Fortuna Silver Mines Inc.

FSM Details

Fortuna Silver Mines Inc. (NYSE: FSM) is a precious metals and mining company based in Canada with operations in Peru, Mexico, Argentina, and Côte d'Ivoire. The company owns and operates the open-pit Lindero gold mine in northern Argentina, the underground Yaramoko gold mine in southwestern Burkina Faso, the underground San Jose silver and gold mine in southern Mexico, the underground Caylloma silver, lead, and zinc mine in southern Peru, and the open pit Séguéla gold mine in southwestern Côte d'Ivoire.

Latest News:

• Construction Update at Séguéla gold project : On February 03, 2022, FSM provided an update on its Séguéla gold project in Côte d'Ivoire's construction phase. The FSM decided in September 2021 to develop a 3,750-tonne-per-day open pit mine at Séguéla, with the first gold pour planned in mid-2023.
• Strong FY21 Production Results: On January 18, 2022, FSM announced that it produced 207,192 ounces of gold and 7,498,701 ounces of silver, or 305,859 gold equivalent1 ounces, for the entire year of 2021. Gold production of 207,192 ounces, with YoY growth of 274%. Silver production of 7,498,701 ounces, a 5% increase over 2020. Lead production of 32,989,973 pounds, 11% up over 2020. Zinc production of 47,549,301 pounds, a 4% increase over 2020.

Q3FY21 Results:

• Surge in Topline: The company reported YoY growth of 94.84% in total revenue to USD 162.57 million in Q3FY21 (ended September 30, 2021) from USD 83.44 million in Q3FY20, attributable to gold sales from Yaramoko and Lindero mines.
• Decline in Profitability: FSM reported a decrease in net income to USD 0.21 million during Q3FY21 vs. USD 13.09 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 136.26 billion and total debt of USD 219.15 billion.

Key Risk:

• Metal Price Risk: For every +/-10% fluctuation in Silver, Gold, Lead, and Zinc prices from September 30, 2021, the company's sales will be affected by USD 1,118, USD 537, USD 459, and USD 333, respectively. As a result, any adverse price movement may harm the company's financial position.
• Regulatory Risk: FSM operates as a metal mining company, which is subject to several federal and state regulations. Therefore, the issuance of stricter regulations or non-compliance with required laws could adversely affect the company's profitability.

Outlook:

FY21 Guidance (Source: 3QFY21 Earnings Presentation, November 12, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

FSM's stock price has fallen 48.17% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 2.91 to USD 8.52. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 4.35.

Considering the significant correction in the stock price, strong production results, solid topline performance, updates on Séguéla gold project, positive outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 3.54, down 2.48% as of February 22, 2022.

Three-Year Technical Price Chart (as on February 22, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and 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 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 unfavourable movement in the stock prices.

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

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