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
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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.
