(All amounts expressed in US dollars, unless otherwise stated)
Vancouver, August 7, 2019: Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) today reported net income of $10.3 million, adjusted net income of $7.2 million, and adjusted EBITDA of $27.2 million for the second quarter of 2019.
Jorge A. Ganoza, President and CEO, commented, “Our results in the second quarter a reflect strong financial performance in spite of a challenging price environment for silver, with adjusted net earnings per share of 6 cents, adjusted EBITDA margin of 40 percent, and free cash flow from ongoing operations of $15.4 million.” Mr. Ganoza continued, “As of the end of June, Lindero construction progress is 57 percent complete, with 98 percent of the direct capital expenditures committed, and over 70 percent of the total projected capital spent.” Mr. Ganoza added, “With mine production set to start in August and construction of the crushing and leach pad facilities progressing according to schedule we plan to initiate placing ore on the leach pad in the fourth quarter of 2019.”
Second quarter 2019 highlights
•Sales of $67.9 million, compared to $73.7 million in Q2 2018
•Net income of $10.3 million, compared to $11.2 million in Q2 2018
•Adjusted net income1 of $7.2 million, compared to $11.1 million in Q2 2018
•Adjusted EBITDA1 of $27.2 million, compared to $35.2 million in Q2 2018
•Free cash flow from ongoing operations1 of $15.4 million, compared to $9.1 million in Q2 2018 due largely to the impact of short-term movements in receivables and inventory
•Silver and gold production of 2,387,225 ounces and 13,497 ounces, respectively
•AISC2 per silver equivalent ounce of payable silver was $11.3
1.Refer to Non-GAAP Financial Measures and Forward-Looking Statements
2.AISC oz Ag Eq calculated at realized metal prices of $1,311/oz Au, $14.9/oz Ag, $0.9/lb Pb, and $1.3/lb Zn
Second Quarter 2019 Consolidated Results
Sales for the three months ended June 30, 2019 were $67.9 million, an 8% decrease from the $73.7 million reported in Q2 2018. The decrease in sales was due primarily to a decline in metal prices for silver, lead, and zinc of 10%, 21%, and 11%, respectively, which was partially offset by a 6% increase of silver ounces sold.
Operating income for the three months ended June 30, 2019 was $15.7 million, or $6.7 million lower than the $22.4 million reported for the comparable quarter in 2018. The decrease in operating income was due primarily to lower sales of $5.8 million and higher operating costs of $2.7 million at both the San Jose and Caylloma mines, and was partially offset by lower selling and general and admistration expenses of $1.1 million related to lower share-based payment charges. Cash cost for the quarter and year-to-date at San Jose and Caylloma are within our annual cash cost guidance range. (Refer to Fortuna news release dated January 17, 2019. “Fortuna reports 2018 full year production of 12.8 million silver equivalent ounces and issues 2019 guidance”).
Net income for the three months ended June 30, 2019 was $10.3 million or $0.07 per share, an 8% decrease compared to $11.2 million or $0.07 per share reported in the same quarter in 2018.
Adjusted net income for the quarter was $7.2 million a decrease of 35% compared to $11.1 million reported in the same quarter of 2018. The main non-cash adjustments were unrealized commodity derivative losses, foreign exchange gains and deferred tax credits related to our Argentina construction activities. The effective tax rate, on an adjusted basis was 54% compared to 52% for the same quarter in 2018 and reflects a withholding tax on dividend repatriation of $1.4 million.
Adjusted EBITDA for the period was $27.2 million compared to $35.2 million in the comparable period in 2018. The decrease in adjusted EBITDA was due primarily to lower metal prices and higher operating costs.
Net cash provided by operating activities for the three months ended June 30, 2019 was $24.0 million compared to $21.9 million reported in Q2 2018, as the prior year was impacted by negative changes in working capital of $7.2 million compared to positive changes in the current quarter of $1.8 million.
Free cash flow from ongoing operations was $15.4 million, compared to $9.1 million in Q2 2018. For the six months ended June 30, 2019 free cash flow from ongoing operations was $17.5 million compared to $28.0 million for the comparable period in 2018.
Liquidity and capital resources
Total liquidity available to the Company as of June 30, 2019 was $157.2 million, which includes $80.0 million of available credit under our $150 million credit facility. At June 30, 2019, the Company had cash, cash equivalents, and short-term investments of $77.2 million (December 31, 2018 – $163.3 million). The decrease in cash reflects the increase in the pace of spending at the construction of the Lindero project.
Lindero gold Project
Construction at the Lindero 18,750 tpd open pit heap leach gold project located in the Province of Salta in Argentina is 57% complete. Approximately 98% of direct capital costs have been committed with all the major contractors at the construction site. Construction spending is accelerating and spending for the second quarter was $51.2 million (YTD spending - $92.8 million), an increase of 23% over the first quarter. Total project construction spending as at the end of June 30, 2019 was $216.2 million, of which approximately $31.5 million remains unpaid. The budget construction forecast to completion of the project is approximately $298.0 million. In addition we expect to incur approximately $25 million of pre-production costs and supplies inventory along with $18 million of refundable value added taxes.
San Jose Mine, Mexico
The San Jose Mine produced 2,157,225 ounces of silver and 13,204 ounces of gold in the second quarter of 2019, which were 4% above and 8% below the comparable quarter in 2018. The higher silver production was due to a 2% higher head grade and a 3% higher mill throughput, while the lower gold production was due to a 10% lower head grade compared to the same quarter in 2018.
Cash cost per tonne of processed ore for the second quarter ended June 30, 2019 increased 14% to $68.99 per tonne (refer to Non-GAAP Financial Measures) compared to $60.47 per tonne for the comparable quarter in 2018. The increase in cash cost was due to higher mining costs related to blasting and rock support and partially offset by lower dry-stack tailings operating costs. Cash cost for the quarter and year-to-date are within our 2019 annual cash cost guidance of between $63.5 to $70.1 per tonne (refer to Fortuna news release dated January 17, 2019. “Fortuna reports 2018 full year production of 12.8 million silver equivalent ounces and issues 2019 guidance”).
Caylloma Mine, Peru
The Caylloma Mine produced 7.0 million pounds of lead and 11.2 million pounds of zinc in the second quarter of 2019, which were 3% and 2% lower than the production for the comparable quarter in 2018. The decreased production was due to lower head grades of lead and zinc of 2.61% and 4.22%, respectively. Silver production totaled 230,000 ounces or 3% lower than the production for the comparable quarter in 2018.
Cash cost per tonne of processed ore was $86.11 (refer to Non-GAAP Financial Measures) and was 12% higher than the $76.88 cash cost per tonne for the comparable period in 2018. The higher cash cost was due primarily to higher mining costs related to preparation and support and higher on-site indirect costs. Cash cost for the quarter and year-to-date are within our 2019 annual cash cost guidance of between $80.0 to $88.4 per tonne (refer to Fortuna news release dated January 17, 2019. “Fortuna reports 2018 full year production of 12.8 million silver equivalent ounces and issues 2019 guidance”).
Non-GAAP Financial Measures
The following tables represent the calculation of certain Non-GAAP Financial Measures as referenced in this news release.
Income Statement Reconciliation to Adjusted Net Income for the Three Months Ended June 30, 2019
Income Statement Reconciliation to Adjusted Net Income for the Six Months Ended June 30, 2019
Free cash flow and free cash flow from ongoing operations
The financial statements and MD&A are available on SEDAR and have also been posted on the company's website at https://www.fortunasilver.com/investors/financials/2019/.
Conference call to review 2019 second quarter financial and operational results
A conference call to discuss the financial and operational results will be held on Thursday, August 8, 2019 at 9:00 a.m. Pacific | 12:00 p.m. Eastern. Hosting the call will be Jorge A. Ganoza, President and CEO, and Luis D. Ganoza, Chief Financial Officer.
Shareholders, analysts, media and interested investors are invited to listen to the live conference call by logging onto the webcast at: https://www.webcaster4.com/Webcast/Page/1696/31124 or over the phone by dialing just prior to the starting time.
Conference call details:
Date: Thursday, August 8, 2019
Time: 9:00 a.m. Pacific | 12:00 p.m. Eastern
Dial in number (Toll Free): +1.844.369.8770
Dial in number (International): +1.862.298.0840
see & read more on