Aggressive Exploration Investments Will Increase Future Gold Production

Key Takeaways

• Strategies to optimize Seguela Mine and divest San Jose Mine are expected to improve operational efficiency and future revenue.
  
• Investments in exploration and cost-saving measures like solar plants indicate potential revenue growth and improved margins.
  
• Operational and reputational challenges, high sustaining costs, care of San Jose Mine, and future tax headwinds could impact Fortuna's financial performance and cash flow.

Catalysts

Engages in the precious and base metal mining and related activities in Argentina, Burkina Faso, Côte d’Ivoire, Mexico, Peru, and Senegal.

• The successful optimization and expansion of the Seguela Mine with plans to increase gold production in 2026 to 160,000 to 180,000 ounces at a lower AISC is expected to enhance future revenue and margins.
  
• The strategic decision to divest from the high-cost San Jose Mine and refocus on high-value opportunities aims to improve operational efficiency and profitability, aiding net margins.
  
• Aggressive investment in exploration and development projects with a budget of $51 million, targeting high-value deposits like Kingfisher and Sunbird Deep, indicates potentially higher future revenue streams.
  
• The advancement of the Seguela Mine’s tailing storage facility and ongoing exploration successes suggest increased production capacity and potential, positively impacting long-term earnings.
  
• The implementation of cost-saving strategies, such as optimization of Lindero operations and the introduction of a solar plant, is likely to reduce costs and improve net margins.

Fortuna Mining Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fortuna Mining's revenue will decrease by 12.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.1% today to 40.5% in 3 years time.
• Analysts expect earnings to reach $285.8 million (and earnings per share of $0.93) by about March 2028, up from $128.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, down from 13.7x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.18%, as per the Simply Wall St company report.

Fortuna Mining Future Earnings Per Share Growth

Risks

• The San Jose Mine, Fortuna's highest-cost asset, has been placed in care and maintenance, indicating it may have reached the tail end of its reserves, potentially reducing future revenue streams from this facility.
  
• Fortuna's AISC (All-In Sustaining Costs) at certain mines, notably Lindero, are high and subject to fluctuations due to factors like currency appreciation, which could compress net margins if gold prices do not compensate for increased costs.
  
• The company has been impacted by noncash charges, including write-offs and impairment for certain mineral properties, which could affect reported earnings and indicate challenges in achieving expected returns from some assets.
  
• The tragic fatal accident at the Seguela Mine could have reputational and operational repercussions, possibly affecting future operational efficiencies and increasing operational costs.
  
• Free cash flow generation could face headwinds with increased tax payments expected in 2025 due to the $96.5 million of incurred taxes against $44 million paid in 2024, potentially impacting future net cash flow and shareholder returns.

Valuation

• The analysts have a consensus price target of CA$8.094 for Fortuna Mining based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$8.98, and the most bearish reporting a price target of just CA$6.95.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $706.4 million, earnings will come to $285.8 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of CA$8.2, the analyst price target of CA$8.09 is 1.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.