Tuesday, January 26, 2016

Fortuna Silver Mines Looks Really Good

Fortuna Silver Mines (NYSE: FSM) is included in my Precious Metals Portfolio. Most recently the company published its 2015 operating results. It was really a hard time for all miners, Fortuna included.

However the company was able to increase its production (apart from silver, it produces also gold, zinc and lead). The chart below shows silver and gold production, starting from 2009 (plus 2016 estimates):

As the chart shows, silver production increased nearly fourfold since 2009 and gold production nearly sixfold since 2011. Really impressive.

What is more, Fortuna is going to keep it up. The chart below shows the estimated production till 2020:

source: Fortuna Silver Mines presentation

Note that the chart shows production measured in silver equivalents (these equivalents comprise also gold, zinc and lead).

The chart also confirms that San Jose is going to be a flagship property. The commercial production at San Jose started in 2011. Initially this mine was responsible for a significant increase in production costs - please, look at the chart below (and note a rapid increase in costs between 2010 and 2011):

Note: accounting costs are calculated on a per ounce of silver basis

Fortunately, the company learned how to operate San Jose properly  - hence the rapid decrease in accounting costs. Most recently, in 3Q 2015, these costs were standing at around $10 per ounce of silver, which made Fortuna a profitable company, even at today's relatively low silver prices.

Well, I am confident that this company should continue delivering decent results in the coming future. What is more, if silver prices start going up it is going to be delivering really outstanding results, better than its peers.

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