19	 	    	 	216	 
	 Foreign currency exchange gain
	  				    	 	(1,916	) 	    	 	233	 
	 Interest expense and other finance costs
	  				    	 	(1,046	) 	    	 	(1,325	) 
		  				    	  
	  
	 
	 Income (loss) before income taxes
	  				    	 	5,319	 	    	 	(7,388	) 
		  				    	  
	  
	 
				
	 Income tax (expense) recovery:
	  				    				    			
	 Current tax expense
	  				    	 	(6,173	) 	    	 	(190	) 
	 Deferred tax recovery
	  				    	 	4,468	 	    	 	1,618	 
		  				    	  
	  
	 
		  				    	   
	(1,705  
	)   
	    	   
	 1,428 
	   

		  				    	  
	  
	 
	 Net income (loss)
	  				    	 	3,614	 	    	 	(5,960	) 
		  				    	  
	  
	 
				
	 Net income (loss) attributable to:
	  				    				    			
	 Shareholders of the Company
	  				    	 	2,558	 	    	 	(5,116	) 
	 Non-controlling interests
	  				    	 	1,056	 	    	 	(844	) 
		  				    	  
	  
	 
		  				    	 	3,614	 	    	 	(5,960	) 
		  				    	  
	  
	 
				
	 Weighted average shares outstanding (000s)
	  				    				    			
	 Basic
	  				    	 	162,219	 	    	 	161,810	 
	 Diluted
	  				    	 	162,219	 	    	 	161,810	 
				
	 Basic earnings (loss) per share
	  				    	 	0.02	 	    	 	(0.03	) 
	 Diluted earnings (loss) per share
	  				    	 	0.02	 	    	 	(0.03	) 
		  				    	  
	  
	 

 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 months ended March 31, 2017 and 2016 

(In thousands of United States dollars, unaudited) 

 
  

									
	 	 	Three months ended March 31,	 
	 	 	2017	 	 	2016	 
	 	 	$	 	 	$	 
		 	  
	  
	 
			
	 Net income (loss)
	 	 	3,614	 	 	 	(5,960	) 
			
	 Other comprehensive income (loss)
	 				 			
	 Items that may be subsequently classified to net income (loss):
	 				 			
	 Currency translation adjustments on foreign operations
	 	 	(469	) 	 	 	657	 
		 	  
	  
	 
	 Total comprehensive income (loss)
	 	 	3,145	 	 	 	(5,303	) 
		 	  
	  
	 
			
	 Total comprehensive income (loss) attributable to shareholders
	 	 	2,089	 	 	 	(4,459	) 
	 Non-controlling interests
	 	 	1,056	 	 	 	(844	) 
		 	  
	  
	 
	 Total comprehensive income (loss) attributable to shareholders
	 	 	3,145	 	 	 	(5,303	) 
		 	  
	  
	 

 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 three months ended March 31, 2017 and 2016 

(In thousands of United States dollars, unaudited) 

 
  

																													
	 	 	Common Shares	 	 	 Other

reserves
 $
	 	 	 Retained earnings

(accumulated deficit)
 $
	 	 	 Total attributable

to shareholders
 $
	 	 	 Non-controlling

Interest
 $
	 	 	 Total

shareholders’ equity
 $
	 
	 	 	Shares	 	 	Amounts	 	 	 	 	 	 
	 	 	 	 	 	$	 	 	 	 	 	 
	 Balance at January 1, 2017
	 	 	162,073,293	 	 	 	228,326	 	 	 	12,718	 	 	 	(80,776	) 	 	 	160,268	 	 	 	25,694	 	 	 	185,962	 
								
	 Exercise of RSUs
	 	 	606,138	 	 	 	1,643	 	 	 	(1,643	) 	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 
	 Share-based compensation expense
	 	 	-    	 	 	 	-    	 	 	 	450	 	 	 	-    	 	 	 	450	 	 	 	-    	 	 	 	450	 
	 Dividends paid to non-controlling interest
	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	(466	) 	 	 	(466	) 
	 Total comprehensive income
	 	 	-    	 	 	 	-    	 	 	 	(469	) 	 	 	2,558	 	 	 	2,089	 	 	 	1,056	 	 	 	3,145	 
	 Balance at March 31, 2017
	 	 	162,679,431	 	 	 	229,969	 	 	 	11,056	 	 	 	(78,218	) 	 	 	162,807	 	 	 	26,284	 	 	 	189,091	 
							
	 	 	Common Shares	 	 	 Other

reserves
 $
	 	 	 Retained earnings

(accumulated deficit)
 $
	 	 	 Total attributable

to shareholders
 $
	 	 	 Non-controlling

Interest
 $
	 	 	 Total

shareholders’ equity
 $
	 
	 	 	Shares	 	 	Amounts	 	 	 	 	 	 
	 	 	 	 	 	$	 	 	 	 	 	 
	 Balance at January 1, 2016
	 	 	161,746,240	 	 	 	227,969	 	 	 	11,471	 	 	 	(68,511	) 	 	 	170,929	 	 	 	26,645	 	 	 	197,574	 
								
	 Exercise of RSUs
	 	 	193,719	 	 	 	152	 	 	 	(152	) 	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 
	 Share-based compensation expense
	 	 	-    	 	 	 	-    	 	 	 	120	 	 	 	-    	 	 	 	120	 	 	 	-    	 	 	 	120	 
	 Dividends paid to non-controlling interest
	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 	 	 	-    	 
	 Total comprehensive loss
	 	 	-    	 	 	 	-    	 	 	 	657	 	 	 	(5,116	) 	 	 	(4,459	) 	 	 	(844	) 	 	 	(5,303	) 
	 Balance at March 31, 2016
	 	 	161,939,959	 	 	 	228,121	 	 	 	12,096	 	 	 	(73,627	) 	 	 	166,590	 	 	 	25,801	 	 	 	192,391	 

 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 months ended March 31, 2017 and 2016 

(In thousands of United States dollars, unaudited) 

 
  

													
	 	  	 	 	  	Three Months Ended March 31,	 
	 	  	Note	 	  	2017	 	    	2016        	 
	 	  	 	 	  	$	 	    	$        	 
		  				  	  
	  
	 
	 Cash flows from operating activities
	  				  				    			
	 Net income (loss) from operations
	  				  	 	3,614	 	    	 	(5,960)        	 
	 Adjustments for:
	  				  				    			
	 Items not affecting cash:
	  				  				    			
	 Depletion, depreciation and amortization
	  				  	 	16,674	 	    	 	10,557        	 
	 Share-based compensation
	  				  	 	450	 	    	 	120        	 
	 Interest expense and other finance costs
	  				  	 	1,046	 	    	 	1,325        	 
	 Current income tax expense
	  				  	 	6,173	 	    	 	190        	 
	 Deferred income tax recovery
	  				  	 	(4,468	) 	    	 	(1,618)       	 
	 Unrealized foreign currency exchange gain (loss)
	  				  	 	(689	) 	    	 	396        	 
		  				  	  
	  
	 
	 Operating cash flows before movements in working capital
	  				  	 	22,800	 	    	 	5,010        	 
	 Net changes in non-cash working capital items
	  	 	15	 	  	 	(7,654	) 	    	 	(11,423)       	 
	 Decomissioning liabilities settled
	  				  	 	(49	) 	    	 	(45)       	 
	 Income taxes paid
	  				  	 	(4,059	) 	    	 	(1,595)       	 
		  				  	  
	  
	 
	 Cash generated from (used in) operating activities
	  				  	 	11,038	 	    	 	(8,053)       	 
				
	 Cash flows from investing activities
	  				  				    			
	 Capital expenditures
	  				  	 	(9,767	) 	    	 	(3,940)       	 
		  				  	  
	  
	 
	 Cash used in investing activities
	  				  	 	(9,767	) 	    	 	(3,940)       	 
		  				  	  
	  
	 
				
	 Cash flows from (used in) financing activities
	  				  				    			
	 Proceeds from issuance of notes payable
	  	 	8	 	  	 	3,750	 	    	 	3,750        	 
	 Proceeds from issuance of loans and credit facilities
	  	 	8	 	  	 	-    	 	    	 	4,000        	 
	 Repayment of loans and credit facilities
	  	 	8	 	  	 	(7,993	) 	    	 	(1,217)       	 
	 Loans interest paid
	  	 	8	 	  	 	(968	) 	    	 	(757)       	 
	 Dividends paid to non-controlling interest
	  				  	 	(466	) 	    	 	-          	 
		  				  	  
	  
	 
	 Cash from (used in) financing activities
	  				  	 	(5,677	) 	    	 	5,776        	 
		  				  	  
	  
	 
				
	 Effect of foreign exchange rate changes on cash and cash equivalents
	  				  	 	220	 	    	 	262        	 
				
	 Decrease in cash and cash equivalents
	  				  	 	(4,186	) 	    	 	(5,955)       	 
	 Cash and cash equivalents, beginning of period
	  				  	 	42,145	 	    	 	25,102        	 
		  				  	  
	  
	 
	 Cash and cash equivalents, end of period
	  				  	 	37,959	 	    	 	19,147        	 
		  				  	  
	  
	 
				
	 Supplemental cash flow information
	  	 	15	 	  				    			

 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 months ended March 31, 2017 
 (In thousands of United States dollars, unless otherwise stated, unaudited) 

 
  


	1	 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 and the Bolsa de Valores de Lima (“BVL”)
and its registered office is 79 Wellington St W, Suite 2100, Toronto, Ontario, M5K 1H1, Canada. 
 The Company owns an 81.84% interest
in the polymetallic Yauricocha Mine in Peru and 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. 

 

	2	 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, 2016. The Company’s significant accounting policies were presented in note 2
to the consolidated financial statements for the year ended December 31, 2016, and have been consistently applied in the preparation of these condensed interim consolidated financial statements. These condensed interim consolidated financial
statements were authorized for issuance by the Board of Directors on May 11, 2017. 
  

	 	(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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 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	2	Significant accounting policies (continued) 

 The principal subsidiaries of the Company and their
geographical locations as at March 31, 2017 are as follows: 
  

					
	Name of the subsidiary	  	Ownership interest	 	Location
			
	 Dia Bras EXMIN Resources Inc.
	  	100%	 	Canada
	 Plexmar 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
	 Sociedad Minera San Miguelito, S. A. C.
	  	100%	 	Perú
	 Dia Bras Mexicana, S. A. de C. V. (“Dia Bras Mexicana”)
	  	100%	 	México
	 Servicios de Minería de la Sierra, S. A. de C. V.
	  	100%	 	México
	 Bolívar Administradores, S. A. de C. V.
	  	100%	 	México
	 Exploraciones Mineras Dia Bras, S. A. de C. V.
	  	100%	 	México
	 EXMIN, 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. 

 

	3	Adoption of new accounting standards and future accounting changes 

 Future accounting changes

 The following standards and amendments to existing standards have been published and are mandatory for annual periods beginning January 1,
2018, or later periods: 
 IFRS 9, Financial Instruments: Recognition and measurement (“IFRS 9”) 

The IASB issued its completed version of IFRS 9, Financial Instruments (“IFRS 9”) in July 2014. The completed standard provides revised
guidance on the recognition and measurement of financial assets and liabilities. It also introduces a new expected credit loss model for calculating impairment for financial assets and liabilities. The new hedging guidance that was issued in
November 2013 is incorporated into this new final standard. 
 This final version of IFRS 9 will be effective for annual periods beginning on or after
January 1, 2018, with early adoption permitted. The Company is currently evaluating the extent of the impact of the adoption of this standard. 

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) 

IFRS 15, was issued in May 2014, which covers principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. The Company has not yet determined the potential impact of adopting this standard on its consolidated financial statements. 

  

	
	
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 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	3	 Adoption of new accounting standards and future accounting changes (continued) 



IFRS 16, Leases (“IFRS 16”) 

In January 2016, the IASB issued this standard which is effective for periods beginning on or after January 1, 2019, which replaces
the current guidance in IAS 17, Leases, and is to be applied either retrospectively or a modified retrospective approach. Early adoption is permitted, but only in conjunction with IFRS 15, Revenue from Contracts with Customers. Under
IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflective of future lease payments and a
“right-of-use asset” for virtually all lease contracts. The Company has not yet determined the effect of adoption of IFRS 16 on its consolidated financial statements. 

Adoption of new accounting standards 

Amendments to IAS 7, Statements of Cash Flows (“IAS 7”) 

The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing
activities, including both changes arising from cash flow and non-cash changes. The amendments apply prospectively for annual periods beginning on or after January 1, 2017, with earlier application permitted. The Company intends to adopt the
amendments to IAS 7 in its financial statements for the annual period beginning on January 1, 2017. The Company has determined that there is no impact from adopting the amendments to IAS 7 on its consolidated financial statements. 

  

	
	
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 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	4	 Trade and other receivables 



 

									
	 	  	March 31,	 	  	December 31,	 
	 	  	2017	 	  	2016	 
	  	  	$	 	  	$	 
	 Trade receivables
	  	 	20,861	 	  	 	12,840	 
	 Sales tax receivables
	  	 	5,648	 	  	 	4,617	 
	 Other receivables
	  	 	574	 	  	 	397	 
	 	  	 	27,083	 	  	 	17,854	 


 The Company did not hold any collateral for any receivable amounts outstanding at March 31,
2017 or December 31, 2016. 
  

	5	 Inventories 



 

									
	 	  	March 31,	 	  	December 31,	 
	 	  	2017	 	  	2016	 
	  	  	$	 	  	$	 
	 Stockpiles
	  	 	1,030	 	  	 	1,585	 
	 Concentrates
	  	 	6,220	 	  	 	6,647	 
	 Supplies and spare parts
	  	 	12,329	 	  	 	13,077	 
	 	  	 	19,579	 	  	 	21,309	 


 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 periods ended March 31, 2017 and 2016, respectively. During the three months ended March 31, 2017, the Company wrote down stockpile and concentrate
inventory to its NRV, recording a charge of $907 (2016- $299). 

  

	
	
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 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	6	 Property, plant and equipment 



 

																					
	 	 	 	 	 	 	 	 	 	 	 	Exploration and	 	 	 	 
	 	 	Plant and	 	 	Mining	 	 	Assets under	 	 	evaluation	 	 	 	 
	Cost	 	equipment	 	 	properties	 	 	construction	 	 	expenditure	 	 	Total $	 
	     
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Balance as of January 1, 2016
	 	 	192,566	 	 	 	418,334	 	 	 	23,873	 	 	 	38,911	 	 	 	673,684	 
						
	 Additions
	 	 	4,130	 	 	 	6,490	 	 	 	8,649	 	 	 	6,600	 	 	 	25,869	 
	 Disposals
	 	 	(325	) 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(325	) 
	 Foreign exchange revaluation
	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(158	) 	 	 	(158	) 
	 Transfers
	 	 	6,316	 	 	 	379	 	 	 	(6,316	) 	 	 	(379	) 	 	 	-	 
	 Balance as of December 31,
2016
	 	 	202,687	 	 	 	425,203	 	 	 	26,206	 	 	 	44,974	 	 	 	699,070	 
						
	 Additions
	 	 	2,079	 	 	 	3,229	 	 	 	2,815	 	 	 	1,408	 	 	 	9,531	 
	 Transfers
	 	 	131	 	 	 	-	 	 	 	(131	) 	 	 	-	 	 	 	-	 
	 Balance as of March 31,
2017
	 	 	204,897	 	 	 	428,432	 	 	 	28,890	 	 	 	46,382	 	 	 	708,601	 
	     
	 				 				 				 				 			
	 Balance as of January 1,
2016
	 	 	106,436	 	 	 	252,381	 	 	 	-	 	 	 	13,041	 	 	 	371,858	 
						
	 Depletion, depreciation and amortization
	 	 	15,818	 	 	 	29,616	 	 	 	-	 	 	 	-	 	 	 	45,434	 
	 Disposals
	 	 	(50	) 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(50	) 
	 Balance as of December 31,
2016
	 	 	122,204	 	 	 	281,997	 	 	 	-	 	 	 	13,041	 	 	 	417,242	 
						
	 Depletion, depreciation and amortization
	 	 	5,658	 	 	 	11,196	 	 	 	-	 	 	 	-	 	 	 	16,854	 
	 Balance as of March 31,
2017
	 	 	127,862	 	 	 	293,193	 	 	 	-	 	 	 	13,041	 	 	 	434,096	 
						
	     
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 Net Book Value - March 31, 2017
	 	 	77,035	 	 	 	135,239	 	 	 	28,890	 	 	 	33,341	 	 	 	274,505	 
	 Net Book Value - December 31, 2016
	 	 	80,483	 	 	 	143,206	 	 	 	26,206	 	 	 	31,933	 	 	 	281,828	 
	 Net Book Value -
December 31, 2015
	 	 	86,130	 	 	 	165,953	 	 	 	23,873	 	 	 	25,870	 	 	 	301,826	 


  

	7	 Accounts payable and accrued liabilities 



 

									
	 	  	March 31,	 	  	December 31,	 
	 	  	2017	 	  	2016	 
	  	  	$	 	  	$	 
			
	 Trade payables
	  	 	20,822	 	  	 	18,428	 
	 Other payables and accrued liabilities
	  	 	12,432	 	  	 	11,400	 
	 	  	 	33,254	 	  	 	29,828	 


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

  

	
	
12 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	8	 Loans payable 



 

									
	 	  	March 31,	 	  	December 31,	 
	 	  	2017	 	  	2016	 
	  	  	$	 	  	$	 
			
	 Current
	  				  			
			
	 Acquisition loan with Banco de Credito del Peru (a)
	  	 	5,794	 	  	 	5,784	 
	 Operating loan with Banco de Credito del Peru (b)
	  	 	5,723	 	  	 	6,211	 
	 Note payable to Scotiabank in Peru (c)
	  	 	14,750	 	  	 	14,750	 
	 Other credit facilities (d)
	  	 	366	 	  	 	1,179	 
	 Loan with FIFOMI (e)
	  	 	1,593	 	  	 	1,454	 
	 	  	 	28,226	 	  	 	29,378	 
			
	 Non-current
	  				  			
			
	 Acquisition loan with Banco de Credito del Peru (a)
	  	 	38,587	 	  	 	40,036	 
	 Operating loan with Banco de Credito del Peru (b)
	  	 	5,306	 	  	 	6,238	 
	 Loan with FIFOMI (e)
	  	 	2,921	 	  	 	3,030	 
	 	  	 	46,814	 	  	 	49,304	 
	     
	  	 	 	 	  	 	 	 
	 Total loans payable
	  	 	75,040	 	  	 	78,682	 


  

	 	(a)	  Corona Acquisition Loan with Banco de Credito del Peru S.A. (“BCP”) 



On May 24, 2011, the Company’s wholly owned subsidiary Dia Bras Peru entered into a loan agreement with BCP amounting to
$150,000. After deducting financing costs of $3,750, the net proceeds were $146,250. The proceeds from this loan were used to fund a portion of the purchase consideration for the acquisition of the Company’s 81.84% interest in Corona in Peru.
The loan was repayable over 5 years ending on May 24, 2016 and carried interest at a rate of LIBOR plus 4.5% per annum, payable quarterly in arrears. 

On August 7, 2015, Dia Bras Peru signed an amended agreement with BCP for the then outstanding debt balance of $48,000. The most
significant amendments to the agreement were: 
  

	 	•	 	 The remaining $48,000 due on the facility was split into 2 tranches 



 

	 	•	 	 Tranche 1, in the amount of $24,000 has quarterly principal repayments of $1,500 beginning in November 2016 and ending
in August 2020 


  

	 	•	 	 Tranche 2, in the amount of $24,000 has no quarterly principal repayments and to be repaid in full in August 2020



  

	 	•	 	 One year principal repayment grace period 



 

	 	•	 	 Reduced Interest rate equal to 3.65% plus 3M LIBOR vs previous rate of 4.15% plus 3M LIBOR 



 

	 	•	 	 Term of the Facility extended for 5 Years 



These amendments did not trigger the de-recognition rules under IAS 39 - Financial Instruments. 

Principal repayments totalling $1,500 have been made for the three months ended March 31, 2017 (2016 - $Nil). 

  

	
	
13 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 

	8	 Loans payable (continued) 



 

 The loan is recorded at amortized cost and is being accreted to face value over 5 years
using an effective interest rate of 4.71%. An amortization expense related to the transaction costs for $61 has been recorded for the three months ended March 31, 2017 (2016 - $124). Interest payments totalling $551 have been made for the three
months ended March 31, 2017 (2016 - $486). 
 The loan with BCP is secured by a pledge over Dia Bras Peru’s interest in
Corona voting shares and is guaranteed by the Company. The Company is in compliance with all financial covenants as at March 31, 2017. 
  

	 	(b)	  Corona Operating Loan with BCP 



On October 17, 2013, the Company’s subsidiary Corona, in which the Company has an interest of 81.84%, entered into a credit
facility with the BCP for up to $60,000. The credit facility is for a 5 year term and the funds can be drawn within the first 3 years in tranches of up to $40,000 during the first year, up to $30,000 during the second year and up to $20,000 during
the third year. The loan bears interest of LIBOR plus 4.5% and the loan principal and interest are payable in quarterly installments over the term of the loan with the first payment due 15 months after the closing of the credit facility. The loan is
guaranteed by the collection rights and future cash flows generated from the sale of ore concentrates and other products. The loan contains certain financial covenants, events of default and other provisions which are customary for a transaction of
this nature. These covenants include maintaining an equity balance at the Corona level higher than $30 million, maintaining a Debt Service Coverage ratio higher than 1.1x, and maintaining a Net Financial Debt/EBITDA ratio lower than 2.0x. 

The Company is in compliance with all financial covenants as at March 31, 2017. 

On June 29, 2016, $5,000 was drawn from this facility bearing an interest rate of three months LIBOR plus 4.5%. 

Principal repayments totalling $1,563 have been made for the three months ended March 31, 2017 (2016 – $938). Interest payments
totalling $134 have been made for the three months ended March 31, 2017 (2016 – $184). 
  

	 	(c)	  Corona Notes payable with Scotiabank Peru 



In order to fund its short term working capital needs, Corona repaid and drew down the following notes payable: 

 

	 	•	 	 A revolving credit facility from Scotiabank Peru for $11,000 bearing an annual interest rate of 1.99% matured and was
repaid in full on May 6, 2016. 


  

	 	•	 	 On May 6, 2016 a new $15,000 revolving credit facility with Scotiabank was obtained. $11,000 was drawn to repay the
$11,000 that was outstanding on the previous facility. The new credit facility bears an interest rate of three month LIBOR plus 2.00%. 


  

	 	•	 	 On February 8, 2016, $3,750 was drawn from this facility which bears an interest rate of LIBOR plus 1.9%.




  

	
	
14 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 

	8	 Loans payable (continued) 



 


	 	(d)	  Other credit facilities 



 

	 	•	 	 Pre-Export Finance Facility (“the Pre-Export Finance Facility”): On March 2, 2016, Dia Bras
Mexicana (“DBM”) entered into a $4,000 Pre-Export Finance Facility with METAGRI S.A de C.V (“METAGRI”), to whom DBM sells all of its lead concentrate. The $4,000 facility was drawn down on March 2, 2016 and bears interest of
5.0% plus 1 year LIBOR. 


 Repayment will take place against deliveries of lead concentrate for the period of April
2016 up to and including June 2017. METAGRI will deduct seven hundred dollars per dry metric ton of material from the purchase price payable to DBM in the provisional payment for each dry metric ton of the material delivered to METAGRI under the
sales contract, subject to a minimum monthly deduction of two hundred and seventy thousand dollars (“the minimum monthly deduction”) plus the accrued interest. If DBM fails to deliver the material during any month from April 2016 until and
including June 2017, and/or the value of the material during any month is lower than the minimum monthly deduction plus the accrued interest, DBM will repay METAGRI the short-fall within two business days after METAGRI’s written notice. 

The deductions will be made until such time as the Pre-Export Finance Facility has been fully amortized and the interest had been fully
serviced. DBM has agreed that METAGRI can set-off any final payment deferred under the sales contract against any outstanding Pre-Export Finance Facility or interest to ensure full amortization of the principal and service the interest. 

During the three month period ended March 31, 2017, DBM has made repayments totaling $810 (2016 - $Nil). 

 

	 	(e)	  FIFOMI loan 


  

	 	•	 	 During January 2015, the Company’s Mexican Subsidiary, Dia Bras Mexicana S.A. de C.V, received a loan of MXP$120
million from Nacional Financiera, Sociedad Fiduciaria del Fideicomiso de Fomento Minero (“FIFOMI”) to be used for working capital purposes and capital expenditures, specifically the expansion of the Piedras Verdes Plant.



 On February 2, 2015, DBM drew MXP$120 million (US$7,995). After deducting transaction costs of US$124, net
proceeds were US$7,871. 
 Monthly principal repayments have taken place over four years beginning in January 2016 at an interest rate
of TIIE + 3%. Interest payments began in February 2015 and during the three months ended March 31, 2017, DBM has made interest payments of $89 (MXP$1,804) (2016 – $92). Principal payments of $369 (MXP$7,500) (2016 - $279) have been made
during the three months ended March 31, 2017. 

  

	
	
15 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	9	 Deferred revenue 



During December 2016 the Company received a payment of $4,904 for copper concentrate stockpiled at the Piedras Verdes Plant which was
awaiting a new filter in order to further process and dry the concentrate. The Company entered into an agreement with their customer, Trafigura Mexico S.A. de C.V. (“Trafigura”) who agreed to pay for the concentrate in advance with certain
stipulations. The Company must pay interest to Trafigura on the advance payment at the LIBOR 3-month rate plus 3% from the date the advance payment was made to the date when the first provisional payment for the product is otherwise due. The 4,100
DMT of copper concentrate stockpiled must be delivered according to the following schedule: 705 DMT during January 2017, 1,200 DMT during February 2017, 1,200 DMT during March 2017 and 950 DMT during April 2017. Since the copper concentrate
inventory was not shipped to Trafigura during 2016, and the advance payment was received during 2016, as per the terms of the agreement and holding certificate granted, the payment was recorded as deferred revenue. The amount is being subsequently
drawn down as the concentrate is shipped to Trafigura, which resulted in revenues being recognized in the first quarter of 2017. Interest has been accrued according with the terms of the agreement and has been recorded in accrued liabilities. 

 

	10	 Share capital and share-based payments 



 

	 	(a)	 Authorized capital 



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

 

	 	(b)	 Stock options 



The changes in stock options outstanding during the three months ended March 31, 2017 and the year ended December 31, 2016 was
as follows: 
  

																	
	 	  	 	 	  	March 31,	 	  	 	 	 	December 31,	 
	 	  	  	 	  	2017	 	  	  	 	 	2016	 
					
	 	  	Number	 	  	Weighted	 	  	Number	 	 	Weighted	 
	 	  	of options	 	  	average	 	  	of options	 	 	average	 
	 	  	 	 	  	exercise	 	  	 	 	 	exercise	 
	 	  	  	 	  	price C$	 	  	  	 	 	price C$	 
	 Outstanding, beginning of period
	  	 	-      	 	  	 	-      	 	  	 	7,116	 	 	 	3.40  	 
	 Granted
	  	 	-      	 	  	 	-      	 	  	 	-      	 	 	 	-      	 
	 Exercised
	  	 	-      	 	  	 	-      	 	  	 	-      	 	 	 	-      	 
	 Forfeited
	  	 	-      	 	  	 	-      	 	  	 	-      	 	 	 	-      	 
	 Expired
	  	 	-      	 	  	 	-      	 	  	 	(7,116	) 	 	 	3.40  	 
	 Outstanding, end of period
	  	 	-      	 	  	 	-      	 	  	 	-      	 	 	 	-      	 
					
	 Exercisable, end of period
	  	 	-      	 	  	 	-      	 	  	 	-      	 	 	 	-      	 



  

	
	
16 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	10	 Share capital and share-based payments (continued) 



 

	 	(c)	  Restricted share units (“RSUs”) 



The changes in RSU’s issued during the three months ended March 31, 2017 and the year ended December 31, 2016 was as
follows: 
  

									
	  	  	March 31,	 	 	December 31,	 
	  	  	2017	 	 	2016	 
	 Outstanding, beginning of period
	  	 	1,771,877	 	 	 	874,788	 
	 Granted
	  	 	1,126,254	 	 	 	1,278,753	 
	 Exercised
	  	 	(606,138	) 	 	 	(327,053	) 
	 Forfeited
	  	 	-      	 	 	 	(54,611	) 
	 Outstanding, end of period
	  	 	2,291,993	 	 	 	1,771,877	 


 On June 29, 2012, 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. The current
maximum number of common shares authorized for issue under the RSU plan is 8,000,000. The RSUs have vesting conditions determined by the Board of Directors. 

During the three months ended March 31, 2017, the Company granted one tranche of RSU’s totalling 1,126,254 which had a fair
value of C$3.67 based on the closing share price at grant date. RSUs exercised during the three months ended March 31, 2017 had a weighted average fair value of C$3.61 (2016 – C$1.52). As at March 31, 2017, the weighted average fair
value of the RSUs outstanding is C$2.39 (2016 – C$1.51). 

  

	
	
17 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	11	 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 and after fair value adjustments on acquisition of the entity. 

Summarized balance sheet 
  

									
	  	    	 March 31,

2017
 $
	 	 	 December 31,

2016
 $
	 
	 Current
	    				 			
	 Assets
	    	 	72,884	 	 	 	62,731	 
	 Liabilities
	    	 	(45,900	) 	 	 	(42,147	) 
	 Total current net assets
	    	 	26,984	 	 	 	20,584	 
			
	 Non-current
	    				 			
	 Assets
	    	 	171,497	 	 	 	180,196	 
	 Liabilities
	    	 	(53,251	) 	 	 	(58,801	) 
	 Total non-current net assets
	    	 	118,246	 	 	 	121,395	 
	 Net assets
	    	 	145,230	 	 	 	141,979	 
		
	 Summarized income statement
  
	    	 	 
	 	    	For the three months ended March 31,    	 
	  	    	 2017

$
	 	 	 2016

$
	 
			
	 Revenue
	    	 	38,501	 	 	 	12,500	 
	 Income (loss) before income tax
	    	 	7,273	 	 	 	(6,139	) 
	 Income tax recovery (expense)
	    	 	(1,457	) 	 	 	1,491	 
	 Total income (loss)
	    	 	5,816	 	 	 	(4,648	) 
	 Total income (loss) attributable to non-controlling
interests
	    	 	1,056	 	 	 	(844	) 
	 Dividends paid to non-controlling interests
	    	 	(466	) 	 	 	-    	 


 Summarized cash flows 

 

									
	 	    	For the three months ended March 31,    	 
	  	    	 2017

$
	 	 	 2016

$
	 
			
	 Cash flows from operating activities
	    				 			
	 Cash generated from operating activities
	    	 	20,417	 	 	 	1,077	 
	 Net changes in non cash working capital items
	    	 	(4,993	) 	 	 	(5,014	) 
	 Decomissioning liabilities settled
	    	 	(49	) 	 	 	(45	) 
	 Income taxes paid
	    	 	(4,059	) 	 	 	(1,595	) 
	 Net cash generated from operating activities
	    	 	11,316	 	 	 	(5,577	) 
	 Net cash used in investing activities
	    	 	(4,164	) 	 	 	(1,570	) 
	 Net cash from (used in) financing activities
	    	 	(8,675	) 	 	 	2,628	 
	 Effect of foreign exchange rate changes on cash and cash
equivalents
	    	 	16	 	 	 	(5	) 
	 Decrease in cash and cash equivalents
	    	 	(1,507	) 	 	 	(4,524	) 
	 Cash and cash equivalents, beginning of year
	    	 	36,877	 	 	 	21,818	 
	 Cash and cash equivalents, end of period
	    	 	35,370	 	 	 	17,294	 



  

	
	
18 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	12	 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 months ended March 31, 2017 and
2016 relate to the Yauricocha, Bolivar and Cusi Mines. 
  

	 	(a)	 Mining costs 


  

											
	 	 	 Three months ended March 31,    
	 
	 	 	 	  	2017	 	  	2016	 
	  	 	  	  	$	 	  	$	 
	 Employee compensation and benefits
	 		  	 	5,485	 	  	 	3,056 	 
	 Third party and contractors costs
	 		  	 	9,588	 	  	 	6,728 	 
	 Depreciation
	 		  	 	16,531	 	  	 	9,216 	 
	 Consumables
	 		  	 	6,531	 	  	 	7,064 	 
	 Other
	 	 	  	 	2,060	 	  	 	(776)	 
	 	 	 	  	 	40,195	 	  	 	25,288 	 

  

	13	 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: 

  

	
	
19 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	13	 Segment reporting (continued) 



 

																					
	 	  	Peru	 	  	Mexico	 	  	Mexico	 	  	Canada	 	  	 	 
	 	  	Yauricocha Mine	 	  	Bolivar Mine	 	  	Cusi Mine	 	  	Corporate	 	  	Total	 
	Three months ended March 31, 2017	  	$	 	  	$	 	  	  	 	  	$	 	  	$	 
						
	 Revenue
	  	 	38,501 	 	  	 	13,811 	 	  	 	2,206 	 	  	 	-  	 	  	 	54,518 	 
						
	 Production cost of sales
	  	 	(15,128)	 	  	 	(7,000)	 	  	 	(1,536)	 	  	 	-  	 	  	 	(23,664)	 
	 Depletion of mineral property
	  	 	(9,631)	 	  	 	(1,002)	 	  	 	(220)	 	  	 	-  	 	  	 	(10,853)	 
	 Depreciation and amortization of property, plant and
equipment
	  	 	(2,993)	 	  	 	(2,202)	 	  	 	(483)	 	  	 	-  	 	  	 	(5,678)	 
	 Cost of sales

 
	  	   
	 (27,752) 
	   
	  	   
	 (10,204) 
	   
	  	   
	 (2,239) 
	   
	  	   
	 -   
	   
	  	   
	(40,195)  
	   

	 Gross profit (loss) from mining operations
	  	 	10,749 	 	  	 	3,607 	 	  	 	(33)	 	  	 	-  	 	  	 	14,323 	 
						
	 Income (loss) from operations
	  	 	7,657 	 	  	 	1,573 	 	  	 	(422)	 	  	 	(546)	 	  	 	8,262 	 
	 Interest expense and other finance costs
	  	 	(900)	 	  	 	-  	 	  	 	(146)	 	  	 	-  	 	  	 	(1,046)	 
	 Other income (expense)
	  	 	119 	 	  	 	(81)	 	  	 	(18)	 	  	 	(1)	 	  	 	19 	 
	 Foreign currency exchange gain (loss)
	  	 	(217)	 	  	 	(1,340)	 	  	 	(346)	 	  	 	(13)	 	  	 	(1,916)	 
	 Income (loss) before income tax
	  	 	6,659 	 	  	 	152 	 	  	 	(932)	 	  	 	(560)	 	  	 	5,319 	 
						
	 Income tax expense

 
	  	   
	 (1,457) 
	   
	  	   
	 (204) 
	   
	  	   
	 (44) 
	   
	  	   
	 -   
	   
	  	   
	(1,705)  
	   

	 Net income (loss) from operations
	  	 	5,202 	 	  	 	(52)	 	  	 	(976)	 	  	 	(560)	 	  	 	3,614 	 
	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 
	 March 31, 2017
	  	 	Peru	 	  	 	      Mexico	 	  	 	Canada	 	  			
						
	 Total assets
	  	 	235,096 	 	  				  	 	116,275 	 	  	 	10,419 	 	  	 	361,790 	 
	 Non-current assets
	  	 	171,559 	 	  				  	 	94,772 	 	  	 	8,409 	 	  	 	274,740 	 
	 Total liabilities
	  	 	143,343 	 	  	 	 	 	  	 	26,811 	 	  	 	2,545 	 	  	 	172,699 	 



  

	
	
20 | Page











 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	13	 Segment reporting (continued) 



 

																					
	 	  	Peru	 	 	Mexico	 	 	Mexico	 	 	Canada	 	 	 	 
	 	  	Yauricocha Mine	 	 	Bolivar Mine	 	 	Cusi Mine	 	 	Corporate	 	 	Total	 
	Three months ended March 31, 2016	  	$	 	 	$	 	 	  	 	 	$	 	 	$	 
						
	 Revenue
	  	 	12,500	 	 	 	8,300	 	 	 	2,940	 	 	 	-    	 	 	 	23,740	 
						
	 Production cost of sales
	  	 	(9,276	) 	 	 	(5,573	) 	 	 	(1,223	) 	 	 	-    	 	 	 	(16,072	) 
	 Depletion of mineral property
	  	 	(5,285	) 	 	 	(933	) 	 	 	(205	) 	 	 	-    	 	 	 	(6,423	) 
	 Depreciation and amortization of property, plant and
equipment
	  	 	(1,066	) 	 	 	(1,416	) 	 	 	(311	) 	 	 	-    	 	 	 	(2,793	) 
	 Cost of sales
  
	  	   
	 (15,627 
	 )  
	 	   
	 (7,922 
	 )  
	 	   
	 (1,739 
	 )  
	 	   
	 -     
	   
	 	   
	(25,288  
	)   

	 Gross profit (loss) from mining
operations
	  	 	(3,127	) 	 	 	378	 	 	 	1,201	 	 	 	-    	 	 	 	(1,548	) 
						
	 Income (loss) from operations
	  	 	(5,614	) 	 	 	(219	) 	 	 	(68	) 	 	 	(611	) 	 	 	(6,512	) 
	 Interest expense and other finance costs
	  	 	(1,171	) 	 	 	-    	 	 	 	(154	) 	 	 	-    	 	 	 	(1,325	) 
	 Other income
	  	 	43	 	 	 	136	 	 	 	30	 	 	 	7	 	 	 	216	 
	 Foreign currency exchange gain (loss)
	  	 	24	 	 	 	820	 	 	 	156	 	 	 	(767	) 	 	 	233	 
	 Income (loss) before income
tax
	  	 	(6,718	) 	 	 	737	 	 	 	(36	) 	 	 	(1,371	) 	 	 	(7,388	) 
						
	 Income tax (expense) recovery
  
	  	   
	 1,490 
	   
	 	   
	 (51 
	 )  
	 	   
	 (11 
	 )  
	 	   
	 -     
	   
	 	   
	1,428  
	   

	 Net income (loss) from
operations
	  	 	(5,228	) 	 	 	686	 	 	 	(47	) 	 	 	(1,371	) 	 	 	(5,960	) 
					
	March 31, 2016	  	        Peru	 	 	Mexico	 	 	Canada	 	 	Total	 
						
	 Total assets
	  	 	239,491	 	 				 	 	117,792	 	 	 	8,243	 	 	 	365,526	 
	 Non-current assets
	  	 	192,063	 	 				 	 	100,483	 	 	 	6,839	 	 	 	299,385	 
	 Total liabilities
	  	 	145,007	 	 	 	 	 	 	 	27,198	 	 	 	929	 	 	 	173,134	 


 For the three months ended March 31, 2017, 70% of the revenues ($38,501) were from two
customers based in Peru and the remaining 30% of the revenues ($16,017) were from two customers based in Mexico. In Peru, the two customers accounted for 68% and 32% of the revenues. In Mexico, the two customers accounted for 85% and 15% of the
revenues. 
 For the three months ended March 31, 2016, 53% of the revenues ($12,500) were from two customers based in Peru and
the remaining 47% of the revenues ($11,240) were from two customers based in Mexico. In Peru, the two customers accounted for 55% and 45% of the revenues. In Mexico, the two customers accounted for 77% and 23% of the revenues. 

As at March 31, 2017, the trade receivable balance of $20,861 includes amounts outstanding of $3,653 and $17,168 from two customers
in Mexico and two customers in Peru, respectively. 

  

	
	
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 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	14	 Financial instruments and financial risk management 



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

	 	(a)	 Fair value of financial instruments 



As at March 31, 2017 and December 31, 2016, 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. 
 Level 3 – inputs for the asset or liability that are not based on observable market data. 

At March 31, 2017 and December 31, 2016, the levels in the fair value hierarchy into which the Company’s financial assets
and liabilities are measured and recognized on the Consolidated Statement of Financial Position are categorized as follows: 
  

																																	
	  	  	March 31, 2017	 	  	  	 	  	  	 	  	December 31, 2016	 
	Recurring measurements	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Total	 
	  	  	$	 	  	$	 	  	$	 	  	$	 	  	$	 	  	$	 	  	$	 	  	$	 
	 Trade receivables
(1)
	  	 	-    	 	  	 	20,861	 	  	 	-    	 	  	 	20,861	 	  	 	-    	 	  	 	12,840	 	  	 	-    	 	  	 	12,840	 
	 	  	 	-    	 	  	 	20,861	 	  	 	-    	 	  	 	20,861	 	  	 	-    	 	  	 	12,840	 	  	 	-    	 	  	 	12,840	 


 (1)Trade receivables exclude sales and income
tax receivables. 
 There were no transfers between level 1 and level 2 during the three months ended March 31, 2017 and 2016.


  

	
	
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 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	15	 Supplemental cash flow information 



Changes in working capital 
  

									
	 	  	Three months ended March 31,    	 
	 	  	2017	 	 	2016	 
	  	  	$	 	 	$	 
	 Trade and other receivables
	  	 	(9,229	) 	 	 	(1,538	) 
	 Financial and other assets
	  	 	(603	) 	 	 	(380	) 
	 Income tax receivable
	  	 	(24	) 	 	 	(1,753	) 
	 Inventories
	  	 	1,730	 	 	 	(6,026	) 
	 Accounts payable and accrued liabilities
	  	 	3,957	 	 	 	(2,061	) 
	 Income taxes payable
	  	 	(4,059	) 	 	 	(166	) 
	 Other liabilities
	  	 	574	 	 	 	501	 
	 	  	 	(7,654	) 	 	 	(11,423	) 


 During the three months ended March 31, 2017, the non-cash changes in liabilities arising
from financing activities were $601 relating to $399 of foreign exchange losses on translating the FIFOMI loan from Mexican Pesos to US dollars, and $202 of amortization of transaction costs on the BCP loans. 

  

	
	
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 Sierra Metals Inc. 

Notes to the Condensed Interim Consolidated Financial Statements 

For the three months ended March 31, 2017 
 (In
thousands of United States dollars, unless otherwise stated, unaudited) 
  

 


	16	 Contingencies 



The Company and its subsidiaries have been named as defendants in certain actions incurred in the normal course of business. In all
cases the Company and its subsidiaries will continue to vigorously defend the actions and an accrual has been made in the consolidated financial statements for matters that are probable and can be reliably estimated. 

The contingencies outstanding associated with our Mexican subsidiaries are as follows: 

 

	 	a)	 In October 2009, Polo y Ron Minerals, S.A. de C.V. (“P&R”) sued the Company and one of its subsidiaries,
Dia Bras Mexicana S.A. de C.V. P&R claimed damages for the cancelation of an option agreement (the “Option Agreement”) regarding the San Jose properties in Chihuahua, Mexico (the “San Jose Properties”). The Company believes
that it has complied with all of its obligations pertaining to the Option Agreement. In October 2011, the 8th Civil Court of the Judicial District of Morelos in Chihuahua issued a resolution that absolved the Company from the claims brought against
it by P&R on the basis that P&R did not provide evidence to support any of its claims. P&R appealed this resolution to the State Court, which overruled the previous resolution and ordered the Company to: (i) transfer to P&R 17
mining concessions from the Company’s Bolivar project, including the mining concessions where both mine operations and mineral reserves estimates are located; and (ii) pay $422,674 to P&R. In February 2013, a Federal Court in the State
of Chihuahua granted the Company a temporary suspension of the adverse resolution issued by the State Court of Chihuahua, Mexico. On February 12, 2016 The Second Federal Collegiate Court of Civil and Labor Matters, of the Seventeenth circuit in
the State of Chihuahua, (“the Federal Court”) issued a new judgment ruling that the State Court lacked jurisdiction to rule on issues concerning mining titles, and that no previous rulings by the State Court against the Company shall
stand. They ordered the cancellation of the previous adverse resolution by the state Court. The Company will continue to vigorously defend this claim. Sierra Metals continues to believe that the original claim is without merit.



 

	 	b)	 In 2009, a personal action was filed in Mexico against DBM by an individual, Ambrosio Bencomo Muñoz as
administrator of the intestate succession of Ambrosio Bencomo Casavantes y Jesus Jose Bencomo Muñoz, 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. In June 2011, the Sixth Civil Court of Chihuahua, Mexico, ruled that the claim was unfounded and
dismissed the case, the plaintiff appealed to the State Court. The process is in the appealing court. The Company will continue to vigorously defend this action and is confident that the claim is of no merit. 



  

	
	
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