Fortuna Silver Mines Stock’s Future Looks Bright (NYSE:FSM)

The Green Dream is alive and well as the push to achieve Carbon Zero continues to dominate the air waves as a front-runner for environmental issues. Part of the solution for a cleaner environment is the switch to Electric Vehicles, the installation of solar panels etc. Along with a myriad of industrial uses such as photography, medicine, water purification and jewelry, the demand for silver is rising, which in turn puts pressure of silver prices.

There is also the possibility of another Pandemic, which in turn could herald in various forms of lockdowns. Now, to make working from home more tolerable, the demand for a new flat screen monitor for the computer and the demand for a large flat screen for home entertainment could once again weigh heavy on the demand for silver.

Introduction

Given my expectation of higher silver prices, I am positioning my portfolio to take advantage of this opportunity via the acquisition of a number of good quality silver producers.

Today we will take a quick look at just one silver mining stock: Fortuna Silver Mines Inc .

Fundamentals

Fortuna Silver Mines Inc (NYSE:FSM) is a mining company based in Canada with five mines producing gold and silver in Argentina, Burkina Faso, Côte d’Ivoire, Peru, and Mexico. It should be noted that there is usually a certain element of Geo-political risk in these areas, which should form part of your risk analysis when making an investment in areas such as these.

Financials

The recently issued report for Q1 2024 contains the following highlights:

The company has repaid $40 million on their credit facility, taking the total paid since Q3 2023 to $121 million, which is no mean feat.

During the last quarter, they have repurchased 1,030,375 shares at an average price of $3.42 per share, totaling $3.52 million.

It’s worth noting that the repurchase of shares at $3.42 looks to be a timely move as the share price today is around $4.68

Of note in the table below is that Gold equivalent production, Gold production and Silver production are all up, 20%, 49% and 32%, respectively. We can also see that there was a significant improvement in Gold Production compared to 2023 and secondly Silver Production for 2024 was lower by about one third when compared with 2023 which is disappointing.

Fortuna has a market capitalization of $1.435B, a 52-week trading range of $ 2.58 – $4.89, and an EPS (TTM) of -0.38. The liquidity is good with an average volume of 5,540,480 shares traded per day enabling investors to enter and exit this stock with comfortably.

Fortuna’s Earnings per share (EPS) is a concern to me as it is negative at -0.38 However, by comparison to its peers Endeavour Silver Corp. (EXK) 0.03, Silvercorp Metals Inc. (SVM) 0.1700, Hecla Mining Company (HL) -0.14, First Majestic Silver Corp. (AG) -0.48, it would appear to on par with this sector of the market.

Taking a quick look at Seeking Alpha Quant Ranking this stock is Ranked in Sector 41 out of 278 and in terms of Valuation it is a B+ which is not too shabby. Fortuna is also ranked in third place out of the top nine silver producers which is encouraging. In terms of the top material stocks it is ranked 42^nd out of 279 and has a valuation of A-. It should be noted though that the Top Materials Stocks includes some of the largest companies in the world such as BHP Group Limited (BHP) which has a market capitalisation of $151 billion and is therefore difficult to evaluate against a company with a $1.4 billion market capitalization.

Fortuna Silver Mines Inc is listed on the NYSE: FSM and on the TSX: FVI.

A Quick Look At The Chart Of A Fortuna Silver Mines Inc

Note that the relative strength index (RSI) and the Moving Average Convergence/Divergence indicator (MACD) are firmly in the overbought zone suggesting a correction could be on the cards. After a bad start to the year FSM has rallied in style as this tiny sector springs to life

A Golden Crossover has just been formed which is usually a very positive indicator, however, in this case a lot of progress has already been made which tends to negate the Golden Crossover.

The following table compares Fortuna Silver with three similar silver producers over a six-month period and we can see that this stock has held its own with an increase of 69.61%.

A Quick Look At The Chart Of Silver Prices

The technical indicators in the overbought zone. Also note that there is the smallest of gaps at the $26.00 level, which silver may return to and backfill.

This chart is a good example of when to buy and sell as indicated by the RSI. Last October, we can see that it dipped below the ’30’ level and promptly rallied. In December, it popped up above the ’70’ level and quickly retreated. The RSI (Relative Strength Index) now stands at ‘84’ which some traders will consider to be a Sell indicator, so go gently when placing your trades.

Conclusion

Gold has been making new all-time highs of late, but silver prices are still only half of their all-time highs of around $50/Oz. The current Gold/Silver Ratio is 83.91 and in 2012 it flirted with 30, so maybe a reversion to lower levels for this ratio is on the cards.

I can’t say that this stock is the best in class, but it does appear to be keeping up with its peers and, rightly or wrongly, I am Long on Fortuna Silver Corp.

Given that Fortuna has risen so fast in such a short time, I will consider purchasing a few Put Options as insurance against a sudden sell-off rather than reduce my position as that now is not the time to be out of this Silver Bull Market which is just starting to gain some momentum.

As always, try and layer into your trades and build your position in an orderly manner and be prepared for sudden corrections which can shake investors into selling their stock as this white-knuckle ride continues with some gusto.

For the record, I have been long physical gold and silver for a number of years and also own a portfolio of stocks in the precious metals sector, including:

Sandstorm Gold Ltd. (SAND), Wheaton Precious Metals Corp. (WPM), Agnico Eagle Mines Limited (AEM) and SSR Mining Inc. (SSRM). Endeavour Silver Corp (EXK) First Majestic Silver Corp. (AG) Silvercorp Metals Inc. (SVM) IMPACT Silver Corp. (IPT:CA)

You must have a comment so please add it to the commentary and I will do my best to address each and every one of them as the discussion is such a benefit for all concerned in these endeavors.