Shares of Fortuna Silver Mines took a hit on Thursday as the company announced that its mine in Mexico will run out of reserves earlier than expected, leading to potential increased costs. As of 10:06 a.m. ET, shares in Toronto were trading more than 11% lower at 4.25 Canadian dollars ($3.15).
The San Jose mine in Mexico, initially projected to exhaust its reserves by mid-2025, is now expected to deplete them by the end of this year. This significant reduction in estimated reserves has led to concerns about the future of the mine.
Fortuna Silver Mines attributed the faster depletion and increased costs to several factors. These factors include the appreciation of the Mexican peso, higher costs for contractors, rising labor costs, and new labor reform mandates.
Looking ahead, the company anticipates consolidated costs in 2024 to be up to 20% higher than in 2023. They estimate cash costs to range between $935 and $1,055 per ounce of gold equivalent. Fortuna Silver Mines explained that this increase is primarily due to lower production caused by the remaining life of the mine plan's grade profile and higher projected operational expenditures throughout 2023.
Despite challenges, Fortuna Silver Mines achieved record production in 2023, driven by strong output of gold and base metals in the fourth quarter. However, silver production declined due to a workers strike that halted production earlier in the year.
Looking to the future, the company aims to produce a gold-equivalent of between 457,000 and 497,000 ounces this year. This represents a projected increase of between 1% and 10% compared to the output in 2023.
In conclusion, Fortuna Silver Mines faces significant challenges with its Mexican mine as reserves are expected to run out earlier than anticipated. Higher costs further compound the difficulties. Despite these obstacles, the company remains optimistic about its production prospects for this year.