Fortuna Silver (FSM) is trading at a significant discount to other silver companies, almost entirely because of the Argentina risk, notes Adrian Day, resource sector specialist editor of Global Analyst.
Its third mine — located in Argentina — will boost cash flow by 50% when fully operational, and is on track for its first pour in the first quarter of 2020.
Results at its existing two mines continue to be soft, emphasizing the importance of Lindero — and the Argentina risk. Production at San Jose in Mexico was down 12% on estimates, largely because of lower head grades, which pushed costs up. At Caylloma in Peru, lead and zinc production increased again, while silver output fell.
The recent election results in Argentina saw opposition candidate Alberto Fernandez, whose running mate is Christina Kirchner, the former president, win outright, avoiding the need for a run off, even though his gap over incumbent Macri narrowed from the preliminary primary in August.
The narrow win suggests a more balanced congress which could prevent some of the more extreme measures of the previous Kirchner administration. A Fernandez victory was almost universally expected, and so should be priced in to Fortuna’s stock.
The stock is cheap, trading a 0.8 times book, against twice that for Pan American, and an even greater discount against higher peers.
There could be volatility, and around the $3.11 level we would add to positions. More likely, the stock will bounce, and the large short position, could see continued recovery in the days and weeks ahead, absent any economic policy pronouncements which spook the market.
