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Fortuna Silver Mines Will Outperform

- By Alberto Abaterusso

Fortuna Silver Mines Inc. (FSM) (FVI.TO) fell 0.57% to $3.51 per share on the New York Stock Exchange and declined 0.43% to 4.65 Canadian dollars ($3.51) per share on the Toronto Stock Exchange after releasing production results for fiscal 2018.

The Canadian miner's full-year production accounted for 8,890,943 ounces of silver and 54,210 ounces of gold, resulting in 12.8 million ounces of equivalent silver. The company produced 11.9 million ounces of silver equivalent in 2017.


While production of the grey metal increased 5% year over year and exceeded 2018 guidance by 7%, gold production decreased 4% from 2017, though it was 12% higher than the 2018 guidance.

Fortuna Silver Mines also produced about 45.5 million pounds of zinc, reflecting 3% growth from 2017, and approximately 28.3 million pounds of lead, a 5% decrease year over year.

The company produces precious and base metals from the Caylloma mine in Peru and the San Jose mine in Mexico.

For 2019, the company is targeting production of 11.7 million to 12.9 million ounces of silver equivalent . The average of the range is below what Fortuna produced in 2018. Nevertheless, I am confident production will reach the upper limit of the guidance range. In fact, a higher gold-silver ratio will more than offset the expected reduction in the grade of the mineral that will be processed at the San Jose mine.

Prices of both precious metals have risen since the beginning of the new year, but with gold at a faster pace than silver. So far this year, the yellow metal has increased 0.9% to $1,290.7 per troy ounce and the grey metal has swelled 0.7% to $15.58 per troy ounce.

Wall Street has assigned a 128% premium to the closing share price of Fortuna Silver on Thursday for a target price of $7.99 per share. Analysts have given the stock an overweight rating, which means the company is expected to outperform the industry.

The stock has outperformed most of its competitors over the last 12 months of operations through the third quarter of 2018 in terms of a higher earnings before interest, taxes, depreciation and amortization margin of 54%. The industry median is 24%.

On the NYSE, shares of Fortuna Silver were down 28% for the 52 weeks through Jan. 17. On the Toronto exchange, shares had declined 22.4% over the same period.

In the U.S. market, the stock has a market capitalization of $560.85 million and a 52-week range of $3.16 to $6.08. The share price is below the 200- and 100-day simple moving average lines, but nearly on par with the 50-day line.

In Canada, the stock has a market capitalization of CA$743.72 million and a 52-week range of CA$4.22 to CA$7.78. The share price is below the 200- and 100-day simple moving average lines, but nearly on par with the 50-day line.

Source: Yahoo Finance

Fortuna Silver Mines has a price-book ratio of 0.96 versus an industry median of 1.74, an EV-to-EBITDA ratio of 2.89 versus an industry median of 9.3 and a 14-day relative strength index of 44.5.

Disclosure: I have no positions in any securities mentioned in this article.

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This article first appeared on GuruFocus.