Fortuna Silver Mines Inc.

FSM Details

Fortuna Silver Mines Inc. (NYSE: FSM) is a Canadian precious metals and mining corporation specialising in Peru, Mexico, Argentina, and Côte d'Ivoire. 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 are all owned and operated by the company.

Latest News:

• Share Repurchase Program: On April 28, 2022, FSM announced that the Toronto Stock Exchange had accepted Fortuna's notification to launch a normal course issuer bid (NCIB) to purchase up to 5% of its outstanding ordinary shares. Purchases of common shares may be made through the TSX, the New York Stock Exchange, and/or alternative Canadian trading systems under the NCIB, which begins on May 2, 2022, and ends on the earlier of May 1, 2023, and the date on which Fortuna has acquired the maximum number of common shares allowable under the NCIB or the date on which Fortuna otherwise decides not to make any further repurchases under the NCIB.
  

Q1FY22 Results:

• Surge in Topline: The company reported YoY growth of 54.75% in Sales to USD 182.33 million in Q1FY22 (ended March 31, 2022) from USD 117.82 million in Q1FY21, attributable to addition of Burkina Faso geography.
• Slight Improvement in Profitability: FSM reported slight increase in net income to USD 26.98 million during Q1FY22 vs. USD 26.40 million in Q1FY21.
• Cash and Debt Position: As of March 31, 2022, the company had cash & cash equivalents of USD 110.70 million and total debt of USD 225.44 million.
  

Key Risk:

• Regulatory Risk: FSM is a metal mining company governed by many federal and state rules. As a result, tighter regulations or non-compliance with mandatory legislation could harm the company's profitability.

Outlook:

FY22 Guidance (Source: Earnings Presentation, Q1FY22, May 12, 2022)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 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 14.90% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 2.66 to USD 7.22. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 4.11.

Considering the correction in the stock price, strong production results, solid topline performance, positive outlook, positive outlook for the underlying commodity, associated risks, and current valuation. We recommend a "Hold" rating on the stock at the current price of USD 3.37, up 9.42% as of May 19, 2022, at 09:53 AM PDT.

Three-Year Technical Price Chart (as on May 19, 2022, at 09:53 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

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

Note 2: All forecasted figures and industry information have been taken from REFINITIV.  

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