From Canaccord Genuity:

TRINIDAD NORTH DISCOVERY COULD BE A GAME CHANGER FOR SAN JOSE

Investment recommendation

We maintain our SPECULATIVE BUY recommendation on the shares of Fortuna Silver with a 12-month target price of C$6.25, unchanged.

Investment highlights

- Fortuna released a third set of drill results from the Trinidad North discovery at its San Jose mine in Mexico. The results included some impressive high-grade intercepts over wide intervals (779-1,610 g/t AgEq over 3.0-19.3 metres).

- To date, drilling has outlined roughly a 200 by 200 metre zone of mineralization beyond the limits of the current resource. What is particularly impressive are the 12 high-grade intercepts grading in excess of 500 g/t AgEq over 2-19 metre true widths. These intercepts have returned an average grade of 713 g/t silver and 4.4 g/t gold over an average true width of 8+ metres, more than 3x the average reserve grade for San Jose.

- The discovery remains open to the north and at depth. An initial resource estimate is expected in H2/13 with the potential for initial production by late 2014. Given the grade, Trinidad North has the potential to boost annual production from San Jose to 6.5+ million ounces of AgEq, from 5.0 million currently.

Valuation

While the acquisition of the Taviche Oeste concession in January 2013 perhaps wasn’t the acquisition that investors were looking for, the $10 million price tag now looks like excellent value given the subsequent discovery of Trinidad North. Fortuna should provide more clarity on the potential size and contribution from the Trinidad North discovery in H2/13E. From our perspective, the potential to organically grow its annual production to more than 9.0 million ounces of silver-equivalent through the development of Trinidad North is completely overlooked in the shares of FVI. We continue to value the shares of FVI based on a 1.0x multiple to our peak silver price estimate of NAVPS.