Fortuna Silver (FSM) Acquires Roxgold, Expands in West Africa

Fortuna Silver Mines Inc. FSM and Roxgold Inc. recently completed the previously announced business combination, which has resulted in a low-cost intermediate gold and silver producer with four operating mines in Americas and West Africa — two of the world’s fastest growing precious metals producing regions. The combined company has a projected annual gold equivalent production profile of approximately 450,000 ounces. It has one of the best organic growth pipelines among any of the intermediate precious metal producers as well as peer-leading free cash flow generation, increased scale and diversification, and lower costs.

Canada-based Fortuna Silver had three mines — San Jose mine in Mexico, Lindero Mine in Argentina and Caylloma Mine in Peru. Following the combination with RoxGold, it now has operations in West Africa with the addition of Roxgold’s high-grade Yaramoko Gold Mine located in Burkina Faso and its advanced development project Séguéla Gold Project located in Côte d’Ivoire.

Financials Details

Fortuna acquired all of Roxgold’s shares in exchange for 0.283 of a common share of Fortuna and C$0.001 (0.00081) in cash for each Roxgold Share held. Roxgold is now a wholly-owned subsidiary of Fortuna. Following both the companies’ shareholder approval, the British Columbia Supreme Court granted a final order on Jun 30, 2021 approving the arrangement.

Rationale of the Deal

Following the merger, Fortuna Silver’s is expected to produce approximately 450,000 gold equivalent ounces, which is expected to increase further once the Séguéla comes online. Roxgold’s Yaramoko and Séguéla are low-cost assets with low technical complexity contributing meaningfully to growth, while reducing overall costs. Fortuna Silver’s All-In Sustaining Cost (AISC) is projected at approximately $950 per gold equivalent ounce, lower than nearest peers like Coeur Mining, Inc. CDE, Pan American Silver Corp. PAAS, First Majestic Silver Corp. AG, Hochschild Mining and Hecla Mining Company.

It will have an extensive brownfield and greenfield organic growth potential supported by a large base of mineral reserves and mineral resources in Latin America and West Africa. Backed by a strong balance sheet, significantly higher liquidity will provide the company the flexibility to pursue other organic and external growth opportunities. The combined company will have a projected EBITDA of around $487 million in 2021 and free cash flow of $211 million — outperforming peers like Hecla Mining, Hochschild, Coeur Mining and First Majestic. Over the time span of 2021 to 2023, the company is expected to generate pro forma average annual EBITDA of more than $500 million. Silver will continue to be a meaningful contributor to revenues.

Price Performance

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Shares of the company have gained 13.2% over the past year compared with the industry’s rally of 32.4%.

Zacks Rank

Fortuna Silver currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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