Warning! This is ULTRA HIGH RISK!!!

I sold Pure Gold purchase of a month ago for roughly 5% profit this AM. I had a target of 20% on this, but something came up that is a really good opportunity and I needed to liquidate some things in order to move it there. Had to dump some of this, and I figured I’d forego a few hundred bucks to catch a whale here.

I also trimmed my golden minerals, and I will buy back a lot of this stuff – if there’s profits to be had.

I will still be holding a FULL position of Pure Gold after the sale, and I plan on holding this up until $2300-$2500 gold. It’s going to be bumpy, yes.

But Fortuna Silver mines popped on to my radar. This could FAIL MISERABLY, so be WARNED.

This is a HIGH RISK SPECULATION – but I also wanted to show you a strategy, that if things go well, to try and lock in profits.

The setup

Last week, we heard that the environmental permit was denied for FSM in Mexico. Not going to go into all of the details as I’m low on time, but the big picture is the HOPE is that Mexico allows the permit and FSM goes back to normal operations within a week or two.

I did a financial analysis of FSM last week with a bunch of others, and they were my 6th best silver miner out of the 13 I evaluated – mostly middle of the pack with finances, but their jurisdictions were the headache for me. That was also BEFORE the 3rd quarter earnings, which were favorable which sent the stock price up to $5.52. Little did I know Mexico would be their biggest headache the next day.

Anyway – this is their recent chart…

How to play this?

  1. Buy and hold. Their “normal” trading channel is between $6-$8 with $25-$28 silver. This is safe with perhaps a 40% upside easily if they recover.

This mostly doesn’t even take into account their acquisition of Roxgold. So, with perhaps $30+ silver price in the next 6 months with Roxgold acquisition starting to hit them with more profit, it’s not hard to see this stock rebounding IF the permit is re-instated to perhaps $8-$11.

2. Shorter term call options. I know Dave Kranzler and some are playing shorter term options calls – they know what they are doing. I bought some of these – with the next item as my safety net in case it doesn’t recover in time. These can go ballistic in value if we get news this week the mine can operate on a new permit.

3. Longer term options calls. You pay more for the time premium, but this also provides you some time in case they set a court date up in early Feb, you don’t get smoked on item number 2 above.

How deep am I? Oh god…deep. Michael Saylor deep. The top one is where we are at the moment, but I added scenarios for a full recovery within a week or so, then overshoots to $6 or $7 if there’s an S ton of call options which cause any kind of short squeeze or to account for a higher silver price. Lastly, my last assumption is a $12 FSM price that might be hit if we cross over to $35 silver and $2100 gold in Q1/Q2 of 2023. For THIS, I removed the short term options and just assume I broke even on them.

This is DEEEEEEP for me. And again, if this is BAD NEWS, I lose the short term plays, completely, and can make up the loss with the stock recovery and higher prices in Q1//Q2. So I have very low downside risk and pretty high upside risk.

Meaning – IF there’s a recovery up to $5.52 – I have a potential 148% profit here in 1-2 weeks if I cash out. IF it has bad news that this mine is closed, the stock right now is trading BELOW valuation with SJ removed. Remember, they really haven’t even digested the Roxgold acquisition yet. THIS has me losing short term options but recovering to perhaps a $6 share price on $27 silver easily recovering the $2400 in short term options.

Edit above – at the end of the day 11/15, I also bought 7,000 shares at $4. I also bought 3 more of the Jan 2023 $3 calls to make it an even 20.

What I would PROBABLY do here is find a way to take my seed money off the table. IF we get a $5.52 recovery in a week, the short term options have a value of $11,100. Give or take losing some time premium. This allows me to then re-invest this into other stocks I just liquidated to raise this capital, and perhaps take $2,000 out for Xmas! This then leaves me with roughly $14,000 in options that are fully paid for and can go to zero. I’d probably sell over the next year into price increases and have no real need to sell on pullbacks because they are fully paid for.

If you then look at the bottom of this, you see at a $12 stock price, I have $54,108 in value, but these were paid for with the above short term options. This is GAME CHANGING, because on pullbacks on this bull run, I can then buy positions beaten down or chase some other setups with seed money.

Let’s look at the chart above more closely. You see the green trading range, right? You can then see the melt down with virtually all miners in June/July, and this coincided with the Peru news as well. Well, There’s no reason with $30-$35 silver in the next 6 months that we cannot see a $12 stock price. Look at the upside versus small downside risk!!

So – could the stars align and get me liftoff, or will the environmental permit be denied and I have a minimum downside risk?

Edit – risk analysis


  1. Denied in the courts and SEMARNAT and SJ mine kept offline. This represents 26% of EBITDA currently, and 20% next year. We should know within a short time if a permanent injunction can succeed.
  2. $120m in credit defaults. First is a $20m due by Jan 23rd 2022 if permits not extended. Second is $100m by Apr 2023. Net result of this is suspicion of share dilution to fund this.
  3. Local town hates the mine and wants it gone
  4. Mine minister has connections to the local town and this may be the underlying reason it is being attacked.

Mitigating factors

  1. SJ mine is still producing, a temporary injunction allowed operations to continue so revenue has not stopped.
  2. Fortuna has nice FCF and with rising prices of silver and gold expected in the next few months, there could be a nice surprise to the upside of revenue.
  3. FSM has $151m in working capital from my analysis sheet. This is before 3rd qtr numbers, so it may be a little higher. This working capital should not be much of a problem to cut a check for the Jan 2023 debt. By paying this down, it lessens the interest expense and improves Net Income.
  4. The $100m that would be due in April could also potentially be paid out of the coffers – which would drain substantial liquidity. Remember, we potentially have some really good metals prices ahead which could go to help this. What this COULD do is delay the construction decision of the mine that is supposed to start up in 18 months.
  5. By paying down credit, again, Net Income improves and debt to equity ratio improves substantially. It would be more likely that credit is re-negotiated to adhere to a permanent injunction rather than a permit that could be delayed by years. I do NOT work in the credit side of things, so not sure this is possible.
  6. Local town has 2,000 workers in the mine, with a few thousand others making money off of the local businesses that have money because these workers have incomes. To close the mine would devastate the local town’s economy.
  7. Mexico has had some issues with perception lately, take the Fresnillo article and then the First Majestic tax issues. They have seemed to be creating a belligerent stance towards Canadian miners lately. However, IF this is found against Fortuna, this could signal that the Mexican mining jurisdictions are now super high risk and investment money could dry up coming into the country, completely. You have seen First Majestic divest some of their operations now to Nevada. IF this is found against FSM, I have read in an opinion piece that Mexico, as a mining jurisdiction, “is dead”. I don’t think that is the end goal here.
  8. Miners hire a ton of local miners and pay lots of taxes to Mexico. Finding against them is decimating tax revenue for decades until the reputation comes back.
  9. The share price, TODAY, discounts San Jose. So, IF found against – the issue you are then seeing with the share price is not against SJ, but worried about how to pay the credit facility. As I mentioned above, they have a lot of working capital and can restructure. Worst case is dilution – however, with dilution, you are then faced with $120, of their $171m LT debt is gone. This decreases their interest expense – which is relatively low now at $6.8m per year. I don’t know how their debt is structured and when notes are due – so at face value, you are paying off debt with that issuance of shares. While share price takes a hit on dilution, it improves with stronger earnings due to less debt being paid and a stronger balance sheet with less debt. What I COULD see – WORST CASE – is they write a check for $20m in January, they make gobs of money over the next 4 months mining, delay the construction decision by 3 months, and write a check for $50-80m in April and dilute with share issuance of $20-$50m. Given they have a $1.2b mkt cap, you are diluting by 4%-6%? Meaning – share price could go from $4 now to $3.84 or $3.76? So my downside risk is share dilution by maybe 5%?
  10. The share price, TODAY, apparently doesn’t really digest the Roxgold acquisition of last year. This is according to mining stock experts – and not me. The share price actually seemed to go down after this. My estimates had Fortuna back in the day at a 40-45% silver producer now somewhere around 30%. The Roxgold acquisition should be pumping gold revenues into FSM which will show up in earnings, and correct to the upside.
  11. Apparently, Lindero is ramping up production which also should be increasing their revenues. Unclear if this forward looking information was priced into the share price.
  12. They got killed with everyone with the Peru jurisdiction, and many have since started to recover as the rhetoric has been more subdued. Expecting this to increase the share price more over time.
  13. Gold and silver should move very nicely over the next 3-5 months. I believe these increased revenues should help pay down any debt.
  14. This year, SJ is 26% of EBITDA, but this will decrease to 20% next year with Lindero stepping up. 18 months out another mine is coming online. So the share price was attacked 31%, where the revenues from SJ only accounting for 26% – meaning, it seemed there was a market overshoot to the downside. Perhaps it was thinking of the credit risk with the downgrade. But I felt THAT overshoot allows for me to be off by 5-10% and when that corrects, if bad news happens, I could not lose my shirt.

Overall, I have risks in the short term of December and January call options going to zero. I am now in a total of $38,854 on this trade, with $27,965 being in shares. The Dec calls cost me $885, and I’m willing to let them run for the next month to zero. The January calls are $4 which cost me $.40. With higher gold and silver prices and bad news, I’m breaking even on them. I feel my downside risk, short term is with the $2700 in Dec/Jan call options.

I then have Jan 2023 $3 and $4 strikes. To me, any short term downside risks can be made up with time. I paid $1.62 and $1.13 respectively for these, so the share price only has to be $4.62 for the $3 strikes in Jan 2023 to break even and $5.13 for the $4 strikes to break even. Even with TERRIBLE news and dilution, higher metals prices, Lindero, Roxgold revenues, and anticipation of the new mine should easily make up any ST losses over the course of the next 13 months.

Lastly, I have regular shares here which I have optionality with. I can hold LT and perhaps sell if FSM hits $12 a share on $35 silver prices and good news in 2022, or if bad news happens, I can weather the storm and sell them for 50% higher at $6 and recover all of my options losses. I’d sell the longer term options at a 50% loss.

Overall, my risks here are about 10-20% to the downside before I’d cut bait. This takes me from a $38,854 investment into perhaps $35,000 or $31,000. So I have a few thousand dollars I could lose here if I draw snake eyes on everything.

The UPSIDE is listed as well.

  • My MINUMUM upside here is playing a recovery back to the share price at $5.52. That gets me a 68% overall profit in a few weeks.
  • $6 overshoot from a squeeze play and everyone playing call options has this at a 91% profit
  • $7 assuming this overshoot happens with a silver price going up to $28 in the next few weeks – 142% gain
  • $12 stock assuming $35 silver price and good things happening. 282% upside.