Salman Partners Initiates Coverage of FVI

HAYTHAM HODALY, Salman Partners Inc. (02/01/2010)
"Fortuna Silver Mines Inc. is a growing silver producer with a strong base metal by-product credit, possessing two key assets located in Latin America. Its wholly-owned Caylloma mine located in Peru is currently producing at an estimated 1.76M payable silver-equivalent ounces annually, while its 100%-owned San Jose project in Mexico is expected to begin construction in Q1 2010 and reach full commercial production within two years.

Production Growth: Fortuna has recently received all of the essential permits to begin construction at San Jose. We believe its current cash balance, recently implemented credit facility, as well as cash flow from operations, will likely allow the company to proceed with a decision to develop the San Jose project. Once the company commences production at San Jose (we estimate Q1 2012), the company's production increases substantially to approximately 4.3 million ounces of payable silver equivalents in 2012.

Valuation: We arrive at our target price based on a 2.1x multiple to mining assets, and subsequently add back non-mining assets at face value. Using this methodology, we derive a 12-month target price of Cdn$3.60 per share. Given the more than 55% return to our target price from current levels, coupled with our continued bullish near-term outlook for precious metals, we initiate coverage on Fortuna Silver with a BUY recommendation."

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