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Why Shares of Fortuna Silver Mines Fell 28% in November

By Scott Levine – Dec 9, 2021 at 6:30AM

Key Points

  • The company has failed to secure a permit for the San Jose silver and gold mine.
  • Net income dropped significantly year over year.
  • The falling price of silver and Wall Street's pessimism helped push the stock lower.

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A growing concern with a key asset found south of the border was just one issue worrying investors last month.

What happened

Through the first 10 days of November, things seemed to be going well for investors of Fortuna Silver Mines (FSM 1.31%), as the stock climbed more than 8%. But the good times didn't last, and the stock ended up 28% lower at the end of the month than where it began at the start, according to data from S&P Global Market Intelligence.

Shares started their downward spiral on Nov. 12 in response to the company reporting its third-quarter 2021 earnings -- including a concerning update regarding operations at the San Jose asset -- after the market closed on the previous day. That wasn't the only source of investors' consternation, though. A dour sentiment toward the stock emanating from Wall Street, as well as the declining price of silver, provided additional catalysts for the stock's sell-off throughout the month.

A close up image of silver bars.

Image source: Getty Images.

So what

While there were some glittering spots in the Q3 2021 earnings report from Fortuna Silver Mines, investors seemed to focus more on the weaknesses. The company, for example, reported net income of $0.2 million in the recently completed quarter -- dramatically lower than the $13.1 million that the company reported during the same period last year.

But investors' concerns, in all likelihood, transcended the company's lackluster bottom line. Instead, shareholders were probably more fixated on the company's report that it was unclear whether it would be allowed to continue operations at San Jose, a silver and gold mine located in Mexico, due to the failure to secure the appropriate permits.

On Nov. 19, Fortuna Silver Mines provided an update to investors in which it noted that it may take up to a year to receive a decision on its appeal to receive the necessary permit related to the environmental-impact authorization. Management also stated that it believed it was "fundamentally in compliance with all material aspects of the EIA [the U.S. Energy Information Administration] and is entitled to an extension."

Investors didn't seem too impressed. Shares closed nearly 4% lower on the day of the update.

Of course, the usual suspects -- commodity prices and analyst actions -- also had a hand in helping this stock to move lower last month. The price of silver dropped 5% throughout November, and analysts from Canaccord and BMO Capital both downgraded the stock, reflecting their bearish opinions on the precious-metals producer.

Now what

There's been little so far in December to encourage investors to start picking up shares of Fortuna Silver Mines again. Consequently, the stock has dipped about 1% so far this month.

Those on the sidelines considering a position in Fortuna Silver Mines would be wise to watch this one from a distance until the matter of San Jose and its permit is resolved. Better yet, silver investors may want to consider one of the many other choices available to them in order to add some luster to their portfolios.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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