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Scotiabank Raises Target On Fortuna Silver, But Cuts Estimates For Acquisition Accretion

June 13, 2016 3:10 pm
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Scotiabank analysts Craig Johnston and James Steels have increased their price target on Fortuna Silver Mines Inc (NYSE: FSM) to $6.25 from $5.60. However, the brokerage reduced their estimation for acquisition accretion in half.

“We have integrated the acquisition of Goldrock Mines Corp. into our estimates for Fortuna Silver. As a result, our net asset valuation has increased 12 percent to $3.87/sh and our new target price is $6.25/sh (up from $5.60/sh previously). We breakdown our pro forma estimates herein. We maintain our Sector Perform rating,” according to the two analysts’ research note to clients.

Scotiabank said, “[T]he acquisition is in line with Forotuna Silver’s recent commentary regarding M&A, and the timing of the transaction and the Lindero project schedule fits well with the completion of the expansion project at San Jose.” The analysts emphasized that their primary concern there is the higher political risk profile of the company due to the entering into Argentina. This caution is reflected in their valuation.

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The brokerage highlighted key points such as each common share of GRM would be exchanged for 0.1331 of a share of Fortuna valuating GRM shares at C$1.08, which represents a 58.2 percent premium to June 7 closing price, and an 84.6 percent premium to the 20-day VWAP.

Scotiabank think that the 100 percent-owned Lindero project is “fully-permitted, open-pit, gold, heap-leach project located in the Salta Province of Argentina.” Over the past two months, Fortuna management conducted extensive due diligence, internal modeling and a site visit with their technical team.

At time of writing, Fortuna Silver was down 2.62 percent at $6.33.

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