Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) reported its consolidated financial and operating results for the fourth quarter and full year 2021.

Fourth Quarter 2021 Highlights

• Record sales of $198.9 million, an increase of 92% from the $103.5 million reported in Q4 2020, due primarily to the contribution of gold sales from the Yaramoko Mine of $52.2 million and from the Lindero Mine of $65.6 million
• Cost of sales of $140.6 million compared to $56.6 million reported in Q4 2020
• Net income of $16.6 million or $0.05 per share, compared to $18.6 million or $0.1 net income per share reported in Q4 2020
• Adjusted net income¹ of $29.1 million compared to $23.0 million reported in Q4 2020
• Adjusted EBITDA¹ of $89.6 million compared to $44.8 million reported in Q4 2020
• Net cash provided by operating activities of $57.1 million, compared to $31.3 million reported in Q4 2020
• Free cash flow from ongoing operations¹ of $30.9 million compared to $34.5 million reported in Q4 2020

Full Year 2021 Highlights

• Sales of $599.9 million, compared to $279.0 million in 2020
• Cost of sales of $394.4 million, compared to $168.7 million in 2020
• Net income of $59.4 million, compared to $21.6 million in 2020
• Adjusted net income¹ of $100.6 million, compared to $31.8 million in 2020
• Adjusted EBITDA¹ of $280.7 million, compared to $112.6 million in 2020
  • Net cash provided by operating activities of $147.1 million, compared to $93.4 million reported in Q4 2020
• Free cash flow¹ from ongoing operations¹ of $97.0 million, compared to $78.9 million in 2020
• Cash and cash equivalents as at December 31, 2021 was $107.1 million, compared to $131.9 million in 2020
• Silver and gold production of 7,498,701 ounces and 207,192 ounces, respectively, compared to 7,133,717 ounces and 55,349 ounces in 2020, respectively
• AISC¹ per ounce of gold sold of $1,116 and $1,317 for the Lindero and Yaramoko mines, respectively
• AISC^1,2 per silver equivalent ounce of payable silver sold of $14.38 and $18.94 for the San Jose and Caylloma mines, respectively, compared to $11.56 and $17.37 in 2020, respectively

Jorge A. Ganoza, President and CEO, commented, “Fortuna’s record sales and adjusted EBITDA in the fourth quarter of approximately $199 million and $90 million respectively, reflect strong operating results across our four mines in Latin America and West Africa. Lindero’s solid performance in the quarter is particularly worth highlighting as the mine delivered 36,072 ounces of gold, in line with expectations and 37% above its gold production for the third quarter.” Mr. Ganoza added, “With free cash flow generation from operations¹ of $33 million in the quarter and the expansion of our corporate revolving credit facility to $200 million, we closed 2021 with a strong liquidity position of $187 million, $51 million over the third quarter considering $20 million in funding for the construction of the Séguéla Mine.” Mr. Ganoza concluded, “Throughout 2022, we expect to spend $110 million in Séguéla and $20 million in Brownfields exploration, which includes $7.4 million at San Jose and $7.2 million at Séguéla.”

Notes:

1. Refer to the Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements on SEDAR at www.sedar.com for a description of the calculation of these measures.
2. AISC ($/oz Ag Eq) is calculated at realized metal prices, refer to mine site results for realized prices and to the Non-IFRS Financial Measures section for silver equivalent ratio

Fourth Quarter 2021 and Full Year 2021 Consolidated Results

Fourth Quarter 2021 Results

Sales for the quarter were $198.9 million, a 92% increase from the $103.5 million reported in the same period in 2020. The increase was driven by the contribution from the Lindero and Yaramoko mines. Lindero recognized adjusted sales of $65.6 million from the sale of 36,389 ounces of gold. Yaramoko recognized adjusted sales of $52.2 million from the sale of 29,077 ounces of gold. The San Jose Mine recognized adjusted sales of $56.7 million, a 6% decrease from the $60.5 million reported in the same period in 2020. Lower sales at San Jose were driven by a 6% decrease in the volume of gold ounces sold. The Caylloma Mine recognized adjusted sales of $24.4 million, a 7% increase from the $22.7 million reported in the same period in 2020. The increased sales at Caylloma were driven by higher lead and zinc prices, partially offset by lower volumes of metal sold.

Operating income for the quarter was $38.9 million, a $10.7 million increase from the $28.2 million reported in the same period in 2020. The higher operating income was driven by the contribution of Lindero and Yaramoko, partially offset by lower operating income at San Jose and low-grade inventory write-downs in the current quarter of $5.3 million (Yaramoko: $4.2 million; Lindero: $1.1 million).

Net income for the quarter was $16.6 million, a $2.0 million decrease from the $18.6 million reported in the same period in 2020. The lower net income was due to a $4.2 million loss on derivative contracts, higher interest expense of $2.7 million, and a higher effective tax rate (Q4 2021: 45%; Q4 2020: 34%).

Adjusted net income for the quarter was $29.1 million compared to $23.0 million reported in the same period in 2020.

Adjusted EBITDA for the quarter was $89.6 million, a margin of 45% over sales, compared to $44.8 million reported in the same period in 2020, a margin of 43% over sales.

Full Year 2021 Results

Consolidated sales for the year ended December 31, 2021 increased 115% to $599.9 million compared to $279.0 million for the same period in 2020. The increase was driven by the contribution of Yaramoko and Lindero as well as higher silver prices in 2021 compared to 2020. Lindero recognized $179.0 million in gold doré sales comprising 100,177 ounces of gold. Yaramoko recognized $101.3 million of gold doré sales comprising 56,571 ounces of gold. Sales at San Jose increased 13% to $216.1 million as realized silver price increased 18% compared to 2020, along with a 3% increase in the volume of silver and gold ounces sold. Sales at Caylloma increased 53% to $103.5 million due primarily to an increase in the volume of metals sold and increases in the realized prices of lead and zinc of 20% and 32%, respectively, compared to realized prices in 2020.

Operating income for the the year ended December 31, 2021 was $136.9 million, a $79.7 million increase from the $57.2 million reported in the same period in 2020. The higher operating income was driven mainly by the contribution of Lindero of $45.2 million and Yaramoko of $17.0 million, and higher operating income at Caylloma of $23.9 million. This was partially offset by the San Jose Progreso royalty settlement of $14.3 million, and low-grade inventory write-downs amounting $7.0 million of which, Yaramoko and Lindero accounted for $4.2 million and $2.8 million, respectively.

Net income for the year ended December 31, 2021 was $59.4 million, a $37.8 million increase from the $21.6 million reported in 2020. The higher net income was offset by $14.1 million in transaction costs associated with the Company’s acquisition (the “Roxgold Acquisition”) of all of the issued and outstanding common shares of Roxgold Inc., as well as higher interest expenses of $10.2 million. Interest expense was $8.7 million higher in 2021 compared to 2020 as $9.4 million was capitalized in 2020 related to the construction of the Lindero Mine.

Adjusted net income for the year ended December 31, 2021 was $100.6 million compared to $31.8 million in 2020.

Adjusted EBITDA for the year ended December 31, 2021 was $280.7 million compared to $112.6 million in 2020.

Liquidity

Free cash flow from ongoing operations for the three months ended December 31, 2021 was $30.9 million compared to $34.5 million in the same period in 2020. Free cash flow from ongoing operations for the year ended December 31, 2021 was $97.0 million compared to $78.9 million in 2020.

Total liquidity available to the Company as at December 31, 2021 was $187.1 million. The Company’s $200.0 million revolving credit facility was fully available as at the end of December 2021 and $80.0 million remained undrawn.

Lindero Mine, Argentina

The table below shows the key metrics used to measure the operating performance of the Lindero Mine for the fourth quarter of 2021 and for the year ended December 31, 2021: throughput, head grade, recovery, and gold production. The Lindero Mine was under construction during a portion of the fourth quarter of 2020, with first gold poured in October 2020.

During the fourth quarter of 2021, the onsite impact of COVID-19 continued to be minimal as the site reported 60 positive cases with no disruptions to operations. Travel restrictions in Argentina were also lifted in November 2021 which led to an improvement in lead times and onsite technical assistance from foreign vendors.

In the fourth quarter of 2021, a total of 1,459,513 tonnes of ore were placed on the heap leach pad averaging 1.04 g/t gold, containing an estimated 48,900 ounces of gold. Total gold production was 36,072 ounces of gold. Gold production for 2021 totaled 104,161 ounces, comprised of 99,313 ounces in doré, 730 ounces of gold contained in precipitate/sludge and 4,118 ounces of gold-in-carbon (GIC) inventory, in the upper range of the updated production and cost guidance issued in July 2021 (refer to Fortuna news release dated July 19, 2021, “Fortuna reports production of 55,953 gold equivalent ounces for the second quarter and issues updated guidance for 2021”).

All processing areas performed according to plan:

• 1,444,260 tonnes of ore crushed and placed on the leach pad via conveyor stacking during the fourth quarter, a 17% increase over the previous quarter.
• Conveyor stacking averaged 16,228 tonnes per day during the fourth quarter, an increase of 21% over the previous quarter; including 31 days of conveyor stacking throughput over 18,750 tonnes per day
• The SART plant reached full design capacity of 393 cubic meters per hour in December of 2021, in line with plan
• The expansion of the carbon columns at the ADR plant was successfully commissioned in the fourth quarter of 2021 and is performing according to plan

Cash cost per ounce of gold for the three and twelve months ended December 31, 2021 was $585 and $617 per ounce, respectively.

All-in sustaining cash costs per gold ounce sold was $994 during Q4 2021 and $1,116 in 2021 in line with the Company’s updated cost guidance.

Total sustaining capital expenditures of $7.2 million during the quarter were primarily related to the completion of the ADR plant expansion, $4.2 million, and capitalized stripping, $2.0 million.

Yaramoko Mine, Burkina Faso

The table below shows the key metrics used to measure the operating performance of the Yaramoko Mine for the fourth quarter of 2021 and for the year ended December 31, 2021: throughput, head grade, recovery, and gold production. The Company acquired the Yaramoko Mine in connection with the Roxgold Acquisition, which closed on July 2, 2021. Accordingly, all production, operating and financial results in respect of the Yaramoko Mine for the year ended December 31, 2021 included in this news release reflect only those results from July 2, 2021 to December 31, 2021, unless indicated otherwise.

The Yaramoko Mine produced 28,787 ounces of gold in the fourth quarter of 2021 with an average gold head grade of 6.99 g/t; below the plan for the quarter. Total gold production for the second semester of 2021 totaled 57,538 ounces of gold which was below guidance for the period. The production shortfall was the result of lower than planned mill feed grade in the fourth quarter of 2021, caused by the delay in mining of several high-grade stopes and some localized grade variability in the 55 Zone. The unmined stopes was resequenced into the mine plan in the first quarter of 2022.

Cash cost per gold ounce sold was $754, which was above plan, primarily due to lower production during Q4 2021 and $739 for the second semester of 2021.

All-in sustaining cash cost per gold ounce sold was $1,436 and $1,317 for Q4 2021 and for the second semester of 2021, respectively, which were above the Company’s guidance. Higher all-in sustaining cash costs were the result of lower ounces sold due to the mine sequencing issue described.

Sustaining capital expenditures of $21.5 million during the second half of the year were related primarily to underground mine development costs and construction of a ventilation raise.

San Jose Mine, Mexico

The following table shows the key metrics used to measure the operating performance of the San Jose Mine for the fourth quarter of 2021 and for the year ended December 31, 2021: throughput, head grade, recovery, gold and silver production and unit costs:

The San Jose Mine produced 1,717,533 ounces of silver and 9,929 ounces of gold during the three months ended December 31, 2021, which represents an 4% increase and 2% decrease over the same period in 2020, respectively. The decrease in gold production was due to lower tonnes milled.

Annual production of silver and gold totaled 6,425,029 ounces and 39,406 ounces, an increase of 4% for both from 2020 annual production, respectively, which was in line with guidance.

The cash cost per tonne for the three months ended December 31, 2021 was $79.66 per tonne compared to $71.48 per tonne in the same period in 2020 primarily due to higher indirect costs. Cash cost per tonne for the full year 2021 increased to $75.80 compared to $68.79 for 2020 due to higher mine preparation and support and higher indirect costs.

The all-in sustaining cash cost of payable silver equivalent for the full year 2021 increased 24% to $14.38 per ounce compared to $11.56 for the same period in 2020. The increase was primarily as a result of additional sustaining capital expenditures and Brownfields exploration which were limited in 2020 due to the impacts of business restrictions relating to the COVID-19 pandemic. All-in sustaining cash costs for the year were in line with guidance.

Caylloma Mine, Peru

The following table shows the key metrics used to measure the operating performance of the Caylloma Mine for the fourth quarter of 2021 and for the year ended December 31, 2021: throughput, head grade, recovery, silver, lead and zinc production and unit costs:

The Caylloma Mine produced 262,710 ounces of silver, 8.4 million pounds of lead and 11.4 million pounds of zinc during the three months ended December 31, 2021, which was in line with the same period in 2020 except for zinc which was lower by 8% due to a lower head grade. Gold production totaled 1,374 ounces with an average head grade of 0.44 g/t.

Annual production of silver, lead and zinc totaled 1,073,672 ounces of silver, 33.0 million pounds of lead, and 47.5 million pounds of zinc, which represent an 11% increase in silver, 11% increase in lead, and a 4% increase in zinc production compared to 2020. Gold production for the full year 2021 totaled 6,086 ounces, which was an increase of 48% over 2020, with an average head grade of 0.49 g/t. Production for the year was in line with guidance.

The cash cost per tonne of processed ore for the three months ended December 31, 2021 increased 20% to $97.87 compared to $81.65 in the same period in 2020. The increase was the result of higher mining costs related to shotcrete and transportation and higher energy costs at the plant. Cash cost per tonne for the full year 2021 increased to $88.41 compared to $76.59 for 2020 due to higher mine preparation and support and higher indirect costs related to administration and energy.

The all-in sustaining cash cost for the three months ended December 31, 2021 increased 11% to $20.71 per ounce compared to $18.69 per ounce for the same period in 2020. The increase was driven by higher sustaining capital expenditures and Brownfields exploration .

The all-in sustaining cash cost for the full year 2021 increased 9% to $18.94 per ounce compared to $17.37 per ounce in 2020 due to higher sustaining capital expenditures and Brownfields exploration. The increase was primarily due to the significantly decreased capital expenditures in 2020 due to the impacts of business restrictions relating to COVID-19 pandemic. The Caylloma Mine finished 2021 slightly below cost guidance as a result of higher silver equivalent metal sales.

Qualified Person

Eric N. Chapman, Senior Vice President of Technical Services of Fortuna, is a Professional Geoscientist of the Association of Professional Engineers and Geoscientists of the Province of British Columbia (Registration Number 36328), and is the Company’s Qualified Person (as defined by National Instrument 43-101). Mr. Chapman has reviewed and approved the scientific and technical information contained in this news release and has verified the underlying data.

Reconciliation to Adjusted Net Income for the three and twelve months ended December 31, 2021 and 2020

Reconciliation to Adjusted EBITDA for the three and twelve months ended December 31, 2021 and 2020

Reconciliation of free cash flow from ongoing operations for three and twelve months ended December 31, 2021 and 2020

Reconciliation of cash cost per ounce of gold sold for the three and twelve months ended December 31, 2021 and 2020

Reconciliation of all-in sustaining cash cost per ounce of gold sold for the three and twelve months ended December 31, 2021 and 2020

Reconciliation of production cash cost per tonne and cash cost per payable ounce of silver equivalent sold for the three and twelve months ended December 31, 2021 and 2020

Reconciliation of All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver Equivalent Sold for three and twelve months ended December 31, 2021 and 2020

Additional information regarding the Company’s financial results and activities underway are available in the Company’s audited consolidated financial statements for the year ended December 31, 2021 and accompanying 2021 MD&A, which are available for download on the Company’s website, on SEDAR and on EDGAR.

About Fortuna Silver Mines Inc.

Fortuna Silver Mines Inc. is a Canadian precious metals mining company with four operating mines in Argentina, Burkina Faso, Mexico and Peru, and a fifth mine under construction in Côte d’Ivoire. Sustainability is integral to all our operations and relationships. We produce gold and silver and generate shared value over the long-term for our stakeholders through efficient production, environmental protection, and social responsibility.