West African Project Expansion And Strong Balance Sheet Will Support A More Optimistic Outlook

Catalysts

About Fortuna Mining

Fortuna Mining is a precious and base metals producer with operating mines and growth projects across Latin America and West Africa.

What are the underlying business or industry changes driving this perspective?

• The planned Diamba Sud build in Senegal, supported by a PEA with an after tax internal rate of return of 72% at a US$2,750 gold price and average output of 150,000 ounces in the first 3 years, points to a potential step up in group production that could support higher consolidated revenue and earnings if executed in line with current plans.
• Ongoing expansion at Séguéla, including exploration success at Sunbird and Kingfisher, permitting of multiple satellite pits, and scoping work to lift plant capacity to around 2.2 to 2.3 million tonnes per year from the original 1.25 million tonnes per year, positions the core West African hub for higher throughput that could support stronger revenue and improved unit economics over time.
• The company wide focus on cost efficiency, with consolidated cash costs below US$1,000 per ounce and projects like the 6 megawatt solar plant at Séguéla to reduce power costs, along with lower all in sustaining costs at Lindero, creates room for margins and net income to benefit from any sustained strength in commodity prices.
• A sizeable liquidity position of US$588 million and a net cash position of US$266 million, built through free cash flow of US$73.4 million in the quarter and over US$200 million of net cash growth year to date, gives Fortuna capacity to fund growth projects and exploration without relying heavily on external capital, which can support future earnings and reduce financing costs.
• Continuous exploration across Diamba Sud, Séguéla, Lindero, Caylloma and early stage projects in Mexico, Peru, Côte d’Ivoire and Guinea, alongside supportive mining policies in key jurisdictions like Côte d’Ivoire and an improving business climate in Argentina, increases the potential for resource additions and mine life extensions that can support longer term revenue visibility and operating leverage.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Fortuna Mining compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Fortuna Mining's revenue will grow by 22.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 32.0% today to 35.9% in 3 years time.
• The bullish analysts expect earnings to reach $778.7 million (and earnings per share of $2.6) by about August 2029, up from $378.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $625.8 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 5.9x on those 2029 earnings, down from 9.4x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 16.5x.
• The bullish analysts expect the number of shares outstanding to decline by 3.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Fortuna’s current profitability is highly exposed to very strong gold and silver prices, and management explicitly links higher net income, margins and free cash flow to this price environment. Any sustained weakness in precious metal prices over the long term could weigh on revenue, compress margins and reduce earnings.
• The growth story leans heavily on Diamba Sud in Senegal and the expansion of Séguéla in Côte d’Ivoire, with fast tracked early works and higher planned throughput. Delays, cost overruns, permitting setbacks or weaker than expected resources at these projects could limit the anticipated production step up and put pressure on future revenue and earnings.
• Fortuna is increasing exploration and growth CapEx, with full year capital expenditures now expected at about US$190 million and ongoing drilling across multiple countries. If new discoveries or expansions do not translate into commercially attractive reserves, the higher spend and withholding taxes on repatriations could dilute returns and constrain free cash flow and net income.
• Operations in Argentina and Peru face currency, tax and regulatory risks, illustrated by the 14% devaluation of the Argentine peso, foreign exchange losses of US$10 million for the first nine months related to Argentinian operations and withholding taxes on repatriated cash. Prolonged currency volatility, changing tax regimes or policy shifts could erode margins and earnings even if production volumes remain stable.
• Unit costs at key assets can move against the company over time, as seen with Séguéla’s all in sustaining cost moving from US$1,290 per ounce early in the year to US$1,738 per ounce and Caylloma’s cash costs and all in sustaining costs affected by metal price conversion factors. Sustained cost inflation, higher royalties and less favorable by product pricing could narrow the margin per ounce and weigh on consolidated net income.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Fortuna Mining is CA$18.85, which represents up to two standard deviations above the consensus price target of CA$18.11. This valuation is based on what can be assumed as the expectations of Fortuna Mining's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $2.2 billion, earnings will come to $778.7 million, and it would be trading on a PE ratio of 5.9x, assuming you use a discount rate of 8.0%.
• Given the current share price of CA$16.61, the analyst price target of CA$18.85 is 11.9% higher.
• 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.