SMT Sierra Metals Inc

Arias Resource Capital Fund II L.P. and Arias Resource Capital Fund II (Mexico) L.P. (the “Nominating Shareholders”), together with other affiliates of Arias Resource Capital and its principal (together with the Nominating Shareholders, “ARC”) has launched ProtectYourSierraInvestment.com to highlight the urgent case for change at Sierra Metals Inc. (“Sierra” or the “Company”) (TSX: SMT) and the need for a major reconstitution of the Board of Directors (the “Board”). Regardless of any statements made by Sierra, the facts are indisputable as is the urgent need for change at Sierra. Shareholders are encouraged to visit the website for important updates ahead of Sierra’s pivotal shareholder meeting.

Last week, ARC announced that it would be nominating J. Alberto Arias, Derek White, Daniel Tellechea, Ricardo Arrarte, and Alonso Checa (collectively, the “ARC Nominees”) for election to the Board at Sierra’s annual general and special meeting of shareholders currently scheduled to be held on June 28, 2023.

The Urgent Need for Change

Since ARC representatives left the Board in mid-2021, Sierra shareholders have seen the value of their investments drop by over 90% under the oversight of a Board that has a shareholding of less than 1% in the Company. ARC believes that the Board’s lack of ownership and incentive is central to the demonstrable lack of urgency with which the Board has acted to address Sierra’s challenges and why Sierra shareholders have seen total negative returns of ~73.68% over the last four quarters ending March 31, 2023.

The ARC Nominees, on the other hand, have in-depth knowledge of Sierra’s operations and ARC representatives have previously overseen Sierra’s market capitalization growth from under US$50 million to over US$600 million. ARC Nominees include former Sierra Board members J. Alberto Arias and Ricardo Arrarte, who as recently as FY20 achieved positive total shareholder returns of 93.12%. During the 10 years under ARC’s leadership, the Company’s annual throughput grew significantly and profitability reached record highs, highlighting ARC’s mission of delivering profitable growth and long-term sustainability.

J. Alberto Arias, director and principal of ARC, stated, “The Company’s recent decline stands in sharp contrast to the returns we accomplished while serving on the Board. Sierra urgently needs a Board with in-country experience in the mining and metals industry in Peru and Mexico, expertise in geological, mining and metallurgical engineering, experience in permitting and community engagement, and expertise in mining finance and M&A transactions in the metals sector. The ARC Nominees have this experience and expertise, and a track-record of previously turning Sierra into a profitable mining player. Sierra’s Board claims they are doing all the right things; the data tells the opposite story.”

Refusal of Sierra’s Incumbent Board to Address Core Issues

Sierra issued a press release responding to ARC’s May 1, 2023 press release. Sierra’s response does not address the fundamental problems plaguing the Company, while inadvertently agreeing to the broader points made by ARC.

Sierra remains in financial distress and is at the mercy of its lenders, which is a cause of worry for shareholders and their investments. The Board’s poor performance is further established as the Company is yet to formalize the refinancing contract with its lenders. This is more than six months after Sierra’s loans went into forbearance. Sierra has portrayed a bridging loan as a resolution for its short-term debt obligations when this type of financing is more analogous to a “Payday Loan” for a troubled Company.

Despite the ongoing financial bleeding, Sierra’s second strategic review process in as many years, has not produced any outcome that can reassure shareholders that the Board is capable of turning the Company around. Sierra’s incumbent Board points to tactical and operational activities it is pursuing as being a product of the strategic review. These do not fall within the purview of services that a financial advisor is compensated for, nor has the financial advisor retained by Sierra in November 2022 appeared to come up with any accretive possible outcomes of a strategic review. Despite these pressing and troubling circumstances, the Company’s incumbent Board refused to directly engage with ARC representatives for over six months.

ARC’s 10-year track-record in growing Sierra into a profitable midsize mining player, contrasted with the subsequent sharp decline in the Company’s value and financial and operational metrics after ARC representatives left the Board, is no coincidence. The lack of productive communication and meaningful engagement by the incumbent Board with ARC, Sierra’s virtual founder and largest shareholder for the past 14 years, is egregious and demonstrates the focus on entrenchment rather than restoring Sierra’s value.

Sierra’s shareholders are urged to visit ProtectYourSierraInvestment.com to learn about ARC’s proposed nominees and why they have the experience and expertise to restore Sierra to its former track-record of success through robust production growth and a focus on maximizing shareholder value.

ADVISORS

ARC has retained Kingsdale Advisors as its strategic shareholder and communications advisor and, should ARC commence a formal solicitation of proxies, its strategic shareholder advisor and proxy solicitation agent. ARC has retained Stikeman Elliott LLP as its legal advisor.

ABOUT ARC

Arias Resource Capital, founded in 2007, is a Miami-based private equity firm in the metals sector that invests in critical materials empowering the clean energy revolution.

CAUTIONARY NOTES AND FORWARD-LOOKING STATEMENTS

This news release contains forward-looking information within the meaning of applicable securities laws (“forward-looking statements”) and are prospective in nature. These forward-looking statements are not based on historical facts, but rather on current expectations and may include projections about future events and estimates and their underlying assumptions, statements regarding plans, objectives, intentions and expectations with respect to future financial results, events, operations, services, product development and potential, and statements regarding future performance. Forward-looking statements are generally identified by the words "expects", "anticipates", "believes", "intends", "estimates", "plans", "will", “may”, “should”, “could”, “believes”, “potential” or “continue” and similar expressions, or the negative thereof. Forward-looking statements in this news release include, without limitation, statements regarding the potential benefits, contributions and development of the ARC Nominees and the expected impact and results of Sierra’s strategic review process and Sierra’s corporate governance practices. There are numerous risks and uncertainties that could cause actual results and ARC’s plans and objectives to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements in this news release, including, without limitation, the risks described under the headings such as “Cautionary Statement – Forward Looking Information” and "Risk Factors" in Sierra’s annual information form dated March 28, 2023 for its fiscal year ended December 31, 2022, and other risks identified in Sierra's filings with Canadian securities regulatory authorities which are available under Sierra’s profile on SEDAR at www.sedar.com. The forward-looking statements speak only as of the date hereof and, other than as required by applicable law, ARC undertakes no duty or obligation to update or revise any forward-looking information or statements contained in this news release as a result of new information, future events, changes in expectation or otherwise.

Additional Information

In connection with the Nominating Shareholders’ solicitation of proxies in respect of Sierra’s annual general and special meeting of shareholders currently scheduled to be held on June 28, 2023 (the “2023 AGM”), the Nominating Shareholders intend to file and mail to Sierra shareholders an information circular and form of proxy in due course.

Any solicitation made by ARC will be made by it and not by or on behalf of the management of Sierra. All costs incurred for any solicitation will be borne by ARC, provided that, subject to applicable law, ARC may seek reimbursement from Sierra of ARC’s out-of-pocket expenses, including proxy solicitation expenses and legal fees, incurred in connection with any successful result at a meeting of Sierra shareholders. Proxies may be solicited by ARC pursuant to an information circular sent to shareholders after which solicitations may be made by or on behalf of ARC by mail, telephone, fax, email or other electronic means as well as by newspaper or other media advertising, and in person by directors, officers and employees of ARC, who will not be specifically remunerated therefor. ARC may also solicit proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws, including through press releases, speeches or publications, and by any other manner permitted under applicable Canadian laws. ARC may engage the services of one or more agents and authorize other persons to assist in soliciting proxies on its behalf, which agents would receive customary fees for such services. In particular, ARC has engaged Kingsdale Advisors (“Kingsdale”) to act as ARC’s shareholder and communications advisor and, should ARC commence a formal solicitation of proxies, to act as its strategic shareholder advisor and proxy solicitation agent to solicit proxies in the United States and Canada. Pursuant to this engagement, Kingsdale will receive an initial fee of C$150,000, plus a customary fee for each call to and from shareholders. Proxies may be revoked by instrument in writing by a shareholder giving the proxy or by its duly authorized officer or attorney, or in any other manner permitted by law and the articles or by-laws of Sierra. None of ARC nor, to its knowledge, any of its associates or affiliates, has any material interest, direct or indirect: (i) in any transaction since the beginning of Sierra’s most recently completed financial year or in any proposed transaction that has materially affected or would materially affect Sierra or any of its subsidiaries; or (ii) by way of beneficial ownership of securities or otherwise, in any matter proposed to be acted on by Sierra at the 2023 AGM, other than the election of directors to the board of Sierra or as disclosed in accordance with applicable law.

Sierra trades on the Toronto Stock Exchange under the symbol “SMT”. Sierra’s head office is located at 77 King Street West, Suite 400, Toronto, Ontario M5K 0A1.

CONTACT

Andrew SidnellVice President, Special SituationsKingsdale Advisors647-265-4522asidnell@kingsdaleadvisors.com