Fortuna reports consolidated financial results for the third quarter 2018
Fortuna reports consolidated financial results for the third quarter 2018
(All amounts expressed in US dollars, unless otherwise stated)
Vancouver, November 8, 2018 -- Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) today reported net
income of $6.9 million, earnings per share of 4 cents and revenue of $59.6 million in the third quarter of
2018.
Jorge A. Ganoza, President and CEO, commented, “We have delivered a solid quarter in spite of a 12%
and 5% decrease in silver and gold prices, respectively, in the third quarter, with earnings per share of
$0.04, EBITDA of $24.2 million, and free cash flow, excluding Lindero construction costs, of $13.6 million.”
Mr. Ganoza concluded, “The rate of spendi ng at Lindero continues to increase as construction activities
accelerate towards year end. It is estimated that a total of between $110 million to $130 million will be
spent in 2018. Construction activities are progressing according to the project´s schedule with commercial
production planned for the end of the third quarter of 2019.”
Third quarter consolidated financial highlights:
• Sales of $59.6 million, compared to $64.0 million in Q3 2017
• Net income of $6.9 million, compared to $10.3 million in Q3 2017
• Earnings per share of $0.04, compared to $0.06 in Q3 2017
• Net cash provided by operations of $21.5 million and adjusted EBITDA of $24.2 million, compared
to $20.3 million and $30.6 million, respectively, in Q3 2017
• Free cash flow, excluding Lindero construction costs,1 of $13.6 million and $42.2 million for the
three and nine months ended September 30, 2018
• Cash position, including short term investments, as at September 30, 2018 was $176.7 million
• Silver and gold production totaled 2,230,465 and 12,542 ounces compared to 2,009,362 and
13,412 in Q3 2017
• AISC1 per silver equivalent2 ounce was $10.8 compared to $11.1 in Q3 2017
1 All-in sustaining cash cost and free cash flow excluding Lindero construction costs are Non-GAAP Financial Measures
2 AISC/oz Ag Eq calculated at realized metal prices of $1,211/oz Au, $14.8/oz Ag, $1.0/lb Pb, and $1.2/lb Zn
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Third quarter consolidated financial results
Consolidated Metrics Q3 2018 Q3 2017 % Change YTD 2018 YTD 2017 % Change
Financial (Expressed in $ millions except per share information and all-in sustaining cash costs)
Sales $ 59.6 $ 64.0 -7% $ 203.7 $ 192.8 6%
Mine operating income 16.5 24.9 -34% 79.2 74.3 7%
Operating income 10.5 18.9 -44% 55.3 52.7 5%
Net income 6.9 10.3 -33% 31.8 32.2 -1%
Earnings per share (basic) 0.04 0.06 -33% 0.20 0.20 0%
Earnings per share (diluted) 0.04 0.06 -33% 0.20 0.20 0%
Adjusted net income1 7.1 13.1 -46% 30.2 36.4 -17%
Adjusted EBITDA1 24.2 30.6 -21% 91.2 87.3 4%
Free cash flow1 (19.3) 8.3 -333% (26.9) 9.9 -372%
Free cash flow excluding
Lindero construction costs1
13.6 11.7 16% 42.2 17.7 138%
Capex (sustaining) 5.4 7.5 -28% 14.6 19.9 -27%
Capex (non-sustaining) 0.6 2.4 -74% 2.1 2.9 -27%
Capex (Lindero) 24.5 3.7 564% 41.8 8.3 402%
Capex (Brownfield) 2.4 2.2 9% 7.1 7.8 -10%
AISC ($/oz Ag)1,2 7.1 6.1 17% 4.1 6.8 -40%
AISC ($/oz Ag Eq)1,3 10.8 11.1 -3% 10.1 11.4 -12%
Sep 30, 2018 Dec 31, 2017 % Change
Cash, cash equivalents, and short-term investments $ 176.7 $ 212.6 -17%
Total assets $ 738.3 $ 706.6 4%
Non-current bank loan $ 39.6 $ 39.9 -1%
1 Non-GAAP financial measure. Refer to the Non-GAAP Measures at the end of this news release and in the associated MD&A for
a description and calculation of these measures
2 Net of by-products from gold, lead, and zinc.
3 AISC/oz Ag Eq calculated at realized metal prices of $1,211/oz Au, $14.8/oz Ag, $1.0/lb Pb, and $1.2/lb Zn
Net income for the three months ended September 30, 2018 was $6.9 million or $0.04 per share
compared to $10.3 million or $0.06 per share for the comparable quarter in 2017. Sales f or the third
quarter of 2018 decreased 7% to $59.6 million compared to $64.0 million for the comparable quarter in
2017 due primarily to a decline in metal prices for silver, lead, and zinc and to a lesser extent, the timing
of recognizing revenue on concentrates delivered to the warehouse prior to the end of the quarter of
about $1.5 million, but which were not recognized in sales for the third quarter.
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Operating income for the three months ended September 30, 2018 was $10.5 million, a 44% decrease
from the $18.9 million of operating income for the comparable quarter in 2017. The key drivers for the
decrease were lower sales from a decline in metal price s, higher production costs at the Caylloma mine
as well as a $1.4 million provision for a community support obligation that will be paid over the next 2.5
years.
Adjusted net income decreased 46% during the quarter to $7.1 million compared to $13.1 milli on for
2017. Adjusted EBITDA decreased 21% to $24.2 million compared to $30.6 million for the comparable
period in 2017.
Free cash flow, excluding Lindero construction costs , was $13.6 million in the quarter and $42. 2 million
year to date. At September 30, 2018, the Company had cash, cash equivalents and short-term investments
of $176.7 million which along with our undrawn credit facility of $80.0 million will provide sufficie nt
liquidity to meet our funding needs during the construction of the Lindero Project.
San Jose Mine, Mexico
Three months ended September 30, Nine months ended September 30,
Mine Production 2018 2017 2018 2017
Tonnes milled 262,710 263,697 784,297 799,420
Average tonnes milled per day 2,985 3,038 2,994 3,054
Silver
Grade (g/t) 258 229 270 231
Recovery (%) 91 91 92 92
Production (oz) 1,991,211 1,774,556 6,261,137 5,454,793
Metal sold (oz) 1,904,179 1,739,066 6,103,319 5,392,495
Realized price ($/oz) 14.82 16.85 16.08 17.16
Gold
Grade (g/t) 1.61 1.71 1.80 1.74
Recovery (%) 91 91 92 91
Production (oz) 12,387 13,248 41,692 40,773
Metal sold (oz) 12,098 12,817 40,943 40,079
Realized price ($/oz) 1,211 1,280 1,285 1,251
Unit Costs
Production cash cost ($/oz Ag)1,2 1.8 1.5 0.3 1.3
Production cash cost ($/oz Ag Eq)1,3 6.1 6.5 5.7 6.3
Production cash cost ($/t)1 63.3 62.2 63.0 60.3
Unit Net Smelter Return ($/t) 157.3 162.6 183.8 165.8
AISC ($/oz Ag)1,2 6.4 7.8 5.0 7.4
AISC ($/oz Ag Eq)1,3 9.1 10.5 8.8 10.3
1 Non-GAAP financial measure. Refer to the Non-GAAP Measures at the end of this news release and in the associated MD&A for a
description and calculation of these measures 2 Net of by-product credits from gold
3 AISC/oz Ag Eq calculated at realized metal prices of $1,211/oz Au and $14.8/oz Ag
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The San Jose Mine produced 1,991,211 ounces of silver, representing a 12% increase in silver production
over the same period in 2017 while gold production declined 6% to 12,387 ounces compared to 13,248
ounces during the same period in 2017. Average head grades for silver and gold were 258 g/t and 1.61
g/t which were 13% higher and 6% lower than the same period in 2017.
Cash cost per tonne of processed ore increased 2% to $63. 3 for the third quarter compared to $62.2 for
the same quarter in 2017 due primarily to higher energy tariffs and partially offset by lower mining costs.
Cash cost per for the nine months ended September 30, 2018 increased 4% to $63.0 compared to $60.3
for the comparable period in 2017 and was slightly above our annual guidance. Cash cost per tonne for
the year is expected to remain within 5% of our annual guidance of $61.2.
Caylloma Mine, Peru
Three months ended September 30, Nine months ended September 30,
Mine Production 2018 2017 2018 2017
Tonnes milled 135,996 133,726 399,739 395,069
Average tonnes milled per day 1,511 1,486 1,503 1,480
Silver
Grade (g/t) 65 66 64 66
Recovery (%) 85 83 85 84
Production (oz) 239,253 234,806 692,101 704,624
Metal sold (oz) 250,255 226,155 696,765 691,659
Realized price ($/oz) 15.01 16.89 16.07 17.19
Lead
Grade (%) 2.74 2.87 2.70 2.77
Recovery (%) 92 91 91 91
Production (000's lbs) 7,576 7,650 21,802 22,031
Metal sold (000's lbs) 7,822 7,291 21,972 21,454
Realized price ($/lb) 0.96 1.06 1.06 1.03
Zinc
Grade (%) 4.24 4.26 4.27 4.16
Recovery (%) 90 90 90 90
Production (000's lbs) 11,483 11,241 33,947 32,670
Metal sold (000's lbs) 11,647 10,867 34,154 32,512
Realized price ($/lb) 1.15 1.35 1.37 1.26
Unit Costs
Production cash cost ($/oz Ag)1,2 (22.6) (39.5) (40.1) (31.2)
Production cash cost ($/oz Ag Eq)1,3 8.5 7.2 7.4 8.0
Production cash cost ($/t)1 88.5 76.0 81.4 78.1
Unit Net Smelter Return ($/t) 151.7 170.4 173.7 159.9
AISC ($/oz Ag)1,2 1.4 (18.8) (16.8) (11.2)
AISC ($/oz Ag Eq)1,3 12.3 10.5 10.8 11.4
1 Non-GAAP financial measure. Refer to the Non-GAAP Measures at the end of this news release and in the associated MD&A for a
description and calculation of these measures 2 Net of by-product credits from gold, lead, and zinc.
3 AISC/oz Ag Eq calculated at realized metal prices of $1,211/oz Au, $15.0/oz Ag, $1.0/lb Pb, and $1.2/lb Zn
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The Caylloma Mine produced 7.6 million pounds of lead and 11.5 million pounds of zinc during the third
quarter of 2018 representing a 2% increase in zinc production a 1% decrease in lead production over the
same period in 20 17. Average head grades for lead and zinc were 2.74% and 4.24%. Silver production
was 239,253 ounces which was 2% higher than the comparable period in 2017.
Cash cost per tonne of processed ore for the third quarter of 2018 was $88.5 or 16% higher than the $76.0
cash cost for the comparable quarter in 2017 . Cash cost per tonne on a year -to-date basis was $81.4 or
4% above 2017. The slightly higher cash cost for the nine months ended September 30, 2018 was due to
higher labour and related personnel expen ses that came into effect on August 2018. The Company
expects an incremental cost of approximately $1.1 in the fourth quarter relating to a community support
agreement entered into in the third quarter. Cash cost per tonne for the year is expected to be within 5%
of our annual guidance of $81.3.
Non-GAAP Financial Measures
The following tables represent the computation of certain Non-GAAP Financial Measures as referenced in
this news release.
Q3 2018 Adjustments
Q3 2018
Adjusted Q3 2017 Adjustments
Q3 2017
Adjusted
Sales $ 59.6 $ - $ 59.6 $ 64.0 $ - $ 64.0
Cost of sales 43.1 (1.4) 41.7 39.1 - 39.1
Mine operating income 16.5 1.4 17.9 24.9 - 24.9
Selling, general and administration 5.0 - 5.0 5.0 - 5.0
Exploration and evaluation 0.2 - 0.2 - - -
Share of loss of equity -accounted
investee
0.1 (0.1) - 0.1 (0.1) -
Foreign exchange loss (gain) 0.8 - 0.8 0.1 - 0.1
Other expenses (0.1) - (0.1) 0.8 0.6 1.4
Operating Income 10.5 1.5 12.0 18.9 (0.5) 18.4
Interest and finance costs 0.2 - 0.2 0.1 - 0.1
Gain (loss) on financial assets and
liabilities carried at fair value 2.1 (1.2) 0.9 (3.2) 3.2 -
Income before taxes 12.8 0.3 13.1 15.8 2.7 18.5
Current income tax expense 6.0 - 6.0 6.7 (0.1) 6.6
Deferred income tax recovery - - - (1.2) - (1.2)
Net income and adjusted net
income for the period $ 6.8 $ 0.3 $ 7.1 $ 10.3 $ 2.8 $ 13.1
Earnings per share - basic $ 0.04 $ - $ 0.04 $ 0.06 $ - $ 0.06
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YTD
2018 Adjustments
YTD
2018
Adjusted
YTD
2017 Adjustments
YTD
2017
Adjusted Sales $ 203.7 $ - $ 203.7 $ 192.8 $ - $ 192.8
Cost of sales 124.5 (1.4) 123.1 118.4 - 118.4
Mine operating income 79.2 1.4 80.6 74.4 - 74.4
Selling, general and administration 19.9 - 19.9 16.2 - 16.2
Exploration and evaluation 0.5 - 0.5 0.2 - 0.2
Share of loss of equity -accounted
investee
(0.1) 0.1 - 0.1 (0.1) -
Foreign exchange loss (gain) 2.5 - 2.5 3.3 - 3.3
Other expenses 1.0 (1.0) - 1.8 (1.8) 0.0
Operating Income 55.3 2.3 57.6 52.6 1.9 54.6
Interest and finance costs (0.1) 0.5 0.4 (0.4) - (0.4)
Gain (loss) on financial assets and
liabilities carried at fair value 4.9 (5.4) (0.5) (4.2) 4.1 (0.1)
Income before taxes 60.2 (2.6) 57.6 48.0 6.0 54.1
Current income tax expense 27.9 (1.0) 26.9 23.5 1.8 25.3
Deferred income tax recovery 0.5 - 0.5 (7.6) - (7.6)
Net income and adjusted net
income for the period $ 31.8 $ (1.6) $ 30.2 $ 32.2 $ 4.2 $ 36.3
Earnings per share - basic $ 0.20 $ - $ 0.20 $ 0.20 $ - $ 0.20
Q3 2018 Q3 2017 YTD 2018 YTD 2018
Net Income for the period $ 6.9 $ 10.3 $ 31.8 $ 32.2
Add back:
Community support provision 1.4 - 1.4 -
Net finance items (0.2) (0.1) - 0.4
Depreciation, depletion, and amortization 11.4 10.8 34.0 32.9
Income taxes 5.9 5.5 28.4 15.8
Share of (income) loss of equity-accounted investee 0.1 - (0.1) 0.1
Non-cash (gain) loss on financial instruments (1.2) 3.3 (5.4) 4.1
Other operating expenses (0.1) 0.8 1.1 1.8
Adjusted EBITDA $ 24.2 $ 30.6 $ 91.2 $ 87.3
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(Expressed in $ millions) Q3 2018 Q3 2017 YTD 2018 YTD 2017
Free Cash Flow
Net cash provided by operating activities $ 21.9 $ 20.4 $ 64.2 $ 41.2
Less: Purchases of mineral properties, plant and
equipment (34.8) (11.7) (62.3) (32.4)
Less: Deposits on long term assets, net (6.6) 0.5 (29.8) (3.2)
Less: Current income tax expense (6.0) (6.7) (27.9) (23.5)
Add: Income taxes paid 6.2 5.8 28.9 27.8
Free cash flow $ (19.3) $ 8.3 $ (26.9) $ 9.9
Add: Lindero construction capital expenditures 25.1 2.7 37.3 7.1
Add: Greenfield capital expenditures 0.7 0.7 2.2 0.7
Add: Deposits on long term assets - Lindero
construction 7.1 - 29.6 -
Free cash flow excluding Lindero construction costs $ 13.6 $ 11.7 $ 42.2 $ 17.7
The financial statements and MD&A are available on SEDAR and have also been posted on the Company's
website at https://www.fortunasilver.com/investors/financials/2018/.
Conference call to review third quarter financial and operations results
Date: Friday, November 9, 2018
Time: 9:00 a.m. Pacific | 12:00 p.m. Eastern
Dial in number (Toll Free): +1.877.407.8035
Dial in number (International): +1.201.689.8035
Replay number (Toll Free): +1.877.481.4010
Replay number (International): +1.919.882.2331
Replay Passcode: 10460
Playback of the conference call will be available until November 23, 2018 at 11:59 p.m. Eastern. Playback
of the webcast will be available until November 8, 2019. In addition, a transcript of the call will be archived
on the company’s website: https://www.fortunasilver.com/investors/financials/2018/.
About Fortuna Silver Mines Inc.
Fortuna is a growth oriented, precious metals producer with its primary assets being the Caylloma silver
mine in southern Peru, the San Jose silver-gold mine in Mexico and the Lindero gold Project in Argentina.
The Company is selectively pursuing acquisition opportunities throughout the Americas and in select other
areas. For more information, please visit its website at www.fortunasilver.com.
ON BEHALF OF THE BOARD
Jorge A. Ganoza
President, CEO and Director
Fortuna Silver Mines Inc.
Trading symbols: NYSE: FSM | TSX: FVI
Investor Relations:
Carlos Baca- T (Peru): +51.1.616.6060, ext. 0
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Forward looking Statements
This news release contains forward looking statements which constitute “forward looking information” within the
meaning of applicable Canadian securities legislation and “forward looking statements” within the meaning of the
“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (collectively, “Forward looking
Statements”). All statements included herein, other than statements of historical fact, are Forward looking
Statements and are subject to a variety of known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those reflected in the Forward looking Statements. The Forward looking
Statements in this news release include, without limitation, statements about the Company’s plans for its mines and
mineral properties; the Company’s business strategy, plans and outlook; the merit of the Company’s mines and
mineral properties; the future financial or operating performance of the Company; and proposed expenditures. Often,
but not always, these Forward looking Statements can be identified by the use of words such as “estimated”,
“potential”, “open”, “future”, “assumed”, “projected”, “used”, “detailed”, “has been”, “gain”, “planned”,
“reflecting”, “will”, “containing”, “remaining”, “to be”, or statements that events, “could” or “should” occur or be
achieved and similar expressions, including negative variations.
Forward looking Statements involve known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially different from any results, performance
or achievements expressed or implied by the Forward looking Statemen ts. Such uncertainties and factors include,
among others, changes in general economic conditions and financial markets; changes in prices for silver and other
metals; technological and operational hazards in Fortuna’s mining and mine development activities; risks inherent in
mineral exploration; uncertainties inherent in the estimation of mineral reserves, mineral resources, and metal
recoveries; governmental and other approvals; political unrest or instability in countries where Fortuna is active;
labor relations issues; as well as those factors discussed under “Risk Factors” in the Company's Annual Information
Form. Although the Company has attempted to identify important factors that could cause actual actions, events or
results to differ materially from those described in Forward looking Statements, there may be other factors that cause
actions, events or results to differ from those anticipated, estimated or intended.
Forward looking Statements contained herein are based on the assumptions, beliefs, expectations and opinions of
management, including but not limited to expectations regarding the Company’s plans for its mines and mineral
properties; mine production costs; expected trends in mineral prices and currency exchange rates; the accura cy of
the Company’s current mineral resource and reserve estimates; that the Company’s activities will be in accordance
with the Company’s public statements and stated goals; that there will be no material adverse change affecting the
Company or its proper ties; that all required approvals will be obtained; that there will be no significant disruptions
affecting operations and such other assumptions as set out herein. Forward looking Statements are made as of the
date hereof and the Company disclaims any obl igation to update any Forward looking Statements, whether as a
result of new information, future events or results or otherwise, except as required by law. There can be no assurance
that Forward looking Statements will prove to be accurate, as actual results and future events could differ materially
from those anticipated in such statements. Accordingly, investors should not place undue reliance on Forward looking
Statements.
This news release also refers to non-GAAP financial measures, such as cash cost per tonne of processed ore; cash cost
per payable ounce of silver; total production cost per tonne; all -in sustaining cash cost; all -in cash cost; all-in cash
cost per ounce of silver equivalent production; adjusted net (loss) income; operating cash flow pe r share before
changes in working capital; free cashflow; income taxes and interest income; and adjusted EBITDA. These measures
do not have a standardized meaning or method of calculation, even though the descriptions of such measures may
be similar. These performance measures have no meaning under International Financial Reporting Standards (IFRS)
and therefore, amounts presented may not be comparable to similar data presented by other mining companies.