Fortuna reports results for the second quarter of 2023

(All amounts are expressed in US dollars, tabular amounts in millions, unless otherwise stated)

VANCOUVER, British Columbia, Aug. 09, 2023 (GLOBE NEWSWIRE) -- Fortuna Silver Mines Inc. (: FSM) (TSX: FVI) (“Fortuna” or the “Company”) today reported its financial and operating results for the second quarter of 2023.

Second Quarter 2023 highlights

Financial

• Adjusted net income of $2.9 million or $0.01 per share
• Net income of $3.5 million or $0.01 per share
• Adjusted EBITDA¹ of $44.4 million
• Net cash provided by operating activities $44.2 million and free cash flow from ongoing operations of $9.5 million
• Liquidity as of March 31, 2023 was $97.9 million
  

Return to Shareholders

• NCIB share repurchase program renewed for up to 5% of outstanding common shares (refer to Fortuna news release dated April 28, 2023)
  

Operational

• Gold production of 64,348 ounces
• Silver production of 1,262,561 ounces
• Gold equivalent production of 93,454 ounces
• Consolidated cash costs¹ per ounce of gold equivalent sold of $968
• Consolidated all-in sustaining costs (AISC)¹ per ounce of gold equivalent sold of $1,799
• Lost Time Injury Frequency Rate (LTIFR) of 0.43 and Total Recordable Injury Frequency Rate (TRIFR) of 1.15. One fatal incident was recorded at the Caylloma mine in June.

Growth and Development

• First gold pour at the Séguéla mine in Côte d’Ivoire took place on May 24, 2023, with the first gold shipment having taken place in July, subsequent to the close of the quarter.
• The transaction to acquire Chesser Resources Limited is continuing to progress and is expected to close in the third week of September

Jorge A. Ganoza, President and CEO, commented, “The first gold pour and sale at Séguéla is an exciting milestone for the Company as our new flagship asset enters into production and adds stable, high margin ounces to our portfolio. Ramp-up activities at the process plant continue to progress, and during the month of July the process plant met and exceeded name plate capacity and is expected to operate at a stable rate through the quarter.”

Mr. Ganoza continued, “Loss of production, stand-by charges and expenses related to the illegal union blockade at the San Jose Mine and standby charges during the repair of the Armtec tunnel at the Yaramoko Mine, both weighed on the results and AISC for the second quarter. Despite these headwinds the Company generated positive free cash flow from ongoing operations of $9.5 million. At Séguéla, although we produced over four thousand ounces in the days prior to quarter end, ahead of schedule, the first gold sale did not take place until early in the third quarter.”

Mr. Ganoza concluded “With Séguéla contributing its first full quarter of production in the third quarter, the return of normal to operations at San Jose, Yaramoko continuing to perform above expectations, and the completion of a stripping phase in the second quarter at Lindero, we expect growing margins and free cash flow to improve in the third and fourth quarter of the year”.

Second Quarter 2023 Consolidated Results

Second Quarter 2023 Results

Net income for the quarter was $3.5 million compared to $1.7 million in Q2 2022. After adjusting for non-cash and non-recurring items, adjusted net income for the quarter was $2.9 million compared to $2.1 million in Q2 2022. The slight increase in adjusted net income is explained by lower income taxes and effective tax rate in Q2 2023, compensating for a reduction in operating income of $5.4 million compared to Q2 222. The reduction in operating income was due mainly to lower volume of metal sold at San Jose due to the 15-day stoppage related to an illegal blockade at the mine, and lower volume at Lindero related to the mine sequence. This impact was combined with higher cash cost of sales per gold equivalent ounce mainly due to lower production rates and head grades at San Jose associated with the ramp-up process following the work stoppage at the mine, and higher input costs and lower head grades at Lindero. These effects were partially offset by lower cost of sales per ounce of gold at Yaramoko. Operating income was further impacted by $7.3 million of non-recurring expenses comprised of $3.5 million of stand-by charges at San Jose and Yaramoko, $2.8 million related to a new agreement with the workers´ union at San Jose, and a $1.0 million administrative penalty at Yaramoko payable to the Ministry of Mines. The positive impact of higher gold and silver prices in Q2 2023 was offset by a sharp drop in zinc prices. The realized gold and silver price were $1,974 per ounce and $24.10 per ounce, respectively, in Q2 2023, compared to $1,870 and $22.62, respectively in Q2 2022.

Adjusted EBITDA for the quarter was $44.4 million, representing a margin of 28% over sales, compared to $57.9 million reported in the same period in 2022, representing a margin of 34% over sales. The main drivers for the decrease in adjusted EBITDA were lower volume sold, non-recurrent items, and higher costs per gold equivalent ounce as described above.

General and administrative expenses for the quarter of $14.5 million were in line with the same period in 2022. G&A is comprised of the following items:

Net cash generated by operations for the quarter decreased $3.2 to $44.2 million from $47.4 million in Q2 2022. The decrease reflects lower EBITDA of $13.5 million partially offset by $7.4 million in positive changes in working capital and income tax paid. Net cash generated by operations per share was $0.15 compared to $0.16 in Q2 2022.

In the second quarter of 2023 the Company invested $73.2 million in capital expenditures consisting primarily of $35.6 million in sustaining capital to support underground development, capitalized stripping and other projects at our operating sites, $19.5 million in construction and pre-production activities at Séguéla, $3.4 million of capitalized interest, a $10.0 million payment to Newcrest related to first gold at Séguéla and $4.5 million in costs related to the Chesser transaction.

Free cash flow from ongoing operations for the quarter was $9.5 million, compared to $21.9 million in Q2 2022. The decrease of $12.4 million is the result of lower net cash generated by operations of $3.2 million and higher sustaining capex and brownfields exploration at our operating mines of $10.8 million in Q2 2023.

Consolidated All-in Sustaining Cost

Consolidated AISC per gold equivalent ounce (GEO) sold for the second quarter of 2023 was $1,799 per ounce compared to $1,434 per ounce for the comparable quarter in 2022. The increase in AISC was primarily the result of lower gold equivalent ounces sold due to the impact of the illegal blockade at the San Jose Mine, higher sustaining capital related to Phase 2 of the leach pad expansion and higher capitalized stripping at Lindero, higher underground development at Yaramoko, $7.3 million in stand-by, and one-time payments from the work stoppage at San Jose and the stoppage of underground mining at Yaramoko, and higher costs of sales per ounce at Lindero related to lower production and higher input costs.

Liquidity

The Company’s total liquidity available as of June 30, 2023 was $97.9 million, comprised of $93.4 million in cash and cash equivalents, and $4.5 million undrawn on the $250.0 million revolving credit facility.

Séguéla Gold Mine Construction Update

For the second quarter of 2023 the Company incurred and expended $8.6 million and $8.9 million respectively related to construction activities. Since the project early works began in the third quarter of 2021 the Company has incurred and expended $173.6 million and $161.2 million respectively.

_{1 Cash basis. Excludes exploration costs, capitalized interest and management fees.
2 Primarily consists of work performed not yet invoiced and increases in the accounts payable balance offset by increases in the VAT receivable balance.
3 Accrual basis. Excludes capitalized interest and management fees.
4 YTD includes a correction for the timing of payments. This has not impacted project to date spend.}

As of June 30, 2023 the construction of the mine was substantially complete with minimal remaining spend associated with final commissioning and vendor testing. The project was delivered on budget. Settlement of final construction related payables is expected to be financed by free cash flow from ongoing operations.

Lindero Mine, Argentina

¹ Cash cost and AISC are non-IFRS financial measures; refer to non-IFRS financial measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR+ at www.sedarplus.ca for a description of the calculation of these measures.
² Capital expenditures are presented on a cash basis.

Quarterly Operating and Financial Highlights

In the second quarter of 2023, a total of 1,503,323 tonnes of ore were placed on the heap leach pad, with an average gold grade of 0.62 g/t, containing an estimated 29,984 ounces of gold. Gold production for Q2 2023 totaled 25,456 ounces, comprised of 24,599 ounces of doré, an estimated 731 ounces of gold contained in fine carbon, and 126 ounces contained in copper concentrate. This represents a 12% decrease in total ounces, year-over-year. This decline in gold production can primarily be attributed to a decrease in the head grade of mineralized material placed on the leach pad, but is in line with the planned mining sequence. Mine production for the quarter was 0.8 million tonnes of mineralized material, with a strip ratio of 2.69:1. This stripping ratio is consistent with the operation's plan for the year, which anticipates a ratio of 1.17:1.

Cash cost per ounce of gold for the quarter ended June 30, 2023, was $879 compared to $687 in the same period in 2022. Cash cost per ounce of gold was higher due to higher indirect costs, and lower production. This was partially offset by higher stripping capitalization and by-product sales from copper.

All-in sustaining cash cost per gold ounce sold was $1,688 during Q2 2023 compared with $1,151 in the same period of 2022. All-in sustaining cash cost for the second quarter of 2023 was impacted by the cost issues described above, compounded by lower ounces sold and significantly higher sustaining capital spend.

During the quarter, sustaining capital expenditures were primarily driven by the development of Phase 2 of the leach pad, higher capitalized stripping, plant investments, and capitalized maintenance.

Yaramoko Mine Complex, Burkina Faso