Shares of Fortuna Silver Mines (FVI-T) jumped 55¢ or 11% to $5.50 per share on news that the processing plant at its 100%-owned San Jose silver-gold mine in southern Mexico had begun producing silver-gold concentrate.
Commercial production is expected to start on Sept. 1. Ore running through the mill is currently 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 oz. silver and 4,600 oz. gold this year and 1.7 million oz. silver and 15,000 oz. gold in 2012 at an estimated cash cost per silver oz. of US$5.04, net of byproducts.
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 Canaccord 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 $5.52 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 oz. silver in the second quarter with a cash cost per oz. of payable silver of negative US$4.42, net of byproduct credits.
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