Despite an average gold price more than $350 below what it was in the first-quarter – and silver down even more on a percentage basis – gold and resource companies reported mixed second-quarter results. Fortuna Mining Corp. (FSM) saw weaker-than-expected earnings, but I recommend you use any dip in its share price to buy, writes Adrian Day, editor of Global Analyst.
Fortuna’s earnings weakness stemmed mostly from higher tax expenses. Costs for the quarter were a little better than expected, with “all-in sustaining costs” (AISC) of $2,157. Remember: These costs are expected to decline throughout the year as temporary capital expenditures decline or end. The company is well-positioned to advance the recently approved Séguéla expansion and new Diamba Sud project.
Fortuna Mining Corp. (FSM)
Separately, Fortuna announced the acquisition of the Bambadji gold exploration project in Senegal from Barrick Mining Corp. (B) and Iamgold Corp. (IAG). The project is adjacent to its Diamba Sud project and should extend the mine life. Construction is expected to begin this year. Fortuna paid $200 million, as well as a small royalty on initial production from Bambadji, an attractive transaction as an add-on to Diamba.
Bottom line: Fortuna is a multi-mine company, with top, disciplined management, a rock-solid balance sheet, a strong operating history, and growth potential. It remains undervalued relative to peers.
Recommended Action: Buy FSM.
