Excerpts from interview with Euro Pacific Capital Senior Research Analyst Heiko Ihle
Source: Brian Sylvester of the Gold Report
TGR: You also cover Fortuna Silver Mines, which had a great Q3/12 and is poised to exceed its production guidance for 2012. Do you expect similar performance in 2013?
HI: The company has good production numbers at its San Jose mine in Mexico, though there are community protests there. Offsetting that, however, is the Caylloma mine, which is in Peru. I visited it about a year ago. Labor costs are going through the roof at that site, so while production is very good, its cash costs have been rising more than everybody anticipated. The company should have a good 2013, but there will be some cash costs challenges, and it is already working on those.
TGR: In a recent research report, you said Fortuna continues to search for midsized acquisitions in Central and South America. Given the difficulties it has faced at Caylloma and the mine's higher than anticipated labor costs, which juniors in Peru or nearby might be a good fit for Fortuna?
HI: Fortuna is looking into private enterprise like smaller private mines that it can buy or privately owned land packages that it can attach to its mines. It probably will not buy a public junior company.
TGR: What is it looking for? Is it looking to bring more feet into Caylloma?
HI: Fortuna is looking for a separate project, which is what it should be doing because it diversifies risk. A good example is Aurizon, which has a single asset. Right now, that single asset is going through a tough time and that punishes the entire company. If a company has four assets and one goes through a tough time, it has much less impact.
TGR: What is the next catalyst for Fortuna that will get it to your $6.60/share, 12-18 month target price?
HI: It needs to get cash costs under control, which it should be able to do once labor pressures subside; labor is the biggest factor.
TGR: Is your $6.60/share target price a buy rating?