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Fortuna reports results for the second quarter of 2023

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Fortuna reports results for the second quarter of 2023

 

 

 

 

 

Fortuna Silver Mines Inc. (TSX: FVI) (NYSE: FSM) reported its financial and operating results for the second quarter of 2023.

Second Quarter 2023 highlights

 

Financial

  • Adjusted net income of $2.9 million or $0.01 per share
  • Net income of $3.5 million or $0.01 per share
  • Adjusted EBITDA1 of $44.4 million
  • Net cash provided by operating activities $44.2 million and free cash flow from ongoing operations of $9.5 million
  • Liquidity as of March 31, 2023 was $97.9 million

 

Return to Shareholders

  • NCIB share repurchase program renewed for up to 5% of outstanding common shares (refer to Fortuna news release dated April 28, 2023)

 

Operational

  • Gold production of 64,348 ounces
  • Silver production of 1,262,561 ounces
  • Gold equivalent production of 93,454 ounces
  • Consolidated cash costs1 per ounce of gold equivalent sold of $968
  • Consolidated all-in sustaining costs (AISC)1 per ounce of gold equivalent sold of $1,799
  • Lost Time Injury Frequency Rate (LTIFR) of 0.43 and Total Recordable Injury Frequency Rate (TRIFR) of 1.15. One fatal incident was recorded at the Caylloma mine in June.

 

Growth and Development

  • First gold pour at the Séguéla mine in Côte d’Ivoire took place on May 24, 2023, with the first gold shipment having taken place in July, subsequent to the close of the quarter.
  • The transaction to acquire Chesser Resources Limited is continuing to progress and is expected to close in the third week of September

 

Jorge A. Ganoza, President and CEO, commented, “The first gold pour and sale at Séguéla is an exciting milestone for the Company as our new flagship asset enters into production and adds stable, high margin ounces to our portfolio. Ramp-up activities at the process plant continue to progress, and during the month of July the process plant met and exceeded name plate capacity and is expected to operate at a stable rate through the quarter.”

 

Mr. Ganoza continued, “Loss of production, stand-by charges and expenses related to the illegal union blockade at the San Jose Mine and standby charges during the repair of the Armtec tunnel at the Yaramoko Mine, both weighed on the results and AISC for the second quarter. Despite these headwinds the Company generated positive free cash flow from ongoing operations of $9.5 million. At Séguéla, although we produced over four thousand ounces in the days prior to quarter end, ahead of schedule, the first gold sale did not take place until early in the third quarter.”

 

Mr. Ganoza concluded “With Séguéla contributing its first full quarter of production in the third quarter, the return of normal to operations at San Jose, Yaramoko continuing to perform above expectations, and the completion of a stripping phase in the second quarter at Lindero, we expect growing margins and free cash flow to improve in the third and fourth quarter of the year”.

 

Second Quarter 2023 Consolidated Results

 

                         
    Three months ended June 30,   Six months ended June 30,
(Expressed in millions)   2023   2022   % Change   2023   2022   % Change
Sales   158.4   167.9   (6 %)   334.1   350.2   (5 %)
Mine operating income   31.9   32.5   (2 %)   72.3   96.0   (25 %)
Operating income   7.7   13.1   (41 %)   31.6   53.9   (41 %)
Net income   3.5   1.7   106 %   15.3   28.7   (47 %)
Earnings per share – basic   0.01   0.01   0 %   0.05   0.10   (50 %)
Adjusted net income1   2.9   2.1   38 %   16.1   35.4   (55 %)
Adjusted EBITDA1   44.4   57.9   (23 %)   109.5   138.1   (21 %)
Net cash provided by operating activities   44.2   47.4   (7 %)   85.4   80.0   7 %
Free cash flow from ongoing operations1   9.5   21.9   (57 %)   17.6   31.0   (43 %)
Production cash cost ($/oz Au Eq)   968.0   871.0   11 %   940   820   15 %
All-in sustaining cash cost ($/oz Au Eq)   1,799.0   1,434.0   25 %   1,647   1,358   21 %
Capital expenditures2                        
Sustaining   34.2   23.1   48 %   62.1   41.1   51 %
Non-sustaining3   0.9   3.7   (76 %)   2.0   6.4   (69 %)
Séguéla construction   23.0   23.4   (2 %)   48.1   64.1   (25 %)
Brownfields   2.4   3.4   (29 %)   7.3   7.4   (1 %)
As at               June 30, 2023   December 31, 2022   % Change
Cash and cash equivalents       93.4   80.5   16 %
Net liquidity position               97.9   150.5   (35 %)
1 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.sedarplus.ca for a description of the calculation of these measures.
2 Capital expenditures are presented on a cash basis  
3 Non-sustaining expenditures include greenfields exploration  
Figures may not add due to rounding  

 

Second Quarter 2023 Results

 

Net income for the quarter was $3.5 million compared to $1.7 million in Q2 2022. After adjusting for non-cash and non-recurring items, adjusted net income for the quarter was $2.9 million compared to $2.1 million in Q2 2022. The slight increase in adjusted net income is explained by lower income taxes and effective tax rate in Q2 2023, compensating for a reduction in operating income of $5.4 million compared to Q2 222. The reduction in operating income was due mainly to lower volume of metal sold at San Jose due to the 15-day stoppage related to an illegal blockade at the mine, and lower volume at Lindero related to the mine sequence. This impact was combined with higher cash cost of sales per gold equivalent ounce mainly due to lower production rates and head grades at San Jose associated with the ramp-up process following the work stoppage at the mine, and higher input costs and lower head grades at Lindero. These effects were partially offset by lower cost of sales per ounce of gold at Yaramoko. Operating income was further impacted by $7.3 million of non-recurring expenses comprised of $3.5 million of stand-by charges at San Jose and Yaramoko, $2.8 million related to a new agreement with the workers´ union at San Jose, and a $1.0 million administrative penalty at Yaramoko payable to the Ministry of Mines. The positive impact of higher gold and silver prices in Q2 2023 was offset by a sharp drop in zinc prices. The realized gold and silver price were $1,974 per ounce and $24.10 per ounce, respectively, in Q2 2023, compared to $1,870 and $22.62, respectively in Q2 2022.

 

Adjusted EBITDA for the quarter was $44.4 million, representing a margin of 28% over sales, compared to $57.9 million reported in the same period in 2022, representing a margin of 34% over sales. The main drivers for the decrease in adjusted EBITDA were lower volume sold, non-recurrent items, and higher costs per gold equivalent ounce as described above.

 

General and administrative expenses for the quarter of $14.5 million were in line with the same period in 2022. G&A is comprised of the following items:

 

                                 
    Three months ended June 30,   Six months ended June 30,
(Expressed in millions)   2023   2022   % Change   2023   2022   % Change
Mine G&A     6.2     6.2   0 %     12.1     11.1   9 %
Corporate G&A     7.2     8.1   (11 %)     14.1     16.2   (13 %)
Share-based payments     1.1     0.4   175 %     3.3     4.0   (18 %)
Workers’ participation         0.1   (100 %)     0.1     0.4   (75 %)
Total     14.5     14.8   (2 %)     29.6     31.7   (7 %)

 

Net cash generated by operations for the quarter decreased $3.2 to $44.2 million from $47.4 million in Q2 2022. The decrease reflects lower EBITDA of $13.5 million partially offset by $7.4 million in positive changes in working capital and income tax paid. Net cash generated by operations per share was $0.15 compared to $0.16 in Q2 2022.

 

In the second quarter of 2023 the Company invested $73.2 million in capital expenditures consisting primarily of $35.6 million in sustaining capital to support underground development, capitalized stripping and other projects at our operating sites, $19.5 million in construction and pre-production activities at Séguéla, $3.4 million of capitalized interest, a $10.0 million payment to Newcrest related to first gold at Séguéla and $4.5 million in costs related to the Chesser transaction.

 

Free cash flow from ongoing operations for the quarter was $9.5 million, compared to $21.9 million in Q2 2022. The decrease of $12.4 million is the result of lower net cash generated by operations of $3.2 million and higher sustaining capex and brownfields exploration at our operating mines of $10.8 million in Q2 2023.

 

Consolidated All-in Sustaining Cost

 

Consolidated AISC per gold equivalent ounce (GEO) sold for the second quarter of 2023 was $1,799 per ounce compared to $1,434 per ounce for the comparable quarter in 2022. The increase in AISC was primarily the result of lower gold equivalent ounces sold due to the impact of the illegal blockade at the San Jose Mine, higher sustaining capital related to Phase 2 of the leach pad expansion and higher capitalized stripping at Lindero, higher underground development at Yaramoko, $7.3 million in stand-by, and one-time payments from the work stoppage at San Jose and the stoppage of underground mining at Yaramoko, and higher costs of sales per ounce at Lindero related to lower production and higher input costs.

 

Liquidity

 

The Company’s total liquidity available as of June 30, 2023 was $97.9 million, comprised of $93.4 million in cash and cash equivalents, and $4.5 million undrawn on the $250.0 million revolving credit facility.

 

Séguéla Gold Mine Construction Update

 

For the second quarter of 2023 the Company incurred and expended $8.6 million and $8.9 million respectively related to construction activities. Since the project early works began in the third quarter of 2021 the Company has incurred and expended $173.6 million and $161.2 million respectively.

 

     
(Expressed in millions) Q2 2023 Project to Date
Expended Capital Costs1 8.9 161.2  
Working Capital Adjustment2 0.3 (12.4 )
Incurred Capital Costs3 8.6 173.6  

1 Cash basis. Excludes exploration costs, capitalized interest and management fees. 
2 Primarily consists of work performed not yet invoiced and increases in the accounts payable balance offset by increases in the VAT receivable balance.
3 Accrual basis. Excludes capitalized interest and management fees. 
4 YTD includes a correction for the timing of payments. This has not impacted project to date spend. 

As of June 30, 2023 the construction of the mine was substantially complete with minimal remaining spend associated with final commissioning and vendor testing. The project was delivered on budget. Settlement of final construction related payables is expected to be financed by free cash flow from ongoing operations.

 

Lindero Mine, Argentina

 

                         
      Three months ended June 30,     Six months ended June 30,
         2023     2022     2023     2022
Mine Production                        
Tonnes placed on the leach pad     1,503,323     1,502,074     2,981,471     2,797,829
                         
Gold                        
Grade (g/t)     0.62     0.74     0.83     0.83
Production (oz)     25,456     29,016     50,714     59,084
Metal sold (oz)     25,140     30,546     51,952     59,165
Realized price ($/oz)     1,975     1,869     1,879     1,879
                         
Unit Costs                        
Cash cost ($/oz Au)1     879     687     885     690
All-in sustaining cash cost ($/oz Au)1     1,688     1,151     1,552     1,096
                         
Capital Expenditures ($000’s) 2                        
Sustaining     13,337     6,123     21,082     9,248
Non-sustaining     136         323     169
Brownfields         646         790

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.sedarplus.ca 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 second quarter of 2023, a total of 1,503,323 tonnes of ore were placed on the heap leach pad, with an average gold grade of 0.62 g/t, containing an estimated 29,984 ounces of gold. Gold production for Q2 2023 totaled 25,456 ounces, comprised of 24,599 ounces of doré, an estimated 731 ounces of gold contained in fine carbon, and 126 ounces contained in copper concentrate. This represents a 12% decrease in total ounces, year-over-year. This decline in gold production can primarily be attributed to a decrease in the head grade of mineralized material placed on the leach pad, but is in line with the planned mining sequence. Mine production for the quarter was 0.8 million tonnes of mineralized material, with a strip ratio of 2.69:1. This stripping ratio is consistent with the operation’s plan for the year, which anticipates a ratio of 1.17:1.

 

Cash cost per ounce of gold for the quarter ended June 30, 2023, was $879 compared to $687 in the same period in 2022. Cash cost per ounce of gold was higher due to higher indirect costs, and lower production. This was partially offset by higher stripping capitalization and by-product sales from copper.

 

All-in sustaining cash cost per gold ounce sold was $1,688 during Q2 2023 compared with $1,151 in the same period of 2022. All-in sustaining cash cost for the second quarter of 2023 was impacted by the cost issues described above, compounded by lower ounces sold and significantly higher sustaining capital spend.

 

During the quarter, sustaining capital expenditures were primarily driven by the development of Phase 2 of the leach pad, higher capitalized stripping, plant investments, and capitalized maintenance.

 

Yaramoko Mine Complex, Burkina Faso

 

                         
      Three months ended June 30,     Six months ended June 30,
         2023     2022     2023     2022
Mine Production                        
Tonnes milled     144,202     138,787     283,852     266,755
                         
Gold                        
Grade (g/t)     6.51     5.42     6.23     6.43
Recovery (%)     98     97     98     98
Production (oz)     29,002     24,553     55,439     52,788
Metal sold (oz)     25,946     24,598     55,476     54,128
Realized price ($/oz)     1,976     1,868     1,933     1,873
                         
Unit Costs                        
Cash cost ($/oz Au)1     719     928     772     804
All-in sustaining cash cost ($/oz Au)1     1,626     1,565     1,564     1,334
                         
Capital Expenditures ($000’s) 2                        
Sustaining     14,318     9,085     27,867     16,446
Brownfields     1,019         2,210     488

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.sedarplus.ca for a description of the calculation of these measures.
2 Capital expenditures are presented on a cash basis.

 

The Yaramoko Mine produced 29,002 ounces of gold in the second quarter of 2023 with an average gold head grade of 6.51g/t, an 18% increase when compared to the same period in 2022. Production benefitted from higher grades mined and an increase in milled tonnes. Better than expected grades were sourced from the extension of the deposit beyond the current resource boundary on the western side of the 55 Zone. Production at Yaramoko is expected to be at the upper end of annual guidance range. In light of the recent success encountering extensions of mineralization on the fringes of the resource boundary at Zone 55, the Company expects to provide a Mineral Reserve and Mineral Resource update before year end.

 

Access to the underground mine was impacted for 27 days in April due to a failure of the Armtec tunnelling structure at the mine portal. Throughout this period, processing operations were maintained by milling surface ore stockpiles. Underground mine production resumed on May 1.

 

Cash cost per ounce of gold sold for the quarter ended June 30, 2023, was $719 compared to $928 in the same period in 2022. Cash cost per ounce decreased due to higher production and higher head grades, lower indirect costs, and lower mining costs related to lower stoping and operating development costs.

 

All-in sustaining cash cost per gold ounce sold was $1,626 for Q2 2023, compared to $1,565 for the same period in 2022. This increase was as a result of increased capital expenditures related to underground development, $2.0 million in stand-by charges incurred while the mine access ramp was remediated and a $1.0 million administrative penalty.

 

Sustaining capital for Q2 2023 was higher due to higher mine development and the Zone 55 Primary Vent Circuit extension. Brownfields expenditure was primarily related to diamond drilling.

San Jose Mine, Mexico

 

                         
      Three months ended June 30,     Six months ended June 30,
         2023        2022        2023        2022
Mine Production                        
Tonnes milled     194,887     251,945     441,623     502,892
Average tonnes milled per day     2,633     2,831     2,760     2,874
                         
Silver                        
Grade (g/t)     168     187     186     186
Recovery (%)     91     91     91     91
Production (oz)     957,265     1,385,336     2,260,577     2,743,525
Metal sold (oz)     942,671     1,417,303     2,271,004     2,733,496
Realized price ($/oz)     24.09     22.56     23.20     23.39
                         
Gold                        
Grade (g/t)     1.02     1.13     1.13     1.13
Recovery (%)     90     91     90     90
Production (oz)     5,778     8,295     14,009     16,534
Metal sold (oz)     5,695     8,564     14,050     16,516
Realized price ($/oz)     1,973     1,873     1,929     1,881
                         
Unit Costs                        
Production cash cost ($/t)2     102.77     83.57     93.77     79.82
Production cash cost ($/oz Ag Eq)1,2     15.93     11.00     13.26     10.72
All-in sustaining cash cost ($/oz Ag Eq)1,2     24.07     15.41     19.01     15.36
                         
Capital Expenditures ($000’s) 3                        
Sustaining     3,593     4,051     7,366     7,626
Non-sustaining     524     454     793     869
Brownfields     788     1,568     1,875     3,097

1 Production cash cost per ounce of silver equivalent and all-in sustaining cash cost per ounce of silver equivalent are calculated using realized metal prices for each period respectively.
2 Production cash cost per tonne, production cash cost per ounce of silver equivalent, and all-in sustaining cash cost per ounce of 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.sedarplus.ca for a description of the calculation of these measures.
3 Capital expenditures are presented on a cash basis

 

In the second quarter of 2023, the San Jose Mine produced 957,265 ounces of silver and 5,778 ounces of gold, 31% and 30% lower, respectively, when compared to the same period in 2022.

 

The decrease in production is explained by the 15-day full shutdown of operations due to the illegal blockade by the workers’ union related to demands for higher profit sharing distributions and higher absenteeism and resignations of personnel following the resolution of the blockade. The 15-day shutdown reduced planned production for the quarter by 47,200 tonnes and impacted mine preparation, delaying access to higher grade stopes planned in the quarter. The Company has adjusted its mine plan to access these higher grade stopes in the third quarter and has taken the necessary steps to address worker absenteeism.

 

The cash cost per tonne for the three months ended June 30, 2023, was $102.77 compared to $83.57 in the same period in 2022. The increase was primarily due to inflation and the appreciation of the Mexican Peso, affecting consumables, labour costs and other services paid in Pesos. Cash cost was further negatively affected by decreased production due to the work stoppages noted earlier and the impact of the plant running below optimal throughput rates during quarter.

 

All-in sustaining cash costs of payable silver equivalent for the three months ended June 30, 2023, increased 24% to $24.07 per ounce, compared to $15.41 per ounce for the same period in 2022. The increase was driven by higher cash cost, lower production, and an extraordinary bonus negotiated as part of the union agreement. This was offset slightly by lower royalties and lower capital expenditures.

 

In the second quarter of 2023, sustaining capital expenditure was lower than the same period in 2022, due to the one-time purchase of two scooptrams in 2022. This was partially offset by higher development costs in this quarter. Brownfields expenditures continued to face challenges stemming from geological and operational delays.

 

Caylloma Mine, Peru

 

                         
      Three months ended June 30,     Six months ended June 30,
         2023     2022     2023     2022
Mine Production                        
Tonnes milled     137,004     135,977     262,999     268,552
Average tonnes milled per day     1,539     1,528     1,494     1,526
                         
Silver                        
Grade (g/t)     84     77     83     83
Recovery (%)     83     79     81     81
Production (oz)     305,296     267,559     588,362     579,498
Metal sold (oz)     336,086     279,051     599,656     573,352
Realized price ($/oz)     24.13     22.89     23.30     23.35
                         
Gold                        
Grade (g/t)     0.12     0.17     0.16     0.16
Recovery (%)     16     43     40     40
Production (oz)     89     307     255     565
Metal sold (oz)         278     22     603
Realized price ($/oz)         1,897     1,895     1,864
                         
Lead                        
Grade (%)     3.72     3.00     3.27     3.27
Recovery (%)     91     85     87     88
Production (000’s lbs)     10,207     7,637     19,716     16,771
Metal sold (000’s lbs)     11,419     8,021     20,201     16,596
Realized price ($/lb)     0.96     1.02     0.99     1.04
                         
Zinc                        
Grade (%)     5.18     4.09     4.14     4.14
Recovery (%)     90     89     89     89
Production (000’s lbs)     14,037     10,886     27,088     21,713
Metal sold (000’s lbs)     13,986     10,920     27,800     21,466
Realized price ($/lb)     1.23     1.79     1.34     1.74
                         
Unit Costs                        
Production cash cost ($/t)2     103.38     93.31     100.84     91.48
Production cash cost ($/oz Ag Eq)1,2     14.76     13.14     14.02     12.77
All-in sustaining cash cost ($/oz Ag Eq)1,2     19.18     18.19     18.12     18.01
                         
Capital Expenditures ($000’s) 3                        
Sustaining     2,943     3,793     5,753     7,742
Brownfields     336     207     540     531

1 Production cash cost per ounce of silver equivalent and all-in sustaining cash cost per ounce of silver equivalent are calculated using realized metal prices for each period respectively.
2 Production cash cost per tonne, production cash cost per ounce of silver equivalent, and all-in sustaining cash cost per ounce of 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.sedarplus.ca for a description of the calculation of these measures.
3 Capital expenditures are presented on a cash basis.

 

The Caylloma Mine produced 305,296 ounces of silver, 10.2 million pounds of lead, and 14.0 million pounds of zinc during the second quarter of 2023. Silver production was 14% higher compared to the same quarter in 2022, as production benefitted from higher grade stopes at the lower levels of the Animas vein. Lead and zinc production rose by 34% and 29% respectively, compared to the same period in 2022, due to higher head grades sourced from lower levels at the Animas vein. Gold production totaled 89 ounces with an average head grade of 0.12 g/t.

 

The cash cost per tonne of processed ore for the three months ended June 30, 2023 increased 11% to $103.38 compared to $93.31 in the same period in 2022. The increase was mainly due to higher mining costs driven by inflation and its direct impact on the price of materials.

 

The all-in sustaining cash cost per ounce of payable silver equivalent for the three months ended June 30, 2023, increased 5% to $19.18 per ounce, compared to $18.19 per ounce for the same period in 2022. The increase was driven by higher cash cost and the impact of metal prices on the calculation of silver equivalent ounces. This was partially offset slightly by lower capital expenditures.

 

Capital costs for the period primarily consisted of underground development in mine levels 15, 16 and 18.

 

Qualified Person

 

Eric Chapman, Senior Vice President of Technical Services, is a Professional Geoscientist of the Engineers and Geoscientists 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.

 

Raul Espinoza, F.AusIMM CP, Director of Technical Services for the Company is a Qualified Person as defined by NI 43-101, and has reviewed and approved the scientific and technical information pertaining to the Séguéla Project contained in this MD&A and has verified the underlying data.

 

Non-IFRS Financial Measures

 

The Company has disclosed certain financial measures and ratios in this news release which are not defined under the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, and are not disclosed in the Company’s financial statements, including but not limited to: cash cost per ounce of gold sold; all-in sustaining cash cost per ounce of gold sold; all-in sustaining cash cost per ounce of gold equivalent sold; all-in cash cost per ounce of gold sold; production cash cost per ounce of gold equivalent; total production cash cost per tonne; cash cost per payable ounce of silver equivalent sold; all-in sustaining cash cost per payable ounce of silver equivalent sold; all-in cash cost per payable ounce of silver equivalent sold; free cash flow from ongoing operations; adjusted net income; adjusted EBITDA and working capital.

 

These non-IFRS financial measures and non-IFRS ratios are widely reported in the mining industry as benchmarks for performance and are used by management to monitor and evaluate the Company’s operating performance and ability to generate cash. The Company believes that, in addition to financial measures and ratios prepared in accordance with IFRS, certain investors use these non-IFRS financial measures and ratios to evaluate the Company’s performance. However, the measures do not have a standardized meaning under IFRS and may not be comparable to similar financial measures disclosed by other companies. Accordingly, non-IFRS financial measures and non-IFRS ratios should not be considered in isolation or as a substitute for measures and ratios of the Company’s performance prepared in accordance with IFRS. The Company has calculated these measures consistently for all periods presented.

 

To facilitate a better understanding of these measures and ratios as calculated by the Company, descriptions are provided below. In addition see “Non-IFRS Financial Measures” in the Company’s management’s discussion and analysis for the three and six months ended June 30, 2023, which section is incorporated by reference in this news release, for additional information regarding each non-IFRS financial measure and non-IFRS ratio disclosed in this news release, including an explanation of their composition; an explanation of how such measures and ratios provide useful information to an investor and the additional purposes, if any, for which management of the Company uses such measures and ratio. The Q2 2023 MD&A may be accessed on SEDAR+ at www.sedarplus.ca under the Company’s profile.

 

Except as otherwise described in the Q2 2023 MD&A, the Company has calculated these measures consistently for all periods presented.

 

Reconciliation to adjusted net income for the three and six months ended June 30, 2023 and 2022

 

                       
    Three months ended June 30,     Six months ended June 30,
Consolidated (in millions of US dollars)   2023       2022       2023       2022  
Net income   3.5       1.7       15.3       28.6  
Adjustments, net of tax:                      
Community support provision and accruals1               (0.1 )      
Foreign exchange loss, Séguéla Project   (0.2 )           (0.1 )      
Write off of mineral properties                     1.5  
Unrealized loss on derivatives   (1.3 )     (4.4 )     (0.3 )     (2.2 )
Inventory adjustment   0.8       3.3       0.8       3.3  
Accretion on right of use assets   0.5       0.6       1.1       1.2  
Other non-cash/non-recurring items   (0.4 )     0.9       (0.6 )     3.0  
Adjusted Net Income   2.9       2.1       16.1       35.4  
1 Amounts are recorded in Cost of sales                      
2 Amounts are recorded in General and Administration                      
Figures may not add due to rounding                      

 

 

Reconciliation to adjusted EBITDA for the three and six months ended June 30, 2023 and 2022

 

                       
    Three months ended June 30,     Six months ended June 30,
Consolidated (in millions of US dollars)   2023       2022       2023       2022  
Net income   3.5       1.7       15.3       28.6  
Adjustments:                      
Community support provision and accruals               (0.1 )      
Inventory adjustment   1.0       4.0       0.9       4.0  
Foreign exchange loss, Séguéla Mine   (0.2 )     0.3       (0.1 )     0.9  
Net finance items   3.5       3.7       6.1       6.5  
Depreciation, depletion, and amortization   39.8       42.5       84.2       80.6  
Income taxes   1.0       13.6       9.0       20.4  
Other non-cash/non-recurring items   (4.2 )     (7.9 )     (5.8 )     (2.9 )
Adjusted EBITDA   44.4       57.9       109.5       138.1  

Figures may not add due to rounding

 

 

Reconciliation of free cash flow from ongoing operations for the three and six months ended June 30, 2023 and 2022

 

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.

 

                       
    Three months ended June 30,     Six months ended June 30,
(Expressed in millions) 2023     2022     2023        2022  
                       
Net cash provided by operating activities   44.2       47.4       85.4       80.0  
Adjustments                      
Séguéla, working capital   4.4             4.4        
Additions to mineral properties, plant and equipment   (36.2 )     (25.5 )     (66.5 )     (46.0 )
Mexican royalty payment         3.0             3.0  
Other adjustments   (2.9 )     (3.0 )     (5.7 )     (6.0 )
Free cash flow from ongoing operations   9.5       21.9       17.6       31.0  

Figures may not add due to rounding

 

Reconciliation of cash cost per ounce of gold sold for the three and six months ended June 30, 2023 and 2022

 

                         
Lindero Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023       2022       2023       2022  
Cost of sales     40,280       41,326       82,005       77,194  
Changes in doré inventory     11       (305 )     (1,320 )     712  
Inventory adjustment           (739 )     15        
Export duties     (3,850 )     (4,284 )     (7,776 )     (8,292 )
Depletion and depreciation     (11,873 )     (14,296 )     (25,065 )     (26,305 )
By product credits     (2,486 )           (3,284 )      
Production cash cost     22,082       21,702       44,575       43,309  
Changes in doré inventory     (11 )     305       1,320       (712 )
Realized gain in diesel hedge           (1,037 )           (1,819 )
Cash cost applicable per gold ounce sold A   22,071       20,970       45,895       40,778  
Ounces of gold sold B   25,104       30,534       51,843       59,141  
Cash cost per ounce of gold sold ($/oz) =A/B   879       687       885       690  
 

 

 

                         
Yaramoko Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023       2022       2023       2022  
Cost of sales     38,353       44,240       83,216       82,281  
Changes in doré inventory                       (1,320 )
Inventory net realizable value adjustment     (827 )     (4,027 )     (827 )     (4,027 )
Export duties     (3,086 )     (2,748 )     (6,448 )     (6,081 )
Depletion and depreciation     (15,788 )     (14,626 )     (33,156 )     (28,654 )
Refining charges           (174 )           (329 )
By product credits           (20 )           (25 )
Production cash cost     18,652       22,645       42,785       41,845  
Changes in doré inventory                       1,320  
Refining charges           174             329  
Cash cost applicable per gold ounce sold A   18,652       22,819       42,785       43,494  
Ounces of gold sold B   25,946       24,598       55,418       54,128  
Cash cost per ounce of gold sold ($/oz) =A/B   719       928       772       804  
                         

 

Reconciliation of cash cost per ounce of gold equivalent sold for the three and six months ended June 30, 2023 and 2022

 

                         
Consolidated     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023       2022       2023       2022  
Cost of sales     126,542       135,328       261,760       254,157  
Changes in concentrate inventory and dore inventory     151       (545 )     (1,383 )     (660 )
Cost of sales-Right of use     761             1,456        
Depletion and depreciation in concentrate inventory     82       (38 )     (90 )     (185 )
Inventory adjustment     (1,813 )     (5,309 )     (1,703 )     (12,053 )
Royalties, export duties and mining taxes     (8,495 )     (8,602 )     (17,206 )     (35,595 )
Provision for community support     (52 )     100       (78 )     (26 )
Workers’ participation     (164 )     (491 )     (627 )     (1,831 )
Depletion and depreciation     (39,598 )     (42,160 )     (83,553 )     (53,593 )
By product credits     (2,486 )     (20 )     (3,284 )     (25 )
Production cash cost     74,928       78,263       155,292       150,189  
Changes in concentrate inventory and dore inventory     (151 )     545       1,383       660  
Cost of sales-Right of use     (761 )           (1,456 )      
Depletion and depreciation in concentrate inventory     (82 )     38       90       185  
Inventory adjustment     986       543       891       (266 )
Realized gain in diesel hedge           (1,037 )           (1,819 )
Treatment charges     5,385       4,107       10,424       8,112  
Refining charges     984       1,292       2,175       2,556  
Cash cost applicable per gold equivalent ounce sold A   81,289       83,751       168,799       159,617  
Ounces of gold equivalent sold B   83,994       96,105       179,534       194,548  
Cash cost per ounce of gold equivalent sold ($/oz) =A/B   968       871       940       820  
 

Gold equivalent was calculated using the realized prices for gold of $1,975/oz Au, $24.1/oz Ag, $2,115/t Pb, and $2,713/t Zn for Q2 2023 and using the realized prices for gold of $1,862/oz Au, $22.6/oz Ag, $2,240/t Pb, and $3,948/t Zn for Q2 2022.

 

Gold equivalent was calculated using the realized prices for gold of $1,930/oz Au, $23.2/oz Ag, $2,174/t Pb, and $2,954/t Zn for YTD 2023 and using the realized prices for gold of $1,877/oz Au, $23.3/oz Ag, $2,287/t Pb, and $3,844/t Zn for YTD 2022.

                         
                         

Reconciliation of all-in sustaining cash cost per ounce of gold sold for the three and six months ended June 30, 2023 and 2022

 

                         
Lindero Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023     2022     2023     2022
Cash cost applicable     22,071     20,970     45,895     40,778
Export duties and mining taxes     3,850     4,284     7,776     8,292
General and administrative expenses (operations)     2,507     2,548     4,499     4,453
Adjusted operating cash cost     28,428     27,802     58,170     53,523
Sustaining leases     599     563     1,197     1,268
Sustaining capital expenditures1     13,337     6,123     21,082     9,248
Brownfields exploration expenditures1         646         790
All-in sustaining cash cost     42,364     35,134     80,449     64,829
Non-sustaining capital expenditures1     136         323     169
All-in cash cost     42,500     35,134     80,772     64,998
Ounces of gold sold     25,104     30,534     51,843     59,141
All-in sustaining cash cost per ounce of gold sold     1,688     1,151     1,552     1,096
All-in cash cost per ounce of gold sold     1,693     1,151     1,558     1,099
1 Presented on a cash basis

 

 

                         
Yaramoko Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023     2022     2023     2022
Cash cost applicable     18,652     22,819     42,785     43,494
Inventory net realizable value adjustment     334     1,955     334     1,955
Export duties and mining taxes     3,086     2,748     6,448     6,081
General and administrative expenses (operations)     609     472     1,498     882
Standby costs     2,999         2,999    
Adjusted operating cash cost     25,680     27,994     54,064     52,412
Sustaining leases     1,161     1,419     2,520     2,854
Sustaining capital expenditures1     14,318     9,085     27,867     16,446
Brownfields exploration expenditures1     1,019         2,210     488
All-in sustaining cash cost     42,178     38,498     86,661     72,200
All-in cash cost     42,178     38,498     86,661     72,200
Ounces of gold sold     25,946     24,598     55,418     54,128
All-in sustaining cash cost per ounce of gold sold     1,626     1,565     1,564     1,334
All-in cash cost per ounce of gold sold     1,626     1,565     1,564     1,334
1 Presented on a cash basis

 

Reconciliation of all-in sustaining cash cost per ounce of gold equivalent sold for the three and six months ended June 30, 2023 and 2022

 

                         
Consolidated     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023     2022       2023     2022
Cash cost applicable     81,289     83,751       168,800     159,617
Cost of sales-Right of use     334     1,955       334     1,955
Inventory adjustment – cash portion     8,495     8,602       17,206     17,582
Royalties, export duties and mining taxes     168     592       706     2,206
Workers’ participation     6,128     5,856       11,955     10,819
General and administrative expenses (operations)     8,312     8,525       17,081     19,864
General and administrative expenses (Corporate)     7,083           7,083    
Adjusted operating cash cost     111,809     109,281       223,165     212,043
Care and maintenance costs (impact of COVID-19)         (2 )        
Sustaining leases     2,931     3,087       5,906     6,092
Sustaining capital expenditures     34,192     23,052       62,068     41,063
Brownfields exploration expenditures     2,142     2,421       4,625     4,905
All-in sustaining cash cost     151,074     137,839       295,764     264,103
Payable ounces of gold equivalent sold     83,994     96,105       179,534     194,548
All-in sustaining cash cost per ounce of gold equivalent sold     1,799     1,434       1,647     1,358
 

Gold equivalent was calculated using the realized prices for gold of $1,975/oz Au, $24.1/oz Ag, $2,115/t Pb, and $2,713/t Zn for Q2 2023 and using the realized prices for gold of $1,862/oz Au, $22.6/oz Ag, $2,240/t Pb, and $3,948/t Zn for Q2 2022.

 

Gold equivalent was calculated using the realized prices for gold of $1,930/oz Au, $23.2/oz Ag, $2,174/t Pb, and $2,954/t Zn for YTD 2023 and using the realized prices for gold of $1,877/oz Au, $23.3/oz Ag, $2,287/t Pb, and $3,844/t Zn for YTD 2022.

 

Reconciliation of production cash cost per tonne and cash cost per payable ounce of silver equivalent sold for the three and six months ended June 30, 2023 and 2022

 

                         
San Jose Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023       2022       2023       2022  
Cost of sales     29,366       32,478       61,889       61,377  
Changes in concentrate inventory     (89 )     (5 )     (18 )     72  
Cost of sales-right of use     193             326        
Depletion and depreciation in concentrate inventory     29       2             (19 )
Inventory adjustment     (165 )     (583 )     (294 )     (46 )
Royalties and mining taxes     (1,040 )     (1,349 )     (2,297 )     (2,741 )
Workers participation     267       (170 )     250       (897 )
Depletion and depreciation     (8,532 )     (9,319 )     (18,444 )     (17,606 )
Cash cost3 A   20,029       21,054       41,412       40,140  
Total processed ore (tonnes) B   194,887       251,945       441,623       502,892  
Production cash cost per tonne ($/t) =A/B   102.77       83.57       93.77       79.82  
Cash cost3 A   20,029       21,054       41,412       40,140  
Changes in concentrate inventory     89       5       18       (72 )
Depletion and depreciation in concentrate inventory     (29 )     (2 )           19  
Inventory adjustment     165       583       294       46  
Treatment charges     445       (146 )     225       (55 )
Refining charges     668       920       1,612       1,792  
Cash cost applicable per payable ounce sold C   21,367       22,414       43,561       41,870  
Payable ounces of silver equivalent sold1 D   1,341,320       2,037,238       3,284,402       3,905,109  
Cash cost per ounce of payable silver equivalent sold2 ($/oz) =C/D   15.93       11.00       13.26       10.72  
Mining cost per tonne     45.71       37.28       42.00       37.37  
Milling cost per tonne     23.53       20.79       21.77       19.40  
Indirect cost per tonne     22.01       15.67       20.64       15.15  
Community relations cost per tonne     4.35       3.84       2.95       2.48  
Distribution cost per tonne     7.17       5.99       6.41       5.42  
Production cash cost per tonne ($/t)     102.77       83.57       93.77       79.82  
1 Silver equivalent sold for Q2 2023 is calculated using a silver to gold ratio of 81.9:1 (Q2 2022: 83.0:1). Silver equivalent sold for YTD 2023 is calculated using silver to gold ratio of 83.1:1 (YTD 2022: 80.1:1)
2 Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results – Sales and Realized Prices

 

 

                         
Caylloma Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023       2022       2023       2022  
Cost of sales     18,543       17,284       34,651       33,305  
Changes in concentrate inventory     229       (235 )     (45 )     (124 )
Cost of sales-right of use     568             1,130        
Depletion and depreciation in concentrate inventory     53       (40 )     (91 )     (166 )
Inventory adjustment     (822 )     40       (597 )     312  
Royalties and mining taxes     (519 )     (221 )     (685 )     (468 )
Provision for community support     (52 )     100       (78 )     (26 )
Workers participation     (431 )     (321 )     (877 )     (934 )
Depletion and depreciation     (3,405 )     (3,919 )     (6,888 )     (7,333 )
Cash cost3 A   14,164       12,688       26,520       24,566  
Total processed ore (tonnes) B   137,004       135,978       263,000       268,552  
Production cash cost per tonne ($/t) =A/B   103.38       93.31       100.84       91.48  
Cash cost A   14,164       12,688       26,520       24,566  
Changes in concentrate inventory     (229 )     235       45       124  
Depletion and depreciation in concentrate inventory     (53 )     40       91       166  
Inventory adjustment     822       (40 )     597       (312 )
Treatment charges     4,941       4,253       10,199       8,167  
Refining charges     316       372       563       764  
Cash cost applicable per payable ounce sold C   19,961       17,548       38,015       33,475  
Payable ounces of silver equivalent sold1 D   1,352,522       1,335,602       2,711,988       2,621,212  
Cash cost per ounce of payable silver equivalent sold2,3 ($/oz) =C/D   14.76       13.14       14.02       12.77  
Mining cost per tonne     47.78       40.27       45.53       37.40  
Milling cost per tonne     14.98       14.96       15.31       16.00  
Indirect cost per tonne     30.75       29.51       30.10       30.04  
Community relations cost per tonne     0.85       1.02       0.73       0.74  
Distribution cost per tonne     9.02       7.55       9.17       7.30  
Production cash cost per tonne ($/t)     103.38       93.31       100.84       91.48  
1 Silver equivalent sold for Q2 2023 is calculated using a silver to gold ratio of 0.0:1 (Q2 2022: 82.9:1), silver to lead ratio of 1:28.2 pounds (Q2 2022: 1:22.5), and silver to zinc ratio of 1:19.6 pounds (Q2 2022: 1:12.8). Silver equivalent sold for YTD 2023 is calculated using a silver to gold ratio of 81.3:1 (YTD 2022: 79.8:1), silver to lead ratio of 1:23.6 pounds (YTD 2022: 1:22.5), and silver to zinc ratio of 1:17.4 pounds (YTD 2022: 1:13.4).
2 Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results – Sales and Realized Prices

 

Reconciliation of all-in sustaining cash cost and all-in cash cost per payable ounce of silver equivalent sold for the three and six months ended June 30, 2023 and 2022

 

                         
San Jose Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023       2022       2023       2022
Cash cost applicable     21,367       22,414       43,561       41,870
Cost of sales-right of use     (193 )           (326 )    
Royalties and mining taxes     1,040       1,349       2,297       2,741
Workers’ participation     (333 )     212       (312 )     1,121
General and administrative expenses (operations)     1,722       1,649       3,524       3,239
Stand-by costs     4,084             4,084      
Adjusted operating cash cost     27,687       25,624       52,828       48,971
Care and maintenance costs (impact of COVID-19)           (2 )          
Sustaining leases     214       149       376       306
Sustaining capital expenditures3     3,593       4,051       7,366       7,626
Brownfields exploration expenditures3     788       1,568       1,875       3,097
All-in sustaining cash cost     32,282       31,390       62,445       60,000
Non-sustaining capital expenditures3     524       454       793       869
All-in cash cost     32,806       31,844       63,238       60,869
Payable ounces of silver equivalent sold1     1,341,320       2,037,238       3,284,402       3,905,109
All-in sustaining cash cost per ounce of payable silver equivalent sold2     24.07       15.41       19.01       15.36
All-in cash cost per ounce of payable silver equivalent sold2     24.46       15.63       19.25       15.59
1 Silver equivalent sold for Q2 2023 is calculated using a silver to gold ratio of 81.9:1 (Q2 2022: 83.0:1). Silver equivalent sold for YTD 2023 is calculated using silver to gold ratio of 83.1:1 (YTD 2022: 80.1:1)
2 Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results – Sales and Realized Prices
3 Presented on a cash basis

 

 

                         
Caylloma Mine     Three months ended June 30,     Six months ended June 30,
(Expressed in $’000’s, except unit costs)     2023       2022     2023       2022
Cash cost applicable     19,960       17,548     38,015       33,475
Cost of sales-right of use     (568 )         (1,130 )    
Royalties and mining taxes     519       221     685       468
Workers’ participation     501       380     1,018       1,085
General and administrative expenses (operations)     1,290       1,187     2,434       2,245
Adjusted operating cash cost     21,702       19,336     41,022       37,273
Sustaining leases     957       956     1,813       1,664
Sustaining capital expenditures3     2,943       3,793     5,753       7,742
Brownfields exploration expenditures3     336       207     540       531
All-in sustaining cash cost     25,938       24,292     49,128       47,210
All-in cash cost     25,938       24,292     49,128       47,210
Payable ounces of silver equivalent sold1     1,352,522       1,335,602     2,711,988       2,621,212
All-in sustaining cash cost per ounce of payable silver equivalent sold2     19.18       18.19     18.12       18.01
All-in cash cost per ounce of payable silver equivalent sold2     19.18       18.19     18.12       18.01
1 Silver equivalent sold for Q2 2023 is calculated using a silver to gold ratio of 0.0:1 (Q2 2022: 82.9:1), silver to lead ratio of 1:28.2 pounds (Q2 2022: 1:22.5), and silver to zinc ratio of 1:19.6 pounds (Q2 2022: 1:12.8). Silver equivalent sold for YTD 2023 is calculated using a silver to gold ratio of 81.3:1 (YTD 2022: 79.8:1), silver to lead ratio of 1:23.6 pounds (YTD 2022: 1:22.5), and silver to zinc ratio of 1:17.4 pounds (YTD 2022: 1:13.4).
2 Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results – Sales and Realized Prices
3 Presented on a cash basis
 

Additional information regarding the Company’s financial results and activities underway are available in the Company’s audited consolidated financial statements for the three and six months ended June 30, 2023 and accompanying Q2 2023 MD&A, which are available for download on the Company’s website, www.fortunasilver.com, on SEDAR+ at www.sedarplus.ca 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, Côte d’Ivoire, Mexico, and Peru. 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.

 

Posted August 10, 2023

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