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Fortuna Silver Mines Inc
Symbol C : FVI
Shares Issued 159,939,595
Close 2019-03-13 C$ 4.82
Recent Sedar Documents

Fortuna Silver earns $34-million in 2018

2019-03-13 20:47 ET - News Release

Mr. Jorge Ganoza reports

FORTUNA REPORTS CONSOLIDATED FINANCIAL RESULTS FOR FULL YEAR 2018

Fortuna Silver Mines Inc. had full-year 2018 net income of $34.0-million, adjusted net income of $38.4-million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $113.9-million.

Jorge A. Ganoza, president and chief executive officer, commented: "In 2018, we had strong financial results with free cash flow generation from ongoing operations of $55-million and adjusted net income of $38.4-million. Our strong results in the year, in spite of a weaker price environment in the second semester, speak for our commitment to efficient operations and the strength of our assets." Jorge Ganoza added, "Our capital investment plans and working capital requirements during the Lindero construction in Argentina are adequately funded from available liquidity and free cash flow from our mines."

Full-year 2018 highlights:

  • Sales of $263.3-million, compared with $268.1-million in 2017;
  • Net income of $34.0-million, compared with $66.3-million in 2017;
  • Adjusted net income (1) of $38.4-million, compared with $48.7-million in 2017;
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) of $113.9-million, compared with $122.0-million in 2017;
  • Free cash flow from continuing operations (1) of $55.2-million;
  • Cash position, including short-term investments, as at Dec. 31, 2018, was $163.3-million;
  • Credit facility expanded to $150.0-million, with $80.0-million undrawn;
  • Silver and gold production of 8,890,943 ounces and 54,210 ounces, respectively;
  • AISC (all-in sustaining cost) (2) per silver equivalent ounce of payable silver was $10.6.

Fourth quarter 2018 highlights:

  • Sales of $59.6-million, compared with $75.4-million in 2017;
  • Net income of $2.2-million, compared with $34.1-million in 2017;
  • Adjusted net income (1) of $4.4-million, compared with $12.3-million in 2017;
  • Adjusted EBITDA (1) of $22.7-million, compared with $34.9-million in 2017;
  • Free cash flow from continuing operations (1) of $11.8-million;
  • Silver and gold production of 1,937,703 ounces and 12,070 ounces, respectively;
  • AISC (2) per silver equivalent ounce of payable silver was $12.2.

(1) Non-GAAP (generally accepted accounting principles) financial measures.

(2) AISC silver equivalent (AgEq) ounces calculated at realized metal prices of $1,273 per ounce gold (Au), $15.7 per ounce silver (Ag), $1.0 per pound lead (Pb) and $1.3 per pound zinc (Zn).

                             2018 YEAR-END AND FOURTH QUARTER 2018 CONSOLIDATED RESULTS

Consolidated metrics                           Q4 2018          Q4 2017        YTD 2018           YTD 2017     
Financial (expressed in millions of dollars 
except per-share information)                                                
Sales                                       $     59.6       $     75.4      $    263.3         $    268.1
Mine operating income                             17.3             35.2            96.6              109.6
Operating income                                   6.3             57.7            61.6              110.3
Net income                                         2.2             34.1            34.0               66.3
Earnings per share (basic)                        0.01             0.21            0.21               0.42
Earnings per share (diluted)                      0.01             0.21            0.21               0.42
Adjusted net income1                               4.4             12.3            38.4               48.7
Adjusted EBITDA (1)                               22.7             34.9           113.9              122.0
Cash provided by operating activities             19.3             29.0            83.5               70.2
Free cash flow (1)                               (26.7)            14.5           (52.4)              24.5
Free cash flow from 
continuing operations (1)                         11.8             19.2            55.2               37.1
Capex                                                                                                     
Sustaining                                         9.4              8.0            24.0               28.0
Non-sustaining                                     1.2                -             3.3                  -
Lindero                                           39.4              3.1            80.0               11.4
Brownfields                                        1.6              2.2             8.6               10.1

                                                                          Dec. 31, 2018      Dec. 31, 2017 
Cash, cash equivalents and 
short-term investments                                                       $    163.3         $    212.6

(1) Non-GAAP financial measures.

Certain comparative figures have been reclassified to conform to the current-year presentation.

Fourth quarter 2018 results

Sales for the three months ended Dec. 31, 2018, were $59.6-million, a $15.8-million decrease from the $75.4-million reported in 2017. The decrease in sales was due to lower sales volume in silver and gold of 13 per cent and 18 per cent, and a decline in metal prices for silver, lead and zinc of 13 per cent, 21 per cent and 19 per cent, respectively.

Net income for the three months ended Dec. 31, 2018, was $2.2-million or one cent per share, compared with $34.1-million or 21 cents per share in the same period of 2017, which included a $31.1-million (after tax: $21.9-million) impairment reversal. The main items affecting the comparability of results in the quarter were the impairment reversal in 2017 and $3.9-million of foreign exchange losses in 2018 related to the Lindero project construction.

Adjusted net income for the three months ended Dec. 31, 2018, was $4.4-million, compared with $12.3-million reported in the same period of 2017. The decrease in adjusted net income was due mainly to lower sales at both San Jose and Caylloma. Higher production costs in the quarter were partially offset by lower share-based payment charges and a realized gain in commodity derivative instruments of $900,000, compared with a loss of $1.5-million in 2017.

Adjusted EBITDA for the three months ended Dec. 31, 2018, was $22.7-million, compared with $34.9-million in the comparable period in 2017. The decrease in adjusted EBITDA was due primarily to lower sales. Higher production costs were partially offset by the same items discussed above in adjusted net income.

Net cash provided by operating activities for the three months ended Dec. 31, 2018, was $19.3-million compared with $29.0-million reported in 2017. Free cash flow from continuing operations for the three months ended Dec. 31, 2018, was $11.8-million, compared with $19.2-million reported in 2017.

Annual results

Sales for the year ended Dec. 31, 2018, were $263.3-million, a decrease of $4.8-million over the $268.1-million reported in 2017. The decrease in sales was due mainly to an 8-per-cent decline in the realized silver price and was partially offset by a 5-per-cent increase in silver sales volume and lower treatment charges.

Net income for the year ended Dec. 31, 2018, was $34.0-million, compared with $66.3-million reported in 2017, which included a $31.1-million (after tax: $21.9-million) impairment reversal. The main items affecting the comparability of results were the impairment reversal in 2017 and $3.9-million of foreign exchange losses in 2018 related to the Lindero project construction.

Adjusted net income for the year ended Dec. 31, 2018, decreased $10.3-million to $38.4-million from $48.7-million in 2017. The decrease in adjusted net income was due to a combination of lower sales, higher production costs and higher depletion at Caylloma of $3.1-million related to the reversal of the impairment in 2017. Other items of variance in the year-over-year comparison were higher general and administrative expenses of $1.3-million, and a realized gain in commodity derivative instruments of $400,000, compared with a loss of $1.6-million in 2017.

Adjusted EBITDA for the year ended Dec. 31, 2018, was $113.9-million, compared with $122.0-million reported in 2017. The decrease in adjusted EBITDA was due to a combination of lower sales and higher production costs.

Net cash provided by operating activities for the year ended Dec. 31, 2018, was $83.5-million, compared with $70.2-million reported in 2017. Free cash flow from continuing operations increased $18.1-million to $55.2-million, due primarily to negative changes in working capital items in 2017.

Capital resources and liquidity

At Dec. 31, 2018, the company had cash, cash equivalents and short-term investments of $163.3-million (Dec. 31, 2017: $212.6-million). In December, 2018, the company expanded its existing credit facility from $120.0-million to $150.0-million, of which $80.0-million remains undrawn. Total liquidity available to the company as of the 2018 year-end was $243.3-million, which, along with free cash flow from continuing operations, will provide sufficient liquidity to meet the company's financing needs during the construction of the Lindero project.

Lindero project

Construction at the Lindero open-pit heap leach gold mine located in Salta province, Argentina, is well under way, and the overall project is 40 per cent complete. Approximately 91 per cent of direct capital costs have been committed. Construction spending for the year totalled $122.9-million, comprising of $80.0-million on construction expenditures, of which $18.9-million was unpaid as at Dec. 31, 2018, and $42.9-million in deposits on equipment and advances to contractors.

Total construction capital costs are forecast to increase up to $295.0-million or 20 per cent over initial capital guidance (see Fortuna news releases dated Feb. 20, 2019, and Sept. 21, 2017, and the technical report entitled, "Fortuna Silver Mines Inc.: Lindero Property, Salta Province, Argentina," dated effective Oct. 31, 2017, which is available on SEDAR). The revised construction capital cost forecast includes a $17-million contingency and excludes a potential cost savings from the devaluation of the Argentine peso. An exchange rate of 22.0 Argentine pesos to $1 (U.S.) was built into the construction capital forecast corresponding to the average referenced exchange rate on the awarded contracts, compared with the Dec. 31, 2018, exchange rate of 37.7 Argentine pesos to $1 (U.S.). Approximately 35 per cent of the construction capital costs are in Argentine pesos. The actual U.S. dollars spent will depend on the exchange rate as well as the Argentine inflation rate. The main drivers for the increased capital costs were higher owner's costs and construction indirect costs related to the extension of the project schedule, road maintenance and contractor standby costs, due to abnormal rainfall impacting the project and access roads.

San Jose mine, Mexico

                                       Three months ended Dec. 31,          Years ended Dec. 31,
                                              2018           2017           2018           2017
Mine production
Tonnes milled                              256,181        271,370      1,040,478      1,070,790
Average tonnes milled per day                2,846          3,015          2,956          3,044
Silver
Grade (g/t)                                    230            259            260            238
Recovery (%)                                    91             92             92             92
Production (oz)                           1,718,496     2,071,762      7,979,634      7,526,556
Metal sold (oz)                           1,818,026     2,089,121      7,921,345      7,481,616
Realized price ($/oz)                         14.61         16.69          15.74          17.03
Gold 
Grade (g/t)                                    1.58          1.89           1.75           1.77
Recovery (%)                                     91            92             92             92
Production (oz)                              11,825        15,177         53,517         55,950
Metal sold (oz)                              12,312        15,333         53,255         55,412
Realized price ($/oz)                         1,236         1,273          1,273          1,257
Unit costs     
Production cash cost 
($/oz Ag) (1) (2)                               2.2           0.0            0.7            1.0
Production cash cost 
($/oz AgEq) (1) (3)                             6.8           5.5            5.9            6.1
Production cash cost ($/t) (1)                 65.9          57.9           63.7           59.7
Unit net smelter return ($/t)                 145.5         181.7          138.5          169.8
AISC ($/oz Ag) (1) (2)                          7.1           6.5            5.5            7.1
AISC ($/oz AgEq) (1) (3)                        9.9           9.6            9.0           10.1

(1) Non-GAAP financial measures.

(2) Net of byproduct credits from gold.

(3) AISC per ounce AgEq calculated using the realized metal prices of gold and silver set out 
in the table.                                                                                                                                                                           

Quarterly results

The San Jose mine produced 1,718,496 ounces of silver and 11,825 ounces of gold in the fourth quarter of 2018, which were 9 per cent and 4 per cent below plan, and 17 per cent and 22 per cent below the comparable quarter in 2017. The decrease in production was due primarily to 6-per-cent-lower mill throughput during the quarter, as well as lower average head grades for silver and gold, of 230 grams per tonne (g/t) and 1.58 g/t, respectively, or 11 per cent and 16 per cent lower than the comparable quarter in 2017.

Cash cost per tonne of processed ore was $65.9, which was 14 per cent higher than the $57.9 cash cost for the comparable quarter in 2017. The increase in cash cost per tonne was due primarily to higher mining costs related to higher energy costs, timing of execution of backfill and support costs during the quarter, and higher indirect costs relating to safety and environment.

Annual results

Total silver and gold production for 2018 increased 6 per cent and decreased 4 per cent to 7,979,634 and 53,517 ounces, respectively, compared with 2017. The 9-per-cent-higher silver head grade more than made up for the 3-per-cent decline in mill throughput with the processing plant treating 1,040,478 tonnes of ore for the year ended Dec. 31, 2018.

Cash cost per tonne of processed ore for 2018 was $63.7 or 7 per cent higher than in 2017 and 4 per cent above guidance. The increase in cash cost per tonne was due to higher energy tariffs, higher distribution costs related to the direct export of concentrate and higher milling costs related to dry-stack rehandling in the first half of the year.

All-in sustaining cash cost per payable ounce of silver equivalent was $9.0 for 2018, compared with $10.1 in 2017, due to higher silver equivalent production and lower sustaining capital expenditures. Compared with the 2018 annual guidance of $10.0, the AISC was $1.0 lower due to a 12-per-cent increase in silver equivalent production.

Cash cost per tonne of processed ore and AISC are non-GAAP financial measures.

Caylloma mine, Peru

                                       Three months ended Dec. 31,          Years ended Dec. 31,
                                              2018           2017           2018           2017
Mine production     
Tonnes milled                              135,034        134,635        534,773        529,704
Average tonnes milled per day                1,500          1,513          1,502          1,488
Silver                                                         
Grade (g/t)                                     61             65             63             66
Recovery (%)                                    83             85             84             84
Production (oz)                            219,207        238,414        911,309        943,038
Metal sold (oz)                            214,883        243,051        911,648        934,710
Realized price ($/oz)                        14.55          16.70          15.71          17.06
Lead                                                      
Grade (%)                                     2.39           2.91           2.62           2.81
Recovery (%)                                    91             91             91             91
Production (000 lb)                          6,453          7,846         28,255         29,878
Metal sold (000 lb)                          6,377          8,054         28,349         29,508
Realized price ($/lb)                         0.89           1.13           1.02           1.05
Zinc                                                         
Grade (%)                                     4.30           4.36           4.28           4.21
Recovery (%)                                    90             90             90             90
Production (000 lb)                         11,537         11,676         45,485         44,347
Metal sold (000 lb)                         11,713         11,803         45,867         44,315
Realized price ($/lb)                         1.19           1.47           1.32           1.32
Unit costs                                                                                      
Production cash cost 
($/oz Ag) (1) (2)                            (20.4)         (44.4)         (35.4)         (34.6)
Production cash cost 
($/oz AgEq) (1) (3)                            8.7            7.0            7.6            7.7
Production cash cost ($/t) (1)                89.5           82.0           83.5           79.1
Unit net smelter return ($/t)                141.7          184.1          166.1          166.2
AISC ($/oz Ag) (1) (2)                        20.8          (18.4)          (7.8)         (13.0)
AISC ($/oz AgEq) (1) (3)                      14.8           10.7           11.7           11.2

(1) Non-GAAP financial measures.

(2) Net of byproduct credits from gold, lead and zinc.

(3) AISC per ounce AgEq calculated using the realized metal prices of silver, lead and zinc set
out in the table.                                                                                                                                                                       

Quarterly results

The Caylloma mine produced 219,207 ounces of silver, which was 8 per cent lower than the comparable period in 2017. Average silver head grade was 61 g/t or 6 per cent below the head grade for the comparable period reported in 2017. The Caylloma mine also produced 6.5 million pounds of lead and 11.5 million pounds of zinc, which were 18 per cent and 1 per cent lower than the comparable quarter in 2017. The decrease in production was due primarily to lower average head grades for lead and zinc of 2.39 per cent and 4.30 per cent, respectively, which were 18 per cent and 2 per cent below the average head grades reported in the comparable quarter in 2017.

Cash cost per tonne of processed ore for the fourth quarter of 2018 was $89.5, which was 9 per cent higher than the $82.0 cash cost for the comparable quarter in 2017. The increase was due primarily to higher mine costs related to mine support and higher indirect costs related to labour and community relations costs.

Annual results

Total lead production for 2018 decreased 5 per cent to 28.3 million pounds, while zinc production increased 3 per cent to 45.5 million pounds, over 2017. Silver production decreased 3 per cent to 911,309 ounces, compared with 943,038 ounces in 2017. Head grades for lead and silver were 7 per cent and 5 per cent lower than in 2017, respectively. However, the decline in head grades was partially offset by a 1-per-cent increase in ore processed. Total silver production was 11 per cent above 2018 guidance.

Cash cost per tonne of processed ore for 2018 was $83.5 or 6 per cent higher than the $79.1 reported in 2017 and 3 per cent above guidance. The increase in cash costs was due mainly to higher indirect costs related to on-site labour, general services and mine support costs.

All-in-sustaining cash cost per payable ounce of silver equivalent was $11.7 for 2018, compared with $11.2 reported in 2017. Compared with the 2018 annual guidance of $13.7, the AISC was $2.0 lower due to a 13-per-cent increase in silver equivalent production and lower sustaining capital expenditures.

Cash cost per tonne of processed ore and AISC are non-GAAP financial measures.

The financial statements and MD&A (management's discussion and analysis) are available on SEDAR and have also been posted on the company's website.

Conference call to review 2018 year-end financial and operational results

A conference call to discuss 2018 year-end financial and operational results will be held on Thursday, March 14, 2019, at 8 a.m. Pacific Time (11 a.m. Eastern Time). Hosting the call will be Jorge A. Ganoza, president and CEO, and Luis D. Ganoza, chief financial officer.

Shareholders, analysts, media and interested investors are invited to listen to the live conference call by logging onto the webcast or by dialling one of the following numbers just prior to the starting time.

Conference call details

Date:  Thursday, March 14, 2019

Time:  8 a.m. Pacific Time (11 a.m. Eastern Time)

Dial-in number (toll-free):  1-844-602-0380

Dial-in number (international):  1-862-298-0970

Replay number (toll-free):  1-877-481-4010

Replay number (international):  1-919-882-2331

Replay passcode:  10466

Playback of the conference call will be available until March 28, 2019, at 11:59 p.m. Eastern Time. Playback of the webcast will be available until March 14, 2020. In addition, a transcript of the call will be archived on the company's website.

About Fortuna Silver Mines Inc.

Fortuna is a growth-oriented precious metal 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, currently under construction, in Argentina. The company is selectively pursuing acquisition opportunities throughout the Americas and in select other areas.

We seek Safe Harbor.

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