Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) reported record first quarter 2021 net income of $26.4 million, adjusted net income¹ of $27.5 million, and adjusted EBITDA¹ of $60.8 million.

Jorge A. Ganoza, President and CEO, commented, “Our record financial performance in the first quarter reflects the combination of strong operating performance at San Jose and Caylloma, Lindero’s first full quarter of contribution to sales, and favourable metal prices.” Mr. Ganoza added, “As Lindero continues to ramp up we are pleased with the progress made in Q1 considering the challenges we continue to face in the context of COVID-19 related restrictions.  We remain on track to meet our consolidated guidance of 178,000 to 202,000 ounces of gold and 6.8 million to 7.6 million ounces of silver.”

First Quarter 2021 Highlights

• Record sales of $117.8 million, an increase of 148% from the $47.5 million reported in the same period in 2020, due to higher realized prices and sales volumes for all metals at all mines, notably sales from the Lindero Mine of $36.9 million
• Record net income of $26.4 million or $0.14 per share, an increase of $30.9 million and $0.17 per share, from the $4.5 million net loss or $0.03 loss per share reported in Q1 2020
• Record adjusted net income¹ of $27.5 million compared to $2.2 million net loss in Q1 2020
• Record adjusted EBITDA¹ of $60.8 million compared to $15.9 million reported in Q1 2020
• Free cash flow from ongoing operations¹ of $17.4 million compared to $14.2 million reported in Q1 2020, the current quarter was impacted by a $16.2 million increase in trade receivables due to timing of collections
• As of March 31, 2021, the Company had cash and cash equivalents of $145.7 million, an increase of $13.8 million from December 31, 2020
• Silver and gold production of 1,913,755 ounces and 34,355 ounces, respectively
• AISC^1,2 per silver equivalent ounce of payable silver sold of $13.52 and $18.50 for the San Jose Mine and Caylloma Mine, respectively, and AISC¹ per ounce of gold sold of $1,055 for the Lindero Mine
• Announced a business combination transaction with Roxgold Inc. on April 26, 2021: creates a low-cost intermediate global precious metals producer with extensive brownfields and greenfields organic growth potential and led by highly experienced management

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¹ Refer to Non-IFRS Financial Measures.
² AISC/oz Ag Eq calculated at realized metal prices, refer to mine site results for realized prices and Non-IFRS Financial Measures for silver equivalent ratio.

First Quarter 2021 Results

Sales for the three months ended March 31, 2021 were $117.8 million, an increase of 148% from the $47.5 million reported in Q1 2020. Silver and gold prices increased 61% and 12%, respectively. The Lindero Mine recognized sales of $36.9 million from 21,297 ounces of gold ounces sold. San Jose sales were $58.0 million, an increase of 50% from the $38.7 million reported in Q1 2020 due to increases in the prices of silver and gold and a 3% and 5% increase in the volume of silver and gold ounces sold, respectively.  Sales from the Caylloma Mine were $25.4 million, a 92% increase from the $13.2 million reported in Q1 2020 due to higher metal prices and a 22%, 17%, and 21% increase in the volume of silver, zinc, and lead sold, respectively.

Operating income for the three months ended March 31, 2021 was $40.4 million, an increase of $38.6 million compared to Q1 2020.  The increase was due primarily to higher silver and gold prices, and Lindero’s contribution to mine operating income of $11.7 million.

Net income for the three months ended March 31, 2021 was $26.4 million, a $30.9 million increase over the $4.5 million net loss reported in Q1 2020.  The effective tax rate for the quarter was 34%.

Adjusted EBITDA for the three months ended March 31, 2021 was $60.8 million, an increase of $44.9 million compared to $15.9 million reported in Q1 2020. The increase reflects Lindero’s contribution to adjusted EBITDA of $19.6 million as well as higher EBITDA at San Jose and Caylloma.

Free cash flow from ongoing operations for the three months ended March 31, 2021 was $17.4 million compared to $14.2 million in Q1 2020. Free cash flow was impacted by a $16.2 million increase in trade receivables during the quarter, due primarily to timing of collections on provisional sales.

As of March 31, 2021, the Company had cash and cash equivalents of $145.7 million, an increase of $13.8 million from December 31, 2020. The Company’s $120.0 million credit facility remains fully drawn as of March 31, 2021 and is set to expire on January 26, 2022. The Company expects to conclude renewal of the facility in the second quarter of 2021.

Lindero Mine

In the first quarter of 2021, a total of 2.13 million tonnes of ore were placed on the heap leach pad averaging 0.82 g/t gold, containing an estimated 56,330 ounces of gold. The operation placed 65% more ounces on the heap leach pad and produced 53% more ounces in doré compared to the fourth quarter of 2020. Total gold production was 22,332 ounces comprised of 20,562 ounces in doré and 1,770 ounces of gold-in-carbon inventory.

Cash cost per gold ounce sold was $639, as the mine continues to ramp up production.

All-in sustaining cash cost per gold ounce sold was $1,055, below the Company’s guidance for the first half of the year of between $1,130 and $1,335 per gold ounce sold, due primarily to the timing of sustaining capital expenditures.

In the first quarter of 2021, sustaining capital expenditures included $2.1 million of leach pad expansion and $1.7 million of capitalized stripping. Capital investments for the year are estimated at $20.5 million of sustaining capital expenditures (refer Fortuna new release dated January 19, 2021), and $6.1 million of capitalized stripping.

San Jose Mine

The San Jose Mine produced 1,646,444 ounces of silver and 10,301 ounces of gold during the three months ended March 31, 2021, which represents an increase of 5% and 7%, respectively, compared to Q1 2020.  The increase was due primarily to 5% higher tonnes milled.

The production cash cost per tonne for the three months ended March 31, 2021 was $70.13 per tonne, consistent with the $71.12 per tonne in Q1 2020.

The all-in sustaining cash cost of payable silver equivalent for the three months ended March 31, 2021 was $13.40 per ounce, an increase of 26% compared to the $10.67 per ounce in Q1 2020. The increase was due primarily to higher royalties from higher income, and lower silver equivalent ounces sold due to a change in the silver to gold ratio (Q1 2021: 68.1:1, Q1 2020: 97.7:1); underlying sales volumes of silver and gold ounces were higher than Q1 2020.

Capital expenditures totalled $4.0 million for the three months ended March 31, 2021, an increase of 33% compared to Q1 2020.

Caylloma Mine

The Caylloma Mine produced 267,311 ounces of silver, 8.2 million pounds of lead and 12.0 million pounds of zinc during the three months ended March 31, 2021, an increase of 7%, 6%, and 1% compared to Q1 2020.  The increased metal production was due to higher head grades.  Gold production totaled 1,922 ounces with an average head grade of 0.62 g/t.

The cash cost per tonne of processed ore for the three months ended March 31, 2021 was $88.00, an increase of 9% compared to Q1 2020. The increase was due primarily to operational costs associated with COVID-19 quarantine and testing requirements, offset partly by lower mine preparation costs.

The all-in sustaining cash cost of payable silver equivalent for the three months ended March 31, 2021 was $18.50 per ounce, an increase of 11% compared to Q1 2020.  The increase was due primarily to higher royalties from higher income, and lower silver equivalent ounces sold due to a change in the silver equivalent ratio, Q1 2021 is calculated using a silver to gold ratio of 67.5:1 (Q1 2020: 90.5:1), silver to lead ratio of 1:28.6 pounds (Q1 2020:  1:20.7), and silver to zinc ratio of 1:21.1 pounds (Q1 2020:  1:17.9); underlying sales volumes of all metals were higher than Q1 2020.

Corporate Update

On April 26, 2021, the Company announced that it had entered into an arrangement agreement with Roxgold Inc. pursuant to which the Company has agreed to acquire all of the issued and outstanding securities of Roxgold (refer Fortuna news release dated April 26, 2021). The transaction is expected to create a low-cost intermediate global precious metals producer with extensive brownfields and greenfields organic growth potential.

Under the terms of the transaction, Roxgold shareholders will receive 0.283 common shares of Fortuna and C$0.001 for each Roxgold common share held. Upon completion of the transaction, existing Fortuna and Roxgold shareholders will own approximately 64.3% and 35.7% of the combined company, respectively. As at April 23, 2021, the implied fully diluted in-the-money equity value of the transaction was estimated at approximately C$1.1 billion.

The board of directors of both companies have unanimously approved the transaction. The Company has scheduled an annual and special meeting of its shareholders to approve annual business matters and the proposed business combination transaction with Roxgold on Monday, June 28, 2021. The record date for the annual and special meeting is Tuesday, May 11, 2021.  An information circular in connection with the shareholder meeting will be mailed to shareholders at the beginning of June. Closing of the transaction is expected by late June or early July 2021, and is subject to: approval by the shareholders of both companies, court approval, regulatory approvals and other customary closing conditions.

Qualified Person

Eric Chapman, Vice President of Technical Services, 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.

Non-IFRS Financial Measures

The following tables represent the calculation of certain non-IFRS financial measures as referenced in this news release, in alignment with the World Gold Council (WGC”) standard for all-in sustaining cash cost and all-in cash cost, the company has presented the cash cost figures on a sold ounce basis for all periods presented, with the change from the previously presented figures on a produced ounce basis being applied retrospectively to prior periods.

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

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

Reconciliation to free cash flow from ongoing operations for three months ended March 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 months ended March 31, 2021 and 2020

Reconciliation of Cash cost per Ounce of Gold Sold for the three months ended March 31, 2021 and 2020

Reconciliation of All-in Sustaining Cash Cost per Ounce of Gold Sold for three months ended March 31, 2021 and 2020

Additional information regarding the Company’s financial results and activities underway are available in the Company’s first quarter 2021 Financial Statements and accompanying Management’s Discussion and Analysis for the three months ended March 31, 2021, which are available for download on the Company’s website,  www.fortunasilver.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.

About Fortuna Silver Mines Inc.

Fortuna Silver Mines Inc. is a Canadian precious metals mining company with operations in Peru, Mexico, and Argentina. Sustainability is integral to all our operations and relationships. We produce silver and gold and generate shared value over the long-term for our shareholders and stakeholders through efficient production, environmental protection, and social responsibility.