Shares of a silver mining company based in Canada Fortuna Silver Mines (NYSE: FSM) jumped 15.3% in May, according to data provided by S&P Global Market Intelligence.
Remarkably, the silver stock fell almost 22% in the last week of April alone after an acquisition was announced, making its reversal in May even more pronounced. Not only did value-oriented investors see an opportunity after the share price fell, but Fortuna Silver’s stellar numbers in May and management’s comments on the impending acquisition and how the price of the stock fell. Money could skyrocket by the end of this year to fuel the fire.
Fortuna Silver posted a net profit of $ 26.4 million in the first quarter, its highest quarterly profit on record. This growth was supported by a 148% jump in sales as higher volumes at all of its mines complemented higher prices for silver and gold.
Notably, this was the first full quarter of production at Lindero, Fortuna’s third mine which recently began commercial production. Lindero, a gold mine in Argentina, accounted for nearly 31% of Fortuna’s total sales and 29% of its operating income in the first quarter. Fortuna owns and operates two other mines: San Jose in Mexico and Caylloma in Peru.
The most interesting point, however, came during Fortuna Silver’s first quarter earnings call when an analyst recalled how the stock collapsed right after the company announced it would acquire the company. Canada-based gold mining company Roxgold on April 26. In response, Fortuna CEO Jorge Alberto Ganoza pointed out how the stock market can sometimes be “short-term oriented”. The deal, he said, could unlock a lot of shareholder value.
Ganoza further revealed that he believes the price of silver could cross $ 35 an ounce by the end of this year, implying a significant rise from the current price of silver of about $ 28 per ounce. Silver, in fact, has had a scorching run for the past two months.
Fortuna’s proposal to acquire Roxgold has not been well received by the market given the high premium, but the move could be significant. It will diversify Fortuna’s presence in West Africa with strong exploration potential at a time of uncertainty in existing Fortuna regions such as Peru, which is in the midst of a chaotic presidential election.
Roxgold is also expected to be immediately accretive to Fortuna’s operating income, as it could increase Fortuna’s planned 2021 gold-equivalent ounce production by nearly 39% at a low overall cost. Meanwhile, I would expect the overall cost of maintaining Lindero to decrease as it increases production, making Fortuna a silver stock that you might want to keep on your radar.
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