Fortuna Silver Mines Stock Is Set for More Upside

Fortuna Silver Mines [stock_market_widget type="inline" template="generic" color="default" assets="FVI.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has managed to make a strong comeback in the past couple of months after starting 2019 on a disastrous note. Shares of the company declined in the first half of the year thanks to a weak financial performance, but the silver price rally has proven to be a tailwind for Fortuna of late.

But is Fortuna a good bet to take advantage of rising silver prices? Let’s find out.

One Big Problem With Fortuna Silver Mines

Fortuna Silver Mines has been delivering impressive operational growth, but the company has been handicapped by a key variable.

For instance, in the second quarter of fiscal 2019, the company’s revenue fell 8% year over year to $67.9 million. The weak top-line performance was a result of lower silver prices that Fortuna received during the quarter.

The company’s average realized silver price came in at $14.90 per ounce, down 10% from the prior-year period. Barring this, Fortuna’s quarterly performance was good enough to warrant an investment in the company.

Fortuna produced 2,387,225 ounces of silver and 13,497 ounces gold during the quarter. The majority of the silver production, amounting to 2,157,225 ounces was driven by the San Jose mine in Mexico. The important thing to note here is that the mine’s output increased over 3% year-over-year despite a drop of 1 percentage point in recoveries.

This was because Fortuna’s silver grades increased to 273 grams per ton in the second quarter of 2019 as compared to 268 grams per ton in the year-ago period. The improved grade profile meant that Fortuna got access to more silver ores despite a lower recovery. So, had the company’s recoveries been stronger and silver prices higher, it could have delivered a better financial performance last quarter rather than a mixed one.

The Future Looks Bright for Fortuna

Fortuna Silver Mines stock could sustain its impressive momentum thanks to the impressive level at which silver prices are currently sitting at. The current spot price of silver is at more than $18 an ounce, which is significantly higher than what Fortuna recorded last quarter.

More importantly, there’s a good chance that the price of silver could head higher thanks to favourable factors such as strong demand, low supply, and macroeconomic uncertainties. So Fortuna Silver Mines’ biggest problem of weak silver pricing could go away in subsequent quarters. If that happens, the company should be able to cash in on its improving production profile and deliver strong top- and bottom-line growth.

Moreover, Fortuna is already taking steps to boost its silver output. The company recently announced that it has begun pre-production mining at the Lindero Gold project in Argentina. This mine is 100% owned by Fortuna and the project is 70% complete. Once commercial production is in full flow at this mine next year, Fortuna expects to deliver an impressive increase in its output.

So it is not surprising to see why analysts are expecting a massive top-line jump of 62% at Fortuna in fiscal 2020, along with a nice spurt in the bottom line. So it would be prudent for investors to keep holding Fortuna stock in their portfolios as it can deliver more upside.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


Please enter your comment!
Please enter your name here