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Fortuna Mining Corp. — Interim / Quarterly Report 2024
May 8, 2024
43939_rns_2024-05-07_e0fa055c-6484-4ed9-b658-a26311095a0d.pdf
Interim / Quarterly Report
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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2024 and 2023 (UNAUDITED)
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Income
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Three months ended March 31, | Three months ended March 31, | Three months ended March 31, | ||||
|---|---|---|---|---|---|---|
| Note | 2024 | 2023 | ||||
| Sales | 18 | $ | 224,949 | $ | 175,653 | |
| Cost of sales | 19 | 155,040 | 135,225 | |||
| Mine operatingincome | 69,909 | 40,428 | ||||
| General and administration | 20 | 18,230 | 14,946 | |||
| Foreign exchange loss | 4,115 | 1,572 | ||||
| Other(income)expenses | 429 | 44 | ||||
| 22,774 | 16,562 | |||||
| Operating income | 47,135 | 23,866 | ||||
| Investment gains | 2,648 | - | ||||
| Interest and finance costs, net | 21 | (6,218) | (2,639) | |||
| Loss on derivatives | - | (1,426) | ||||
| (3,570) | (4,065) | |||||
| Income before income taxes | 43,565 | 19,801 | ||||
| Income taxes | ||||||
| Current income tax expense | 16,345 | 8,997 | ||||
| Deferred income tax recovery | (1,847) | (1,053) | ||||
| 14,498 | 7,944 | |||||
| Net income for theperiod | $ | 29,067 | $ | 11,857 | ||
| Net income attributable to: | ||||||
| Fortuna shareholders | $ | 26,250 | $ | 10,879 | ||
| Non-controllinginterest | 25 | 2,817 | 978 | |||
| $ | 29,067 | $ | 11,857 | |||
| Earnings per share | 17 | |||||
| Basic | $ | 0.09 | $ | 0.04 | ||
| Diluted | $ | 0.09 | $ | 0.04 | ||
| Weighted average number of common shares outstanding (000's) | ||||||
| Basic | 306,470 | 290,242 | ||||
| Diluted | 308,199 | 292,351 |
The accompanying notes are an integral part of these financial statements.
Page | 1
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Three months ended March 31, | Three months ended March 31, |
|---|---|
| Note 2024 2023 |
|
| Net income for the period $ 29,067 $ 11,857 Items that will remain permanently in other comprehensive income (loss): Changes in fair value of investments in equity securities, net of $nil tax 28 (1) Items that may in the future be reclassified to profit or loss: Currency translation adjustment, net of tax1 (1,154) 222 Changes in fair value of hedginginstruments,net of$nil tax - 12 |
|
| Total other comprehensive(loss)income for theperiod (1,126) 233 |
|
| Comprehensive income for theperiod $ 27,941 |
$ 12,090 |
| Comprehensive income attributable to: Fortuna shareholders 25,124 Non-controllinginterest 25 2,817 |
11,112 978 |
| $ 27,941 |
$ 12,090 |
1 For the three months ended March 31, 2024, the currency translation adjustment is net of tax expenses of $41 thousand (2023 - $52 thousand).
The accompanying notes are an integral part of these interim financial statements.
Page | 2
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Balance at Note March 31, 2024 |
December 31,2023 |
|---|---|
| ASSETS CURRENT ASSETS Cash and cash equivalents $ 87,725 Trade and other receivables 4 76,199 Inventories 5 125,077 Other current assets 6 23,024 |
$ 128,148 69,529 115,825 19,823 |
| 312,025 NON-CURRENT ASSETS Restricted cash 910 Mineral properties and property, plant and equipment 7 1,567,066 Other non-current assets 8 67,379 |
333,325 910 1,574,212 59,416 |
| Total assets $ 1,947,380 |
$ 1,967,863 |
| LIABILITIES CURRENT LIABILITIES Trade and other payables 9 $ 139,389 Current portion of debt 12 44,444 Income taxes payable 41,530 Current portion of lease obligations 11 14,188 Currentportion of closure and reclamationprovisions 14 6,704 |
$ 148,084 43,901 31,779 14,941 5,065 |
| 246,255 NON-CURRENT LIABILITIES Debt 12 123,153 Deferred tax liabilities 157,906 Closure and reclamation provisions 14 58,616 Lease obligations 11 39,602 Other non-current liabilities 13 8,431 |
243,770 162,946 159,855 60,738 42,460 9,973 |
| Total liabilities 633,963 |
679,742 |
| SHAREHOLDERS' EQUITY Share capital 16 1,122,522 Reserves 24,425 Retained earnings 113,899 |
1,125,376 25,342 87,649 |
| Equity attributable to Fortuna shareholders 1,260,846 Equityattributable to non-controllinginterest 25 52,571 |
1,238,367 49,754 |
| Total equity 1,313,417 |
1,288,121 |
| Total liabilities and shareholders' equity $ 1,947,380 |
$ 1,967,863 |
Contingencies and Capital Commitments (Note 26) Subsequent Events (Note 27)
/s/ Jorge Ganoza Durant
/s/ Kylie Dickson
Jorge Ganoza Durant Kylie Dickson Director Director
The accompanying notes are an integral part of these interim financial statements.
Page | 3
Fortuna Silver Mines Inc. Condensed Interim Consolidated Statements of Cash Flows
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Three months ended March 31, | Three months ended March 31, |
|---|---|
| Note 2024 2023 |
|
| Operating activities: Net income for the period $ 29,067 $ 11,857 Items not involving cash Depletion and depreciation 50,255 44,235 Accretion expense 21 2,114 1,350 Income taxes 14,498 7,944 Interest expense, net 21 4,104 1,264 Unrealized foreign exchange (gain) loss (3,719) (214) Investment gains (2,648) - Unrealized (gain) loss on derivatives (81) 1,362 Other (323) (215) Closure and reclamation payments 14 (86) (206) Changes in workingcapital 24 (35,327) (10,765) |
|
| Cash provided by operating activities 57,854 56,612 Income taxes paid (5,891) (12,904) Interest paid (3,864) (2,608) Interest received 849 658 |
|
| Net cashprovided byoperatingactivities 48,948 41,758 |
|
| Investing activities: Additions to mineral properties and property, plant and equipment (41,341) (61,550) Contractor advances on Séguéla construction - 1,569 Purchases of investments (7,613) - Proceeds from sale of investments 10,261 - Deposits on long term assets (1,304) - Other investingactivities 494 391 |
|
| Cash used in investingactivities (39,503) (59,590) |
|
| Financing activities: Proceeds from credit facility 12 - 25,000 Repayment of credit facility 12 (40,000) - Repurchase of common shares 16 (3,535) - Payments of lease obligations (4,934) (2,996) |
|
| Cash(used in) provided byfinancingactivities (48,469) 22,004 |
|
| Effect of exchange rate changes on cash and cash equivalents (1,399) 66 |
|
| (Decrease) increase in cash and cash equivalents during the period (40,423) 4,238 Cash and cash equivalents,beginningof theperiod 128,148 80,493 |
|
| Cash and cash equivalents,end of theperiod $ 87,725 |
$ 84,731 |
| Cash and cash equivalents consist of: Cash $ 75,445 Cash equivalents 12,280 |
$ 83,091 1,640 |
| Cash and cash equivalents,end of theperiod $ 87,725 |
$ 84,731 |
| Supplemental cash flow information (Note 24) The accompanying notes are an integral part of these interim financial statements. |
Page | 4
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Changes in Equity
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Share capital Reserves |
Share capital Reserves |
|---|---|
| Note Number of common shares Amount Equity reserve Hedging reserve Fair value reserve Equity component of convertible debentures Foreign currency reserve Retained earnings Non- controlling interest Total equity |
|
| Balance at January 1, 2024 306,587,630 $ 1,125,376 $ 26,144 $ 198 $ (998) $ 4,825 $ (4,827) $ 87,649 $ 49,754 $ 1,288,121 Total comprehensive income for the period Net income for the period - - - - - - - 26,250 2,817 29,067 Other comprehensive loss for theperiod - - - - 28 - (1,154) - - (1,126) |
|
| Total comprehensive income for theperiod - - - - 28 - (1,154) 26,250 2,817 27,941 |
|
| Transactions with owners of the Company Repurchase of common shares 16 (1,030,375) (3,535) - - - - - - - (3,535) Shares issued on vesting of share units 186,784 681 (681) - - - - - - - Share-basedpayments 15 - - 890 - - - - - - 890 |
|
| (843,591) (2,854) 209 - - - - - - (2,645) |
|
| Balance at March 31, 2024 305,744,039 |
$ 1,122,522 $ 26,353 $ 198 $ (970) $ 4,825 $ (5,981) $ 113,899 $ 52,571 $ 1,313,417 |
| Balance at January 1, 2023 290,221,971 Total comprehensive income for the period Net income for the period - Other comprehensive income for theperiod - |
$ 1,076,342 $ 28,850 $ 198 $ (976) $ 4,825 $ (2,968) $ 138,485 $ 43,940 $ 1,288,696 - - - - - - 10,879 978 11,857 - - 12 (1) - 222 - - 233 |
| Total comprehensive income for theperiod - |
- - 12 (1) - 222 10,879 978 12,090 |
| Transactions with owners of the Company Shares issued on vesting of share units 170,239 Share-basedpayments 15 - |
521 (521) - - - - - - - - (565) - - - - - - (565) |
| 170,239 | 521 (1,086) - - - - - - (565) |
| Balance at March 31,2023 290,392,210 |
$ 1,076,863 $ 27,764 $ 210 $ (977)$ 4,825 $ (2,746)$ 149,364 $ 44,918 $ 1,300,221 |
The accompanying notes are an integral part of these interim financial statements.
Page | 5
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
1. NATURE OF OPERATIONS
Fortuna Silver Mines Inc. (the “Company”) is a publicly traded company incorporated and domiciled in British Columbia, Canada.
The Company is engaged in precious and base metal mining and related activities in Argentina, Burkina Faso, Côte d’Ivoire, Mexico, and Peru. The Company operates the open pit Lindero gold mine (“Lindero”) in northern Argentina, the underground Yaramoko gold mine (“Yaramoko”) in southwestern Burkina Faso, the open pit Séguéla gold mine (“Séguéla”) in southwestern Côte d’Ivoire, the underground San Jose silver and gold mine (“San Jose”) in southern Mexico, and the underground Caylloma silver, lead, and zinc mine (“Caylloma”) in southern Peru.
The Company’s common shares are listed on the New York Stock Exchange (the “NYSE”) under the trading symbol FSM and on the Toronto Stock Exchange (the “TSX”) under the trading symbol FVI.
The Company’s registered office is located at Suite 650 - 200 Burrard Street, Vancouver, British Columbia, V6C 3L6, Canada.
2. BASIS OF PRESENTATION
Statement of Compliance
These unaudited condensed interim consolidated financial statements (“interim financial statements”) were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34 Interim Financial Reporting. They do not include all the information required for full annual financial statements. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2023, which include information necessary for understanding the Company’s business and financial presentation.
Other than as described below, the same accounting policies and methods of computation are followed in these interim financial statements as compared with the most recent annual financial statements.
On May 7, 2024, the Company's Board of Directors approved these interim financial statements for issuance.
Basis of Measurement
These financial statements have been prepared on a going concern basis under the historical cost basis, except for those assets and liabilities that are measured at fair value (Note 23) at the end of each reporting period.
Adoption of new accounting standards
The Company adopted various amendments to IFRSs, which were effective for accounting periods beginning on or after January 1, 2024. These include amendments to IAS 1 (Classification of Liabilities as Current or Non-current, and Non-current Liabilities with Covenants), IFRS 16 (Lease Liability in a Sale and Leaseback), IAS 7 and IFRS 7 (Supplier Finance Arrangements), and IAS 28 and IFRS 10 (Sale or Contribution of Assets between an Investor and its Associate or Joint Venture). The impacts of adoption were not material to the Company's interim financial statements.
Page | 6
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
3. USE OF ESTIMATES, ASSUMPTIONS, AND JUDGEMENTS
The preparation of these interim financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the period end date and reported amounts of expenses during the reporting period. Such judgements and estimates are, by their nature, uncertain. Actual outcomes could differ from these estimates.
The impact of such judgements and estimates are pervasive throughout the interim financial statements, and may require accounting adjustments based on future occurrences. These judgements and estimates are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. Revisions to accounting estimates are recognized in the period in which the estimate is revised and are accounted for prospectively.
In preparing these consolidated interim financial statements for the three months ended March 31, 2024, the Company applied the critical estimates, assumptions and judgements as disclosed in Note 4 of its audited consolidated financial statements for the year ended December 31, 2023.
4. TRADE AND OTHER RECEIVABLES
| As at | March 31, 2024 | December | 31,2023 | |
|---|---|---|---|---|
| Trade receivables from doré and concentrate sales | $ | 23,168 | $ | 19,970 |
| Advances and other receivables | 4,264 | 5,189 | ||
| Value added tax receivables | 48,767 | 44,370 | ||
| Trade and other receivables | $ | 76,199 | $ | 69,529 |
The Company’s trade receivables from concentrate and doré sales are expected to be collected in accordance with the terms of the existing concentrate and doré sales contracts with its customers. No amounts were past due as at March 31, 2024.
As at March 31, 2024, current VAT receivables include $9.6 million (December 31, 2023 - $7.5 million) for Argentina, $6.7 million (December 31, 2023 - $7.4 million) for Mexico, $8.4 million (December 31, 2023 - $5.1 million) for Côte d’Ivoire, and $22.1 million (December 31, 2023 - $22.7 million) for Burkina Faso. An additional $18.0 million of VAT receivable is classified as non-current (Note 8).
5. INVENTORIES
| As at | Note | March 31, 2024 | December | 31,2023 | |
|---|---|---|---|---|---|
| Concentrate stockpiles | $ | 992 |
$ | 1,328 | |
| Doré bars | 2,744 | 273 | |||
| Leach pad and gold-in-circuit | 28,987 | 27,527 | |||
| Ore stockpiles | 80,606 | 73,015 | |||
| Materials and supplies | 54,883 | 53,235 | |||
| Total inventories | $ | 168,212 |
$ | 155,378 | |
| Less: non-currentportion | 8 | (43,135) | (39,553) | ||
| Current inventories | $ | 125,077 | $ | 115,825 |
During the three months ended March 31, 2024, the Company expensed $139.2 million of inventories to cost of sales (March 31, 2023 - $121.9 million).
Page | 7
Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Fortuna Silver Mines Inc.
6. OTHER CURRENT ASSETS
| As at | March 31, 2024 | December | 31,2023 | |
|---|---|---|---|---|
| Prepaid expenses | $ | 17,788 | $ | 14,604 |
| Income tax recoverable | 5,127 | 5,113 | ||
| Other | 109 | 106 | ||
| Other current assets | $ | 23,024 | $ | 19,823 |
Prepaid expenses include $12.7 million (December 31, 2023 - $8.8 million) related to deposits and advances to contractors.
7. MINERAL PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT
| Mineral Properties - Depletable Mineral Properties - Non depletable Construction in Progress Property, Plant & Equipment |
Total |
|---|---|
| COST Balance as at December 31, 2023 $ 1,511,621 $ 272,956 $ 44,218 $ 941,528 $ 2,770,323 Additions 21,248 8,548 17,801 584 48,181 Changes in closure and reclamation provision (828) - - (14) (842) Disposals and write-offs - - - (2,324) (2,324) Transfers - - (3,824) 3,830 6 |
|
| Balance as at March 31, 2024 $ 1,532,041 $ 281,504 $ 58,195 $ 943,604 $ 2,815,344 |
|
| ACCUMULATED DEPLETION AND IMPAIRMENT Balance as at December 31, 2023 $ 723,255 $ - $ 49 $ 472,807 $ 1,196,111 Disposals and write-offs - - - (2,295) (2,295) Depletion and depreciation 37,082 - - 17,380 54,462 |
|
| Balance as at March 31, 2024 $ 760,337 $ - $ 49 $ 487,892 $ 1,248,278 |
|
| Net Book Value as at March 31, 2024 $ 771,704 $ 281,504 $ 58,146 $ 455,712 $ 1,567,066 |
As at March 31, 2024, non-depletable mineral properties include $94.5 million of exploration and evaluation assets (December 31, 2023 - $88.5 million).
As at March 31, 2024, property, plant and equipment include right-of-use assets with a net book value of $51.6 million (December 31, 2023 - $56.1 million). Related depletion and depreciation for the three months ended March 31, 2024, was $3.5 million (three months ended March 31, 2023 - $2.4 million).
| Mineral Properties - Depletable Mineral Properties - Non depletable Construction in Progress Property, Plant & Equipment |
Total |
|---|---|
| COST Balance as at December 31, 2022 $ 866,999 $ 712,269 $ 154,647 $ 704,781 $ 2,438,696 Acquisition of Roxgold - 58,862 - 282 59,144 Additions 100,366 39,835 111,690 23,930 275,821 Changes in closure and reclamation provision 9,407 - - 152 9,559 Disposals and write-offs (142) (5,883) - (6,872) (12,897) Transfers 534,991 (532,127) (222,119) 219,255 - |
|
| Balance as at December 31,2023 $ 1,511,621 $ 272,956 $ 44,218 $ 941,528 $ 2,770,323 |
|
| ACCUMULATED DEPLETION AND IMPAIRMENT Balance as at December 31, 2022 $ 506,268 $ - $ - $ 364,807 $ 871,075 Disposals and write-offs (40) - - (6,610) (6,650) Impairment 60,602 - 49 29,964 90,615 Depletion and depreciation 156,425 - - 84,646 241,071 |
|
| Balance as at December 31,2023 $ 723,255 $ - $ 49 $ 472,807 $ 1,196,111 |
|
| Net Book Value as at December 31,2023 $ 788,366 $ 272,956 $ 44,169 $ 468,721 $ 1,574,212 |
Page | 8
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
8. OTHER NON-CURRENT ASSETS
| As at | Note | March 31, 2024 | December | 31,2023 | |
|---|---|---|---|---|---|
| Ore stockpiles | 5 | $ | 43,135 |
$ | 39,553 |
| Value added tax receivables | 18,009 | 13,172 | |||
| Income tax recoverable | 1,167 | 1,170 | |||
| Other | 5,068 | 5,521 | |||
| Total other non-current assets | $ | 67,379 | $ | 59,416 |
As at March 31, 2024, non-current VAT receivables include $3.4 million (December 31, 2023 - $3.8 million) for Mexico and $14.6 million (December 31, 2023 - $9.4 million) for Burkina Faso.
9. TRADE AND OTHER PAYABLES
| As at | Note | March 31, 2024 | December | 31,2023 | |
|---|---|---|---|---|---|
| Trade accounts payable | $ | 102,866 |
$ | 100,387 | |
| Payroll and related payables | 18,287 | 21,896 | |||
| Mining royalty payable | 391 | 3,997 | |||
| Other payables | 10,688 | 15,112 | |||
| Derivative liabilities | - | 81 | |||
| Share unitspayable | 15(a)(b)(c) | 7,157 | 6,611 | ||
| Total trade and otherpayables | $ | 139,389 | $ | 148,084 |
10. RELATED PARTY TRANSACTIONS
In addition to the related party transactions and balances disclosed elsewhere in these financial statements, the Company entered into the following related party transactions during the three months ended March 31, 2024, and 2023:
Key Management Personnel
Amounts paid to key management personnel were as follows:
| Three months ended March 31, | Three months ended March 31, | Three months ended March 31, | ||
|---|---|---|---|---|
| 2024 | 2023 | |||
| Salaries and benefits | $ | 2,931 | $ | 2,829 |
| Directors fees | 215 | 207 | ||
| Consulting fees | 17 | 16 | ||
| Share-basedpayments | 1,741 | 1,260 | ||
| $ | 4,904 | $ | 4,312 |
During the three months ended March 31, 2024, and 2023, the Company was charged for consulting services by Mario Szotlender, a director of the Company.
Page | 9
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
11. LEASE OBLIGATIONS
| Minimum leasepayments | Minimum leasepayments | |||
|---|---|---|---|---|
| As at | March 31, 2024 | December 31,2023 | ||
| Less than one year | $ | 19,789 | $ | 20,339 |
| Between one and five years | 40,924 | 44,677 | ||
| More than fiveyears | 6,042 | 6,457 | ||
| 66,755 | 71,473 | |||
| Less: future finance charges | (12,965) | (14,072) | ||
| Present value of lease obligations | 53,790 | 57,401 | ||
| Less: Currentportion | (14,188) | (14,941) | ||
| Non-currentportion | $ | 39,602 | $ | 42,460 |
12. DEBT
The following table summarizes the changes in debt:
| Credit | Convertible | |||||
|---|---|---|---|---|---|---|
| facility | debentures | Total | ||||
| Balance at December 31, 2022 | $ | 177,020 | $ | 42,155 | $ | 219,175 |
| Convertible debenture conversion | - | (225) | (225) | |||
| Drawdown | 75,500 | - | 75,500 | |||
| Amortization of discount | 926 | 1,971 | 2,897 | |||
| Payments | (90,500) | - | (90,500) | |||
| Balance at December 31, 2023 | 162,946 | 43,901 | 206,847 | |||
| Amortization of discount | 207 | 543 | 750 | |||
| Payments | (40,000) | - | (40,000) | |||
| Balance at March 31, 2024 | $ | 123,153 |
$ | 44,444 |
$ | 167,597 |
| Less: Currentportion | – | (44,444) | (44,444) | |||
| Non-currentportion | $ | 123,153 | $ | - | $ | 123,153 |
As at March 31, 2024, the Company was in compliance with all of the covenants under the Credit Facility, as outlined in the Company’s most recent annual financial statements.
13. OTHER NON-CURRENT LIABILITIES
| As at | Note | March 31, 2024 | December | 31,2023 | |
|---|---|---|---|---|---|
| Restricted share units | 15(b) | $ | 1,054 |
$ | 2,648 |
| Other | 7,377 | 7,325 | |||
| Total other non-current liabilities | $ | 8,431 | $ | 9,973 |
As at March 31, 2024, other non-current liabilities include $7.2 million (December 31, 2023 - $6.4 million) of severance provisions for the anticipated closure of the San Jose mine.
Page | 10
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
14. CLOSURE AND RECLAMATION PROVISIONS
The following table summarizes the changes in closure and reclamation provisions:
| Closure and Reclamation Provisions | Closure and Reclamation Provisions |
|---|---|
| Caylloma Mine San Jose Mine Lindero Mine Yaramoko Mine Séguéla Mine Total |
|
| Balance as at December 31, 2023 $ 15,950 $ 10,358 $ 14,485 $ 14,233 $ 10,777 $ 65,803 Changes in estimate (108) (564) (330) (189) (215) (1,406) Reclamation expenditures (48) (38) - - - (86) Accretion 221 244 150 151 105 871 Effect of changes in foreign exchange rates - 138 - - - 138 |
|
| Balance as at March 31, 2024 16,015 10,138 14,305 14,195 Less: Currentportion (5,439) (1,265) - - |
10,667 65,320 - (6,704) |
| Non-currentportion $ 10,576 $ 8,873$ 14,305$ 14,195 |
$ 10,667$ 58,616 |
| Closure and Reclamation Provisions | |
| Caylloma Mine San Jose Mine Lindero Mine Yaramoko Mine Séguéla Mine Total |
|
| Balance as at December 31, 2022 $ 13,956 $ 7,670 $ 11,514 $ 13,375 $ 6,790 $ 53,305 Changes in estimate 2,215 949 2,442 261 3,692 9,559 Reclamation expenditures (1,011) (192) - - - (1,203) Accretion 790 777 529 597 295 2,988 Effect of changes in foreign exchange rates - 1,154 - - - 1,154 |
|
| Balance as at December 31, 2023 15,950 10,358 14,485 14,233 10,777 65,803 Less: Currentportion (3,804) (1,261) - - - (5,065) |
|
| Non-currentportion $ 12,146 $ 9,097$ 14,485 $ 14,233$ 10,777$60,738 |
The following table summarizes certain key inputs used in determining the present value of reclamation costs related to mine and development sites:
| Closure and Reclamation Provisions | Closure and Reclamation Provisions | Closure and Reclamation Provisions | Closure and Reclamation Provisions | Closure and Reclamation Provisions | Closure and Reclamation Provisions | ||||
|---|---|---|---|---|---|---|---|---|---|
| Caylloma | San Jose | Lindero | Yaramoko | Séguéla | |||||
| Mine | Mine | Mine | Mine | Mine | Total | ||||
| Undiscounted uninflated estimated cash flows | $ 16,742 |
$ 12,126 | $ 15,862 | $ | 14,701 |
$ | 11,032 | $ | 70,463 |
| Discount rate | 5.70% | 9.61% | 4.19% | 4.59% | 4.20% | ||||
| Inflation rate | 3.20% | 4.12% | 2.38% | 2.20% | 2.63% |
The Company is expecting to incur progressive reclamation costs throughout the life of its mines.
15. SHARE BASED PAYMENTS
During the three months ended March 31, 2024, the Company recognized share-based payments of $2.2 million, (March 31, 2023 – $2.1 million) related to the amortization of deferred, restricted and performance share units and $nil (March 31, 2023 – $nil) related to amortization of stock options.
Page | 11
Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Fortuna Silver Mines Inc.
(a) Deferred Share Units (DSUs)
| Cash Settled | Cash Settled | ||
|---|---|---|---|
| Number of DSUs | Fair Value | ||
| Outstanding, December 31, 2022 | 922,698 | $ | 3,468 |
| Granted | 125,802 | 431 | |
| Changes in fair value | - | 144 | |
| Outstanding, December 31, 2023 | 1,048,500 | 4,043 | |
| Granted | 135,316 | 438 | |
| Changes in fair value | - | (86) | |
| Outstanding,March 31,2024 | 1,183,816 | $ | 4,395 |
(b) Restricted Share Units (RSUs)
| Cash Settled | Cash Settled | EquitySettled | ||
|---|---|---|---|---|
| Number of RSUs | Fair Value | Number of RSUs | ||
| Outstanding, December 31, 2022 | 1,948,709 | $ | 3,840 | 705,855 |
| Granted | 1,716,286 | 5,887 | - | |
| Units paid out in cash | (1,214,393) | (4,812) | - | |
| Vested and paid out in shares | - | - | (297,275) | |
| Transferred from equity to cash settled | 406,487 | - | (406,487) | |
| Forfeited or cancelled | (188,892) | - | (2,093) | |
| Changes in fair value and vesting | - | 301 | - | |
| Outstanding, December 31, 2023 | 2,668,197 | 5,216 | - | |
| Granted | 1,956,611 | (6,333) | - | |
| Units paid out in cash | (667,288) | (2,070) | - | |
| Forfeited or cancelled | (51,129) | (98) | - | |
| Changes in fair value and vesting | - | 7,101 | - | |
| Outstanding, March 31, 2024 | 3,906,391 | 3,816 | - | |
| Less: currentportion | (2,762) | |||
| Non-currentportion | $ | 1,054 |
(c) Performance Share Units (PSUs)
| Cash Settled | Cash Settled | EquitySettled | ||
|---|---|---|---|---|
| Number of | ||||
| Number of PSUs | Fair Value | PSUs | ||
| Outstanding, December 31, 2022 | - | $ | - | 1,839,456 |
| Granted | - | - | 844,187 | |
| Forfeited or cancelled | - | - | (152,729) | |
| Transferred from equity to cash settled | 340,236 | - | (340,236) | |
| Units paid out in cash | (340,236) | (1,240) | - | |
| Vested and paid out in shares | - | - | (350,666) | |
| Changes in fair value and vesting | - | 1,240 | - | |
| Outstanding, December 31, 2023 | - | - | 1,840,012 | |
| Granted | - | - | 1,038,383 | |
| Forfeited or cancelled | - | - | (186,791) | |
| Vested andpaid out in shares | - | - | (186,784) | |
| Outstanding,March 31,2024 | - | $ | - | 2,504,820 |
Page | 12
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(d) Stock Options
The Company’s Stock Option Plan, as amended and approved from time to time, permits the Company to issue up to 12,200,000 stock options. As at March 31, 2024, a total of 2,950,529 stock options are available for issuance under the plan.
| Number of stock options | Weighted average exerciseprice |
Weighted average exerciseprice |
|
|---|---|---|---|
| Canadian dollars | |||
| Outstanding,December 31,2022 | 636,818 | $ | 5.62 |
| Exercised | (127,350) | 3.22 | |
| Expired unexercised | (509,468) | 6.21 | |
| Outstanding,December 31,2023 | - | - | |
| Outstanding,March 31,2024 | - | $ | - |
16. SHARE CAPITAL
Authorized Share Capital
The Company has an unlimited number of common shares without par value authorized for issue.
During the three months ended March 31, 2024, the Company acquired and cancelled 1,030,375 common shares through its normal course issuer bid (“NCIB”) program which operated for the period from May 2, 2023 to May 1, 2024, at an average cost of $3.42 per share, for a total cost of $3.5 million.
17. EARNINGS PER SHARE
| Three months ended | Three months ended | March 31, | ||
|---|---|---|---|---|
| 2024 | 2023 | |||
| Basic: | ||||
| Net income attributable to Fortuna shareholders | $ | 26,250 | $ | 10,879 |
| Weighted average number of shares(000's) | 306,470 | 290,242 | ||
| Earningsper share - basic | $ | 0.09 | $ | 0.04 |
| Three months ended | March 31, | |||
| 2024 | 2023 | |||
| Diluted: | ||||
| Net income attributable to Fortuna shareholders | $ | 26,250 | $ | 10,879 |
| Diluted net loss for theperiod | $ | 26,250 | $ | 10,879 |
| Weighted average number of shares (000's) | 306,470 | 290,242 | ||
| Incremental shares from dilutivepotential shares | 1,729 | 2,109 | ||
| Weighted average diluted number of shares(000's) | 308,199 | 292,351 | ||
| Earningsper share - diluted | $ | 0.09 | $ | 0.04 |
For the three months ended March 31, 2024, nil (March 31, 2023 – 7,551) out of the money options, 1,728,885 (March 31, 2023 – nil) share units, and 9,143,000 (March 31, 2023 – 9,176,000) potential shares issuable on conversion of the debentures were excluded from the diluted earnings per share calculation. These items were excluded from the diluted earnings per share calculations as their effect would have been anti-dilutive.
Page | 13
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
18. SALES
The Company’s geographical analysis of revenue from contracts with customers attributed to the location of the products produced, is as follows:
| Three months ended March 31, 2024 | Three months ended March 31, 2024 | |
|---|---|---|
| Peru Mexico Argentina Burkina Faso |
Côte d'Ivoire | Total |
| Silver-gold concentrates $ - $ 23,897 $ - $ - $ - Silver-lead concentrates 15,980 - - - - Zinc concentrates 10,875 - - - - Gold doré - - 45,212 56,911 72,161 Provisionalpricing adjustments (234) 147 - - - |
$ 23,897 15,980 10,875 174,284 (87) |
|
| Sales to external customers $ 26,621$ 24,044$ 45,212$ 56,911$ 72,161 |
$ 224,949 | |
| Three months ended March 31,2023 | ||
| Peru Mexico Argentina Burkina Faso |
Côte d'Ivoire | Total |
| Silver-gold concentrates $ - $ 42,053 $ - $ - $ - Silver-lead concentrates 12,632 - - - - Zinc concentrates 12,552 - - - - Gold doré - - 51,238 55,954 - Provisionalpricingadjustments 570 654 - - - |
$ 42,053 12,632 12,552 107,192 1,224 |
|
| Sales to external customers $ 25,754$42,707$ 51,238$ 55,954$ - |
$175,653 | |
| Three months ended March 31, | ||
| 2024 2023 |
||
| Customer 1 $ 72,161 $ - Customer 2 56,911 55,954 Customer 3 45,212 51,238 Customer 4 26,621 25,754 Customer 5 14,337 22,311 Customer 6 9,707 20,396 |
||
| $ 224,949 $ 175,653 |
From time to time, the Company enters into forward sale and collar contracts to mitigate the price risk for some of its forecasted base and precious metals production, and non-metal commodities.
During the three months ended March 31, 2024, the Company recognized $nil of realized losses on the settlement of forward sale and collar contracts (March 31, 2023 - $0.1 million realized losses), and $nil unrealized losses from changes in the fair value of the open positions (March 31, 2023 - $1.4 million unrealized losses).
19. COST OF SALES
| Three months | ended March 31, | ended March 31, | ended March 31, | ||
|---|---|---|---|---|---|
| 2024 | 2023 | ||||
| Direct mining costs | $ | 72,001 | $ | 67,007 | |
| Salaries and benefits | 21,772 | 14,932 | |||
| Workers' participation | 351 | 463 | |||
| Depletion and depreciation | 49,846 | 44,141 | |||
| Royalties and other taxes | 11,076 | 8,711 | |||
| Other | (6) | (29) | |||
| Cost of sales | $ | 155,040 | $ | 135,225 |
Page | 14
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
For the three months ended March 31, 2024, depletion and depreciation include $3.4 million of depreciation related to right-of-use assets (March 31, 2023 - $2.3 million).
20. GENERAL AND ADMINISTRATION
| Three months ended March 31, | Three months ended March 31, | Three months ended March 31, | ||
|---|---|---|---|---|
| 2024 | 2023 | |||
| General and administration | $ | 15,983 | $ | 12,737 |
| Workers'participation | 71 | 72 | ||
| 16,054 | 12,809 | |||
| Share-basedpayments | 2,176 | 2,137 | ||
| General and administration | $ | 18,230 | $ | 14,946 |
21. INTEREST AND FINANCE COSTS, NET
| Three months | ended March 31, | ended March 31, | ended March 31, | |||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| Interest income | $ | 850 | $ | 658 | ||
| Interest expense | (4,776) | (1,842) | ||||
| Bank stand-by and commitment fees | (178) | (105) | ||||
| Accretion expense | (1,058) | (703) | ||||
| Lease liabilities | (1,056) | (647) | ||||
| $ | (6,218) | $ | (2,639) |
During the three months ended March 31, 2024, the Company capitalized $nil of interest related to the construction of the Séguéla Mine (March 31, 2023 - $2.8 million). The Company stopped capitalizing interest expenses associated with the project on July 1, 2023.
22. SEGMENTED INFORMATION
The Company’s operating segments are based on the reports reviewed by the senior management group that are used to make strategic decisions. The Chief Executive Officer, as chief operating decision maker, considers the business from a geographic perspective when considering the performance of the Company’s business units.
The following summary describes the operations of each reportable segment:
-
Mansfield – operates the Lindero gold mine
-
Sanu – operates the Yaramoko gold mine
-
Sango – operates the Séguéla gold mine
-
Cuzcatlan – operates the San Jose silver-gold mine
-
Bateas – operates the Caylloma silver, lead, and zinc mine
-
Corporate – corporate stewardship
Page | 15
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Three months ended March | Three months ended March | Three months ended March | Three months ended March | Three months ended March | 31, 2024 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mansfield | Sanu | **Sango ** | Cuzcatlan | Bateas | Corporate | Total | ||||||||
| Revenues from external customers | $ | 45,212 |
$ | 56,911 |
$ | 72,161 |
$ | 24,044 |
$ | 26,621 |
$ | - |
$ | 224,949 |
| Cost of sales before depreciation and depletion | (22,468) | (24,736) | (21,161) | (23,333) | **(13,497) ** | 1 |
(105,194) | |||||||
| Depreciation and depletion in cost of sales | (11,581) | (10,215) | (24,048) | (391) | **(3,611) ** | - | (49,846) | |||||||
| General and administration | (2,891) | (550) | (1,332) | (1,458) | **(1,308) ** | (10,691) | (18,230) | |||||||
| Other (expenses) income | (603) | (1,949) | (2,840) | (52) | 49 | 851 |
(4,544) | |||||||
| Finance items | 2,218 | (294) | (598) | (195) | **(172) ** | (4,529) | (3,570) | |||||||
| Segment income (loss) before taxes | 9,887 | 19,167 | 22,182 | (1,385) | 8,082 | (14,368) | 43,565 | |||||||
| Income taxes | (986) | (3,996) | (5,974) | 896 | **(2,794) ** | (1,644) | (14,498) | |||||||
| Segment income(loss) after taxes | $ | 8,901 |
$ | 15,171 |
$ | 16,208 |
$ | (489) |
$ | 5,288 |
$ | (16,012) |
$ | 29,067 |
| Three months ended March | Three months ended March | Three months ended March | Three months ended March | Three months ended March | 31,2023 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mansfield | Sanu | Sango | Cuzcatlan | Bateas | Corporate | Total | ||||||||
| Revenues from external customers | $ | 51,238 |
$ | 55,954 |
$ | - |
$ | 42,707 | $ | 25,754 |
$ | - |
$ | 175,653 |
| Cost of sales before depreciation and depletion | (28,533) | (27,496) | - | (22,610) | (12,445) | - | (91,084) | |||||||
| Depreciation and depletion in cost of sales | (13,192) | (17,367) | - | (9,913) | (3,669) | - | (44,141) | |||||||
| General and administration | (2,017) | (889) | (102) | (1,898) | (1,240) | (8,800) | (14,946) | |||||||
| Other (expenses) income | (977) | 4,348 | (82) | (1,071) | (71) | (3,763) | (1,616) | |||||||
| Finance items | (671) | (202) | (92) | (981) | 92 | (2,211) |
(4,065) | |||||||
| Segment income (loss) before taxes | 5,848 | 14,348 | (276) | 6,234 | 8,421 | (14,774) | 19,801 | |||||||
| Income taxes | (833) | (1,381) | — | (1,720) | (2,345) | (1,665) | (7,944) | |||||||
| Segment income(loss)after taxes | $ | 5,015 |
$ | 12,967 |
$ | (276) |
$ | 4,514 |
$ | 6,076 |
$ | (16,439) |
$ | 11,857 |
| As at March 31, 2024 Mansfield Sanu Sango Cuzcatlan Bateas |
Corporate Total |
|---|---|
| Total assets $ 499,828 $ 230,412 $ 934,637 $ 49,570 $ 143,085 $ Total liabilities $ 48,731 $ 61,535 $ 250,864 $ 29,060 $ 48,558 $ Capital expenditures1 $ 15,257 $ 10,634 $ 11,851$ 2,052 $ 2,905$ |
89,848 $ 1,947,380 195,215 $ 633,963 5,482 $ 48,181 |
| 1Capital expenditures are on an accrual basis for the three months ended March 31, 2024 | |
| As at December 31,2023 Mansfield Sanu Sango Cuzcatlan Bateas |
Corporate Total |
| Total assets $ 491,213 $ 228,335 $ 976,169 $ 58,501 $ 139,161 $ Total liabilities $ 53,175 $ 59,043 $ 243,532 $ 36,955 $ 49,944 $ Capital expenditures1 $ 44,667 $ 63,833 $ 118,693$22,260 $22,394$ |
74,484 $ 1,967,863 237,093 $ 679,742 3,974 $ 275,821 |
1 Capital expenditures are on an accrual basis for the year ended December 31, 2023
23. FAIR VALUE MEASUREMENTS
During the three months ended March 31, 2024, and 2023, there were no transfers of amounts between Level 1, Level 2, and Level 3 of the fair value hierarchy. The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not measured at fair value is not presented if the carrying amount is a reasonable approximation of fair value.
Page | 16
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Carrying value | Fair value |
|---|---|
| March 31, 2024 Fair Value through OCI Fair value through profit or loss Amortized cost Total Financial assets measured at Fair Value Investments in equity securities $ 83 $ - $ - $ 83 Trade receivables concentrate sales - 17,817 - 17,817 $ 83 $ 17,817$ -$ 17,900 Financial assets not measured at Fair Value Cash and cash equivalents $ - $ - $ 87,725 $ 87,725 Trade receivables doré sales - - 5,351 5,351 Other receivables - - 4,264 4,264 $ - $ -$ 97,340$ 97,340 Financial liabilities measured at Fair Value Share unitspayable - (8,211) - (8,211) $ - $ (8,211) $ -$ (8,211) Financial liabilities not measured at Fair Value Trade payables $ - $ - $ (102,866) $ (102,866) Payroll payable - - (18,287) (18,287) Credit facilities - - (123,153) (123,153) Convertible debentures - - (44,444) (44,444) Otherpayables - - (71,051) (71,051) $ - $ **-$ (359,801) $ (359,801) ** |
Level 1 Level 2 Level 3 Carrying value approximates Fair Value |
| $ 83 $ - $ - $ - - 17,817 - - |
|
| $ 83 $ 17,817 $ - $ - |
|
| $ - $ - $ - $ 87,725 - - - 5,351 - - - 4,264 |
|
| $ - $ - $ - $ 97,340 |
|
| - (8,211) - - |
|
| $ - $ (8,211) $ - $ - |
|
| $ - $ - $ - $ (102,866) - - - (18,287) - (125,000) - - - (45,016) - - - - - (71,051) |
|
| $ - $ (170,016) $ - $ (192,204) |
Page | 17
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2024 and 2023
(Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
| Carryingvalue | Fair value |
|---|---|
| December 31,2023 Fair Value through OCI Fair value through profit or loss Amortized cost Total |
Level 1 Level 2 Level 3 Carrying value approximates Fair Value |
| Financial assets measured at Fair Value Investments in equity securities $ 80 $ - $ - $ 80 Trade receivables concentrate sales - 16,819 - 16,819 |
$ 80 $ - $ - $ - - 16,819 - - |
| $ 80 $ 16,819 $ - $ 16,899 |
$ 80 $ 16,819 $ - $ - |
| Financial assets not measured at Fair Value Cash and cash equivalents $ - $ - $ 128,148 $ 128,148 Trade receivables doré sales - - 3,151 3,151 Other receivables - - 5,189 5,189 |
$ - $ - $ - $ 128,148 - - - 3,151 - - - 5,189 |
| $ - $ - $136,488 $136,488 |
$ - $ - $ - $ 136,488 |
| Financial liabilities measured at Fair Value Metal forward sales contracts liability - $ (81) $ - $ (81) Share unitspayable - (9,259) - (9,259) |
$ - $ (81) $ - $ - - (9,259) - - |
| $ - $ (9,340) $ - $ (9,340) |
$ - $ (9,340) $ - $ - |
| Financial liabilities not measured at Fair Value Trade payables $ - $ - $ (100,387) $ (100,387) Payroll payable - - (21,896) (21,896) Credit facilities - - (162,946) (162,946) Convertible debentures - - (43,901) (43,901) Otherpayables - - (82,807) (82,807) |
$ - $ - $ - $ (100,387) - - - (21,896) - (165,000) - - - (44,344) - - - - - (82,807) |
| $ - $ - $ (411,937) $ (411,937) |
$ - $ (209,344) $ - $ (205,090) |
Page | 18
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
24. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in working capital for the three months ended March 31, 2024, and 2023 are as follows:
| Three months | ended March 31, | ||||
|---|---|---|---|---|---|
| 2024 | 2023 | ||||
| Trade and other receivables | $ | (7,296) | $ | (9,420) | |
| Prepaid expenses | (864) | 998 | |||
| Inventories | (9,801) | (3,659) | |||
| Trade and otherpayables | (17,366) | 1,316 | |||
| Total changes in workingcapital | $ | (35,327) | $ | (10,765) |
The changes in liabilities arising from financing activities, including both changes arising from cash flows and noncash changes for the periods as set out below are as follows:
| Convertible | Lease | |||||
|---|---|---|---|---|---|---|
| Bank loan | debentures | obligations | ||||
| As at December 31, 2022 | $ | 177,020 | $ | 42,155 | $ | 21,346 |
| Additions | 75,500 | - | 48,805 | |||
| Terminations | - | - | (21) | |||
| Conversion of debenture | - | (225) | - | |||
| Interest | 926 | 1,971 | 3,658 | |||
| Payments | (90,500) | - | (16,625) | |||
| Foreign exchange | - | - | 238 | |||
| As at December 31, 2023 | 162,946 | 43,901 | 57,401 | |||
| Additions | - | - | 267 | |||
| Interest | 207 | 543 | 1,059 | |||
| Payments | (40,000) | - | (4,934) | |||
| Foreign exchange | - | - | (3) | |||
| As at March 31, 2024 | $ | 123,153 | $ | 44,444 | $ | 53,790 |
The significant non-cash financing and investing transactions during the three months ended March 31, 2024, and 2023 are as follows:
| Three months | ended March 31, | ended March 31, | |||
|---|---|---|---|---|---|
| 2024 | 2023 | ||||
| Mineral properties, plant and equipment changes in closure and reclamation | |||||
| provision | $ | 842 | $ |
(3,382) | |
| Additions to right of use assets | $ | 267 | $ |
(32,035) | |
| Share units allocated to share capital upon settlement | $ | 681 | $ |
521 |
25. NON-CONTROLLING INTEREST
As at March 31, 2024, the non-controlling interest (“NCI”) of the State of Burkina Faso, which represents a 10% interest in Roxgold SANU S.A., totaled $4.8 million. The income attributable to the NCI for the three months ended March 31, 2024, totaling $1.5 million, is based on the net income for Yaramoko.
As at March 31, 2024, the NCI of the State of Côte d’Ivoire, which represents a 10% interest in Roxgold Sango S.A., totaled $47.7 million. The income attributable to the NCI for the three months ended March 31, 2024, totaling $1.3 million, is based on the net income for Séguéla.
Page | 19
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
26. CONTINGENCIES AND CAPITAL COMMITMENTS
(a) Caylloma Letter of Guarantee
The Caylloma mine closure plan, as amended, that was in effect in January 2021, includes total undiscounted closure costs of $18.2 million, which consisted of progressive closure activities of $6.2 million, final closure activities of $9.8 million, and post closure activities of $2.3 million pursuant to the terms of the Mine Closing Law.
Under the terms of the current Mine Closing Law, the Company is required to provide the Peruvian Government with a guarantee in respect of the Caylloma mine closure plan as it relates to final closure activities and post-closure activities and related taxes. In 2024, the Company provided a bank letter of guarantee of $12.9 million to the Peruvian Government in respect of such closure costs and taxes.
(b) San Jose Letter of Guarantee
The Company has established three letters of guarantee in the aggregate amount of $0.3 million to fulfill its environmental obligations under the terms and conditions of the Environmental Impact Statements issued by the Secretaria de Medio Ambiente y Recursos Naturales (“SEMARNAT”) in 2009 in respect of the construction of the San Jose mine, and in 2017 and 2020 with respect to the expansion of the dry stack tailings facility at the San Jose mine. The letters of guarantee expire on March 5, 2025, September 17, 2024 and December 31, 2024, respectively.
(c) Other Commitments
As at March 31, 2024, the Company had capital commitments of $3.0 million, for civil work, equipment purchases and other services at the Lindero mine, which are expected to be expended within one year.
Côte d’Ivoire
The Company entered into an agreement with a service provider at the Séguéla mine wherein if the Company terminates the agreement prior to the end of its term, in November 2026, the Company would be required to make an early termination payment, which is reduced monthly over 48 months. If the Company had terminated the agreement on March 31, 2024, and elected not to purchase the service provider’s equipment, it would have been subject to an early termination payment of $16.7 million. If the Company had terminated the agreement on March 31, 2024, and elected to purchase the service provider’s equipment, the early termination amount would be adjusted to exclude equipment depreciation and demobilization of equipment, and only include portion of the monthly management fee and demobilization of personnel.
(d) Tax Contingencies
The Company is, from time to time, involved in various tax assessments arising in the ordinary course of business. The Company cannot reasonably predict the likelihood or outcome of these actions. The Company has recognized tax provisions with respect to current assessments received from the tax authorities in the various jurisdictions in which the Company operates, and from any uncertain tax positions identified. For those amounts recognized related to current tax assessments received, the provision is based on management's best estimate of the outcome of those assessments, based on the validity of the issues in the assessment, management's support for their position, and the expectation with respect to any negotiations to settle the assessment. Management re-evaluates the outstanding tax assessments regularly to update their estimates related to the outcome for those assessments taking into account the criteria above.
Page | 20
Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Peru
The Company was assessed $1.2 million (4.3 million Peruvian soles), including interest and penalties of $0.8 million (2.9 million Peruvian soles), for the 2010 tax year by SUNAT, the Peruvian tax authority, with respect to the deduction of certain losses arising from derivative instruments. The Company applied to the Peruvian tax court to appeal the assessment. On January 22, 2019, the Peruvian tax court reaffirmed SUNAT’s position and denied the deduction. The Company believes the assessment is inconsistent with Peruvian tax law and that it is probable the Company will succeed on appeal through the Peruvian legal system. The Company has paid the disputed amount in full and has initiated proceedings through the Peruvian legal system to appeal the decision of the Peruvian tax court.
As at March 31, 2024, the Company has recorded the amount paid of $1.2 million (4.3 million Peruvian soles) in other non-current assets, as the Company believes it is probable that the appeal will be successful (Note 8).
The Company was assessed $0.7 million (2.8 million Peruvian soles), including interest and penalties of $0.5 million (1.7 million Peruvian soles), for the 2011 tax year by SUNAT, the Peruvian tax authority, with respect to the deduction of certain losses arising from intercompany transactions. The Company applied to the Peruvian tax court to appeal the assessment. On May 14, 2019, the Peruvian tax court reaffirmed SUNAT’s position and denied the deduction. The Company believes the assessment is inconsistent with Peruvian tax law and that it is probable the Company will succeed on appeal through the Peruvian legal system. The Company has paid the disputed amount in full and has initiated proceedings through the Peruvian legal system to appeal the decision of the Peruvian tax court.
Argentina
On August 16, 2022, the Argentine Tax Authority (“AFIP”) published General Resolution No.5248/2022 (the “Resolution”) which established a one-time “windfall income tax prepayment” for companies that have obtained extraordinary income derived from the general increase in international prices. The Resolution was published by AFIP without prior notice.
The windfall income tax prepayment applies to companies that meet certain income tax or net income tax (before the deduction of accumulated tax losses) thresholds for 2021 or 2022. The aggregate amount of the windfall income tax prepayment payable by Mansfield calculated in accordance with the Resolution was approximately $0.9 million (810 million Argentine Pesos), excluding related accrued interest of approximately $0.3 million (277 million Argentine Pesos).
The windfall income tax prepayment was to be paid in three equal and consecutive monthly instalments, starting on October 22, 2022, and was payable in addition to income tax instalments currently being paid by corporate taxpayers on account of their income tax obligations. The windfall income tax prepayment is an advance payment of income taxes which were due to be paid in 2022.
Based on the historical accumulated losses of Mansfield for fiscal 2021, which can be carried forward for 2022, Mansfield was not liable for income tax, and based upon current corporate income tax laws and the ability of the Company to deduct historical accumulated losses, income tax will not be required to be paid for fiscal 2022.
To protect Mansfield’s position from having to pay the windfall income tax prepayment as an advance income tax for 2022, which based on management’s projections is not payable, Mansfield applied to the Federal Court of Salta Province for a preliminary injunction to prevent the AFIP from issuing a demand or other similar measure for the collection of the windfall income tax prepayment. On October 3, 2022, Mansfield was notified that the Court had granted the preliminary injunction. As a result, Mansfield did not pay any of the instalments.
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Fortuna Silver Mines Inc. Notes to Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2024 and 2023 (Unaudited - Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Mansfield also filed an administrative claim with the AFIP to challenge the constitutionality of the Resolution, which was rejected by AFIP on November 2, 2022. Mansfield has challenged the rejection of its administrative claim, by filing legal proceedings against the AFIP with the Federal Court. On February 15, 2023, the Federal Court granted Mansfield a preliminary injunction in these legal proceedings. Mansfield has subsequently presented additional documentation to AFIP which has resulted in the windfall tax prepayment installments being eliminated from Mansfield’s account in AFIP’s system. The legal proceedings to determine the unconstitutionality of the Resolution and whether interest is payable to AFIP continue under the protection of a preliminary injunction.
(e) Other Contingencies
The Company is subject to various investigations and other claims; and legal, labour, and tax proceedings covering matters that arise in the ordinary course of business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavourably for the Company. Certain conditions may exist as of the date these financial statements are issued that may result in a loss to the Company. None of these matters is expected to have a material effect on the results of operations or financial conditions of the Company.
27. SUBSEQUENT EVENTS
On April 1, 2024, the Company exercised its right to acquire one-half of the 1.2% net smelter return royalty at the Séguéla Mine for $6.5 million (10 million Australian dollars) as per a royalty agreement with Franco Nevada Corporation dated March 30, 2021.
On April 30, 2024, the Company announced that the Toronto Stock Exchange had approved the renewal of the Company’s NCIB to purchase up to 15,287,201 common shares, being 5 percent of its outstanding common shares as at April 26, 2024. Under the NCIB, purchases of common shares may be made through the facilities of the TSX, the NYSE and/or alternative Canadian trading systems. The share repurchase program started on May 2, 2024, and will expire on the earlier of: (i) May 1, 2025; (ii) the date the Company acquires the maximum number of common shares allowable under the NCIB; or (iii) the date the Company otherwise decides not to make any further repurchases under the NCIB.
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