Fortuna Reports Results for the Third Quarter of 2022
NEWS RELEASE
Fortuna Reports Results for the Third Quarter of 2022
(All amounts expressed in US dollars, tabular amounts in millions, unless otherwise stated)
Vancouver, November 9, 2022: Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) (“Fortuna” or the “Company”) today reported its financial and operating results for the third quarter of 2022.
Third Quarter 2022 Highlights
Operational
- Gold and silver production of 66,344 ounces and 1,837,506 ounces, respectively. An increase of 1% and 7% respectively compared to the third quarter of 2021 (“Q3 2021”). Gold equivalent production of 101,8403 ounces.
- Cash costs1 per ounce of gold of $772 for the Lindero Mine and $934 for the Yaramoko mine. Cash costs1,2 per silver equivalent ounce of payable silver sold of $9.70 for the San Jose Mine and $11.32 for the Caylloma mine.
- AISC 1 per ounce of gold sold of $1,159 for the Lindero Mine and $1,630 for the Yaramoko Mine. AISC 1,2 per silver equivalent ounce of payable silver sold of $14.23 and $15.66 for the San Jose Mine and Caylloma Mine, respectively.
- The Company confirms it is tracking to meet production and the top end of cost guidance for the year.
- Total recordable injury frequency rate of 2.36 per million hours worked and zero lost time injuries in over 3.3 million hours worked.
Financial
- Free cash flow from ongoing operations1 of $34.0 million, after operating mine capital, corporate overhead, taxes and interest paid, compared to $29.1 million reported in Q3 2021.
- Adjusted EBITDA1 of $54.4 million compared to $75.3 million reported in Q3 2021.
- Net loss of $4.1 million or $0.01 per share, compared to $0.2 million or $0 net income per share reported in Q3 2021. Adjusted net income1 of $2.3 million or $0.01 per share compared to $22.5 million reported in Q3 2021.
- As at September 30, 2022, the Company had available liquidity of $125.9 million.
- Returned $2.9 million of capital to shareholders during the quarter through the share repurchase program.
Growth and Development
- Séguéla construction 83% complete as of the end of October. On-time and on-budget for first gold pour in mid- 2023.
- Fortuna continued to expand mineralization at the Sunbird discovery at Séguéla outside of the current reported inferred mineral resource (refer to Fortuna news release dated September 12, 2022: “Fortuna extends gold mineralization at Sunbird and identifies new regional prospects at Séguéla, Cote d´Ivoire”).
1 Refer to Non-IFRS financial measures 2 AISC/oz Ag Eq calculated at realized metal prices, refer to mine site results for realized prices and Non-IFRS Financial Measures for silver equivalent ratio 3 Gold equivalent production includes gold, silver, lead and zinc and is calculated using the following metal prices: US$1,718/oz Au, US$19.16/oz Ag, US$1,989/t Pb and US$3,268/t Zn or Au:Ag = 1:89.65, Au:Pb = 1:0.90, Au:Zn = 1:0.53 Fortuna | 1 Jorge A. Ganoza, President and CEO, commented, “Our four mines had steady production of gold and silver in the quarter, which places us in a comfortable position at the end of the nine months of the year to meet our annual guidance estimates. Price inflation on key consumable products has driven cost at our operations to the upper range of annual cost guidance, but at this stage in the year we anticipate that the risk for significant cost deviations beyond guidance has diminished.” Mr. Ganoza continued, “Free cash flow for the period remained strong, underpinned by robust production performance at our operating sites.” Mr. Ganoza concluded, “Construction of our flagship Séguéla mine is 83% complete as of the end of October, remaining on-time and on-budget. We continue to successfully de-risk construction at a steady pace. All components of the SAG mill, a major equipment in the critical path of the project, have been shipped removing the last supply chain concerns on major equipment deliveries. Another milestone coming soon is the project connection to the national power grid, which is planned for December.”
| Three months ended September 30, | Nine months ended September 30, | ||||
|---|---|---|---|---|---|
| 2022 | 2021 | % Change | 2022 | 2021 | % Change |
| Sales | 166.6 | 162.6 | 2% | 516.8 | 400.9 | 29% |
| Mine operating income | 24.7 | 47.3 | (48%) | 120.8 | 147.1 | (18%) |
| Operating income | 5.7 | 21.8 | (74%) | 59.6 | 98.0 | (39%) |
| Net (loss) income | (4.1) | 0.2 | (2,150%) | 24.5 | 42.8 | (43%) |
| (Loss) earnings per share - basic | (0.01) | - | 0% | 0.08 | 0.19 | (58%) |
| Adjusted net income1 | 2.3 | 22.5 | (90%) | 35.4 | 71.5 | (50%) |
| Adjusted EBITDA1 | 54.4 | 75.3 | (28%) | 189.7 | 191.1 | (1%) |
| Net cash provided by operating activities | 64.7 | 39.4 | 64% | 144.6 | 90.1 | 60% |
| Free cash flow from ongoing operations1 | 34.0 | 29.1 | 17% | 64.8 | 70.4 | (8%) |
Capital expenditures2
| Sustaining | 23.2 | 16.4 | 41% | 64.3 | 37.5 | 71% |
| Non-sustaining3 | 4.0 | 0.7 | 467% | 10.4 | 1.8 478% | |
| Lindero construction | - | 1.4 | (100%) | - | 4.0 (100%) | |
| Séguéla construction | 23.5 | - | 100% | 87.6 | - 100% | |
| Brownfields | 9.6 | 4.3 | 123% | 17.1 | 10.3 | 66% |
As at September 30, 2022 December 31, 2021 % Change Cash and cash equivalents 90.9 107.1 (15%) Net liquidity position 125.9 187.1 (33%) 1 Refer to Non-IFRS Financial Measures section of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.
2 Capital expenditures are presented on a cash basis 3 Non-sustaining expenditures include greenfields exploration Figures may not add due to rounding
Third Quarter 2022 Results
Net loss for the period was $4.1 million compared to net income of $0.2 million in Q3 2021. Operating income was $5.7 million compared to $21.8 million in the comparative period. Higher cash costs quarter over quarter were approximately $16.0 million due to continued inflationary pressures and higher processed tonnes at Yaramoko and San Jose. Management estimates that if realized gold and silver prices had stayed consistent with the previous year operating income would have been $13.0 million higher.
Additional items impacting net income in the quarter were a $3.4 million write off of the Tlamino project in Serbia, and $1.7 million of unrealized derivative losses.
Adjusted net income for the period was $2.3 million compared to $22.5 million in Q3 2021. Adjusted EBITDA was $54.4 million compared to $75.3 million in Q3 2021. The reduction in EBITDA was consistent with the drivers of lower operating income described above, namely lower silver and gold prices and inflationary cost pressures.
Net cash provided by operating activities was $64.7 million, compared to $39.4 million in Q3 2021, as the comparative quarter was impacted by $23.1 million of non-recurrent expenses ($12.6 million payment including taxes for the
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settlement of the disputed royalty claim with the Mexican Geological Survey and $10.5 million of transaction costs related to the Roxgold acquisition).
Free cash flow from ongoing operations in the quarter was $34.0 million after deducting operating mine capital, corporate overhead, taxes and interest paid. Year to date free cash flow from on-going operations was $64.8 million compared to $70.4 million in 2021.
Sales for the three months ended September 30, 2022 were $166.6 million, an increase of 2% from the $162.6 million over the same period in 2021. Sales by mine in the three months ended September 30, 2022 were as follows:
- Lindero recognized adjusted sales of $51.9 million, a 25% increase from the $41.6 million reported in Q3 2021. Higher sales were the result of a 28% increase in volume of gold sold, partially offset by lower realized gold price of 3%.
- Yaramoko recognized adjusted sales of $46.4 million, a 5% decrease from the $49.0 million reported in Q3 2021. Lower sales were the result of a 2% decrease in volume of gold sold and lower realized gold price of 4%.
- San Jose recognized adjusted sales of $42.2 million, a 4% decrease from the $43.7 million reported in Q3 2021. Lower sales were driven by a 21% and 3% decrease in provisional silver and gold prices, respectively, partially offset by an increase of 7% and 2% in the volume of silver and gold ounces, respectively, sold.
- Caylloma recognized adjusted sales of $26.1 million, a 7% decrease from the $28.0 million reported in Q3 2021. The decrease in sales was driven by 22% lower realized prices for silver as well as no gold sales compared to 1,466 ounces sold in the comparative period.
Outlook on Cost and Inflation
Inflationary pressures continued in the third quarter of 2022 as a result of geopolitical events, supply chain constraints and increases in the cost of energy and commodities. These inflationary pressures were realized in the Company’s cost structure as prices increased for several key commodities including diesel, reagents, explosives and steel.
The inflation situation remains dynamic and the Company expects higher input costs to remain for the last quarter of the year and beyond. To mitigate inflationary pressure on its cost structure the Company will continue to focus on operational efficiencies and cost optimization across all mining operations. However, even with these efforts it is expected the continued inflationary pressures will push costs towards the upper end of our cost guidance.
Liquidity
Total liquidity available to the Company as at September 30, 2022 was $125.9 million, comprised of $90.9 million of cash and cash equivalents and $35.0 million undrawn on the Company’s revolving $200 million credit facility.
The Company has secured credit approval from its banking syndicate to increase the existing senior secured revolving credit facility by $50.0 million to $250.0 million. The upsized facility will include a $50.0 million accordion feature, and is expected to close in the fourth quarter of 2022, subject to the completion of definitive documentation between the parties.
Séguéla Construction
As of September 30, 2022, the Séguéla Project had approximately $54.8 million in remaining spend of the project’s $173.5 million construction budget, and the project remains on time and on budget. The Company’s cash and cash equivalents balance, free cash flow from ongoing operations and undrawn amounts of the credit facility are expected to be sufficient to fund the construction of the Séguéla Project.
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Lindero Mine, Argentina
| Three months ended September 30, | Nine months ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Tonnes placed on the leach pad 1,365,726 1,387,134 4,163,555 4,994,134
Gold
| Grade (g/t) | 0.83 | 1.10 | 0.83 | 0.94 |
| Production (oz) | 30,032 | 26,235 | 89,116 | 68,088 |
| Metal sold (oz) | 30,064 | 23,559 | 89,229 | 63,788 |
| Realized price ($/oz) | 1,719 | 1,772 | 1,825 | 1,775 |
Unit Costs Cash cost ($/oz Au)1 772 646 717 635 All-in sustaining cash cost ($/oz Au)1 1,159 1,270 1,117 1,182
Capital expenditures ($000's) 2
| Sustaining | 4,814 | 9,385 | 14,062 | 20,040 |
| Non-sustaining | – | – | 169 | – |
| Brownfields | 314 | 47 | 1,104 | 489 |
1 Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures.
Quarterly Operating and Financial Highlights
In the third quarter of 2022, a total of 1,365,726 tonnes of ore were placed on the heap leach pad, averaging 0.83 g/t gold, containing an estimated 36,501 ounces of gold. Gold production for Q3 2022 totaled 30,032 ounces, representing a 14% increase year-over-year. Higher gold production is mainly explained by an increase in performance of the three-stage crushing and stacking circuits, which delivered 100% of the 1.37 million tonnes of ore placed on the pad in the quarter, compared to 89% or 1.2 million tonnes of the 1.39 million tonnes placed during the comparable quarter a year ago. Mine production was 2.2 million tonnes of mineralized material with a lower strip ratio of 0.83:1 when compared to the second quarter of 2022. The reduction in the stripping ratio was a result of optimizing the mine plan sequence during the period. The operation experienced a positive reconciliation for ore sent to the leach pad during the third quarter, with grades sampled at the plant being 5.6% higher than estimated from the reserve model.
Cash cost per ounce of gold for the three months ended September 30, 2022 was $772 compared to $646 in the third quarter of 2021. Cash cost per ounce of gold was higher due to higher consumable prices, mainly related to diesel, explosives and reagents, higher service costs related to maintenance equipment rentals and higher maintenance contractor expenses, partially offset by lower labor cost.
All-in sustaining cash cost per gold ounce sold was $1,159 during Q3 2022 compared with $1,270 in the third quarter of 2021. All-in sustaining cash cost for the third quarter of 2022 was impacted by the issues described above, offset by higher ounces sold, lower sustaining capital and a positive by-product effect.
Sustaining capital for the quarter primarily consisted of spending on the leach pad and mine maintenance. Construction of Phase-1B of the leach pad was completed during the quarter as planned, ensuring sufficient capacity to support the production plan through the second half of 2024. Detailed engineering work for the Phase-2 leach pad expansion was initiated in the third quarter of 2022 and is expected to be completed by year end. Construction work on Phase-2 is planned to commence in 2023. Brownfields capital primarily relates to exploration at the Arizaro project.
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Yaramoko Mine Complex, Burkina Faso
| Three months ended September 30, | Nine months ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Mine Production Tonnes milled 137,202 126,677 403,957 126,677
Gold
| Grade (g/t) | 6.21 | 7.28 | 6.34 | 7.28 |
| Recovery (%) | 97 | 98 | 97 | 98 |
| Production (oz) | 27,130 | 28,751 | 79,918 | 28,751 |
| Metal sold (oz) | 27,055 | 27,494 | 81,183 | 27,494 |
| Realized price ($/oz) | 1,716 | 1,783 | 1,821 | 1,783 |
Unit Costs Cash cost ($/oz Au)1 934 720 847 720 All-in sustaining cash cost ($/oz Au)1 1,630 1,188 1,433 1,188
Capital expenditures ($000's) 3 Sustaining 10,225 7,398 26,671 7,398 Brownfields 2,530 560 3,018 560 1 Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures.
2 The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.
3 Capital expenditures are presented on a cash basis
The Yaramoko Mine produced 27,130 ounces of gold in the third quarter of 2022 with an average gold head grade of 6.21g/t, which is in line with the mining sequence and Mineral Reserve estimate. The operation benefitted from higher mill throughput and operating time during the quarter offset by lower head grades when compared to the third quarter in 2021. Gold production for the first nine months of 2022 is in line with the annual guidance range.
| Cash cost per gold ounce sold was $934, | compared to $720 in the third quarter of 2021, | primarily due to higher mining |
| service costs related to inflation, higher processing costs due to annual mill inspection and repair moved up from | ||
| November, and the processing of lower grade stockpiles during Q3 2022 as the site is currently mine constrained. This was | ||
| partially offset by favorable foreign exchange rates. |
All-in sustaining cash cost per gold ounce sold was $1,630 for Q3 2022, compared to $1,188 for the same period in 2021, as a result of decreased production, increased cash cost, and an increase in capital expenditures.
The operational focus remains on advancing development of the decline to maintain stope sequencing flexibility in the mine for the remainder of 2022 and into 2023. Sustaining capital for Q3 2022 was higher due to higher mine development and equipment purchases related to the QV Prime project in Bagassi South. Brownfields expenditure was higher due to greater amounts of diamond drilling as well as further development of the 109 Zone.
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San Jose Mine, Mexico
| Three months ended September 30, | Nine months ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Tonnes milled 267,198 248,984 770,090 778,352 Average tonnes milled per day 3,071 2,862 2,939 2,980
Silver
| Grade (g/t) | 196 | 195 | 189 | 206 | ||||
| Recovery (%) | 92 | 92 | 91 | 91 | ||||
| Production (oz) | 1,545,410 | 1,436,658 | 4,288,936 | 4,707,496 | ||||
| Metal sold (oz) | 1,539,382 | 1,440,946 | 4,272,878 | 4,704,656 | ||||
| Realized price ($/oz) | 19.14 | 24.16 | 21.86 | 25.80 |
Gold
| Grade (g/t) | 1.16 | 1.22 | 1.14 | 1.29 |
| Recovery (%) | 91 | 91 | 91 | 91 |
| Production (oz) | 9,091 | 8,910 | 25,625 | 29,477 |
| Metal sold (oz) | 9,064 | 8,922 | 25,580 | 29,421 |
| Realized price ($/oz) | 1,722 | 1,784 | 1,825 | 1,798 |
Unit Costs
| Production cash cost ($/t)2 | 79.37 | 77.52 | 79.66 | 74.22 |
| Production cash cost ($/oz Ag Eq)1,2 | 9.70 | 9.99 | 10.35 | 9.28 |
| All-in sustaining cash cost ($/oz Ag Eq)1,2 | 14.23 | 15.51 | 14.95 | 14.13 |
Capital expenditures ($000's) 3
| Sustaining | 4,410 | 3,553 | 12,036 | 9,525 |
| Non-sustaining | – | 745 | 869 | 1,776 |
| Brownfields | 1,548 | 2,547 | 4,645 | 6,437 |
1 Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively 2 Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to Non-IFRS Financial Measures 3 Capital expenditures are presented on a cash basis
In the third quarter of 2022, the San Jose Mine produced 1,545,410 ounces of silver and 9,091 ounces of gold, 8% and 2% higher, respectively, when compared to the equivalent period in 2021. The result is primarily due to higher mill throughput, with grades in line with the mining sequence and Mineral Reserve estimates. Silver production is tracking to meet the upper range of annual guidance.
The cash cost per tonne for the three months ended September 30, 2022 was $79.37 compared to $77.52 in the same period in 2021 primarily due to cost increases related to inflation, offset by higher tonnes processed.
All-in sustaining cash costs of $14.23 per ounce was lower than the $15.51 per ounce for the same period in 2021 with higher silver equivalent ounces offsetting higher costs.
Capital expenditures for the quarter was lower than the previous year primarily due to lower brownfields exploration cost as the site focused on less capital-intensive exploration.
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Caylloma Mine, Peru
| Three months ended September 30, | Nine months ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Tonnes milled 139,143 136,410 407,695 401,942 Average tonnes milled per day 1,546 1,516 1,533 1,517
Silver
| Grade (g/t) | 79 | 78 | 82 | 77 |
| Recovery (%) | 82 | 81 | 81 | 82 |
| Production (oz) | 292,096 | 275,223 | 871,594 | 810,962 |
| Metal sold (oz) | 293,159 | 295,532 | 866,511 | 830,495 |
| Realized price ($/oz) | 19.31 | 24.67 | 21.98 | 25.80 |
Gold
| Grade (g/t) | 0.11 | 0.48 | 0.14 | 0.51 |
| Recovery (%) | 19 | 72 | 35 | 72 |
| Production (oz) | 91 | 1,529 | 656 | 4,712 |
| Metal sold (oz) | — | 1,466 | 603 | 3,140 |
| Realized price ($/oz) | — | 1,808 | 1,864 | 1,790 |
Lead
| Grade (%) | 3.33 | 3.14 | 3.29 | 3.15 |
| Recovery (%) | 89 | 87 | 88 | 88 |
| Production (000's lbs) | 9,085 | 8,245 | 25,856 | 24,571 |
| Metal sold (000's lbs) | 9,155 | 8,859 | 25,751 | 25,354 |
| Realized price ($/lb) | 0.90 | 1.06 | 0.99 | 0.98 |
Zinc
| Grade (%) | 4.37 | 4.74 | 4.22 | 4.67 |
| Recovery (%) | 89 | 87 | 89 | 87 |
| Production (000's lbs) | 11,885 | 12,436 | 33,598 | 36,169 |
| Metal sold (000's lbs) | 12,277 | 12,754 | 33,743 | 36,775 |
| Realized price ($/lb) | 1.48 | 1.36 | 1.65 | 1.31 |
Unit Costs
| Production cash cost ($/t)2 | 93.12 | 86.04 | 92.03 | 85.17 |
| Production cash cost ($/oz Ag Eq)1,2 | 11.32 | 12.75 | 12.25 | 13.25 |
| All-in sustaining cash cost ($/oz Ag Eq)1,2 | 15.66 | 17.66 | 17.16 | 18.17 |
Capital expenditures ($000's) 3 Sustaining 3,764 3,480 11,506 7,930 Brownfields 198 1,168 729 2,777 1 Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively 2 Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to Non-IFRS Financial Measures 3 Capital expenditures are presented on a cash basis
The Caylloma Mine produced 292,096 ounces of silver, 9.1 million pounds of lead, and 11.9 million pounds of zinc during the three months ended September 30, 2022. The operation delivered another strong quarter of operational performance and is tracking well to deliver total production in the upper range of guidance. Measured against the comparable quarter of the previous year, silver was 6% higher due to a combination of increased mill throughput, higher grades and better recoveries. Lead production was 10% higher than the comparable period as a result of higher head grades, recovery, and mill throughput. Zinc production was 4% lower than the comparable period, mainly impacted by lower head grades partially offset by higher mill throughput and recovery. Gold production totaled 91 ounces with an average head grade of 0.11 g/t.
The cash cost per tonne of processed ore for the three months ended September 30, 2022 increased 8% to $93.12 compared to $86.04 in the same period in 2021. The increase was mainly the result of higher mining costs driven by inflation and its direct impact on the price of materials, such as explosives, fuel, cement, reagents, mill balls and others.
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The all-in sustaining cash cost for the three months ended September 30, 2022 decreased 11% to $15.66 per ounce compared to $17.66 per ounce for the same period in 2021 as a result of higher costs being offset by an increase in silver equivalent production.
Sustaining capital expenditures for the quarter increased primarily due to greater execution of the developments located in level 16 and level 18, offset by decreased expenditure on other levels. The decrease in brownfields capital expenditures was due to significantly lower spending on drilling and development. During the third quarter of 2022, an assessment study for a potential expansion of the mine and processing plant was commenced, with tradeoff results expected to be delivered in the first quarter of 2023.
Qualified Person
Eric Chapman, Senior Vice President of Technical Services, is a Professional Geoscientist of the Association of Professional Engineers and Geoscientists of the Province of British Columbia (Registration Number 36328), and is the Company’s Qualified Person (as defined by National Instrument 43-101). Mr. Chapman has reviewed and approved the scientific and technical information contained in this news release and has verified the underlying data.
Non-IFRS Financial Measures
The Company has disclosed certain financial measures and ratios in this news release which are not defined under the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, and are not disclosed in the Company's financial statements, including but not limited to: cash cost per ounce of gold sold; all-in sustaining cash cost per ounce of gold sold; all-in cash cost per ounce of gold sold; total production cash cost per tonne; cash cost per payable ounce of silver equivalent sold; all-in sustaining cash cost per payable ounce of silver equivalent sold; all-in cash cost per payable ounce of silver equivalent sold; free cash flow from ongoing operations; adjusted net income; adjusted EBITDA and working capital.
These non-IFRS financial measures and non-IFRS ratios are widely reported in the mining industry as benchmarks for performance and are used by management to monitor and evaluate the Company's operating performance and ability to generate cash. The Company believes that, in addition to financial measures and ratios prepared in accordance with IFRS, certain investors use these non-IFRS financial measures and ratios to evaluate the Company’s performance. However, the measures do not have a standardized meaning under IFRS and may not be comparable to similar financial measures disclosed by other companies. Accordingly, non-IFRS financial measures and non-IFRS ratios should not be considered in isolation or as a substitute for measures and ratios of the Company’s performance prepared in accordance with IFRS. The Company has calculated these measures consistently for all periods presented.
To facilitate a better understanding of these measures and ratios as calculated by the Company, descriptions are provided below. In addition, see “Non-IFRS Financial Measures” in the Company’s management’s discussion and analysis for the three and nine months ended September 30, 2022 (“Q3 2022 MD&A”), which section is incorporated by reference in this news release, for additional information regarding each non-IFRS financial measure and non-IFRS ratio disclosed in this news release, including an explanation of their composition; an explanation of how such measures and ratios provide useful information to an investor and the additional purposes, if any, for which management of Fortuna uses such measures and ratio. The Q3 2022 MD&A may be accessed on SEDAR at www.sedar.com under the Company’s profile, Fortuna Silver Mines Inc.
Except as otherwise described in the Q3 2022 MD&A, the Company has calculated these measures consistently for all periods presented.
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Adjusted Net Income for the Three and Nine Months Ended September 30, 2022 and 2021
| Three months ended September 30, | Nine months ended September 30, | |||
|---|---|---|---|---|
| Consolidated | 2022 | 2021 | 2022 | 2021 |
Net income (4.1) 0.2 24.5 42.8 Adjustments, net of tax:
| Community support provision and accruals1 | - | - | - | 0.1 |
| Foreign exchange loss, Lindero Mine2 | - | 1.2 | - | 3.8 |
| Foreign exchange loss, Séguéla Project | 0.3 | - | 1.2 | - |
| Write off of mineral properties | 3.4 | - | 4.9 | - |
| Unrealized loss (gain) on derivatives | 1.7 | - | (0.5) | - |
| Roxgold transaction costs | - | 10.5 | - | 14.1 |
| SGM Royalty settlement | - | 6.7 | - | 6.7 |
| Inventory adjustment | 0.9 | - | 4.2 | - |
| Accretion on right of use assets | 0.6 | - | 1.8 | - |
| Other non-cash/non-recurring items | (0.5) | 3.9 | (0.7) | 4.0 |
| Adjusted Net Income | 2.3 | 22.5 | 35.4 | 71.5 |
1 Amounts are recorded in Cost of sales 2 Amounts are recorded in General and Administration Figures may not add due to rounding
Adjusted EBITDA for the Three and Nine Months Ended September 30, 2022 and 2021
| Three months ended September 30, | Nine months ended September 30, | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
Net income (4.1) 0.2 24.5 42.8 Adjustments:
| Community support provision and accruals | - | - | - | (0.1) |
| Inventory adjustment | 1.1 | 1.8 | 5.1 | 1.7 |
| Foreign exchange loss, Lindero Mine | - | 1.2 | - | 3.8 |
| Foreign exchange loss, Séguéla Project | 0.3 | - | 1.2 | - |
| Net finance items | 2.4 | 4.0 | 8.9 | 8.5 |
| Depreciation, depletion, and amortization | 46.9 | 37.8 | 127.4 | 77.5 |
| Income taxes | 5.8 | 8.9 | 26.1 | 34.2 |
| SGM Royalty settlement | - | 9.6 | - | 9.6 |
| Roxgold transaction costs | - | 10.5 | - | 14.1 |
| Other non-cash/non-recurring items | 2.0 | 1.3 | (3.5) | (1.0) |
| Adjusted EBITDA | 54.4 | 75.3 | 189.7 | 191.1 |
Figures may not add due to rounding
Free Cash Flow from ongoing operations for the Three and Nine Months Ended September 30, 2022 and 2021
In 2022, the Company changed the method for calculating Free Cash Flow from Ongoing Operations. The calculation now uses taxes paid as opposed to the previous method which used current income taxes. While this may create larger quarter over quarter fluctuations due to the timing of income tax payments, management believes the revised method is a better representation of the Free Cash Flow generated by the Company’s ongoing operations. Comparative values from 2021 have been restated using the change in the methodology.
| T | hree months ended September 30, | Nine months ended September 30, | ||
|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 |
(Restated) (Restated) Net cash provided by operating activities 64.7 39.4 144.6 90.1 Adjustments
| Roxgold transaction costs | - | 3.5 | - | 3.5 |
| Additions to mineral properties, plant and equipment | (27.8) | (13.8) | (73.8) | (23.2) |
| Progresso royalty payment | - | - | 3.0 | - |
| Other adjustments | (2.9) | - | (9.0) | - |
| Free cash flow from ongoing operations | 34.0 | 29.1 | 64.8 | 70.4 |
Figures may not add due to rounding
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Cash Cost per Ounce of Gold Sold for the Three and Nine Months Ended September 30, 2022 and 2021
| Three months ended | Nine months ended September | |||
|---|---|---|---|---|
| Lindero Mine | September 30, | 30, | ||
| (Expressed in $'000's, except unit costs) | 2022 | 2021 | 2022 | 2021 |
| Cost of sales | 43,928 | 29,508 | 121,122 | 75,974 |
| Changes in doré inventory | (107) | 1,456 | 605 | 2,458 |
| Inventory adjustment | - | (1,743) | - | (1,743) |
| Export duties | (3,900) | (3,137) | (12,192) | (8,519) |
| Depletion and depreciation | (14,898) | (9,092) | (41,203) | (24,512) |
| By product credits | (232) | (55) | (232) | (183) |
| Production cash cost1 | 24,791 | 16,937 | 68,100 | 43,475 |
| Changes in doré inventory | 107 | (1,456) | (605) | (2,458) |
| Realized gain in diesel hedge | (1,696) | (272) | (3,515) | (525) |
| Cash cost applicable per gold ounce sold | A 23,202 | 15,209 | 63,980 | 40,492 |
| Ounces of gold sold | B 30,052 | 23,549 | 89,193 | 63,672 |
| Cash cost per ounce of gold sold1($/oz) | =A/B 772 | 646 | 717 | 635 |
1 September 30, 2021 restated, Sustaining leases moved to All-In Sustaining
| Three months ended | Nine months ended September | |||
|---|---|---|---|---|
| Yaramoko Mine | September 30, | 30, | ||
| (Expressed in $'000's, except unit costs) | 2022 | 2021 | 2022 | 2021 |
| Cost of sales | 47,481 | 38,431 | 129,762 | 38,431 |
| Changes in doré inventory | - | 823 | (1,320) | 823 |
| Inventory net realizable value adjustment | (1,050) | - | (5,077) | - |
| Export duties | (2,817) | (2,975) | (8,898) | (2,975) |
| Depletion and depreciation | (18,356) | (15,739) | (47,010) | (15,739) |
| Refining charges | - | - | (329) | - |
| By product credits | - | (61) | (25) | (61) |
| Production cash cost | 25,258 | 20,479 | 67,103 | 20,479 |
| Changes in doré inventory | - | (823) | 1,320 | (823) |
| Refining charges | - | 138 | 329 | 138 |
| Cash cost applicable per gold ounce sold | A 25,258 | 19,794 | 68,752 | 19,794 |
| Ounces of gold sold | B 27,055 | 27,475 | 81,183 | 27,475 |
| Cash cost per ounce of gold sold ($/oz) | =A/B 934 | 720 | 847 | 720 |
The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.
All-in Sustaining Cash Cost per Ounce of Gold Sold for the Three and Nine Months Ended September 30, 2022 and 2021
| Three months ended | Nine months ended September | |||
|---|---|---|---|---|
| Lindero Mine | September 30, | 30, | ||
| (Expressed in $'000's, except unit costs) | 2022 | 2021 | 2022 | 2021 |
| Cash cost applicable | 23,202 | 15,209 | 63,980 | 40,492 |
| Export duties and mining taxes | 3,900 | 3,137 | 12,192 | 8,519 |
| General and administrative expenses (operations) | 2,044 | 1,387 | 6,497 | 4,003 |
| Adjusted operating cash cost | 29,146 | 19,733 | 82,669 | 53,014 |
| Sustaining leases | 563 | 740 | 1,831 | 1,796 |
| Sustaining capital expenditures1 | 4,814 | 9,385 | 14,062 | 20,040 |
| Brownfields exploration expenditures1 | 314 | 47 | 1,104 | 489 |
| All-in sustaining cash cost | 34,837 | 29,905 | 99,666 | 75,339 |
| Non-sustaining capital expenditures1 | - | - | 169 | - |
| All-in cash cost | 34,837 | 29,905 | 99,835 | 75,339 |
| Ounces of gold sold | 30,052 | 23,549 | 89,193 | 63,762 |
| All-in sustaining cash cost per ounce of gold sold | 1,159 | 1,270 | 1,117 | 1,182 |
| All-in cash cost per ounce of gold sold | 1,159 | 1,270 | 1,119 | 1,182 |
1 Presented on a cash basis
Fortuna | 10
| Three months ended | Nine months ended September | |||
|---|---|---|---|---|
| Yaramoko Mine | September 30, | 30, | ||
| (Expressed in $'000's, except unit costs) | 2022 | 2021 | 2022 | 2021 |
| Cash cost applicable | 25,258 | 19,794 | 68,752 | 19,794 |
| Inventory net realizable value adjustment | 1,170 | 2,975 | 3,125 | 2,975 |
| Export duties and mining taxes | 2,817 | - | 8,898 | - |
| General and administrative expenses (operations) | 688 | 439 | 1,570 | 439 |
| Adjusted operating cash cost | 29,933 | 23,208 | 82,345 | 23,208 |
| Sustaining leases | 1,419 | 1,467 | 4,273 | 1,467 |
| Sustaining capital expenditures1 | 10,225 | 7,398 | 26,671 | 7,398 |
| Brownfields exploration expenditures1 | 2,530 | 560 | 3,018 | 560 |
| All-in sustaining cash cost | 44,107 | 32,633 | 116,307 | 32,633 |
| All-in cash cost | 44,107 | 32,633 | 116,307 | 32,633 |
| Ounces of gold sold | 27,055 | 27,475 | 81,183 | 27,475 |
| All-in sustaining cash cost per ounce of gold sold | 1,630 | 1,188 | 1,433 | 1,188 |
| All-in cash cost per ounce of gold sold | 1,630 | 1,188 | 1,433 | 1,188 |
The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward. 1 Presented on a cash basis
Production Cash Cost per Tonne and Cash Cost per Payable Ounce of Silver Equivalent Sold for the Three and Nine Months Ended September 30, 2022 and 2021
| Three months ended | Nine months ended September | |||
|---|---|---|---|---|
| San Jose Mine | September 30, | 30, | ||
| (Expressed in $'000's, except unit costs) | 2022 | 2021 | 2022 | 2021 |
| Cost of sales | 32,936 | 29,980 | 94,313 | 90,051 |
| Changes in concentrate inventory | (209) | (31) | (137) | 63 |
| Depletion and depreciation in concentrate inventory | 68 | 54 | 49 | 21 |
| Inventory adjustment | 312 | (35) | 266 | 46 |
| Royalties and mining taxes | (1,261) | (1,641) | (4,002) | (4,368) |
| Workers participation | (979) | (1,218) | (1,876) | (4,573) |
| Depletion and depreciation | (9,659) | (7,808) | (27,265) | (23,468) |
| Cash cost3 | A 21,208 | 19,301 | 61,348 | 57,772 |
| Total processed ore (tonnes) | B 267,198 | 248,984 | 770,090 | 778,352 |
| Production cash cost per tonne3($/t) | =A/B 79.37 | 77.52 | 79.66 | 74.22 |
| Cash cost3 | A 21,208 | 19,301 | 61,348 | 57,772 |
| Changes in concentrate inventory | 209 | 31 | 137 | (63) |
| Depletion and depreciation in concentrate inventory | (68) | (54) | (49) | (21) |
| Inventory adjustment | (312) | 35 | (266) | (46) |
| Treatment charges | (173) | (2,622) | (228) | (441) |
| Refining charges | 997 | 3,539 | 2,789 | 3,161 |
| Cash cost applicable per payable ounce sold3 | C 21,861 | 20,230 | 63,731 | 60,362 |
| Payable ounces of silver equivalent sold1 | D 2,254,673 | 2,024,487 | 6,159,782 | 6,501,691 |
| Cash cost per ounce of payable silver equivalent sold2,3($/oz) | =C/D 9.70 | 9.99 | 10.35 | 9.28 |
| Mining cost per tonne3 | 37.72 | 38.00 | 37.48 | 38.74 |
| Milling cost per tonne | 17.49 | 17.22 | 18.74 | 16.71 |
| Indirect cost per tonne | 16.09 | 14.79 | 15.48 | 12.66 |
| Community relations cost per tonne | 2.68 | 3.08 | 2.55 | 1.44 |
| Distribution cost per tonne | 5.39 | 4.43 | 5.41 | 4.67 |
| Production cash cost per tonne3($/t) | 79.37 | 77.52 | 79.66 | 74.22 |
1 Silver equivalent sold for Q3 2022 is calculated using a silver to gold ratio of 90.0:1 (Q3 2021: 73.8:1). Silver equivalent sold for YTD 2022 is calculated using a silver to gold ratio of 83.5:1 (YTD 2021: 69.7:1).
2 Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results – Sales and Realized Prices 3 September 30, 2021 restated, Sustaining leases moved to All-In Sustaining
Fortuna | 11
| Three months ended | Nine months ended September | |||
|---|---|---|---|---|
| Caylloma Mine | September 30, | 30, | ||
| (Expressed in $'000's, except unit costs) | 2022 | 2021 | 2022 | 2021 |
| Cost of sales | 17,512 | 17,302 | 50,815 | 49,332 |
| Changes in concentrate inventory | 135 | (670) | 11 | (899) |
| Depletion and depreciation in concentrate inventory | (30) | 133 | (196) | 155 |
| Inventory adjustment | (491) | - | (179) | - |
| Royalties and mining taxes | (218) | (68) | (686) | (157) |
| Provision for community support | 123 | - | 97 | - |
| Workers participation | (455) | (412) | (1,389) | (1,624) |
| Depletion and depreciation | (3,619) | (4,549) | (10,952) | (12,575) |
| Cash cost3 | A 12,957 | 11,736 | 37,521 | 34,232 |
| Total processed ore (tonnes) | B 139,143 | 136,410 | 407,695 | 401,942 |
| Production cash cost per tonne3($/t) | =A/B 93.12 | 86.04 | 92.03 | 85.17 |
| Cash cost | A 12,957 | 11,736 | 37,521 | 34,232 |
| Changes in concentrate inventory | (135) | 670 | (11) | 899 |
| Depletion and depreciation in concentrate inventory | 30 | (133) | 196 | (155) |
| Inventory adjustment | 491 | - | 179 | - |
| Treatment charges | 3,028 | 4,378 | 11,195 | 11,125 |
| Refining charges | 389 | 459 | 1,153 | 1,292 |
| Cash cost applicable per payable ounce sold3 | C 16,760 | 17,110 | 50,233 | 47,393 |
| Payable ounces of silver equivalent sold1 | D 1,480,688 | 1,341,997 | 4,101,900 | 3,577,778 |
| Cash cost per ounce of payable silver equivalent sold2,3($/oz) | =C/D 11.32 | 12.75 | 12.25 | 13.25 |
| Mining cost per tonne | 41.38 | 33.82 | 39.04 | 32.24 |
| Milling cost per tonne | 14.57 | 15.95 | 15.24 | 15.00 |
| Indirect cost per tonne | 28.46 | 28.05 | 29.50 | 29.50 |
| Community relations cost per tonne | 1.30 | 0.51 | 0.93 | 0.72 |
| Distribution cost per tonne | 7.43 | 7.71 | 7.34 | 7.71 |
| Production cash cost per tonne3($/t) | 93.14 | 86.04 | 92.05 | 85.17 |
1 Silver equivalent sold for Q3 2022 is calculated using a silver to gold ratio of 0.0:1 (Q3 2021: 72.5:1), silver to lead ratio of 1:21.4 pounds (Q3 2021: 1:23.3), and silver to zinc ratio of 1:13.0 pounds (Q3 2021: 1:18.1). Silver equivalent sold for YTD 2022 is calculated using a silver to gold ratio of 84.8:1 (YTD 2021: 69.4:1), silver to lead ratio of 1:22.2 pounds (YTD 2021: 1:26.3), and silver to zinc ratio of 1:13.3 pounds (YTD 2021: 1:19.7).
2 Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results - Sales and Realized Prices 3 September 30, 2021 restated, Sustaining leases moved to All-In Sustaining
All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver Equivalent Sold for the Three and Nine Months Ended September 30, 2022 and 2021
| Three months ended | Nine months ended September | |||
|---|---|---|---|---|
| San Jose Mine | September 30, | 30, | ||
| (Expressed in $'000's, except unit costs) | 2022 | 2021 | 2022 | 2021 |
| Cash cost applicable4 | 21,861 | 20,230 | 63,731 | 60,362 |
| Royalties and mining taxes | 1,261 | 1,641 | 4,002 | 4,368 |
| Workers' participation | 1,224 | 1,522 | 2,345 | 5,716 |
| General and administrative expenses (operations) | 1,606 | 1,719 | 4,845 | 5,022 |
| Adjusted operating cash cost4 | 25,952 | 25,112 | 74,923 | 75,468 |
| Sustaining leases4 | 183 | 184 | 489 | 447 |
| Sustaining capital expenditures3 | 4,410 | 3,553 | 12,036 | 9,525 |
| Brownfields exploration expenditures3 | 1,548 | 2,547 | 4,645 | 6,437 |
| All-in sustaining cash cost | 32,093 | 31,397 | 92,093 | 91,878 |
| Non-sustaining capital expenditures3 | - | 745 | 869 | 1,776 |
| All-in cash cost | 32,093 | 32,142 | 92,962 | 93,654 |
| Payable ounces of silver equivalent sold1 | 2,254,673 | 2,024,487 | 6,159,782 | 6,501,691 |
| All-in sustaining cash cost per ounce of payable silver equivalent sold2 | 14.23 | 15.51 | 14.95 | 14.13 |
| All-in cash cost per ounce of payable silver equivalent sold2 | 14.23 | 15.88 | 15.09 | 14.40 |
1 Silver equivalent sold for Q3 2022 is calculated using a silver to gold ratio of 90.0:1 (Q3 2021: 73.9:1). Silver equivalent sold for YTD 2022 is calculated using a silver to gold ratio of 83.5:1 (YTD 2021: 69.7:1).
2 Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results - Sales and Realized Prices 3 Presented on a cash basis 4 September 30, 2021 restated, Sustaining leases moved from Cash Cost
Fortuna | 12