Fortuna Silver Mines (NYSE:FSM)

CAPS Rating: 2 out of 5

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Player Avatar TSIF (99.96) Submitted: 10/19/2009 1:37:21 PM : Underperform Start Price: $1.55 FSM Score: +10.10

Fortuna Silver Mines is a JR miner riding the "gold rush" coattails. Mostly a silver play, Fortuna needs to figure out how to get more of it out of the ground at lower costs. Fortuna is currently focusing mostly on the Caylloma Mine, northwest of Arequipa, Peru. It has been mined for over 400 years and the question becomes whether current mining techniques will give new life to this old mine that was closed before Fortuna reopened it in 2006. The lead and zinc by products are not fetching a high price these days, and most silver mines need the byproducts to round out the cost of mining the silver. Fortuna did have record production last quarter, but a net income of $1.2 Million while good for a JR minor with some holding still in exploratory phases (San Jose, Mexico), is not a major reason for celebration. The San Jose mine should yield more gold and improve production costs once it is put into operation, but this could be a year or more away. Political unrest in the area may have contributed to part of Fortuna's lower share price last summer, but is indeed a concern, though one that should be manageable. Fortuna is debt free and does have some decent potential, but needs to get the cost of mining the silver drastically LOWER and San Jose Mexico showing a positive return sooner, rather than later.

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