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:

• Strong Q1FY22 Production Results: On April 11, 2022, FSM announced that contributions of 30,068 ounces from the Lindero Mine and 28,235 ounces from the Yaramoko Mine, purchased in July 2021, drove gold production to 66,800 ounces, up 93% YoY. The San Jose Mine saw a 14% decline in head grade, which is in line with the Mineral Reserve average grade, resulting in 1.6 million ounces of silver produced, a 13% decrease from the same period in 2021.

Q4FY21 Results:

• Surge in Topline: The company reported YoY growth of 115.03% in total revenue to USD 599.85 million in FY21 (ended December 31, 2021) from USD 278.97 million in FY20, attributable to 53.07% growth in Peru geography.
• Sharp-Uptick in Profitability: FSM reported a massive increase in net income to USD 59.40 million during FY21 vs. USD 21.55 million in FY20.
• Cash and Debt Position: As of December 31, 2021, the company had cash & cash equivalents of USD 107.10 million and total debt of USD 157.49 million.

 Key Risk:

• 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:

FY22 Guidance (Source : Earnings Presentation, FY22, March 24, 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 8.15% 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 4.68.

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 4.235, down 2.87% as of April 19, 2022, at 12:03 PM PDT.

Three-Year Technical Price Chart (as on April 19, 2022, at 12:03 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.

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