Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) reported second quarter 2021 net income of $16.2 million, adjusted net income¹ of $21.5 million, and adjusted EBITDA¹ of $54.9 million.

Jorge A. Ganoza, President and CEO, commented, “In spite of COVID-19 related challenges at Lindero, which have led us to revise guidance for the year, our second quarter results continue to reflect the strength of our business with record sales of $120.5 million and consolidated EBITDA¹ margins above 45%.” Mr. Ganoza continued, “At Lindero, we have been gradually overcoming the COVID-19 travel restrictions which have limited access to on-site foreign technical support, and are now seeing continued improvement in mechanical availability and equipment productivity.” Mr. Ganoza added, “We look forward to the contribution of the Roxgold acquisition to our financial performance starting in Q3, with the forecasted addition of 62,000 to 66,000 gold ounces of production from the Yaramoko mine for the second half of 2021 at an AISC¹ below $1,150 per ounce.”

Second Quarter 2021 Highlights

• Record sales of $120.5 million, an increase of 171% from the $44.5 million reported in the same period in 2020, due to higher gold and silver sales volumes and higher realized prices for all metals, and sales from the Lindero mine of $ 34.2 million
• Net income of $16.2 million or $0.09 per share, an increase of $21.9 million and $0.12 per share, from the $5.7 million net loss or $0.03 net loss per share reported in Q2 2020
• Adjusted net income¹ of $21.5 million compared to $5.1 million net loss in Q2 2020
• Adjusted EBITDA¹ of $54.9 million compared to $9.4 million reported in Q2 2020
• Free cash flow from ongoing operations¹ of $18.5 million compared to $0.2 million reported in Q2 2020
• As of June 30, 2021, the Company had cash and cash equivalents of $121.8 million, a decrease of $10.1 million from December 31, 2020, primarily due to a $35.3 million promissory note that was provided to Roxgold Inc. to cover a portion of the expected acquisition closing costs
• Silver and gold production of 1,892,822 ounces and 31,048 ounces, respectively
• AISC^1,2 per silver equivalent ounce of payable silver sold of $13.61 and $18.45 for the San Jose Mine and Caylloma Mine, respectively, and AISC¹ per ounce of gold sold of $1,214 for the Lindero Mine
• Completed the business combination with Roxgold on July 2, 2021 creating a low-cost intermediate global precious metals producer with extensive brownfields and greenfields organic growth potential in the Americas and West Africa; and led by a highly experienced management team

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¹ Refer to Non-IFRS Financial Measures at the end of this news release
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

Second Quarter 2021 Results

Sales for the three months ended June 30, 2021 were $120.5 million, an increase of 171% from the $44.5 million reported in Q2 2020. Lindero reported sales of $34.2 million from 18,924 ounces of gold ounces sold. San Jose reported sales of $60.3 million, an increase of 98% from the $30.5 million reported in Q2 2020 due to a 58% and 52% increase in the volume of silver and gold ounces sold, respectively, and higher realized metal prices, primarily silver. Caylloma reported sales of $26.0 million, a 86% increase from the $14.0 million reported in Q2 2020 due to higher realized prices, primarily zinc and silver, and higher volumes of metal sold, primarily gold.

Operating income for the three months ended June 30, 2021 was $35.9 million, an increase of $37.2 million compared to Q2 2020. The increase was due primarily to higher silver and gold prices, and Lindero’s contribution to mine operating income of $7.2 million.

Ne

t income for the three months ended June 30, 2021 was $16.2 million, a $21.9 million increase over the $5.7 million net loss reported in Q2 2020. The effective tax rate for the quarter was 43%.

Adjusted EBITDA for the three months ended June 30, 2021 was $54.9 million, an increase of $45.5 million compared to the $9.4 million reported in Q2 2020. The increase reflects Lindero´s contribution to adjusted EBITDA of $16.2 million as well as higher EBITDA at San Jose and Caylloma.

Free cash flow from ongoing operations for the three months ended June 30, 2021 was $18.5 million compared to $0.2 million in Q2 2020.

Liquidity

As of June 30, 2021, the Company had cash and cash equivalents of $121.8 million, a decrease of $10.1 million from December 31, 2020, primarily due to a $35.3 million promissory note that was provided to Roxgold to cover a portion of the expected acquisition closing costs.

The Company’s $120.0 million credit facility remains fully drawn as of June 30, 2021 and is set to expire on January 26, 2022. It is contemplated that during the third quarter of 2021, the Company’s existing credit facility will be replaced by a new credit facility in the increased amount of $200.0 million pursuant to an amended and restated credit agreement with the Company’s existing and new lenders.

Lindero Mine

Argentina suffered a surge of COVID-19 during the second quarter of 2021 with the infection rate peaking at 41,000 cases per day. Extended nationwide COVID-19 related travel restrictions continued to limit onsite access to foreign vendor support affecting ramp up activities at Lindero.

The COVID-19 infection rate at Lindero increased during the second quarter of 2021 and had a significant impact on the operation´s performance as 163 personnel tested positive, representing 18 percent of the workforce. During the quarter, the Company intermittently voluntarily suspended onsite operations for a total of 16 days which directly impacted ramp up progress and reduced the amount of ore delivered to the heap leach pad. Strict government mandated travel restrictions have led to disruptions in the hiring and movement of skilled personnel and delays in access to foreign vendor support, which resulted in higher mechanical downtime leading to lower tonnes of processed ore being delivered to the leach pad.

In the second quarter of 2021, a total of 1,477,000 tonnes of ore were placed on the leach pad averaging 0.95 g/t gold containing an estimated 44,889 ounces of gold. Total gold production for the quarter was 19,521 ounces, 73 percent of the plan.

Cash cost per gold ounce sold was $673, as the mine continues to ramp-up production.

All-in sustaining cash costs per gold ounce sold was $1,214, in line with the Company’s original 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 second quarter of 2021, sustaining capital expenditures included $2.3 million of capitalized stripping, $1.7 million for leach pad expansion, and $1.2 million for the ADR plant.

The Company´s updated gold production guidance range for Lindero of between 90 and 110 thousand ounces reflects the direct and indirect impact of COVID-19 related challenges. These factors have been evaluated and their effect considered for the second half of the year (refer Fortuna news release dated July 19, 2021).

San Jose Mine

The San Jose Mine produced 1,624,394 ounces of silver and 10,266 ounces of gold during the three months ended June 30, 2021, which represents an increase of 58% and 54%, respectively, compared to Q2 2020. The increase was due primarily to 68% higher tonnes milled in the second quarter of 2021 compared to Q2 2020, which was impacted by the 54-day shutdown of operations from government mandated restrictions in response to COVID-19.

The production cash cost per tonne for the three months ended June 30, 2021 was $75.50 an increase from the $65.98 per tonne in Q2 2020 primarily due to a stronger US dollar during Q2 2020 and higher planned mining preparation activities during the current quarter.

The all-in sustaining cash cost of payable silver equivalent for the three months ended June 30, 2021 was $13.61 per ounce, an increase of 23% compared to $11.04 per ounce in Q2 2020. The increase was due primarily to higher production cash costs as noted above, increases in sustaining and brownfields capital expenditures, and higher royalties, offset partly by higher silver equivalent sales.

Capital expenditures totalled $6.9 million for the three months ended June 30, 2021, an increase of 364% compared to Q2 2020, as COVID-19 restrictions more significantly impacted operations during Q2 2020.

Caylloma Mine

The Caylloma Mine produced 268,428 ounces of silver, 8.1 million pounds of lead and 11.8 million pounds of zinc during the three months ended June 30, 2021, an increase of 10%, 20%, and 7% respectively compared to Q2 2020. The increased metal production was due to higher head grades. Gold production for the second quarter of 2021 totaled 1,261 ounces with an average head grade of 0.42 g/t.

The production cash cost per tonne for the three months ended June 30, 2021 was $91.15, an increase of 22% compared to Q2 2020. The increase was due primarily to Q2 2020 having lower costs than planned due to a shutdown of mining operations in April 2020 without any significant impact on tonnes processed during the quarter.

The all-in sustaining cash cost of payable silver equivalent for the three months ended June 30, 2021 was $18.45 per ounce, an increase of 20% compared to the $15.34 per ounce in Q2 2020. The increase was due primarily to higher production cash costs as noted above, increases in sustaining and brownfields capital expenditures, and higher royalties, offset partly by higher silver equivalent sales.

Corporate Update

On July 2, 2021, Fortuna and Roxgold completed the previously announced business combination between Fortuna and Roxgold to create a global growth-oriented intermediate gold and silver producer. Roxgold’s principal assets are the producing Yaramoko mine in Burkina Faso, the Séguéla advanced development gold project in Côte D’Ivoire, and the Boussoura exploration property in Burkina Faso.

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 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 and has excluded royalties that are under the scope of IAS 12 – Income Taxes, with the change from the previously presented figures being applied retrospectively to prior periods.

Reconciliation to Adjusted Net Income for the three and six months ended June 30, 2021 and 2020

Reconciliation to Adjusted EBITDA for the three and six months ended June 30, 2021 and 2020

Reconciliation to Free Cash Flow from ongoing operations for three and six months ended June 30, 2021 and 2020

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, 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 six months ended June 30, 2021 and 2020

Reconciliation of Cash Cost per Ounce of Gold Sold for the three and six months ended June 30, 2021 and 2020

Reconciliation of All-in Sustaining Cash Cost per Ounce of Gold Sold for the three and six months ended June 30, 2021 and 2020

Additional information regarding the Company’s financial results and activities underway are available in the Company’s second quarter 2021 Financial Statements and accompanying Management’s Discussion and Analysis for the three and six months ended June 30, 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 four operating mines in Argentina, Burkina Faso, Mexico and Peru, and an advanced development project 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 shareholders and stakeholders through efficient production, environmental protection, and social responsibility.