Fortuna Silver Mines, Inc.

Overview

Established in 2005, Fortuna Silver Mines is a

growing, low-cost silver producer with two

operating mines in Peru and Mexico. The

company is focused on organic growth in

production and resources, as well as on

exploration and acquisition of economic silver

mineral assets in Latin America.

Fortuna expects to increase production from an

estimated 3.7M oz of silver and 17,400 oz of

gold in 2012 (4.6M silver equivalent oz) to an

estimated 5M oz of silver and 26,000 oz of

gold, not including significant lead and zinc

by-products, by 2014. In 2014, the company

projects total production of 6.4M silver

equivalent oz, a 39% increase. In 2011, the

company’s net realized price per ounce of

silver sold was over $30 USD.

Management

The company’s management team has deep

regional expertise, exploration savvy and

mining industry experience. The company’s

President and CEO, Jorge Ganoza, is a

geological engineer with over 16 years of

experience in exploration and mining in

Panama, Guatemala, Nicaragua, Honduras,

Mexico, Dominican Republic, Haiti, Peru and

Colombia. The company’s board of directors

is chaired by Simon Ridgway, who is a well

known prospector and mining financier. Mr.

Ridgway and exploration teams under his

guidance have discovered gold and silver

deposits in Honduras, Guatemala, and

Nicaragua.

The company’s Vice President of Exploration,

Thomas I. Vehrs, Ph.D., has over 35 years of

Company Type Mining

Resources Silver (Gold, Lead, Zinc)

Company Stage Junior Producer

Symbol TSX:FVI / NYSE:FSM /

BVL:FVI / FSE:F4S

Share Price (CAD) $3.81

52-week High/Low $3.50 / $7.58

Market Cap. $477,273,941

Shares Out. 125,268,751

Fully Diluted 128,957,040

Insider Ownership 2%

Major Shareholders Sentry Investments (9%),

Sprott Asset Management

(8%), Equinox Partners (5%),

Van Eck Global (8%), RBC

Asset Management (2%), US

Global Investors (1%)

Headquarters

Address

200 Burrard Street

Suite 650

Vancouver, BC V6C 3L6

Canada

+1.604.484.4085

info@fortunasilver.com

www.fortunasilver.com

Board of Directors Simon Ridgway, Jorge A.

Ganoza, Robert R. Gilmore,

Tomas Guerrero, Michael

Iverson, Mario Szotlender,

Thomas Kelly

CEO Jorge A. Ganoza

Operating Region(s) Peru, Mexico

Working Capital $56M (12/31/2011) *

Burn Rate N/A

Debt $0.00

Revenues $110,004,000 (2011 annual)

Profit/Loss $19,533,000 (2011 net

income)

Net Assets $271,606,000 (Total Assets as

of 12/31/2011)

* The company also has an undrawn credit facility of $20M.Fortuna Silver Mines, Inc. ©2012 Hera Research, LLC

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experience in mineral exploration and mine development, including positions with Gold Fields,

Cyprus-Amax, Western States Minerals and Anaconda Minerals. Since 1980, Mr. Vehrs has

worked extensively in Latin America developing and managing exploration programs in Chile,

Peru, Bolivia, Colombia, Argentina, Mexico and Central America. The company’s Vice

President of Operations, Manuel Ruiz-Conejo is a mining engineer with more than 25 years of

experience working with polymetallic mines and mine contractors in Peru.

Operating Mines

Fortuna has two operating mines, one in Peru and one in Mexico, as well as exploration

properties.

Caylloma Mine – The 100% owned Caylloma mine, located in Arequipa, Peru, is a lowcost, underground operation producing silver-gold-lead-zinc concentrates with an 8 year

life of mine estimate. The mine and processing plant are currently operating at a rate of

over 1,250 tpd. In 2011, the Caylloma mine produced approximately 2M oz of silver and

2,400 oz of gold, along with 23.4M lbs of zinc and 19.7M lbs of lead. The company’s

cash cost per ounce of silver produced net of by-product credits at Caylloma is effectively

zero (negative $0.59 USD).

San Jose Mine – The 100% owned San Jose mine, located in Oaxaca, Mexico, is a lowcost underground operation producing a high grade silver-gold concentrate that began

commercial production in September 2011 at a rate of 1,000 tpd. Processing plant design

capacity is 1,500 tpd and, beginning in 2013, the company expects to produce

approximately 3.2M oz of silver and 25,000 oz of gold annually with a 9 year life of mine

estimate. In 2011, after four months of commercial production, the San Jose mine

produced 490,555 oz of silver and 4,622 oz of gold. In 2012, San Jose is expected to

produce 1.7M oz of silver and 15,000 oz of gold. Cash costs of $7.84 USD per silver

equivalent oz are expected throughout the life of the mine.

Reserves and Resources

The company has total mineral reserves of approximately 44M oz of silver and 233,200 oz of

gold. The Caylloma mine reserves and resources are Proven and Probable reserves of 20.2M oz

of silver and 49,500 oz of gold, Measured and Indicated resources of 8.9M oz of silver and

21,800 oz of gold and Inferred resources of 11.8M oz of silver and 37,900 oz of gold. The San

Jose mine’s reserves and resources include Proven and Probable reserves of 23.6M oz of silver

and 183,700 oz of gold, Measured and Indicated resources of 2.9M oz of silver and 25,600 oz of

gold and Inferred resources of 22M oz of silver and 178,100 oz of gold.

Exploration Strategy

The company’s land holdings include more than 70,000 hectares in Peru and Mexico and in 2012

the company’s $15 million USD exploration budget will fund 44,000 meters of drilling.

Caylloma – Exploration of the 11,000 hectare land package surrounding the Caylloma

mine in Peru is ongoing and the company expects to upgrade and expand its reserves and

resources in 2012, which will extend the life of the mine.Fortuna Silver Mines, Inc. ©2012 Hera Research, LLC

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San Jose – Exploration activities are also underway on the 58,000 hectare land package

surrounding the San Jose mine. Access to the property surrounding the San Jose mine is

excellent and local infrastructure is good.

Mario – The company’s 4,900 hectare Mario project in Junin, central Peru lies in a

silver-base metal belt. Historical drill intercepts included 8.75 meters of 658 grams per

ton (gpt) silver, 9.15 meters of 560 gpt silver and 13.6 meters of 303 gpt silver, along

with significant lead and zinc.

Due to the vein structure of its existing deposits, the company plans to maintain its life of mine

estimates at 8-9 years through ongoing exploration to (1) replace reserves as they are depleted

and to (2) develop complementary near-mine operations (within 50 km of existing processing

plants). At the same time, the company is exploring the Mario project and evaluating new

properties.

For the company’s existing mines, President and CEO Jorge Ganoza does not believe in adding

ounces to resource estimates beyond what is needed to maintain an 8-9 year mine life. Mr.

Ganoza explained that “We are not in the business of adding ounces if they do not have an

impact on mine plans. If I can increase reserves and increment production, it makes sense.

Some companies report large quantities of ounces, but not all ounces are created equal. When

you look at it from an engineering perspective, you may find that many of these resource ounces

will never see the light of day.”

Business Plan

The company plans to maintain its 8-9 year life of mine estimates through ongoing exploration

while increasing production from 4.6M silver equivalent oz in 2012 to 6.4M silver equivalent oz

in 2014 (a 39% increase in production over 24 months). The company is evaluating expansion at

the Caylloma processing plant to 1,500 tpd, for which an environmental impact statement (EIS)

has already been approved.

The company’s Mario project could eventually become a third mine. Although plans have not

been finalized, the company hopes to bring a third mine to production by 2016. The company is

also evaluating post-discovery, pre-development properties in Latin America where production

costs would be below industry averages and where silver would represent more than 50% of

revenue.

Catalysts

An updated NI 43-101 resource estimate for the Caylloma mine is expected in mid-2012 while

exploration activities continue throughout the year. The San Jose processing plant will be

expanded to a capacity of 1,500 tpd in 2012. In 2013, production ramp-up to 1,500 tpd at the

San Jose mine will be completed and the company will begin construction of an offsite leaching

facility to convert concentrate to doré.

Investment Thesis

The company is profitable and growing in terms of mineral assets, production and revenues. The

company’s low cash costs suggest that profits will grow in step with increasing production.

Production is expected to increase 39% in the next 24 months. The company’s share price isFortuna Silver Mines, Inc. ©2012 Hera Research, LLC

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near its 52-week low. The company’s execution has been very consistent. All other things being

equal, the company’s share price seems likely to rise from recent lows.

For comparison, First Majestic Silver Corp. (TSX:FR / NYSE:AG) has consistently increased its

mineral assets, production and revenues while developing new mines and maintaining relatively

low production costs. Fortuna Silver Mines is well positioned to become the next First Majestic.

Major Risks

Outside of normal execution and operating risks or exogenous events, the primary risks to

Fortuna’s share price have to do with general stock market conditions and the price of silver