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Fortuna Silver Mines (NYSE:FSM ) released its full-year 2021 gold production equivalent and full-year 2022 production guidance on January 18, 2022.

For the full-year 2021, the Company produced 207,192 ounces of gold and 7,498,701 ounces of silver or 305,859 gold equivalent ounces (GEOs).

Note: To calculate GEOs, the company uses a ratio of silver to gold of 76:1.

Fortuna Silver Mines has underperformed the group with a loss of 49% on a one-year basis. Most of the recent loss is due to the San Jose Mine issue, which has been mitigated but did not produce any significant effect despite a brief positive uptick lasting a few trading days after the "good news" was announced.

The investment thesis for Fortuna Silver is now definitely clearer after the Secretaría de Medio Ambiente y Recursos Naturales (“SEMARNAT”) granted a twelve-year extension of the environmental impact authorization (“EIA”) at the San Jose Mine, located in Oaxaca, Mexico, on December 20, 2021.

I believe the stock presents a good profile for a long-term investment.

However, the gold price will continue to be very volatile in 2022. It is crucial to trade short-term LIFO about 45% to 55% of your long-term FSM position to profit fully from this increasing volatility.

a - Gold and silver production history

Chart gold and silver production history

Fortuna Silver Mines produced 1,980,243 ounces of silver and 76,162 ounces of gold. As you can see in the graph above, gold production jumped to a historical high.

b - Gold and silver prices history (Estimated for 4Q21)

Chart gold and silver price history

c - Zinc and Lead production history (Caylloma Mine)

Chart Zinc and Lead production history

d - Details per mine and metal produced

Note: Reserves P1 P2 represent 3,617K Au Oz and 28.8M Ag Oz, including the Séguéla Mine project.

The Séguéla Project is 29% complete with critical path items going on schedule, targeting the first gold pour in mid-2023 with ramp-up to nameplate capacity in the third quarter of 2023.

Critical path activities of “SAG Mill Procurement and Processing Plant EPC” contracts are 30% complete and are advancing in line with cost and schedule. Connection to the national electrical grid is on track for completion in the fourth quarter of 2022, ahead of commissioning activities.

Gold production of between 244K to 280K ounces; a projected increase of between 16% and 35% over 2021.

Silver production of between 6.2Moz to 6.9Moz; a projected decrease of between 8% and 17% over 2021.

Gold equivalent production of between 326K and 371K ounces; a projected increase of 7% to 21% over 2021.

FSM forms an ascending channel pattern with resistance at $3.88 and support at $3.40.

The short-term trading strategy is to trade LIFO about 45-55% of your position and keep a core long-term amount for a much higher payday. I suggest selling between $3.85 and $4 and waiting for a retracement below $3.40-$3.30 if possible.

FSM could experience a breakdown if the gold/silver prices lose momentum and retest the lower support at $2.55.

Conversely, if the gold/silver prices turn bullish due to a frightening jump in inflation and a continued slow response from the FED, FSM could break out and reach $4.5 and potentially higher.

The recent trading activities related to the San Jose Mine have been felt like a great disappointment for many shareholders.

As you all know, FSM took a definitive turn to the worse when the company announced that the Secretaría de Medio Ambiente y Recursos Naturales (“SEMARNAT”) denied the EIA 12-year extension in November 2021.

However, the company appealed the decision, and the SEMARNAT granted a twelve-year extension of the environmental impact authorization (“EIA”) at the San Jose Mine on December 20, 2021.

Unfortunately, the stock has not recovered from the initial drop and seems to be trading in correlation with the price of gold essentially. It is a good lesson showing how important it is to trade LIFO a good part of your position.

The gold and silver prices seem to be trading in a tight range even if gold is now well above $1,800 again. The issue for gold and silver is what the Fed will do about inflation in 2022?

Suppose the Fed acts firmly against inflation and raises interest significantly. In that case, gold will weaken. However, if the Fed is unwilling to fight inflation as it should, arguing that it is temporary or could harm the economy, gold will profit.

Thus, watch the gold and silver prices like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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This article was written by

I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.

I live mostly in Sweden with my loving wife.

I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.

“Logic will get you from A to B. Imagination will take you everywhere.” Einstein.

Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading.

Disclosure: I/we have a beneficial long position in the shares of FSM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I trade short-term FSM frequently.