FVI Shares Remain a Buy

HAYTHAM HODALY, Salman Partners Inc. (04/27/2010)
"San Jose Prefeasibility Study: Fortuna reported the results of its pre-feasibility study on its San Jose project, located in Mexico. Using a silver price of US$15.12 per ounce and a gold price of US$897.51 per ounce, the study reported an after-tax NPV of US$36.4 million, using an 8% discount rate, and also reported an after-tax IRR of 18%. Over a 9-year mine-life, the operation is forecast to produce roughly 30.5 million silver-equivalent ounces at an average cash cost per silver-equivalent ounce of US$6.90 over the life of the probable reserves

Valuation: We continue to utilize a 2.1x multiple to mining assets, and subsequently add back non-mining assets at face value, to arrive our target price. Incorporating the results from the prefeasibility study results in a negative change to our NPV (3% discount) of the San Jose project, which reduces our target price to Cdn$3.10 per share from Cdn$3.45 per share. Given the significant potential return from current levels, we maintain our BUY recommendation on the shares of Fortuna Silver Mines."

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