Fortuna Silver Mines start producing concentrates

Shares of Fortuna Silver Mines (FVI-T) jumped 55¢ or 11.11% to $5.50 per share on news that the mill at its 100%-owned San Jose silver-gold mine in southern Mexico had started producing silver-gold concentrate.

Commercial production is expected to start on Sept. 1. Currently ore run through the mill is being sourced from a 46,000-tonne development stockpile grading 124 grams silver per tonne and 1.15 grams gold per tonne and can sustain over a month of production at the mill’s initial design rate of 1,000 tonnes per day, the company says.

The mine is expected to produce 520,000 ounces of silver and 4,600 ounces of gold this year and 1.7 million ounces of silver and 15,000 ounces of gold in 2012 at an estimated cash cost per silver ounce of US$5.04, net of by-products.

San Jose is a high-grade silver- and gold-bearing epithermal vein system in southern Mexico’s state of Oaxaca.

According to a note from Cannacord Wealth Management, mining analyst Nicholas Campbell “is bullish on the company given its robust growth profile, strong balance sheet, and exploration leverage” at San Jose as well as its Caylloma silver mine in southern Peru.

“Campbell also notes that the current stock price offers a good opportunity to accumulate shares,” the note continued. “Fortuna is trading at 0.56x P/NAV (5%, spot) and 5.8x 2012E CFPS, a significant discount compared to junior producer average of 0.76x P/NAV (5%, spot) and 8.9x 2012E CFPS.”

At presstime Fortuna was trading at $5.49 per share within a 52-week range of $2.20 per share (Aug. 11 2010) and $6.81 (April 18 2011). It has about 123.1 million shares outstanding.

On Aug. 11, Fortuna reported net income of US$6.20 million on revenue of US$24.27 million in the second quarter. Cash flow from operations before changes in working capital, income taxes, and interest for the three months ended June 30 reached US$12.22 million, up from US$6.97 million in the year-earlier quarter.

The company produced 474,979 ounces of silver in the second quarter with a cash cost per ounce of payable silver of negative US$4.42, net of by-product credits.