Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) reported its financial and operating results for the fourth quarter and full year 2022.

Fourth Quarter and Full Year 2022 highlights

Financial

• Adjusted net income¹ of $7.2 million or $0.02 per share in Q4 2022, totaling $42.6 million, or $0.15 per share for the full year 2022
• Net loss for the quarter of $160.4 million or $0.52 per share after non-cash impairment charges net of tax of $164.5 million in Q4 2022, totaling a net loss of $135.9 million for the full year 2022
• Adjusted EBITDA¹ of $55.8 million in Q4 2022; totaling $245.5 million for the full year 2022
• Free cash flow from ongoing operations¹ of $4.4 million in Q4 2022; totaling $69.2 million for the full year 2022
• Share buybacks of $5.9 million completed during 2022
• Liquidity as at December 31, 2022 was $150.5 million

Operational

• Silver and gold production of 1,746,746 ounces and 64,112 ounces respectively in Q4 2022; 6,907,275 ounces and 259,427 ounces for the full year 2022; gold equivalent³ production of 401,878 ounces for the full year 2022.
• Q4 2022 cash costs¹ per ounce of gold of $815 for the Lindero Mine and $818 for the Yaramoko Mine. Cash costs^1,2 per silver equivalent ounce of payable silver sold of $11.16 for the San Jose Mine and $12.46 for the Caylloma mine.
• Q4 2022 AISC¹ per ounce of gold sold of $1,221 for the Lindero Mine and $1,829 for the Yaramoko Mine. AISC^1,2 per silver equivalent ounce of payable silver sold of $15.53 and $20.30 for the San Jose Mine and Caylloma Mine, respectively
• Full year 2022 AISC¹ per ounce of gold sold of $1,142 for the Lindero Mine and $1,529 for the Yaramoko Mine. AISC^1,2 per silver equivalent ounce of payable silver sold of $15.11 and $17.97 for the San Jose Mine and Caylloma Mine, respectively
• Lost Time Injury Frequency Rate (LTIFR) of 0.39 and Total Recordable Injury Frequency Rate (TRIFR) of 2.32 at the end of the year, with one fatal accident (refer to Fortuna’s news release January 28, 2022) and five lost time injury incidents recorded during the year.

Growth and Development

• Séguéla Project construction 93% complete as of the end of February 2023. On-time and on-budget for first gold pour in mid 2023
• In 2022, exploration success at the Sunbird discovery at Séguéla has resulted in a new mineral deposit including an Indicated Mineral Resource of 3.2 million tonnes at an average grade of 2.66 g/t gold containing 279,000 ounces and an Inferred Mineral Resource of 4.2 million tonnes at an average grade of 3.73 g/t gold containing 506,000 ounces (refer to Fortuna news release dated December 5, 2022).

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
³ Gold equivalent production includes gold, silver, lead and zinc and is calculated using the following metal prices: $1,802/oz Au, $21.75/oz Ag, $2,161/t Pb and $3,468/t Zn or Au:Ag = 1:82.89, Au:Pb = 1:0.83, Au:Zn = 1:0.52

Jorge A. Ganoza, President and CEO, commented, “Fortuna finished the year in line with production guidance, with only a slight miss in cost guidance at the Lindero Mine in spite of strong inflationary pressures. Our business continued to generate healthy free cash flow from ongoing operations of $69.2 million and adjusted results of $245.5 million in Adjusted EBITDA, and adjusted net income of $42.6 million or $0.15 per share.” Mr. Ganoza added, “As we look forward to 2023 we expect to increase production and improve costs in the second half of the year as our new Séguéla flagship asset comes into production.”

Fourth Quarter 2022 and Full Year 2022 Consolidated Results

Fourth Quarter 2022 Results

Net loss for the period was $160.4 million compared to net income of $16.6 million in Q4 2021. The loss in the quarter is explained by impairment charges of $164.5 million ($182.8 million before tax) related to the following assets:

• A net impairment of $85.4 million at Yaramoko ($103.5 million before tax) resulting from the impact of inflation on operating and capital costs, a reassessment of exploration potential, and an updated estimate of mineral reserves at the 55 Zone crown pillar recovery that resulted in a reduction of 166,000 ounces of gold.
• A net impairment of $70.2 million at Lindero resulting from the impact of inflation on operating and capital costs and an increase in discount rates compared to 2021
• A net impairment of $8.9 million ($9.2 million before tax) at San Jose resulting from the impact of inflation on operating costs and exploration investments not achieving full replacement of production depletion

After adjusting for impairment charges and other non-recurring items, adjusted net income was $7.2 million or $0.02 per share compared to $29.1 million or $0.10 per share in Q4 2021. The decrease was mainly due to lower sales volume and lower average silver price of $21.4/oz compared to $23.4/oz in Q4 2021, and higher cash costs across our operations explained mostly by persistent inflationary trends throughout 2022.

Sales for the quarter were $164.7 million, a $34.2 million decrease from the $198.9 million reported in the same period in 2021. The decrease was explained mostly by lower sales volume at Lindero, San Jose, and Yaramoko, lower silver prices of 9% and slightly lower gold prices.

Adjusted EBITDA for the quarter was $55.8 million, a margin of 34% over sales, compared to $89.6 million reported in the same period in 2021, representing a margin of 45% over sales. The main driver for the decrease in EBITDA was the reduction in sales combined with higher operating costs as described above.

Net cash generated by operations for the quarter was $49.6 million or $0.19 per share compared to $57.1 million or $0.38 per share in Q4 2021. The decrease reflects lower EBITDA of $33.8 million partially offset by neutral change in working capital in the current quarter compared to a negative change of $17.7 million in Q4 2021, and lower income taxes paid of $11.7 million. Additionally, the comparative quarter included a $9.6 million payment related to the settlement to the disputed Mexican royalty claim by the Mexican Geological Survey Agency.

Free cash flow from ongoing operations for the quarter was $4.4 million compared to $28.2 million in Q4 2021. The decrease reflects lower net cash generated by operations and higher capex of $26.1 million.

Full Year 2022 Results

Net loss for the year was $135.9 million, compared to a net gain of $59.4 million in 2021. The loss in 2022 is explained by impairment charges of $164.5 million ($182.8 million before tax) related to the Lindero, San Jose and Yaramoko Mines as explained above.

After adjusting for impairment charges and other non- recurring items, adjusted net income was $42.6 million compared to $100.6 million in 2021. The decrease was mainly due to a higher cost per ounce across our operations related, to a large extent, to persistent inflationary trends throughout 2022, and lower average silver price of $21.8/oz compared to $25.2/oz in 2021

Sales for the year were $681.5 million, an $81.6 million increase from the $599.9 million reported in 2021. The increase was explained mostly by the full contribution of Yaramoko in 2022 compared to six months in 2021 partially offset by a lower average silver price of 13.5%.

Adjusted EBITDA for the year was $245.5 million, a margin of 36% over sales, compared to $280.7 million reported in 2021, representing a margin of 47% over sales. The main driver for the decrease in EBITDA was a higher operating cost base combined with lower silver prices. From a segment perspective Yaramoko´s added EBITDA contribution year over year of $34.9 million was offset by lower EBITDA at San Jose of $42.4 million as a result mostly of lower production and lower metal prices. At Lindero a volume driven increase in sales compared to the prior year was offset by a higher cost base. Other items contributing to lower EBITDA were higher corporate G&A of $6.4 million, higher share-based payment charges of $6.1 million and higher foreign exchange charges of $2.8 million.

Net cash generated by operations for 2022 was $194.2 million or $0.67 per share compared to $147.1 million or $0.61 per share in 2021. The increase, in spite of lower EBITDA of $34.3 million was due to non-recurrent charges in 2021 of $38.9 million related to the disputed Mexican royalty claim by the Mexican Geological Survey Agency ($11.0 million) and Roxgold acquisition transaction expenses ($27.9 million), as well as lower negative changes in working capital of $21.6 million in 2022, and lower income tax paid of $20.5 million.

Free cash flow from ongoing operations for 2022 was $69.2 million compared to $86.0 million in 2021. The decrease, after adjusting net cash generated by operations for the $38.9 million of non-recurrent payments in 2021 described above, reflects higher capex of $90.5 million related mostly to the full year of production at Yaramoko, and lower taxes.

Liquidity

Total liquidity available to the Company as at December 31, 2022 was $150.5 million, comprised of $80.5 million of cash and cash equivalents and $70.0 million undrawn on the Company’s revolving $250.0 million credit facility.

Séguéla Construction

As of December 31, 2022, the Séguéla Project had approximately $38.2 million in payments remaining of the project’s $173.5 million construction budget, and the project remains on time and on budget. The Company’s cash and cash equivalents balance, free cash flow from ongoing operations and undrawn amounts of the credit facility are expected to be sufficient to fund the construction of the Séguéla Project.

Lindero Mine, Argentina

¹ Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.
² Capital expenditures are presented on a cash basis.

Quarterly Operating and Financial Highlights

In the fourth quarter of 2022, a total of 1,334,509 tonnes of ore were placed on the heap leach pad, averaging 0.80 g/t gold, containing an estimated 34,350 ounces of gold. Gold production for Q4 2022 totaled 29,301 ounces, representing a 19% decrease over Q4 2021. Lower gold production is attributed to an 8% decrease in tonnes and a 23% decrease in gold grade for ore placed on the pad, compared to the fourth quarter of 2021. This was partially offset by improved gold recovery. Gold grade for the quarter was in line with the mining plan and Mineral Reserve estimate. Mine production for the quarter was according to management’s expectations, with a total of 1.9 million tonnes of ore mined in the fourth quarter, at a strip ratio of 0.54:1.

Cash cost per ounce of gold for the three months ended December 31, 2022 was $815 compared to $585 in the fourth quarter of 2021. Cash cost per ounce of gold for the year ended December 31, 2022 was $740 compared to $617 in the 2021. Cash cost per ounce of gold was higher due higher operations costs primarily due to inflation, lower stripping capitalization and lower gold production.

All-in sustaining cash cost per gold ounce sold was $1,221 during Q4 2022 and $1,142 in 2022 compared with $994 in the fourth quarter of 2021 and $1,116 in 2021. All-in sustaining cash cost for the fourth quarter of 2022 was impacted by the issues described above, partially offset by lower export taxes and a positive by-product effect.

Sustaining capital for the quarter primarily consisted of spending on the leach pad, mine maintenance and other minor projects. Construction work on Phase-2 is planned to commence in 2023. Brownfields capital primarily relates to exploration at the Arizaro project.

Yaramoko Mine Complex, Burkina Faso

¹ The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.
² Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.
³ Capital expenditures are presented on a cash basis.

The Yaramoko Mine produced 26,190 ounces of gold in the fourth quarter of 2022 with an average gold head grade of 6.45g/t, which is in line with the mining sequence and Mineral Reserve estimate and an 8% decrease over Q4 2021. The decrease in production was due to lower head grades. However, grades for the full year were in line with planned estimates.

Cash cost per gold ounce sold was $818, compared to $754 in the fourth quarter of 2021, and $840 for the year 2022 compared to $739 in 2021, primarily due to higher mining service costs related to inflation and variation in orebody sequence. This was partially offset by favorable foreign exchange rates.

All-in sustaining cash cost per gold ounce sold was $1,829 for Q4 2022 and $1,529 for 2022, compared to $1,436 and $1,317 for the same period in 2021, as a result of decreased production, increased cash cost, and an increase in capital expenditures.

Sustaining capital expenditure related mainly to mine development, including the QV Prime project in Bagassi South. Brownfields expenditure was higher due to greater amounts of diamond drilling as well as further development of the 109 Zone.

San Jose Mine, Mexico

¹ Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively.
² Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.
³ Capital expenditures are presented on a cash basis.

In the fourth quarter of 2022, the San Jose Mine produced 1,473,627 ounces of silver and 8,499 ounces of gold, 14% and 14% lower, respectively, when compared to the equivalent period in 2021. The decrease is mainly due to lower head grades, albeit in line with management´s expectations based on the mining sequence and Mineral Reserve estimate.

Material mined using sublevel stopping (SLS) methods was increased in 2022, representing 35 percent of ore sent to the plant. The operation plans for the SLS contribution to reach 60 percent of total ore production in 2023. In the second quarter of 2022, a new underground shotcrete plant was commissioned which reduced mining cycles and partially offset some of the cost increases due to higher haulage distances as the mine deepens.

The cash cost per tonne for the three months ended December 31, 2022 was $86.26 compared to $79.66 in the same period in 2021 primarily due to cost increases related to inflation and higher support costs. Cash cost per tonne for the full year 2022 increased to $81.33 per tonne compared to $75.80 per tonne for 2021 due to higher mine preparation, support and indirect costs.

All-in sustaining cash costs of payable silver equivalent for the three months ended December 31, 2022 and full year 2022 increased 4% and 5% to $15.53 per ounce and 15.11 per ounce, compared to the same periods in 2021. The increases are due to higher cash costs and lower silver equivalent ounces, partially offset by lower capital expenditure.

Sustaining capital expenditures for Q4 2022 and for the year were lower than 2021, as 2021 required additional capital for equipment. Brownfields capital expenditure were lower due to reduced drilling, as the site focused on less capital-intensive exploration.

Caylloma Mine, Peru

¹ Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively.
² Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.
³ Capital expenditures are presented on a cash basis.

The Caylloma Mine produced 273,119 ounces of silver, 8.7 million pounds of lead, and 12.6 million pounds of zinc during the three months ended December 31, 2022. Measured against the comparable quarter of the previous year, silver was 4% higher, primarily due to higher grades mined during the period. Lead production was 4% higher than the comparable period, attributable to higher plant recovery. Zinc production was 11% higher than the comparable period, mainly impacted by higher head grades and improved plant recovery. Gold production totaled 122 ounces with an average head grade of 0.12 g/t.

The cash cost per tonne of processed ore for the three months ended December 31, 2022 increased 2% to $95.70 compared to $97.87 in the same period in 2021. This movement was mainly the result of higher support costs partially offset by increased production. Cash cost per tonne for the full year 2022 increased to $92.96 per tonne compared to $88.41 per tonne for 2021, mainly due to higher mining costs caused by inflation.

The all-in sustaining cash cost of payable silver equivalent for the three month ended December 31, 2022 decreased 2% to $20.30 per ounce compared to $20.71 per ounce for the same period in 2021, as a result of higher sustaining capital expenditures in the quarter. The all-in sustaining cash cost of payable silver equivalent for the full year 2022 decreased 5% to $17.97 per ounce compared to $18.94 per ounce in 2021 was primarily due to an increase in silver equivalent ounces due to a decrease in realized silver prices, partially offset by higher capital costs.

Sustaining capital expenditures for the quarter increased primarily due to greater investments in sustaining equipment and infrastructure. Expenditures on the developments located in level 16 and level 18 were offset by decreased expenditures on other levels. The decrease in Brownfields capital expenditures was due to significantly lower spending on drilling and development.

Qualified Person

Eric Chapman, Senior 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.

Reconciliation to Adjusted Net Income for the Three and Twelve Months Ended December 31, 2022 and 2021

Reconciliation to Adjusted EBITDA for the Three and Twelve Months Ended December 31, 2022 and 2021

Figures may not add due to rounding

Reconciliation of Free Cash Flow from ongoing operations for the Three and Twelve Months Ended December 30, 2022 and 2021

In 2022, the Company changed the method for calculating Free Cash Flow from Ongoing Operations. The calculation now uses taxes paid as opposed to the previous method which used current income taxes. While this may create larger quarter over quarter fluctuations due to the timing of income tax payments, management believes the revised method is a better representation of the Free Cash Flow generated by the Company’s ongoing operations. Comparative values from 2021 have been restated using the change in the methodology.

Figures may not add due to rounding

Reconciliation of Cash Cost per Ounce of Gold Sold for the Three and Twelve Months Ended December 31, 2022 and 2021

Reconciliation of All-in Sustaining Cash Cost per Ounce of Gold Sold for the Three and Twelve Months Ended December 31, 2022 and 2021

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, 2022 and 2021

Reconciliation of All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver Equivalent Sold for the Three and Twelve Months Ended December 31, 2022 and 2021

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, 2022 and accompanying 2022 MD&A, 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 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.