FSM 0001558370-23-004031 6-K as filed: Mar 16, 2023

CONSOLIDATED FINANCIAL STATEMENTS

For the years ended

December 31, 2022 and 2021

MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

Management of Fortuna Silver Mines Inc. (the “Company”) (“we”, “us” or “our”) have prepared the consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) and the accompanying Management’s Discussion and Analysis (“MD&A”) and are responsible for their content. The financial information presented in the MD&A is consistent with the information that is contained in the consolidated financial statements. The consolidated financial statements include, where necessary, amounts based on our estimates and judgement.

In order to discharge our responsibility for the integrity of the financial statements, the Company maintains a system of Internal Control over Financial Reporting and Disclosure Controls and Procedures. These controls are designed to provide reasonable assurance that the Company’s assets are safeguarded, transactions are executed and recorded in accordance with our authorization, proper records are maintained and relevant and reliable financial information is produced. These controls include maintaining quality standards in the hiring and training of employees, policies and procedures manuals, a corporate code of conduct and ensuring that there is proper accountability for performance within appropriate and well defined areas of responsibility.

The Board of Directors is responsible for overseeing the performance of our responsibilities for financial reporting and internal control over Financial Reporting and Disclosure Controls and Procedures. The Audit Committee, which is composed of non-executive directors, meets with us as well as the external auditors to ensure that we are properly fulfilling our financial reporting responsibilities to the Directors who approve the consolidated financial statements. The external auditors have full and unrestricted access to the Audit Committee to discuss the scope of their audits, and the adequacy of the system of internal controls, and to review financial reporting issues.

The consolidated financial statements have been audited by KPMG LLP, the Company’s independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States).



/s/ Jorge Ganoza Durant	/s /Luis Ganoza Durant
President and Chief Executive Officer	Chief Financial Officer

Vancouver, Canada

March 15, 2023



KPMG LLP Chartered Professional Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada			Telephone (604) 691-3000 Fax (604) 691-3031 Internet www.kpmg.ca

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Fortuna Silver Mines Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of Fortuna Silver Mines Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), cash flows, and changes in equity for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and its financial performance and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission”, and our report dated March 15, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

© 2022 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the recoverable amounts of the Yaramoko, Lindero and San Jose cash-generating units

As discussed in Note 8 to the consolidated financial statements, the carrying value of the Company’s mineral properties, plant, and equipment was $1,567,622 thousand as of December 31, 2022. As discussed in Note 30 to the consolidated financial statements, the Company determined that the Yaramoko, Lindero and San Jose cash-generating units (CGUs) had indicators of impairment and recorded total impairment expense of $182,842 thousand relating to these CGUs. The recoverable amounts of the respective CGUs are based on the discounted cash flows expected to be derived from the Company’s mining properties and represent each CGU’s fair value less cost of disposal, using CGU specific assumptions.

We identified the assessment of the recoverable amounts of the Yaramoko, Lindero and San Jose CGUs as a critical audit matter. A high degree of auditor judgment was required to evaluate the inputs used to estimate the recoverable amounts. Significant assumptions used in the determination of the recoverable amounts included the estimated quantities of mineral reserves and mineral resources that form the basis for the life of mine plans, short-term and long-term metal prices, expected future production costs and capital expenditures, and the discount rate applicable to the Lindero CGU. Changes in any of these assumptions could have had a significant effect on the determination of the estimated recoverable amounts.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's process to determine the recoverable amounts of the CGUs. This included controls over the Company’s development of the significant assumptions used to estimate the recoverable amounts of the Yaramoko, Lindero and San Jose CGUs. We assessed the competence, capabilities and objectivity of the Company’s personnel who determined the estimated quantities of mineral reserves and mineral resources that form the basis for the life of mine plans for each respective CGU. We compared the amount of mineral reserves and mineral resources in the discounted cash flow models to the respective life of mine plans and to the mineral reserve and mineral resource estimates. We compared the Company’s historical estimates of mineral reserves and resources, life of mine plans and operating results to actual results to assess the accuracy of the Company’s forecasting process. We compared expected future production costs and capital expenditures in the discounted cash flow models to the respective life of mine plans and to historical expenditures. We involved valuations professionals with specialized skills and knowledge, who assisted in (1) assessing the short-term and long-term metal prices by comparing to third party data; and (2) evaluating the discount rate applicable to the Lindero CGU by comparing it to an independently calculated range of discount rates using internal and external independent sources.

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Inferred resources used in the Caylloma and San Jose life of mine plans

As discussed in Note 8 to the consolidated financial statements, the carrying value of the Company’s mineral properties, plant and equipment is $1,567,622 thousand as of December 31, 2022. These amounts include the carrying amounts of the Caylloma and San Jose mines. Estimates of the quantities of the mineral reserves and mineral resources form the basis for the Company’s life of mine plans, which are used for the calculation of depletion expense under the units of production method and in impairment tests. The Company’s estimates of the life of its mines includes the portion of inferred resources expected to be extracted economically. The decision to use inferred resources, and the portion of inferred resources to be included in the life of mine, varies for each operation and is based on the geological characteristics of the ore body, the quality and predictability of inferred resources, and the conversion of inferred resources into measured and indicated resources that the Company has historically achieved.

We identified evaluation of the Company’s determination of the portion of inferred resources included in the life of mine plans for the Caylloma and San Jose mines as a critical audit matter. A high degree of auditor judgment was required to evaluate the significant assumptions that were developed by the Company’s personnel to determine the portion of inferred resources included in the life of mine plans. Significant assumptions include the accessibility of resources from existing mining infrastructure and the determination of the percentage of available inferred resources expected to be converted to measured and indicated resources in future periods.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process to determine the portion of inferred resources included in the life of mine plans for the Caylloma and San Jose mines. This included controls over the Company’s development of the significant assumptions used to estimate the portion of inferred resources included in the life of mine plans for Caylloma and San Jose. We assessed the competence, capabilities and objectivity of the Company’s personnel who determined the portion of available inferred resources to be included in the Caylloma and San Jose life of mine plans, including the accessibility of resources from existing mining infrastructure. We evaluated the ability of the Company to estimate the portion of inferred resources included in the life of mine plans by comparing historical estimates of inferred resources to the actual conversion of inferred resources to measured and indicated resources.

//s// KPMG LLP

Chartered Professional Accountants

We have served as the Company’s auditor since 2017.

Vancouver, Canada
March 15, 2023

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KPMG LLP Chartered Professional Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada			Telephone (604) 691-3000 Fax (604) 691-3031 Internet www.kpmg.ca

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Fortuna Silver Mines Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Fortuna Silver Mines Inc.’s (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), cash flows, and changes in equity for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated March 15, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, which appears under the heading Management’s Report on Internal Control Over Financial Reporting in the accompanying Management’s Discussion and Analysis. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

//s// KPMG LLP

Chartered Professional Accountants

Vancouver, Canada
March 15, 2023

Fortuna Silver Mines Inc.

Consolidated Income (Loss) Statements

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


			Years ended December 31,
	Note	2022		2021
Sales	19	$	681,491	$	599,853
Cost of sales	20		534,695		394,376
Mine operating income			146,796		205,477

General and administration	21		61,456		45,360
Exploration and evaluation			1,225		1,012
Foreign exchange loss			8,866		6,092
Impairment of mineral properties, plant, and equipment	30		182,842		-
Write off of mineral properties			5,874		-
Other expenses			85		16,134
			260,348		68,598

Operating (loss) income			(113,552)		136,879

Interest and finance costs, net	22		(12,057)		(12,863)
Gain (loss) on derivatives			500		(2,751)
Roxgold transaction costs			-		(14,085)
			(11,557)		(29,699)

(Loss) income before income taxes			(125,109)		107,180

Income taxes
Current income tax expense	23		35,783		51,651
Deferred income tax recovery	23		(24,986)		(3,870)
			10,797		47,781
Net (loss) income for the year		$	(135,906)	$	59,399

Net (loss) income attributable to:
Fortuna shareholders		$	(128,132)	$	57,877
Non-controlling interest	28		(7,774)		1,522
		$	(135,906)	$	59,399

(Loss) earnings per share	18
Basic		$	(0.44)	$	0.24
Diluted		$	(0.44)	$	0.23

Weighted average number of common shares outstanding (000's)
Basic			291,281		237,998
Diluted			291,281		249,443

The accompanying notes are an integral part of these financial statements.

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Fortuna Silver Mines Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


		Years ended December 31,
	Note	2022		2021
Net (loss) income for the year		$	(135,906)	$	59,399

Items that will remain permanently in other comprehensive income:
Changes in fair value of investments in equity securities, net of $nil tax			(280)		(272)
Items that may in the future be reclassified to profit or loss:
Currency translation adjustment, net of tax¹			(61)		(4,022)
Changes in fair value of hedging instruments, net of $nil tax			70		1,006
Total other comprehensive loss for the year			(271)		(3,288)
Comprehensive (loss) income for the year		$	(136,177)	$	56,111

Comprehensive (loss) income attributable to:
Fortuna shareholders			(128,403)		54,589
Non-controlling interest	28		(7,774)		1,522
		$	(136,177)	$	56,111

¹ For the year ended December 31, 2022, the currency translation adjustment is net of tax expenses of $1.1 million.

The accompanying notes are an integral part of these financial statements.

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Fortuna Silver Mines Inc.

Consolidated Statements of Financial Position

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


Balance at	Note	December 31, 2022		December 31, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	80,493	$	107,097
Trade and other receivables	5		68,165		76,487
Inventories	6		92,033		85,819
Other current assets	7		12,021		11,679
			252,712		281,082
NON-CURRENT ASSETS
Restricted cash			3,967		2,056
Mineral properties and property, plant and equipment	8, 30		1,567,622		1,712,354
Other non-current assets	9		51,923		26,430
Total assets		$	1,876,224	$	2,021,922

LIABILITIES
CURRENT LIABILITIES
Trade and other payables	10	$	111,896	$	133,805
Income taxes payable	23		11,591		20,563
Current portion of lease obligations	12		9,416		10,523
Current portion of closure and reclamation provisions	15		2,177		1,882
			135,080		166,773
NON-CURRENT LIABILITIES
Debt	13		219,175		157,489
Deferred tax liabilities	23		167,619		191,668
Closure and reclamation provisions	15		51,128		54,230
Lease obligations	12		11,930		18,882
Other non-current liabilities	14		2,596		3,310
Total liabilities			587,528		592,352

SHAREHOLDERS' EQUITY
Share capital	17		1,076,342		1,079,746
Reserves			29,929		28,785
Retained earnings			138,485		266,617
Equity attributable to Fortuna shareholders			1,244,756		1,375,148
Equity attributable to non-controlling interest	28		43,940		54,422
Total equity			1,288,696		1,429,570

Total liabilities and shareholders' equity		$	1,876,224	$	2,021,922

Contingencies and Capital Commitments (Note 29)

/s/ Jorge Ganoza Durant		/s/ Kylie Dickson
Jorge Ganoza Durant		Kylie Dickson
Director		Director

The accompanying notes are an integral part of these financial statements.

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Fortuna Silver Mines Inc.

Consolidated Statements of Cash Flows

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


		Years ended December 31,
	Note	2022		2021

Operating activities:
Net (loss) income for the year		$	(135,906)	$	59,399
Items not involving cash
Depletion and depreciation			172,809		122,272
Accretion expense			4,830		3,799
Income taxes			10,797		47,781
Interest expense, net			7,227		8,469
Loss on extinguishment of debt facility	13		–		595
Share-based payments, net of cash settlements			(1)		(3,079)
Impairment of mineral properties, plant and equipment	30		182,841		-
Inventory net realizable value adjustments			8,898		7,035
Write-off of mineral properties			5,874		-
Unrealized foreign exchange loss			4,554		4,304
Unrealized (gain) loss on derivatives			(1,194)		1,260
Other			-		3,360
Closure and reclamation payments			(623)		(354)
Changes in working capital	27		(18,021)		(39,314)
Cash provided by operating activities			242,085		215,526
Income taxes paid			(42,222)		(62,677)
Interest paid			(7,465)		(7,420)
Interest received			1,851		1,708
Net cash provided by operating activities			194,249		147,138

Investing activities:
Cash consideration for acquisition of Roxgold			-		(25,333)
Cash acquired through acquisition of Roxgold			-		65,622
Promissory note receivable			-		(35,296)
Restricted cash			(1,911)		-
Additions to mineral properties, plant and equipment			(251,236)		(152,289)
Contractor advances on Séguéla construction			(2,186)		-
Proceeds from sale of investments			-		14
Proceeds from sale of assets			-		12
Recoveries of Lindero construction VAT			-		28,771
Cash used in investing activities			(255,333)		(118,499)

Financing activities:
Transaction costs on credit facility	13(a)		(688)		(3,036)
Proceeds from credit facility	13		80,000		-
Repayment of credit facility	13		(20,000)		(32,288)
Repurchase of common shares	17		(5,929)		-
Proceeds from issuance of common shares			-		313
Payments of lease obligations			(12,209)		(11,928)
Dividend payment to non-controlling interest			(2,708)		(4,483)
Cash provided by (used in) financing activities			38,466		(51,422)
Effect of exchange rate changes on cash and cash equivalents			(3,986)		(2,018)
(Decrease) increase in cash and cash equivalents during the year			(26,604)		(24,801)
Cash and cash equivalents, beginning of the year			107,097		131,898
Cash and cash equivalents, end of the year		$	80,493	$	107,097

Cash and cash equivalents consist of:
Cash		$	65,140	$	64,096
Cash equivalents			15,353		43,001
Cash and cash equivalents, end of the year		$	80,493	$	107,097
Supplemental cash flow information (Note 27)

The accompanying notes are an integral part of these financial statements.

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Fortuna Silver Mines Inc.

Consolidated Statements of Changes in Equity

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


		Share capital				Reserves
	Note	Number of common shares	Amount		Equity reserve		Hedging reserve		Fair value reserve			Equity component of convertible debentures	Foreign currency reserve		Retained earnings		Non-controlling interest		Total equity
Balance at January 1, 2022		291,529,330	$	1,079,746	$	27,435	$	128	$	(696)	$	4,825	$	(2,907)	$	266,617	$	54,422	$	1,429,570
Total comprehensive loss for the year
Net loss for the year		-		-		-		-		-		-		-		(128,132)		(7,774)		(135,906)
Other comprehensive loss for the year		-		-		-		70		(280)		-		(61)		-		-		(271)
Total comprehensive loss for the year		-		-		-		70		(280)		-		(61)		(128,132)		(7,774)		(136,177)

Transactions with owners of the Company
Dividend payment to non-controlling interest		-		-		-		-		-		-		-		-		(2,708)		(2,708)
Repurchase of common shares	17	(2,201,404)		(5,929)		-		-		-		-		-		-		-		(5,929)
Shares issued on vesting of share units		894,045		2,525		(2,006)		-		-		-		-		-		-		519
Share-based payments	16	-		-		3,421		-		-		-		-		-		-		3,421
		(1,307,359)		(3,404)		1,415		-		-		-		-		-		(2,708)		(4,697)

Balance at December 31, 2022		290,221,971	$	1,076,342	$	28,850	$	198	$	(976)	$	4,825	$	(2,968)	$	138,485	$	43,940	$	1,288,696

Balance at January 1, 2021		184,195,727	$	492,306	$	20,086	$	(878)	$	(424)	$	4,825	$	1,115	$	208,740	$	-	$	725,770
Total comprehensive income for the year
Net income for the year		-		-		-		-		-		-		-		57,877		1,522		59,399
Other comprehensive loss for the year		-		-		-		1,006		(272)		-		(4,022)		-		-		(3,288)
Total comprehensive income for the year		-		-		-		1,006		(272)		-		(4,022)		57,877		1,522		56,111

Transactions with owners of the Company
Acquisition of Roxgold		106,106,224		582,523		7,332		-		-		-		-		-		52,900		642,755
Exercise of stock options		68,927		389		(136)		-		-		-		-		-		-		253
Shares issued on vesting of share units		1,146,452		4,468		(4,468)		-		-		-		-		-		-		-
Convertible debenture conversion		12,000		60		-		-		-		-		-		-		-		60
Share-based payments	16	-		-		4,621		-		-		-		-		-		-		4,621
		107,333,603		587,440		7,349		-		-		-		-		-		52,900		647,689

Balance at December 31, 2021		291,529,330	$	1,079,746	$	27,435	$	128	$	(696)	$	4,825	$	(2,907)	$	266,617	$	54,422	$	1,429,570

The accompanying notes are an integral part of these financial statements.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

1. NATURE OF OPERATIONS

Fortuna Silver Mines Inc. (the “Company”) is a publicly traded company incorporated and domiciled in British Columbia, Canada.

The Company is engaged in precious and base metal mining and related activities in Argentina, Burkina Faso, Mexico, Peru, and Côte d’Ivoire. The Company operates the open pit Lindero gold mine (“Lindero”) in northern Argentina, the underground Yaramoko gold mine (“Yaramoko”) in south western Burkina Faso, the underground San Jose silver and gold mine (“San Jose”) in southern Mexico, the underground Caylloma silver, lead, and zinc mine (“Caylloma”) in southern Peru, and is developing the open pit Séguéla gold mine (“Séguéla”) in south western Côte d’Ivoire.

The Company’s common shares are listed on the New York Stock Exchange under the trading symbol FSM and on the Toronto Stock Exchange under the trading symbol FVI.

The Company’s registered office is located at Suite 650 - 200 Burrard Street, Vancouver, Canada, V6C 3L6.

2. BASIS OF PRESENTATION

Statement of Compliance

These consolidated financial statements (“financial statements”) have been prepared by management of the Company in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) effective as of December 31, 2022.

On March 8, 2023, the Company's Board of Directors approved these financial statements for issuance.

Basis of Measurement

These financial statements have been prepared on a going concern basis under the historical cost basis, except for those assets and liabilities that are measured at fair value (Note 25) at the end of each reporting period.

3. SIGNIFICANT ACCOUNTING POLICES

The Company has consistently applied the following accounting policies to all periods presented in these financial statements.

(a) Basis of Consolidation

These financial statements include the accounts of the Company. All significant intercompany transactions, balances, revenues, and expenses have been eliminated upon consolidation.

Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition or control and up to the effective date of disposition or loss of control. Control is achieved when the Company has power over the investee, is exposed to or has rights to variable returns from its involvement with an investee, and had the ability to affect those returns through its power over the investee.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Fortuna Silver Mines Inc. is the ultimate parent entity of the group. At December 31, 2022, the principal subsidiaries of the Company, their geographic locations, and the ownership interests held by the Company, were as follows:


Name	Location	Ownership	Principal Activity
Minera Bateas S.A.C. ("Bateas")	Peru	100%	Caylloma Mine
Compania Minera Cuzcatlan S.A. de C.V. ("Cuzcatlan")	Mexico	100%	San Jose Mine
Mansfield Minera S.A. ("Mansfield")	Argentina	100%	Lindero Mine
Roxgold SANU S.A. (“Sanu”)	Burkina Faso	90%	Yaramoko Mine
Roxgold SANGO S.A. (“Sango”)	Côte d’Ivoire	90%	Séguéla Project

(b) Business Combination

A business combination is an acquisition of assets and liabilities that constitute a business. A business is an integrated set of activities and assets that consist of inputs and processes, including operational processes that, when applied to those inputs, have the ability to create outputs that provide a return to the Company and its shareholders. A business also includes those assets and liabilities that do not necessarily have all the inputs and processes required to produce outputs, but can be integrated with the inputs and processes of the Company to create outputs.

When acquiring a set of activities or assets in the exploration and development stage, which may not have outputs, the Company considers other factors to determine whether the set of activities or assets is a business.

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is allocated to the identifiable assets acquired and liabilities assumed based on the acquisition-date fair value. The excess of the cost of acquisition over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets acquired, the difference, or gain, is recognized directly in the consolidated statement of operations. The results of businesses acquired during the period are included in the financial statements from the date of acquisition. Acquisition-related costs are expensed as incurred. Provisional fair values are finalized within 12 months of the acquisition date. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period about facts and circumstances that existed at the acquisition date.

Page | 7

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Non-controlling interests represents equity interests in subsidiaries owned by outside parties. Non-controlling interests are recorded at their proportionate share of the fair value of identifiable net assets acquired on initial recognition. The share of net assets of subsidiaries attributable to non-controlling interests is presented as a component of equity. Their share of net income and other comprehensive income is recognized directly in equity even if the results of the non-controlling interest have a deficit balance.

The Company recognizes transactions with non-controlling interest as transactions with equity shareholders. Changes in the Company’s ownership interest in subsidiaries that do not result in loss of control are accounted for as equity transactions.

(d) Consolidation, Functional and Presentation Currency

These financial statements are presented in United States Dollars (“$” or “US$” or “US dollars”), which is the functional currency of the Company. Reference to C$ are to Canadian dollars. All amounts in these financial statements have been rounded to the nearest thousand US dollars, unless otherwise stated.

The functional currency for each entity consolidated within the Company's financial statements is determined by the currency of the primary economic environment in which it operates. The functional currency of all subsidiaries is US dollars except for those outlined in the table below.


Name of Subsidiary	Place of Incorporation	Beneficial Common Share Ownership Interest	Principal Activity	Functional Currency
Roxgold Inc.	Canada	100%	Holding	CAD
FR Gold Mining Inc.	Canada	100%	Holding	CAD
Fortuna Silver Mines Australia Pty Ltd.	Australia	100%	Corporate	AUD
LGL Exploration Côte d’Ivoire SA	Côte d’Ivoire	100%	Exploration	XOF
LGL Resources Côte d’Ivoire SA	Côte d’Ivoire	100%	Exploration	XOF

Assets and liabilities of the subsidiaries that have a functional currency other than US dollar are translated into US dollars at the exchange rate in effect on the consolidated statements of financial position date and revenues and expenses are translated at the average rate over the reporting period. Gains and losses from these translations are recognized in other comprehensive income.

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange at each financial position date. Foreign exchange gains or losses on translation to the functional currency of an entity are recorded in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.

(e) Cash, Cash Equivalents and Short-Term Investments

Cash and cash equivalents include cash on hand, demand deposits, and money market instruments with maturities from the date of acquisition of 90 days or less, which are readily convertible to known amounts of cash and are subject to insignificant changes in value. Short-term investments consist of term deposits with original maturities in excess of three months but less than twelve months. Cash, cash equivalents and short-term investments are designated as amortized cost.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

(f) Inventories

Inventories include mineral concentrates, doré, leach pad, gold in-circuit, stockpiled ore, materials and supplies, which are valued at the lower of average production cost and estimated net realizable value. Production costs allocated to metal inventories include direct mining costs, direct labour costs, direct material costs, mine site overhead, depletion and amortization. Stockpiled ore that is not expected to be processed within the next twelve months is classified as non-current. Costs allocated to materials and supplies are based on weighted average costs and include all costs of purchase and other costs in bringing these inventories to their existing location and condition.

In the heap leaching process, ore is stacked on the leach pad and treated with a chemical solution that dissolves the gold contained within the ore. The resulting pregnant solution is further processed in a plant where the gold is recovered. The cost of leach pad inventory is based on cost of mining, crushing, and leaching, including applicable depletion and amortization, and is removed as ounces of gold are recovered at the weighted average cost per recoverable ounce of gold on the leach pad. Estimates of recoverable gold in the leach pad are calculated based on the quantities of ore placed on the leach pad (measured tonnes added to the leach pad), the estimated grade of ore placed on the leach pad (based on assay data), and an estimated recovery percentage (based on estimated recovery assumptions from metallurgical testing). The nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, estimates are refined based on actual results and engineering studies over a period of time. The final recovery of gold from leach pad will not be known until the leaching process is concluded at the end of the mine life.

If the carrying value exceeds the net realizable amount, a write-down is recognized. The write-down may be reversed in a subsequent period if the circumstances which caused the write-down no longer exist, to the extent that the related inventory has not been sold. Net realizable value is calculated as the estimated price at the time of sale based on prevailing metal prices less estimated future costs to convert the inventories into saleable form and estimated costs to sell.

(g) Exploration and Evaluation Assets

Exploration expenditures on properties for which the Company does not have title or rights to are expensed when incurred. Significant payments related to the acquisition of land and mineral rights and the costs to conduct a preliminary evaluation to determine that the property has potential to develop an economic ore body are capitalized as incurred. The time between initial acquisition and a full evaluation of a property’s potential is dependent on many factors including, but not limited to, location relative to existing infrastructure, the property’s stage of development, geological controls and metal prices.

The Company capitalizes the cost of acquiring, maintaining its interest, and exploring mineral properties as exploration and evaluation assets until such time as the properties are placed into development, abandoned, sold, or considered to be impaired in value.

If a mineable ore body is discovered, exploration and evaluation costs are reclassified to mining properties. The Company uses the following criteria in its assessment:

●

the property has mineral reserves as referred to in Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), and

●

when legal, permitting, and social matters have been resolved sufficiently to allow mining of the ore body.

Exploration and evaluation assets are tested for impairment when an indicator of impairment is identified and upon reclassification to mining properties.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

If no mineable ore body is discovered, all previously capitalized costs are expensed in the period in which it is determined the property has no economic value.

Proceeds received from the sale of interests in exploration and evaluation assets are credited to the carrying value of the mineral properties, plant and equipment. Exploration costs that do not relate to any specific property are expensed as incurred.

(h) Mineral Properties, and Property, Plant and Equipment

i. Mineral Properties and Development Costs

For operating mines, all mineral property expenditures are capitalized and amortized based on a unit-of-production method considering the expected production to be obtained over the life of the mineral property. The expected production includes proven and probable reserves and for the San Jose, Caylloma and Yaramoko mines the portion of inferred resources expected to be extracted economically as part of the production cost.

Capitalized costs of producing properties are amortized on a unit-of-production basis over proven and probable reserves and the portion of inferred resources where it is considered highly probable that those resources are expected to be extracted economically.

The expected production to be obtained over the life of the mineral property is based on our life-of-mine production plans which for San Jose, Caylloma and Yaramoko include a portion of inferred resources, and therefore differ from the life-of-mine plans the Company publishes as part of our NI 43-101 compliant technical reports which are based on reserves only. The decision to use inferred resources, and the portion of inferred resources to be included varies for each operation and is based on the geological characteristics of the ore body, the quality and predictability of inferred resources, and the conversion of inferred resources into measured and indicated (“M&I”) that the Company has historically achieved in the past.

Many factors are taken into account during resource classification including; the quality of drilling and sampling, drill/sample spacing, sample preparation and analysis, geological logging and modelling, database construction, geological interpretation and modelling, statistical/geostatistical analysis, interpolation method, local estimation, engineering studies, economic parameters, and reconciliation with actual results.

Once the integrity of the data has been established, two important considerations around classification of resources are geologic continuity and possible variation of thickness and grade between samples. For our inferred resources at San Jose, Caylloma and Yaramoko we are able to achieve a significant level of confidence on the existence of mineable material as geological continuity has been established by consistent drill hole intercepts both along strike and down-dip which provides us with reasonable confidence in the location of the structures. The vast majority of the inferred resources are interpolated, estimated between existing drill hole intercepts, as opposed to extrapolated where the grades are estimated beyond the furthest sample point, adding to our confidence in the geologic continuity of the veins. Furthermore, San Jose, Caylloma and Yaramoko are not structurally complex deposits where faulting has disrupted geologic continuity.

With regards to the variation of thickness and grade between samples, the Company uses statistical means to calculate the probability that tonnage and grade content falls within a certain accuracy over a given timeframe. If the potential variation is estimated to be within ± 25% at 90% confidence globally, it is classified as an inferred resource. This is equivalent to stating that the Company has 95% confidence that greater than 75% of the inferred tonnes, grade, and metal content will ultimately be recovered by the mine and hence that the same percentage or

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

higher will be converted from an inferred resource to an indicated resource through infill drilling as per the Company’s policy of upgrading prior to production.

As part of the process to include inferred resources into our life-of-mine production plans, the Company applies an economic cut-off to identify only the material that can be considered profitable to mine within our mine designs, and at this time we apply a conversion or “risk” factor to the mining blocks comprised of inferred resources that we include in such mine production plans. This conversion factor is based on the predictability of conversion derived from statistical estimates of confidence as described above and the support from historic conversion rates of inferred resources into M&I at each of our mines. The conversion factors used in our 2022 and 2021 life-of-mine plans were 90% at San Jose, 90% at Caylloma, and 100% at Yaramoko.

The percentage of inferred resources included as a component of the total mineable inventory (reserve and resource) considered in the 2022 life-of-mine evaluation for each operation as of December 31, 2022, was San Jose 31% (2021: 35%), Caylloma 41% (2021: 31%), and Yaramoko 8% (2021: 11%).

The Company reviews the conversion factors including past experience in assessing the future expected conversion of inferred resources to be used in the life-of-mine plans for inclusion of inferred resources once a year in light of new geologic information and conversion data and when events or circumstances indicate that a review should be made. The Company continually monitors expected conversion and any changes in estimates that arise from this review are accounted for prospectively.

Significant estimation is involved in determining resources and in determining the percentage of resources ultimately expected to be converted to reserves, which we determine based on careful consideration of both internal and external technical and economic data. Estimation of future conversion of resources is inherently uncertain and involves significant judgment and actual outcomes may vary from these judgments and estimates and such outcomes may have a material impact on the results. Revisions to these estimates are accounted for in the period in which the change in the estimate arises.

ii. Property, Plant and Equipment

Property, plant and equipment are recorded at cost, net of accumulated depreciation and impairments. Costs directly related to construction projects are capitalized to work in progress until the asset is available for use in the manner intended by management. Assets, other than capital works in progress, are depreciated to their residual values over their estimated useful lives as follows:




Land and buildings
Land	Not depreciated
Mineral properties	Units of production	Declining balance
Buildings, located at the mine	Units of production	Declining balance
Buildings, others ⁽¹⁾	6-10 years	Straight line
Leasehold improvements ⁽¹⁾	4-8 years	Straight line
Plant and equipment
Processing plant	Units of production	Declining balance
Machinery and equipment ⁽¹⁾	3-12 years	Straight line
Furniture and other equipment ⁽¹⁾	2-12 years	Straight line
Transport units	4-5 years	Straight line
Capital work in progress	Not depreciated

(1)

The lesser of useful life or life of mine.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Equipment under finance lease is initially recorded at the present value of minimum lease payments at the inception of the lease and depreciated over the shorter of the lease term or useful life.

Spare parts and components included in machinery and equipment are depreciated over the shorter of the useful life of the component or the related machinery and equipment.

Borrowing costs attributed to the construction of qualifying assets are capitalized to mineral properties, plant and equipment, and are included in the carrying amounts of related assets until the asset is available for use in the manner intended by management.

The sales proceeds and associated production costs incurred during commissioning of qualifying assets under capital works in progress are recognized in profit or loss.

On an annual basis, the depreciation method, useful economic life, and residual value of each component asset is reviewed with any changes recognized prospectively over its remaining useful economic life.

iii. Stripping cost

Pre-production stripping costs are generally capitalized and amortized over the production life of the mine using the unit-of-production method.

Stripping costs incurred during the production stage are incurred in order to produce inventory or to improve access to ore which will be mined in the future. Where the costs are incurred to produce inventory, the production stripping costs are accounted for as a cost of producing those inventories. Where the costs are incurred to improve access to ore which will be mined in the future, the costs are deferred and capitalized to the statement of financial position as a stripping activity asset (included in mining interest) if the following criteria are met:

●

improved access to the ore body is probable;

●

the component of the ore body can be accurately identified; and

●

the costs relating to the stripping activity associated with the component can be reliably measured.

If these criteria are not met, the costs are expensed in the period in which they are incurred.

The stripping activity asset is subsequently depleted using the units-of-production depletion method over the life of the identified component of the ore body to which access has been improved as a result of the stripping activity.

(i) Asset Impairment

At the end of each reporting period, the Company assesses for impairment indicators and if there are such indicators, then the Company performs a test of impairment.

For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash inflows or cash generating units. These are typically individual mines or development projects. Brownfields exploration projects, located close to existing mine infrastructure, are assessed for impairment as part of the associated mine cash generating unit.

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost of disposal (“FVLCD”) and value in use.

When the recoverable amount is assessed using pre-tax discounted cash flow techniques, the resulting estimates are based on detailed mine and/or production plans. For value in use, recent cost levels are considered, together

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

with expected changes in costs compatible with the current condition of the business. The cash flow forecasts are based on best estimates of the expected future revenues and costs, including the future cash costs of production, sustaining capital expenditures, and reclamation and closure costs.

Where a FVLCD model is used, the cash flow forecast includes net cash flows expected to be realized from extraction, processing, and sale of mineral resources that do not currently qualify for inclusion in proven or probable reserves and the portion of resources expected to be extracted economically.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of recoverable amount but not beyond the carrying amount, net of depreciation and amortization, that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized into earnings immediately.

(j) Borrowing Costs

Interest and other financing costs incurred that are attributable to acquiring and developing exploration and development stage mining properties and constructing new facilities (“qualifying assets”), are capitalized and included in the carrying amounts of qualifying assets until those qualifying assets are capable of operating in the manner intended by management.

The capitalization of borrowing costs incurred commences on the date when the following three conditions are met:

●

expenditures for the qualifying asset are being incurred;

●

borrowing costs are being incurred; and,

●

activities that are necessary to prepare the qualifying asset for its intended use are being undertaken.

Borrowing costs incurred after the qualifying assets are substantially complete are expensed.

Transaction costs, including legal, upfront commitment fees and other costs of issuance, associated with debt are recorded against the debt and are amortized over the term of the credit facility using the effective interest rate method.

All other borrowing costs are expensed in the period in which they are incurred.

(k) Assets Held for Sale

A non-current asset is classified as held for sale when it meets the following criteria:

●

The non-current asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; and,

●

the sale of the non-current asset is highly probable. For the sale to be highly probable:

the appropriate level of management must be committed to a plan to sell the asset;

an active program to locate a buyer and complete the plan must have been initiated;

the non-current asset or disposal group must be actively marketed for sale at a price that is reasonable in relation to its current fair value;

the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification as held for sale (with certain exceptions); and

actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Assets held for sale are not depreciated and are recorded at the lower of their carrying amount and fair value less costs to sell.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

(l) Income Taxes

Income tax expense consists of current and deferred tax expense.

Current tax expense is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at period end adjusted for amendments to tax payable with regards to previous years.

Deferred tax assets and liabilities are recognized for deferred tax consequences attributable to unused tax loss carry forwards, unused tax credits, and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis (“temporary differences”). Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized, or the liability is settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in profit or loss in the period that substantive enactment occurs.

A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced.

The following temporary differences do not result in deferred tax assets or liabilities:

●

the initial recognition of assets or liabilities, not arising in a business combination, that does not affect accounting or taxable income;

●

goodwill; and

●

investments in subsidiaries, associates and jointly controlled entities where the timing of reversal of the temporary differences can be controlled and reversal in the foreseeable future is not probable.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

(m) Provisions

i. Closure and Reclamation Provisions

Future obligations to retire an asset, including dismantling, remediation and ongoing treatment and monitoring of the site related to normal operation are initially recognized and recorded as a liability based on estimated future cash flows discounted at the risk-free rate.

The closure and reclamation provision (“CRP”) is adjusted at each reporting period for changes to the expected amount of cash flows required to discharge the liability, the timing of such cash flows and the risk-free discount rate.

The liability is accreted to full value over time through periodic charges to profit or loss.

The amount of the CRP initially recognized is capitalized as part of the related asset’s carrying value and amortized to profit or loss. The method of amortization follows that of the underlying asset. The costs related to a CRP are only capitalized to the extent that the amount meets the definition of an asset and can bring about future economic benefit. For a closed site or where the asset which generated a CRP no longer exists, there is no longer a future benefit related to the costs and as such, the amounts are expensed. Revisions in estimates or new disturbances

Page | 14

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

result in an adjustment to the CRP with an offsetting adjustment to the asset, unless there is no future benefit, in which case they are expensed.

Due to uncertainties inherent in environmental remediation, the ultimate cost of future site closure and reclamation could differ from the amounts provided. The estimate of future site closure and reclamation costs is subject to change based on amendments to laws and regulations, changes in technologies, price increases and changes in interest rates, and as new information concerning the Company’s closure and reclamation obligations becomes available. Such changes are reflected prospectively in the determination of the provision.

ii. Environmental Disturbance Restoration Provisions

During the operating life of an asset, events such as infractions of environmental laws or regulations may occur. These events are not related to the normal operation of the asset and are referred to as environmental disturbance restoration provisions (“EDRP”). The costs associated with an EDRP are accrued and charged to earnings in the period in which the event giving rise to the liability occurs. Any subsequent adjustments to an EDRP due to changes in estimates are also charged to earnings in the period of adjustment. These costs are not capitalized as part of the long-lived asset’s carrying value.

iii. Other Provisions

Provisions are recognized when a present legal or constructive obligation exists as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where the effect of the time value of money is material the provision is discounted using an appropriate current market based pre-tax discount rate.

(n) Common Share Capital

Shares are classified as equity. Costs directly attributable to the issuance of common shares are shown in equity as a deduction from the proceeds.

(o) Share-Based Payments

The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of stock options and other equity-settled share-based payment arrangements are recorded based on the estimated fair value at the grant date and charged to earnings over the vesting period. Where awards are forfeited because non-market based vesting conditions were not satisfied, the expense previously recognized is reversed in the period the forfeiture occurs.

Share-based payment expenses relating to cash-settled awards, including deferred share units, restricted share units, and performance share units, are accrued and expensed over the vesting period based on the quoted market value of the Company’s common shares. As these awards will be settled in cash, the expense and liability are adjusted at each reporting period for any changes in the underlying share price.

Equity settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the Company obtains the goods or the counter party renders the services.

Page | 15

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

i. Stock Option Plan

The Company applies the fair value method of accounting for all stock option awards. Under this method, the Company recognizes a compensation expense for all stock options awarded to employees, based on the fair value of the options on the date of grant which is determined by using the Black-Scholes option pricing model. The fair value of the options is expensed over the graded vesting period of the options.

ii. Deferred Share Unit Plan

Deferred share units (“DSU”) are typically granted to non-executive directors of the Company. They are payable in cash upon resignation, retirement, removal, failure to achieve re-election, or upon a change of control of the Company. The DSU compensation liability is accounted for based on the number of DSUs outstanding and the quoted market value of the Company’s common shares at the financial position date. The year-over-year change in the DSU compensation liability is recognized in profit or loss.

iii. Share Unit Plans

The Company’s amended and restated share unit plan (the “SU Plan”) covers all restricted share units (“RSUs”) and performance share units (“PSUs”) granted by the Company on and after March 1, 2015.

Restricted Share Units

The Company’s RSUs are settled in either cash or equity, as determined by the Company’s Board of Directors at the grant date and typically vest over three years.

Page | 16

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

For cash settled RSUs, the share-based payment expense is adjusted at each reporting period to reflect any change in the quoted market price of the Company’s common shares and the vesting of each RSU grant, with a corresponding amount recorded in Trade and Other Payables, and Other Non-Current Liabilities.

For equity-settled RSUs, the fair value is determined based on the quoted market price of the Company’s common shares at the date of grant, and the fair value is recognized as a share-based payment expense over the vesting period with a corresponding amount recorded in equity reserves.

Performance Share Units

The Company’s PSUs are performance-based awards for the achievement of specified performance metrics by specified deadlines and are settled in either cash or equity, as determined by the Company’s Board of Directors at the grant date and typically vest over three years.

For cash settled PSUs, the share-based payment expense is adjusted at each reporting period to reflect any change in the quoted market price of the Company’s common shares, the vesting of each PSU grant and the expected performance factors with a corresponding amount recorded in Trade and Other Payables.

For equity-settled PSUs, the fair value is determined based on the quoted market price of the Company’s common shares at the date of grant and the number of PSUs expected to vest based on the performance factors. The fair value is recognized as a share-based payment expense over the vesting period with a corresponding amount recorded in equity reserves.

(p) Related Party Transactions

Parties are related if one party has the ability directly, or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or corporate entities, and include key management personnel of the Company. A transaction is a related party transaction when there is a transfer of resources or obligations between related parties.

(q) Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing the net income for the year by the weighted average number of common shares outstanding during the year.

The diluted earnings per share calculation is based on the weighted average number of common shares outstanding during the year, adjusted for the effects of dilutive common share equivalents. This method requires that the dilutive effect of outstanding options and equity settled units issued should be calculated using the treasury stock method. This method assumes that all common share equivalents have been exercised at the beginning of the year (or at the time of issuance, if later), and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of the common shares during the year, but only if dilutive.

Dilution from convertible debentures is calculated using the if-converted method, based on the number of shares to be issued upon conversion of the convertible debentures, with a corresponding adjustment to net income for the after-tax interest expense related to the convertible debentures.

Page | 17

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

(r) Financial Instruments

i Classification and measurement of financial assets and financial liabilities

Financial assets are measured as either: amortized cost; fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). All non-derivative financial liabilities are measured at amortized cost. The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated, and instead the hybrid financial instrument is assessed for classification.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

●

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

●

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

●

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

●

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (OCI). This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL.

Components of compound financial instruments are separately classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. The financial liability is initially recognized at fair value, net of an allocation of issuance costs, and is subsequently measured at amortized cost. The equity component is initially measured based on the residual amount, net of an allocation of issuance costs, and is not subsequently remeasured.

Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, or cancellation of our own equity instruments. No gain or loss is recognized on the issue of our own equity instruments, unless the equity is issued to settle a liability.

Financial Liabilities at Amortized Cost – Financial liabilities are measured at amortized cost using the effective interest method, unless they are required to be measured at fair value through profit or loss, or the Company has opted to measure them at FVTPL. Debt and accounts payable and accrued liabilities are recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost using the effective interest method.

Page | 18

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

The following accounting policies apply to the subsequent measurement of financial assets:

●

Financial assets at FVTPL - These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

●

Financial assets at amortized cost - These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

●

Equity investments at FVOCI - These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Gains or losses recognized on the sale of the equity investment are recognized in OCI and are never reclassified to profit or loss.

ii Impairment of Financial Assets

An entity is required to recognize expected credit losses when financial instruments are initially recognized and to update the amount of expected credit losses recognized at each reporting date to reflect changes in the credit risk of the financial instruments.

For the Company’s trade receivables, it determines the lifetime expected losses for all of its trade receivables. The expected lifetime credit loss provision for the Company’s trade receivables is based on historical counterparty default rates and adjusted for relevant forward-looking information, when required.

iii Hedge Accounting

The Company occasionally uses interest rate swaps to hedge against the variability in cash flows arising from changes in floating interest rate borrowings relating to its credit facility. The last interest rate swap matured on January 26, 2022.

Management qualitatively assesses that the changes in value of the hedging instrument and the hedged item will move in opposite directions and will be perfectly offset. As both counterparties to the derivative are investment grade, the effect of credit risk is considered as neither material nor dominant in the economic relationship. The portion of the gain or loss on the hedging instrument that is determined to be effective will be recognized directly in other comprehensive income while the amount that is determined to be ineffective, if any, will be recorded in the profit or loss during the life of the hedging relationship.

(s) Revenue Recognition

The Company earns revenue from contracts with customers related to its concentrate and doré sales. Revenue from contracts with customers is recognized when a customer obtains control of the concentrate or the doré and the Company satisfies its performance obligation. The Company considers the terms of the contract in determining the transaction price, which is the amount the entity expects to be entitled to in exchange for the transferring of the concentrates. The transaction price of a contract is allocated to each performance obligation based on its stand-alone selling price.

The Company satisfies its performance obligations for its concentrate sales based upon specified contract terms which are generally upon delivery to the customer at a specified warehouse or upon loading of the concentrate onto a vessel. The Company typically receives payment within one to four weeks of delivery.

Page | 19

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Doré sales are recognized when the Company satisfies its performance obligation and control is transferred to the customer upon payment. Final weights and assays are adjusted on final settlement which is approximately one month after delivery.

Revenue from concentrate sales is recorded based upon forward market price of the expected final sales price date. IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) does not consider provisional price adjustments associated with concentrate sales to be revenue from contracts with customers as they arise from changes in market pricing for silver, gold, lead and zinc between the delivery date and settlement date. As such, the provisional price adjustments are accounted for as derivatives and presented separately in Note 19 of these financial statements.

(t) Segment Reporting

The Company’s operating segments are based on the reports reviewed by the senior management group that are used to make strategic decisions. The Chief Executive Officer, as chief operating decision maker, considers the business from a geographic perspective considering the performance of the Company’s business units.

A geographical segment is a distinguishable component of the entity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than those of segments operating in other economic environments.

The business operations comprise the mining and processing of gold, silver-lead, zinc, and silver-gold and the sale of these products.

(u) Adoption of New Accounting Standards, Interpretation or Amendments

The following accounting standards were adopted for the financial year ending December 31, 2022,

●

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);

●

Annual Improvements to IFRS Standards 2018–2020; and

●

Reference to the Conceptual Framework (Amendments to IFRS 3)

The adoption of these standards did not have a material effect on the Company’s financial statements.

(v) New Accounting Standards Issued but not yet Effective

A number of new standards are effective for annual periods beginning on or after January 1, 2023 and earlier application is permitted; however, the Company has not early adopted any new or amended standards in preparing these financial statements.

●

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)

This amendment requires companies to provide more specific disclosures about their accounting policies and the judgments made in applying these policies that have the most significant effect on the financial statements. The new definition of significant accounting policies, now material accounting policy information, is broader in scope, capturing accounting policy information that is important to understanding the judgments made in preparing the financial statements, and those policies that require the most significant judgments and estimates by the Company. This amendment is effective for annual reporting periods beginning on or after January 1, 2023. The Company does not expect the adoption of this amendment to have a material impact on its consolidated financial statements.

Page | 20

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

●

Deferred Tax related to Assets and Liabilities arising from Single Transaction (Amendment to IAS 12)

This amendment clarifies the accounting for deferred tax arising from single transactions, such as business combinations and asset acquisitions, by requiring companies to recognize deferred tax for temporary differences that arise from the initial recognition of assets and liabilities in a single transaction. This amendment is effective for annual reporting periods beginning on or after January 1, 2023. The Company does not expect the adoption of this amendment to have a material impact on its consolidated financial statements.

The Company is currently evaluating the impact of the following amended standard, effective January 1, 2024, and interpretations on its consolidated financial statements:

●

Classification of Liabilities as Current or Non-current (Amendments to IAS 1);

4. USE OF ESTIMATES, ASSUMPTIONS, AND JUDGEMENTS

The preparation of these financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the period end date and reported amounts of expenses during the reporting period. Such judgements and estimates are, by their nature, uncertain. Actual outcomes could differ from these estimates.

The impact of such judgements and estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. These judgements and estimates are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. Revisions to accounting estimates are recognized in the period in which the estimate is revised and are accounted for prospectively.

In preparing these consolidated financial statements for the year ended December 31, 2022, the Company applied the critical estimates, assumptions and judgements as disclosed below.

(a) Critical Accounting Estimates and Assumptions

Areas where critical accounting estimates and assumptions have the most significant effect on the amounts recognized in the consolidated financial statements include:

i. Mineral Reserves and Resources and the Life of Mine Plan

The Company estimates its mineral reserves and mineral resources in accordance with the requirements of NI 43-101. Estimates of the quantities of the mineral reserves and mineral resources form the basis for the Company’s life of mine plans, which are used for the calculation of depletion expense under the units of production method, impairment tests, and forecasting the timing of the payments related to the environmental reclamation provision.

Significant estimation is involved in determining the reserves and resources included within the Company’s life of mine plans. Changes in forecast prices of commodities, exchange rates, production costs or recovery rates may result in the Company’s life-of-mine plan being revised and such changes could impact depletion rates, asset carrying values and the environmental reclamation provision. As at December 31, 2022, the Company used the following long-term prices for the reserve and resource estimations: gold $1,600/oz, silver $21/oz, lead $2,100/t and zinc $2,600/t.

In addition to the estimates above, estimation is involved in determining the percentage of resources ultimately expected to be converted to reserves and hence included in the Company’s life of mine plans. The Company’s life of

Page | 21

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

mine plans include a portion of inferred resources as the Company believes this provides a better estimate of the expected life of mine for certain types of deposits, in particular for vein type structures. The percentage of inferred resources out of the total tonnage included in the life of mine plans is based on site specific geological, technical, and economic considerations. Estimation of future conversion of resources is inherently uncertain and involves judgement, and actual outcomes may vary from these judgements and estimates and such changes could have a material impact on the financial results. Some of the key assumptions in the estimation process include geological continuity, stationarity in the grades within defined domains, reasonable geotechnical and metallurgical conditions, treatment of outlier (extreme) values, cut-off grade determination and the establishment of geostatistical and search parameters. Revisions to these estimates are accounted for prospectively in the period in which the change in estimate arises.

ii. Valuation of Mineral Properties and Exploration Properties

The Company carries its mineral properties at cost less accumulated depletion and any accumulated impairment. The costs of each property and related capitalized expenditures are depleted over the economic life of the property on a units-of-production basis. When a property is abandoned or when there is an impairment, costs are charged to profit or loss.

The Company undertakes a review of the carrying values of mining properties and related expenditures whenever events or changes in circumstances indicate that their carrying values may exceed their estimated recoverable amounts determined by reference to estimated future operating results and discounted net cash flows. Where previous impairment has been recorded, the Company analyzes any impairment reversal indicators. An impairment loss is recognized when the carrying value of those assets is not recoverable.

In undertaking this review, management of the Company is required to make significant estimates of, amongst other things, future production and sales volumes, metal prices, discount rates, mineral resource and reserve quantities, future operating and capital costs to the end of the mine’s life, and reclamation costs. These estimates are subject to various risks and uncertainties which may ultimately have an effect on the expected recoverability of the carrying values of the mining properties and related expenditures.

The Company, from time to time, acquires exploration and development properties. When properties are acquired, the Company must determine the fair value attributable to each of the properties. When the Company conducts exploration on a mineral property and the results from the exploration do not support the carrying value, the property is written down to its new fair value which could have a material effect on the consolidated statement of financial position and the consolidated income statement.

iii. Deferred stripping costs

In determining whether stripping costs incurred during the production phase of a mining property relate to mineral reserves that will be mined in a future period and therefore should be capitalized, the Company makes estimates of the proportion of stripping activity which relates to extracting ore in the current period versus the proportion which relates to obtaining access to ore reserves which will be mined in the future.

iv. Inventory

Finished goods, work-in-process, heap leach ore, and stockpile ore are valued at the lower of the average production costs or net realizable value. The assumptions used in the valuation of work-in process inventories include estimates of gold contained in the ore stacked on leach pads, assumptions of the amount of gold stacked that is expected to be recovered from the leach pads, the amount of gold in the mill circuits and assumption of the gold price expected to be realized when the gold is recovered. If these estimates or assumptions prove to be inaccurate, the Company could be required to write-down the recorded value of its work-in-process inventories, which would reduce the Company's earnings and working capital.

Page | 22

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

v. Reclamation and Other Closure Provisions

The Company has obligations for reclamation and other closure activities related to its mining properties. The future obligations for mine closure activities are estimated by the Company using mine closure plans or other similar studies which outline the requirements that will be carried out to meet the obligations.

Because the obligations are dependent on the laws and regulations of the countries in which the mines operate, the requirements could change as a result of amendments in the laws and regulations relating to environmental protection and other legislation affecting resource companies. As the estimate of the obligations is based on future expectations, a number of estimates and assumptions are made by management in the determination of closure provisions.

vi. Revenue from metal in concentrate

The Company’s sales of metal in concentrates allow for price adjustments based on the market price at the end of the relevant quotational period (“QP”) stipulated in the contract. These are referred to as provisional pricing arrangements and are such that the selling price for metal in concentrate is based on the prevailing spot price on a specified future date. At each balance sheet date, the Company estimates the value of the trade receivable using forward metal prices.

Adjustments to the sale price occur based on movements in quoted market prices up to the end of the QP. The period between provisional invoicing and the end of the QP is generally between one and three months. Any future changes over the QP are embedded within the provisionally priced trade receivables and are, therefore, within the scope of IFRS 9 and not within the scope of IFRS 15. As such, the provisional price adjustments are accounted for as derivatives and presented separately in Note 19 of these financial statements.

vii. Contingencies

Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will only be resolved when one or more future events not within our control occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings or regulatory or government actions that may negatively impact our business or operations, the Company with assistance from its legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims or actions.

A liability is recognized in the consolidated financial statements when the outcome of the legal proceedings is probable and the estimated settlement amount can be estimated reliably. Contingent assets are not recognized in the consolidated financial statements until virtually certain.

(b) Critical Accounting Judgements in Applying the Entity’s Accounting Policies

Judgements that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:

i. Income Taxes

Deferred tax assets and liabilities are determined based on differences between the financial statement carrying values of assets and liabilities and their respective income tax bases and losses carried forward. The determination

Page | 23

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

of the ability of the Company to utilize tax loss carryforwards to offset deferred tax liabilities requires management to exercise judgement and make certain assumptions about the future performance of the Company.

Management is required to assess whether it is “probable” that the Company will benefit from these prior losses and other deferred tax assets. Changes in economic conditions, metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilization of the losses.

ii. Assessment of Impairment and Reversal of Impairment Indicators

Management applies significant judgement in assessing whether indicators of impairment or impairment reversal exist for an asset or a group of assets. External sources of information the Company considers include changes in the market, economic and legal environment in which the Company operates that are not within its control and affect the recoverable amount of mining interests. Internal sources of information the Company considers include the manner in which mining properties and plant and equipment are being used or are expected to be used, and indicators of economic performance of the assets.

iii. Functional Currency

The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in which each operates. The determination of functional currency may require certain judgements to determine the primary economic environment. The Company reconsiders the functional currency used when there is a change in the events and conditions which determined the primary economic environment.

iv. Leases

Significant judgements made by management in the accounting for leases primarily included whether the lease conveys the right to use a specific asset, whether the Company obtains substantially all of the economic benefits from the use of the asset, whether the Company has the right to direct the use of the asset, evaluating the appropriate discount rate to use to discount the lease liability for each lease or groups of assets, and to determine the lease term where a contract includes renewal options. Significant judgements over these factors would affect the present value of the lease liabilities, as well as the associated amount of the right-of-use (“ROU”) asset.

v. Value-added tax (“VAT”) receivable

Timing of collection of VAT receivables is uncertain as VAT refund procedures require a significant amount of information and follow-up. The Company assesses the recoverability of the amounts receivable at each reporting date and the expected timing of the recovery, which are impacted by several factors, including the status of discussions with the tax authorities, and current interpretation of relevant VAT legislation and regulation. Changes in these judgements can materially affect the amount recognized as VAT receivable and could result in an increase in other expenses recognized in profit or loss and the presentation of current and non-current VAT receivable.

5. TRADE AND OTHER RECEIVABLES


As at	December 31, 2022		December 31, 2021
Trade receivables from doré and concentrate sales	$	23,977	$	25,718
Advances and other receivables		7,443		4,424
Value added taxes recoverable		36,745		46,345
Trade and other receivables	$	68,165	$	76,487

Page | 24

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

The Company’s trade receivables from concentrate and doré sales are expected to be collected in accordance with the terms of the existing concentrate and doré sales contracts with its customers. No amounts were past due as at December 31, 2022 and 2021.

During the year ended December 31, 2021, the Company recognized a provision of $0.9 million related to estimated VAT receivables expected to be sold in the next twelve months. This provision was reversed during the year ended December 31, 2022.

6. INVENTORIES


As at	Note	December 31, 2022		December 31, 2021
Concentrate stockpiles		$	2,161	$	1,711
Doré bars			4,494		3,456
Leach pad and gold-in-circuit			31,649		30,321
Ore stockpiles			52,692		39,292
Materials and supplies			44,476		31,437
Total inventories		$	135,472	$	106,217
Less: non-current portion	9		(43,439)		(20,398)
Current inventories		$	92,033	$	85,819

During the year ended December 31, 2022, the Company expensed $481.5 million of inventories to cost of sales (December 31, 2021 – $346.4 million).

During the year ended December 31, 2022, a charge of $8.9 million was recognized to reduce low grade stockpiles at Lindero and Yaramoko to net realizable value (December 31, 2021 - $7.0 million). Included in the charge was $3.4 million related to depletion and depreciation (December 31, 2021 - $2.8 million).

7. OTHER CURRENT ASSETS


As at	December 31, 2022		December 31, 2021
Derivatives	$	19	$	1,490
Prepaid expenses		11,180		8,060
Investments in equity securities		78		416
Assets held for sale		26		-
Income tax receivable		718		1,713
Other current assets	$	12,021	$	11,679

8. MINERAL PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT

Mineral
Properties -
Depletable

Mineral
Properties -
Non depletable

Construction in Progress

Property, Plant & Equipment

Total

COST

Balance at December 31, 2021

758,112

719,663

57,759

675,486

2,211,020

Additions

74,301

35,468

117,860

14,255

241,884

Changes in closure and reclamation provision

(10,024)

5,238

(235)

(5,021)

Disposals

(372)

(5,502)

(3,313)

(9,187)

Transfers

44,982

(42,598)

(20,972)

18,588

Balance at December 31, 2022

866,999

712,269

154,647

704,781

2,438,696

ACCUMULATED DEPLETION AND IMPAIRMENT

Balance at December 31, 2021

275,460

223,206

498,666

Disposals

(1,970)

Impairment (Note 30)

117,237

65,605

182,842

Depletion and depreciation

113,571

77,966

191,537

Page | 25

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Balance at December 31, 2022

506,268

364,807

871,075

Net Book Value at December 31, 2022

360,731

712,269

154,647

339,975

1,567,622

During the year ended December 31, 2022, the Company capitalized $3.3 million of interest related to the construction of the Séguéla Mine (2021 - $nil).

As at December 31, 2022, non-depletable mineral properties include $26.4 million of exploration and evaluation assets (2021 - $22.0 million).

As at December 31, 2022, property, plant and equipment includes right-of-use assets with a carrying value of $21.5 million (2021 - $29.4 million). Related depletion and depreciation for the year was $9.5 million (2021 - $7.2 million).


		Mineral Properties - Depletable		Mineral Properties - Non depletable		Construction in Progress		Property, Plant & Equipment		Total
COST
Balance at December 31, 2020	$	327,414	$	250,145	$	188,960	$	378,754	$	1,145,273
Acquisition of Roxgold		112,499		697,537		15,047		70,453		895,536
Additions¹		54,882		12,467		81,343		23,433		172,125
Changes in closure and reclamation provision		2,262		1,552		-		(85)		3,729
Disposals		-		-		-		(5,643)		(5,643)
Transfers		261,055		(242,038)		(227,591)		208,574		-
Balance at December 31, 2021	$	758,112	$	719,663	$	57,759	$	675,486	$	2,211,020
ACCUMULATED DEPLETION
Balance at December 31, 2020	$	191,842	$	-	$	-	$	162,304	$	354,146
Disposals		-		-		-		(4,319)		(4,319)
Depletion and depreciation		83,618		-		-		65,221		148,839
Balance at December 31, 2021	$	275,460	$	-	$	-	$	223,206	$	498,666
Net Book Value at December 31, 2021	$	482,652	$	719,663	$	57,759	$	452,280	$	1,712,354

¹Included in additions to Construction in Progress is $47.1 million related to the Séguéla project previously classified as additions to Mineral Properties – Non-depletable.

9. OTHER NON-CURRENT ASSETS


As at	Note	December 31, 2022		December 31, 2021
Ore stockpiles	6	$	43,439	$	20,398
Value added tax recoverable			3,642		3,426
Income tax recoverable			1,137		1,087
Other long-term assets			3,705		1,519
Total other non-current assets		$	51,923	$	26,430

10. TRADE AND OTHER PAYABLES


As at	Note	December 31, 2022		December 31, 2021
Trade accounts payable		$	72,571	$	82,533
Payroll and related payables			22,967		23,311
Mining royalty payable			2,476		2,416
Other payables			7,794		12,161
Derivative liabilities			270		3,077
Share units payable	16(a)(b)(c)		5,818		10,307
Total trade and other payables		$	111,896	$	133,805

Page | 26

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

11. RELATED PARTY TRANSACTIONS

In addition to the related party transactions and balances disclosed elsewhere in these financial statements, the Company entered into the following related party transactions during the years ended December 31, 2022, and 2021:

(a) Purchase of Goods and Services

During the year ended December 31, 2021, the Company was charged $5 thousand for general and administrative services pursuant to a shared services agreement with Gold Group Management Inc., a company of which Simon Ridgway, the Company’s former Chairman, is a director. Effective February 2, 2021, Mr. Ridgway resigned as director and Chairman of the Board, and costs incurred with Gold Group Management Inc. are no longer reported as related party transactions.

(b) Key Management Personnel

During the years ended December 31, 2022, and 2021, the Company was charged for consulting services by Mario Szotlender, a director of the Company. During the year ended December 31, 2021, the Company was charged consulting services by Mill Street Services Ltd., a company of which Mr. Ridgway, the Company’s former Chairman, is a director. Effective February 2, 2021, Mr. Ridgway resigned as director and Chairman of the Board, and costs associated incurred with Mill Street Services Ltd. are no longer reported as related party transactions.

Amounts paid to key management personnel were as follows:


		Years ended December 31,
	2022		2021
Salaries and benefits	$	11,532	$	7,639
Directors fees		934		658
Consulting fees		69		78
Share-based payments		7,042		2,565
	$	19,577	$	10,940

12. LEASE OBLIGATIONS


	Minimum lease payments
As at	December 31, 2022		December 31, 2021
Less than one year	$	11,343	$	12,292
Between one and five years		14,044		13,380
More than five years		5,806		15,983
		31,193		41,655
Less: future finance charges		(9,847)		(12,250)
Present value of minimum lease payments		21,346		29,405
Less: current portion		(9,416)		(10,523)
Non-current portion	$	11,930	$	18,882

Page | 27

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

13. DEBT

The following table summarizes the changes in debt:


		Credit Facility		Convertible debentures		Total
Balance at December 31, 2020	$	119,850		38,766	$	158,616
Transaction costs		(3,036)		-		(3,036)
Acquisition of Roxgold		31,711		-		31,711
Amortization of discount		242		1,641		1,883
Extinguishment of debt		603		-		603
Payments		(32,288)		-		(32,288)
Balance at December 31, 2021		117,082		40,407		157,489
Convertible debenture conversion		-		(60)		(60)
Drawdown		80,000		-		80,000
Transaction costs		(688)		-		(688)
Amortization of discount		626		1,808		2,434
Payments		(20,000)		-		(20,000)
Balance at December 31, 2022	$	177,020	$	42,155	$	219,175

(a)

Credit Facilities

On November 4, 2021, the Company entered into a fourth amended and restated credit agreement (the “Amended Credit Facility”) effective November 5, 2021, with a syndicate of banks led by BNP Paribas, and including The Bank of Nova Scotia, Bank of Montreal and Société Générale, which converted the Company’s prior non-revolving and revolving facilities with the Bank of Nova Scotia and BNP Paribas (the “Scotiabank Facility”) into a revolving term credit facility and increased the amount of the facility from $120.0 million to $200.0 million, subject to the conditions described below. The facility has a term of four years and steps down to $150.0 million after three years. Interest accrues on LIBOR loans under the facility at LIBOR plus an applicable margin of between two and three percent, which varies according to the consolidated leverage levels of the Company, as defined in the Amended Credit Facility.

Effective December 15, 2022, the Company executed a second amendment to the fourth Amended Credit Facility. The amendment increased the amount of the facility from $200.0 million to $250.0 million and increased the amount of the step down of the facility from $150.0 million to $175.0 million in November 2024. The amendment also introduced an uncommitted $50.0 million accordion option, exercisable from June 1, 2023, to October 2024. LIBOR loans under the facility were converted to Term Benchmark loans, with the interest base rate on these loans converting from LIBOR to an adjusted SOFR rate. The applicable loan margins increased by 25 basis points across all levels of the margin grid, and the commitment fee rate increased by 9 to 12 basis points. The counterparties, guarantors, covenants, step down date and maturity date of the Amended Credit Facility were unchanged.

The transaction costs in connection with the second amendment will be amortized over the remaining term of the Amended Credit Facility.

The Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso, and their respective direct and indirect holding companies, have guaranteed the obligations of the Company contemplated by the Amended Credit Facility. The Company has pledged all of its assets to secure the payment of its obligations contemplated by the Amended Credit Facility. The Company’s principal operating subsidiaries in Mexico and Peru, as well as their direct and indirect holding companies have pledged all of their respective assets to secure their respective guarantees of such payment, including the shares of the Company’s principal operating subsidiaries in Mexico and Peru. The Company’s principal operating subsidiary in Burkina Faso has pledged its bank accounts to

Page | 28

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

secure the obligations under its guarantee and the holding companies of the Company’s principal operating subsidiaries in Burkina Faso and Côte d’Ivoire have pledged the shares of those principal operating subsidiaries to secure the obligations under their guarantees.

The Amended Credit Facility includes covenants customary for a facility of this nature including, among other matters, reporting requirements, and positive, negative, and financial covenants set out in therein. As at December 31, 2022, the Company was in compliance with all of the covenants under the Credit Facility.

(b) Convertible Debentures

On October 2 and 6, 2019, the Company completed a bought deal public offering of senior subordinated unsecured convertible debentures with an aggregate principal amount of $46.0 million (the “Debentures”).

The Debentures mature on October 31, 2024 and bear interest at a rate of 4.65% per annum, payable semi-annually in arrears on the last business day of April and October, commencing on April 30, 2020. For the year ended December 31, 2022, the Company paid $2.1 million in interest on the Debentures.

The Debentures are convertible at the holder’s option into common shares in the capital of the Company at a conversion price of $5.00 per share (the “Conversion Price”), representing a conversion rate of 200 Common Shares per $1 thousand principal amount of Debentures, subject to adjustment in certain circumstances.

On or after October 31, 2022 and prior to October 31, 2023, the Debentures may be redeemed in whole or in part from time to time at the Company’s option at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the NYSE for the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of the redemption is given is at least 125% of the Conversion Price. On and after October 31, 2023, the Debentures may be redeemed in whole or in part from time to time at the Company’s option at a price equal to their principal amount plus accrued and unpaid interest regardless of the trading price of the Common Shares.

Subject to applicable securities laws and regulatory approval and provided that no event of default has occurred and is continuing, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the Debentures and accrued and unpaid interest on the redemption date and the maturity date, in whole or in part, through the issuance of Common Shares, by issuing and delivering that number of Common Shares, obtained by dividing the principal amount of the Debentures and all accrued and unpaid interest thereon by 95% of the current market price (as defined in the Debenture Indenture) on such redemption date or maturity date, as applicable.

14. OTHER NON-CURRENT LIABILITIES


As at	Note	December 31, 2022		December 31, 2021
Restricted share units	16(b)	$	1,490	$	1,437
Other non-current liabilities			1,106		1,873
Total other non-current liabilities		$	2,596	$	3,310

Page | 29

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

15. CLOSURE AND RECLAMATION PROVISIONS

The following table summarizes the changes in closure and reclamation provisions:


	Closure and Reclamation Provisions
	Caylloma Mine		San Jose Mine		Lindero Mine			Yaramoko Mine		Séguéla Project		Total
Balance at December 31, 2021	$	14,898	$	7,128	$	19,639	$	12,895	$	1,552	$	56,112
Changes in estimate		(1,235)		(493)		(8,666)		135		5,238		(5,021)
Reclamation expenditures		(503)		(120)		-		-		-		(623)
Accretion		796		682		541		345		-		2,364
Effect of changes in foreign exchange rates		-		473		-		-		-		473
Balance at December 31, 2022		13,956		7,670		11,514		13,375		6,790		53,305
Less: Current portion		(1,577)		(600)		-		-		-		(2,177)
Non-current portion	$	12,379	$	7,070	$	11,514	$	13,375	$	6,790	$	51,128

	Closure and Reclamation Provisions
	Caylloma Mine		San Jose Mine		Lindero Project			Yaramoko Mine		Séguéla Project		Total
Balance at December 31, 2020	$	14,761	$	5,905	$	19,684	$	-	$	-	$	40,350
Acquisition of Roxgold		-		-		-		11,122		-		11,122
Changes in estimate		(152)		1,142		(422)		1,609		1,552		3,729
Reclamation expenditures		(180)		(173)		-		-		-		(353)
Accretion		469		439		377		164		-		1,449
Effect of changes in foreign exchange rates		-		(185)		-		-		-		(185)
Balance at December 31, 2021		14,898		7,128		19,639		12,895		1,552		56,112
Less: Current portion		(1,230)		(652)		-		-		-		(1,882)
Non-current portion	$	13,668	$	6,476	$	19,639	$	12,895	$	1,552	$	54,230

The following table summarizes certain key inputs used in determining the present value of reclamation costs related to mine and development sites:


	Closure and Reclamation Provisions
	Caylloma Mine		San Jose Mine		Lindero Mine			Yaramoko Mine		Séguéla Project		Total
Undiscounted uninflated estimated cash flows	$	15,823	$	8,413	$	14,138	$	14,113	$	7,525	$	60,012
Discount rate		5.88%		9.35%		4.14%		4.22%		3.88%
Inflation rate		2.30%		7.13%		1.96%		3.67%		2.20%

The Company is expecting to incur progressive reclamation costs throughout the life of its mines.

16. SHARE BASED PAYMENTS

During the year ended December 31, 2022, the Company recognized share-based payments of $10.2 million (December 31, 2021 - $3.8 million) related to the amortization of deferred, restricted and performance share units and $0.1 million (December 31, 2021 – $nil) related to amortization of stock options.

Page | 30

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

(a)

Deferred Share Units (DSUs)


		Cash Settled
	Number of DSUs		Fair Value
Outstanding, December 31, 2020		1,124,519	$	9,239
Granted		55,245		347
Units paid out in cash		(374,709)		(3,436)
Changes in fair value		-		(3,013)
Outstanding, December 31, 2021		805,055		3,137
Granted		117,643		452
Changes in fair value		-		(121)
Outstanding, December 31, 2022		922,698	$	3,468

(b)

Restricted Share Units (RSUs)


		Cash Settled				Equity Settled
	Number of RSUs		Fair Value		Number of RSUs
Outstanding, December 31, 2020		1,367,490	$	5,392		1,533,366
Granted		677,250		4,111		-
Units paid out in cash		(618,357)		(2,484)		-
Assumed on acquisition		328,254		1,590		1,091,395
Vested and paid out in shares		-		-		(655,267)
Transferred from equity to cash settled		260,444		-		(260,444)
Forfeited or cancelled		(155,942)		(54)		(64,589)
Changes in fair value and vesting		-		(3,052)		-
Outstanding, December 31, 2021		1,859,139		5,503		1,644,461
Granted		1,348,538		5,264		-
Units paid out in cash		(1,256,288)		(5,737)		-
Vested and paid out in shares		-		-		(665,305)
Transferred from equity to cash settled		413,864		-		(413,864)
Transferred from cash to equity settled		(155,674)		-		155,674
Forfeited or cancelled		(260,870)		-		(15,111)
Changes in fair value and vesting		-		(1,190)		-
Outstanding, December 31, 2022		1,948,709		3,840		705,855
Less: current portion				(2,350)
Non-current portion			$	1,490

Page | 31

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


		Cash Settled			Equity Settled
	Number of PSUs		Fair Value		Number of PSUs
Outstanding, December 31, 2020		-	$	-	839,170
Assumed on acquisition		515,008		2,390	508,688
Granted		-		-	1,196,012
Forfeited or cancelled		-		-	(206,798)
Vested and paid out in shares		-		-	(491,185)
Changes in fair value and vesting		-		714	-
Outstanding, December 31, 2021		515,008		3,104	1,845,887
Granted		-		-	824,768
Forfeited or cancelled		-		-	(434,007)
Units paid out in cash		(683,460)		(3,882)	-
Transferred from equity to cash settled		168,452		-	(168,452)
Vested and paid out in shares		-		-	(228,740)
Change in fair value and vesting		-		778	-
Outstanding, December 31, 2022		-	$	-	1,839,456

(d) Stock Options

The Company’s Stock Option Plan, as amended and approved from time to time, permits the Company to issue up to 12,200,000 stock options. As at December 31, 2022, a total of 2,441,061 stock options are available for issuance under the plan.


	Number of stock options	Weighted average exercise price
		Canadian dollars
Outstanding, December 31, 2020	1,054,570	$	6.28
Exercised	(68,927)		4.99
Assumed on acquisition	405,240		3.77
Expired unexercised	(141,500)		3.22
Outstanding, December 31, 2021	1,249,383		5.88
Expired unexercised	(612,565)		6.16
Outstanding, December 31, 2022	636,818	$	5.62
Vested and exercisable, December 31, 2021	1,249,383	$	5.88
Vested and exercisable, December 31, 2022	636,818	$	5.62

17. SHARE CAPITAL

Authorized Share Capital

The Company has an unlimited number of common shares without par value authorized for issue.

On May 2, 2022, the Company initiated a share repurchase program to purchase up to five percent of its issued and outstanding common shares, expiring on the earlier of May 1, 2023, the date on which Fortuna has acquired the maximum number of common shares allowable under the Normal Course Issuer Bid (“NCIB”) or the date on which Fortuna otherwise decides not to make any further repurchases under the NCIB. From the commencement of the NCIB to December 31, 2022, the Company acquired and cancelled 2,201,404 common shares through this program at an average cost of $2.69 per share for a total cost of $5.9 million.

Page | 32

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

18. EARNINGS PER SHARE


		Years ended December 31,
	2022		2021
Basic:
Net (loss) income attributable to Fortuna shareholders	$	(128,132)	$	57,877
Weighted average number of shares (000's)		291,281		237,998
(Loss) earnings per share - basic	$	(0.44)	$	0.24


		Years ended December 31,
	2022		2021
Diluted:
Net (loss) income attributable to Fortuna shareholders	$	(128,132)	$	57,877
Add: finance costs on convertible debt, net of $nil tax		-		3,779
Diluted net (loss) income for the period	$	(128,132)	$	61,656

Weighted average number of shares (000's)		291,281		237,998
Incremental shares from dilutive potential shares		-		11,445
Weighted average diluted number of shares (000's)		291,281		249,443
(Loss) earnings per share - diluted	$	(0.44)	$	0.23

For the year ended December 31, 2022, 509,468 out of the money options were excluded from the diluted earnings per share calculation (December 31, 2021 – 7,551). For the year ended December 31, 2022, 2,380,857 share units were excluded from the diluted earnings per share calculation (December 31, 2021 – nil). In addition, for the year ended December 31, 2022, 9,176,000 potential shares issuable on conversion of the debentures were excluded from the diluted earnings per share calculation (December 31, 2021 – nil). These shares were excluded from the diluted earnings per share calculations as their effect would have been anti-dilutive.

19. SALES

The Company’s geographical analysis of revenue from contracts with customers attributed to the location of the products produced, is as follows:


	Year ended December 31, 2022
		Peru		Mexico		Argentina		Burkina Faso		Total
Silver-gold concentrates	$	-	$	173,871	$	-	$	-	$	173,871
Silver-lead concentrates		50,300		-		-		-		50,300
Zinc concentrates		53,147		-		-		-		53,147
Gold doré		-		-		212,092		193,541		405,633
Provisional pricing adjustments		(1,116)		(344)		-		-		(1,460)
Sales to external customers	$	102,331	$	173,527	$	212,092	$	193,541	$	681,491

	Year ended December 31, 2021
		Peru		Mexico		Argentina		Burkina Faso		Total
Silver-gold concentrates	$	-	$	219,663	$	-	$	-	$	219,663
Silver-lead concentrates		59,755		-		-		-		59,755
Zinc concentrates		42,990		-		-		-		42,990
Gold doré		-		-		178,999		101,256		280,255
Provisional pricing adjustments		799		(3,609)		-		-		(2,810)
Sales to external customers	$	103,544	$	216,054	$	178,999	$	101,256	$	599,853

¹Burkina Faso was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward

Page | 33

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


	Years ended December 31,
	2022		2021
Customer 1	$	212,092	$	178,999
Customer 2		193,541		101,256
Customer 3		102,332		103,544
Customer 4		76,851		28,860
Customer 5		70,584		91,950
Customer 6		26,091		47,212
Customer 7		-		48,032
	$	681,491	$	599,853

From time to time, the Company mitigates the price risk associated with its base metal production by entering into forward sale and collar contracts for some of its forecasted base metal production and non-metal commodities.

During the year ended December 31, 2022, the Company recognized $0.7 million of realized losses on the settlement of forward sale and collar contracts (December 31, 2021 - $1.5 million), and $1.2 million unrealized gains from changes in the fair value of the open positions (December 31, 2021 – $1.3 million unrealized loss).

20. COST OF SALES


	Years ended December 31,
	2022		2021
Direct mining costs	$	272,329	$	198,141
Salaries and benefits		44,432		34,773
Workers' participation		4,285		7,647
Depletion and depreciation		171,447		121,077
Royalties and other taxes		33,304		25,703
Inventory net realizable value adjustments		8,898		7,035
Cost of Sales	$	534,695	$	394,376

For the year ended December 31, 2022, depletion and depreciation includes $9.0 million of depreciation related to right-of-use assets (December 31, 2021 - $6.3 million).

21. GENERAL AND ADMINISTRATION


	Years ended December 31,
	2022		2021
General and administration	$	50,191	$	39,386
Workers' participation		954		1,813
		51,145		41,199
Share-based payments		10,311		4,161
General and Administration	$	61,456	$	45,360

Page | 34

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

22. INTEREST AND FINANCE COSTS, NET


	Years ended December 31,
	2022		2021
Interest income	$	1,851	$	1,846
Interest expense		(8,885)		(10,246)
Bank stand-by and commitment fees		(193)		(69)
Accretion expense		(2,364)		(1,451)
Lease Liabilities		(2,466)		(2,348)
Loss on extinguishment of credit facility		-		(595)
	$	(12,057)	$	(12,863)

23. INCOME TAX

(a)

Reconciliation of Effective Tax Rate

Income tax expense differs from the amount that would be computed by applying the applicable Canadian statutory

income tax rate to income before income taxes. The significant reasons for the differences are as follows:


	Years ended December 31,
	2022		2021
Net (loss) income before tax	$	(125,109)	$	107,180
Statutory tax rate		27.0%		27.0%
Anticipated income tax at statutory rates		(33,779)		28,939
Non-deductible expenditures (deductible expenditures)		(3,513)		(5,535)
Differences between Canadian and foreign tax rates		10,448		4,392
Changes in estimate		(4,492)		(93)
Effect of change in tax rates		—		(1,919)
Inflation adjustment		(57,403)		(24,873)
Impact of foreign exchange		17,336		14,865
Change in deferred tax assets not recognized		70,178		18,692
Mining taxes		5,629		7,636
Withholding taxes		7,720		8,148
Other items		(1,327)		(2,471)
Total income tax expense	$	10,797	$	47,781

Total income tax represented by:
Current income tax expense	$	35,783	$	51,651
Deferred tax recovery		(24,986)		(3,870)
	$	10,797	$	47,781

Page | 35

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

(b)

Tax Amounts Recognized in Profit or Loss


	Years ended December 31,
	2022		2021
Current tax expense
Current taxes on profit for the year	$	35,884	$	51,106
Changes in estimates related to prior years		(101)		545
	$	35,783	$	51,651

Deferred tax expense
Origination and reversal of temporary differences and foreign exchange rate	$	(20,826)	$	(985)
Changes in estimates related to prior years		(4,392)		(638)
Effect of differences in tax rates		232		(328)
Effect of changes in tax rates		—		(1,919)
	$	(24,986)	$	(3,870)

Total tax expense	$	10,797	$	47,781

(c)

Deferred Tax Balances

The significant components of the recognized deferred tax assets and liabilities are:


	December 31,		December 31,
	2022		2021
Deferred tax assets:
Reclamation and closure cost obligation	$	14,942	$	15,872
Carried forward tax loss		3,552		4,192
Equipment and buildings		11,976		23,989
Accounts payable and accrued liabilities		13,286		19,370
Deductibility of resource taxes		2,406		3,085
Lease obligations		8,374		8,270
Other		86		1,153
Total deferred tax assets	$	54,622	$	75,931

Deferred tax liabilities:
Mineral properties	$	(202,087)	$	(244,296)
Mining and foreign withholding taxes		(3,524)		(4,523)
Convertible debenture		(831)		(1,198)
Inflation		(4,306)		(10,163)
Inventory and other		(11,493)		(7,419)
Total deferred tax liabilities	$	(222,241)	$	(267,599)

Net deferred tax liabilities	$	(167,619)	$	(191,668)

	2022		2022
Classification:
Deferred tax assets	$	-	$	-
Deferred tax liabilities		(167,619)		(191,668)
Net deferred tax liabilities	$	(167,619)	$	(191,668)

Page | 36

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

The Company's movement of net deferred tax liabilities is described below:


	2022		2021
At January 1	$	191,668	$	19,499
Deferred income tax (recovery) expense through income statement		(24,831)		(3,870)
Deferred income tax expense through equity		782		176,039
At December 31	$	167,619	$	191,668

(d)

Unrecognized Deferred Tax Assets and Liabilities

The Company recognizes tax benefits on losses or other deductible amounts where it is more likely than not that the deferred tax asset will be realized. The Company’s unrecognized deductible temporary differences and unused tax losses for which no deferred tax asset is recognized consists of the following amounts:


	December 31,		December 31,
	2022		2021
Unrecognized deductible temporary differences and unused tax losses:
Non-capital losses	$	164,427	$	136,072
Provisions		7,215		11,657
Share issue costs		306		1,711
Mineral properties, plant and equipment		184,970		12,705
Lease obligation		578		863
Derivative liabilities		335		-
Capital losses		—		4,204
Investments in equity securities and associates		1,070		901
Unrecognized deductible temporary differences	$	358,901	$	168,114

As at December 31, 2022, the Company has temporary differences associated with investments in subsidiaries for which an income tax liability has not been recognized as the Company can control the timing of the reversal of the temporary differences and the Company plans to reinvest in its foreign subsidiaries. The temporary difference associated with investments in subsidiaries aggregate as follow:


	December 31,		December 31,
	2022		2021
Mexico	$	150,379	$	204,283
Peru		78,505		59,976
West Africa		18,122		114,559

(e)

Tax Loss Carry Forwards

Tax losses have the following expiry dates:


		December 31,			December 31,
	Year of expiry	2022		Year of expiry	2021
Canada	2026 - 2042	$	184,717	2026 - 2041	$	150,015
Mexico	2021 - 2031		20	2021 - 2030		378

In addition, as at December 31, 2022, the Company has accumulated Canadian resource related expenses of $8.0 million (December 31, 2021- $8.5 million) for which the deferred tax benefit has not been recognized.

Page | 37

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

24. SEGMENTED INFORMATION

The following summary describes the operations of each reportable segment:

●

Mansfield Minera S.A. (“Mansfield”) – operates the Lindero gold mine

●

Roxgold SANU S.A. (“Sanu”) – operates the Yaramoko gold mine

●

Roxgold SANGO S.A. (“Sango”) – construction of the Séguéla mine

●

Compania Minera Cuzcatlan S.A. de C.V. (“Cuzcatlan”) – operates the San Jose silver-gold mine

●

Minera Bateas S.A.C. (“Bateas”) – operates the Caylloma silver, lead and zinc mine

●

Corporate – corporate stewardship


	Year ended December 31, 2022
		Mansfield		Sanu		Sango		Cuzcatlan		Bateas		Corporate		Total
Revenues from external customers	$	212,092	$	193,541	$	-	$	173,527	$	102,331	$	-	$	681,491
Cost of sales before depreciation and depletion		(111,625)		(106,953)		-		(91,312)		(53,358)		-		(363,248)
Depreciation and depletion in cost of sales		(54,644)		(64,893)		-		(37,776)		(14,134)		-		(171,447)
General and administration		(8,698)		(2,101)		(366)		(8,150)		(4,478)		(37,663)		(61,456)
Impairment of mineral properties, plant and equipment		(70,156)		(103,457)		-		(9,229)		-		-		(182,842)
Other (expenses) income		(3,239)		2,570		(1,175)		(5,026)		(208)		(8,972)		(16,050)
Finance items		(1,695)		(760)		(360)		(660)		(1,167)		(6,915)		(11,557)
Segment income (loss) before taxes		(37,965)		(82,053)		(1,901)		21,374		28,986		(53,550)		(125,109)
Income taxes		(3,529)		13,056		405		(4,855)		(8,915)		(6,959)		(10,797)
Segment income (loss) after taxes	$	(41,494)	$	(68,997)	$	(1,496)	$	16,519	$	20,071	$	(60,509)	$	(135,906)

	Year ended December 31, 2021
		Mansfield		Sanu		Sango		Cuzcatlan		Bateas		Corporate		Total
Revenues from external customers	$	178,999	$	101,256	$	-	$	216,054	$	103,544	$	-	$	599,853
Cost of sales before depreciation and depletion		(79,224)		(51,839)		-		(90,499)		(51,737)		-		(273,299)
Depreciation and depletion in cost of sales		(43,665)		(28,973)		-		(32,257)		(16,182)		-		(121,077)
General and administration		(5,793)		(953)		-		(10,007)		(4,127)		(24,480)		(45,360)
Other (expenses) income		(5,069)		(2,536)		(472)		(15,793)		632		-		(23,238)
Finance items		(972)		(2,664)		(96)		(882)		(5,034)		(20,051)		(29,699)
Segment income (loss) before taxes		44,276		14,291		(568)		66,616		27,096		(44,531)		107,180
Income taxes		(3,242)		(2,749)		(499)		(23,586)		(9,415)		(8,290)		(47,781)
Segment income (loss) after taxes	$	41,034	$	11,542	$	(1,067)	$	43,030	$	17,681	$	(52,821)	$	59,399



As at December 31, 2022		Mansfield		Sanu		Sango		Cuzcatlan		Bateas		Corporate		Total
Total assets	$	499,937	$	182,621	$	833,179	$	187,898	$	142,385	$	30,204	$	1,876,224
Total liabilities	$	44,152	$	47,122	$	173,082	$	30,381	$	49,143	$	243,648	$	587,528
Capital expenditures¹	$	23,048	$	54,137	$	118,644	$	24,397	$	19,610	$	2,047	$	241,884
¹Capital expenditures are on an accrual basis for the year ended December 31, 2022

As at December 31, 2021		Mansfield		Sanu		Sango		Cuzcatlan		Bateas		Corporate		Total
Total assets	$	613,584	$	249,153	$	760,220	$	239,448	$	128,012	$	31,505	$	2,021,922
Total liabilities	$	51,544	$	67,229	$	186,981	$	48,094	$	54,863	$	183,641	$	592,352
Capital expenditures¹	$	40,845	$	22,856	$	56,614	$	26,962	$	24,848	$	-	$	172,125
¹Capital expenditures are on an accrual basis for the year ended December 31, 2021

25. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

Page | 38

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (interest rate, yield curves), or inputs that are derived principally from or corroborated observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

The following sets up the methods and assumptions used to estimate the fair value of financial instruments.

Financial asset or liability	Methods and assumptions used to estimate fair value
Trade receivables	Trade receivables arising from the sales of metal concentrates are subject to provisional pricing, and the final selling price is adjusted at the end of a quotational period. These are marked to market at each reporting date based on the forward price corresponding to the expected settlement date.
Investments in equity securities	Investments in equity securities are recorded at fair value based on the quoted market price at the end of each reporting period with changes in fair value through other comprehensive income.
Interest rate swap, metal, fuel and foreign exchange contracts	Fair value is calculated as the present value of the estimated contractual cash flows. Estimates of future cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. These are discounted using a yield curve, and adjusted for credit risk of the Company or the counterparty.
Convertible Debentures	The fair value of the convertible debentures represents both the debt and equity components of the convertible debentures and has been determined with reference to the quoted market price of the convertible debentures.

During the years ended December 31, 2022, and 2021, there were no transfers of amounts between Level 1, Level 2, and Level 3 of the fair value hierarchy. The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not measured at fair value is not presented if the carrying amount is a reasonable approximation of fair value.

Page | 39

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


	Carrying value								Fair value
December 31, 2022	Fair Value through OCI		Fair value through profit or loss		Amortized cost		Total		Level 1		Level 2		Level 3		Carrying value approximates Fair Value
Financial assets measured at Fair Value
Investments in equity securities	$	78	$	-	$	-	$	78	$	78	$	-	$	-	$	-
Trade receivables concentrate sales		-		21,455		-		21,455		-		21,455		-		-
Metal forward sales contracts asset				18				18				18				-
	$	78	$	21,473	$	-	$	21,551	$	78	$	21,473	$	-	$	-

Financial assets not measured at Fair Value
Cash and cash equivalents	$	-	$	-	$	80,493	$	80,493	$	-	$	-	$	-	$	80,493
Trade receivables doré sales		-		-		2,522		2,522		-		-		-		2,522
Other receivables		-		-		7,443		7,443		-		-		-		7,443
	$	-	$	-	$	90,458	$	90,458	$	-	$	-	$	-	$	90,458

Financial liabilities measured at Fair Value
Foreign exchange forward contracts liability		-		(270)		-		(270)		-		(270)		-		-
	$	-	$	(270)	$	-	$	(270)	$	-	$	(270)	$	-	$	-

Financial liabilities not measured at Fair Value
Trade payables	$	-	$	-	$	(72,571)	$	(72,571)	$	-	$	-	$	-	$	(72,571)
Payroll payable		-		-		(22,967)		(22,967)		-		-		-		(22,967)
Credit facilities		-		-		(177,020)		(177,020)		-		(180,000)		-		-
Convertible debentures		-		-		(42,155)		(42,155)		-		(46,138)		-		-
Other payables		-		-		(31,519)		(31,519)		-		-		-		(31,519)
	$	-	$	-	$	(346,232)	$	(346,232)	$	-	$	(226,138)	$	-	$	(127,057)

Page | 40

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)


	Carrying value								Fair value
December 31, 2021	Fair Value through OCI		Fair value through profit or loss		Amortized cost		Total		Level 1		Level 2		Level 3		Carrying value approximates Fair Value
Financial assets measured at Fair Value
Investments in equity securities	$	496	$	-	$	-	$	496	$	496	$	-	$	-	$	-
Trade receivables concentrate sales		-		23,298		-		23,298		-		23,298		-		-
Fuel hedge contracts asset		-		1,619		-		1,619		-		1,619		-		-
	$	496	$	24,917	$	-	$	25,413	$	496	$	24,917	$	-	$	-

Financial assets not measured at Fair Value
Cash and cash equivalents	$	-	$	-	$	107,097	$	107,097	$	-	$	-	$	-	$	107,097
Trade receivables doré sales		-		-		2,420		2,420		-		-		-		2,420
Other receivables		-		-		4,424		4,424		-		-		-		4,424
	$	-	$	-	$	113,941	$	113,941	$	-	$	-	$	-	$	113,941

Financial liabilities measured at Fair Value
Interest rate swap liability	$	(78)	$	-	$	-	$	(78)	$	-	$	(78)	$	-	$	-
Metal forward sales contracts liability		-		(2,547)		-		(2,547)		-		(2,547)		-		-
Fuel forward contracts liability		-		(508)		-		(508)		-		(508)		-		-
	$	(78)	$	(3,055)	$	-	$	(3,133)	$	-	$	(3,133)	$	-	$	-

Financial liabilities not measured at Fair Value
Trade payables	$	-	$	-	$	(80,925)	$	(80,925)	$	-	$	-	$	-	$	(80,925)
Payroll payable		-		-		(23,311)		(23,311)		-		-		-		(23,311)
Credit facilities		-		-		(117,082)		(117,082)		-		(120,000)		-		-
Convertible debentures		-		-		(40,407)		(40,407)		-		(50,614)		-		-
Other payables		-		-		(44,427)		(44,427)		-		-		-		(44,427)
	$	-	$	-	$	(306,152)	$	(306,152)	$	-	$	(170,614)	$	-	$	(148,663)

Page | 41

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

26. MANAGEMENT OF FINANCIAL RISK

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.

The Company is exposed to certain financial risks, including credit risk, liquidity risk, currency risk, metal price risk, and interest rate risk.

(a)

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. All our trade accounts receivables from concentrate sales are held with large international metals trading companies.

The Company’s cash and cash equivalents and short-term investments are held through large financial institutions.

These investments mature at various dates within three months.

The Company’s maximum exposure to credit risk as at December 31, 2022 and 2021 is as follows:



As at	December 31, 2022		December 31, 2021
Cash and cash equivalents	$	80,493	$	107,097
Derivative assets		19		1,490
Trade and other receivables		68,165		76,487
Income tax receivable		718		1,713
Other non-current receivables		8,484		6,032
	$	157,879	$	192,819

The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. We limit our exposure to counterparty credit risk on cash and term deposits by only dealing with financial institutions with high credit ratings and through our investment policy of purchasing only instruments with a high credit rating. Almost all of our concentrates are sold to large well-known concentrate buyers.

(b)

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continually monitoring forecasted and actual cash flows. The Company has in place a planning and budgeting process to help determine the funds required to support its normal operating requirements and its development plans. The Company aims to maintain sufficient liquidity to meet its short term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash and cash equivalents, and its committed and anticipated liabilities.

The Company had $150.5 million of liquidity comprised of cash and cash equivalents and undrawn credit facilities as at December 31, 2022. The Company believes that it has sufficient liquidity to meet the Company’s minimum obligations for at least the next 12 months from December 31, 2022.

The Company manages its liquidity risk by continuously monitoring forecasted and actual cashflows. A rigorous reporting, planning and budgeting process are in place to help facilitate forecasting funding requirements, to support operations on an ongoing basis and expansion plans, if any.

Page | 42

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

As at December 31, 2022, the Company expects the following maturities of its financial liabilities, lease obligations, and other contractual commitments, excluding payments relating to interest:

Expected payments due by year as at December 31, 2022

Less than

After

1 year

1 - 3 years

4 - 5 years

5 years

Total

Trade and other payables

111,896

Debt

225,940

Income taxes payable

11,589

Lease obligations

11,343

8,308

5,736

5,806

31,193

Other liabilities

2,596

Capital commitments, Séguéla

13,923

380

14,303

Closure and reclamation provisions

3,227

24,635

9,110

23,040

60,012

151,978

261,859

14,846

28,846

457,529



	Expected payments due by year as at December 31, 2021
		Less than						After
		1 year		1 - 3 years		4 - 5 years		5 years		Total
Trade and other payables	$	133,805	$	-	$	-	$	-	$	133,805
Debt		-		46,000		120,000		-		166,000
Income taxes payable		20,563		-		-		-		20,563
Lease obligations		12,292		11,315		2,065		15,983		41,655
Other liabilities		-		3,310		-		-		3,310
Capital commitments, Séguéla		66,542		5,217		-		-		71,759
Closure and reclamation provisions		1,883		5,561		23,954		24,714		56,112
	$	235,085	$	71,403	$	146,019	$	40,697	$	493,204

(c)

Currency risk

The Company is exposed to fluctuations in foreign exchange rates as a portion of our expenses are incurred in Canadian dollars, Peruvian soles, Argentine peso, Mexican peso, West Africa CFA Franc and Australian dollars. A significant change in the foreign exchange rates between the United States dollar relative to the other currencies could have a material effect on the Company’s profit or loss, financial position, or cash flows.

Page | 43

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

As at December 31, 2022 and 2021, the Company was exposed to currency risk through the following assets and liabilities denominated in foreign currencies:

December 31, 2022

Canadian
Dollars

Peruvian
Soles

Mexican
Pesos

Argentine
Pesos

West
African
CFA
Franc

Australian
Dollars

Euro

Cash and cash equivalents

587

6,237

73,868

11,845

6,057,885

250

Marketable securities

105

Restricted cash

2,338,983

Trade and VAT receivables

215

3,317

73,868

2,062,918

12,979,116

(115)

Income tax receivable

28,137

13,900

VAT - long term receivable

70,520

Trade and other payables

(13,374)

(16,966)

(218,288)

(1,429,416)

(15,346,471)

(1,285)

(274)

Provisions, current

(8,123)

(11,729)

(387,883)

Income tax payable

(84,393)

(1,353,215)

Other liabilities

(177)

(9,708)

Provisions, non-current

(12,611)

(90,797)

Total foreign currency exposure

(12,592)

(9)

(182,759)

257,464

4,676,296

(1,151)

(274)

US$ equivalent of foreign currency exposure

(9,297)

(2)

(9,439)

1,436

7,416

(1,099)

(262)


	December 31, 2021
	Canadian Dollars	Peruvian Soles	Mexican Pesos	Argentine Pesos	West African CFA Franc	Australian Dollars	Euro
Cash and cash equivalents	1,660	5,508	18,126	4,319	11,494,909	5	28
Marketable securities	527	-	-	-	-	-	-
Restricted cash	-	-	-	-	1,166,963	-	-
Trade and VAT receivables	690	2,144	174,229	1,526,506	13,433,368	-	-
Income tax receivable	-	20,707	-	-	-	-	-
VAT - long term receivable	-	-	70,520	-	-	-	-
Trade and other payables	(3,839)	(17,496)	(400,697)	(1,174,033)	(10,094,158)	(939)	(1,431)
Provisions, current	-	(4,413)	(13,534)	(95,353)	-	-	-
Income tax payable	-	-	(87,881)	-	-	-	-
Other liabilities	-	-	(6,178)	-	-	-	-
Provisions, non-current	-	-	(87,305)	-	-	-	-
Total foreign currency exposure	(962)	6,450	(332,719)	261,439	16,001,083	(933)	(1,403)
US$ equivalent of foreign currency exposure	(755)	1,668	(16,802)	2,734	28,548	(671)	(1,207)

Sensitivity as to change in foreign currency exchange rates on our foreign currency exposure as at December 31, 2022 is provided below:


		Effect on foreign
		denominated
Currency	Change	items
Mexican pesos	+/- 10%	$	858
Peruvian soles	+/- 10%	$	0
Argentinian pesos	+/- 10%	$	131
Canadian Dollar	+/- 10%	$	845
West African CFA franc	+/- 10%	$	674
Australian Dollar	+/- 10%	$	152
Euro	+/- 10%	$	24

Page | 44

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Due to the volatility of the exchange rate for Argentine Peso, the Company is applying additional measures in cash management to minimize potential losses arising from the conversion of funds. As discussed in note 26(f), with the capital controls in effect, the Company is required to convert the equivalent value of foreign currency received from the proceeds of the sale of all gold doré from the Lindero Mine.

(d)

Metal Price Risk

The Company is exposed to metal price risk with respect to the sales of silver, gold, lead, and zinc concentrates. The following table summarizes the effect on provisionally priced sales and accounts receivables of a 10% change in metal prices from the prices used at December 31, 2022:


Metal	Change	Effect on Sales
Silver	+/- 10%	$	800
Gold	+/- 10%	$	363
Lead	+/- 10%	$	550
Zinc	+/- 10%	$	186

During the year ended December 31, 2022, the Company recognized negative sales adjustments of $1.5 million
(December 31, 2021 – negative $2.8 million) as a result of changes in metal prices on the final settlement or during the quotational period.

(e)

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Currently, the Company’s interest rate exposure mainly relates to interest earned on its cash, cash equivalent, and short-term investment balances, interest paid on its LIBOR-based debt, interest paid on its SOFR-based debt and the mark-to-market value of derivative instruments which depend on interest rates.

(f)

Capital Management

The Company’s objective when managing its capital is to maintain its ability to continue as a going concern while at the same time maximizing the growth of its business and providing returns to its shareholders. The Company manages its capital structure and makes adjustments based on changes to its economic environment and the risk characteristics of the Company’s assets.

Effective December 23, 2019, changes to Argentina’s tax laws proposed by the new Argentine Government were implemented. The changes ratified and extended legislation which was to expire on December 31, 2019 and allow the Argentine Central Bank to regulate funds coming into and flowing out of Argentina in order to maintain stability and support the economic recovery of the country. These capital controls, together with additional temporary controls enacted on May 29, 2020, have the effect of requiring exporters to convert the equivalent value of foreign currency received from the export into Argentine Pesos; requiring the prior consent of the Argentine Central Bank to the payment of cash dividends and distributions of currency out of Argentina; requiring Argentine companies to convert foreign currency loans received from abroad into Argentine Pesos; and restricting the sale of Argentine Pesos for foreign currency.

Page | 45

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

The Company’s capital requirement is effectively managed based on the Company having a thorough reporting, planning and forecasting process to help identify the funds required to ensure the Company is able to meet its operating and growth objectives.

The Company’s capital structure consists of equity comprising of share capital, reserves and retained earnings as well as debt facilities, equipment financing obligations less cash, cash equivalents and short-term investments.



	December 31, 2022		December 31, 2021
Equity	$	1,244,756	$	1,375,148
Debt		219,175		157,489
Lease obligations		21,346		29,405
Less: cash and cash equivalents		(80,493)		(107,097)
	$	1,404,784	$	1,454,945

As discussed above, the Company operates in Argentina where the new Argentine government has ratified and extended legislation to December 31, 2025 to allow the Argentine Central Bank to regulate funds coming into and flowing out of Argentina. Other than the restrictions related to these capital controls and complying with the debt covenants under the Company’s credit facility, the Company is not subject to any externally imposed capital requirements. As at December 31, 2022 and 2021, the Company was in compliance with its debt covenants.

27. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in working capital for the years ended December 31, 2022 and 2021 are as follows:


	Years ended December 31,
	2022		2021
Trade and other receivables	$	7,315	$	(16,897)
Prepaid expenses		(1,643)		(2,149)
Inventories		(20,415)		(23,824)
Trade and other payables		(3,278)		3,556
Total changes in working capital	$	(18,021)	$	(39,314)

Page | 46

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

The changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes for the years as set out below are as follows:


	Bank loan		Convertible debentures		Lease obligations
As at December 31, 2020	$	119,850	$	38,766	$	19,497
Additions		-		-		7,397
Terminations		-		-		(1,203)
Acquisition of Roxgold		31,711		-		13,597
Interest		845		1,641		2,336
Payments		(32,288)		-		(11,928)
Transaction costs		(3,036)		-		-
Foreign exchange		-		-		(291)
As at December 31, 2021		117,082		40,407		29,405
Loss on debt modifications		-		-		(729)
Additions		80,000		-		2,774
Terminations		-		-		(661)
Conversion of debenture		-		(60)		-
Interest		626		1,808		2,623
Payments		(20,000)		-		(12,209)
Transaction costs		(688)		-		-
Foreign exchange		-		-		143
As at December 31, 2022	$	177,020	$	42,155	$	21,346

The significant non-cash financing and investing transactions during the years ended December 31, 2022 and 2021 are as follows:



	Years ended December 31,
	2022		2021
Acquisition of Roxgold	$	-	$	594,666
Mineral properties, plant and equipment changes in closure and reclamation provision	$	5,021	$	(3,729)
Stock options allocated to share capital upon exercise	$	-	$	136
Additions to right of use assets	$	(2,774)	$	(2,551)
Share units allocated to share capital upon settlement	$	2,525	$	4,468

28. NON-CONTROLLING INTEREST

As at December 31, 2022, the non-controlling interest (“NCI”) of the Government of Burkina Faso, which represents a 10% interest in Roxgold SANU S.A. totaled $2.3 million. The loss attributable to the NCI for the year ended December 31, 2022, totaling $7.1 million is based on the net loss for Yaramoko.

Page | 47

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

As at December 31, 2022, the NCI of the Government of Côte d’Ivoire, which represents a 10% interest in Roxgold Sango S.A. totaled $41.6 million. The loss attributable to the NCI for the year ended December 31, 2022, totaling $0.7 million is based on the net loss for Séguéla.


Summarized statement of financial position

As of December 31, 2022	Yaramoko		Séguéla
Non-controlling interest percentage		10%		10%
Current assets	$	54,953	$	6,536
Non-current assets		110,617		230,570
Current liabilities		(23,338)		(13,629)
Non-current liabilities		(99,921)		(254,158)
Net assets	$	42,311	$	(30,681)

Non-controlling interest	$	2,309	$	41,631

Summarized income statement

For the period ended December 31, 2022	Yaramoko		Séguéla
Revenue	$	193,541	$	-
Net income (loss) and comprehensive income (loss)	$	40,614	$	6,964

Summarized cash flows

For the period ended December 31, 2022	Yaramoko		Séguéla
Cash flows provided by operating activities	$	83,124	$	(710)
Cash flows used in investing activities	$	(53,449)	$	(124,737)
Cash flows (used in) provided by financing activities	$	(32,309)	$	121,521

29. CONTINGENCIES AND CAPITAL COMMITMENTS

(a) Caylloma Letter of Guarantee

The Caylloma Mine closure plan, as amended, that was in effect in January 2021, included total undiscounted closure costs of $18.2 million, which consisted of progressive closure activities of $6.2 million, final closure activities of $9.8 million, and post closure activities of $2.3 million pursuant to the terms of the Mine Closing Law.

Under the terms of the current Mine Closing Law, the Company is required to provide the Peruvian Government with a guarantee in respect of the Caylloma mine closure plan as it relates to final closure activities and post-closure activities and related taxes. In 2022, the Company provided a bank letter of guarantee of $10.8 million to the Peruvian Government in respect of such closure costs and taxes.

(b) San Jose Letter of Guarantee

The Company has established three letters of guarantee in the aggregate amount of $0.9 million to fulfill its environmental obligations under the terms and conditions of the Environmental Impact Statements issued by the Secretaria de Medio Ambiente y Recursos Naturales (“SEMARNAT”) in 2009 in respect of the construction of the San Jose mine, and in 2017 and 2020 with respect to the expansion of the dry stack tailings facility at the San Jose mine. The letters of guarantee expire on December 31, 2023, March 5, 2024, and September 17, 2023, respectively.

Page | 48

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

As at December 31, 2022, the Company had capital commitments of $6.5 million, $1.8 million and $0.1 million for civil work, equipment purchases and other services at the Lindero, Caylloma and San Jose Mines, respectively, which are expected to be expended within one year.

Burkina Faso

The Company entered into an agreement with a service provider at the Yaramoko Mine wherein if the Company terminates the agreement prior to the end of its term, in December 2023, the Company would be required to make an early termination payment, which is reduced monthly over 30 months, and in certain circumstances, could be required to make other payments that will be negotiated between the Company and the service provider. If the Company had terminated the agreement at December 31, 2022 it would have been subject to an early termination payment of $2.0 million.

Côte d’Ivoire

As of December 31, 2022, the Company had capital commitments of $14.3 million for the construction of the Séguéla Mine, with $13.9 million expected to be expended within one year.

The Company entered into an agreement with a service provider at the Séguéla Mine wherein if the Company terminates the agreement prior to the end of its term, in November 2026, the Company would be required to make an early termination payment, which is reduced monthly over 48 months.

If the Company had terminated the agreement on December 31, 2022, and elected not to purchase the service provider’s equipment, it would have been subject to an early termination payment of $19.7 million.

If the Company had terminated the agreement on December 31, 2022, and elected to purchase the service provider’s equipment, the early termination amount would be adjusted to exclude equipment depreciation and demobilization of equipment, and only include portion of the monthly management fee and demobilization of personnel.

(d) Tax Contingencies

The Company is, from time to time, involved in various tax assessments arising in the ordinary course of business. The Company cannot reasonably predict the likelihood or outcome of these actions. The Company has recognized tax provisions with respect to current assessments received from the tax authorities in the various jurisdictions in which the Company operates, and from any uncertain tax positions identified. For those amounts recognized related to current tax assessments received, the provision is based on management's best estimate of the outcome of those assessments, based on the validity of the issues in the assessment, management's support for their position, and the expectation with respect to any negotiations to settle the assessment. Management re-evaluates the outstanding tax assessments regularly to update their estimates related to the outcome for those assessments taking into account the criteria above.

Page | 49

Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Peru

The Company was assessed $1.1 million (4.3 million Peruvian soles), including interest and penalties of $0.6 million (2.4 million Peruvian soles), for the 2010 tax year by SUNAT, the Peruvian tax authority, with respect to the deduction of certain losses arising from derivative instruments. The Company has applied to the Peruvian tax court to appeal the assessment.

On January 22, 2019, the Peruvian tax court reaffirmed SUNAT’s position and denied the deduction. The Company believes the assessment is inconsistent with Peruvian tax law and that it is probable the Company will succeed on appeal through the Peruvian legal system. The Company has paid the disputed amount in full and has initiated proceedings through the Peruvian legal system to appeal the decision of the Peruvian tax court.

As at December 31, 2022, the Company has recorded the amount paid of $1.1 million (4.3 million Peruvian soles) in other long-term assets, as the Company believes it is probable that the appeal will be successful (Note 9).

Argentina

On August 16, 2022, the Argentine Tax Authority (“AFIP”) published General Resolution No.5248/2022 (the “Resolution”) which established a one-time “windfall income tax prepayment” for companies that have obtained extraordinary income derived from the general increase in international prices. The Resolution was published by AFIP without prior notice.

The windfall income tax prepayment applies to companies that meet certain income tax or net income tax (before the deduction of accumulated tax losses) thresholds for 2021 or 2022. The aggregate amount of the windfall income tax prepayment payable by Mansfield calculated in accordance with the Resolution is approximately $5.5 to $6.0 million.

The windfall income tax prepayment was to be paid in three equal and consecutive monthly instalments, starting on October 22, 2022, and is payable in addition to income tax instalments currently being paid by corporate taxpayers on account of their income tax obligations. The windfall income tax prepayment is an advance payment of income taxes due to be paid in 2022.

Based on the historical accumulated losses of Mansfield for fiscal 2021 which can be carried forward for 2022, Mansfield was not liable for income tax, and based upon current corporate income tax laws and the ability of the Company to deduct historical accumulated losses, it was projected that income tax would not be required to be paid for fiscal 2022.

To protect Mansfield’s position from having to pay the windfall income tax prepayment as an advance income tax for 2022, which based on management’s projections is not payable, Mansfield applied to the Federal Court of Salta Province for a preliminary injunction to prevent the AFIP from issuing a demand or other similar measure for the collection of the Windfall Income Tax Prepayment.  On October 3, 2022, Mansfield was notified that the Court had granted the preliminary injunction. As a result, Mansfield did not pay any of the three instalments due in 2022.

Mansfield also filed an administrative claim with the AFIP to challenge the constitutionality of the Resolution, which was rejected by AFIP on November 2, 2022. Mansfield has challenged the rejection of its administrative claim, by filing legal proceedings against the AFIP with the Federal Court. On February 15, 2023, the Federal Court granted Mansfield a preliminary injunction in these legal proceedings.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

(e) Other Contingencies

The Company is subject to various investigations and other claims, legal, labor, and tax proceedings covering matters that arise in the ordinary course of business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably for the Company. Certain conditions may exist as of the date these financial statements are issued that may result in a loss to the Company. None of these matters is expected to have a material effect on the results of operations or financial conditions of the Company.

30. IMPAIRMENT

The Company’s impairment loss in respect of the following CGUs for the year ended December 31, 2022 are summarized in the following table:

Cash Generating Unit	Carrying Value		Recoverable Amount		Impairment Expense
Yaramoko	$	199,652	$	96,195	$	103,457
Lindero	$	525,336	$	455,180	$	70,156
San Jose	$	128,349	$	119,121	$	9,229
Total Impairment Expense					$	182,842

Impairment Testing

In accordance with the Company’s accounting policies each CGU is assessed for indicators of impairment from both internal and external sources at the end of each reporting period. If such indicators of impairment exist for any CGU, those CGUs are tested for impairment. Based on this assessment, the Company determined that the Yaramoko, Lindero and San Jose CGUs had indicators of impairment.

The recoverable amounts of the CGUS are based on the discounted cash flows expected to be derived from the Company’s mining properties and represent each CGU’s Fair Value Less Cost of Disposal (FVLCD), a Level 3 fair value estimate.

CGU specific assumptions used to evaluate the recoverable amount were as follows:

Yaramoko

During 2022 the Company completed additional exploration drilling programs and studies to re-evaluate modelling and estimation techniques to improve the definition of the mineralization and better understand the proposed open pit mining operation at the 55 Zone as disclosed by Roxgold on November 10, 2020 as well as the continued testing of targets at depth in the 55 Zone underground. Results from the additional drilling and evaluation studies were used to update the deposit model which, when taking into account production related depletion, resulted in a 43% decrease in gold ounces in the proven and probable mineral reserves. In 2022, Yaramoko also realized increased operating and capital costs due to inflation. These factors were integrated into an updated life of mine assessment during the fourth quarter of 2022 and the Company concluded that the recoverable value and exploration potential of the Yaramoko property had declined and that the asset was impaired. As a result, the Company recorded an impairment expense of $103.5 million in respect of its mining interests at the Yaramoko CGU.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Lindero

In the fourth quarter of 2022 the Company completed an exercise to assess the operating and capital requirements of the mine as well as the impact of inflation on the cost structure at Lindero for the life of the mine. The results reflected an increase in cash costs per tonne and capital requirements over the planned life of mine and decreased the associated future after-tax cash flows which resulted in a reduction of the estimated recoverable amount of Lindero. Discount rates for Lindero also increased to 7.1% compared to the 6.25% used in the 2021 impairment assessment due to higher interests rates and country risk. As a result, the Company recorded an impairment expense of $70.2 million in respect of its mining interests at the Lindero CGU.

San Jose

In 2022 the San Jose mine realized increased operating and capital costs in its cost structure due to inflation. In addition, the 2022 exploration drilling campaign failed to identify sufficient material to replace mined depletion which contributed to the reduction in mineral reserves and resulted in a shorter mine life. This update was integrated into a revised life of mine plan in the fourth quarter of 2022 which resulted in a reduction of the estimated recoverable amount of San Jose. As a result, the Company recorded an impairment expense of $9.2 million in respect of its mining interests at the San Jose CGU.

Key Assumptions

The projected cash flows used in impairment testing are significantly affected by changes in the assumptions of metal prices, estimated quantities of mineral reserves and mineral resources that form the basis for the life of mine plans, production cost estimates, capital requirements, and discount rates. The Company’s impairment testing incorporated the following key assumptions.

Weighted Average Cost of Capital

Projected cash flows were discounted using an after-tax discount rate that reflects the weighted average cost of capital for each CGU when considering estimates for risk free interest rates, market value of the Company’s equity, market return on equity, share volatility, debt-to-equity financing ratio and a country risk premium. Discount rates used in each impairment assessment were as follows:

Cash Generating Unit	Discount Rate
Lindero	7.1%
Yaramoko	7.9%
San Jose	5.5%

Pricing Assumptions

Metal pricing including in the cash flow projects beyond five years is based on historical volatility and consensus analyst pricing. The metal price assumptions used in the Company’s impairment assessments were as follows:

Metal	2023	2024	2025	2026	2027	Long Term
Gold (Per Once)	$1,800	$1,800	$1,725	$1,725	$1,700	$1,650
Silver (Per Ounce)	$22.00	$22.50	$22.00	$23.00	$23.00	$21.50

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

Production and Costs

The Company’s estimates of future cash costs of production and capital expenditures are based on the life of mine (LOM) plan for each cash generating unit. The LOM plans for each CGU are based on detailed research and analysis and consider the optimal level of capital investment, overall production levels and mine sequence, commodity prices, historical performance and other factors to maximize the value of the CGU.

Projected future revenues reflect the forecasted production at each CGU as detailed in their LOM plans. The LOM may include mineralized material that does not qualify for inclusion as a mineral reserve or a mineral resource. This is consistent with the methodology used to measure value beyond proven and probable reserves when allocating the purchase price of a business combination to acquired mining assets. The Company’s estimate of recoverable value for accounting purposes is not a “preliminary assessment”, as defined in Canadian Securities Administrators’ National Instrument 43- 101 “Standards of Disclosure for Mineral Projects”.

31. SUBSEQUENT EVENTS

On January 5, 2023, the Company announced that it had received notice of a resolution from the Secretaría de Medio Ambiente y Recursos Naturales (“SEMARNAT”) which provides that SEMARNAT has annulled and is re-assessing the 12-year extension to the environmental impact authorization (“EIA”) for the San Jose Mine that it had granted to Cuzcatlan in December 2021.

Cuzcatlan initiated legal proceedings (the “Mexican Legal Proceedings”) in the Mexican Federal Administrative Court (the “Court”) to contest and revoke the annulment of the EIA. The Court has admitted the Mexican Legal Proceedings, and on March 10, 2023, Minera Cuzcatlan received notice that the Court has granted it a permanent injunction which allows the San Jose mine to continue to operate under the terms of the 12-year EIA until the determination of the Mexican Legal Proceedings.

Until the determination of the Mexican Legal Proceedings, the Company has agreed with its lenders to certain temporary restrictions under the Amended Credit Facility as follows:

●

Until the date that the Company receives a positive decision in the Mexican Legal Proceedings, the following conditions will apply:

o

The Company may not exercise the $50 million accordion feature.

o

The Company must maintain a minimum cash balance of $70 million. In the event, that the Company fails to maintain this minimum requirement over a period of 30 days, the availability of the credit under the facility will be reduced to $200 million. The credit availability will revert to $250 million once the Company re-establishes the minimum cash balance requirement over a period of 30 days.

o

The Company may not make any distributions, cash-based permitted acquisition and investments, nor any discretionary expansionary capital expenditures (other than those related to the completion of the Séguéla Project).

o

The Company is required to hedge 25% of its forecasted consolidated gold production for the period from February 14 to June 15, 2023.

o

The Company may not make investments in or provide financial assistance to non-guaranteeing subsidiaries in excess of $3,000,000.

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Fortuna Silver Mines Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

(Tabular amounts presented in thousands of US dollars, except share and per share amounts)

●

In the event that: (1) the permanent injunction ceases to be in effect; (2) the Court upholds the SEMARNAT Resolution, (3) an Administrative Authority issues a resolution to cease operations at the San Jose Mine, or (4) a positive decision in the Mexican Legal Proceedings is not received before March 31, 2024, the availability under the Amended Credit Facility will be reduced to nil, and an event of default will occur thereunder.

Page | 54

MANAGEMENT’S DISCUSSION AND ANALYSIS

For the year ended December 31, 2022

As of March 15, 2023

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the three and nine months ended December 31, 2022

This Management’s Discussion and Analysis (“MD&A”) of the financial position and results of operations for Fortuna Silver Mines Inc. (the “Company” or “Fortuna”) (TSX: FVI and NYSE: FSM) should be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2022 and 2021 (the “2022 Financial Statements”) and the related notes thereto. The 2022 Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. For further information on the Company, reference should be made to its public filings on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.

This MD&A is prepared by management and approved by the Board of Directors as of March 15, 2023. The information and discussion provided in this MD&A covers the year ended December 31, 2022, and where applicable, the subsequent period up to the date of issuance of this MD&A. Unless otherwise noted, all dollar amounts in this MD&A are expressed in United States (“US”) dollars. References to "$" or "US$" in this MD&A are to US dollars and references to C$ are Canadian dollars.

Fortuna has a number of direct and indirect subsidiaries which own and operate assets and conduct activities in different jurisdictions. The terms "Fortuna" or the "Company" are used in this MD&A for simplicity of the discussion provided herein and may include references to subsidiaries that have an affiliation with Fortuna, without necessarily identifying the specific nature of such affiliation.

This MD&A contains forward-looking statements. Readers are cautioned as to the risks and uncertainties related to the forward-looking statements, the risks and uncertainties associated with investing in the Company’s securities and the technical and scientific information under National Instrument 43-101 – Standards for Disclosure of Mineral Projects (“NI 43-101”) concerning the Company’s material properties, including information about mineral reserves and resources, which classifications differ significantly from the requirements required by the U.S. Securities and Exchange Commission (“SEC”) as set out in the cautionary note 61 of this MD&A. All forward-looking statements are qualified by cautionary notes in this MD&A as well as risks and uncertainties discussed in the Company’s Annual Information Form for fiscal 2021 dated March 30, 2022 and its Management Information Circular dated May 12, 2022, which are filed on SEDAR and EDGAR.

This MD&A uses certain Non-IFRS financial measures and ratios that are not defined under IFRS, including but not limited to: cash cost per ounce of gold; all-in sustaining cash cost per ounce of gold sold; all-in cash cost per ounce of gold sold; total production cash cost per tonne; cash cost per payable ounce of silver equivalent; all-in sustaining cash cost per payable ounce of silver equivalent sold; all-in cash cost per payable ounce of silver equivalent sold; free cash flow and free cashflow from ongoing operations; adjusted net income; adjusted EBITDA and working capital which are used by the Company to manage and evaluate operating performance at each of the Company’s mines and are widely reported in the mining industry as benchmarks for performance. Non-IFRS financial measures and non-IFRS ratios do not have a standard meaning under IFRS, and may not be comparable to similar financial measures disclosed by other issuers. Non-IFRS measures are further discussed in the “Non-IFRS Measures” section 36 of this MD&A.

Throughout this MD&A, the operational and financial results of the assets acquired in the acquisition of Roxgold Inc. (“Roxgold”) are included from July 2, 2021 onward.

Fortuna | 2

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

CONTENTS


Business Overview	4
Corporate Developments	4
Highlights	5
Financial Results	9
2023 Guidance and Outlook	16
Quarterly Results of Operations	20
Projects & Exploration	26
Quarterly Information	29
Liquidity and Capital Resources	31
Financial Instruments	34
Share Position & Outstanding Options & Equity Based Share Units	34
Related Party Transactions	35
Non-IFRS Financial Measures	36
Risks and Uncertainties	46
Adoption of New Accounting Standards, Interpretation or Amendments	56
Critical Accounting Estimates, Assumptions, and Judgements	56
Controls and Procedures	57
Cautionary Statement on Forward-Looking Statements	58
Cautionary Note to United States Investors Concerning Estimates of Reserves and Resources	61

Fortuna | 3

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

BUSINESS OVERVIEW

Fortuna is a growth focused Canadian precious metals mining company with operations and projects in Argentina, Burkina Faso, Mexico, Peru, and Côte d’Ivoire. The Company produces silver, gold and base metals and generates shared value over the long-term through efficient production, environmental protection, and social responsibility.

The Company operates the open pit Lindero gold mine (“Lindero” or the “Lindero Mine”) located in northern Argentina, the underground Yaramoko gold mine (“Yaramoko” or the “Yaramoko Mine”) located in south-western Burkina Faso, the underground San Jose silver and gold mine (“San Jose” or the “San Jose Mine”) located in southern Mexico, the underground Caylloma silver, lead, and zinc mine (“Caylloma” or the “Caylloma Mine”) located in southern Peru, and is developing and constructing the open pit Séguéla gold mine (“Séguéla”, "Séguéla Project" or the “Séguéla Gold Project”) located in south-western Côte d’Ivoire. Each of the Company's producing mines is generally considered to be a separate reportable segment, along with the Company's corporate stewardship segment.

Fortuna is a publicly traded company incorporated and domiciled in British Columbia, Canada. Its common shares are listed on the New York Stock Exchange (“NYSE”) under the trading symbol FSM and on the Toronto Stock Exchange (“TSX”) under the trading symbol FVI.

CORPORATE DEVELOPMENTS

Amendment to the Credit Facility

On December 15, 2022 the company announced that it had entered into an agreement with its lenders to amend its existing senior secured revolving credit facility to, among other things, increase the maximum amount of the facility by US$50 million to US$250 million. The maturity date of the credit facility remains unchanged and matures in November 2025. See “Capital Resources” for further information.

San Jose Mine EIA

Cuzcatlan initiated legal proceedings (the “Mexican Legal Proceedings”) in the Mexican Federal Administrative Court (the “Court”) to contest and revoke the annulment of the EIA. The Court has admitted the Mexican Legal Proceedings, and on March 10, 2023, Minera Cuzcatlan received notice that the Court has granted it a permanent injunction which allows the San Jose Mine to continue to operate under the terms of the 12-year EIA until the determination of the Mexican Legal Proceedings.

Until the determination of the Mexican Legal Proceedings, the Company has agreed with its lenders to certain temporary restrictions under the Amended Credit Facility. Refer to “Capital Resources” for additional details.

IMPAIRMENT EXPENSE RECORDED IN THE FOURTH QUARTER OF 2022

In the fourth quarter of 2022 the Company recorded an impairment of mining interests and property plant and equipment of $182.8 million ($164.5 million net of tax). The impairment expenses recognized against the carrying values of the mining interests is as follows:

Fortuna | 4

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)


	Impairment Expense		Impairment Expense
			Net of Tax
Yaramoko	$	103.5	$	85.4
Lindero		70.1		70.2
San Jose		9.2		8.9
Impairment expense	$	182.8	$	164.5
Figures may not add due to rounding

Yaramoko

During 2022 the Company completed additional exploration drilling programs and studies to re-evaluate modelling and estimation techniques necessary to improve the definition of the mineralization and better understand the proposed open pit mining operation at the 55 Zone as disclosed by Roxgold on November 10, 2020 as well as the continued testing of targets at depth in the 55 Zone underground. Results from the additional drilling and evaluation studies were used to update the deposit model which, when taking into account production related depletion, resulted in a 43% decrease in gold ounces in the Proven and Probable Reserves (refer to Fortuna news release dated January 27, 2023). In 2022, Yaramoko also realized increased operating and capital costs due to inflation. These factors were integrated into an updated life of mine assessment during the fourth quarter of 2022 and the Company concluded that the recoverable value and exploration potential of the Yaramoko property had declined and that the asset was impaired. As a result, the Company recorded an impairment expense of $103.5 million in respect of its mining interests at the Yaramoko Cash Generating Unit (“CGU”).

Lindero

In the fourth quarter of 2022 the Company completed an exercise to assess the operating and capital requirements of the mine as well as the impact of inflation on the cost structure at Lindero for the life of the mine. The results reflected an increase in cash costs per tonne and capital requirements over the planned life of mine and decreased the associated future after-tax cash flows which resulted in a reduction of the estimated recoverable amount of Lindero. Discount rates for Lindero also increased to 7.1% compared to the 6.25% used in the 2021 impairment assessment due to higher interests rates and country risk. As a result, the Company recorded an impairment expense of $70.1 million in respect of its mining interests at the Lindero CGU.

San Jose

In 2022 the San Jose Mine realized increased operating and capital costs in its cost structure due to inflation. In addition, the 2022 exploration drilling campaign failed to identify sufficient material to replace mined depletion which contributed to the reduction in mineral reserves and resulted in a shorter mine life. This update was integrated into a revised life of mine plan in the fourth quarter of 2022 which resulted in a reduction of the estimated recoverable amount of San Jose. As a result, the Company recorded an impairment expense of $9.2 million in respect of its mining interests at the San Jose CGU.

HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 2022

Financial

●	Sales were $681.5 million, an increase of 14% from the $599.9 million reported in the year ended December 31, 2021 (“2021”).

●	Mine operating income was $146.8 million, a decrease of 29% from the $205.5 million reported in 2021.

Fortuna | 5

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

●	Operating loss was $113.6 million, a decrease of 183% from the $136.9 million in operating income reported in 2021.

●	Net loss was $135.9 million or $0.44 per share, a decrease from net income of $59.4 million or $0.24 per share reported in 2021.

●	Adjusted net income (refer to Non-IFRS Financial Measures) was $42.6 million compared to $100.6 million in 2021, representing a 58% year-over-year decrease.

●	Adjusted EBITDA (refer to Non-IFRS Financial Measures) was $245.5 million compared to $280.7 million reported in 2021, representing a 13% year-over-year decrease.

●	Free cash flow from ongoing operations (refer to Non-IFRS Financial Measures) was $69.2 million compared to $86.0 million reported in 2021, representing a 20% year-over-year decrease.

●	Net cash provided by operating activities was $194.2 million, an increase of 32% from the $147.1 million reported in 2021.

Operating

●	Gold production of 259,427 ounces, an increase of 25% from 2021

●	Silver production of 6,907,275 ounces, a decrease of 8% from 2021

●	Lead production of 34,588,000 pounds, an increase of 5% from 2021

●	Zinc production of 46,176,000 pounds, a decrease of 3% from 2021

Growth and Development

●	Séguéla construction was 86% complete as of December 31, 2022 and remains on-time and on-budget for first gold pour in mid-2023

●

Fortuna continued to expand mineralization at the Sunbird discovery at Séguéla that has resulted in an upgraded mineral resource estimate for Sunbird, including a maiden indicated mineral resource and an increased inferred mineral resource. Regional exploration at Séguéla has continued to return encouraging results. Refer to Fortuna news release dated December 5, 2022: “Fortuna increases Sunbird Resource and identifies new regional prospects at Séguéla, Cote d’Ivoire” for full details

COVID-19

During the fiscal year ended December 31, 2022, there were no shutdowns or material impacts to the business related to COVID-19. The Company continues to monitor the evolution of COVID-19 and our operations maintain preventative and reactive health protocols including health awareness, health and hygiene controls and quarantine as necessary.

Health & Safety

During Q4 2022, the Company recorded three lost time injuries (“LTI”) for a total of 5 for the year, two restricted work injuries (“RWI”) and three medical treatment injuries (“MTI”) for over 3.59 million hours worked for all of its activities (operating mines, construction, exploration and corporate offices). The year-to-date LTI frequency rate (“LTIFR”) at the end of Q4 2022 was 0.39 lost time injuries per million hours worked, which represents a continuous improvement from the previous years. The year-to-date total recordable injury frequency rate (“TRIFR”) at the end of Q4 2022, which includes the FI (Fatality Incident), LTI, RWI and MTI, was 2.32 total recordable injuries per million hours worked, which is also an improvement from the previous years.

Fortuna | 6

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Environment

Site controls by the Company, local authorities and participatory monitoring were conducted in accordance with the plans for the quarter and no areas of non-compliance were identified, and no fines associated with permits and regulations were recorded during 2022 and there were no significant environmental incidents.

Community Engagement

The Company seeks to maintain good constructive relations with the communities where it operates, based on dialogue, transparency, and respect, and to be a catalyst for social development. At each of the Company’s operations, it maintains open and ongoing channels of communication with the people in the communities within its direct and indirect areas of influence. At each operation the Company has established mechanisms for addressing requests and complaints or grievances with local and other stakeholders. The Company also takes part in consultations and participatory meetings to identify and prioritize community development needs.

During the fourth quarter of 2022, there were no significant disputes at any of the sites. We also recorded 368 local stakeholder engagement activities during the period. These included consultation meetings with local administration and community leaders, participation in ceremonies, and courtesy visits.

Climate Change

During 2022, the Company continued energy audits and a decarbonisation studies to assess the opportunities to reduce its green house gas emissions in the coming years. By the end of December, the decarbonization study was being updated with the latest mining data and the identification and definition of metrics and targets are underway.

Fortuna | 7

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Operating and Financial Highlights

A summary of the Company’s consolidated financial and operating results for the three and twelve months ended December 31, 2022 are presented below:


	Three months ended December 31,			Years ended December 31,
Consolidated Metrics	2022	2021	% Change	2022	2021	% Change
Selected highlights
Silver
Metal produced (oz)	1,746,746	1,980,243	(12%)	6,907,275	7,498,701	(8%)
Metal sold (oz)	1,775,019	1,976,380	(10%)	6,924,640	7,518,857	(8%)
Realized price ($/oz)	21.35	23.39	(9%)	21.75	25.16	(14%)
Gold
Metal produced (oz)	64,112	76,162	(16%)	259,427	207,192	25%
Metal sold (oz)	62,718	76,746	(18%)	259,313	202,292	28%
Realized price ($/oz)	1,737	1,801	(4%)	1,802	1,789	1%
Lead
Metal produced (000's lbs)	8,735	8,419	4%	34,588	32,990	5%
Metal sold (000's lbs)	9,118	7,945	15%	34,869	33,299	5%
Zinc
Metal produced (000's lbs)	12,575	11,380	11%	46,176	47,549	(3%)
Metal sold (000's lbs)	11,027	11,053	(0%)	44,770	47,828	(6%)

Adjusted net income¹	7.2	29.1	(75%)	42.6	100.6	(58%)
Adjusted EBITDA¹	55.8	89.6	(38%)	245.5	280.7	(13%)
Net cash provided by operating activities	49.6	57.1	(13%)	194.2	147.1	32%
Free cash flow from ongoing operations¹	4.4	28.2	(84%)	69.2	86.0	(20%)
Capital Expenditures²
Sustaining	33.9	31.6	7%	98.1	77.2	27%
Non-sustaining³	(2.3)	2.6	(188%)	8.2	9.5	(14%)
Lindero construction	—	—	0%	—	12.8	(100%)
Séguéla construction	23.5	19.8	19%	107.7	34.2	215%
Brownfields	6.5	8.2	(21%)	23.3	18.9	23%
¹Refer to Non-IFRS financial measures
²Capital expenditures are presented on a cash basis
³ Non-sustaining expenditures include greenfields exploration
Figures may not add due to rounding

Fortuna | 8

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

FINANCIAL RESULTS

Selected Financial Information


	Three months ended December 31,			Years ended December 31,
(Expressed in $ millions except per share information)	2022	2021	% Change	2022	2021	2020
Selected Financial Information
Sales	164.7	198.9	(17%)	681.5	599.9	279.0
Mine operating income	26.0	58.3	(55%)	146.8	205.5	110.2
Operating (loss) income	(173.1)	38.9	(545%)	(113.6)	136.9	57.2
Net (loss) income	(160.4)	16.6	(1,066%)	(135.9)	59.4	21.6
Loss (earnings) per share - basic	(0.52)	0.05	(1,140%)	(0.44)	0.24	0.12

As at				December 31, 2022	December 31, 2021	December 31, 2020
Cash and cash equivalents				80.5	107.1	131.9
Total assets				1,876.2	2,021.9	1,055.3
Debt				219.2	157.5	158.6
Equity attributable to Fortuna shareholders				1,244.8	1,375.1	725.8
Figures may not add due to rounding

Fourth Quarter 2022 vs Fourth Quarter 2021

Mine operating income for the three months ended December 31, 2022 was $26.0 million, a decrease of $32.3 million over the same period in 2021. The decrease was primarily due to:

●

Lower production at San Jose of both silver and gold as mined grades decreased in line with the mine plan and the Mineral Reserve estimate as well as a lower realized silver price of $21.37 compared to $23.39 in the comparable period.

●

A 19% reduction in gold sold at Lindero as a result of an 8% decrease in tonnes and an 23% decrease in gold grade for ore placed on the pad compared to the fourth quarter of 2021. The reduction of gold grades was in line with the mining plan and the Mineral Reserve estimate.

●

An 8% decrease in gold produced at Yaramoko relative to the comparable period. The reduction in gold production was in line with the mine sequence.

Net loss for the three months ended December 31, 2022 was $160.4 million, a decrease of $177.0 million over the same period in 2021. The decrease in net income was driven by the factors described above for mine operating income as well as the recognition of an impairment charge of $182.8 million ($164.5 million net of tax) in the fourth quarter of 2022. Refer to “Impairment Expense Recored in the Fourth Quarter of 2022” for additional details.

Year ended December 31, 2022 vs Year ended December 31, 2021

Mine operating income for the year ended December 31, 2022 was $146.8 million, a decrease of 29% compared to $205.5 million over the same period in 2021. The decrease was primarily related to:

●

Lower sales at the San Jose Mine due to lower head grades of silver and gold compared to the same period last year as well as lower realized silver prices

●

Higher production costs at the Lindero Mine as a result of an increase in ore tonnes crushed, inflation of key commodities and lower capitalized stripping

●

An increase in non-cash costs at the Lindero Mine related to the depletion of previously capitalized stripping costs as the mine accessed a greater amount of ore in Phase 2 of the open pit

Fortuna | 9

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

The above was partially offset by higher sales at the Lindero Mine as the site was in ramp up over the same period in 2021 and the contribution of twelve months of sales from the Yaramoko Mine compared to 6 months for the same period in 2021.

Net loss for year ended December 31, 2022 was $135.9 million, a decrease of $195.3 million compared to the same period in 2021. The reduction in net income was a result of lower mine operating income as described above, as well as the following:

●

Higher G&A expenses due to the acquisition of Roxgold and the associated personnel being included in twelve months of results in 2022 compared to only six months in the previous year

●

Write-downs of $5.5 million related to the termination of exploration agreements on the Santa Fe property in Mexico and the Tlamino property in Serbia

●

An impairment charge of $182.8 million ($164.5 million net of tax) was realized in the fourth quarter of 2022. Refer to “Impairment Expense Recorded in the Fourth Quarter of 2022” for additional details.

Results for the comparable period in 2021 included one-time costs of $13.8 million for transaction costs related to the Roxgold acquisition and $9.6 million related to the settlement of the disputed Mexican royalty.

A discussion on sales and operating income is presented below.

Fortuna | 10

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Sales


	Three months ended December 31,			Years ended December 31,
	2022	2021	% Change	2022	2021	% Change
Provisional sales $
Lindero	48.8	65.9	(26%)	212.1	177.5	19%
Yaramoko⁴	45.7	52.2	(12%)	193.5	101.2	91%
San Jose	43.8	54.9	(20%)	175.6	219.9	(20%)
Caylloma	24.7	24.5	1%	103.7	104.3	(1%)
Adjustments¹	1.7	1.4	21%	(3.4)	(3.0)	13%
Total sales $	164.7	198.9	(17%)	681.5	599.9	14%
Silver
Metal produced (oz)	1,746,746	1,980,243	(12%)	6,907,275	7,498,701	(8%)
Provisional sales (oz)	1,775,019	1,976,380	(10%)	6,924,640	7,518,857	(8%)
Provisional sales $	35.1	43.1	(19%)	139.7	176.4	(21%)
Realized price ($/oz)²	21.35	23.39	(9%)	21.75	25.16	(14%)
Net realized price ($/oz)³	19.78	23.29	(15%)	20.18	22.24	(9%)
Gold
Metal produced (oz)	64,112	76,162	(16%)	259,427	207,192	25%
Provisional sales (oz)	62,718	76,746	(18%)	259,313	202,292	28%
Provisional sales $	107.7	136.9	(21%)	463.2	355.6	30%
Realized price ($/oz)²	1,737	1,801	(4%)	1,802	1,789	1%
Net realized price ($/oz)³	1,717	1,776	(3%)	1,786	1,745	2%
Lead
Metal produced (000's lbs)	8,735	8,419	4%	34,588	32,990	5%
Provisional sales (000's lbs)	9,118	7,945	15%	34,869	33,299	5%
Provisional sales $	7.7	6.8	13%	30.5	27.8	10%
Realized price ($/lb)²	0.96	1.06	(9%)	0.98	1.00	(2%)
Net realized price ($/lb)³	0.85	0.85	0%	0.88	0.83	6%
Zinc
Metal produced (000's lbs)	12,575	11,380	11%	46,176	47,549	(3%)
Provisional sales (000's lbs)	11,027	11,053	(0%)	44,770	47,828	(6%)
Provisional sales $	11.5	10.7	7%	50.4	43.1	17%
Realized price ($/lb)²	1.35	1.51	(11%)	1.57	1.36	15%
Net realized price ($/lb)³	1.05	0.97	8%	1.13	0.90	26%
¹ Adjustments consists of mark to market, final price and assay adjustments
² Based on provisional sales before final price adjustments. Net after payable metal deductions, treatment, and refining charges
³ Treatment charges are allocated to base metals at Caylloma and to gold at San Jose
⁴The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.

Fourth Quarter 2022 vs Fourth Quarter 2021

Consolidated sales for the three months ended December 31, 2022 were $164.7 million, a 17% decrease from the $198.9 million reported in the same period in 2021. Sales by reportable segment for the year ended December 31, 2022 were as follows:

●

Lindero recognized adjusted sales of $48.8 million from the sale of 27,847 ounces of gold sold, a 27% decrease from the same period in 2021. Lower gold sales in the quarter were due to an 8% reduction in tonnes and a 23% decrease in gold grades for ore placed on the leach pad which was in line with the mine plan and the Mineral Reserve estimate. See "Results of Operations – Lindero Mine, Argentina" for additional information.

●

Yaramoko recognized adjusted sales of $45.7 million from the sale of 26,250 ounces of gold sold, a 12% decrease from the same period in 2021. Lower sales were primarily the result of lower realized prices and lower gold production in line with the mine sequence. See "Results of Operations – Yaramoko Mine, Burkina Faso" for additional information.

Fortuna | 11

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

●

San Jose recognized adjusted sales of $45.9 million, a 19% decrease from the $56.7 million reported in the same period in 2021. Lower sales were primarily driven by lower realized silver prices and lower production due to lower grades which was in line with the mine sequence and Mineral Reserve statement. See "Results of Operations – San Jose Mine, Mexico" for additional information.

●

Caylloma recognized adjusted sales of $24.3 million, in line with the $24.4 million reported in the same period in 2021 as lower realized metal pries were offset by higher silver and lead production. See "Results of Operations – Caylloma Mine, Peru" for additional information.

Year ended December 31, 2022 vs Year ended December 31, 2021

Consolidated sales for the year ended December 31, 2022 were $681.5 million, a 14% increase compared to the same period in 2021. The increase in sales was primarily driven by the following:

●

Lindero recognized adjusted sales of $212.1 million compared to $179.0 million in the same period in 2021. Higher gold sales were driven by increased production as a result of increased performance at the three-stage crushing and stacking facility

●

Yaramoko recognized adjusted sales of $193.5 million for twelve months of operations compared to only six months in the comparable period in 2021 due to the timing of the Roxgold transaction

●

This was partially offset by lower sales at San Jose which decreased by $42.5 million compared to the same period in 2021. The reduction in sales was driven by lower production as grades decreased in line with the reserve model and lower realized metal prices.

Operating Income (Loss) and Adjusted EBITDA


	Three months ended December 31,						Years ended December 31,
	2022		%¹	2021		%¹	2022		%¹	2021		%¹
Operating income (loss)
Lindero		(69.6)	(142%)		16.1	25%		(36.3)	(17%)		45.2	25%
Séguéla³		1.4	0%		(0.5)	0%		(1.5)	0%		(0.5)	0%
Yaramoko³		(95.0)	(208%)		6.9	13%		(81.3)	(17%)		17.0	17%
San Jose		(1.6)	(3%)		20.1	35%		22.0	13%		67.5	31%
Caylloma		6.8	28%		5.1	21%		30.2	29%		32.1	31%
Corporate		(15.1)			(8.8)			(46.6)			(24.4)
Total		(173.1)	(105%)		38.9	20%		(113.5)	(17%)		136.9	23%

Adjusted EBITDA²
Lindero		17.3	35%		36.1	55%		90.2	43%		93.6	52%
Séguéla³		1.1	0%		(0.3)	0%		(0.3)	0%		(0.3)	0%
Yaramoko³		24.0	59%		24.9	48%		85.6	44%		50.7	50%
San Jose		18.4	40%		28.6	50%		71.6	41%		114.0	53%
Caylloma		9.8	40%		8.9	36%		39.3	37%		45.5	44%
Corporate		(14.8)			(8.6)			(40.9)			(22.8)
Total		55.8	36%		89.6	45%		245.5	36%		280.7	47%
¹ As a Percentage of Sales
² Refer to Non-IFRS Financial Measures
3 The Yaramoko Mine and Séguéla Project were acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.
Figures may not add due to rounding

Fortuna | 12

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Fourth Quarter 2022 vs Fourth Quarter 2021

Operating loss for the three months ended December 31, 2022 was $173.1 million, a decrease of $212.0 million over the same period in 2021. The change in operating income was primarily due to lower mine operating income described above and an impairment charge of $182.8 million ($164.5 million net of tax) that was realized in the fourth quarter of 2022. Refer to “Impairment Expense Recorded in the Fourth Quarter of 2022” for additional details

Adjusted EBITDA (refer to Non-IFRS Financial Measures) was $55.8 million for the three months ended December 31, 2022, a decrease of $33.8 million over the same period in 2021. Lower adjusted EBITDA was a result of higher production costs as described above.

The most comparable IFRS measure to the Non-IFRS measure adjusted EBITDA is net loss. Net loss for the three months ended December 31, 2022 was $160.4 million. Refer to the discussion above and to the section entitled “Non-IFRS Measures” for more detailed information.

Year ended December 31, 2022 vs Year ended December 31, 2021

Operating loss for the twelve months ended December 31, 2022 was $113.6 million, a decrease of $250.5 million over the same period in 2021. The decrease in operating income was a result of lower mine operating income as described above as well as the following factors:

●

A write-down of $5.5 million related to the termination of an exploration agreement on the Santa Fe property in Mexico and the Tlamino property in Serbia

●

Higher share-based compensation as the comparable period in 2021 was impacted by larger mark to market adjustments on share units that will settle in cash

●

Higher foreign exchange losses as a result of the strengthening of the US dollar and its impact on balances denominated in other currencies

●

Higher G&A costs from running the larger combined organization for twelve months in 2022, post Roxgold acquisition, compared to only six months in the comparable period in 2021

●

An impairment charge of $182.8 million ($164.5 million net of tax) was realized in the fourth quarter of 2022. Refer to “Impairment Expense Recored in the Fourth Quarter of 2022” for additional details.

Adjusted EBITDA for the year ended December 31, 2022 was $245.5 million, a decrease of $35.2 million over the same period in 2021. The decrease in adjusted EBITDA was primarily the result of higher sales offset by higher production costs as described above.

The most comparable IFRS measure to the Non-IFRS measure adjusted EBITDA is net loss. Net loss for the year ended December 31, 2022, was $135.9 million. Refer to the discussion above and to the section entitled “Non-IFRS Measures” for more detailed information.

General and Administrative (“G&A”) Expenses


	Three months ended December 31,					Years ended December 31,
(Expressed in millions)	2022		2021		% Change	2022		2021		% Change
Mine G&A		6.2		6.0	3%		22.5		18.1	24%
Corporate G&A		5.8		7.0	(17%)		27.7		21.3	30%
Share-based payments		4.4		3.0	47%		10.3		4.2	145%
Workers' participation		0.2		0.4	(50%)		1.0		1.8	(44%)
Total		16.6		16.4	1%		61.5		45.4	35%

Fortuna | 13

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Fourth Quarter 2022 vs Fourth Quarter 2021

General and administrative expenses for the three months ended December 31, 2022, increased 1% to $16.6 million compared to $16.4 million reported in the same period in 2021, which was due primarily to lower corporate G&A being offset by higher shared based compensation.

Year ended December 31, 2022 vs Year ended December 31, 2021

General and administrative expenses for the year ended December 31, 2022 increased 35% to $61.5 million compared to $45.4 million reported in the same period in 2021. The increase in G&A was a result of:

●

The inclusion of twelve months of Mine G&A expenses at Yaramoko compared to six months for the comparable period

●

Higher G&A expenses at Lindero as the mine was ramping up over the comparable period in 2021

●

Higher share-based compensation as the comparable period in 2021 was impacted by larger mark-to-market adjustments on share units that will settle in cash.

Foreign Exchange Loss

Fourth Quarter 2022 vs Fourth Quarter 2021

Foreign exchange loss for the three months ended December 31, 2022 decreased $0.7 million to $0.4 million compared to $1.1 million reported in the same period in 2021. The lower foreign exchange loss was due to a strengthening of the Euro in the fourth quarter of 2022 relative to the USD dollar and its impact on balances denominated in West African Francs, a currency pegged to the Euro.

Year ended December 31, 2022 vs Year ended December 31, 2021

Foreign exchange loss for the year ended December 31, 2022 increased $2.8 million to $8.9 million compared to $6.1 million for the same period in 2021. The higher foreign exchange loss was primarily the result of the devaluation of the Euro relative to the US dollar over 2022 and the impact on balances denominated in West Africa Francs and partially offset by lower foreign exchange losses in Argentina as the Company had lower valued added tax receivable balances at Lindero compared to the previous year.

Income Tax Expense

The Company is subject to tax in various jurisdictions, including Peru, Mexico, Argentina, Côte d’Ivoire, Burkina Faso, Australia, and Canada. There are a number of factors that can significantly impact the Company’s effective tax rate (“ETR”) including the geographic distribution of income, variations in our income before income taxes, varying rates in different jurisdictions, the non-recognition of tax assets, local inflation rates, fluctuation in the value of the United States dollar and foreign currencies, changes in tax laws and the impact of specific transactions and assessments. As a result of the number of factors that can potentially impact the ETR and the sensitivity of the tax provision to these factors, the ETR will fluctuate, sometimes significantly. This trend is expected to continue in future periods.

Fortuna | 14

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Fourth Quarter 2022 vs Fourth Quarter 2021

Income tax recovery for the three months ended December 31, 2022 was $15.3 million compared to an income tax expense of $13.5 million reported in the same period in 2021. The decrease of $28.9 million is primarily attributable to deferred tax recoveries related to impairment charges in the quarter.

The ETR for the three months ended December 31, 2022 was 9% compared to 46% for the same period in 2021. The decrease of 37% is primarily attributable to impairment charges realized in the quarter.

Year ended December 31, 2022 vs Year ended December 31, 2021

Income tax expenses for the year ended December 31, 2022 was $10.8 million, or $37.0 million lower, than the $47.8 million reported in the same period in 2021. The decrease of $37.0 million is primarily attributed to a deferred tax recovery related to the impairment charge of $182.8 million

The ETR for the year ended December 31, 2022 was (9)% compared to 45% for the same period in 2021. The decrease of 54% is primarily attributable to the deferred tax recovery described above.

Fortuna | 15

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

2023 GUIDANCE AND OUTLOOK

2023 Consolidated Production and Cost Guidance


Mine		Silver	Gold	Lead	Zinc	Cash Cost^1,2,5	AISC^1,3,4,5
		(Moz)	(koz)	(Mlbs)	(Mlbs)
SILVER						(US$/t)	(US$/oz Ag Eq)⁶
San Jose, Mexico		5.3 - 5.8	34 - 37	-	-	10.2 - 11.3	14.7 - 16.2
Caylloma, Peru		1.0 - 1.1		29 - 32	43 - 48	10.4 - 11.5	19.0 - 21.0
GOLD						(US$/oz Au)	(US$/oz Au)
Lindero, Argentina		-	96 - 106	-	-	820 - 920	1,430 - 1,580
Yaramoko, Burkina Faso		-	92 - 102	-	-	960 - 1,060	1,550 - 1,710
Séguéla, Ivory Coast⁷		-	60 - 75			450 - 580	880 - 1,080
CONSOLIDATED TOTAL		6.3 - 6.9	282 - 320	29 - 32	43 - 48
Notes:
^1.	Cash Cost and all-in sustaining cost (AISC) are non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section.
^2.	The most comparable financial measure to cash costs is cost of sales. Please see the consolidated financial statements of the Company for the year ended December 31, 2022 and the "Non-IFRS Financial Measures" section of this MD&A for a reconciliation.
^3.	AISC includes production cash cost, commercial and government royalties, mining tax, export duties (as applicable), worker's participation (as applicable), subsidiary G&A, sustaining capital expenditures, and Brownfields exploration and is estimated at metal prices of US$1,700/oz Au, US$21/oz Ag, US$2,000/t Pb, and US$3,200/t Zn. AISC excludes government mining royalty recognized as income tax within the scope of IAS-12.
^4.	The most comparable financial measure to AISC is cost of sales. Please see the consolidated financial statements of the Company for the year ended December 31, 2022 and the "Non-IFRS Financial Measures" section of this MD&A for a reconciliation.
^5.	Totals may not add due to rounding.
^6.	Silver equivalent is calculated at metal prices of $1,700/oz Au, $21/oz Ag, $2,000/t Pb, and $3,200/t Zn
^7.	Séguéla’s production and cost guidance is based on first gold pour in mid-2023. Any material changes to the construction or commissioning schedule may have a material impact on Séguéla’s production and cost guidance.
^8.	The following table provides the cash costs and AISC for the four operating mines for the year ended December 31, 2022 as follows:
	Mine	Cash Cost^(a)	AISC^(a)(b)(c)

	SILVER	(US$/t)	(US$/oz Ag Eq)
	San Jose, Mexico	81.33	15.11
	Caylloma, Peru	92.95	18.47
	GOLD	(US$/oz Au)	(US$/oz Au)
	Lindero, Argentina	740	1,142
	Yaramoko, Burkina Faso	840	1,529

	^(a) Cash Cost and AISC are non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section. ^(b) Presented on a cash basis ^(c) Silver equivalent was calculated using the realized prices for gold (US$1,700 per ounce), silver (US$21.00 per ounce), lead (US$2,000 per tonne), and zinc (US$3,200 per tonne) for the year ended December 31, 2022 ^(d) Further details on the cash costs and AISC for the year ended December 31, 2022 are disclosed in the "Non-IFRS Financial Measures" section ^(e) The estimated increase in all in sustaining costs at Yaramoko for 2022 is due to decreased estimated gold ounce production coupled with increased operating and capital costs as mining moves to the deeper regions of the underground mine

Fortuna | 16

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

2023 Guidance Outlook

Lindero Mine, Argentina

The Lindero Mine is expected to place 6.3 million tonnes of ore on the leach pad averaging 0.67 g/t Au, containing an estimated 136,100 ounces of gold. Capital investments are estimated at $42.7 million, including $30.3 million for sustaining capital expenditures, $12.1 million of capitalized stripping and $0.3 million for Brownfields exploration programs.

Major sustaining capital investment projects include:

●

Leach pad Phase II expansion: $17.5 million

●

Heavy equipment replacement and overhaul: $7.6 million

●

Plant spare parts: $1.2 million

Cash cost and AISC:

●

Cash cost per ounce of gold at Lindero is expected to increase approximately 25% over 2022 at the upper range of guidance and 12% at the lower range. The increase is explained mainly due to lower production related to changes in the grade profile as per the life of mine plan, and the impact of higher projected operational expenditures reflecting incremental inflation pressures throughout 2022.

●

AISC per ounce of gold at Lindero is expected to increase 41% over 2022 at the upper range of guidance and 28% at the lower range. The increase is explained by higher capital expenditures related to the leach pad Phase II expansion and higher capitalized stripping costs and higher cash cost per ounce.

San Jose Mine, Mexico

At the San Jose Mine, the Company plans to process 1.03 million tonnes of ore averaging 186 g/t Ag and 1.19 g/t Au. Silver and gold production reflect the declining grade profile of Mineral Reserves. Capital investment is estimated at $18.4 million, including $15.1 million for sustaining capital expenditures and $3.3 million for Brownfields exploration programs.

Major sustaining capital investment projects include:

●

Mine development: $8.4 million

●

Underground mine equipment spare parts and overhauling: $1.7 million

Cash cost and AISC are expected to remain in line with 2022.

Yaramoko Mine, Burkina Faso

At the Yaramoko Mine, the Company plans to process 526,088 tonnes of ore averaging 5.9 g/t Au. Capital investments are estimated at $40.8 million, including $37.4 million for sustaining capital expenditures and $3.3 million for Brownfields exploration programs.

Major sustaining capital investment projects include:

●

Mine development: $30.8 million

●

Ventilation infrastructure extension: $2.5 million

●

109 open pit preparation: $1.3 million

●

QV prime equipment: $0.5 million

Fortuna | 17

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Cash cost and AISC:

●

Cash cost per ounce of gold at Yaramoko is expected to increase approximately 20% over 2022 at the upper range of guidance and 8% at the lower range. The increase is explained due to lower production and the impact of higher projected operational expenditures reflecting incremental inflation pressures throughout 2022 as well as higher mining costs at QV Prime and 109 Zone open pit.

●

AISC per ounce of gold at Yaramoko is expected to increase 12% over 2022 at the upper range of guidance and remain in line with respect to the lower range. The increase is explained by higher cash cost per ounce.

Caylloma Mine, Peru

At the Caylloma Mine, the Company plans to process 542,000 tonnes of ore averaging 73 g/t Ag, 2.86% Pb, and 4.28% Zn. Capital investments are estimated at $23.6 million, including $21.0 million for sustaining capital expenditures and $2.6 million for Brownfields exploration programs.

Major sustaining capital investment projects include:

●

Mine development: $7.1 million

●

Underground water pumping system: $3.9 million

●

Caylloma Mine substation power grid enhancement: $2.7 million

●

Plant power sub-station, Phase II: $1.4 million

●

New paste backfill system, Phase I: $1.1 million

Cash cost and AISC are expected to remain in line with 2022.

Séguéla Gold Project, Côte d’Ivoire

The main construction goals/milestones to be achieved towards first gold pour include:

Q1 2023:

●

Mining activities commence

●

Energize processing plant

Q2 2023:

●

Construction practical completion

●

First ore to the crusher / dry circuit

●

First ore to the SAG mill / wet plant

●

First gold pour

Q3 2023:

●

Ramp-up to design capacity

Once production commences in mid-2023, Séguéla is expected to process 739,466 tonnes of ore averaging 3.3 g/t Au, with capital investments estimated at $22.7 million, including $18.8 million for sustaining capital expenditures and $3.9 million for Brownfields exploration programs.

Major sustaining capital investment projects include:

●

Mine development: $10.0 million

●

Tailings storage facility lift: $2.8 million

●

Sunbird Deposit infill drilling: $1.7 million

Fortuna | 18

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

2023 Exploration Outlook

Fortuna continues to advance its robust pipeline of Brownfields and Greenfields exploration projects in West Africa and the Americas, building on the success of the exploration programs carried out in 2022.

Brownfields Exploration

Fortuna´s consolidated Brownfields exploration budget for 2023 for its four mines and Séguéla totals $21.8 million, which includes 128,000 meters of reverse circulation, diamond core and air core exploration drilling.

Séguéla Project, Côte d’Ivoire

The Brownfields exploration program budget for 2023 at the Séguéla Project is $12.2 million, which includes 87,200 meters of drilling to upgrade resource confidence and further extend the Sunbird Deposit along strike and at depth; test for further depth extensions at the Koula, Ancien and Antenna deposits; further drilling to test and infill the recent Kestral, Barana and Badior prospects (refer to Fortuna news release dated December 5, 2022) and continued generation and testing of near-mine targets.

San Jose Mine, Mexico

The Brownfields exploration program budget for 2023 at the San Jose Mine is $3.3 million, which includes 5,500 meters of diamond drilling, focused on extensions to the Magdalena, Trinidad, and Victoria systems, as well as work along the Taviche corridor.

Yaramoko Mine, Burkina Faso

The Brownfields exploration program budget for 2023 at the Yaramoko Mine is $3.3 million, which includes 29,200 meters of exploration drilling, testing of several surface geochemistry anomalies generated in 2022, in addition to testing strike and depth projections of the 55 Zone.

Caylloma Mine, Peru

The Brownfields exploration program budget for 2023 at the Caylloma Mine is $2.6 million, which includes 6,560 meters of drilling to test down-dip extensions of ore shoots 1 and 3 at the Animas silver-polymetallic vein, as well as regional exploration work and target generation at the Antacollo, Santa Rosa and San Cristobal silver veins.

Lindero Mine, Argentina

The Brownfields exploration program for 2023 at the Lindero Mine of $0.3 million will be focused on reviewing the Arizaro project, located 3.5 kilometers to the southeast of the mine. Exploration at Lindero will also extend to regional prospect evaluation and portfolio reviews.

Greenfields Exploration

Reconnaissance exploration and evaluation of potential new projects will continue to be actively pursued during 2023, with a focus on new project generation and corporate growth in our active operating regions, supported by a budget of $3.9 million.

Fortuna | 19

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

RESULTS OF OPERATIONS

Lindero Mine, Argentina

The Lindero Mine is an open pit gold mine located in Salta Province in northern Argentina. Its commercial product is gold doré. The table below shows the key metrics used to measure the operating performance of the mine: tonnes placed on the leach pad, grade, production, and unit costs:

Three months ended December 31,

Years ended December 31,

2022

2021

2022

2021

Mine Production

Tonnes placed on the leach pad

1,334,509

1,457,733

5,498,064

6,453,647

Gold

Grade (g/t)

0.80

1.04

0.81

0.96

Production (oz)

29,301

36,072

118,418

104,161

Metal sold (oz)

27,847

36,389

117,076

100,177

Realized price ($/oz)

1,732

1,802

1,803

1,785

Unit Costs

Cash cost ($/oz Au)¹

815

585

740

617

All-in sustaining cash cost ($/oz Au)¹

1,221

994

1,142

1,116

Capital expenditures ($000's) ²

Sustaining

3,973

7,214

18,035

27,522

Non-sustaining

–

233

169

323

Brownfields

184

389

1,288

875

¹Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures.

² Capital expenditures are presented on a cash basis

Quarterly and Annual Operating and Financial Highlights

In the fourth quarter of 2022, a total of 1,334,509 tonnes of ore were placed on the heap leach pad, averaging 0.80 g/t gold. Gold production for Q4 2022 totaled 29,301 ounces, representing a 19% decrease over Q4 2021. Lower gold production is attributed to an 8% decrease in tonnes and a 23% decrease in gold grade for ore placed on the pad, compared to the fourth quarter of 2021. This was partially offset by an improved gold recovery. Gold grade for the quarter was in line with the mining plan and Mineral Reserve estimate. Mine production for the quarter was according to management’s expectations, with a total of 1.9 million tonnes of ore mined in the fourth quarter, at a strip ratio of 0.54:1.

Total gold production for 2022 was 118,418 ounces of gold, meeting annual guidance. In 2022, Lindero had a good reconciliation for ore sent to the leach pad with gold grades at the plant being 2% higher compared to the Mineral Reserve model estimate.

Throughout 2022, management implemented various high impact optimization initiatives to capture efficiencies, allowing the operation to offset some of the cost increases in primary consumables. Initiatives included improving the efficiency of the SART plant, subsequently decreasing consumption of fresh make-up cyanide and sulfuric acid; and the optimization of the mine fleet´s trucking distance, reducing diesel consumption and improving productivity. In the fourth quarter of 2022, the operation commenced a project to improve the recirculation circuit of the HPGR with the aim of reducing granulometry and improving gold recovery from ore placed on the leach pad.

Fortuna | 20

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Cash cost per ounce of gold for the three months ended December 31, 2022 was $815 compared to $585 in the fourth quarter of 2021. Cash cost per ounce of gold for the year ended December 31, 2022 was $740 compared to $617 in the 2021. Cash cost per ounce of gold was higher due to higher operating costs primarily due to inflation, lower stripping capitalization and lower gold production.

All-in sustaining cash cost per gold ounce sold was $1,221 during Q4 2022 and $1,142 in 2022 compared with $994 in the fourth quarter of 2021 and $1,116 in 2021. All-in sustaining cash cost for the fourth quarter of 2022 was impacted by the issues described above, partially offset by lower export taxes and a positive by-product effect.

Sustaining capital for the quarter primarily consisted of spending on the leach pad, mine maintenance, and other minor projects. Construction work on Phase-2 is planned to commence in 2023. Brownfields capital primarily relates to exploration at the Arizaro project.

Yaramoko Mine, Burkina Faso

The Yaramoko Mine is located in south-western Burkina Faso, and began commercial production in 2016. The operation consists of two underground mines feeding ore to a traditional gold processing facility where the ore is crushed, milled and subject to carbon-in-leach extraction processes, prior to electrowinning and refining where gold is poured to doré bars. The table below shows the key metrics used to measure the operating performance of the mine: throughput, grade, production, and unit costs:

Three months ended December 31,

Years ended December 31,

2022

2021

2022

2021

Mine Production

Tonnes milled

142,694

132,188

546,651

258,866

Gold

Grade (g/t)

6.45

6.99

6.37

7.13

Recovery (%)

Production (oz)

26,190

28,787

106,108

57,538

Metal sold (oz)

26,250

29,077

107,433

56,571

Realized price ($/oz)

1,742

1,796

1,802

1,789

Unit Costs

Cash cost ($/oz Au)¹

818

754

840

739

All-in sustaining cash cost ($/oz Au)¹

1,829

1,436

1,529

1,317

Capital expenditures ($000's) ³

Sustaining

18,994

13,520

45,665

21,387

Brownfields

2,855

5,873

138

¹Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures.

²The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.

³ Capital expenditures are presented on a cash basis

Quarterly and Annual Operating and Financial Highlights

The Yaramoko Mine produced 26,190 ounces of gold in the fourth quarter of 2022 with an average gold head grade of 6.45g/t, which is in line with the mining sequence and Mineral Reserve estimate and an 8% decrease over Q4 2021. The decrease in production was due to lower head grades. However, grades for the full year were in line with planned estimates.

Fortuna | 21

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Gold production in 2022 totaled 106,108 ounces achieving the mid-point of the annual guidance range.

Cash cost per gold ounce sold was $818, compared to $754 in the fourth quarter of 2021, and $840 for 2022 compared to $739 in 2021, primarily due to higher mining service costs related to inflation and variation in orebody sequence. This was partially offset by favorable foreign exchange rates.

All-in sustaining cash cost per gold ounce sold was $1,829 for Q4 2022 and $1,529 for 2022, compared to $1,436 and $1,317 for the comparative periods, as a result of decreased production, increased cash cost, and an increase in capital expenditures.

Sustaining capital expenditure related mainly to mine development, including the QV Prime project in Bagassi South. Brownfields expenditure was higher due to greater amounts of diamond drilling as well as further development of the 109 Zone.

Fortuna | 22

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

San Jose Mine, Mexico

The San Jose Mine is an underground silver-gold mine located in the state of Oaxaca in southern Mexico. The following table shows the key metrics used to measure the operating performance of the mine: throughput, head grade, recovery, gold and silver production, and unit costs:


	Three months ended December 31,		Years ended December 31,
	2022	2021	2022	2021
Mine Production
Tonnes milled	259,500	262,802	1,029,590	1,041,154
Average tonnes milled per day	2,883	2,920	2,925	2,964

Silver
Grade (g/t)	194	219	191	209
Recovery (%)	91	93	91	92
Production (oz)	1,473,627	1,717,533	5,762,562	6,425,029
Metal sold (oz)	1,482,452	1,729,152	5,755,330	6,433,808
Realized price ($/oz)	21.37	23.39	21.73	25.15

Gold
Grade (g/t)	1.13	1.27	1.14	1.29
Recovery (%)	90	92	90	91
Production (oz)	8,499	9,929	34,124	39,406
Metal sold (oz)	8,621	9,983	34,201	39,404
Realized price ($/oz)	1,734	1,797	1,802	1,798

Unit Costs
Production cash cost ($/t)²	86.26	79.66	81.33	75.80
Production cash cost ($/oz Ag Eq)^1,2	11.16	9.35	10.56	9.30
All-in sustaining cash cost ($/oz Ag Eq)^1,2	15.53	14.92	15.11	14.38

Capital expenditures ($000's) ³
Sustaining	3,695	5,137	15,731	14,492
Non-sustaining	–	518	869	2,294
Brownfields	961	2,176	5,606	8,784
¹ Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively
²Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to Non-IFRS Financial Measures
³ Capital expenditures are presented on a cash basis

Fortuna | 23

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Quarterly and Annual Operating and Financial Highlights

In the fourth quarter of 2022, the San Jose Mine produced 1,473,627 ounces of silver and 8,499 ounces of gold, both 14% lower when compared to the equivalent period in 2021. The decrease is mainly due to lower head grades, albeit in line with management´s expectations based on the mining sequence and Mineral Reserve estimate.

Annual production of silver and gold totaled 5,762,562 ounces, the upper end of annual guidance, and 34,124 ounces, the mid-point of annual guidance. This represents decreases of 10% and 13% respectively from 2021. Average head grades for silver and gold for the year were 191 g/t Ag and 1.14 g/t Au, respectively.

Material mined using sublevel stopping (SLS) methods was increased in 2022, representing 35% of ore sent to the plant. The operation plans for the SLS contribution to reach 60% of total ore production in 2023. In the second quarter of 2022, a new underground shotcrete plant was commissioned which reduced mining cycles and partially offset some of the cost increases due to higher haulage distances as the mine deepens.

The cash cost per tonne for the three months ended December 31, 2022 was $86.26 compared to $79.66 in the same period in 2021 primarily due to cost increases related to inflation and higher support costs. Cash cost per tonne for the full year 2022 increased to $81.33 per tonne compared to $75.80 per tonne for 2021 due to higher mine preparation, support and indirect costs.

All-in sustaining cash costs of payable silver equivalent for the three months ended December 31, 2022 and full year 2022 both increased 4% to $15.53 per ounce and $15.11 per ounce, compared to the same periods in 2021. The increases are due to higher cash costs and lower silver equivalent ounces, partially offset by lower capital expenditure.

Sustaining capital expenditures for the quarter and year was lower than 2021, as 2021 required additional capital for equipment. Brownfields capital expenditure was lower due to reduced drilling, as the site focused on less capital-intensive exploration.

Fortuna | 24

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Caylloma Mine, Peru

Caylloma is an underground silver, lead, and zinc mine located in the Arequipa Department in southern Peru. Its commercial products are silver-lead and zinc concentrates. The table below shows the key metrics used to measure the operating performance of the mine: throughput, head grade, recovery, silver, gold, lead, and zinc production and unit costs:


	Three months ended December 31,		Years ended December 31,
	2022	2021	2022	2021
Mine Production
Tonnes milled	138,491	137,838	546,186	539,779
Average tonnes milled per day	1,556	1,549	1,539	1,525

Silver
Grade (g/t)	75	73	80	76
Recovery (%)	81	81	81	82
Production (oz)	273,119	262,710	1,144,713	1,073,672
Metal sold (oz)	289,870	243,869	1,156,381	1,074,364
Realized price ($/oz)	21.28	23.39	21.81	25.25

Gold
Grade (g/t)	0.12	0.44	0.14	0.49
Recovery (%)	22	70	32	71
Production (oz)	122	1,374	777	6,086
Metal sold (oz)	—	1,297	603	6,140
Realized price ($/oz)	—	1,798	1,864	1,792

Lead
Grade (%)	3.22	3.20	3.27	3.16
Recovery (%)	89	87	88	88
Production (000's lbs)	8,735	8,419	34,588	32,990
Metal sold (000's lbs)	9,118	7,945	34,869	33,299
Realized price ($/lb)	0.96	1.06	0.98	1.00

Zinc
Grade (%)	4.63	4.25	4.32	4.56
Recovery (%)	89	87	89	88
Production (000's lbs)	12,575	11,380	46,176	47,549
Metal sold (000's lbs)	11,027	11,053	44,770	47,828
Realized price ($/lb)	1.35	1.51	1.57	1.36

Unit Costs
Production cash cost ($/t)²	95.70	97.87	92.96	88.41
Production cash cost ($/oz Ag Eq)^1,2	12.46	13.83	12.34	13.46
All-in sustaining cash cost ($/oz Ag Eq)^1,2	20.30	20.71	17.97	18.94

Capital expenditures ($000's) ³
Sustaining	7,188	5,755	18,694	13,758
Brownfields	473	1,027	1,202	3,731
¹ Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively
² Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to Non-IFRS Financial Measures
³ Capital expenditures are presented on a cash basis

Fortuna | 25

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Quarterly and Annual Operating and Financial Highlights

The Caylloma Mine produced 273,119 ounces of silver, 8.7 million pounds of lead, and 12.6 million pounds of zinc during the three months ended December 31, 2022. Measured against the comparable quarter of the previous year, silver was 4% higher, primarily due to higher grades mined during the period. Lead production was 4% higher than the comparable period, attributable to higher plant recovery. Zinc production was 11% higher than the comparable period, mainly impacted by higher head grades and improved plant recovery. Gold production totaled 122 ounces with an average head grade of 0.12 g/t.

Annual production of silver, lead, and zinc for the fiscal year 2022 totaled 1,144,713 ounces, 34.6 million pounds of lead, and 46.2 million pounds of zinc, which represent an 7% increase in silver, 5% increase in lead, and a 3% decrease in zinc production compared to 2021. Silver, Zinc and Lead production all exceeded the upper end of the annual guidance range. Base metal production benefitted from material mined at level 16 of the Animas vein allowing for a significant improvement in ore grade and oxide-sulfide ratios hence boosting plant recovery. Gold production for the full year 2022 totaled 777 ounces, which was a decrease of 87% over 2021, with an average head grade of 0.14 g/t.

The cash cost per tonne of processed ore for the three months ended December 31, 2022 decreased 2% to $95.70 compared to $97.87 in the same period in 2021. This movement was mainly the result of increased production partially offset by higher support costs. Cash cost per tonne for the full year 2022 increased to $92.96 per tonne compared to $88.41 per tonne for 2021, mainly due to higher mining costs caused by inflation.

The all-in sustaining cash cost per ounce of payable silver equivalent for the three month ended December 31, 2022 decreased 2% to $20.30 per ounce compared to $20.71 per ounce for the same period in 2021, as a result of higher sustaining capital expenditures in the quarter.

The all-in sustaining cash cost per ounce of payable silver equivalent for the full year 2022 decreased 5% to $17.97 per ounce compared to $18.94 per ounce in 2021 was primarily due to an increase in silver equivalent ounces due to a decrease in realized silver prices, partially offset by higher capital costs.

Sustaining capital expenditures for the quarter increased primarily due to greater investments in sustaining equipment and infrastructure. Expenditure on the developments located in level 16 and level 18 were offset by decreased expenditure on other levels. The decrease in brownfields capital expenditures was due to significantly lower spending on drilling and development.

PROJECTS & EXPLORATION

Séguéla Gold Project Update

On September 29, 2021, Fortuna announced the decision to proceed with the construction of the open pit mine at the Séguéla Gold Project in Côte d’Ivoire. The total initial capital investment for the project is estimated to be $173.5 million, including $11.5 million previously approved by the Board for early works items, an anticipated construction schedule of approximately 20 months, with ramp up to name plate capacity expected in the fourth quarter of 2023. The development of the Séguéla Gold Project, including the milestones noted below is based on the technical report filed under NI 43-101 entitled “NI 43-101 Technical Report Séguéla Project, Feasibility Study, Worodougou Region, Côte d’Ivoire”, dated May 26, 2021 with an effective date of April 19, 2021.

At the end of December 31, 2022 the overall project was 86% complete, and was 93% complete as of February 28, 2023. The following provides an update on project activities for the fourth quarter of 2022 and from December 31, 2022 to February 28, 2023.

Fortuna | 26

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Construction Highlights

●	Approximately $146.5 million of the $173.5 million capital budget accrued as of December 31, 2022

●	The SAG mill was delivered to site and installation is nearing completion

●	The tailings storage facility (TSF) earthworks and HDPE lining was almost complete

●	Grid connection and energization of the high voltage substation was completed

●	Water storage dam (WSD) reserves were at levels above requirements for commissioning and processing plant start up

●	Handovers of infrastructure from construction to operations had commenced

●	First gold pour remains on target for mid-2023

Accommodation camp

The accommodation camp is complete and occupied by the project and Company staff.

Processing plant

The process plant was over 90% complete with all material components delivered to site and installation of the SAG mill nearing completion. Commissioning plans are being put in place to support commissioning which is expected to start in March.

Site Bulk Earthworks

Construction of the TSF was substantially complete and WSD work was completed with sufficient water stored to supporting commissioning and processing plant start up.

Grid Connection

Grid connection and energization of the high voltage substation was completed.

Mining

Mota-Engil, the mining contractor, has established their temporary facilities on site to support initial mining activities with construction of permanent mining services area infrastructure progressing well. The mining fleet required for initial mining activities is on site and has been commissioned.

Operational Readiness

With the completion of construction approaching operational readiness has increasingly become the focus in preparation for commissioning of the processing plant in the second quarter of 2023. In preparation of the transition to operations:

●

Recruitment and onboarding of staff was well underway and an experienced core leadership team is now in place

●

Mine equipment continues to be delivered to site and training of operations is underway

●

Grade control drilling and mining activities are expected to commence in Q1

●

The processing plant commissioning plan is on track with commissioning teams and vendor representatives expected to arrive throughout 2023

●

Spare parts, first fills, reagents and consumables have started to arrive at site

●

Mining preparations commenced at the Antenna Stage 1 pit including ground clearing and clearing of pit haul road areas

Fortuna | 27

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Cost

For the fourth quarter of 2022 the Company incurred and expended $25.0 million and $23.3 million, respectively. Since the project early works began in the fourth quarter of 2021, the Company has incurred $146.5 million and expended $135.1 million. Capital expenditures are summarized in the table below.


(Expressed in millions)	Q4 2022	YTD 2022⁴	Project to Date
Expended Capital Costs¹	23.5	107.7	135.3
Working Capital Adjustment²	1.4	(9.9)	11.2
Incurred Capital Costs³	24.8	97.8	146.5

_{1 Cash basis. Excludes exploration costs, capitalized interest and management fees.}

_{2 Primarily consists of work performed not yet invoiced and increases in the accounts payable balance offset by increases in the VAT receivable balance.}

_{3 Accrual basis. Excludes capitalized interest and management fees.}

_{4 YTD includes a correction for the timing of payments. This has not impacted project to date spend.}

As of December 31, 2022, the project had approximately $27.0 million in remaining spend of the project’s $173.5 million budget and the project remains on time and on budget. The Company’s cash and cash equivalents balance, free cash flow from ongoing operations and undrawn amounts of the credit facility are expected to be sufficient to fund the construction of the Séguéla Project. Refer to “Capital Resources” for additional information.

Upcoming Milestones and Schedule

Selected upcoming milestones of the current construction schedule include:

2023 Q1

●	Commencement of mining activities, drilling and first blast

●	Commencement of processing plant commissioning in March

●	First ore to the ROM pad at the end of March

2023 Q2

●	Processing plant practical completion in April

●	First ore fed to the crusher in April

●	First gold pour

Séguéla Exploration Update (Refer to Company News Release dated December 05, 2022 for full details)

Following the announcement of the maiden Inferred Mineral Resource estimate at Sunbird in June 2022, additional exploration drilling has resulted in an upgraded estimate, including a maiden Indicated Mineral Resource of 3.2 million tonnes at an average grade of 2.66 g/t gold containing 279,000 ounces and an increased Inferred Mineral Resource of 4.2 million tonnes at an average grade of 3.73 g/t gold containing 506,000 ounces (refer to Fortuna news releases dated March 15 and December 5, 2022: “Fortuna increases Sunbird Resource and identifies new regional prospects at Séguéla, Cote d’Ivoire” for full details).

Fortuna | 28

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

QUARTERLY INFORMATION

The following table provides information for the last eight fiscal quarters up to December 31, 2022:


	Q4 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021	Q2 2021	Q1 2021
Sales	164.7	166.6	167.9	182.3	198.9	162.6	120.5	117.8
Mine operating income	26.0	24.7	32.5	63.5	58.3	47.3	48.5	51.3
Operating (loss) income	(173.1)	5.7	13.1	40.7	38.9	21.8	35.9	40.4
Net (loss) income	(160.4)	(4.1)	1.7	27.0	16.6	0.2	16.2	26.4

Basic (loss) earnings per share	(0.52)	(0.01)	0.01	0.09	0.05	—	0.09	0.14
Diluted (loss) earnings per share	(0.52)	(0.01)	0.01	0.09	0.05	—	0.09	0.14

Total assets	1,876.2	2,032.6	2,060.0	2,060.4	2,021.9	2,002.1	1,083.2	1,069.1
Debt	219.2	204.2	218.6	198.0	157.5	187.7	159.5	159.0

Figures may not add due to rounding

Sales decreased 1% in the fourth quarter of 2022 to $164.7 million compared to $166.6 million in the third quarter of 2022 as lower production was offset by higher metal prices. Net loss increased by $156.3 million compared to the third quarter of 2022 as a result of an impairment charge of $182.8 million ($164.5 million net of tax) related to a write-down in the carrying value of the San Jose, Yaramoko, and Lindero cash generating units.

Sales decreased 1% in the third quarter of 2022 to $166.6 million compared to $167.9 million in the second quarter of 2022 as higher production was offset by lower realized metal prices. Mine operating income was impacted by higher processing costs and a $1.0 million write down of inventory to net realizable value at Yaramoko. Net income decreased $5.8 million compared to the second quarter of 2022 primarily due to the factors described above as well the write-off of the Tlamino property for $3.4 million.

Sales decreased 8% in the second quarter of 2022 to $167.9 million compared to $182.3 million in the first quarter of 2022 due primarily to lower sales at Yaramoko as mining finished in the QV zone and mill feed was supplemented by stockpiles reducing head grade delivered to the mill and lower head grades at San Jose. Mine operating income was lower as a result of lower sales as well as a $4.0 million write-down of inventory to net realizable value and an increase in costs due to inflationary pressures. Net income decreased $25.3 million compared to the first quarter of 2022 primarily due to the factors described above as well as higher current taxes from the recognition of withholding taxes.

Sales decreased 8% in the first quarter of 2022 to $182.3 million compared to $198.9 million in the fourth quarter of 2021 due primarily to lower sales at Lindero as a result of the impacts of COVID-19 at the mine and due to lower head grades at San Jose. Operating income was in line with the previous quarter as higher mine operating income was offset by the $2.1 million write-off due to the termination of a property agreement for the Santa Fe Property in Mexico and an increase in foreign exchange losses in the quarter. Net income increased $10.4 million compared to the fourth quarter of 2021 primarily due to lower current and deferred taxes.

Sales increased 22% in the fourth quarter of 2021 to $198.9 million compared to $162.6 million in the fourth quarter of 2021 due primarily to higher sales at Lindero and San Jose. Sales at Lindero increased to $65.6 million from $41.6 million, and sales from San Jose increased to $56.7 million from $48.0 million. Operating income was 78% higher in the fourth quarter of 2021 due primarily to an increase in gold ounces sold at Lindero and higher metal prices and the impact of the SGM royalty settlement in the fourth quarter of 2021.

Fortuna | 29

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Sales increased 35% in the third quarter of 2021 to $162.6 million compared to $120.5 million in the second quarter of 2021 due primarily to the $49.0 million of sales from Yaramoko, higher sales at Lindero, which increased to $41.6 million from $34.0 million, higher sales at Caylloma, which increased to $28.1 million from $26.0 million, offset partly by lower sales at San Jose, which decreased to $48.0 million from $59.0 million. Mine operating income decreased 2% in the third quarter of 2021 due primarily to the settlement payment related to the disputed SGM royalty claim, partly offset by the contributions from Yaramoko.

Sales increased 2% in the second quarter of 2021 to $120.5 million compared to $117.8 million in the first quarter of 2021 due to favorable price and assay adjustments of $1.5 million compared to unfavorable adjustments of $2.5 million during the first quarter, higher sales at San Jose, which increased to $59.0 million from $58.0 million, higher sales at Caylloma, which increased to $26.0 million from $25.4 million, offset partly by lower sales at Lindero, which decreased to $34.0 million from $36.9 million. Mine operating income decreased 6% in the second quarter of 2021 due primarily to San Jose, where operating income increased to $29.0 million from $26.6 million in the first quarter of 2021.

Precious Metal Prices Trends

For the year ended December 31, 2022, the sale of silver and gold ounces represents approximately 88% of the Company’s sales revenue while lead and zinc make up the remaining 12%. Therefore, the prices of silver and gold are the most dominant factors in determining the Company’s profitability and cash flow from operations. The prices of gold and silver are subject to volatile fluctuations over short periods of time and can be affected by numerous macroeconomic conditions, including supply and demand factors, value of the U.S. dollar, interest rates, and global economic and political issues. The Company’s financial performance is expected to continue to be closely linked to the prices of silver and gold.

For the year ended December 31, 2022 gold traded between a low of $1,629 and a high of $2,039 per ounce and an average of $1,800 based on the London Bullion Market Association PM Fix. Silver traded in a range of $17.77 and $26.18

Fortuna | 30

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

over the same period. While higher volatility will have an impact on the revenue and cash flow of the Company it is not expected to impact the Company’s current capital plans as the Company remains well capitalized to fund the remaining construction of the Séguéla Project.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

The Company had cash and cash equivalents of $80.5 million as at December 31, 2022, a decrease of $26.6 million since the beginning of the year. The decrease was due primarily to $194.2 million of net cash generated from operations and a drawdown of $80.0 million from the Company’s revolving credit facility, offset by $255.3 million of net cash used in investing activities primarily for construction expenditures at Séguéla, a repayment of $20.0 million to the revolving credit facility and $5.9 million in share repurchases as part of the NCIB program. (See Share Position & Outstanding Options & Equity Based Share Units – Normal Course Issuer Bid).

The Company’s investment objectives for its cash balances, in order of priority, are to preserve capital, to ensure liquidity, and to maximize returns. The Company’s strategy to achieve these objectives is to invest its excess cash balance in a portfolio of primarily fixed income instruments with specified credit rating targets established by the Board of Directors of the Company. The Company does not own any asset-based commercial paper or other similar at-risk investments in its investment portfolios.

Working Capital

Working capital (refer to Non-IFRS Financial Measures) at December 31, 2022 increased $3.3 million during the year to $117.6 million, due primarily to a $21.9 million decrease in trade and other payables and a $9.0 million decrease in income taxes payable offset by a $8.3 million decrease in trade and VAT receivables and a $26.6 million decrease in cash and cash equivalents.

Capital Resources

Effective as of November 5, 2021, the Company entered into a fourth amended and restated credit agreement (the “Amended Credit Facility”), with a syndicate of Banks led by BNP Paribas, and including The Bank of Nova Scotia, Bank of Montreal, and Société Générale related to a revolving term credit facility in the amount of $120 million (increased to $200.0 million). The facility has an initial term of four years maturing in November 2025 and steps down to $150.0 million after three years. Interest initially accrued on LIBOR loans under the facility at LIBOR plus an applicable margin (now SOFR Loans at SOFR plus an applicable margin) of between two and three percent which varied according to the consolidated leverage levels of the Company.

The Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso, and their respective direct and indirect holding companies, have guaranteed the obligations of the Company contemplated by the Amended Credit Facility. The Company has pledged all of its assets to secure the payment of its obligations contemplated by the Amended Credit Facility and the Company’s principal operating subsidiaries in Mexico and Peru, as well as their direct and indirect holding companies have pledged all of their respective assets to secure their respective guarantees of such payment, including the shares of the Company’s principal operating subsidiaries in Mexico and Peru. The Company’s principal operating subsidiary in Burkina Faso has pledged its bank accounts to secure the obligations under its guarantee and the holding companies of the Company’s principal operating subsidiaries in Burkina Faso and Côte d’Ivoire have pledged the shares of those principal operating subsidiaries to secure the obligations under their guarantees.

Effective December 15, 2022, the company executed an amendment to the Amended Credit Facility. The amendment increased the amount of the facility from $200.0 million to $250.0 million. The maturity date of the credit facility remains unchanged at the date hereof. Key amendments to the facility included:

Fortuna | 31

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

●

Addition of an uncommitted $50.0 million accordion option which can increase the aggregate principal amount under the credit facility to $300.0 million, exercisable on or after June 1, 2023 and before October 2024

●

An increase in the step-down level of the facility from $150.0 million to $175.0 million in November 2024

●

Potential annual extensions of both the maturity date and the step-down date

●

Replacement of discontinued LIBOR based interest rates by Secured Overnight Financing Rate (SOFR) based rates published by the Federal Reserve Bank of New York and the inclusion of market standard benchmark interest rate replacement provisions

●

25 basis points increase in the benchmark loan interest rate margins and 9 to 12 basis points increase in the commitment fee rate; the actual margin and rate will be determined based on the Company’s net senior secured leverage ratio

As of December 31, 2022 the Company had drawn down $180.0 million of the available credit.


As at	December 31, 2022		December 31, 2021		Change
Cash and cash equivalents		80.5		107.1		(26.6)
Credit facility		250.0		200.0		50.0
Total liquidity available		330.5		307.1		23.4
Amount drawn on credit facility		(180.0)		(120.0)		(60.0)
Net liquidity position		150.5		187.1		(36.6)

Figures may not add due to rounding

Until the determination of the Mexican Legal Proceedings, the Company has agreed with its lenders to certain temporary restrictions under the Amended Credit Facility as follows:

●

Until the date that the Company receives a positive decision in the Mexican Legal Proceedings, the following conditions will apply:

o

The Company may not exercise the $50 million accordion feature.

o

Fortuna | 32

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

o

The Company cannot make any distributions, cash-based permitted acquisition and investments, nor any discretionary expansionary capital expenditures (other than those related to the completion of the Séguéla Project).

o

The Company is required to hedge 25 % of its forecasted consolidated gold production for the period from February 14 to June 15, 2023. Hedges have been put in place as required through a zero costs collar with a weighted average floor price of $1,800 per ounce and a cap of $1,921 per ounce.

o

The Company may not make investments in or provide financial assistance to non-guaranteeing subsidiaries in excess of $3,000,000.

●

In the fourth quarter of 2022, central banks around the world continued to raise interest rates to combat high rates of inflation. This has resulted in a significant increase in SOFR rates and the interest rate that is charged on the Company’s Credit Facility. The Company continues to monitor its cash management strategy and may make greater use of its own cash reserves to fund the construction of Séguéla, fund corporate activities or pay down debt. This may have an impact of increasing income taxes for the year where withholding taxes are paid to repatriate funds from our foreign subsidiaries.

The Russian invasion of Ukraine and the COVID-19 pandemic continue to impact the global economy. Given the ever evolving nature of the COVID-19 pandemic, it is difficult to predict the extent of the impact of the COVID-19 pandemic (or any other disease, epidemic or pandemic) on the Company and its business, which will depend on future developments, including: the duration, severity and geographic spread of the COVID-19 virus (or other communicable disease); further actions that may be taken by governmental authorities, which could include travel restrictions and the suspension of business activities, including mining; the effectiveness and timing of actions taken to contain and treat the COVID-19 virus and variants or mutations thereof, including the effectiveness and uptake of vaccines; and how quickly and to what extent normal economic conditions and operating conditions can resume. In the event of an extended conflict in Ukraine, additional waves of COVID-19 for an unexpectedly prolonged duration, or in the event that more rigorous capital controls are implemented in Argentina, the Company may be required to raise additional debt or equity. There is no assurance that the lenders will agree to such a request or that financing will be available to the Company on terms acceptable to it.

The Company does not have unlimited financial resources and there is no assurance that sufficient additional funding or financing will be available when needed by the Company or its direct and indirect subsidiaries on acceptable terms, or at all, to further explore or develop its properties or to fulfill its obligations under any applicable agreements. Fortuna is a multinational company and relies on financial institutions worldwide to fund corporate and project needs. Instability of large financial institutions may impact the ability of the Company to obtain equity or debt financings in the future and, if obtained, on terms that may not be favorable to the Company. Disruptions in the capital and credit markets as a result of uncertainty, geo-political events, changing or increased regulations of financial institutions, reduced alternatives or failures of significant financial institutions could adversely affect the Company’s access to the liquidity needed for the business in the longer term.

The Company may incur substantial debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If the Company does so, the risks related to the Company’s indebtedness could intensify, including: (i) increased difficulty in satisfying existing debt obligations (ii) limitations on the ability to obtain additional financings, or imposed requirements to make non-strategic divestures (iii) impose hedging requirements (iv) imposed restrictions on the Company’s cash flows, for debt repayments or capital expenditures (v) increased vulnerability to general adverse economic and industry conditions (vi) interest rate risk exposure as borrowings may be at variable rates

Fortuna | 33

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

of interest (vii) decreased flexibility in planning for and reacting to changes in the mining industry (viii) reduced competitiveness versus less leveraged competitors, and (ix) increased cost of borrowings.

Subject to the various risks and uncertainties, as explained in the Risks and Uncertainties section of this MD&A, management believes the Company’s mining operations will generate sufficient cash flows and the Company has sufficient available credit lines and cash on hand to fund planned capital and exploration programs.

The Company has contingencies and capital commitments as described in Note 26 “Contingencies and Capital Commitments” in the 2022 Financial Statements. From time to time, the Company may also be involved in legal proceedings that arise in the ordinary course of its business.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements or commitments that are expected to have a current or future effect on the financial condition, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

FINANCIAL INSTRUMENTS

The Company does not utilize complex financial instruments in hedging foreign exchange or interest exposure. Any hedging activity requires approval of the Company’s Board of Directors. The Company will not hold or issue derivative instruments for speculative or trading purposes.

Provisional priced trade receivables of $21.5 million, a forward sales and foreign exchange contracts liability totaling $0.3 million, and a forward fuel contract asset of $nil million are the Company’s only level 2 fair valued instruments and no level 3 instruments are held.

Provisionally priced trade receivables are valued using forward London Metal Exchange prices until final prices are settled at a future date. The forward sales, and forward foreign exchange contracts liabilities are valued based on the present value of the estimated contractual cash flows. Estimates of future cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. These are discounted using a yield curve, and adjusted for credit risk of the Company or the counterparty.

Refer to the Risks and Uncertainties section of this MD&A for a discussion on credit risk, metal price risk, currency risk, and interest rate risk related to these financial instruments. See note 3 (section r) and Note 26 of the 2022 Financial Statements for a discussion of the Company’s use of financial instruments, including a description of liquidity risks associated with such instruments.

SHARE POSITION & OUTSTANDING OPTIONS & EQUITY BASED SHARE UNITS

The Company has 290,264,822 common shares outstanding as at March 15, 2023. In addition, there were 2,737,264 outstanding equity-settled share-based awards as follows:


Incentive stock options	636,818
Restricted share units	660,911
Performance share units	1,439,535
Total	2,737,264

Fortuna | 34

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

An aggregate of 1,439,535 share-settled performance units issued by the Company are subject to a multiplier ranging from 50% to 200% depending on the achievement level of certain performance targets.

As at December 31, 2022 the Company has $45.9 million of debentures that are convertible at the holder’s option into common shares in the capital of the Company at a conversion price of $5.00 per share, representing a conversion rate of 200 Common Shares per $1,000 principal amount of Debentures, subject to adjustment in certain circumstances. Subject to certain exceptions in connection with a change of control of the Company, the Debentures were not redeemable by the Company prior to October 31, 2022. Between November 1, 2022 and prior to October 31, 2023, the Debentures may be redeemed in whole or in part from time to time at the Company’s option at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the NYSE for the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of the redemption is given is at least 125% of the Conversion Price. On and after October 31, 2023, the Debentures may be redeemed in whole or in part from time to time at the Company’s option at a price equal to their principal amount plus accrued and unpaid interest regardless of the trading price of the Common Shares. The Debentures mature on October 31, 2024 and bear interest at a rate of 4.65% per annum, payable semi-annually in arrears on the last business day of April and October, commencing on April 30, 2020.

Normal Course Issuer Bid

From the commencement of the NCIB to the end of December 31, 2022, the Company has purchased 2,201,404 shares at a weighted average price of $2.69 per share at a total cost of $5.9 million. The Company will continue to evaluate further share purchases with respect to this program when it believes the share price undervalues the Company, and based on cash requirements. The Company did not purchase any shares during the fourth quarter of 2022.

RELATED PARTY TRANSACTIONS

The Company has entered into the following related party transactions during the year ended December 31, 2022 and 2021:

(a) Purchase of Goods and Services

(b) Key Management Personnel

During the years ended December 31, 2022 and December 31, 2021, the Company was charged for consulting services by Mario Szotlender, a director of the Company. During the year ended December 31, 2021, the Company was charged consulting services by Mill Street Services Ltd., a company of which Mr. Ridgway, the Company’s former Chairman, is a director. Effective February 2, 2021, Mr. Ridgway resigned as director and Chairman of the Board, and costs associated incurred with Mill Street Services Ltd. are no longer reported as related party transactions.

Fortuna | 35

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Amounts paid to key management personnel were as follows:


	Three months ended December 31,				Years ended December 31,
(Expressed in $ thousands)	2022		2021		2022		2021
Salaries and benefits		2,475		1,609		11,532		7,639
Directors fees		197		222		934		658
Consulting fees		16		24		69		78
Share-based payments		2,626		2,052		7,042		2,565
		5,314		3,907		19,577		10,940

NON-IFRS FINANCIAL MEASURES

The Company has disclosed certain financial measures and ratios in this MD&A which are not defined under IFRS and are not disclosed in the Financial Statements, including but not limited to: cash cost per ounce of gold; all-in sustaining cash cost per ounce of gold sold; all-in cash cost per ounce of gold sold; total production cash cost per tonne; cash cost per payable ounce of silver equivalent; all-in sustaining cash cost per payable ounce of silver equivalent sold; all-in cash cost per payable ounce of silver equivalent sold; free cash flow and free cashflow from ongoing operations; adjusted net income; adjusted EBITDA and working capital.

These non-IFRS financial measures and non-IFRS ratios are widely reported in the mining industry as benchmarks for performance and are used by Management to monitor and evaluate the Company's operating performance and ability to generate cash. The Company believes that, in addition to financial measures and ratios prepared in accordance with IFRS, certain investors use these non-IFRS financial measures and ratios to evaluate the Company’s performance. However, the measures do not have a standardized meaning under IFRS and may not be comparable to similar financial measures disclosed by other companies. Accordingly, non-IFRS financial measures and non-IFRS ratios should not be considered in isolation or as a substitute for measures and ratios of the Company’s performance prepared in accordance with IFRS. The Company has calculated these measures consistently for all periods presented.

The following table outlines the non-IFRS financial measures and ratios, their definitions, the most directly comparable IFRS measures and why we use these measures.


Non-IFRS Financial Measure or Ratio	Definition	Most Directly Comparable IFRS Measure	Why we use this measure and why it is useful to investors
Silver Equivalent Ounces Sold	Silver equivalent ounces are calculated by converting other metal production to its silver equivalent using relative metal/silver metal prices at realized prices and adding the converted metal production expressed in silver ounces to the ounces of silver production.	Silver Ounces Sold	Management believes this provides a consistent way to measure costs and performance.
Cash Costs	Cash costs include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining and processing costs, third-party refining and treatment charges, on-site general and administrative expenses, applicable production taxes and royalties which are not based on sales or taxable income calculations , net of by-product credits, but are exclusive of the impact of non-cash items that are included as part of the cost of sales that is calculated in the consolidated Income Statement including depreciation and depletion, reclamation, capital, development and exploration costs.	Cost of Sales	Management believes that cash cost and AISC measures provide useful information regarding the Company's ability to generate operating earnings and cash flows from its mining operations, and uses such measures to monitor the performance of the Company's mining operations. In addition, the Company believes that each measure provides useful information to investors in comparing, on a mine-by-mine basis, our operations relative performance on a period-by-period basis, against our competitors operations.

Fortuna | 36

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)


Non-IFRS Financial Measure or Ratio	Definition	Most Directly Comparable IFRS Measure	Why we use this measure and why it is useful to investors
Cash Cost Per Tonne	This ratio is calculated by dividing Cash Costs by the number of tonnes milled in the period.
Cash Cost Per Ounce	This ratio is calculated by dividing cash costs by gold or silver equivalent ounces sold in the period.
All-In Sustaining Costs (AISC)	The Company, in conjunction with an initiative undertaken within the gold mining industry, has adopted AISC and all-in sustaining cost measures based on guidance published by World Gold Council ("WGC"). The Company conforms its AISC and all-in cash cost definitions to that set out in the guidance and the Company has presented the cash cost figures on a sold ounce basis. We define All-in Sustaining Costs as total production cash costs incurred at the applicable mining operation but excludes mining royalty recognized as income tax within the scope of IAS-12, as well as non-sustaining capital expenditures. Sustaining capital expenditures, corporate selling, general and administrative expenses, and brownfield exploration expenditures are added to the cash cost. AISC is estimated at realized metal prices.
AISC per Ounce Sold	This ratio is calculated by dividing AISC by gold or silver equivalent ounces sold in the period.
All-In Costs	All-In Costs is calculated consistently with AISC but is inclusive of non-sustaining capital.
Free cash Flow From Ongoing Operations	Free cash flow from ongoing operations is defined as net cash provided by operating activities, including Lindero commissioning, less sustaining capital expenditures and current income tax expense and adding back income taxes paid, changes in long-term receivable sustaining capital expenditures, one time transaction costs, payments of lease liabilities and other non-recurring items.	Net Cash Provided by Operating Activities	This non-IFRS measure is used by the Company and investors to measure the cash flow available to fund the Company’s growth through investments and capital expenditures.
Adjusted Net Income	Adjusted net income excludes the after-tax impact of specific items that are significant, which the Company believes are not reflective of the Company’s underlying performance for the reporting period, such as foreign exchange gains (losses) related to the construction of the Séguéla Mine, gains and losses and other one-time costs related to acquisitions, impairment charges (reversals), and certain non-recurring items. Although some of the items are recurring, such as; loss on disposal of assets and non-hedge derivative gains and losses, the Company believes that they are not reflective of the underlying operating performance of its current business and are not necessarily indicative of future operating results.	Net Income	Management believes that in addition to conventional measures prepared in accordance with IFRS, the Company and certain investors and analysts use this information and information obtained from conventional IFRS measures to evaluate the Company’s performance.

Fortuna | 37

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)


Non-IFRS Financial Measure or Ratio	Definition	Most Directly Comparable IFRS Measure	Why we use this measure and why it is useful to investors
Adjusted EBITDA	Adjusted EBITDA is a non-IFRS measure which is calculated as net income before interest, taxes, depreciation, and amortization, adjusted to exclude specific items that are significant, but not reflective of the Company's underlying operations, such as foreign exchange gains (losses) related to the construction of the Séguéla Mine, gains and losses and other one-time costs related to acquisitions, impairment charges (reversals), unrealized gains (losses) on derivatives and certain non-recurring items, included in “Other expenses” on the Consolidated Income Statement. Other companies may calculate Adjusted EBITDA differently.	Net Income	Management believes that adjusted EBITDA provides valuable information as an indicator of the Company’s ability to generate operating cash flow to fund working capital needs, service debt obligations and fund capital expenditures. Adjusted EBITDA is also a common metric that provides additional information used by investors and analysts for valuation purposes based on an observed or inferred relationship between adjusted EBITDA and market value.
Working Capital	Working capital is non-IFRS measure which is calculated by subtracting current liabilities from current assets.	Current Assets, Current Liabilities	Management believes that working capital is a useful indicator of the liquidity of the Company.

Fortuna | 38

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Cash Cost per Ounce of Gold Sold

The following tables presents a reconciliation of cash cost per ounce of gold sold to the cost of sales in 2022 Financial Statements for the three and twelve months ended December 31, 2022 and 2021:

Lindero Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cost of sales

43,057

46,915

164,179

122,889

Changes in doré inventory

1,379

353

1,984

2,066

Inventory adjustment

(1,691)

(1,072)

(1,691)

(2,815)

Export duties

(3,353)

(4,891)

(15,545)

(13,410)

Depletion and depreciation

(13,441)

(19,154)

(54,644)

(43,665)

By product credits

(982)

(77)

(1,214)

(260)

Production cash cost¹

24,969

22,074

93,069

64,805

Changes in doré inventory

(1,379)

(353)

(1,984)

(2,066)

Realized gain in diesel hedge

(1,105)

(438)

(4,620)

(963)

Cash cost applicable per gold ounce sold

22,485

21,283

86,465

61,776

Ounces of gold sold

27,602

36,375

116,795

100,137

Cash cost per ounce of gold sold¹ ($/oz)

=A/B

815

585

740

617


Yaramoko Mine		Three months ended December 31,		Years ended December 31,
(Expressed in $'000's, except unit costs)		2022	2021	2022	2021
Cost of sales		42,084	42,381	171,846	80,812
Changes in doré inventory		-	719	(1,320)	1,542
Inventory net realizable value adjustment		-	(4,153)	(5,077)	(4,153)
Export duties		(2,732)	(3,018)	(11,630)	(5,993)
Depletion and depreciation		(17,884)	(13,235)	(64,894)	(28,974)
Refining charges		-	-	(329)	-
By product credits		-	(195)	(25)	(134)
Production cash cost		21,468	22,499	88,571	43,100
Changes in doré inventory		-	(719)	1,320	(1,542)
Refining charges		-	133	329	271
Cash cost applicable per gold ounce sold	A	21,468	21,913	90,220	41,829
Ounces of gold sold	B	26,250	29,077	107,433	56,571
Cash cost per ounce of gold sold ($/oz)	=A/B	818	754	840	739
The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.

Fortuna | 39

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

All-in Sustaining Cash Cost and All-in Cash Cost per Ounce of Gold Sold

The following tables shows a breakdown of the all-in sustaining cash cost per ounce of gold sold and all-in cash cost per ounce of gold sold for the three and twelve months ended December 31, 2022 and 2021:

Lindero Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable

22,484

21,283

86,464

61,776

Inventory net realizable value adjustment

2,351

Long-term inventory NRV

(1,299)

Export duties and mining taxes

3,353

4,891

15,545

13,410

General and administrative expenses (operations)

2,081

1,640

8,578

5,643

Adjusted operating cash cost

28,970

27,814

111,639

80,829

Sustaining leases

567

752

2,398

2,548

Sustaining capital expenditures¹

3,973

7,214

18,035

27,522

Brownfields exploration expenditures¹

184

389

1,288

875

All-in sustaining cash cost

33,694

36,169

133,360

111,774

Non-sustaining capital expenditures¹

233

169

323

All-in cash cost

33,694

36,402

133,529

112,097

Ounces of gold sold

27,602

36,375

116,795

100,137

All-in sustaining cash cost per ounce of gold sold

1,221

994

1,142

1,116

All-in cash cost per ounce of gold sold

1,221

1,001

1,143

1,119

¹ Presented on a cash basis

Yaramoko Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable

21,468

21,913

90,220

41,829

Inventory net realizable value adjustment

1,285

3,125

1,285

Export duties and mining taxes

2,732

3,018

11,630

5,993

General and administrative expenses (operations)

531

514

2,101

953

Adjusted operating cash cost

24,731

26,730

107,076

50,060

Sustaining leases

1,419

1,467

5,692

2,934

Sustaining capital expenditures¹

18,994

13,520

45,665

21,387

Brownfields exploration expenditures¹

2,855

5,873

138

All-in sustaining cash cost

47,999

41,764

164,306

74,519

All-in cash cost

47,999

41,764

164,306

74,519

Ounces of gold sold

26,250

29,077

107,433

56,571

All-in sustaining cash cost per ounce of gold sold

1,829

1,436

1,529

1,317

All-in cash cost per ounce of gold sold

1,829

1,436

1,529

1,317

The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.

¹ Presented on a cash basis

Fortuna | 40

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Production Cash Cost per Tonne and Cash Cost per Payable Ounce of Silver Equivalent Sold

The following tables present a reconciliation of production cash cost per tonne and cash cost per payable ounce of silver equivalent sold to the cost of sales in the 2022 Financial Statements for the three and twelve months ended December 31, 2022 and 2021:

San Jose Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cost of sales

34,775

32,705

129,088

122,756

Changes in concentrate inventory

156

(118)

163

Depletion and depreciation in concentrate inventory

(47)

Inventory adjustment

(129)

(52)

137

(6)

Royalties and mining taxes

(1,260)

(1,587)

(5,262)

(5,955)

Workers participation

(601)

(1,236)

(2,477)

(5,809)

Depletion and depreciation

(10,510)

(8,789)

(37,775)

(32,257)

Cash cost³

22,384

20,934

83,732

78,924

Total processed ore (tonnes)

259,500

262,802

1,029,590

1,041,154

Production cash cost per tonne³ ($/t)

=A/B

86.26

79.66

81.33

75.80

Cash cost³

22,384

20,934

83,732

78,924

Changes in concentrate inventory

(156)

118

(19)

(163)

Depletion and depreciation in concentrate inventory

(11)

(2)

(32)

Inventory adjustment

129

(137)

Treatment charges

(65)

190

(293)

(251)

Refining charges

1,012

1,157

3,801

4,318

Cash cost applicable per payable ounce sold³

23,351

22,440

87,082

82,802

Payable ounces of silver equivalent sold¹

2,092,500

2,400,989

8,243,436

8,902,680

Cash cost per ounce of payable silver equivalent sold^2,3 ($/oz)

=C/D

11.16

9.35

10.56

9.30

Mining cost per tonne³

37.25

37.90

37.43

38.74

Milling cost per tonne

18.94

16.56

18.79

16.68

Indirect cost per tonne

20.98

16.84

16.86

13.72

Community relations cost per tonne

4.01

5.15

2.92

4.79

Distribution cost per tonne

5.08

3.20

5.33

1.88

Production cash cost per tonne³ ($/t)

86.26

79.66

81.33

75.80

1 Silver equivalent sold for Q4 2022 is calculated using a silver to gold ratio of 81.2:1 (Q4 2021: 76.8:1). Silver equivalent sold for 2022 is calculated using a silver to gold ratio of 82.9:1 (2021: 71.5:1).

² Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results – Sales and Realized Prices

³ 2021 restated, Sustaining leases moved to All-In Sustaining

Fortuna | 41

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Caylloma Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cost of sales

16,676

18,585

67,491

67,917

Changes in concentrate inventory

(229)

939

(218)

297

Depletion and depreciation in concentrate inventory

120

165

(76)

Inventory adjustment

445

(61)

266

(61)

Royalties and mining taxes

(181)

(188)

(867)

(345)

Provision for community support

(78)

(2,125)

Workers participation

(419)

(214)

(1,808)

(1,838)

Depletion and depreciation

(3,080)

(3,607)

(14,032)

(16,182)

Cash cost³

13,254

13,494

50,775

47,724

Total processed ore (tonnes)

138,491

137,838

546,186

539,779

Production cash cost per tonne³ ($/t)

=A/B

95.70

97.89

92.96

88.41

Cash cost

13,254

13,494

50,775

47,724

Changes in concentrate inventory

229

(939)

218

(297)

Depletion and depreciation in concentrate inventory

(120)

(165)

(61)

Inventory adjustment

(445)

(266)

Treatment charges

2,744

4,629

13,939

15,754

Refining charges

384

378

1,537

1,670

Cash cost applicable per payable ounce sold³

16,046

17,458

66,279

64,851

Payable ounces of silver equivalent sold¹

1,287,998

1,261,967

5,372,277

4,819,365

Cash cost per ounce of payable silver equivalent sold^2,3 ($/oz)

=C/D

12.46

13.83

12.34

13.46

Mining cost per tonne

40.47

42.02

39.39

34.71

Milling cost per tonne

13.74

16.27

14.86

15.34

Indirect cost per tonne

32.10

29.45

30.16

29.49

Community relations cost per tonne

1.80

7.96

1.15

7.77

Distribution cost per tonne

7.59

2.18

7.40

1.10

Production cash cost per tonne³ ($/t)

95.70

97.87

92.96

88.41

1 Silver equivalent sold for Q4 2022 is calculated using a silver to gold ratio of 0.0:1 (Q4 2021: 76.9:1), silver to lead ratio of 1:22.3 pounds (Q4 2021: 1:22.2), and silver to zinc ratio of 1:15.7 pounds (Q4 2021: 1:15.4). Silver equivalent sold for 2022 is calculated using a silver to gold ratio of 85.5:1 (2021: 70.9:1), silver to lead ratio of 1:22.2 pounds (2021: 1:25.3), and silver to zinc ratio of 1:13.9 pounds (2021: 1:18.6).

² Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results - Sales and Realized Prices

³ 2021 restated, Sustaining leases moved to All-In Sustaining

Fortuna | 42

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver Equivalent Sold

The following tables show a breakdown of the all-in sustaining cash cost per silver equivalent ounce payable for the three and twelve months ended December 31, 2022 and 2021:

San Jose Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable⁴

23,351

22,440

87,082

82,802

Royalties and mining taxes

1,260

1,587

5,262

5,955

Workers' participation

751

1,545

3,096

7,261

General and administrative expenses (operations)

2,319

2,779

7,164

8,111

Adjusted operating cash cost⁴

27,681

28,351

102,604

104,129

Sustaining leases⁴

169

161

658

608

Sustaining capital expenditures³

3,695

5,137

15,731

14,492

Brownfields exploration expenditures³

961

2,176

5,606

8,784

All-in sustaining cash cost

32,506

35,825

124,599

128,013

Non-sustaining capital expenditures³

518

869

2,294

All-in cash cost

32,506

36,343

125,468

130,307

Payable ounces of silver equivalent sold¹

2,092,500

2,400,989

8,243,436

8,902,680

All-in sustaining cash cost per ounce of payable silver equivalent sold²

15.53

14.92

15.11

14.38

All-in cash cost per ounce of payable silver equivalent sold²

15.53

15.14

15.22

14.64

² Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results - Sales and Realized Prices

³Presented on a cash basis

⁴ 2021 restated, Sustaining leases moved from Cash Cost

Caylloma Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable⁴

16,046

17,458

66,279

64,851

Royalties and mining taxes

181

188

867

345

Workers' participation

480

244

2,087

2,129

General and administrative expenses (operations)

928

786

4,063

3,625

Adjusted operating cash cost⁴

17,635

18,676

73,296

70,950

Sustaining leases⁴

845

681

3,350

2,851

Sustaining capital expenditures³

7,188

5,755

18,694

13,758

Brownfields exploration expenditures³

473

1,027

1,202

3,731

All-in sustaining cash cost

26,141

26,139

96,542

91,290

All-in cash cost

26,141

26,139

96,542

91,290

Payable ounces of silver equivalent sold¹

1,287,998

1,261,967

5,372,277

4,819,365

All-in sustaining cash cost per ounce of payable silver equivalent sold²

20.30

20.71

17.97

18.94

All-in cash cost per ounce of payable silver equivalent sold²

20.30

20.71

17.97

18.94

²Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results - Sales and Realized Prices

³ Presented on a cash basis

⁴ 2021 restated, Sustaining leases moved from Cash Cost

Fortuna | 43

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Free Cash Flow from Ongoing Operations

In 2022, the Company changed the method for calculating Free Cash Flow from Ongoing Operations. The calculation now uses taxes paid as opposed to the previous method which used current income taxes. While this may create larger quarter over quarter fluctuations due to the timing of income tax payments, management believes the revised method is a better representation of the Free Cash Flow generated by the Company’s ongoing operations. Comparative values from 2021 have been restated in this MD&A using the change in methodology.

The following table presents a reconciliation of free cash flow from ongoing operations to net cash provided by operating activities, the most directly comparable IFRS measure, for the three and twelve months ended December 31, 2022 and 2021:


		Three months ended December 31,				Years ended December 31,
(Expressed in millions)	2022		2021		2022		2021
				(Restated)				(Restated)
Net cash provided by operating activities		49.6		57.1		194.2		147.1
Adjustments
Roxgold transaction costs		-		-		-		27.9
Additions to mineral properties, plant and equipment		(39.6)		(35.3)		(113.4)		(90.7)
Mexican royalty payment		-		9.5		3.0		11.1
Other adjustments		(5.6)		(3.1)		(14.6)		(9.4)
Free cash flow from ongoing operations		4.4		28.2		69.2		86.0

Figures may not add due to rounding

Adjusted Net Income

The following table presents a reconciliation of the adjusted net income from net income, the most directly comparable IFRS measure, for the three and twelve months ended December 31, 2022 and 2021:


		Three months ended December 31,				Years ended December 31,
(Expressed in millions)	2022		2021		2022		2021
Net (loss) income		(160.4)		16.6		(135.9)		59.4
Adjustments, net of tax:
Community support provision and accruals¹		(0.1)		1.3		(0.1)		1.4
Foreign exchange loss, Lindero Mine²		-		0.3		-		4.1
Foreign exchange loss, Séguéla Project		(0.4)		-		0.8		-
Write off of mineral properties		0.3		-		5.1		-
Unrealized loss (gain) on derivatives		0.1		-		(0.4)		-
Impairment of mineral properties, plant and equipment		164.5		-		164.5		-
Roxgold transaction costs		-		-		-		14.1
SGM Royalty settlement		-		1.0		-		9.8
Inventory adjustment		3.8		4.6		8.0		6.3
Accretion on right of use assets		0.5		1.0		2.3		2.2
Other non-cash/non-recurring items		(1.1)		4.3		(1.7)		3.3
Adjusted net income		7.2		29.1		42.6		100.6
¹Amounts are recorded in Cost of sales
²Amounts are recorded in General and Administration

Figures may not add due to rounding

Fortuna | 44

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Adjusted EBITDA

The following table presents a reconciliation of Adjusted EBITDA from net income, the most directly comparable IFRS measure, for the three and twelve months ended December 31, 2022 and 2021:


	Three months ended December 31,					Years ended December 31,
(Expressed in millions)	2022		2021		2022		2021
Net (loss) income		(160.4)		16.6		(135.9)		59.4
Adjustments:
Community support provision and accruals		(0.1)		2.1		(0.1)		1.9
Inventory adjustment		3.8		5.3		8.9		7.0
Foreign exchange loss, Lindero Mine		-		0.3		-		4.1
Foreign exchange loss, Séguéla Project		(0.4)		0.2		0.8		0.2
Net finance items		3.1		3.7		12.1		12.3
Depreciation, depletion, and amortization		45.3		44.8		172.8		122.3
Income taxes		(15.3)		13.5		10.8		47.7
Impairment of mineral properties, plant and equipment		182.8		-		182.8		-
Roxgold transaction costs		-		-		-		14.1
SGM Royalty settlement		-		-		-		9.6
Other non-cash/non-recurring items		(3.0)		3.1		(6.7)		2.1
Adjusted EBITDA		55.8		89.6		245.5		280.7

Figures may not add due to rounding

Working Capital

The following table presents a calculation of working capital for the twelve months ended December 31, 2022 and 2021:


	Years ended December 31,
	2022		2021
Current Assets	$	252,712	$	281,082
Current Liabilities		135,080		166,773
Working Capital	$	117,632	$	114,309

Qualified Person

Eric Chapman, P.Geo (EGBC #36328), Senior Vice-President of Technical Services for the Company, is a Qualified Person (as defined by National Instrument 43-101–Standards of Disclosure for Mineral Projects) (“NI 43-101”). Mr. Chapman has reviewed and approved the scientific and technical information pertaining to the production results for each of the Lindero, Yaramoko, San Jose and Caylloma mines contained in this MD&A and has verified the underlying data.

Raul Espinoza, F.AusIMM CP, Director of Technical Services for the Company is a Qualified Person as defined by NI 43-101, and has reviewed and approved the scientific and technical information pertaining to the Séguéla Project contained in this MD&A and has verified the underlying data.

Other Information, Risks and Uncertainties

For further information regarding the Company’s operational risks, please refer to the section entitled “Description of the Business - Risk Factors” in the Company’s most recent Annual Information Form that is available at www.sedar.com and www.sec.gov/edgar.shtml.

Fortuna | 45

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

RISKS AND UNCERTAINTIES

The Company is exposed to many risks in conducting its business, including but not limited to metal price risk as the Company derives its revenue from the sale of silver, gold, lead and zinc; credit risk in the normal course of business; foreign exchange risk as the Company reports its financial statements in U.S. dollars whereas the Company operates in jurisdictions that conducts its business in other currencies; the inherent risks of uncertainties in estimating mineral reserves and mineral resources; the risks related to the construction of an open pit gold mine at the Séguéla Gold Project and the anticipated timing of production at the mine; rising rates of inflation which impact the costs of production; risks related to widespread epidemics or pandemics such as further outbreaks of COVID-19; political risks, capital controls risk and the limitations on the repatriation of operating cash flows, environmental risks; risks related to the ability of the Company to obtain permits for its operations, including the reconfirmation of the 12 year extension of the EIA at the San Jose mine; and risks related to its relations with employees. These and other risks are described below and in the 2022 Financial Statements, its Annual Information Form which is available on SEDAR at www.sedar.com, and its Form 40-F filed with the SEC. Readers are encouraged to refer to these documents for a more detailed description of some of the risks and uncertainties inherent to the Company’s business.

Foreign Jurisdiction Risk

As at the date of the MD&A, the Company currently conducts its operations in Argentina, Burkina Faso, Côte d'Ivoire, Mexico, and Peru. All these jurisdictions are potentially subject to a number of political and economic risks, including those described in the following section. The Company is unable to determine the impact of these risks or its future financial position or results of operations and the Company’s exploration, development, and production activities may be substantially affected by factors outside of the Company’s control. These potential factors include but are not limited to royalty and tax increases or claims by governmental bodies, expropriation or nationalization, lack of an independent judiciary, foreign exchange controls, capital and currency controls, import and export regulations, cancellation or renegotiation of contracts, and environmental and permitting regulations. The Company has no political risk insurance coverage against these risks

The majority of the Company’s production and revenue to December 31, 2022 was derived from its operations in Argentina, Mexico, Burkina Faso and Peru. As the Company’s business is carried on in a number of developing countries, it is exposed to a number of risks and uncertainties, including the following: expropriation or nationalization without adequate compensation especially in Argentina which has a history of expropriation where the Company operates the Lindero Mine; changing political and fiscal regime, including the military coups in Burkina Faso in January and September 2022, and economic and regulatory instability; the unexpected change of Government in Côte d'Ivoire in April 2022; unanticipated changes to royalty and tax regulations; unreliable and undeveloped infrastructure, labour unrest, and labour scarcity; difficulty procuring key equipment and components for equipment; import and export regulation and restrictions; the imposition of capital controls which may affect the repatriation of funds; high rates of inflation; extreme fluctuations in foreign exchange rates and the imposition of currency controls; inability to obtain fair dispute resolution or judicial determination because of bias, corruption or abuse of power; difficulties enforcing judgments; difficulties understanding and complying with regulatory and legal framework with respect to ownership and maintenance of mineral properties, mines and mining operations, local opposition to mine development projects, which include the potential for violence, property damage and frivolous or vexatious claims; terrorism and hostage taking; military repression and increased likelihood of international conflicts or aggression; increased public health concerns. Certain of these risks and uncertainties are prevalent in the jurisdictions where the Company operates.

There can be no assurance that these measures will not be extended or that more restrictive measures will be put in place in the countries in which the Company operates, which may result in the suspension of operations or construction at the Company’s mines on a short or long-term basis.

Fortuna | 46

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

In early December, 2022, Pedro Castillo, the former President of Peru, was removed from office and replaced by Dina Boluarte, Peru's former Vice President. Subsequent to these political changes, the country has encountered increasing tensions, protests, and social unrest. The protests, which mainly occurred in the south of the country, have continued into 2023 and the civil unrest has caused disruptions to business and supply chains. The Company’s operations have not been significantly impacted to date, but the Company has encountered disruptions to its supply chain and delays in delivering concentrates to port. Any prolonged disruptions may have an adverse affect on our operations, which could have an adverse effect on the Company’s financial results and cash flows. The Company continues to monitor the situation and to mitigate the risks caused by the challenges.

Estimating Mineral Resources and Mineral Reserves

There is a degree of uncertainty attributable to the estimation of Mineral Resources, Mineral Reserves, and expected mineral grades. Until mineral deposits are actually mined and processed, Mineral Resources and Mineral Reserves must be considered as estimates only. Any such estimates are expressions of judgment based on knowledge, mining experience, analysis of drilling results and industry practices.

Mineral Resources and Mineral Reserves may require revision based on actual production experience. Market fluctuations in the price of metals, as well as increased production costs and reduced metallurgical recovery rates, may render certain Mineral Reserves uneconomic and may ultimately result in a restatement of Mineral Resources and/or Mineral Reserves. Short-term operating factors relating to the Mineral Resources and Mineral Reserves, such as the need for sequential development of ore bodies, may adversely affect the Company’s profitability in any accounting period. Estimates of operating costs are based on assumptions including those relating to inflation and currency exchange, which may prove incorrect. Estimates of mineralization can be imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. In addition, the grade and/or quantity of precious metals ultimately recovered may differ from that indicated by drilling results. There can be no assurance that precious metals recovered in small scale tests will be duplicated in large scale tests under onsite conditions or in production scale. Amendments to mine plans and production profiles may be required as the amount of Mineral Resources changes or upon receipt of further information during the implementation phase of the project. Extended declines in market prices for gold, silver, and other metals may render portions of the Company’s mineralization uneconomic and result in reduced reported mineralization. Any material reduction in estimates of mineralization, or in the Company’s ability to develop its properties and extract and sell such minerals, could have a material adverse effect on the Company's results of operations or financial condition.

Mining Operations

The capital costs required by the Company’s projects may be significantly higher than anticipated. Capital and operating costs, production and economic returns, and other estimates contained in the Company’s current technical reports, may differ significantly from those provided for in future studies and estimates and from management guidance, and there can be no assurance that the Company’s actual capital and operating costs will not be higher than currently anticipated. In addition, delays to construction and exploration schedules may negatively impact the net present value and internal rates of return of the Company’s mineral properties as set forth in the applicable technical report. Similarly, there can be no assurance that historical rates of production, grades of ore processed, rates of recoveries or mining cash costs will not experience fluctuations or differ significantly from current levels over the course of the mining operations. In addition, there can be no assurance that the Company will be able to continue to extend the production from its current operations through exploration and drilling programs.

Fortuna | 47

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Uncertainties Related to New Mining Operations

Without limiting the generality of the foregoing, Fortuna is in the process of the development and construction of an open pit mine at the Séguéla Project. Any such development or expansion project which is progressed to commercial operations will face a number of risks inherent in new mining operations.

The successful completion of the Company’s development and expansion projects requires the construction and operation of mines, processing plants and related infrastructure . As a result, the Company is and will continue to be subject to all of the risks associated with establishing new mining operations, including:

●

the timing and cost, which can be considerable, of the construction of mining and processing facilities;

●

the availability and cost of skilled labour, mining equipment and principal supplies needed for operations;

●

the availability and cost of appropriate smelting and refining arrangements;

●

the need to maintain necessary environmental and other governmental approvals and permits;

●

the availability of funds to finance construction and development activities;

●

potential opposition from governments, non-governmental organizations, environmental groups, local groups or other stakeholders, which may delay or prevent development activities; and

●

potential increases in construction and operating costs due to changes in the cost of labour, fuel, power, materials and supplies.

It is not unusual in the mining industry for new mining operations to experience unexpected difficulties during the start-up phase or the initial production phase, resulting in production suspensions, delays and requiring more capital than anticipated. It is also common in new mining operations to experience unexpected problems, delays and costs during mine development and ramp-up to full production capacity. Such factors can add to the costs of the mine development, production and operations and/or impair production and mining activities, thereby affecting the Company’s cashflows and profitability. Any unexpected complications and delays in the completion and successful functioning of these operational elements may result in additional costs being incurred by the Company beyond those already incurred and budgeted. There can be no assurance that current or future development and expansion plans in respect of the Yaramoko Mine and the Séguéla Project will be successful or completed on time or on budget.

Environmental Uncertainties

All phases of the Company’s operations are subject to environmental regulation in the various jurisdictions in which it operates. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species, and reclamation of lands disturbed by mining operations. The Company’s operations generate chemical and metals depositions in the form of tailings. The Company’s ability to obtain, maintain and renew permits and approvals, and to successfully develop and operate mines may be adversely affected by real or perceived impacts associated with the Company’s activities or of other mining companies that affect the environment, human health and safety. Environmental hazards may exist on the Company’s properties which are unknown to the Company at present and were caused by previous or existing owners or operators of the properties, for which the Company could be held liable.

Fortuna | 48

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Environmental legislation is evolving in a manner which is imposing stricter standards and enforcement, increased fines and penalties for non-compliance, in addition to more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Compliance with environmental laws and regulations may require significant capital outlays on behalf of the Company and may cause material changes or delays in the Company’s intended activities. Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities, causing operations to cease or be curtailed. Such enforcement actions may include the imposition of corrective measures requiring capital expenditure, installation of new equipment, or remedial action. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s operations.

The activities of the Company require licenses and permits from various governmental authorities. The Company currently has been granted the requisite licenses and permits to enable it to carry on its existing business and operations. On January 5, 2023, the Company announced that it had received the SEMARNAT Resolution which provides that SEMARNAT has annulled and is re-assessing the 12-year extension to the EIA for the San Jose Mine that it granted to Minera Cuzcatlan in December 2021.

Management of the Company believes that the SEMARNAT resolution is unfounded and has no merits. Minera Cuzcatlan initiated the Mexican Legal Proceedings to contest and revoke the annulment of the San Jose EIA. On March 10, 2023 the Court granted Cuzcatlan a permanent injunction which allows the San Jose Mine to continue to operate under the terms of the 12-year EIA until the determination of the Mexican Legal Proceedings.

The results of the Mexican Legal Proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including the difficulty of predicting decisions and the timing required to render decisions. The process of contesting the annulment of the EIA could take away from the time and effort of the Company’s management and could force the Company to pay substantial legal fees or penalties. Further, there can be no assurances that the resolutions of any such matters will not have a material adverse effect on the Company’s business, financial condition and results of operations.

In addition, there can be no assurance that the Company will be able to obtain all the necessary licenses and permits which may be required to carry out exploration, development and mining operations for its projects in the future. The Company might find itself in situations where the state of compliance with regulation and permits can be subject to interpretation and challenge from authorities that could carry risk of fines or temporary stoppage.

Risks Associated with the Integration of the Company and Roxgold

The completion of the business combination of Roxgold is expected to result in among other benefits, a combination of quality assets resulting in increased gold production; a complementary and diversified portfolio of assets in West Africa and the Americas; multiple brownfields and greenfields options across the Americas and West Africa, and a low-cost platform of precious metals production and growth. The ability of the Company to realize the benefits of the acquisition will depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as the Company’s ability to realize the anticipated growth opportunities and synergies from integrating Roxgold's business. This integration will require the dedication of management effort, time, and resources which may divert management's focus and resources from other strategic opportunities available to the Company, and from operational matters during this process.

In addition, the integration process could result in the disruption of existing relationships with suppliers, employees, customers, and other constituencies of Fortuna and Roxgold. There can be no assurance that management will be able to integrate the operations of each of the businesses successfully or achieve any of the synergies or other benefits that are anticipated to result from the acquisition. It is possible that the integration process could result in the loss of key

Fortuna | 49

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

employees, the disruption of the respective ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of management to maintain relationships with customers, suppliers, employees or to achieve the anticipated benefits of the acquisition. Any inability of management to successfully integrate the operations could have a material adverse effect on the Company’s business, financial condition and results of operations.

Risks of Operating in West Africa

Certain of our operations are currently conducted in West Africa, with the Yaramoko Mine in Burkina Faso and the Séguéla Project in Côte d’Ivoire, and as such as is common in other mining jurisdictions, the Company’s operations are exposed to various political, economic, and other risks and uncertainties. The Company is subject to risks associated with operating in West Africa with its Yaramoko Mine in Burkina Faso and the Séguéla Project in Côte d’Ivoire. These risks and uncertainties include but are not limited to: civil and ethnic unrest, war (including in neighbouring countries), terrorist actions, hostage taking or detainment of personnel, military repression, criminal activity, nationalization, invalidation of governmental orders, failure to enforce existing laws, labour disputes, corruption, sovereign risk, political instability, the failure of foreign parties, courts or governments to honour or enforce contractual relations or uphold property rights, changing government regulations with respect to mining (including royalties, environmental requirements, labour, taxation, land tenure, foreign investments, income repatriation, and capital recovery), fluctuations in currency exchange and inflation rates, import and export restrictions, the expropriation of assets and property interests, as well as by laws and policies of Canada affecting foreign trade, investment and taxation.

As African governments continue to struggle with deficits and depressed economies, the strength of commodity prices has resulted in the gold mining sector being targeted as a source of revenue. Governments are continually assessing the terms for a mining company to exploit resources in their country.

Operations may also be impacted to varying degrees by the lack of certainty with respect to foreign legal systems, which may not be immune from the influence of political pressure, corruption, or other factors that are inconsistent with the rule of law. Businesses can become involved in lengthy court cases over simple issues when rulings are not clearly defined, and the poor drafting of laws and excessive delays in the legal process for resolving issues or disputes compound such problems.

Any of the above events could delay or prevent the Company from operating, developing, or exploring its properties even if economic quantities of minerals are found and could have a material adverse impact upon the Company’s operations.

Safety and Security

The Company’s Yaramoko Mine is located in Burkina Faso and the advanced exploration Séguéla Gold Project is located in in Côte d’Ivoire. Following instability in recent years in several West African countries, the prevailing security environment in these countries has deteriorated due to the presence of various militant secessionist and Islamist paramilitary groups, as well as the result of the January and September 2022 military coups in Burkina Faso. While additional measures have been implemented in response to ensure the security of its various assets, personnel, and contractors, and the Company continues to cooperate with regional governments, their security forces, and third parties, there can be no assurance that these measures will be successful. Any failure to maintain the security of its assets, personnel, and contractors may have a material adverse effect on the Company’s business, prospects, financial condition, and results of operations. To date, neither employees nor operations have been impacted by the security situation in Burkina Faso.

While there is no reason to believe that the Company’s employees or operations will be targeted by criminal and/or terrorist activities in the countries in which we operate, risks associated with conducting business in the region, along with the increased perception that such incidents are likely to occur, may disrupt the Company’s operations, limit its ability to hire and keep qualified personnel, and impair its access to sources of capital or insurance on terms and at rates that are commercially viable. Furthermore, although the Company has developed procedures regarding the mitigation of such

Fortuna | 50

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

risks, due to the unpredictable nature of criminal and/or terrorist activities, there is no assurance that its efforts will be able to effectively mitigate such risks and safeguard the Company’s personnel and assets.

Credit Risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. All of our trade receivables from concentrate sales are held with large international metals trading companies.

The Company’s cash and cash equivalents and short-term investments are held through large financial institutions. These investments mature at various dates within one year.

The Company’s maximum exposure to credit risk as at December 31, 2022 and 2021 is as follows:


As at	December 31, 2022		December 31, 2021
Cash and cash equivalents		80.5		107.1
Derivative assets		-		1.5
Trade and other receivables		68.2		76.5
Income tax receivable		0.7		1.7
Other non-current receivables		8.5		6.0
		157.9		192.8

Figures may not add due to rounding

Metal Price Risk

The Company derives its revenue from the sale of silver, gold, lead, and zinc. The Company’s sales are directly dependent on metal prices, and metal prices have historically shown significant volatility that is beyond the Company’s control.

The following table illustrates the sensitivity to a +/-10% change in metal prices on the Company’s outstanding trade receivables as at December 31, 2022:


Metal	Change	Effect on Sales
Silver	+/- 10%	0.8
Gold	+/- 10%	0.4
Lead	+/- 10%	0.6
Zinc	+/- 10%	0.2

Changes in the market prices of the precious metals that the Company produces affects the Company’s profitability and cashflow. Metals prices can fluctuate due to many factors including, demand, the strength of the United States dollar, currency exchange rates, inflation, global mine production levels, other general price instability. Decrease in the market price of metals can also significantly affect the value of the Company’s metal inventory, stockpiles and leach pads, and it may be necessary to record a write-down to the net realizable value as well as significantly impact the carrying value of Company’s assets.

Fortuna | 51

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Refer to the Company’s 2022 Financial Statements for details of contracts entered into.

The zinc, lead, and fuel contracts are derivative financial instruments and are not accounted for as designated hedges. They were initially recognized at fair value on the date on which the related derivative contracts were entered into and are subsequently re-measured to estimated fair value. Any gains or losses arising from changes in the fair value of the derivatives are credited or charged to profit or loss.

Currency Risk

The Company is exposed to fluctuations in foreign exchange rates as a portion of our expenses are incurred in Canadian dollars, Peruvian soles, Argentine pesos, Mexican pesos, Euro, Australian dollar, and West African CFA francs. A significant change in the foreign exchange rates between the United States dollar relative to the other currencies could have a material effect on the Company’s profit or loss, financial position, or cash flows.

The following table summarizes the sensitivity to a +/-10% change in foreign currency exchange rates on the Company’s foreign currency exposure as at December 31, 2022:


Currency of foreign denominated items	Change	Effect
Mexican pesos	+/- 10%	0.9
Peruvian soles	+/- 10%	-
Argentine pesos	+/- 10%	0.1
Canadian dollars	+/- 10%	0.8
West African CFA franc	+/- 10%	0.7
Australian Dollar	+/- 10%	0.2
Euro	+/- 10%	-

Due to the volatility of the exchange rate for Argentine peso, the Company is applying additional measures in cash management to minimize potential losses arising from the conversion of funds. As discussed below in the capital management section, the Company is required to convert the equivalent value into Argentine peso from the export sale of all gold doré from the Lindero Mine. In addition, the Company would be required to obtain the prior consent of the Argentine Central Bank for the payment of cash dividends and distributions of profits out of Argentina.

The following tables summarizes the Company’s exposure to currency risk through the following assets and liabilities denominated in foreign currencies:


As at December 31, 2022 (In millions of local currency)	Canadian dollars	Peruvian soles	Mexican pesos	Argentine pesos	West African CFA Franc	Australian Dollars	Euro
Cash and cash equivalents	0.6	6.2	73.9	11.8	6,057.9	0.2	-
Marketable securities	0.1	-	-	-	-	-	-
Restricted cash	-	-	-	-	2,339.0	-	-
Trade and VAT receivables	0.2	3.3	73.9	2,062.9	12,979.1	(0.1)	-
Income tax receivable	-	28.1	13.9	-	-	-	-
VAT - long term receivable	-	-	70.5	-	-	-	-
Trade and other payables	(13.4)	(17.0)	(218.3)	(1,429.4)	(15,346.5)	(1.3)	(0.3)
Provisions, current	-	(8.1)	(11.7)	(387.9)	-	-	-
Income tax payable	0.1	-	(84.4)	-	(1,353.2)	-	-
Other liabilities	(0.2)	-	(9.7)	-	-	-	-
Provisions, non-current	-	(12.6)	(90.8)	-	-	-	-
Total foreign currency exposure	(12.6)	(0.1)	(182.7)	257.4	4,676.3	(1.2)	(0.3)
US$ equivalent of foreign currency exposure	(9.3)	(0.0)	(9.4)	1.4	7.4	(1.1)	(0.3)
Figures may not add due to rounding

Fortuna | 52

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)


As at December 31, 2021 (In millions of local currency)	Canadian dollars	Peruvian soles	Mexican pesos	Argentine pesos	West African CFA Franc	Australian Dollars	Euro
Cash and cash equivalents	1.7	5.5	18.1	4.3	11,494.9	-	-
Marketable securities	0.5	-	-	-	-	-	-
Restricted cash	-	-	-	-	1,167.0	-	-
Trade and VAT receivables	0.7	2.1	174.2	1,526.5	13,433.4	-	-
Income tax receivable	-	20.7	-	-	-	-	-
VAT - long term receivable	-	-	70.5	-	-	-	-
Trade and other payables	(3.8)	(17.5)	(400.7)	(1,174.0)	(10,094.2)	(0.9)	(1.4)
Provisions, current	(0.1)	(4.4)	(13.5)	(95.4)	-	-	-
Income tax payable	-	-	(87.9)	-	-	-	-
Other liabilities	-	-	(6.2)	-	-	-	-
Provisions, non-current	-	-	(87.3)	-	-	-	-
Total foreign currency exposure	(1.0)	6.4	(332.8)	261.4	16,001.1	(0.9)	(1.4)
US$ equivalent of foreign currency exposure	(0.8)	1.7	(16.8)	2.7	28.5	(0.7)	(1.2)
Figures may not add due to rounding

Liquidity Risk

Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due. We manage our liquidity risk by continually monitoring forecasted and actual cash flows. We have in place a planning and budgeting process to help determine the funds required to support our normal operating requirements and our development plans. We aim to maintain sufficient liquidity to meet our short term business requirements, taking into account our anticipated cash flows from operations, our holdings of cash and cash equivalents, and our committed and anticipated liabilities.

The Company manages its liquidity risk by continuously monitoring forecasted and actual cashflows. A rigorous reporting, planning, and budgeting process are in place to help facilitate forecasting funding requirements, to support operations on an ongoing basis and with expansion plans, if any. See also “Liquidity and Capital Resources”.

As at December 31, 2022, the Company expects the following maturities of its financial liabilities, lease obligations, and other contractual commitments, excluding payments relating to interest:


	Expected payments due by year as at December 31, 2022
	Less than			After
	1 year	1 - 3 years	4 - 5 years	5 years	Total
Trade and other payables	111.9	-	-	-	111.9
Debt	-	225.9	-	-	225.9
Income taxes payable	11.6	-	-	-	11.6
Lease obligations	11.3	8.3	5.7	5.8	31.1
Other liabilities	-	2.6	-	-	2.6
Capital commitments, Séguéla	13.9	0.4	-	-	14.3
Closure and reclamation provisions	3.2	24.6	9.1	23.0	59.9
Total	151.9	261.8	14.8	28.8	457.3
Figures may not add due to rounding

Fortuna | 53

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Capital Management

Effective December 23, 2019, changes to Argentina’s tax laws proposed by the Argentine Government were implemented. The changes ratified and extended legislation which was to expire on December 31, 2019 and allow the Argentine Central Bank to regulate funds coming into and flowing out of Argentina in order to maintain stability and support the economic recovery of the country. The Argentine Government has not set an expiry date for these restrictions, and they currently remain in place. These capital controls, together with additional temporary controls enacted on May 29, 2020, have the effect of: requiring exporters to convert the equivalent value of foreign currency received from the export into Argentine Pesos; requiring the prior consent of the Argentine Central Bank to the payment of cash dividends and distributions of currency out of Argentina; requiring Argentine companies to convert foreign currency loans received from abroad into Argentine Pesos; and restricting the sale of Argentine Pesos for foreign currency. These provisions restrict the Company from holding funds in Argentina in United States dollars. Further, effective October 17, 2022 additional capital controls were imposed on the import of goods and services in Argentina. Currently, most import permits for goods and services are approved subject to payment being deferred for 180 days, with the exception of capital goods.

Certain of the costs and expenses to fund the construction at the Lindero Mine were advanced by way of intercompany loans. Under the terms of the Argentine Central Bank regulation, any funds in foreign currency which were advanced by the Company as a loan to its Argentine subsidiary in connection with the payment of construction costs and expenses at the Lindero Mine, are, to the extent that the funds were advanced in foreign currency, required to be converted into Argentine Pesos at a conversion rate negotiated at the foreign exchange market within five business days from the date of the receipt of the funds in Argentina. When the loan is to be repaid, the regulation requires proof that the loan was advanced in foreign currency and converted into local currency in order to repay the loan in foreign currency. Due to the volatility of the exchange rate for Argentine Pesos, the Company will apply additional measures in cash management to minimize potential gains or losses arising from the conversion of funds. In addition, the Argentine Central Bank has also issued a temporary measure in effect until December 31, 2023, which requires the consent of the Argentine Central Bank to the repayment of certain types of intercompany loans. There can be no assurance that the temporary measure will not be extended.

As part of the structure used to fund the construction of the Lindero project and the operation of the Lindero Mine, Fortuna has implemented a series of intercompany revolving pre-export financing facilities in an aggregate of $110.0 million. This allows exporters to apply the proceeds of sales directly towards payment of principal and interest under the facility. The facilities are not impacted by the regulations described above, and the Company expects that it can continue to repatriate funds during 2022 and into the first quarter of 2023 through this mechanism. Once the loan has been repaid, any repatriation of funds out of Argentina by way of cash dividends or other distributions of currency out of Argentina will be required to be made accordance with the capital control restrictions of the Argentine Central Bank. The Company continues to monitor the foreign currency exposure risk.

The Company’s capital requirement is effectively managed based on the Company having a thorough reporting, planning, and forecasting process to help identify the funds required to ensure the Company is able to meet its operating and growth objectives.

Fortuna | 54

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

The Company’s capital structure consists of equity comprising of share capital, reserves, and retained earnings as well as debt consisting of credit facilities and convertible debentures, lease obligations less cash and cash equivalents.


As at	December 31, 2022		December 31, 2021
Equity		1,244.8		1,375.1
Debt		219.2		157.5
Lease obligations		21.3		29.4
Less: cash and cash equivalents		(80.5)		(107.1)
		1,404.8		1,454.9
Figures may not add due to rounding

As discussed above, the Company operates in Argentina where the Argentine government has ratified and extended legislation to allow the Argentine Central Bank to regulate funds coming into and flowing out of Argentina. Other than the restrictions related to these capital controls and complying with the debt covenants under the credit facilities, the Company is not subject to any externally imposed capital requirements. As at December 31, 2022, the Company was in compliance with its debt covenants. See also “Liquidity and Capital Resources”.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Currently, our interest rate exposure mainly relates to interest earned on our cash and cash equivalents balances, interest paid on its LIBOR-based debt, and the mark-to-market value of derivative instruments which depend on interest rates.

Key Personnel

The Company is dependent on a number of key management and employee personnel. The Company’s ability to manage its exploration, development, construction, and operating activities, and hence its success, will depend in large part on the ability to retain current personnel and attract and retain new personnel, including management, technical, and unskilled employees. The loss of the services of one or more key management personnel, as well as a prolonged labour disruption, could have a material adverse effect on the Company’s ability to successfully manage and expand its affairs.

Claims and Legal Proceedings

The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the normal course of business. The Company may be subject to claims by local communities, indigenous groups, or private land owners relating to land and mineral rights and such claimants may seek sizable monetary damages or seek the return of surface or mineral rights that may be valuable to the Company which may significantly impact operations and profitability, if lost. These matters are subject to various uncertainties and it is possible that some of these matters may be resolved with an unfavorable outcome to the Company. The Company does carry liability insurance coverage, but such coverage does not cover all risks to which the Company may be exposed to.

Fortuna | 55

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

The windfall income tax prepayment is to be paid in three equal and consecutive monthly instalments, starting on October 22, 2022, and is payable in addition to income tax instalments currently being paid by corporate taxpayers on account of their income tax obligations. The windfall income tax prepayment is an advance payment of income taxes due to be paid in 2023.

Based on the historical accumulated losses of Mansfield for fiscal 2021 which can be carried forward for 2022, Mansfield was not liable for income tax, and based upon current corporate income tax laws and the ability of the Company to deduct historical accumulated losses, it is projected that no income tax will be required to be paid for fiscal 2022.

To protect Mansfield’s position from having to pay the windfall income tax prepayment as an advance income tax for 2023, which based on management’s projections is not payable, Mansfield applied to the Federal Court of Salta Province for a preliminary injunction to prevent the AFIP from issuing a demand or other similar measure for the collection of the Windfall Income Tax Prepayment.  On October 3, 2022, Mansfield was notified that the Court had granted the preliminary injunction.  As a result, Mansfield did not pay any of the three installments.  In addition, Mansfield also filed an administrative claim with the AFIP to challenge the constitutionality of the Resolution, which was rejected by AFIP on November 2, 2022.

Mansfield has subsequently filed new legal proceedings in the Federal Court of Salta, against the AFIP to protect its position and challenge the rejection of its administrative claim. In this legal proceeding, Mansfield has also applied for a preliminary injunction to prevent the AFIP from issuing a demand or other similar measure for the collection of the Windfall Income Tax Prepayment or interest. On February 15, 2023, Mansfield was notified that the Court had granted the preliminary injunction requested.

CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

For further information on our significant judgements and accounting estimates, refer to note 4 of our audited annual consolidated financial statements for the years ended December 31, 2022 and 2021.

ADOPTION OF NEW ACCOUNTING STANDARDS, INTERPRETATION OR AMENDMENTS

The following accounting standards were adopted for the financial year ending December 31, 2022,

●

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);

●

Annual Improvements to IFRS Standards 2018–2020; and

●

Reference to the Conceptual Framework (Amendments to IFRS 3)

The adoption of these standards did not have a material effect on the Company’s financial statements.

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) became effective January 1, 2022; however, the Company previously elected to early adopt this standard in the financial year ending December 31, 2020.

Fortuna | 56

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures have been designed to provide reasonable assurance that all material information related to the Company is identified and communicated to management on a timely basis. Management of the Company, under the supervision of the President and Chief Executive Officer and the Chief Financial Officer, is responsible for the design and operation of disclosure controls and procedures in accordance with the requirements of National Instrument 52-109 of the Canadian Securities Administrators and as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.

Management’s Report on Internal Control over Financial Reporting

The Company’s internal control over financial reporting (“ICFR”) is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external reporting purposes in accordance with IFRS as issued by the International Accounting Standards Board. However, due to its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements and fraud.

Management assesses the effectiveness of the Company’s internal control over financial reporting using the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Management conducted an evaluation of the effectiveness of ICFR and concluded that it was effective as at December 31, 2022.

There have been no changes in the Company’s internal control over financial reporting during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Fortuna | 57

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This MD&A and any documents incorporated by reference into this MD&A contain forward-looking statements which constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Section 21E of the United States Securities Exchange Act of 1934, as amended, and forward-looking information within the meaning of applicable Canadian securities legislation (collectively, “Forward-looking Statements”). All statements included herein, other than statements of historical fact, are Forward-looking Statements and are subject to a variety of known and unknown risks and uncertainties which could cause actual events or results to differ materially from those reflected in the Forward-Looking Statements. The Forward-looking Statements in this MD&A include, without limitation, statements relating to:

●

Mineral Resource and Mineral Reserve estimates as they involve the implied assessment, based on estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future;

●

the Company's plans and expectations for its material properties and future exploration, development and operating activities including, without limitation, capital expenditure, production and cash cost and AISC estimates, exploration activities and budgets, forecasts and schedule estimates, as well as their impact on the results of operations or financial condition of the Company;

●

the anticipated steps, timeline and costs for completing construction of the mine at the Séguéla project;

●

the timing for delivery of materials and equipment for the Company’s properties;

●

the sufficiency of the Company’s cash on hand and available credit lines and estimated cash flows to fund planned capital and exploration programs;

●

the Company’s financial performance being closely linked to the prices of silver and gold;

●

possible future challenges presented by the Ukraine – Russian conflict, and pandemics such as COVID 19;

●

the payments due under, and the maturity date of, the Company’s financial liabilities, lease obligations and other contractual commitments;

●

the Company’s expectation that there are no changes in internal controls in 2022 that are reasonably likely to materially affect the Company’s internal control over financing reporting;

●

property permitting and litigation matters;

●

the outcome of the Mexican Legal Proceedings; and

●

the fluctuation of its effective tax rate in the jurisdictions where the Company does business;

Often, but not always, these Forward-looking Statements can be identified by the use of words such as “anticipates”, “believes”, “plans”, “estimates”, “expects”, “forecasts”, “scheduled”, “targets”, “possible”, “strategy”, “potential”, “intends”, “advance”, “goal”, “objective”, “projects”, “budget”, “calculates” or statements that events, “will”, “may”, “could” or “should” occur or be achieved and similar expressions, including negative variations.

The forward-looking statements in this MD&A also include financial outlooks and other forward-looking metrics relating to Fortuna and its business, including references to financial and business prospects and future results of operations, including production, and cost guidance and anticipated future financial performance. Such information, which may be considered future oriented financial information or financial outlooks within the meaning of applicable Canadian securities legislation (collectively, “FOFI”), has been approved by management of the Company and is based on assumptions which management believes were reasonable on the date such FOFI was prepared, having regard to the industry, business, financial conditions, plans and prospects of Fortuna and its business and properties. These projections are provided to describe the prospective performance of the Company's business. Nevertheless, readers are cautioned that such information is highly subjective and should not be relied on as necessarily indicative of future results and that actual results may differ significantly from such projections. FOFI constitutes forward-looking statements and is subject to the same assumptions, uncertainties, risk factors and qualifications as set forth below.

Fortuna | 58

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

•

operational risks relating to mining and mineral processing;

•

uncertainty relating to Mineral Resource and Mineral Reserve estimates;

•

uncertainty relating to capital and operating costs, production schedules and economic returns;

•

uncertainty relating to new mining operations and development projects such as the Lindero Mine and the Séguéla Gold Project, including the possibility that actual capital and operating costs and economic returns will differ significantly from those estimated for such projects prior to production;

•

uncertainty relating to the costs of the construction, the financing of construction and timing for the completion of the Séguéla Project;

•

risks relating to the Company’s ability to replace its Mineral Reserves;

•

risks associated with mineral exploration and project development;

•

uncertainty relating to the repatriation of funds as a result of currency controls;

•

environmental matters including maintaining, obtaining or renewing environmental permits and potential liability claims;

•

risks associated with political instability and changes to the regulations governing the Company’s business operations;

•

changes in national and local government legislation, taxation, controls, regulations and political or economic developments in countries in which the Company does or may carry on business;

•

risks associated with war, hostilities or other conflicts, such as the Ukrainian – Russian conflict, and the impact it may have on global economic activity;

•

risks relating to the termination of the Company’s mining concessions in certain circumstances;

•

risks related to International Labor Organization (“ILO”) Convention 169 compliance;

•

developing and maintaining good relationships with local communities and stakeholders;

•

risks associated with losing control of public perception as a result of social media and other web-based applications;

•

potential opposition to the Company’s exploration, development and operational activities;

•

risks related to the Company’s ability to obtain adequate financing for planned exploration and development activities;

•

substantial reliance on the Lindero Mine, the Yaramoko Mine and the San Jose Mine for revenues;

•

property title matters;

•

risks relating to the integration of businesses and assets acquired by the Company;

•

impairments;

•

reliance on key personnel;

•

uncertainty relating to potential conflicts of interest involving the Company’s directors and officers;

•

risks associated with the Company’s reliance on local counsel and advisors and the experience of its management and board of directors in foreign jurisdictions;

•

adequacy of insurance coverage;

•

operational safety and security risks;

•

risks related to the Company’s compliance with the United States Sarbanes-Oxley Act;

•

risks related to the foreign corrupt practices regulations and anti-bribery laws;

•

legal proceedings and potential legal proceedings;

Fortuna | 59

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

•

uncertainties relating to general economic conditions;

•

risks relating to a global pandemic, which until contained could continue to cause a slowdown in global economic growth and impact the Company’s business, operations, financial condition and share price;

•

risks relating to pandemics, such as COVID-19, epidemics and public health crises; the impact of COVID-19 on the Company’s business, operations and financial condition; the Company’s ability to access its supply chain; the ability of the Company to transport its products; and impacts on the Company’s employees and local communities all of which may affect the Company’s ability operate;

•

competition;

•

fluctuations in metal prices;

•

regulations and restrictions with respect to imports;

•

high rates of inflation;

•

risks associated with entering into commodity forward and option contracts for base metals production;

•

fluctuations in currency exchange rates and restrictions on foreign exchange and currencies;

•

failure to meet covenants under its Credit Facilities, or an event of default which may reduce the Company’s liquidity and adversely affect its business;

•

tax audits and reassessments;

•

risks relating to hedging;

•

uncertainty relating to concentrate treatment charges and transportation costs;

•

sufficiency of monies allotted by the Company for land reclamation;

•

risks associated with dependence upon information technology systems, which are subject to disruption, damage, failure and risks with implementation and integration;

•

uncertainty relating to nature and climate change conditions

•

risks associated with climate change legislation;

•

our ability to manage physical and transition risks related to climate change and successfully adapt our business strategy to a low carbon global economy;

•

risks related to the volatility of the trading price of the Company’s common shares and the Company’s Debentures (as defined herein);

•

dilution from further equity or convertible debenture financings; and

•

risks related to future insufficient liquidity resulting from a decline in the price of the Common Shares or Debentures;

•

uncertainty relating to the Company’s ability to pay dividends in the future;

•

risks relating to the market for the Company’s securities;

•

risks relating to the Debentures of the Company; and

•

uncertainty relating to the enforcement of U.S. judgments against the Company.

as well as those factors referred to in the “Risks and Uncertainties” section in this MD&A and in the “Risk Factors” section in our Annual Information Form filed with the Canadian Securities Administrators and available at www.sedar.com and filed with the U.S. Securities and Exchange Commission as part of the Company’s Form 40-F and available at www.sec.gov/edgar.shtml. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in Forward-looking Statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended.

Fortuna | 60

Fortuna Silver Mines Inc.

Management’s Discussion and Analysis

For the year ended December 31, 2022 (in US Dollars, tabular amounts in millions, except where noted)

Forward-looking Statements contained in this MD&A are based on the assumptions, beliefs, expectations and opinions of management, including but not limited to:

●

all required third party contractual, regulatory and governmental approvals will be obtained and maintained for the exploration, development, construction and production of its properties;

●

there being no significant disruptions affecting operations, whether relating to labour, supply, power, damage to equipment or other matter;

●

the world-wide economic and social impact of COVID-19 is managed, and the duration and extent of the coronavirus pandemic is minimized or not long-term;

●

there being no material and negative impact to the various contractors, suppliers and subcontractors at the Company’s mine sites as a result of the Ukrainian – Russian conflict, COVID-19 or otherwise that would impair their ability to provide goods and services;

●

permitting, construction, development, expansion, and production continuing on a basis consistent with the Company’s current expectations;

●

Minera Cuzcatlan will be successful in the Mexican Legal Proceedings;

●

expected trends and specific assumptions regarding metal prices and currency exchange rates;

●

prices for and availability of fuel, electricity, parts and equipment and other key supplies remaining consistent with current levels;

●

production forecasts meeting expectations;

●

any investigations, claims, and legal, labor and tax proceedings arising in the ordinary course of business will not have a material effect on the results of operations or financial condition of the Company; and

●

the accuracy of the Company’s current Mineral Resource and Mineral Reserve estimates.

These Forward-looking Statements are made as of the date of this MD&A. There can be no assurance that Forward-looking Statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers are cautioned not to place undue reliance on Forward-looking Statements. Except as required by law, the Company does not assume the obligation to revise or update these forward looking-statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events.

CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATES OF RESERVES AND RESOURCES

The Company is a Canadian “foreign private issuer” as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended, and is permitted to prepare the technical information contained herein in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of the securities laws currently in effect in the United States.

Technical disclosure regarding the Company’s properties included herein was prepared in accordance with National Instrument 43-101 — Standards of Disclosure for Mineral Projects (“NI 43-101”). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. NI 43-101 differs significantly from the disclosure requirements of the SEC generally applicable to U.S. companies. Accordingly, information contained herein is not comparable to similar information made public by U.S. companies reporting pursuant to SEC disclosure requirements.

Fortuna | 61

NEWS RELEASE

Fortuna Reports Results for the Fourth Quarter and Full Year 2022

(All amounts expressed in US dollars, tabular amounts in millions, unless otherwise stated)

Vancouver, March 15, 2023: Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) (“Fortuna” or the “Company”) today reported its financial and operating results for the fourth quarter and full year 2022.

Fourth Quarter and Full Year 2022 highlights

Financial

●Adjusted net income¹ of $7.2 million or $0.02 per share in Q4 2022, totaling $42.6 million, or $0.15 per share for the full year 2022

●Net loss for the quarter of $160.4 million or $0.52 per share after non-cash impairment charges net of tax of $164.5 million in Q4 2022, totaling a net loss of $135.9 million for the full year 2022

•Adjusted EBITDA¹ of $55.8 million in Q4 2022; totaling $245.5 million for the full year 2022

●Free cash flow from ongoing operations¹ of $4.4 million in Q4 2022; totaling $69.2 million for the full year 2022

●Share buybacks of $5.9 million completed during 2022

●Liquidity as at December 31, 2022 was $150.5 million

Operational

•Silver and gold production of 1,746,746 ounces and 64,112 ounces respectively in Q4 2022; 6,907,275 ounces and 259,427 ounces for the full year 2022; gold equivalent³ production of 401,878 ounces for the full year 2022.

•Q4 2022 cash costs¹ per ounce of gold of $815 for the Lindero Mine and $818 for the Yaramoko Mine. Cash costs^1,2per silver equivalent ounce of payable silver sold of $11.16 for the San Jose Mine and $12.46 for the Caylloma mine.

•Q4 2022 AISC¹ per ounce of gold sold of $1,221 for the Lindero Mine and $1,829 for the Yaramoko Mine. AISC^1,2 per silver equivalent ounce of payable silver sold of $15.53 and $20.30 for the San Jose Mine and Caylloma Mine, respectively

•Full year 2022 AISC¹ per ounce of gold sold of $1,142 for the Lindero Mine and $1,529 for the Yaramoko Mine. AISC^1,2 per silver equivalent ounce of payable silver sold of $15.11 and $17.97 for the San Jose Mine and Caylloma Mine, respectively

•Lost Time Injury Frequency Rate (LTIFR) of 0.39 and Total Recordable Injury Frequency Rate (TRIFR) of 2.32 at the end of the year, with one fatal accident (refer to Fortuna’s news release January 28, 2022) and five lost time injury incidents recorded during the year.

Growth and Development

●Séguéla Project construction 93% complete as of the end of February 2023. On-time and on-budget for first gold pour in mid 2023

●In 2022, exploration success at the Sunbird discovery at Séguéla has resulted in a new mineral deposit including an Indicated Mineral Resource of 3.2 million tonnes at an average grade of 2.66 g/t gold containing 279,000 ounces and an Inferred Mineral Resource of 4.2 million tonnes at an average grade of 3.73 g/t gold containing 506,000 ounces (refer to Fortuna news release dated December 5, 2022).

¹ Refer to Non-IFRS financial measures

² AISC/oz Ag Eq calculated at realized metal prices, refer to mine site results for realized prices and Non-IFRS Financial Measures for silver equivalent ratio

³ Gold equivalent production includes gold, silver, lead and zinc and is calculated using the following metal prices: $1,802/oz Au, $21.75/oz Ag, $2,161/t Pb and $3,468/t Zn or Au:Ag = 1:82.89, Au:Pb = 1:0.83, Au:Zn = 1:0.52

Fortuna | 1

Jorge A. Ganoza, President and CEO, commented, “Fortuna finished the year in line with production guidance, with only a slight miss in cost guidance at the Lindero Mine in spite of strong inflationary pressures. Our business continued to generate healthy free cash flow from ongoing operations of $69.2 million and adjusted results of $245.5 million in Adjusted EBITDA, and adjusted net income of $42.6 million or $0.15 per share.” Mr. Ganoza added, “As we look forward to 2023 we expect to increase production and improve costs in the second half of the year as our new Séguéla flagship asset comes into production."

Fourth Quarter 2022 and Full Year 2022 Consolidated Results


	Three months ended December 31,			Years ended December 31,
(Expressed in millions)	2022	2021	% Change	2022	2021	% Change
Sales	164.7	198.9	(17%)	681.5	599.9	14%
Mine operating income	26.0	58.3	(55%)	146.8	205.5	(29%)
Operating (loss) income	(173.1)	38.9	(545%)	(113.6)	136.9	(183%)
Net (loss) income	(160.4)	16.6	(1,066%)	(135.9)	59.4	(329%)
(Loss) earnings per share - basic	(0.52)	0.05	(1,148%)	(0.44)	0.24	(283%)
Adjusted net income¹	7.2	29.1	(75%)	42.6	100.6	(58%)
Adjusted EBITDA¹	55.8	89.6	(38%)	245.5	280.7	(13%)
Net cash provided by operating activities	49.6	57.1	(13%)	194.2	147.1	32%
Free cash flow from ongoing operations¹	4.4	28.2	(84%)	69.2	86.0	(20%)
Capital expenditures²
Sustaining	33.9	31.6	7%	98.1	77.2	27%
Non-sustaining³	(2.3)	2.6	(188%)	8.2	9.5	(14%)
Lindero construction	-	-	0%	-	12.8	(100%)
Séguéla construction	23.5	19.8	19%	107.7	34.2	215%
Brownfields	6.5	8.2	(21%)	23.3	18.9	23%
As at				December 31, 2022	December 31, 2021	% Change
Cash and cash equivalents				80.5	107.1	(25%)
Net liquidity position				150.5	187.1	(20%)
¹Refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.
²Capital expenditures are presented on a cash basis
³ Non-sustaining expenditures include greenfields exploration
Figures may not add due to rounding

Fourth Quarter 2022 Results

Net loss for the period was $160.4 million compared to net income of $16.6 million in Q4 2021. The loss in the quarter is explained by impairment charges of $164.5 million ($182.8 million before tax) related to the following assets:

●

A net impairment of $85.4 million at Yaramoko ($103.5 million before tax) resulting from the impact of inflation on operating and capital costs, a reassessment of exploration potential, and an updated estimate of mineral reserves at the 55 Zone crown pillar recovery that resulted in a reduction of 166,000 ounces of gold.

●

A net impairment of $70.2 million at Lindero resulting from the impact of inflation on operating and capital costs and an increase in discount rates compared to 2021

●

A net impairment of $8.9 million ($9.2 million before tax) at San Jose resulting from the impact of inflation on operating costs and exploration investments not achieving full replacement of production depletion

After adjusting for impairment charges and other non-recurring items, adjusted net income was $7.2 million or $0.02 per share compared to $29.1 million or $0.10 per share in Q4 2021. The decrease was mainly due to lower sales volume and lower average silver price of $21.4/oz compared to $23.4/oz in Q4 2021, and higher cash costs across our operations explained mostly by persistent inflationary trends throughout 2022.

Sales for the quarter were $164.7 million, a $34.2 million decrease from the $198.9 million reported in the same period in 2021. The decrease was explained mostly by lower sales volume at Lindero, San Jose, and Yaramoko, lower silver prices of 9% and slightly lower gold prices.

Fortuna | 2

Adjusted EBITDA for the quarter was $55.8 million, a margin of 34% over sales, compared to $89.6 million reported in the same period in 2021, representing a margin of 45% over sales. The main driver for the decrease in EBITDA was the reduction in sales combined with higher operating costs as described above.

Net cash generated by operations for the quarter was $49.6 million or $0.19 per share compared to $57.1 million or $0.38 per share in Q4 2021. The decrease reflects lower EBITDA of $33.8 million partially offset by neutral change in working capital in the current quarter compared to a negative change of $17.7 million in Q4 2021, and lower income taxes paid of $11.7 million. Additionally, the comparative quarter included a $9.6 million payment related to the settlement to the disputed Mexican royalty claim by the Mexican Geological Survey Agency.

Free cash flow from ongoing operations for the quarter was $4.4 million compared to $28.2 million in Q4 2021. The decrease reflects lower net cash generated by operations and higher capex of $26.1 million.

Full Year 2022 Results

Net loss for the year was $135.9 million, compared to a net gain of $59.4 million in 2021. The loss in 2022 is explained by impairment charges of $164.5 million ($182.8 million before tax) related to the Lindero, San Jose and Yaramoko Mines as explained above.

After adjusting for impairment charges and other non- recurring items, adjusted net income was $42.6 million compared to $100.6 million in 2021. The decrease was mainly due to a higher cost per ounce across our operations related, to a large extent, to persistent inflationary trends throughout 2022, and lower average silver price of $21.8/oz compared to $25.2/oz in 2021

Sales for the year were $681.5 million, an $81.6 million increase from the $599.9 million reported in 2021. The increase was explained mostly by the full contribution of Yaramoko in 2022 compared to six months in 2021 partially offset by a lower average silver price of 13.5%.

Adjusted EBITDA for the year was $245.5 million, a margin of 36% over sales, compared to $280.7 million reported in 2021, representing a margin of 47% over sales. The main driver for the decrease in EBITDA was a higher operating cost base combined with lower silver prices. From a segment perspective Yaramoko´s added EBITDA contribution year over year of $34.9 million was offset by lower EBITDA at San Jose of $42.4 million as a result mostly of lower production and lower metal prices. At Lindero a volume driven increase in sales compared to the prior year was offset by a higher cost base. Other items contributing to lower EBITDA were higher corporate G&A of $6.4 million, higher share-based payment charges of $6.1 million and higher foreign exchange charges of $2.8 million.

Net cash generated by operations for 2022 was $194.2 million or $0.67 per share compared to $147.1 million or $0.61 per share in 2021. The increase, in spite of lower EBITDA of $34.3 million was due to non-recurrent charges in 2021 of $38.9 million related to the disputed Mexican royalty claim by the Mexican Geological Survey Agency ($11.0 million) and Roxgold acquisition transaction expenses ($27.9 million), as well as lower negative changes in working capital of $21.6 million in 2022, and lower income tax paid of $20.5 million.

Free cash flow from ongoing operations for 2022 was $69.2 million compared to $86.0 million in 2021. The decrease, after adjusting net cash generated by operations for the $38.9 million of non-recurrent payments in 2021 described above, reflects higher capex of $90.5 million related mostly to the full year of production at Yaramoko, and lower taxes.

Fortuna | 3

Liquidity

Total liquidity available to the Company as at December 31, 2022 was $150.5 million, comprised of $80.5 million of cash and cash equivalents and $70.0 million undrawn on the Company’s revolving $250.0 million credit facility.

Séguéla Construction

As of December 31, 2022, the Séguéla Project had approximately $38.2 million in payments remaining of the project’s $173.5 million construction budget, and the project remains on time and on budget. The Company’s cash and cash equivalents balance, free cash flow from ongoing operations and undrawn amounts of the credit facility are expected to be sufficient to fund the construction of the Séguéla Project.

Lindero Mine, Argentina

Three months ended December 31,

Years ended December 31,

2022

2021

2022

2021

Mine Production

Tonnes placed on the leach pad

1,334,509

1,457,733

5,498,064

6,453,647

Gold

Grade (g/t)

0.80

1.04

0.81

0.96

Production (oz)

29,301

36,072

118,418

104,161

Metal sold (oz)

27,847

36,389

117,076

100,177

Realized price ($/oz)

1,732

1,802

1,803

1,785

Unit Costs

Cash cost ($/oz Au)¹

815

585

740

617

All-in sustaining cash cost ($/oz Au)¹

1,221

994

1,142

1,116

Capital expenditures ($000's) ²

Sustaining

3,973

7,214

18,035

27,522

Non-sustaining

–

233

169

323

Brownfields

184

389

1,288

875

¹Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.

² Capital expenditures are presented on a cash basis.

Quarterly Operating and Financial Highlights

In the fourth quarter of 2022, a total of 1,334,509 tonnes of ore were placed on the heap leach pad, averaging 0.80 g/t gold, containing an estimated 34,350 ounces of gold. Gold production for Q4 2022 totaled 29,301 ounces, representing a 19% decrease over Q4 2021. Lower gold production is attributed to an 8% decrease in tonnes and a 23% decrease in gold grade for ore placed on the pad, compared to the fourth quarter of 2021. This was partially offset by improved gold recovery. Gold grade for the quarter was in line with the mining plan and Mineral Reserve estimate. Mine production for the quarter was according to management’s expectations, with a total of 1.9 million tonnes of ore mined in the fourth quarter, at a strip ratio of 0.54:1.

Cash cost per ounce of gold for the three months ended December 31, 2022 was $815 compared to $585 in the fourth quarter of 2021. Cash cost per ounce of gold for the year ended December 31, 2022 was $740 compared to $617 in the 2021. Cash cost per ounce of gold was higher due higher operations costs primarily due to inflation, lower stripping capitalization and lower gold production.

Fortuna | 4

Sustaining capital for the quarter primarily consisted of spending on the leach pad, mine maintenance and other minor projects. Construction work on Phase-2 is planned to commence in 2023. Brownfields capital primarily relates to exploration at the Arizaro project.

Yaramoko Mine Complex, Burkina Faso


	Three months ended December 31,		Years ended December 31,
	2022	2021	2022	2021
Mine Production
Tonnes milled	142,694	132,188	546,651	258,866

Gold
Grade (g/t)	6.45	6.99	6.37	7.13
Recovery (%)	98	98	98	98
Production (oz)	26,190	28,787	106,108	57,538
Metal sold (oz)	26,250	29,077	107,433	56,571
Realized price ($/oz)	1,742	1,796	1,802	1,789

Unit Costs
Cash cost ($/oz Au)¹	818	754	840	739
All-in sustaining cash cost ($/oz Au)¹	1,829	1,436	1,529	1,317

Capital expenditures ($000's) ³
Sustaining	18,994	13,520	45,665	21,387
Brownfields	2,855	47	5,873	138

¹The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.

² Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.

³Capital expenditures are presented on a cash basis.

Cash cost per gold ounce sold was $818, compared to $754 in the fourth quarter of 2021, and $840 for the year 2022 compared to $739 in 2021, primarily due to higher mining service costs related to inflation and variation in orebody sequence. This was partially offset by favorable foreign exchange rates.

All-in sustaining cash cost per gold ounce sold was $1,829 for Q4 2022 and $1,529 for 2022, compared to $1,436 and $1,317 for the same period in 2021, as a result of decreased production, increased cash cost, and an increase in capital expenditures.

Fortuna | 5

San Jose Mine, Mexico


	Three months ended December 31,		Years ended December 31,
	2022	2021	2022	2021
Mine Production
Tonnes milled	259,500	262,802	1,029,590	1,041,154
Average tonnes milled per day	2,883	2,920	2,925	2,964

Silver
Grade (g/t)	194	219	191	209
Recovery (%)	91	93	91	92
Production (oz)	1,473,627	1,717,533	5,762,562	6,425,029
Metal sold (oz)	1,482,452	1,729,152	5,755,330	6,433,808
Realized price ($/oz)	21.37	23.39	21.73	25.15

Gold
Grade (g/t)	1.13	1.27	1.14	1.29
Recovery (%)	90	92	90	91
Production (oz)	8,499	9,929	34,124	39,406
Metal sold (oz)	8,621	9,983	34,201	39,404
Realized price ($/oz)	1,734	1,797	1,802	1,798

Unit Costs
Production cash cost ($/t)²	86.26	79.66	81.33	75.80
Production cash cost ($/oz Ag Eq)^1,2	11.16	9.35	10.56	9.30
All-in sustaining cash cost ($/oz Ag Eq)^1,2	15.53	14.92	15.11	14.38

Capital expenditures ($000's) ³
Sustaining	3,695	5,137	15,731	14,492
Non-sustaining	–	518	869	2,294
Brownfields	961	2,176	5,606	8,784

¹Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively.

² Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to Non-IFRS Financial Measures section at the end of this news release and to the MD&A accompanying the Company’s financial statements filed on SEDAR at www.sedar.com for a description of the calculation of these measures.

³Capital expenditures are presented on a cash basis.

In the fourth quarter of 2022, the San Jose Mine produced 1,473,627 ounces of silver and 8,499 ounces of gold, 14% and 14% lower, respectively, when compared to the equivalent period in 2021. The decrease is mainly due to lower head grades, albeit in line with management´s expectations based on the mining sequence and Mineral Reserve estimate.

Material mined using sublevel stopping (SLS) methods was increased in 2022, representing 35 percent of ore sent to the plant. The operation plans for the SLS contribution to reach 60 percent of total ore production in 2023. In the second quarter of 2022, a new underground shotcrete plant was commissioned which reduced mining cycles and partially offset some of the cost increases due to higher haulage distances as the mine deepens.

All-in sustaining cash costs of payable silver equivalent for the three months ended December 31, 2022 and full year 2022 increased 4% and 5% to $15.53 per ounce and 15.11 per ounce, compared to the same periods in 2021. The increases are due to higher cash costs and lower silver equivalent ounces, partially offset by lower capital expenditure.

Sustaining capital expenditures for Q4 2022 and for the year were lower than 2021, as 2021 required additional capital for equipment. Brownfields capital expenditure were lower due to reduced drilling, as the site focused on less capital-intensive exploration.

Fortuna | 6

Caylloma Mine, Peru


	Three months ended December 31,		Years ended December 31,
	2022	2021	2022	2021
Mine Production
Tonnes milled	138,491	137,838	546,186	539,779
Average tonnes milled per day	1,556	1,549	1,539	1,525

Silver
Grade (g/t)	75	73	80	76
Recovery (%)	81	81	81	82
Production (oz)	273,119	262,710	1,144,713	1,073,672
Metal sold (oz)	289,870	243,869	1,156,381	1,074,364
Realized price ($/oz)	21.28	23.39	21.81	25.25

Gold
Grade (g/t)	0.12	0.44	0.14	0.49
Recovery (%)	22	70	32	71
Production (oz)	122	1,374	777	6,086
Metal sold (oz)	—	1,297	603	6,140
Realized price ($/oz)	—	1,798	1,864	1,792

Lead
Grade (%)	3.22	3.20	3.27	3.16
Recovery (%)	89	87	88	88
Production (000's lbs)	8,735	8,419	34,588	32,990
Metal sold (000's lbs)	9,118	7,945	34,869	33,299
Realized price ($/lb)	0.96	1.06	0.98	1.00

Zinc
Grade (%)	4.63	4.25	4.32	4.56
Recovery (%)	89	87	89	88
Production (000's lbs)	12,575	11,380	46,176	47,549
Metal sold (000's lbs)	11,027	11,053	44,770	47,828
Realized price ($/lb)	1.35	1.51	1.57	1.36

Unit Costs
Production cash cost ($/t)²	95.70	97.87	92.96	88.41
Production cash cost ($/oz Ag Eq)^1,2	12.46	13.83	12.34	13.46
All-in sustaining cash cost ($/oz Ag Eq)^1,2	20.30	20.71	17.97	18.94

Capital expenditures ($000's) ³
Sustaining	7,188	5,755	18,694	13,758
Brownfields	473	1,027	1,202	3,731

¹Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period respectively.

³Capital expenditures are presented on a cash basis.

The cash cost per tonne of processed ore for the three months ended December 31, 2022 increased 2% to $95.70 compared to $97.87 in the same period in 2021. This movement was mainly the result of higher support costs partially offset by increased production. Cash cost per tonne for the full year 2022 increased to $92.96 per tonne compared to $88.41 per tonne for 2021, mainly due to higher mining costs caused by inflation.

Fortuna | 7

The all-in sustaining cash cost of payable silver equivalent for the three month ended December 31, 2022 decreased 2% to $20.30 per ounce compared to $20.71 per ounce for the same period in 2021, as a result of higher sustaining capital expenditures in the quarter. The all-in sustaining cash cost of payable silver equivalent for the full year 2022 decreased 5% to $17.97 per ounce compared to $18.94 per ounce in 2021 was primarily due to an increase in silver equivalent ounces due to a decrease in realized silver prices, partially offset by higher capital costs.

Sustaining capital expenditures for the quarter increased primarily due to greater investments in sustaining equipment and infrastructure. Expenditures on the developments located in level 16 and level 18 were offset by decreased expenditures on other levels. The decrease in Brownfields capital expenditures was due to significantly lower spending on drilling and development.

Qualified Person

Eric Chapman, Senior Vice President of Technical Services, is a Professional Geoscientist of the Association of Professional Engineers and Geoscientists of the Province of British Columbia (Registration Number 36328), and is the Company’s Qualified Person (as defined by National Instrument 43-101). Mr. Chapman has reviewed and approved the scientific and technical information contained in this news release and has verified the underlying data.

Non-IFRS Financial Measures

The Company has disclosed certain financial measures and ratios in this news release which are not defined under the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, and are not disclosed in the Company's financial statements, including but not limited to: cash cost per ounce of gold sold; all-in sustaining cash cost per ounce of gold sold; all-in cash cost per ounce of gold sold; total production cash cost per tonne; cash cost per payable ounce of silver equivalent sold; all-in sustaining cash cost per payable ounce of silver equivalent sold; all-in cash cost per payable ounce of silver equivalent sold; free cash flow from ongoing operations; adjusted net income; adjusted EBITDA and working capital.

These non-IFRS financial measures and non-IFRS ratios are widely reported in the mining industry as benchmarks for performance and are used by management to monitor and evaluate the Company's operating performance and ability to generate cash. The Company believes that, in addition to financial measures and ratios prepared in accordance with IFRS, certain investors use these non-IFRS financial measures and ratios to evaluate the Company’s performance. However, the measures do not have a standardized meaning under IFRS and may not be comparable to similar financial measures disclosed by other companies. Accordingly, non-IFRS financial measures and non-IFRS ratios should not be considered in isolation or as a substitute for measures and ratios of the Company’s performance prepared in accordance with IFRS. The Company has calculated these measures consistently for all periods presented.

To facilitate a better understanding of these measures and ratios as calculated by the Company, descriptions are provided below. In addition, see “Non-IFRS Financial Measures” in the Company’s management’s discussion and analysis for the fiscal year ended December 31, 2022 (“2022 MD&A”), which section is incorporated by reference in this news release, for additional information regarding each non-IFRS financial measure and non-IFRS ratio disclosed in this news release, including an explanation of their composition; an explanation of how such measures and ratios provide useful information to an investor and the additional purposes, if any, for which management of Fortuna uses such measures and ratio. The 2022 MD&A may be accessed on SEDAR at www.sedar.com under the Company’s profile, Fortuna Silver Mines Inc.

Except as otherwise described in the Q4 2022 MD&A, the Company has calculated these measures consistently for all periods presented.

Fortuna | 8

Reconciliation to Adjusted Net Income for the Three and Twelve Months Ended December 31, 2022 and 2021


	Three months ended December 31,		Years ended December 31,
Consolidated (in millions of US dollars)	2022	2021	2022	2021
Net (loss) income	(160.4)	16.6	(135.9)	59.4
Adjustments, net of tax:
Community support provision and accruals¹	(0.1)	1.3	(0.1)	1.4
Foreign exchange loss, Lindero Mine²	-	0.3	-	4.1
Foreign exchange loss, Séguéla Project	(0.4)	-	0.8	-
Write off of mineral properties	0.3	-	5.1	-
Unrealized loss (gain) on derivatives	0.1	-	(0.4)	-
Impairment of mineral properties, plant and equipment	164.5	-	164.5	-
Roxgold transaction costs	-	-	-	14.1
SGM Royalty settlement	-	1.0	-	9.8
Inventory adjustment	3.8	4.6	8.0	6.3
Accretion on right of use assets	0.5	1.0	2.3	2.2
Other non-cash/non-recurring items	(1.1)	4.3	(1.7)	3.3
Adjusted Net Income	7.2	29.1	42.6	100.6
¹Amounts are recorded in Cost of sales
²Amounts are recorded in General and Administration
Figures may not add due to rounding

Reconciliation to Adjusted EBITDA for the Three and Twelve Months Ended December 31, 2022 and 2021


	Three months ended December 31,		Years ended December 31,
Consolidated (in millions of US dollars)	2022	2021	2022	2021
Net (loss) income	(160.4)	16.6	(135.9)	59.4
Adjustments:
Community support provision and accruals	(0.1)	2.1	(0.1)	1.9
Inventory adjustment	3.8	5.3	8.9	7.0
Foreign exchange loss, Lindero Mine	-	0.3	-	4.1
Foreign exchange loss, Séguéla Project	(0.4)	0.2	0.8	0.2
Net finance items	3.1	3.7	12.1	12.3
Depreciation, depletion, and amortization	45.3	44.8	172.8	122.3
Income taxes	(15.3)	13.5	10.8	47.7
Impairment of mineral properties, plant and equipment	182.8	-	182.8	-
SGM Royalty settlement	-	-	-	9.6
Roxgold transaction costs	-	-	-	14.1
Other non-cash/non-recurring items	(3.0)	3.1	(6.7)	2.1
Adjusted EBITDA	55.8	89.6	245.5	280.7

Figures may not add due to rounding

Reconciliation of Free Cash Flow from ongoing operations for the Three and Twelve Months Ended December 30, 2022 and 2021


	Three months ended December 31,		Years ended December 31,
Consolidated (in millions of US dollars)	2022	2021	2022	2021
		(Restated)		(Restated)
Net cash provided by operating activities	49.6	57.1	194.2	147.1
Adjustments
Roxgold transaction costs	-	-	-	27.9
Additions to mineral properties, plant and equipment	(39.6)	(35.3)	(113.4)	(90.7)
Mexican royalty payment	-	9.5	3.0	11.1
Other adjustments	(5.6)	(3.1)	(14.6)	(9.4)
Free cash flow from ongoing operations	4.4	28.2	69.2	86.0

Figures may not add due to rounding

Fortuna | 9

Reconciliation of Cash Cost per Ounce of Gold Sold for the Three and Twelve Months Ended December 31, 2022 and 2021

Lindero Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cost of sales

43,057

46,915

164,179

122,889

Changes in doré inventory

1,379

353

1,984

2,066

Inventory adjustment

(1,691)

(1,072)

(1,691)

(2,815)

Export duties

(3,353)

(4,891)

(15,545)

(13,410)

Depletion and depreciation

(13,441)

(19,154)

(54,644)

(43,665)

By product credits

(982)

(77)

(1,214)

(260)

Production cash cost¹

24,969

22,074

93,069

64,805

Changes in doré inventory

(1,379)

(353)

(1,984)

(2,066)

Realized gain in diesel hedge

(1,105)

(438)

(4,620)

(963)

Cash cost applicable per gold ounce sold

22,485

21,283

86,465

61,776

Ounces of gold sold

27,602

36,375

116,795

100,137

Cash cost per ounce of gold sold¹ ($/oz)

=A/B

815

585

740

617


Yaramoko Mine		Three months ended December 31,		Years ended December 31,
(Expressed in $'000's, except unit costs)		2022	2021	2022	2021
Cost of sales		42,084	42,381	171,846	80,812
Changes in doré inventory		-	719	(1,320)	1,542
Inventory net realizable value adjustment		-	(4,153)	(5,077)	(4,153)
Export duties		(2,732)	(3,018)	(11,630)	(5,993)
Depletion and depreciation		(17,884)	(13,235)	(64,894)	(28,974)
Refining charges		-	-	(329)	-
By product credits		-	(195)	(25)	(134)
Production cash cost		21,468	22,499	88,571	43,100
Changes in doré inventory		-	(719)	1,320	(1,542)
Refining charges		-	133	329	271
Cash cost applicable per gold ounce sold	A	21,468	21,913	90,220	41,829
Ounces of gold sold	B	26,250	29,077	107,433	56,571
Cash cost per ounce of gold sold ($/oz)	=A/B	818	754	840	739
The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.

Reconciliation of All-in Sustaining Cash Cost per Ounce of Gold Sold for the Three and Twelve Months Ended December 31, 2022 and 2021

Lindero Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable

22,484

21,283

86,464

61,776

Inventory net realizable value adjustment

2,351

Long-term inventory NRV

(1,299)

Export duties and mining taxes

3,353

4,891

15,545

13,410

General and administrative expenses (operations)

2,081

1,640

8,578

5,643

Adjusted operating cash cost

28,970

27,814

111,639

80,829

Sustaining leases

567

752

2,398

2,548

Sustaining capital expenditures¹

3,973

7,214

18,035

27,522

Brownfields exploration expenditures¹

184

389

1,288

875

All-in sustaining cash cost

33,694

36,169

133,360

111,774

Non-sustaining capital expenditures¹

233

169

323

All-in cash cost

33,694

36,402

133,529

112,097

Ounces of gold sold

27,602

36,375

116,795

100,137

All-in sustaining cash cost per ounce of gold sold

1,221

994

1,142

1,116

All-in cash cost per ounce of gold sold

1,221

1,001

1,143

1,119

¹ Presented on a cash basis

Fortuna | 10

Yaramoko Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable

21,468

21,913

90,220

41,829

Inventory net realizable value adjustment

1,285

3,125

1,285

Export duties and mining taxes

2,732

3,018

11,630

5,993

General and administrative expenses (operations)

531

514

2,101

953

Adjusted operating cash cost

24,731

26,730

107,076

50,060

Sustaining leases

1,419

1,467

5,692

2,934

Sustaining capital expenditures¹

18,994

13,520

45,665

21,387

Brownfields exploration expenditures¹

2,855

5,873

138

All-in sustaining cash cost

47,999

41,764

164,306

74,519

All-in cash cost

47,999

41,764

164,306

74,519

Ounces of gold sold

26,250

29,077

107,433

56,571

All-in sustaining cash cost per ounce of gold sold

1,829

1,436

1,529

1,317

All-in cash cost per ounce of gold sold

1,829

1,436

1,529

1,317

The Yaramoko Mine was acquired as part of the acquisition of Roxgold which completed on July 2, 2021. Comparative figures in 2021 are included from July 2, 2021 onward.

¹ Presented on a cash basis

Reconciliation of Production Cash Cost per Tonne and Cash Cost per Payable Ounce of Silver Equivalent Sold for the Three and Twelve Months Ended December 31, 2022 and 2021

San Jose Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cost of sales

34,775

32,705

129,088

122,756

Changes in concentrate inventory

156

(118)

163

Depletion and depreciation in concentrate inventory

(47)

Inventory adjustment

(129)

(52)

137

(6)

Royalties and mining taxes

(1,260)

(1,587)

(5,262)

(5,955)

Workers participation

(601)

(1,236)

(2,477)

(5,809)

Depletion and depreciation

(10,510)

(8,789)

(37,775)

(32,257)

Cash cost³

22,384

20,934

83,732

78,924

Total processed ore (tonnes)

259,500

262,802

1,029,590

1,041,154

Production cash cost per tonne³ ($/t)

=A/B

86.26

79.66

81.33

75.80

Cash cost³

22,384

20,934

83,732

78,924

Changes in concentrate inventory

(156)

118

(19)

(163)

Depletion and depreciation in concentrate inventory

(11)

(2)

(32)

Inventory adjustment

129

(137)

Treatment charges

(65)

190

(293)

(251)

Refining charges

1,012

1,157

3,801

4,318

Cash cost applicable per payable ounce sold³

23,351

22,440

87,082

82,802

Payable ounces of silver equivalent sold¹

2,092,500

2,400,989

8,243,436

8,902,680

Cash cost per ounce of payable silver equivalent sold^2,3 ($/oz)

=C/D

11.16

9.35

10.56

9.30

Mining cost per tonne³

37.25

37.90

37.43

38.74

Milling cost per tonne

18.94

16.56

18.79

16.68

Indirect cost per tonne

20.98

16.84

16.86

13.72

Community relations cost per tonne

4.01

5.15

2.92

4.79

Distribution cost per tonne

5.08

3.20

5.33

1.88

Production cash cost per tonne³ ($/t)

86.26

79.66

81.33

75.80

² Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results – Sales and Realized Prices

³ 2021 restated, Sustaining leases moved to All-In Sustaining

Fortuna | 11

Caylloma Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cost of sales

16,676

18,585

67,491

67,917

Changes in concentrate inventory

(229)

939

(218)

297

Depletion and depreciation in concentrate inventory

120

165

(76)

Inventory adjustment

445

(61)

266

(61)

Royalties and mining taxes

(181)

(188)

(867)

(345)

Provision for community support

(78)

(2,125)

Workers participation

(419)

(214)

(1,808)

(1,838)

Depletion and depreciation

(3,080)

(3,607)

(14,032)

(16,182)

Cash cost³

13,254

13,494

50,775

47,724

Total processed ore (tonnes)

138,491

137,838

546,186

539,779

Production cash cost per tonne³ ($/t)

=A/B

95.70

97.89

92.96

88.41

Cash cost

13,254

13,494

50,775

47,724

Changes in concentrate inventory

229

(939)

218

(297)

Depletion and depreciation in concentrate inventory

(120)

(165)

(61)

Inventory adjustment

(445)

(266)

Treatment charges

2,744

4,629

13,939

15,754

Refining charges

384

378

1,537

1,670

Cash cost applicable per payable ounce sold³

16,046

17,458

66,279

64,851

Payable ounces of silver equivalent sold¹

1,287,998

1,261,967

5,372,277

4,819,365

Cash cost per ounce of payable silver equivalent sold^2,3 ($/oz)

=C/D

12.46

13.83

12.34

13.46

Mining cost per tonne

40.47

42.02

39.39

34.71

Milling cost per tonne

13.74

16.27

14.86

15.34

Indirect cost per tonne

32.10

29.45

30.16

29.49

Community relations cost per tonne

1.80

7.96

1.15

7.77

Distribution cost per tonne

7.59

2.18

7.40

1.10

Production cash cost per tonne³ ($/t)

95.70

97.87

92.96

88.41

² Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results - Sales and Realized Prices

³ 2021 restated, Sustaining leases moved to All-In Sustaining

Reconciliation of All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver Equivalent Sold for the Three and Twelve Months Ended December 31, 2022 and 2021

San Jose Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable⁴

23,351

22,440

87,082

82,802

Royalties and mining taxes

1,260

1,587

5,262

5,955

Workers' participation

751

1,545

3,096

7,261

General and administrative expenses (operations)

2,319

2,779

7,164

8,111

Adjusted operating cash cost⁴

27,681

28,351

102,604

104,129

Sustaining leases⁴

169

161

658

608

Sustaining capital expenditures³

3,695

5,137

15,731

14,492

Brownfields exploration expenditures³

961

2,176

5,606

8,784

All-in sustaining cash cost

32,506

35,825

124,599

128,013

Non-sustaining capital expenditures³

518

869

2,294

All-in cash cost

32,506

36,343

125,468

130,307

Payable ounces of silver equivalent sold¹

2,092,500

2,400,989

8,243,436

8,902,680

All-in sustaining cash cost per ounce of payable silver equivalent sold²

15.53

14.92

15.11

14.38

All-in cash cost per ounce of payable silver equivalent sold²

15.53

15.14

15.22

14.64

² Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results - Sales and Realized Prices

³Presented on a cash basis

⁴ 2021 restated, Sustaining leases moved from Cash Cost

Fortuna | 12

Caylloma Mine

Three months ended December 31,

Years ended December 31,

(Expressed in $'000's, except unit costs)

2022

2021

2022

2021

Cash cost applicable⁴

16,046

17,458

66,279

64,851

Royalties and mining taxes

181

188

867

345

Workers' participation

480

244

2,087

2,129

General and administrative expenses (operations)

928

786

4,063

3,625

Adjusted operating cash cost⁴

17,635

18,676

73,296

70,950

Sustaining leases⁴

845

681

3,350

2,851

Sustaining capital expenditures³

7,188

5,755

18,694

13,758

Brownfields exploration expenditures³

473

1,027

1,202

3,731

All-in sustaining cash cost

26,141

26,139

96,542

91,290

All-in cash cost

26,141

26,139

96,542

91,290

Payable ounces of silver equivalent sold¹

1,287,998

1,261,967

5,372,277

4,819,365

All-in sustaining cash cost per ounce of payable silver equivalent sold²

20.30

20.71

17.97

18.94

All-in cash cost per ounce of payable silver equivalent sold²

20.30

20.71

17.97

18.94

²Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results - Sales and Realized Prices

³ Presented on a cash basis

⁴ 2021 restated, Sustaining leases moved from Cash Cost

Additional information regarding the Company’s financial results and activities underway are available in the Company’s audited consolidated financial statements for the year ended December 31, 2022 and accompanying 2022 MD&A, which are available for download on the Company’s website, www.fortunasilver.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.

Conference Call and Webcast

A conference call to discuss the financial and operational results will be held on Thursday, March 16, 2023 at 9:00 a.m. Pacific time | 12:00 p.m. Eastern time. Hosting the call will be Jorge A. Ganoza, President and CEO; Luis D. Ganoza, Chief Financial Officer; Cesar Velasco, Chief Operating Officer - Latin America; David Whittle, Chief Operating Officer - West Africa; and Paul Weedon, Senior Vice President Exploration.

Shareholders, analysts, media and interested investors are invited to listen to the live conference call by logging onto the webcast at https://www.webcaster4.com/Webcast/Page/1696/47748 or over the phone by dialing in just prior to the starting time.

Conference call details:

Date: Thursday, March 16, 2023

Time: 9:00 a.m. Pacific time | 12:00 p.m. Eastern time

Dial in number (Toll Free): +1. 888.506.0062

Dial in number (International): +1.973.528.0011

Entry code: 839621

Replay number (Toll Free): +1.877.481.4010

Replay number (International): +1.919.882.2331

Replay Passcode: 47748

Playback of the earnings call will be available until Thursday, March 30, 2023. Playback of the webcast will be available until Saturday, March 9, 2024. In addition, a transcript of the call will be archived on the Company’s website.

Fortuna | 13

About Fortuna Silver Mines Inc.

Fortuna Silver Mines Inc. is a Canadian precious metals mining company with four operating mines in Argentina, Burkina Faso, Mexico, and Peru, and a fifth mine under construction in Côte d’Ivoire. Sustainability is integral to all our operations and relationships. We produce gold and silver and generate shared value over the long-term for our stakeholders through efficient production, environmental protection, and social responsibility. For more information, please visit our website.

ON BEHALF OF THE BOARD

Jorge A. Ganoza

President, CEO, and Director

Fortuna Silver Mines Inc.

Investor Relations:

Forward-looking Statements

This news release contains forward-looking statements which constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (collectively, "Forward-looking Statements"). All statements included herein, other than statements of historical fact, are Forward-looking Statements and are subject to a variety of known and unknown risks and uncertainties which could cause actual events or results to differ materially from those reflected in the Forward-looking Statements. The Forward-looking Statements in this news release include, without limitation, statements about the Company's plans for its mines and mineral properties; the Company’s anticipated financial and operational performance in 2023; estimated production and costs of production for 2023, including grade and volume of metal produced and sales, revenues and cashflows, and capital costs (sustaining and non-sustaining), and operating costs, including projected production cash costs and all-in sustaining costs; the ability of the Company to mitigate the inflationary pressures on supplies used in its operations; estimated capital expenditures and estimated exploration spending in 2023, including amounts for exploration activities at its properties; the Company’s plans for the transition from construction to operations of a mine at the Séguéla project in Cote d’Ivoire; the economics for the construction of the mine at the Séguéla project, including the estimated construction capital expenditures for the project, the timelines and schedules for the construction and production of gold at the Séguéla project; statements regarding the Company's liquidity, access to capital; the impact of high inflation on the costs of production and the supply chain; the impact of COVID-19 on the Company’s operations; the Company's business strategy, plans and outlook; the merit of the Company's mines and mineral properties; mineral resource and reserve estimates, metal recovery rates, concentrate grade and quality; changes in tax rates and tax laws, requirements for permits, anticipated approvals and other matters. Often, but not always, these Forward-looking Statements can be identified by the use of words such as "estimated", “expected”, “anticipated”, "potential", "open", "future", "assumed", "projected", "used", "detailed", "has been", "gain", "planned", "reflecting", "will", "containing", "remaining", "to be", or statements that events, "could" or "should" occur or be achieved and similar expressions, including negative variations.

Forward-looking Statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any results, performance or achievements expressed or implied by the Forward-looking Statements. Such uncertainties and factors include, among others, changes in general economic conditions and financial markets; the risks relating to a global pandemic, including the COVID-19 pandemic, as well as risks associated with war or other geo-political hostilities, such as the Ukrainian – Russian conflict, any of which could continue to cause a disruption in global economic activity; fluctuation in currencies and foreign exchange rates; increases in the rate of inflation; the imposition or any extension of capital controls in countries in which the Company operates; any changes in tax laws in Argentina and the other countries in which we operate; changes in the prices of key supplies; technological and operational hazards in Fortuna’s mining and mine development activities; risks inherent in mineral exploration; uncertainties inherent in the estimation of mineral reserves, mineral resources, and metal recoveries; changes to current estimates of mineral reserves and resources; changes to production and cost estimates; the ability of Minera Cuzcatlan to successfully contest and revoke the resolution of SEMARNAT which revoked the environmental impact authorization at the San Jose mine; changes in the position of regulatory authorities with respect to the granting of approvals or permits; governmental and other approvals; changes in government, political unrest or instability in countries where Fortuna is active; labor relations issues; as well as those factors discussed under “Risk Factors” in the Company's Annual Information Form. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in Forward-looking Statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended.

Fortuna | 14

Forward-looking Statements contained herein are based on the assumptions, beliefs, expectations and opinions of management, including but not limited to the accuracy of the Company’s current mineral resource and reserve estimates; that the Company’s activities will be conducted in accordance with the Company’s public statements and stated goals; that there will be no material adverse change affecting the Company, its properties or changes to production estimates (which assume accuracy of projected ore grade, mining rates, recovery timing, and recovery rate estimates and may be impacted by unscheduled maintenance, labour and contractor availability and other operating or technical difficulties); the construction at the Séguéla gold Project will continue on the time line and in accordance with the budget as planned; the duration and impacts of COVID-19; geo-political uncertainties that may affect the Company’s production, workforce, business, operations and financial condition; tthe expected trends in mineral prices and currency exchange rates; that the Company will be successful in mitigating the impact of inflation on its business and operations; that Minera Cuzcatlan will be successful in the legal proceedings to reinstate the environmental impact authorization at the San Jose mine; that all required approvals and permits will be obtained for the Company’s business and operations on acceptable terms; that there will be no significant disruptions affecting the Company's operations, the ability to meet current and future obligations and such other assumptions as set out herein. Forward-looking Statements are made as of the date hereof and the Company disclaims any obligation to update any Forward-looking Statements, whether as a result of new information, future events or results or otherwise, except as required by law. There can be no assurance that these Forward-looking Statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, investors should not place undue reliance on Forward-looking Statements.

Cautionary Note to United States Investors Concerning Estimates of Reserves and Resources

Reserve and resource estimates included in this news release have been prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy, and Petroleum Definition Standards on Mineral Resources and Mineral Reserves. NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for public disclosure by a Canadian company of scientific and technical information concerning mineral projects. Unless otherwise indicated, all mineral reserve and mineral resource estimates contained in the technical disclosure have been prepared in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards on Mineral Resources and Reserves. Canadian standards, including NI 43-101, differ significantly from the requirements of the Securities and Exchange Commission, and mineral reserve and resource information included in this news release may not be comparable to similar information disclosed by U.S. companies.

Fortuna | 15

3
	Fortuna Silver Mines Inc.
	(Registrant)

Date: March 16, 2023	By:	/s/ "Jorge Ganoza Durant"
		Jorge Ganoza Durant
		President and CEO


FORM 20-F ◻	FORM 40-F þ