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Silver Producer Achieves Strong Q2/19 Numbers
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The company's recent production, costs and guidance are reviewed and discussed in this CIBC report.

In a July 15 research note, CIBC analyst Cosmos Chiu reported that after a solid Q2/19, Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) "is tracking to meet or exceed the top end of its 2019 silver production guidance."

Specifically, Fortuna's year-to-date silver production is 4,600,000 ounces (4.6 Moz), and 2019 guidance is 8.2–9 Moz. Similarly, gold production so far this year is 26,000 ounces (26 Koz), and 2019 guidance is 49–54 Koz.

Looking at Q2/19 numbers, Chiu relayed that Fortuna produced 2.4 Moz of silver, more than CIBC's predicted 2.1 Moz, along with 1.35 Koz of gold, as CIBC expected.

The San Jose mine, with higher throughputs and grades, drove Fortuna's strong Q2/19 production. Production there was reported at 2.2 Moz and compares to CIBC's projected 1.90 Moz.

Silver production at Caylloma was 230 Koz and as CIBC estimated. The highlights there were lead and zinc production, which were 7,000,000 pounds (7 Mlb) and 11.2 Mlb, respectively. Both exceeded CIBC expectations, of 6.8 Mlb of lead and 10.2 Mlb of zinc.

"The results demonstrate the consistent performance of Fortuna's two operating assets," Chiu commented. "Incorporating Q2 actual commodity prices, the two operations should generate about $20 million in free cash flow in the quarter."

As for cash costs in Q2/19, they were in line with CIBC's forecasts and Fortuna's guidance for each project. Cash costs at San Jose were $68.60 per ton, within guidance of $63.50–70.10 per ton. At Caylloma, cash costs were $86.70 per ton, also within guidance of $80–88.40 per ton.

The question mark in the Fortuna story is its Lindero project, Chiu noted, whose "construction progress (no update provided) will remain an overhang on the company in the near term."

He added that "until there is improved line of sight on Lindero's completion and ramp-up," CIBC will keep its Neutral rating and CA$5.25 per share target price on Fortuna. The current share price is around CA$5.05.


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Disclosures from CIBC, Fortuna Silver Mines Inc., Earnings Update, July 15, 2019

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analysts employed outside the U.S. are not registered as research analysts with FINRA. These analysts may not be associated persons of CIBC World Markets Corp. and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Fortuna Silver Mines Inc. (FVI)
• CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Fortuna Silver Mines Inc. in the next 3 months.

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