Is This Junior Miner the Best Play on a Rebound in Silver?

Fortuna Silver Mines Inc. (TSX:FVI)(NYSE:FSM) is ready to soar, as the outlook for silver improves.

| More on:
The Motley Fool

Silver continues to languish, despite gold remaining firm and trading at over US$1,300 per ounce. While the global economic outlook is upbeat, which is not a positive for precious metals, rising geopolitical tensions in the Middle East bode well for gold and silver.

Another factor that will give silver a boost is rising industrial demand for the white metal. Because of its conductive properties, silver is an important component used in the manufacturer of a range of electronic and electrical products, including the photovoltaic cells that make up solar panels. That coupled with the likelihood of another supply deficit in 2018 should give silver a boost. This makes Fortuna Silver Mines Inc. (TSX:FVI)(NYSE:FSM) an attractive investment. It is ready to soar when silver bounces back. 

Now what?

Fortuna owns two operational mines, the Caylloma mine located in Peru, and the San Jose mine in Mexico. Those mines and its Lindero gold project give it reserves of 44.8 million ounces of silver and two million ounces of gold.

Fortuna recently delivered its first-quarter 2018 results, reporting strong financial and operational results. Silver production for the quarter shot up by an impressive 18% year over year to 2.4 million ounces, while gold output rose by a healthy 14% to 15,000 ounces. That strong growth in production can be attributed to increased efficiencies and productivity at Fortuna’s two operational mines, including a notable increase in the head grades for the silver and gold ore mined at the San Jose Mine.

An important improvement was a sharp decrease in all-in sustaining costs (AISCs) for the quarter. First-quarter AISCs were US$2.11 per ounce produced, or almost a third of what they had been a year earlier. That solid outcome can be primarily attributed to higher by-product credits from Fortuna’s lead and zinc production.

Production from the Caylloma and San Jose mines should continue to grow over the remainder of 2018, as further efficiencies are implemented and the inventory of stopes available for mining are increased. That in conjunction with the solid first-quarter results bodes well for Fortuna to meet its 2018 guidance, where it has forecast annual silver production of 8.3 million ounces and gold output to be 48,300 ounces.

What makes Fortuna even more appealing, aside from its quality silver mining assets, is its fully owned Lindero gold project located in Argentina, which has been assessed to have reserves of 1.7 million ounces of gold. The mine is projected to produce first gold in mid-2019 and, when fully operational, will boost Fortuna’s annual gold output to 190,000 ounces and silver to nine million ounces. Lindero has a payback period of fewer than four years at an assumed gold price of US$1,250 an ounce, which is below the current market price. 

So what?

Even after soaring by 23% over the last year, despite the lacklustre performance of silver, Fortuna remains attractively valued. This — along with its high-quality producing mines and an optimistic outlook for silver — makes it one of the best ways for investors to gain exposure to the white metal and its impending rally.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Metals and Mining Stocks

construction workers talk on the job site
Metals and Mining Stocks

2 No-Brainer Mining Stocks to Buy With $200 Right Now

You can buy these top Canadian mining stocks with just a $200 investment right now to start your long-term wealth…

Read more »

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »