Arias Resource Capital Corrects Record on Sierra Metals’ Failed 2021 Strategic Review Process and Kolpa Transaction Discussions

Arias Resource Capital Corrects Record on Sierra Metals’ Failed 2021 Strategic Review Process and Kolpa Transaction Discussions

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MIAMI, May 15, 2023 (GLOBE NEWSWIRE) — 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”) today responded to the misleading and inaccurate statements made by the board of directors (the “Sierra Board”) of Sierra Metals Inc. (“Sierra” or the “Company”) (TSX: SMT) following the close of business on Friday, May 12, 2023 and earlier this morning, May 15, 2023. ARC holds approximately 27% of the outstanding shares of Sierra.

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Rather than answer to Sierra shareholders for their woeful performance and unthinkable destruction of over 90% of shareholder value, ARC believes that the Sierra Board has tried to paint ARC and its principal, J. Alberto Arias, as self-interested actors, while falsely and maliciously claiming that Mr. Arias is somehow to blame for the situation that the Company now finds itself in. Furthermore, the Sierra Board has blatantly mischaracterized the discussions and engagement with respect to Compañia Minera Kolpa S.A. (“Kolpa”). The Nominating Shareholders urge all shareholders to hold the Sierra Board accountable for its attempted obfuscation.

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Contrary to the Company’s May 12, 2023 assertions, Mr. Arias and the other ARC representative left the Sierra Board almost two years ago. The distribution of Sierra shares to the limited partners of an ARC-managed fund that Sierra now blames for its share price performance was made over two years ago, and does not explain the over 90% loss of value to shareholders or the disastrous operational performance of the Company since.

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Fundamentally, the Sierra Board and the Company’s current management have no one to blame for the state of the Company but themselves. And they owe shareholders the truth about the Company’s 2021 strategic review process (the “2021 Strategic Review Process”). Sierra’s press release on Friday May 12, 2023 states that “the strategic review process was concluded without having identified a buyer for the Company”, which is not accurate. ARC recently learned that, following the departure of the ARC representatives from the Sierra Board in 2021, the Sierra Board received and rejected an all-cash offer from a prominent, fully-financed strategic buyer. To the best of ARC’s information and belief, the Sierra Board, following months of due diligence and after entering into an exclusivity agreement, received and rejected a cash offer which was in excess of US$400 million, a valuation more than eight times the Company’s market value as of the close on May 12, 2023.

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“This loss to all shareholders is incomprehensible,” Mr. Arias stated. “We don’t see how the Sierra Board acting reasonably with a view to the best interest of Sierra and all its shareholders could have rejected an offer that would have received widespread support from the Company’s stakeholders. ARC is completely vindicated in its assessment that the Sierra special committee could not – or would not – deliver under the 2021 Strategic Review Process. But the incumbent Sierra Board is now following the same misguided path after destroying over 90% of Sierra’s market capitalization over the past two years,” Mr. Arias said.

Similarly, ARC believes that the Sierra Board’s description in its May 15, 2023 press release of its engagement regarding a potential transaction with Kolpa is inaccurate. Following Kolpa’s public offer, over four months passed before the Company decided to reach out to Kolpa with respect to the proposed transaction and concurrent financing. Despite Kolpa having provided a second offer with enhanced terms in respect of an operational merger, which represented, and continues to represent, a significant premium to the prevailing market price of Sierra shares, the Company refused to provide any counter-offer. Notwithstanding constructive attempts by Kolpa and its financing sources to reach common ground with Sierra regarding mutually acceptable asset valuations, Kolpa was met with refusals to engage in ordinary course discussions and a litany of contrived excuses to avoid meaningful engagement. Contrary to today’s press release from Sierra, Kolpa has provided all information in its possession that was requested by Sierra. Finally, in the Sierra Board’s own words, the Sierra Board’s refusal to engage further was based on ARC’s intention to nominate directors to the Sierra Board and not as a result of an impasse in Kolpa-related matters, which is directly contrary to the Sierra Board’s statements earlier this morning.

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In addition to providing Sierra shareholders with the accurate description of events outlined above, ARC and Mr. Arias plan to further consider the contents of Sierra’s May 12, 2023 and May 15, 2023 press releases and respond in due course, including evaluating whether any further action will be taken.

In light of this new information surrounding the fully-financed, premium offer rejected as part of the 2021 Strategic Review Process, ARC is also examining events surrounding the failure of the 2021 Strategic Review Process and the subsequent strategic review process announced by Sierra in October 2022. The actions of the Sierra Board and the related outcomes appear to be squarely at odds with the best interests of the Company and its shareholders, while seemingly being motivated by a vindictive and self-interested “anyone but Arias shareholders” approach.

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URGENT NEED FOR CHANGE

Despite these deliberate falsehoods to distract shareholders from the Company’s staggering and mounting losses, ARC cautions all Sierra shareholders to remain focused on the urgent task of protecting Sierra by taking the crucial first step of electing a reconstituted Sierra Board. The Nominating Shareholders have proposed five highly qualified nominees – J. Alberto Arias, Derek White, Daniel Tellechea, Ricardo Arrarte, and Alonso Checa (the “ARC Nominees”) – for election to the Board at Sierra’s annual general and special meeting scheduled for June 28, 2023 (the “2023 AGM”).

A copy of ARC’s preliminary information circular dated May 11, 2023 (the “Circular”) is available under Sierra’s profile on SEDAR at www.sedar.com and at www.ProtectYourSierraInvestment.com, where ARC’s press releases and other relevant case for change documents are available.

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Shareholders can also call or text Kingsdale Advisors on 1.888.370.3955 (toll free in North America), or email contactus@kingsdaleadvisors.com, or chat with an advisor on www.ProtectYourSierraInvestment.com for more information.

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.

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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.

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ADDITIONAL INFORMATION

In connection with the Nominating Shareholders’ solicitation of proxies in respect of Sierra’s 2023 AGM, the Nominating Shareholders have filed and mailed the Circular to Sierra shareholders and intend to file and mail a 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 the Circular. 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.

See the Circular for further information regarding the Nominating Shareholders, ARC and the ARC Nominees. A copy is available under Sierra’s profile on SEDAR at www.sedar.com.

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 Sidnell
Vice President, Special Situations
Kingsdale Advisors
647-265-4522
asidnell@kingsdaleadvisors.com

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