Fortuna Silver Mines Inc

Fortuna Silver Mines Inc. (NYSE: FSM) is a Canadian precious metal mining corporation, with operations in Argentina, Burkina Faso, Mexico, and Peru.   The company's core business is the extraction of silver and gold minerals. San Jose Mine, Caylloma Mine, Lindero Mine, and Yaramoko Mine are among the Firm's mines and developments.

 Latest News

• Shares repurchase program: FSM declared on 28^th April 2022 that Toronto Stock Exchange has accepted the company’s request to purchase 5% of its total shares outstanding commencing from 2^nd May 2022 and expiring on earlier of 1^st May 2023 or the date on which Fortuna has acquired the maximum number of shares allowed. Buyback normally indicates the market about the company’s views on its current market price. So, the share repurchase program started by FSM is a positive sign for the company’s stock price.
• First quarter results announcement: On March 2, 2022, Fortuna Silver Mines Inc. stated that its financial statements and MD&A for the first quarter of 2022 will be released after the market closes on Wednesday, May 11, 2022. On Thursday, May 12, 2022, a teleconference will be conducted to review the financial and operational results.
• Production results for the first quarter of 2022: On 11^th April 2022, Fortuna Silver mines Inc. reported production results from its four operating mines in the Americas and West Africa. Gold production for the quarter increased 93% to 66,800 ounces on YoY, while Silver saw an increase to 1,670,128 ounces, which was a decrease of 13% over Q1 2022.

FY21 Financial results

• Strong boost in top-line financials: Sales in FY21 reported at USD 599.9 million which was more than double the last year sales of USD 279 million in 2020, attributable to gold sales from Yaramoko and Lindero mines, and firm underlying commodity prices.
• Surge in bottom-line financials: Net income almost tripled from USD 21.6 million in 2020 to USD 59.4 million in 2021. Adjusted EBITDA of USD 280.7 million, compared to USD 112.6 million in 2020.
• Healthy operational cash generations: Net cash from operating activities increased from USD 93.4 million in Q4 2020 to USD 147.1 million for the same period in 2021. In 2021, free cash flow from ongoing activities was USD 97.0 million, up from USD 78.9 million in 2020.

Key Risks

• Metal Price Risk: The most significant risk in the precious metals sector is the daily price movement of the metals mined, therefore any negative price movement might impair the company's financial situation.
• Regulatory Risk: FSM is a metal mining firm that is governed by several federal and state laws. As a result, tighter rules or non-compliance with needed legislation might have a negative impact on the company's profitability.

Outlook

For companies in metal industries such as Fortuna Silver Mines Inc., both outlooks for the company as well the metals the company trades in are considered. For Fortuna, gold production for the quarter increased 93% to 66,800 ounces on YoY, while Silver saw an increase to 1,670,128 ounces, which was a decrease of 13% over Q1 2022. This signifies positive results announcement for the first quarter on 11^th May 2022 as in the previous quarter gold has outperformed silver.

Furthermore, as per the outlook for the metal industry, currently, gold and silver both are at very critical support and higher chances are of the prices rising higher in the near-term future considering the current macro-economic scenarios such as the Russia-Ukraine war, rising inflation, and rising energy crisis in Europe.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Analysis by Kalkine Group.

Technical analysis

The current price of Fortuna is around the very important support range of USD 3 - USD 3.20 and is expected to get a good upward movement from that range. RSI has formed a bullish divergence on the daily chart indicating signs of a trend reversal. Similarly, Silver and gold prices coincide with Fortuna as they both are also currently at another big support level of USD 22 and USD 1850.

1-Year Technical Chart as of May 03, 2022, at 7:45 am PDT. Source REFINITIV, Analysis by Kalkine group.

Stock recommendation

FSM's stock price has fallen 28.55% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 2.91 to USD 7.98. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 4.72.

Considering the correction in the stock price, strong production results, solid topline performance, positive outlook, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the current price of USD 3.52, up 3.22% as of May 03, 2022, at 7:45 AM PDT.

Technical Analysis Summary

*Current price as of May 03, 2022, at 07:45 AM PDT

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.