Executive Summary / Key Takeaways

• Strategic transformation complete: Fortuna Mining has surgically removed its highest-cost, shortest-life assets (San Jose and Yaramoko) in early 2025, reallocating $50 million in capital toward a focused portfolio of high-margin gold operations that generated $73 million in quarterly free cash flow and a $266 million net cash position.

• Séguéla's inflection drives the story: The flagship mine is exceeding 2025 production guidance of 150,000 ounces while expanding resources at Sunbird and Kingfisher, positioning it to deliver 160,000-180,000 ounces in 2026 at industry-leading costs, making it the primary engine for margin expansion and growth.

• Lindero's turnaround validates the model: A $69 million impairment reversal in Q3 2025 signals structural improvement, with all-in sustaining costs dropping 12% quarter-over-quarter to $1,570 per ounce as the completed leach pad expansion and solar plant commissioning unlock a decade of lower-cost production.

• Diamba Sud offers a company-making opportunity: The Senegal project's preliminary economic assessment shows a 72% after-tax IRR and $563 million NPV at $2,750 gold, with potential to add 150,000 ounces annually by 2027, providing visible path to management's 500,000-ounce target.

• Valuation disconnect creates asymmetric risk/reward: Trading at 11.5 times earnings versus a peer average of 22.7 times, the market has not repriced Fortuna's transformed earnings power, strong balance sheet, and clear growth trajectory, suggesting meaningful upside if execution continues.

Setting the Scene: From Silver Diversification to Pure Gold Focus

Fortuna Mining Corp., incorporated in 1990 and headquartered in Vancouver, Canada, spent three decades building a geographically diverse portfolio of precious metals mines before recognizing that breadth had become a liability. The company originally operated as Fortuna Silver Mines, a name that reflected its historical emphasis on silver production across Latin America and West Africa. By 2024, this diversification strategy had produced diminishing returns, with some assets approaching reserve depletion while consuming disproportionate management attention and capital.

The 2021 acquisition of Roxgold, which brought the Séguéla gold mine in Côte d'Ivoire, marked the inflection point. Séguéla's first full year of production in 2024 generated over $1 billion in sales and enabled Fortuna to transform a $198 million net debt position into $59 million of net cash. This financial strength provided the ammunition for the decisive portfolio optimization executed in early 2025, when management divested the San Jose mine in Mexico and Yaramoko mine in Burkina Faso for $84 million in gross proceeds. These divestitures matter because they eliminated the company's highest-cost operations and jurisdictions with deteriorating business and security environments, freeing approximately $50 million in annual capital for redeployment toward higher-return opportunities.

Today, Fortuna operates as a fundamentally different company: a focused gold producer with two core operating assets (Séguéla and Lindero), one steady polymetallic cash generator (Caylloma), and one high-growth development project (Diamba Sud). This concentration reduces jurisdictional risk and operational complexity while improving consolidated margins. The company now competes directly with mid-tier gold producers like Hecla Mining (HL), Pan American Silver (PAAS), Endeavour Silver (EXK), and Coeur Mining (CDE), but with a cleaner portfolio and superior balance sheet that provides strategic flexibility its peers lack.

Operational Excellence: The Engine of Margin Expansion

Fortuna's competitive advantage lies not in scale—its 309,000-339,000 gold equivalent ounce guidance for 2025 trails larger peers—but in operational intensity and capital discipline. Management's explicit strategy is to "chase value, not ounces," meaning every investment must demonstrate clear returns rather than simply expanding production. This philosophy manifests in three critical operational initiatives that directly impact margins.

First, the Séguéla mine expansion demonstrates how exploration success translates into production growth without acquisition premiums. The Sunbird and Kingfisher deposits have increased indicated resources by 53% and inferred resources by 93%, supporting a production ramp from 137,781 ounces in 2024 to a projected 160,000-180,000 ounces by 2026. The $78 million capital budget for 2025 funds processing plant debottlenecking and transmission tower replacement that will enable this growth. Organic growth, costing approximately $50 per incremental ounce of annual production capacity versus $200-plus for acquisitions, demonstrates superior capital efficiency.

Second, Lindero's transformation shows how operational fixes unlock hidden value. The $51.8 million leach pad expansion completed in Q1 2025 extends mine life by ten years while the 6-megawatt solar plant, 97% complete in Q1 and fully operational by Q3 2025, will cut diesel consumption by 42%. These investments explain why Lindero achieved its highest quarterly production of 24,417 ounces in Q3 while reducing AISC by 12% to $1,570 per ounce. The $69 million impairment reversal signals management's confidence that these improvements are structural, not cyclical.

Third, the Diamba Sud project's 72% IRR and $563 million NPV reflect both geological quality and management's fast-track development approach. By advancing early works with a $17 million Phase 1 budget while drilling continues with five rigs, Fortuna is derisking the timeline and potentially improving project economics before the construction decision in H1 2026. This approach demonstrates capital allocation discipline, investing in derisking activities that shorten the path to first gold and lower the cost of capital when full construction financing is required.

Financial Performance: Evidence of Strategic Success

Third quarter 2025 results provide concrete evidence that Fortuna's transformation is delivering financial results, not just strategic positioning. Consolidated revenue of $251.4 million, while not disclosed in detail, supported attributable net income of $123.6 million or $0.40 per share. However, the adjusted net income of $0.17 per share, which excludes the $69 million impairment reversal, tells the more important story: core earnings increased 56% year-over-year and 14% sequentially, driven entirely by higher realized gold prices and operational improvements.

The adjusted EBITDA margin of 52% demonstrates that Fortuna's cost structure has fundamentally improved. Consolidated cash costs remained below $1,000 per ounce despite inflationary pressures, while all-in sustaining costs tracked within guidance ranges.

Free cash flow of $73 million in Q3, up $16 million from Q2, reflects both higher gold prices and disciplined working capital management. Net cash from operating activities before working capital changes reached $114 million or $0.37 per share, exceeding analyst consensus of $0.36.

The balance sheet transformation is equally significant. Liquidity stands at $588 million with a net cash position of $266 million, representing a $200 million increase year-to-date. This war chest provides multiple strategic options: fund Diamba Sud development without dilution, expand Séguéla beyond current plans, or return capital through the share buyback program that management has identified as its preferred capital return method. With debt-to-equity of just 0.13, Fortuna has the lowest leverage among its peer group, providing resilience during gold price downturns while enabling aggressive investment during upswings.

Capital expenditures of $48.5 million in Q3, including $17 million of growth capital, reflect the company's investment phase. The full-year 2025 capex guidance increased to $190 million from $180 million due to added exploration success at Séguéla and Diamba. This allocation of capital to the highest-return opportunities, rather than arbitrarily constraining investment, is a discipline that will drive long-term value creation even if it temporarily pressures free cash flow conversion.

Segment Dynamics: The Value Drivers

Séguéla: The Crown Jewel

Séguéla's Q3 production of 38,799 ounces brings year-to-date output to 115,485 ounces, firmly on track to exceed the upper end of 2025 guidance above 150,000 ounces. The mine's cash cost of $698 per ounce remains among the lowest in West Africa, while the AISC increase to $1,738 reflects timing of capital investments and higher royalty payments due to elevated gold prices—not operational deterioration. Management expects AISC to finish the year at the upper end of guidance but decline as key investments complete in Q3-Q4 2025.

The strategic significance extends beyond current production. Permitting approvals for five satellite pits (Sunbird, Kingfisher, Badior) received in Q3 unlock additional high-grade feed sources, while underground mining operations slated for 2027 provide a second production leg. The 8.5 million tonne tailings storage facility lift completed in Q3 provides capacity until late 2029, eliminating near-term infrastructure constraints. This demonstrates a mine that is not just performing today but has a clear, permitted pathway to sustain and grow production through the end of the decade.

Lindero: The Turnaround Story

Lindero's Q3 performance validates the heavy capital investment of the past two years. Production of 24,417 ounces, up 4% quarter-over-quarter, resulted from a 5% increase in gold grade and effective inventory recovery from the expanded leach pad. More importantly, the 12% reduction in AISC to $1,570 per ounce demonstrates that fixed costs are being absorbed by higher throughput and that sustaining capital requirements are normalizing after the leach pad expansion.

The $69 million impairment reversal, including $17 million for low-grade stockpiles that are now economic at $3,467 gold, signals a fundamental shift in the asset's value proposition. With the solar plant reducing power costs by 42% starting in Q3 2025 and the leach pad supporting ten additional years of production, Lindero has evolved from a marginal operation into a reliable cash generator. This removes a historical drag on consolidated margins and provides geographic diversification in a mining-friendly jurisdiction where the government has strengthened its pro-investment mandate.

Caylloma: The Steady Cash Generator

Caylloma's Q3 silver equivalent production of 243,000 ounces, combined with 8.8 million pounds of lead and 13.8 million pounds of zinc, demonstrates the mine's consistent execution. While cash costs increased to $17.92 per silver equivalent ounce due to higher silver prices and lower by-product credits, the mine remains firmly profitable and continues to generate free cash flow. The $5.4 million investment in a hydraulic paste backfill plant completed in April 2025 reduces operating costs and improves safety, supporting long-term sustainability.

Caylloma matters not for its growth potential but for its stability. In a portfolio focused on gold expansion, the mine provides base metal diversification and consistent cash flow that funds exploration without diluting the gold story. Management's decision to retain Caylloma despite its smaller scale reflects disciplined capital allocation: it generates returns above the cost of capital and maintains a strategic presence in Peru, a top-tier mining jurisdiction.

Diamba Sud: The Growth Option

Diamba Sud represents the most significant value creation opportunity in Fortuna's pipeline. The PEA's 72% IRR at $2,750 gold implies robust economics even at lower prices, while the $563 million NPV at a 5% discount represents a substantial value relative to Fortuna's current enterprise value of $2.89 billion. The resource update showing 53% growth in indicated ounces and 93% growth in inferred ounces to a combined 1 million ounces suggests the PEA may understate ultimate potential.

Management's fast-track approach—advancing early works while drilling continues with five rigs—demonstrates capital efficiency. The $17 million Phase 1 budget for site camp and infrastructure derisks the timeline, while the government's support for Phase 2 early works signals regulatory alignment. With environmental approval expected in H1 2026 and a construction decision targeted for the same period, Diamba Sud could begin production by 2027, adding 150,000 ounces annually at AISC around $1,200 per ounce. This provides a visible, high-return pathway to achieve management's 500,000-ounce target without dilutive acquisitions.

Outlook and Execution: The Path to 500,000 Ounces

Management's guidance for 2025 production of 309,000-339,000 gold equivalent ounces reflects the portfolio's transformed composition. Séguéla's outperformance and Lindero's recovery offset the divested Yaramoko and San Jose production, demonstrating that quality ounces replace quantity. The key assumption supporting this outlook is that gold prices remain above $3,000 per ounce, which management views as sustainable given macroeconomic tailwinds.

The 2026 production target of 160,000-180,000 ounces from Séguéla at AISC of $1,600-1,700 per ounce implies margin expansion even if gold prices moderate. This guidance assumes successful completion of the processing plant expansion and underground development studies. The timing of capital investments in Q3-Q4 2025 creates a temporary AISC headwind that will reverse as these growth projects deliver production, a pattern management has clearly communicated to avoid market misinterpretation.

Diamba Sud's timeline—construction decision in H1 2026, first production potentially in 2027—aligns with Séguéla's expansion, creating a staged growth profile that minimizes execution risk. The $51 million exploration budget for 2025, up from $41 million in 2024, funds both brownfield expansion at existing mines and greenfield opportunities in Côte d'Ivoire, Mexico, and Peru. This demonstrates a pipeline mentality, investing in multiple shots on goal rather than betting everything on a single project.

Risks: What Could Break the Thesis

The most material risk is execution failure on the Séguéla expansion. While Q3 production exceeded targets, the unexpected primary crusher shutdown on September 27, 2025, highlights operational fragility. Management's mitigation using a portable rental crusher and direct ore screening appears effective, with no expected impact on annual guidance, but any extended downtime during the critical Q4 push could delay the 2026 production ramp. Séguéla represents over 50% of future production; any shortfall would disproportionately impact valuation.

Argentina's macroeconomic environment poses a second risk. The $7.4 million foreign exchange loss in Q3, driven by a 14% peso devaluation, demonstrates currency volatility. While management has repatriated $62 million from Argentina and aims to maintain minimal local cash balances, further devaluation could impact Lindero's cost structure and create additional FX volatility. The political risk is mitigated by the government's strengthened pro-investment mandate, but capital controls and inflation remain headwinds.

Higher gold prices, while beneficial for revenue, create a margin squeeze through increased royalty payments. Séguéla's AISC rose from $1,290 in Q1 to $1,738 in Q3 primarily due to royalties on higher gold prices. If gold sustains above $3,400 per ounce, royalty burdens could increase further, offsetting some of the price benefit. This caps margin expansion potential and makes cost control even more critical.

Finally, the Diamba Sud development carries execution risk typical of greenfield projects. While the PEA is robust and early works are advancing, any delays in environmental permitting, cost overruns during construction, or lower-than-expected resource conversion could push first production beyond 2027 and reduce the project's IRR. Management's fast-track approach mitigates this, but West African projects face infrastructure and logistical challenges that could impact timeline and budget.

Valuation Context: The Mid-Tier Discount

At $10.12 per share, Fortuna trades at 12.05 times trailing twelve-month earnings and 2.90 times sales, a significant discount to mid-tier precious metals peers. Hecla Mining trades at 54.26 times earnings despite generating lower free cash flow relative to its enterprise value. Pan American Silver commands 26.40 times earnings with similar geographic exposure but higher political risk concentration in Latin America. Endeavour Silver, at negative margins, trades on growth expectations rather than profitability. Coeur Mining, with strong recent performance, trades at 24.32 times earnings.

Fortuna's enterprise value to EBITDA of 4.62 times compares favorably to Hecla's 20.97 times, Pan American's 14.48 times, and Coeur's 15.94 times, suggesting the market underappreciates its cash generation. The price-to-free-cash-flow ratio of 12.04 times is particularly attractive given Q3 free cash flow of $73 million and the expectation of accelerating cash generation as growth capital converts to production.

The valuation discount likely reflects three factors: First, the market has not fully recognized the portfolio transformation, still pricing FSM as a higher-cost diversified producer. Second, the mid-tier gold space suffers from generalist investor apathy, with capital flowing to either large-cap majors or single-asset developers. Third, the West African exposure, despite Côte d'Ivoire's stable pro-business environment, carries a perception discount relative to North American assets.

This creates an asymmetric risk/reward profile. Downside is protected by the $266 million net cash position, low debt, and cash-generating assets. Upside could come from multiple expansion as the company delivers on its 500,000-ounce target, or from a takeout premium if a larger producer seeks high-quality, low-cost ounces in stable jurisdictions.

Conclusion: A Transformed Company at an Unchanged Valuation

Fortuna Mining has executed one of the cleanest portfolio transformations in the mid-tier mining space, divesting high-cost, short-life assets to create a focused, high-margin gold producer with visible growth to 500,000 ounces. The evidence is clear in Q3 2025 results: Séguéla exceeding guidance, Lindero's impairment reversal and cost reduction, Diamba Sud's robust PEA, and a balance sheet that has grown net cash by $200 million year-to-date while funding aggressive exploration.

The central thesis hinges on two variables: successful execution of Séguéla's expansion to 180,000 ounces by 2026, and advancing Diamba Sud to construction decision in H1 2026. If management delivers on these milestones, the current 11.5 times earnings multiple should re-rate toward the 20-plus times peer average, implying 70% upside even without gold price appreciation.

The market's failure to reprice the stock reflects short-term focus on quarterly AISC fluctuations and lingering skepticism about West African operations. However, Fortuna's net cash position, low leverage, and demonstrated operational improvements provide downside protection while the growth pipeline offers substantial upside optionality. For investors willing to look beyond the mid-tier discount, Fortuna offers a rare combination of margin expansion, production growth, and balance sheet strength at a valuation that assumes the transformation has not yet begun.