Pacific Trader: Fortuna Silver’s plan pays off

The far-flung precious metals miner is up nearly 50 percent in the past two months

The stock: As the recent travails of First Quantum Minerals (TSX:FM) illustrate, even enormous size and market capitalization can’t protect mining ventures from the sector’s inherent risks. Singed by a political firestorm in Panama, FM has lost more than two thirds of its value since the end of July. But there are ways of making such outcomes highly unlikely. Founded in Vancouver in 2005, Fortuna Silver Mines (TSX:FVI, NYSE:FSM) presents a methodical path to facing those risks head-on, one that’s becoming better appreciated by the investment community, if its recent price performance is any indication.

The drivers: First, for a relatively small, mid-tier producer, Fortuna Silver has spread its political risk around by operating four mines in four different countries: Peru, Mexico, Burkina Faso and Argentina. It has a fifth mine that just started production in yet another, Cote d’Ivoire.

Second, its name notwithstanding, Fortuna has been steadily diversifying from its base in silver, lead and zinc production increasingly into gold. So it’s not held captive to price swings in any one commodity. Both gold and silver have been doing well of late but, especially in the case of silver, are nowhere near their all-time highs.

FVI’s recent surge to $5.36 on the Toronto Stock Exchange, up 49.3 percent in just the last two months, has more to do with operational performance. The company reported revenue of US$243 million and net earnings of US$30.9 million in the third quarter, both representing big leaps forward from the same period last year. Gold production in particular has more than doubled since 2020, to more than 400,000 ounces expected this year.

Word on the street: “Fortuna trades at a discounted valuation on a cash-flow basis, and we expect FVI shares to re-rate to higher levels as investors see a track record of strong operations and cash flow emerge at the recently completed Séguéla mine,” wrote BMO Capital Markets analyst Kevin O’Halloran, who rates the stock at “outperform” with a $5.50 target. The consensus target among analysts covering the stock is $5.67.

Coming and going: Adding to First Quantum’s woes in Panama, where the Supreme Court ruled the company’s tax and royalty deal unconstitutional, two deaths were reported this week at one of the company’s copper mines in Zambia.