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Fortuna Mining Corp 6-K, filed Nov 16, 2020

Fortuna Mining Corp. (FSM)

6-K 2020-11-16 For: 2020-11-13
View Original
Added on April 11, 2026

About this 6-K

Fortuna Mining Corp filed this 6-K on November 16, 2020.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUERPURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2020

Commission File Number 001-35297

Fortuna Silver Mines Inc.

(Translation of registrant’s name into English)

200 Burrard Street, Suite 650, Vancouver, British Columbia, Canada V6C 3L6

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

FORM 20-F ¨ FORM 40-F þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Fortuna Silver Mines Inc.
(Registrant)
Date:  November 13, 2020 By: /s/ "Jorge Ganoza Durant"
Jorge Ganoza Durant
President and CEO

Exhibits:

99.1 Interim Financial Statements for the period endedSeptember 30, 2020
99.2 Management’s Discussion and Analysis for theperiod ended September 30, 2020
99.3 CEO Certification
99.4 CFO Certification
99.5 News release dated November 12, 2020

Exhibit 99.1

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2020 AND 2019

(Presented in thousands of United States dollars, unless otherwise stated)

Fortuna Silver Mines Inc.

Condensed Interim Consolidated Income (Loss) Statements

(Unaudited - Presented in thousands of US dollars, except per share amounts)

Three months ended<br> September 30, Nine months ended<br> September 30,
2020 2019 2020 2019
Sales (note 23) $ 83,437 $ 61,305 $ 175,462 $ 188,204
Cost of sales (note 24) 41,386 44,634 112,170 127,068
Mine operating income 42,051 16,671 63,292 61,136
General and administration (note 25) 8,950 6,936 22,948 20,420
Exploration and evaluation 140 1,494 643 2,009
Share of loss from associates (note 11) 9 45 76 174
Foreign exchange loss (note 12) 3,564 8,446 7,456 11,909
Other expenses (note 26) 898 1,209 3,130 1,459
13,561 18,130 34,253 35,971
Operating income (loss) 28,490 (1,459 ) 29,039 25,165
Investment gains (note 12) - - 3,306 -
Interest and finance, costs net (note 27) (420 ) (60 ) (1,126 ) (24 )
Loss on derivatives - - - (1,223 )
(420 ) (60 ) 2,180 (1,247 )
Income (loss) before income taxes 28,070 (1,519 ) 31,219 23,918
Income taxes
Current income tax expense 15,540 5,890 25,504 24,403
Deferred income tax expense (recovery) (559 ) 301 2,779 (5,297 )
14,981 6,191 28,283 19,106
Net income (loss) for the period $ 13,089 $ (7,710 ) $ 2,936 $ 4,812
Earnings (loss) per share (note 22)
Basic $ 0.07 $ (0.05 ) $ 0.02 $ 0.03
Diluted $ 0.07 $ (0.05 ) $ 0.02 $ 0.03
Weighted average number of common shares outstanding (000's)
Basic 184,036 160,292 171,908 160,160
Diluted 195,887 160,292 182,996 161,847

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

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Fortuna Silver Mines Inc.

Condensed Interim Consolidated Statements of ComprehensiveIncome (Loss)

(Unaudited - Presented in thousands of US dollars)

Nine months ended<br> September 30,
2019 2020 2019
Net income (loss) for the period 13,089 $ (7,710 ) $ 2,936 $ 4,812
Items that will remain permanently in other comprehensive income:
Changes in fair value of investments in equity securities, net of nil tax (218 ) - (218 ) -
Items that may in the future be reclassified to profit or loss:
Changes in fair value of hedging instruments, net of nil tax 249 (64 ) (440 ) (856 )
Total other comprehensive income (loss) for the period 31 (64 ) (658 ) (856 )
Comprehensive income (loss) for the period 13,120 $ (7,774 ) $ 2,278 $ 3,956

All values are in US Dollars.

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

Page | 2

Fortuna Silver Mines Inc.

Condensed Interim Consolidated Statements of Financial Position

(Unaudited - Presented in thousands of US dollars)

September 30, December 31,
2020 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 85,176 $ 83,404
Trade and other receivables (note 5) 35,474 47,707
Inventories (note 6) 12,681 14,471
Other current assets (note 7) 5,885 5,495
Assets held for sale (note 8) 659 1,069
139,875 152,146
NON-CURRENT ASSETS
Mineral properties and exploration and evaluation assets (note 9) 377,680 353,519
Plant and equipment (note 10) 423,423 378,509
Investment in associates (note 11) - 1,331
Long-term receivables and other (note 12) 43,534 38,389
Deposits and advances to contractors (note 13) 3,306 12,171
Total assets $ 987,818 $ 936,065
LIABILITIES
CURRENT LIABILITIES
Trade and other payables (note 14) 51,795 65,286
Income taxes payable 15,186 12,400
Current portion of lease obligations (note 16) 7,813 8,831
Current portion of closure and reclamation provisions (note 19) 6,048 3,257
80,842 89,774
NON-CURRENT LIABILITIES
Debt (note 17) 133,099 146,535
Deferred tax liabilities 23,694 20,915
Closure and reclamation provisions (note 19) 28,949 27,868
Lease obligations (note 16) 13,086 15,048
Other liabilities (note 18) 1,389 499
Total liabilities 281,059 300,639
SHAREHOLDERS' EQUITY
Share capital (note 21) 492,306 422,145
Reserves 24,330 26,094
Retained earnings 190,123 187,187
Total shareholders' equity 706,759 635,426
Total liabilities and shareholders' equity $ 987,818 $ 936,065
/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.

Condensed Interim Consolidated Statements of Cashflows

(Unaudited - Presented in thousands of US dollars)

Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
OPERATING ACTIVITIES
Net income (loss) for the period $ 13,089 $ (7,710 ) $ 2,936 $ 4,812
Items not involving cash
Depletion and depreciation 11,041 12,129 31,623 34,358
Accretion expense 199 123 601 444
Income taxes 14,982 6,191 28,283 19,106
Interest expense, net 221 225 525 1,089
Share based payments expense, net of cash settlements 3,503 1,504 7,670 2,111
Share of loss from associates 9 45 76 174
Unrealized foreign exchange loss (gain) 218 (2,605 ) 479 (2,015 )
Unrealized foreign exchange loss, Lindero construction (note 12) 2,658 8,266 8,645 10,442
Investments gains - - (3,306 ) -
Unrealized loss on derivatives - - - 2,646
Write-downs and other (42 ) 1,837 227 893
45,878 20,005 77,759 74,060
Trade and other receivables (1,854 ) 2,718 10,692 (984 )
Prepaid expenses 768 619 (88 ) 2,311
Inventories 538 208 1,388 (917 )
Trade and other payables 6,263 1,610 (4,818 ) (3,182 )
Closure and rehabilitation payments (76 ) (87 ) (175 ) (278 )
Cash provided by operating activities 51,517 25,073 84,758 71,010
Income taxes paid (6,022 ) (7,007 ) (22,554 ) (27,012 )
Interest paid (65 ) (222 ) (370 ) (824 )
Interest received 30 320 282 2,136
Net cash provided by operating activities 45,460 18,164 62,116 45,310
INVESTING ACTIVITIES
Proceeds from short-term investments - - - 71,008
Additions to mineral properties, plant and equipment (5,723 ) (6,956 ) (14,448 ) (19,871 )
Expenditures on Lindero construction (27,821 ) (74,724 ) (81,967 ) (149,476 )
Capitalized interest on Lindero construction (2,277 ) (1,353 ) (7,346 ) (3,588 )
Contractor advances on Lindero construction and other expenditures (373 ) (2,659 ) (4,345 ) (20,721 )
Advances applied to Lindero construction and other expenditures 5,029 33,009 12,693 50,357
Purchases of marketable securities - - (7,269 ) -
Proceeds from sale of marketable securities - - 10,575 -
Proceeds from sale of assets 20 - 64 229
Additions to long-term receivables (5,282 ) (10,588 ) (14,356 ) (27,405 )
Cash used in investing activities (36,427 ) (63,271 ) (106,399 ) (99,467 )
FINANCING ACTIVITIES
Proceeds from credit facility (note 17(a)) - 40,000 40,000 40,000
Repayment of credit facility (note 17(a)) - - (55,000 ) -
Proceeds from issuance of common shares 1,011 - 70,011 -
Share issuance costs (233 ) - (3,356 ) -
Payments of lease obligations (1,103 ) (2,287 ) (5,235 ) (6,083 )
Cash (used in) provided by financing activities (325 ) 37,713 46,420 33,917
Effect of exchange rate changes on cash and cash equivalents (217 ) 2,351 (365 ) 1,914
Increase (decrease) in cash and cash equivalents during the period 8,491 (5,043 ) 1,772 (18,326 )
Cash and cash equivalents, beginning of the period 76,685 77,220 83,404 90,503
Cash and cash equivalents, end of the period $ 85,176 $ 72,177 $ 85,176 $ 72,177
Cash and cash equivalents consist of:
Cash $ 31,608 $ 27,441 $ 31,608 $ 27,441
Cash equivalents 53,568 44,736 53,568 44,736
Cash and cash equivalents, end of the period $ 85,176 $ 72,177 $ 85,176 $ 72,177

The accompanying notes are an integral part of these financial statements

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Fortuna Silver Mines Inc.

Condensed Interim Consolidated Statements of Changes inEquity

(Unaudited - Presented in thousands of US dollars, except for number of shares)

Share<br> capital Reserves
Number<br> of common shares Amount Equity<br><br> reserve Hedging<br><br> reserve Fair<br> value<br> reserve Equity<br> component of convertible debenture Foreign<br><br> Currency<br> reserve Retained<br><br> earnings Total equity
Balance at January 1, 2020 160,291,553 $ 422,145 $ 20,870 $ (674 ) $ (42 ) $ 4,825 $ 1,115 $ 187,187 $ 635,426
Total<br> comprehensive income for the period
Net income for the period - - - - - - - 2,936 2,936
Other<br> comprehensive loss for the period - - - (440 ) (218 ) - - - (658 )
Total<br> comprehensive income for the period - - - (440 ) (218 ) - - 2,936 2,278
Transactions<br> with owners of the Company
Issuance of common shares 23,000,000 69,000 - - - - - - 69,000
Share issuance costs - (3,358 ) - - - - - - (3,358 )
Exercise of stock options 211,626 1,438 (425 ) - - - - - 1,013
Shares issued on vesting of share units 692,548 3,081 (3,081 ) - - - - - -
Share-based<br> payments (note 20) - - 2,400 - - - - - 2,400
23,904,174 70,161 (1,106 ) - - - - - 69,055
Balance at September 30,<br> 2020 184,195,727 $ 492,306 $ 19,764 $ (1,114 ) $ (260 ) $ 4,825 $ 1,115 $ 190,123 $ 706,759
Balance at January 1, 2019 159,939,595 $ 420,467 $ 17,882 $ (9 ) $ (42 ) $ - $ 1,115 $ 163,391 $ 602,804
Total<br> comprehensive income for the period
Net income for the period - - - - - - - 4,812 4,812
Other<br> comprehensive loss for the period - - - (856 ) - - - - (856 )
Total<br> comprehensive income for the period - - - (856 ) - - - 4,812 3,956
Transactions<br> with owners of the Company
Shares issued on vesting of share units 351,958 1,678 (1,678 ) - - - - - -
Share-based payments (note<br> 20) - - 3,509 - - - - - 3,509
351,958 1,678 1,831 - - - - - 3,509
Balance at September 30,<br> 2019 160,291,553 $ 422,145 $ 19,713 $ (865 ) $ (42 ) $ - $ 1,115 $ 168,203 $ 610,269

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

Page | 5

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated FinancialStatements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

1.   Nature of Operations

Fortuna Silver Mines Inc. and its subsidiaries (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 Latin America, including exploration, extraction, and processing. The Company operates the Caylloma silver, lead, and zinc mine (“Caylloma”) in southern Peru, the San Jose silver and gold mine (“San Jose”) in southern Mexico, and is constructing an open pit gold heap leach mine at its Lindero property (the “Lindero Project”) in northern Argentina.

Its common shares are listed on the New York Stock Exchange under the trading symbol FSM, on the Toronto Stock Exchange under the trading symbol FVI, and on the Frankfurt Stock Exchange under the trading symbol F4S.F.

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

2.   COVID-19 Uncertainties and Liquidity Risk

COVID-19 Uncertainties

On March 11, 2020, the World Health Organisation declared COVID-19 as a pandemic.  In response to the pandemic, the Governments of Mexico, Peru and Argentina implemented measures to curb the spread of COVID-19, which included among others, the closure of international borders, temporary suspension of all non-essential business, including mining, and the declaration of mandatory quarantine periods.  To comply with these measures, the Company temporarily suspended mining operations at the San Jose and Caylloma mines and halted construction activities at the Lindero Project during the second quarter of 2020. The San Jose Mine was placed on care and maintenance for a total of 54 days, while processing activities continued to operate at the Caylloma Mine with a reduced task force drawing from its ore stockpile and mining subsequently restarted with a reduced taskforce. Mining and construction activities at the Lindero Project resumed with strict adherence to health and safety protocols established to mitigate the risk of spreading the COVID-19 virus.

On July 6, 2020, the Company voluntarily suspended operations at the Caylloma Mine for 21 days to sanitize and disinfect the mine. Mining and ore processing operations at the mine resumed on July 27, 2020. Each site is operating in accordance with local government containment measures and Company protocols.

The Company has not experienced any significant disruption to product shipments since the onset of the COVID-19 pandemic.  The Company also increased its supply of consumables inventory to avoid any supply chain disruption and is working to manage the logistical challenges presented by the closure of trade borders.  Border restrictions, if ongoing, could result in supply chain delays and the movement of our mine workforce and disrupt production of our saleable products.

On June 4, 2020, the Company completed an amendment to the financial covenants under the Amended Credit Facility in response to uncertainty related to COVID-19.  The total debt to EBITDA ratio has been removed and replaced with Net Debt to EBITDA, Net Senior Secured Debt to EBITDA, and EBITDA to Interest Expense ratios.  The Company was in compliance with the financial covenants as at September 30, 2020 (note 17 a)).

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages liquidity risk by the preparation of internally generated cash flow forecasts. These short-term cash flow forecasts consider the estimation of future operating costs, financing costs, development capital and cash receipts from sales revenue. Sensitivity analyses are also performed, including the impact of volatility in estimated commodity prices.

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Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated FinancialStatements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

As at September 30, 2020, the Company had $140,176 of liquidity comprised of cash and cash equivalents and amounts available for drawdown from the revolving credit facility.

The Company believes that its cash and cash equivalents and credit facility will provide sufficient liquidity to meet the Company’s minimum obligations for the next 12 months from September 30, 2020.

3.   Basis of Presentation

Statement of Compliance

These unaudited condensed interim consolidated financial statements (“interim financial statements”) were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34 Interim Financial Reporting. They do not include all the information required for full annual financial statements. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, which includes information necessary for understanding the Company’s business and financial presentation.

The same accounting policies and methods of computation are followed in these interim financial statements as compared with the most recent annual financial statements. None of the new standards, and amendments to standards and interpretations effective as of January 1, 2020, applied in preparing these interim financial statements had a significant effect.

The following accounting standard, interpretation or amendment has been issued and is effective on January 1, 2020:

In September 2019, the IASB issued first phase amendments IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Hedging and IFRS 7 Financial Instrument Disclosures to address the financial reporting impact of the reform on interest rate benchmarks, such as the discontinuance of the interbank offered rates. The first phase amendment is focused on the impact to hedge accounting requirements. The Company adopted the first phase amendment and there was no material impact on its consolidated financial statements. The Company will continue to assess the effect of amendments related to the interest rate benchmark reform on its consolidated financial statements.

The following standard, interpretation or amendment that has been issued but is not yet effective:

On May 14, 2020, the IASB published a narrow scope amendment to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use. The amendment prohibits deducting from the cost of property, plant and equipment amounts received from selling items produced while preparing the asset for its intended use. Instead, amounts received will be recognized as sales proceeds and related cost in profit or loss. The effective date is for annual periods beginning on or after January 1, 2022, with early adoption permissible. The Company is assessing the effect of the narrow scope amendment on its consolidated financial statements and the possibility of early adoption.

On November 10, 2020, the Company's Board of Directors approved these interim financial statements for issuance.

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Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated FinancialStatements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

Presentation and Functional Currency

These interim 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 interim financial statements have been rounded to the nearest thousand US dollars, unless otherwise stated.

Basis of Measurement

These interim financial statements have been prepared on a historical cost basis, except for those assets and liabilities that are measured at fair value (Note 29) at the end of each reporting period.

4.   Use of Estimates, Assumptions and Judgements

(a)    Critical Accounting Estimates and Assumptions

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

The impact of such estimates, assumptions and judgements are pervasive throughout the interim financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and are accounted for prospectively.

In preparing these interim financial statements for the three and nine months ended September 30, 2020, the Company applied the critical estimates, assumptions and judgements as disclosed in note 4 of its audited consolidated financial statements for the year ended December 31, 2019, in addition to what is noted below.

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 which is impacted by several factors, including the status of discussions with the tax authorities, and current interpretation of relevant tax legislation. Changes in these estimates can materially affect the amount recognized as VAT receivable and could result in an increase in other expenses recognized in the Condensed Interim Consolidated Income Statements and Comprehensive Income. Significant judgment is required to determine the presentation of current and non-current VAT receivable.

5.   Trade and Other Receivables

September 30, December 31,
2020 2019
Trade receivables from concentrate sales $ 23,370 $ 33,642
Advances and other receivables 1,991 2,419
Value added taxes recoverable 10,113 11,646
Accounts and other receivables $ 35,474 $ 47,707 
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Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated FinancialStatements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

The Company’s trade receivables from concentrate sales are expected to be collected in accordance with the terms of the existing concentrate sales contracts with its customers. No amounts were past due as at September 30, 2020 and December 31, 2019.

6.   Inventories

September 30, December 31,
2020 2019
Concentrate stockpiles $ 2,301 $ 2,640
Ore stockpiles 2,087 3,730
Materials and supplies 8,293 8,101
Inventories $ 12,681 $ 14,471

During the three and nine months ended September 30, 2020 the Company expensed $37,920 and $100,946 (three and nine months ended September 30, 2019 – $43,971 and $125,036) of inventories to cost of sales.

7.   Other Current Assets

September 30, December 31,
2020 2019
Income tax recoverable $ 1,852 $ 2,553
Prepaid expenses 2,876 2,942
Investments in equity securities (note 11) 1,157 -
Other current assets $ 5,885 $ 5,495

8.   Assets Held for Sale

As at September 30, 2020, changes to assets held for sale (“AHS”) are as follows:

Balance at December 31, 2018 $ 1,097
Disposals (28 )
Balance at December 31, 2019 1,069
Write-downs (410 )
Balance at September 30, 2020 $ 659 
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FortunaSilver Mines Inc.

Notesto Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)
9. Mineral Properties and Exploration and Evaluation Assets
Depletable Not depletable
--- --- --- --- --- --- --- --- --- --- ---
Caylloma San Jose Lindero Other Total
COST
Balance at December 31, 2019 $ 128,244 $ 184,333 $ 203,866 $ 7,933 $ 524,376
Additions 2,750 5,182 26,330 826 35,088
Changes in closure and reclamation provision 62 244 3,956 - 4,262
Transfers - 83 - - 83
Balance at September 30, 2020 $ 131,056 $ 189,842 $ 234,152 $ 8,759 $ 563,809
ACCUMULATED DEPLETION
Balance at December 31, 2019 $ 74,435 $ 96,422 $ - $ - $ 170,857
Depletion 4,982 10,290 - - 15,272
Balance at September 30, 2020 $ 79,417 $ 106,712 $ - $ - $ 186,129
Net Book Value at September 30, 2020 $ 51,639 $ 83,130 $ 234,152 $ 8,759 $ 377,680
Depletable Not depletable
--- --- --- --- --- --- --- --- --- --- --- --- ---
Caylloma San Jose Lindero Other Total
COST
Balance at December 31, 2018 $ 121,625 $ 175,609 $ 155,854 $ 7,797 $ 460,885
Additions 6,396 7,838 34,485 2,652 51,371
Changes in closure and reclamation provision 223 886 13,527 - 14,636
Disposals - - - (2,516 ) (2,516 )
Balance at December 31, 2019 $ 128,244 $ 184,333 $ 203,866 $ 7,933 $ 524,376
ACCUMULATED DEPLETION
Balance at December 31, 2018 $ 68,207 $ 79,878 $ - $ - $ 148,085
Depletion 6,228 16,544 - - 22,772
Balance at December 31, 2019 $ 74,435 $ 96,422 $ - $ - $ 170,857
Net Book Value at December 31, 2019 $ 53,809 $ 87,911 $ 203,866 $ 7,933 $ 353,519

During the three and nine months ended September 30, 2020 the Company capitalized $2,277 and $7,346 (three and nine months ended September 30, 2019 - $1,096 and $2,938) of interest related to the construction of the Lindero Project.

The assets of the Caylloma Mine and the San Jose Mine and their holding companies, are pledged as security under the Company’s credit facility.

Other consists of the following exploration and evaluation assets:

Mexico Argentina Serbia
Tlacolula Pachuca Arizaro Esperanza Incachule Barje Others Total
Balance at December 31, 2018 $ 3,298 $ - $ 934 $ 788 $ 766 $ 1,938 $ 73 $ 7,797
Additions 218 962 2 - - 1,318 152 2,652
Write-off - (962 ) - (788 ) (766 ) - - (2,516 )
Balance at December 31, 2019 3,516 - 936 - - 3,256 225 7,933
Additions 209 - - - - 122 495 826
Balance at September 30, 2020 $ 3,725 $ - $ 936 $ - $ - $ 3,378 $ 720 $ 8,759 
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FortunaSilver Mines Inc.

Notesto Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)
10. Plant and Equipment
Machinery<br> and<br> equipment Land, Buildings<br> and leasehold<br> improvements Furniture, other equipment and Transport<br> units Assets under lease Capital work in progress - Lindero Capital<br> work in<br> progress - Other Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
COST
Balance at December 31, 2019 $ 75,246 $ 159,732 $ 16,083 $ 35,671 $ 219,335 $ 6,424 $ 512,491
Additions 2,634 276 922 2,391 57,605 2,584 66,412
Changes in closure and reclamation 48 - - - - - 48
Disposals (513 ) - (24 ) (882 ) - - (1,419 )
Transfers 625 5,261 1,022 - (495 ) (6,496 ) (83 )
Balance at September 30, 2020 $ 78,040 $ 165,269 $ 18,003 $ 37,180 $ 276,445 $ 2,512 $ 577,449
ACCUMULATED DEPRECIATION
Balance at December 31, 2019 $ 42,214 $ 78,360 $ 7,402 $ 6,006 $ - $ - $ 133,982
Disposals (431 ) - (23 ) (408 ) - - (862 )
Depreciation 4,642 9,149 2,074 5,041 - - 20,906
Balance at September 30, 2020 $ 46,425 $ 87,509 $ 9,453 $ 10,639 $ - $ - $ 154,026
Net Book Value at September 30, 2020 $ 31,615 $ 77,760 $ 8,550 $ 26,541 $ 276,445 $ 2,512 $ 423,423
Machinery<br> and<br> equipment Land, Buildings<br> and leasehold<br> improvements Furniture, other equipment and transport units Assets under lease ^1^ Capital work in progress - Lindero Capital<br> work in<br> progress - Other Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
COST
Balance at December 31, 2018 $ 74,188 $ 141,318 $ 11,066 $ 13,411 $ 52,964 $ 6,140 $ 299,087
Initial adoption IFRS 16 - - - 7,316 - - 7,316
Balance at January 1, 2019 74,188 141,318 11,066 20,727 52,964 6,140 306,403
Additions 1,185 714 3,464 14,944 177,017 9,718 207,042
Changes in closure and reclamation 171 - - - - - 171
Disposals (1,038 ) - (87 ) - - - (1,125 )
Transfers 740 17,700 1,640 - (10,646 ) (9,434 ) -
Balance at December 31, 2019 $ 75,246 $ 159,732 $ 16,083 $ 35,671 $ 219,335 $ 6,424 $ 512,491
ACCUMULATED DEPRECIATION
Balance at December 31, 2018 $ 35,843 $ 65,547 $ 5,390 $ 107 $ - $ - $ 106,887
Disposals (746 ) - (79 ) - - - (825 )
Depreciation 7,117 12,813 2,091 5,899 - - 27,920
Balance at December 31, 2019 $ 42,214 $ 78,360 $ 7,402 $ 6,006 $ - $ - $ 133,982
Net Book Value at December 31, 2019 $ 33,032 $ 81,372 $ 8,681 $ 29,665 $ 219,335 $ 6,424 $ 378,509
(1) The<br> Company leases equipment that was previously classified as a finance lease under IAS<br> 17. On January 1, 2019, the Company adopted IFRS 16, Leases, and the equipment purchased<br> under finance leases were classified as right-of-use assets. The carrying amount of $13,411<br> and the related lease liability of $8,767 were determined based on the carrying amount<br> of these assets and their related lease liability immediately before the effective date<br> of IFRS 16.
--- --- 
Page | 11

FortunaSilver Mines Inc.

Notesto Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)
11. Investment in Associates

As at September 30, 2020, investments in associates were comprised of:

Medgold Prospero Total
Balance at December 31, 2018 $ 3,075 $ 1,202 $ 4,277
Write down of investment (1,937) (784) (2,721)
Share of net loss (164) (61) (225)
Balance at December 31, 2019 974 357 1,331
Share of net loss (47) (29) (76)
Transfer to investments in equity securities (927) (328) (1,255)
Balance at September 30, 2020 $ - $ - $ -

On July 16, 2020, Medgold Resources Corp. ("Medgold") completed a 40 million unit financing at C$0.05 per unit. This financing diluted the Company’s equity interest in Medgold to 15.6% which resulted in the company no longer exercising significant influence over Medgold and a change in the classification of its investment in Medgold to fair value though other comprehensive income as at July 16, 2020.

On July 1, 2020, the Company determined that it no longer exercises significant influence over Prospero Silver Corp. (“Prospero”) and changed the classification of its investment in Prospero to fair value through other comprehensive income.

Investments in equity securities are classified as fair value through other comprehensive income, and changes in the fair value of the shares were recorded in Other Comprehensive Income.

12. Long-Term Receivables and Other
September 30, December 31,
--- --- --- --- ---
2020 2019
Value added tax recoverable - Lindero ^(1)^ $ 37,510 $ 34,176
Value added tax recoverable - San Jose ^(2)^ 2,544 2,036
Income tax recoverable (note 31(d)) 1,206 1,310
Other assets 2,274 867
Long-term receivables and other $ 43,534 $ 38,389
(1) The<br> Company expects to start recovering the value added tax amount after the commencement<br> of commercial production at the Lindero Mine.
--- ---
(2) The<br> Company expects to start recovering the value added tax amount during 2022
--- ---

During the three and nine months ended September 30, 2020 the Company recognized an unrealized foreign exchange loss of $2,841 and $8,839 (three and nine months ended September 30, 2019 - $8,839 and $10,928 ) related to the value added tax recoverable on the construction at the Lindero Mine.

The Company implemented an investment strategy in the fourth quarter of 2019 to meet its local currency requirements in Argentina. During the three and nine months ended September 30, 2020, the Company recognized $nil and $3,306, respectively, of gains from Argentine Peso denominated cross-border securities trades.

13. Deposits and Advances to Contractors

As at September 30, 2020, the Company has advances outstanding of $3,306 (December 31, 2019 – $12,164) to contractors related to the construction of the Lindero Project.

Page | 12

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

During the three and nine months ended September 30, 2020 the Company paid deposits to contractors of $373 and $4,345, respectively, and deposits of $5,029 and $12,693, respectively, were applied against equipment delivered or services rendered. In addition, there was a balance of deposits of $509 transferred to accounts receivables.

14.   Trade and Other Payables

September 30, December 31,
2020 2019
Trade accounts payable $ 12,857 $ 15,975
Lindero construction payables 13,136 24,998
Refundable deposits to contractors 1,331 1,496
Payroll payable 10,229 13,627
Mining royalty payable 647 1,237
Value added taxes payable 1,039 224
Interest payable 1,141 1,457
Due to related parties (note 15) 5 14
Other payables 905 535
Derivative liability 1,338 894
Deferred share units payable (note 20(a)) 7,140 3,918
Restricted share units payable (note 20(b)) 2,027 911
Total trade and other payables $ 51,795 $ 65,286

15.   Related Party Transactions

In addition to the related party transactions and balances disclosed elsewhere in these interim financial statements, the Company entered into the following related party transactions during the three and nine months ended September 30, 2020 and 2019:

a)    Purchase of Goods and Services

During the three and nine months ended September 30, 2020 and 2019, the Company was charged 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 Chairman, is a director.

Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Personnel costs $ 5 $ 6 $ 15 $ 11
General and administrative expenses 11 33 127 146
$ 16 $ 39 $ 142 $ 157

As at September 30, 2020, the Company had outstanding balances payable to Gold Group Management Inc. of $5 (December 31, 2019 - $14). Amounts due to related parties are due on demand and are unsecured.

Page | 13

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

b)    Key Management Personnel

During the three and nine months ended September 30, 2020 and 2019, the Company was charged for consulting services by Mario Szotlender, a director of the Company, and by Mill Street Services Ltd., a company of which Simon Ridgway, the Company’s Chairman, is a director. Such amounts, along with other key management personnel compensation expense were as follows:

Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Salaries and benefits $ 815 $ 1,347 $ 2,397 $ 4,433
Directors fees 158 164 531 526
Consulting fees 34 45 100 101
Share-based payments 3,259 1,621 7,171 3,099
$ 4,266 $ 3,177 $ 10,199 $ 8,159

16.   Lease Obligations

Minimum lease payments
September 30, December 31,
2020 2019
Less than one year $ 8,326 $ 9,313
Between one and five years 10,700 13,521
More than five years 14,626 14,958
33,652 37,792
Less: future finance charges (12,753 ) (13,913 )
Present value of minimum lease payments 20,899 23,879
Less: current portion (7,813 ) (8,831 )
Non-current portion $ 13,086 $ 15,048

As at September 30, 2020, there were $17,395 of lease obligations related to mining equipment and $3,504 of other leases.

17.   Debt

The following table summarizes the changes in debt:

Credit Facility Debentures Total
Balance at December 31, 2018 $ 69,302 $ - $ 69,302
Proceeds from debentures - 46,000 46,000
Transaction costs paid - (2,490 ) (2,490 )
Portion allocated to equity - (7,141 ) (7,141 )
Transaction costs allocated to equity - 389 389
Amortization of discount 128 347 475
Drawdowns 40,000 - 40,000
Balance at December 31, 2019 109,430 37,105 146,535
Amortization of discount 296 1,268 1,564
Drawdowns 40,000 - 40,000
Payments (55,000 ) - (55,000 )
Balance at September 30, 2020 $ 94,726 $ 38,373 $ 133,099 
Page | 14

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

a) Credit Facility

The Company has two credit facilities (collectively, the “Credit Facilities”) comprising of a $40,000 non-revolving credit facility which matures on January 26, 2022 and a $110,000 revolving credit facility, of which any amount drawn in excess of $80,000 million matures on December 31, 2020 and the remaining $80,000 matures on January 26, 2022.

On June 4, 2020, the Company amended the financial covenants contained in Credit Facilities as follows:

· Total Net Debt to EBITDA ratio, as defined<br>in the Credit Facilities, of not greater than 4.50:1.00 for the remaining three quarters of 2020 and the first quarter of 2021,<br>reducing to 4.00:1.00 in the second quarter of 2021 and for the remainder of the term of the Credit Facility;
· Net Senior Secured Debt to EBITDA ratio,<br>as defined in the Credit Facilities, of not greater than 3:1 in the remaining three quarters of 2020 and the first quarter of 2021,<br>reducing to 2.00:1.00 in the second quarter of 2021 and for the remainder of the term of the Credit Facilities; and
--- ---
· EBITDA to Interest Expense ratio, as defined<br>in the Credit Facilities, of a minimum of 4.00:1.00 beginning in the second quarter of 2020 and for the remainder of the term of<br>the Credit Facilities.
--- ---

The interest rate on the Credit Facilities will continue to be based on a sliding scale at one-month LIBOR plus an applicable margin ranging from 2.5% to 3.5%, based on the Net Senior Secured Debt to EBITDA ratio, as defined in the Credit Facilities. The Credit Facilities are secured by a first ranking lien on the assets of Minera Bateas S.A.C. and Compania Minera Cuzcatlan S.A. de C.V. and their holding companies. The Company must comply with the terms in the Credit Facilities relating to, among other matters, reporting requirements, conduct of business, insurance, notices, and must comply with the new financial covenants as outlined above. As at September 30, 2020, the Company was in compliance with all of the covenants under the Credit Facilities.

During the nine months ended September 30, 2020, the Company drew $40,000 and subsequently paid $55,000 from the revolving credit facility. As at September 30, 2020, the Company has fully drawn the non-revolving credit facility and has available for drawdown $55,000 under the revolving credit facility.

Subsequent to September 30, 2020, the Company drew $10,000 from the revolving 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 $46,000 (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. 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 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.

Page | 15

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

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.

18.   Other Liabilities

September 30, December 31,
2020 2019
Restricted share units (note 20(b)) $ 1,177 $ 246
Other non-current liabilities 212 253
$ 1,389 $ 499

19.   Closure and Reclamation Provisions

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

Closure and Reclamation Provisions
Caylloma<br> Mine San Jose<br> Mine Lindero<br> Project Total
Balance at December 31, 2019 $ 11,324 $ 4,848 $ 14,953 $ 31,125
Changes in estimate 110 244 3,765 4,119
Reclamation expenditures (65 ) (111 ) - (176 )
Accretion 206 208 191 605
Effect of changes in foreign exchange rates - (676 ) - (676 )
Balance at September 30, 2020 11,575 4,513 18,909 34,997
Less:  Current portion 5,837 211 - 6,048
Non-current portion $ 5,738 $ 4,302 $ 18,909 $ 28,949
Closure and Reclamation Provisions
--- --- --- --- --- --- --- --- ---
Caylloma<br><br>Mine San Jose<br><br>Mine Lindero<br><br>Project Total
Balance at December 31, 2018 $ 10,800 $ 3,716 $ 1,427 $ 15,943
Changes in estimate 394 886 13,390 14,670
Reclamation expenditures (201 (150 - (351
Accretion 331 259 136 726
Effect of changes in foreign exchange rates - 137 - 137
Balance at December 31, 2019 11,324 4,848 14,953 31,125
Less:  Current portion 3,048 209 - 3,257
Non-current portion $ 8,276 $ 4,639 $ $14,953 $ 27,868

All values are in US Dollars.

Closure and reclamation provisions represent the present value of reclamation costs related to mine and development sites. There have been no significant changes in requirements, laws, regulations, operating assumptions, estimated timing and amount of reclamation and closure obligations during the three and nine months ended September 30, 2020 except for the Lindero Project, where the Company estimates reclamation and closure costs based on the progress of the mine construction.

Page | 16

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

Closure and Reclamation Provisions
Caylloma<br> Mine San Jose<br> Mine Lindero<br> Project Total
Anticipated settlement date 2022 - 2027 2025 - 2037 2029 - 2042
Undiscounted uninflated estimated cash flow $ 11,719 $ 4,514 $ 17,420 $ 33,653
Estimated life of mine (years) 10 6 14
Discount rate 2.42 % 5.80 % 1.23 %
Inflation rate 2.00 % 3.47 % 1.77 %

The Company is expecting to incur annual reclamation expenses throughout the life of its mines.

20. Share Based Payments

During the three and nine months ended September 30, 2020, the Company recognized share-based payment expense of $3,699 and $7,816 (three and nine months ended September 30, 2019 - $1,459 and $3,108, respectively) related to the amortization of deferred, restricted and performance share units.

For the three and nine months ended September 30, 2020, the Company recognized share-based payment expense of $nil and $56, respectively, (three and nine months ended September 30, 2019 – $83 and $459, respectively) related to amortization of stock options.

(a) Deferred Share Units (DSUs)
Cash Settled
--- --- --- --- ---
Number of DSUs Fair Value
Outstanding, December 31, 2018 850,067 $ 3,116
Granted 111,804 455
Changes in fair value - 347
Outstanding, December 31, 2019 961,871 3,918
Granted 162,648 383
Changes in fair value - 2,839
Outstanding, September 30, 2020 1,124,519 $ 7,140

On April 20, 2020, the Company granted 162,648 deferred share units to its non-executive directors with a fair value of $2.36 (C$3.32) for each DSU (year ended December 31, 2019 - 111,804 DSUs with a fair value of $4.83 (C$3.62) per DSU).

Page | 17

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

(b) Restricted Share Units (RSUs)
Cash Settled Equity Settled
--- --- --- --- --- --- --- --- --- ---
Number of RSUs Fair Value Number of RSUs
Outstanding, December 31, 2018 659,385 $ 2,057 734,631
Granted 139,661 506 633,914
Units paid out in cash (406,611 ) (1,466 ) -
Vested - - (201,633 )
Changes in fair value and vesting - 60 -
Outstanding, December 31, 2019 392,435 1,157 1,166,912
Grants 1,056,207 2,489 815,220
Units paid out in cash (80,483 ) (253 ) -
Vested - - (448,766 )
Changes in fair value and vesting - (189 ) -
Outstanding, September 30, 2020 1,368,159 3,204 1,533,366
Less: current portion (2,027 )
Non-current portion $ 1,177

On April 20, 2020, the Company granted to its employees and officers a total of 1,056,207 cash-settled and 815,220 equity-settled RSUs, which vest 20% on the first anniversary, 30% on the second anniversary and 50% on the third anniversary of the date of grant. The fair value on the grant date of the 815,220 equity settled RSUs was $2.36 (C$3.32) per RSU (year ended December 31, 2019- 633,914 with a fair value of $3.62 (C$4.83) per RSU).

(c) Performance Share Units
Equity Settled
--- --- --- ---
Number of PSUs
Outstanding, December 31, 2018 1,002,166
Granted 422,609
Vested (150,325 )
Outstanding, December 31, 2019 1,274,450
Forfeited or cancelled (191,498 )
Vested (243,782 )
Outstanding, September 30, 2020 839,170

During the three and nine months ended September 30, 2020, no PSUs were granted (year ended December 31, 2019 – 422,609 with a fair value of $3.62 (C$4.83) per share unit) to its employees and officers.

The PSUs granted during the year ended December 31, 2019 vest 20% on the first anniversary, 30% on the second anniversary and 50% on the third anniversary of the date of grant based on prescribed performance metrics, and are subject to a multiplier ranging from 50% to 200% depending on the achievement level of certain performance targets.

Page | 18

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

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 September 30, 2020, a total of 1,574,403 stock options are available for issuance under the plan.

Weighted average<br> exercise price
Number of stock options Canadian dollars
Outstanding, December 31, 2018 1,784,029 $ 5.85
Outstanding, December 31, 2019 1,784,029 5.85
Exercised (211,626 ) 6.28
Expired unexercised (517,833 ) 4.79
Outstanding, September 30, 2020 1,054,570 $ 6.28
Vested and exercisable, December 31, 2019 1,459,779 $ 5.77
Vested and exercisable, September 30, 2020 1,054,570 $ 6.28
21. Share Capital
--- ---
a) Authorized Share Capital
--- ---

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

b) Financing

On May 20, 2020, the Company closed a bought deal public equity offering and issued an aggregate of 23,000,000 Shares at a purchase price of $3.00 per share for gross proceeds of $69,000, which included the exercise, in full, of the over-allotment option. The Company incurred transaction costs of $3,358 related to this financing.

22. Earnings (Loss) per Share
Three months ended <br><br>September 30, Nine months ended<br><br> September 30,
--- --- --- --- --- --- --- --- --- ---
Basic 2020 2019 2020 2019
Net income (loss) for the period $ 13,089 $ (7,710 ) $ 2,936 $ 4,812
Weighted average number of shares (000's) 184,036 160,292 171,908 160,160
Earnings (loss) per share - basic $ 0.07 $ (0.05 ) $ 0.02 $ 0.03
Three months ended<br><br> September 30, Nine months ended<br><br> September 30,
--- --- --- --- --- --- --- --- --- ---
Diluted 2020 2019 2020 2019
Net income (loss) for the period $ 13,089 $ (7,710 ) $ 2,936 $ 4,812
Weighted average number of shares (000's) 184,036 160,292 171,908 160,160
Incremental shares from dilutive potential shares 11,851 - 11,088 1,687
Weighted average diluted number of shares (000's) 195,887 160,292 182,996 161,847
Earnings (loss) per share - diluted $ 0.07 $ (0.05 ) $ 0.02 $ 0.03 
Page | 19

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

For the three and nine months ended September 30 2020 – nil and 1,054,570 out of the money options were excluded from the diluted earnings per share calculation as their effect would have been anti-dilutive (three and nine months ended September 30, 2019 – 1,784,029). In addition, for the three and nine months ended September 30 2020, there were no share units and debentures excluded in the above calculation, respectively (three and nine months ended September 30, 2019 – 2,441,362 anti-dilutive share units and nil debentures, respectively excluded).

23. Sales

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

By-product and Geographical Area

Three<br> months ended September 30, 2020
Peru Mexico Total
Silver-gold concentrates $ - $ 64,293 $ 64,293
Silver-lead concentrates 11,917 - 11,917
Zinc concentrates 6,098 - 6,098
Provisional pricing adjustments 751 378 1,129
Sales to external customers $ 18,766 $ 64,671 $ 83,437
Three<br> months ended September 30, 2019
--- --- --- --- --- --- --- ---
Peru Mexico Total
Silver-gold concentrates $ - $ 43,252 $ 43,252
Silver-lead concentrates 10,008 - 10,008
Zinc concentrates 7,667 - 7,667
Provisional pricing adjustments (2 ) 380 378
Sales to external customers $ 17,673 $ 43,632 $ 61,305
Nine<br> months ended September 30, 2020
--- --- --- --- --- --- ---
Peru Mexico Total
Silver-gold concentrates $ - $ 130,313 $ 130,313
Silver-lead concentrates 28,626 - 28,626
Zinc concentrates 16,235 - 16,235
Provisional pricing adjustments 76 212 288
Sales to external customers $ 44,937 $ 130,525 $ 175,462
Nine<br> months ended September 30, 2019
--- --- --- --- --- --- --- --- --- ---
Peru Mexico Total
Silver-gold concentrates $ - $ 134,268 $ 134,268
Silver-lead concentrates 29,385 - 29,385
Zinc concentrates 25,435 - 25,435
Provisional pricing adjustments (537 ) (347 ) (884 )
Sales to external customers $ 54,283 $ 133,921 $ 188,204 
Page | 20

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

Three months ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Customer 1 $ 64,670 $ 43,632 $ 130,524 $ 133,921
Customer 2 18,767 17,673 44,938 54,338
Customer 3 - - - (55 )
$ 83,437 $ 61,305 $ 175,462 $ 188,204

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 sales of a 10% change in metal prices from the prices used at September 30, 2020:

Metal Change Effect on Sales
Silver +/-10 % $ 3,761
Gold +/-10 % $ 1,988
Lead +/-10 % $ 140
Zinc +/-10 % $ 164

During the three and nine months ended September 30, 2020, the Company recognized positive sales adjustments of $1,129 and $288, respectively (three and nine months ended September 30, 2019 – positive $378 and negative $884, respectively) as a result of changes in metal prices on final settlement or during the quotational period.

24. Cost of Sales
Three months ended Nine months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
September 30, 2020 September 30, 2020
Caylloma San Jose Total Caylloma San Jose Total
Direct mining costs $ 7,190 $ 15,713 $ 22,903 $ 22,528 $ 40,925 $ 63,453
Salaries and benefits 1,382 1,793 3,175 5,057 4,751 9,808
Workers' participation 391 2,970 3,361 411 5,059 5,470
Depletion and depreciation 2,778 7,859 10,637 10,496 19,677 30,173
Royalties 71 1,239 1,310 390 2,878 3,268
Impairment (recovery) of inventories - - - - (2 ) (2 )
$ 11,812 $ 29,574 $ 41,386 $ 38,882 $ 73,288 $ 112,170
Three months ended Nine months ended
--- --- --- --- --- --- --- --- --- --- --- --- ---
September 30, 2019 September 30, 2019
Caylloma San Jose Total Caylloma San Jose Total
Direct mining costs $ 9,873 $ 17,068 $ 26,941 $ 26,826 $ 49,317 $ 76,143
Salaries and benefits 1,831 1,898 3,729 5,550 5,565 11,115
Workers' participation 113 1,256 1,369 576 3,514 4,090
Depletion and depreciation 3,505 8,188 11,693 9,853 23,195 33,048
Royalties 42 860 902 131 2,541 2,672
$ 15,364 $ 29,270 $ 44,634 $ 42,936 $ 84,132 $ 127,068

For the three and nine months ended September 30, 2020 depletion and depreciation includes $613 and $1,682 (three and nine months ended September 30, 2019 - $585 and $1,682) of depreciation relating to right-of-use assets.

Page | 21

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

25. General and Administration
Three months ended Nine months ended
--- --- --- --- --- --- --- --- ---
September 30, September 30,
2020 2019 2020 2019
General and administration $ 4,441 $ 5,056 $ 13,732 $ 15,859
Workers' participation 810 338 1,344 994
5,251 5,394 15,076 16,853
Share-based payments 3,699 1,542 7,872 3,567
$ 8,950 $ 6,936 $ 22,948 $ 20,420
26. Other Expenses
--- ---
Three months ended Nine months ended
--- --- --- --- --- --- --- --- --- --- --- ---
September 30, September 30,
2020 2019 2020 2019
Write-down (recovery) of investment in associates $ (422 ) $ 533 $ (194 ) $ 533
Write-off of mineral properties - 767 - 767
Loss on disposal of assets and write-down of AHS 410 8 429 2
Other expenses (income) (64 ) (99 ) (181 ) 157
Care and maintenance costs related to COVID-19 974 - 3,076 -
$ 898 $ 1,209 $ 3,130 $ 1,459
27. Interest and Finance Costs Net
--- ---
Three months ended Nine months ended
--- --- --- --- --- --- --- --- --- --- --- --- ---
September 30, September 30,
2020 2019 2020 2019
Interest income $ 30 $ 288 $ 282 $ 1,509
Interest expense (124 ) (128 ) (528 ) (744 )
Bank stand-by and commitment fees (127 ) (97 ) (279 ) (345 )
Accretion expense (199 ) (123 ) (601 ) (444 )
$ (420 ) $ (60 ) $ (1,126 ) $ (24 )
28. Segmented Information
--- ---

The following summary describes the operations of each reportable segment:

· Minera Bateas S.A.C. (“Bateas”)<br> – operates the Caylloma silver, lead and zinc mine
· Compania Minera Cuzcatlan S.A. de C.V. (“Cuzcatlan”)<br> – operates the San Jose silver-gold mine
--- ---
· Mansfield Minera S.A. (“Mansfield”) – construction<br>of the Lindero mine
--- ---
· Corporate – corporate stewardship
--- --- 
Page | 22

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated FinancialStatements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

Three months ended September 30, 2020
Corporate Bateas Cuzcatlan Mansfield Total
Revenues from external customers $ - $ 18,766 $ 64,671 $ - $ 83,437
Cost of sales before depreciation and depletion - (9,034 ) (21,715 ) - (30,749 )
Depreciation and depletion in cost of sales - (2,778 ) (7,859 ) - (10,637 )
General, and administration (6,082 ) (761 ) (2,107 ) - (8,950 )
Other income (expenses) 400 (959 ) (1,300 ) (2,752 ) (4,611 )
Finance items (241 ) (111 ) (68 ) - (420 )
Segment (loss) profit  before taxes (5,923 ) 5,123 31,622 (2,752 ) 28,070
Income taxes (587 ) (1,301 ) (13,093 ) - (14,981 )
Segment (loss) profit after taxes $ (6,510 ) $ 3,822 $ 18,529 $ (2,752 ) $ 13,089
Three months ended September 30, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Corporate Bateas Cuzcatlan Mansfield Total
Revenues from external customers $ - $ 17,673 $ 43,632 $ - $ 61,305
Cost of sales before depreciation and depletion - (11,859 ) (21,082 ) - (32,941 )
Depreciation and depletion in cost of sales - (3,505 ) (8,188 ) - (11,693 )
General and administration (4,059 ) (974 ) (1,903 ) - (6,936 )
Other income (expenses) (1,668 ) (63 ) (134 ) (9,329 ) (11,194 )
Finance items (83 ) (69 ) 92 - (60 )
Segment (loss) profit  before taxes (5,810 ) 1,203 12,417 (9,329 ) (1,519 )
Income taxes (413 ) (1,039 ) (4,739 ) - (6,191 )
Segment (loss) profit after taxes $ (6,223 ) $ 164 $ 7,678 $ (9,329 ) $ (7,710 )
Nine months ended September 30, 2020
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Corporate Bateas Cuzcatlan Mansfield Total
Revenues from external customers $ - $ 44,937 $ 130,525 $ - $ 175,462
Cost of sales before depreciation and depletion - (28,386 ) (53,611 ) - (81,997 )
Depreciation and depletion in cost of sales - (10,496 ) (19,677 ) - (30,173 )
General and administration (14,875 ) (2,579 ) (5,494 ) - (22,948 )
Other income (expenses) 47 (1,176 ) (1,268 ) (8,908 ) (11,305 )
Finance items (731 ) (317 ) (78 ) 3,306 2,180
Segment (loss) profit  before taxes (15,559 ) 1,983 50,397 (5,602 ) 31,219
Income taxes (3,108 ) (1,893 ) (23,282 ) - (28,283 )
Segment (loss) profit after taxes $ (18,667 ) $ 90 $ 27,115 $ (5,602 ) $ 2,936
Nine months ended September 30, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Corporate Bateas Cuzcatlan Mansfield Total
Revenues from external customers $ - $ 54,283 $ 133,921 $ - $ 188,204
Cost of sales before depreciation and depletion - (33,083 ) (60,937 ) - (94,020 )
Depreciation and depletion in cost of sales - (9,853 ) (23,195 ) - (33,048 )
General and administration (12,032 ) (2,953 ) (5,435 ) - (20,420 )
Other income (expenses) (1,968 ) (607 ) (1,311 ) (11,665 ) (15,551 )
Finance items (117 ) (1,466 ) 336 - (1,247 )
Segment (loss) profit  before taxes (14,117 ) 6,321 43,379 (11,665 ) 23,918
Income taxes (2,230 ) (2,611 ) (15,394 ) 1,129 (19,106 )
Segment (loss) profit after taxes $ (16,347 ) $ 3,710 $ 27,985 $ (10,536 ) $ 4,812 
Page | 23

Fortuna Silver MinesInc.

Notes to CondensedInterim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

September 30, 2020
Corporate Bateas Cuzcatlan Mansfield Total
Total assets $ 21,506 $ 114,302 $ 252,952 $ 599,058 $ 987,818
Total liabilities $ 154,908 $ 36,639 $ 41,381 $ 48,131 $ 281,059
Capital expenditures $ 122 $ 4,456 $ 9,408 $ 79,829 $ 93,815
December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Corporate Bateas Cuzcatlan Mansfield Total
Total assets $ 60,134 $ 116,501 $ 252,100 $ 507,330 $ 936,065
Total liabilities $ 162,210 $ 36,747 $ 42,264 $ 59,418 $ 300,639
Capital expenditures $ 1,333 $ 11,845 $ 14,046 $ 211,413 $ 238,637
29. 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.

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 Level 2 and Level 3 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. We mark these 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 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 debenture and has been determined with reference to the quoted market price of the convertible debentures.

During the three and nine months ended September 30, 2020 and 2019, 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 | 24

Fortuna Silver Mines Inc.

Notes to Condensed Interim Consolidated FinancialStatements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited - Presented in thousands of US dollars – unless otherwise noted)

Carrying<br> value Fair<br> value
September 30,<br> 2020 Fair<br> Value<br><br> through OCI Fair value<br><br> through<br> profit or loss Amortized<br><br> cost Total Level<br> 1 Level<br> 2 Level<br> 3 Carrying value<br><br> approximates<br> Fair Value
Financial<br> assets measured at Fair Value
Investments<br> in equity securities $ 1,157 $ - $ - $ 1,157 $ 1,157 $ - $ - $ -
Trade<br> receivables concentrate sales - $ 23,370 - 23,370 - 23,370 - -
$ 1,157 $ 23,370 $ - $ 24,527 $ 1,157 $ 23,370 $ - $ -
Financial<br> assets not measured at Fair Value
Cash<br> and cash equivalents $ - $ - $ 85,176 $ 85,176 $ - $ - $ - $ 85,176
Other<br> receivables - - 1,991 1,991 - - - 1,991
$ - $ - $ 87,167 $ 87,167 $ - $ - $ - $ 87,167
Financial<br> liabilities measured at Fair Value
Interest<br> rate swap liability $ (1,338 ) $ - $ - $ (1,338 ) $ - $ (1,338 ) $ - $ -
$ (1,338 ) $ - $ - $ (1,338 ) $ - $ (1,338 ) $ - $ -
Financial<br> liabilities not measured at Fair Value
Trade<br> payables $ - $ - $ (23,579 ) $ (23,579 ) $ - $ - $ - $ (23,579 )
Payroll<br> payable - - (12,147 ) (12,147 ) - - - (12,147 )
Bank<br> loan payable - - (94,726 ) (94,726 ) - (95,000 ) - -
Debentures - - (38,373 ) (38,373 ) - (66,033 ) - -
Other<br> payables - - (20,668 ) (20,668 ) - - - (20,668 )
$ - $ - $ (189,493 ) $ (189,493 ) $ - $ (161,033 ) $ - $ (56,394 ) 
Page | 25

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)
Carrying<br> value Fair<br> value
December 31,<br> 2019 Fair<br> Value<br><br> through OCI Fair value<br><br> through<br> profit or loss Amortized<br><br> cost Total Level<br> 1 Level<br> 2 Level<br> 3 Carrying value<br><br> approximates<br> Fair Value
Financial<br> assets measured at Fair Value
Trade<br> receivables concentrate sales $ - $ 33,642 $ - $ 33,642 $ 33,642 $ - $ -
$ - $ 33,642 $ - $ 33,642 $ 33,642 $ - $ -
Financial<br> assets not measured at Fair Value
Cash<br> and cash equivalents $ - $ - $ 83,404 $ 83,404 $ - $ - $ 83,404
Other<br> receivables - - 2,419 2,419 - - 2,419
$ - $ - $ 85,823 $ 85,823 $ - $ - $ 85,823
Financial<br> liabilities measured at Fair Value
Interest<br> rate swap liability $ (894 ) $ - $ - $ (894 ) $ (894 ) $ - $ -
$ (894 ) $ - $ - $ (894 ) $ (894 ) $ - $ -
Financial<br> liabilities not measured at Fair Value
Trade<br> payables $ - $ - $ (37,357 ) $ (37,357 ) $ - $ - $ (37,357 )
Payroll<br> payable - - (15,801 ) (15,801 ) - - (15,801 )
Bank<br> loan payable - - (109,430 ) (109,430 ) (110,000 ) - -
Debentures - - (37,105 ) (37,105 ) (38,858 ) - -
Other<br> payables - - (22,403 ) (22,403 ) - - (22,403 )
$ - $ - $ (222,096 ) $ (222,096 ) $ (148,858 ) $ - $ (75,561 )

All values are in US Dollars.

Page | 26

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

30.   Supplemental Cashflow Information

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

Bank Loan Debenture Lease<br> obligations Interest rate swaps
As at December 31, 2018 $ 69,302 $ - $ 16,082 $ 224
Additions 40,000 46,000 14,944 -
Interest 128 347 1,848 -
Payments - - (9,048 ) -
Transaction costs - (2,101 ) - -
Equity component - (7,141 ) - -
Foreign exchange - - 53 -
Changes in fair value - - - 670
As at December 31, 2019 109,430 37,105 23,879 894
Additions 40,000 - 2,354 -
Terminations - - (475 ) -
Interest 296 1,268 1,449 563
Payments (55,000 ) - (6,254 ) (559 )
Foreign exchange - - (54 ) -
Changes in fair value - - 440
As at September 30, 2020 $ 94,726 $ 38,373 $ 20,899 $ 1,338
31. Contingencies and Capital Commitments
--- ---

(a)    Caylloma Letter of Guarantee

The Caylloma Mine closure plan was updated in December 2018, with total undiscounted closure costs of $11,719 consisting of progressive closure activities of $3,774, final closure activities of $7,156, and post-closure activities of $789. Pursuant to the closure regulations, the Company is required to provide a guarantee of $9,704 to the Peruvian Government for 2020.

In January 2020, the Company established a security bond in the amount of $1,310 and a bank letter of guarantee in the amount of $8,394, in compliance with local regulation and to collateralize Bateas’ mine closure plan. The security bond and the letter of guarantee expire on January 29, 2021.

(b)    San Jose Letter of Guarantee

The Company has established three letters of guarantee in the aggregate amount of $1,188 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 2019 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, June 15, 2022, and May 13, 2021, respectively.

Page | 27

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

(c)    Other Commitments

As at September 30, 2020, the Company had capital commitments of $2,204, $53, and $2,526 for civil work, equipment purchases and other services at the Lindero Project and the Caylloma and San Jose Mines, respectively, which are expected to be expended within one year.

(d)    Tax Contingencies

Peru

The Company has been assessed $1,206 (4,343 Peruvian Soles), including interest and penalties of $668 (2,405 Peruvian Soles), for the tax year 2010 by SUNAT, the Peruvian tax authority, with respect to the deduction of certain losses arising from derivative instruments. The Company 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 September 30, 2020, the Company has recorded the amount paid of $1,206 (4,343 Peruvian Soles) in long-term receivables and other, as the Company believes it is probable that the appeal will be successful (note 12).

(e)    SGM Royalty

In  2017 the Mexican Geological Service (“SGM”) advised the Company that  a  previous owner of  one of  the Company’s mineral concessions located at the San Jose Mine in Oaxaca, Mexico had granted the SGM a royalty of 3% of the billing value of minerals obtained from the concession. The Company, supported by legal opinions from three independent law firms, has previously advised the Mexican mining authorities that it is of the view that no royalty is payable, and in 2018 initiated administrative and legal proceedings (the “Administrative Proceedings”) in the Mexican Federal Administrative Court (“FAC”) against the Dirección General de Minas (“DGM”) to remove reference to the royalty on the title register. The proceedings are progressing in accordance with the procedures of the FAC.

In January 2020, the Company received notice from the DGM seeking to cancel the mining concession if the royalty, in the Mexican peso equivalent of $30,000 plus VAT (being the amount of the claimed royalty from 2011 to 2019), was not paid before March 15, 2020. In February 2020, the Company initiated legal proceedings (the “Amparo Proceedings”) against the DGM in the Juzgado Séptimo de Distrito en Materia Administrativa en la Ciudad de México (“District Court”) to contest the cancellation procedure and also to stay the cancellation process. The District Court in Mexico City admitted the Company’s legal proceedings on March 2, 2020 and granted a permanent stay of execution, which protects the Company from the cancellation of the concession until a resolution by the District Court is reached on the legality of the cancellation procedure. The final hearing of the Amparo Proceedings took place on October 2, 2020, there are no further steps to be taken by the Company until the District Court issues its decision. The timing of a decision by the District Court at first instance in this action against the DGM is uncertain and may take several months. In the event that the Company is unsuccessful in these proceedings, it may appeal. If ultimately the Company does not prevail, it may be required to pay the disputed royalty in order to preserve the mining concession. If the Company is required to pay the royalty, it will do so from available capital resources.

Page | 28

FortunaSilver Mines Inc.

Notes toCondensed Interim Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(Unaudited

  • Presented in thousands of US dollars – unless otherwise noted)

The Company has determined that it is more likely than not that it will succeed in these proceedings; therefore, no provision has been recorded as at September 30, 2020 and December 31, 2019.

(f)    Other Contingencies

The Company is subject to various investigations, royalties 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 interim 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.

Page | 29

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

As of November 10, 2020

(Monetary amounts are expressed in US dollars, unless otherwise indicated)

Table of Contents

Page
Business of the Company 3
Third Quarter Financial, Corporate and Operating Highlights 4
Lindero Mine 7
2020 Guidance and Outlook 8
Financial Results 9
Results of Operations 13
Quarterly Information 16
Liquidity and Capital Resources 18
Financial Instruments 20
Related Party Transactions 20
Amendments to Accounting Standards That Have Been Issued 21
Risks and Uncertainties 21
Critical Accounting Estimates, Assumptions, and Judgements 28
Share Position & Outstanding Options & Equity Based Share Units 32
Controls and Procedures 33
Non-GAAP Financial Measures 33
Cautionary Statement on Forward-Looking Statements 40
Cautionary Note to United States Investors Concerning Estimates of Reserves and Resources 43

FortunaSilver Mines Inc.

Business of the Company

Fortuna Silver Mines Inc. (“Fortuna” or the “Company”) is engaged in precious and base metal mining and related activities in Latin America, including exploration, extraction, and processing. The Company:

· operates the Caylloma silver, lead and zinc mine (“Caylloma”) in southern Peru,
· operates the San Jose silver and gold mine (“San Jose”) in southern Mexico, and
--- ---
· construction of an 18,750 tpd open pit gold heap leach mine (“Lindero Mine”)<br>in northern Argentina is substantially complete.

The Company only processes ore extracted from its own mining concessions and does not purchase ore or mineral concentrates from third parties either for processing, refining, or trading.

Fortuna is a publicly traded company incorporated and domiciled in British Columbia, Canada. Its common shares are listed on the New York Stock Exchange under the trading symbol FSM, on the Toronto Stock Exchange under the trading symbol FVI, and on the Frankfurt Stock Exchange under the trading symbol F4S.F.

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

The consolidated financial statements include wholly-owned subsidiaries of the Company; the most significant of which at September 30, 2020 are presented in the following table:

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

This Management’s Discussion and Analysis (“MD&A”) is intended to help readers understand the significant factors that affect the performance of Fortuna and its subsidiaries, and those that may affect future performance. This MD&A has been prepared as of November 10, 2020 and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, and the related notes contained therein, and the unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 and the related notes contained therein. All amounts in this MD&A are expressed in United States dollars, unless otherwise indicated. Certain amounts shown in tables within this MD&A may not add exactly to the totals due to rounding.

The Company prepares its annual financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB").

In this MD&A, we refer to various Non-GAAP Financial Measures. These measures are used by us to manage and evaluate the operating performance of our mines and their ability to generate cash flows and these measures are widely reported in the mining industry as benchmarks for performance. Refer to the discussion under the heading “Non-GAAP Financial Measures”.

Additional information about the Company, including our Annual Information Form, is available on SEDAR at www.sedar.com.

This document contains forward-lookingstatements. Refer to the cautionary language under the heading “Cautionary Statement on Forward-Looking Statements.”

Management's Discussion and Analysis, page 3

FortunaSilver Mines Inc.

Third Quarter Financial, Corporate and Operating Highlights

Sales were $83.4 million, an increase of 36% from the $61.3 million reported in the same quarter in 2019 (“Q3 2019”).

Mine operating income was $42.1 million, an increase of 152% from the $16.7 million reported in Q3 2019.

Operating income was $28.5 million compared to a $1.5 million operating loss reported in Q3 2019.

Net income was $13.1 million or $0.07 per share compared to a net loss of $7.7 million or $0.05 per share reported in Q3 2019.

Adjusted net income (refer to Non-GAAP Financial Measures) was $16.1 million compared to $1.9 million in Q3 2019.

Adjusted EBITDA (refer to Non-GAAP Financial Measures) was $42.2 million compared to $19.2 million reported in Q3 2019.

Free cash flow from ongoing operations (refer to Non-GAAP Financial Measures) was $30.1 million compared to $10.6 million reported in Q3 2019.

Corporate Highlights

On October 20, 2020, the Company reported its first pour of gold at its Lindero Mine of 728 ounces as the project ramps up towards commercial production in the first quarter of 2021.

On September 3, 2020, the Company announced the start of irrigation and leaching of 277,000 tonnes of ore averaging 0.87 g/t gold containing an estimated 7,750 ounces of gold which have been placed on the heap leach pad at the Lindero Mine.

On July 28, 2020, production activities resumed at the Caylloma Mine following a 21-day voluntary suspension of operations to, among other things, sanitize and disinfect the mine and make infrastructure improvements to accommodate social distance guidelines. As a result of the shutdown, approximately $0.9 million has been recorded as care and maintenance costs.

On July 16, 2020, the Company reported the successful completion of commissioning of the primary and secondary crushing circuits and the start of stacking ore on the heap leach pad at the Lindero Mine.

COVID-19

The COVID-19 pandemic continues to impact economies around the world and our operations. In response to the pandemic, the Governments of Mexico, Peru and Argentina implemented measures to curb the spread of COVID-19, which include among others, the closure of international borders, temporary suspension of all non-essential activities, and the declaration of mandatory quarantine periods. Certain of these measures have either been eliminated or relaxed during the third quarter.

The Company is managing the necessary country-by-country restrictions in order to assist in the protection of those most vulnerable. At the Company’s mine sites, health protocols are in place for control, isolation and quarantine, as necessary, and these continue to be reviewed and adjusted accordingly based on the circumstances at each location. The Company’s focus is the health and safety of the workforce and on measures to prevent and manage the transmission of COVID-19 amongst the workforce and the communities in which the Company operates.

Management's Discussion and Analysis, page 4

FortunaSilver Mines Inc.

The safety and health of our employees, contractors and the local communities where we operate are of the greatest importance to the Company. The Company established a Health, Safety, Security, and Environmental Committee to coordinate our company-wide response measures to curb the spread of COVID-19. These measures include, but are not limited to, travel restrictions, employees working from home, whenever possible, and other preventative measures at our operations. Preventative measures at our sites include, but are not limited to, social distancing, enhanced cleaning and disinfecting protocols, elimination of group meetings, reducing occupancy on crew buses, health checks and testing for COVID-19 before travelling to and on arrival at the mine site, regular testing once on site, taking temperatures before and after shifts, frequent hand washing, and requiring workers with symptoms to not come to work. In the event any of our employees are tested positive for COVID-19, this will be handled in accordance with our health and safety protocols and all actions will be coordinated with the health authorities. Our strict health protocols and sanitary vigilance related to COVID-19 remain in place as a “new normal” way of working.

As at the date of this MD&A, the number of COVID-19 cases and deaths in the countries where our mines operate continues to either ascend or remain at an elevated level. Until the number of cases and death rate start to flatten and decline, there is no certainty that the governments may not mandate another round of extreme measures, including the suspension of business activities, which could include mining.

Outbreaks of COVID-19 in areas where we operate, further restrictive directives of government and public health authorities, delays in our supply chain, and impediments to market logistics, and further suspensions of operations or construction at the Company’s mines remain a significant risk to our business and operations. As the situation with respect to the COVID-19 pandemic is dynamic, the Company is unable to determine the impact of COVID-19 on its production and cost guidance for 2020, and on April 2, 2020, the Company withdrew its production and cost guidance until further notice. The full extent and impact of COVID-19 on the Company’s operations depends upon future developments to combat COVID-19 which cannot be predicted. However, the Company continues to assess the situation as the pandemic evolves.

Operating Highlights

Nine months ended
September 30,
Consolidated Metrics 2019 % Change 2020 2019 % Change
Key Indicators
Silver
Metal<br> produced (oz) 2,127,746 1,937,293 10% 5,220,980 6,557,848 (20)%
Metal<br> sold (oz) 2,102,221 1,931,182 9% 5,208,579 6,576,724 (21)%
Realized price (/oz) 24.88 17.31 44% 19.94 15.82 26%
Gold
Metal<br> produced (oz) 12,791 11,436 12% 29,991 38,246 (22)%
Metal<br> sold (oz) 12,693 11,382 12% 30,078 38,217 (21)%
Realized price (/oz) 1,925 1,487 29% 1,760 1,365 29%
Lead
Metal<br> produced (000's lbs) 6,702 7,157 (6)% 21,201 21,305 (0)%
Metal<br> sold (000's lbs) 6,884 7,069 (3)% 21,196 21,410 (1)%
Zinc
Metal<br> produced (000's lbs) 10,313 11,518 (10)% 33,110 33,986 (3)%
Metal<br> sold (000's lbs) 10,628 11,615 (8)% 32,999 33,807 (2)%

All values are in US Dollars.

Silver and gold production for the three months ended September 30, 2020 increased 10% and 12% to 2,127,746 ounces and 12,791 ounces, respectively, over the same period in 2019. At San Jose, silver and gold production increased 12% and 4%, respectively, to 1,917,540 ounces and 11,425 ounces, respectively, over the same period in 2019 due primarily to 16% and 9% higher silver and gold head grades. The 21 day shutdown of the Caylloma Mine in July resulted in a 20% decrease in the total tonnes milled to 107,002 tonnes compared to 134,338 tonnes for the same period in 2019. As a result, production of silver, lead and zinc decreased 8%, 6% and 10%, respectively, to 210,206 ounces of silver, 6.7 million pounds of lead, and 10.3 million pounds of zinc over the same period in 2019. Head grades for silver, lead and zinc were 16%, 18%, and 13% higher than the same period in 2019.

Management's Discussion and Analysis, page 5

FortunaSilver Mines Inc.

Selected Financial Information

Nine months ended
September 30,
Consolidated Financial Metrics 2019 % Change 2020 2019 % Change
(Expressed in millions except per share information)
Sales 83.4 61.3 36% 175.5 188.2 (7)%
Mine operating income 42.1 16.7 152% 63.3 61.1 4%
Operating income (loss) 28.5 (1.5 ) 2,000% 29.0 25.2 15%
Net income (loss) 13.1 (7.7 ) 270% 2.9 4.8 (40)%
Earnings (loss) per share - basic 0.07 (0.05 ) 240% 0.02 0.03 (33)%
Adjusted net income1 16.1 1.9 747% 8.9 17.5 (49)%
Adjusted EBITDA1 42.2 19.2 120% 67.8 70.2 (3)%
Net cash provided by operating activities 45.5 18.2 150% 62.1 45.3 37%
Free cash flow from ongoing operations1 30.1 10.6 184% 44.5 28.2 58%
Capex
Sustaining 4.9 4.0 23% 10.6 13.7 (23)%
Non-sustaining - 0.8 (100)% 0.2 1.7 (88)%
Lindero 9.9 68.5 (86)% 36.2 161.5 (78)%
Brownfields 1.0 1.0 0% 2.9 3.9 (26)%

All values are in US Dollars.

Sept 30, 2020 Dec 31, 2019 % Change
Cash and cash equivalents 85.2 83.4 2%
Total assets 987.8 936.1 6%
Debt 133.1 146.5 (9)%
Shareholders' equity 706.8 635.4 11%

Notes:

^1^ Refer to Non-GAAP financial measures.

Sales for the three months ended September 30, 2020 were $83.4 million, a 36% increase from the $61.3 million reported in the same period in 2019 as the prices for silver and gold were 44% and 29% higher than in the same period in 2019, along with increased volume of silver and gold ounces sold at the San Jose Mine, which was partially offset by lower volume of metals sold from the Caylloma Mine as operations were impacted by the 21-day shutdown in July.

Operating income for the three months ended September 30, 2020 was $28.5 million, a $29.9 million increase from the $1.5 million operating loss reported in the same period in 2019. Higher precious metal prices as well as higher volume of silver and gold ounces sold from the San Jose Mine were the primary factors for the increased operating income. Other factors increasing operating income were lower foreign exchange losses related to fluctuations in the Argentine Peso, and lower exploration and evaluation costs, which were partially offset by higher share-based payment expense. The Company’s share price performance directly impacts the value of the cash-settled share awards.

Net income for the three months ended September 30, 2020 was $13.1 million, a $20.8 million increase over the $7.7 million net loss reported in the same period in 2019. The increase in net income was due to the factors explained above and was partially offset by higher income tax expense, including the impact of foreign exchange rate fluctuation on income tax expense.

Management's Discussion and Analysis, page 6

Fortuna Silver Mines Inc.

Adjusted net income (refer to Non-GAAP Financial Measures) for the three months ended September 30, 2020 was $16.1 million compared to $1.9 million reported in the same period in 2019. The increase in adjusted net income was due primarily to higher sales as a result of increases in the precious metal prices and higher sales volume, which were partially offset by higher income tax expense. The adjusted net income also reflects the adding back of $2.7 million of foreign exchange loss related to the construction of the Lindero Mine compared to the adding back of $8.6 million for the same period in 2019.

Adjusted EBITDA (refer to Non-GAAP Financial Measures) for the three months ended September 30, 2020 was $42.2 million compared to $19.2 million reported in the same period in 2019. The increase in the adjusted EBITDA was attributable to higher mine operating income as silver and gold prices were 44% and 29% higher than in the same period in 2019, and lower foreign exchange losses.

Free cash flow from ongoing operations (refer to Non-GAAP Financial Measures) for the three months ended September 30, 2020 was $30.1 million compared to $10.6 million in the same period in 2019. The increase in free cash flow from ongoing operations was driven by strong operating performance and higher precious metal prices which increased the cash provided by operating activities by $27.3 million.

As at September 30, 2020, the Company had cash and cash equivalents of $85.2 million (December 31, 2019 – $83.4 million), an increase of $1.2 million since the beginning of the year. During the nine months ended September 30, 2020, the Company generated $62.1 million from operations, completed an equity financing for gross proceeds of $69.0 million and drew $40.0 million from and repaid $55.0 million of the revolving credit facility, and received $1.0 million in proceeds from the exercise of stock options. Uses of cash include $77.7 million of construction, pre-production expenditures, borrowing costs, and value added taxes for the Lindero Mine. Spending on mineral properties, plant and equipment totaled $14.4 million.

Lindero Mine

Construction at the Lindero open pit heap leach gold mine located in Salta Province, Argentina is substantially complete as at September 30, 2020. On October 20, 2020, the Company announced the first gold pour of 728 ounces (refer to Fortuna news release dated October 20, 2020) as the mine ramps up towards commercial production in the first quarter of 2021.

The following table summarizes the spending on construction and pre-production costs for the nine months ended September 30, 2020 at the Lindero Mine:

Cumulative to Nine months ended
(Expressed in $ millions) December 31, 2019 September 30, 2020 Total
Construction capital expenditures 268.2 36.2 304.4
Contractor advances and deposits on equipment, net of transfers 10.5 (7.2 ) 3.3
Total construction spending 278.7 29.0 307.7
Preproduction costs 8.0 23.3 31.3
Spare parts, supplies and materials inventory 6.2 11.7 17.9
Other costs ^1^ 4.5 1.2 5.7
Total Lindero Mine costs 297.4 65.2 362.6

Note 1: Consists of Argentina financial transaction taxes, deposits, and other costs

There were $15.2 million of construction trade payables outstanding as at the end of the third quarter.

During the third quarter of 2020, a total of 675,000 tonnes of ore have been placed on the leach pad averaging 0.83 g/t gold, containing an estimated 17,980 ounces of gold (refer to Fortuna news release dated October 14, 2020). Average gold head grade of ore placed on the leach pad is below budget of 1.00 g/t to 1.10 g/t (refer to Fortuna news release dated May 8, 2020). The lower average head grade is due to COVID-19 related restrictions which delayed the start of mining activities and limited the access to high-grade ore from the pit and resulted in the shortfall being sourced from the medium grade stockpile.

Management's Discussion and Analysis, page 7

Fortuna Silver Mines Inc.

From the commencement of mining operations in September 2019 (refer to Fortuna news release dated September 13, 2019) to the end of the third quarter 2020, a total of 2.3 million tonnes of mineralized material averaging 0.61 g/t Au, containing 45,700 ounces of gold has been extracted from the pit. Of this amount, 1.6 million tonnes averaging 0.52 g/t Au, containing an estimated 27,500 ounces of gold has been stockpiled, with the remaining 682,000 tonnes averaging 0.83 g/t Au, containing 18,200 ounces sent to the crushers. (refer to Fortuna news release dated October 14, 2020).

Management confirms the reconciliation of the material movements from the pit for the third quarter of 2020 as satisfactory and indicates a good correlation between the grade control model versus the Mineral Reserve block model with differences of less than five percent for tonnes, grade and ounces (refer to Fortuna news release October 14, 2020).

Management has updated the production forecast for Lindero in 2020 and estimates between 13,000 to 15,000 ounces of gold doré will be produced (refer to Fortuna news release dated May 8, 2020). The new forecast considers the following operational issues which were encountered during commissioning and ramp-up activities:

· Despite placing 93% of planned gold ounces on the leach-pad as at the end of October, the adoption<br>of an advance stacking sequence limited the Company’s ability to implement an early irrigation strategy as per the original<br>plan. This issue will be resolved in mid-November when the conveyor stacking system is commissioned, and a retreat stacking sequence<br>is implemented which will accelerate the irrigation process.
· Additional time has been allocated to the commissioning and ramp-up schedule of the HPGR-Agglomeration-Stacking<br>system during November and December due to the challenges and limitations of completing these activities under COVID-19 related<br>restrictions. This will result in a reduction of contained gold ounces placed on the leach-pad for the two months from 38,000 ounces<br>to 24,000 ounces.
--- ---
· The shortfall of gold ounces placed on the leach pad in November and December along with the<br>placement of a greater quantity of coarser crushed material due to the extended commissioning of the HPGR has a compound effect<br>on reducing gold doré production.
--- ---

2020 Guidance

Due to the COVID-19 pandemic, the government mandated constraints on businesses in the countries that host our operations, the uncertainties related to these constraints and the number of COVID-19 cases in the countries where we operate, the Company is unable to determine the impacts on its production and cost guidance for 2020. Therefore, the Company has withdrawn its production and cost guidance for 2020 until further notice. The Company continues to assess the situation as the pandemic evolves.

Outlook

Although our mining operations have resumed production, the full extent and impact of COVID-19 on the Company’s operations cannot currently be ascertained, as it depends upon future developments which cannot be predicted, and includes among other matters: the duration of outbreaks, the severity of the virus and the ability to treat it, the ability to collect sufficient data to track the virus and the collective actions taken to curb the spread of the virus, directives of government and public health authorities, the speed at which the Company’s suppliers and logistics providers can return to full operation, the status of labour availability, and the impact of supplier prioritization of clearing backlogs.

The impacts of the COVID-19 crisis that may have an effect on the Company include: a further decrease in short-term and/or long-term demand and/or pricing for the metals that we produce; reductions in production levels; further increased costs resulting from our efforts to mitigate the impact of COVID-19; deterioration of worldwide credit and financial markets that could limit our ability to obtain external financing to fund our operations and capital expenditures, result in losses on our holdings of cash and investments due to failures of financial institutions and other parties, and result in a higher rate of losses on our accounts receivable due to credit defaults; disruptions to our supply chain; impairments and/or write-downs of assets; and adverse impacts on our information technology systems and our internal control systems as a result of the need to increase remote work arrangements. A material adverse effect on our employees, customers, suppliers and/or logistics providers could have a material adverse effect on us.

The Company expects that its financial results for 2020 will be negatively impacted by continued COVID-19-related disruptions. The overall severity and duration of COVID-19-related adverse impacts on the Company’s business will depend on future developments which cannot be predicted. Even after the COVID-19 outbreak has subsided, the Company may continue to experience material adverse impacts to its business as a result of the global economic impact, including any related recession, as well as lingering impacts on demand for our products.

The main focus for the remainder of 2020 is to successfully transition the Lindero Mine from construction to commercial production which is scheduled for the first quarter of 2021.

Management's Discussion and Analysis, page 8

Fortuna Silver Mines Inc.

Financial Results

Sales

Nine months ended
September 30,
2019 % Change 2020 2019 % Change
Provisional sales ( million)
Caylloma 17.9 17.7 1% 44.9 54.8 (18)%
San Jose 64.3 43.3 48% 130.3 134.3 (3)%
Adjustments ( million)1 1.2 0.3 300% 0.3 (0.9 ) 133%
Sales ( million) 83.4 61.3 36% 175.5 188.2 (7)%
Silver
Metal produced (oz) 2,127,746 1,937,293 10% 5,220,980 6,557,848 (20)%
Provisional sales (oz) 2,102,221 1,931,182 9% 5,208,579 6,576,724 (21)%
Provisional sales ( million) 48.6 31.0 57% 95.9 96.2 (0)%
Realized price (/oz)2 24.88 17.31 44% 19.94 15.82 26%
Net realized price (/oz)3 23.14 16.04 44% 18.40 14.63 26%
Gold
Metal produced (oz) 12,791 11,436 12% 29,991 38,246 (22)%
Provisional sales (oz) 12,693 11,382 12% 30,078 38,217 (21)%
Provisional sales ( million) 22.7 16.3 39% 49.4 49.3 0%
Realized price (/oz)2 1,925 1,487 29% 1,760 1,365 29%
Net realized price (/oz)3 1,788 1,428 25% 1,642 1,289 27%
Lead
Metal produced (000's lbs) 6,702 7,157 (6)% 21,201 21,305 (0)%
Provisional sales (000's lbs) 6,884 7,069 (3)% 21,196 21,410 (1)%
Provisional sales ( million) 4.9 6.0 (18)% 13.7 18.2 (25)%
Realized price (/lb)2 0.86 0.92 (7)% 0.82 0.90 (9)%
Net realized price (/lb)3 0.71 0.85 (17)% 0.65 0.85 (24)%
Zinc
Metal produced (000's lbs) 10,313 11,518 (10)% 33,110 33,986 (3)%
Provisional sales (000's lbs) 10,628 11,615 (8)% 32,999 33,807 (2)%
Provisional sales ( million) 6.1 7.7 (21)% 16.2 25.4 (36)%
Realized price (/lb)2 1.07 1.06 1% 0.98 1.18 (17)%
Net realized price (/lb)3 0.57 0.66 (13)% 0.49 0.75 (35)%

All values are in US Dollars.

Notes:

^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

Sales for the three months ended September 30, 2020 were $83.4 million, a 36% increase from the $61.3 million reported in the same period in 2019.

Sales for the three months ended September 30, 2020, net of adjustments, at San Jose were $64.6 million, a 48% increase from the $43.6 million reported in the same period in 2019. The higher sales were driven by a 44% and 29% increase in the prices of silver and gold as well as higher volume of silver and gold ounces sold. Sales for the three months ended September 30, 2020, net of adjustments, at Caylloma were $18.8 million, a 6% increase from the $17.7 million reported in the same period in 2019. The higher sales were due primarily to the higher silver price and the contribution of gold in the quarter which offset the impact of lost production from a 21-day shutdown of the mine in early July and higher treatment charges of $1.6 million.

Management's Discussion and Analysis, page 9

Fortuna Silver Mines Inc.

Sales for the nine months ended September 30, 2020 were $175.5 million, or $12.7 million lower than the $188.2 million reported in the same period in 2019. In spite of higher silver and gold prices of 44% and 29%, respectively, sales were impacted by a shutdown of the San Jose Mine for 54 days related to the COVID-19 pandemic and a shutdown of the Caylloma Mine for 21 days to, among other things, sanitize and disinfect the mine and make infrastructure improvements to accommodate social distance guidelines, and higher treatment charges.

Operating Income (Loss) and Adjusted EBITDA

Three months ended Nine months ended
September 30, September 30,
(Expressed in $ millions) 2020 %^1^ 2019 %^1^ 2020 %^1^ 2019 %^1^
Operating income (loss)
San Jose 31.7 49 % 12.3 28% 50.5 39 % 43.0 32%
Caylloma 5.2 28 % 1.3 7% 2.3 5 % 7.8 14%
Corporate (8.4 ) (15.1 ) (23.8 ) (25.6 )
Total 28.5 34 % (1.5 ) (2)% 29.0 17 % 25.2 13%
Adjusted EBITDA^2^
San Jose 40.8 63 % 20.5 47% 72.4 55 % 66.2 49%
Caylloma 7.6 40 % 4.1 23% 10.8 24 % 17.7 33%
Corporate (6.2 ) (5.4 ) (15.4 ) (13.7 )
Total 42.2 51 % 19.2 31% 67.8 39 % 70.2 37%

Notes:

^1^ As a Percentage of Sales

^2^ Refer to Non-GAAP Financial Measures

^3^Figures may not add due to rounding

Operatingincome for the three months ended September 30, 2020 was $28.5 million, an increase of $30.0 million from a $1.5 million operating loss reported in the same period in 2019. The operating loss in 2019 was impacted by an $8.3 million foreign exchange loss related to the local currency denominated value added taxes receivable from the construction of the Lindero Mine. The increase in operating income was driven by higher precious metal prices and the higher volume of silver and gold ounces sold despite a 21-day shutdown that lowered sales volume at the Caylloma Mine. Other factors increasing operating income were lower cash production costs, lower exploration and evaluation costs of $1.4 million, partially offset by higher share-based payment expense by $2.2 million. The Company’s increased share price performance during this quarter directly impacts the value of the cash-settled share awards.

At San Jose, operating income for the three months ended September 30, 2020 was $31.7 million, an increase of $19.4 million from the $12.3 million reported in the same period in 2019. The increase was due primarily to a combination of higher silver and gold prices, higher volume of silver and gold ounces sold, and lower cash production costs. At Caylloma, operating income increased $3.9 million over 2019 due to higher sales and lower production costs. The higher sales were driven by higher silver prices and the contribution of gold production in the quarter which offset lost production due to the shutdown of the mine for 21 days to sanitize and disinfect the mine. The costs incurred during the shutdown of the mine totaled $0.9 million and are reported as care and maintenance costs, a component of other expenses on the income statement.

Management's Discussion and Analysis, page 10

Fortuna Silver Mines Inc.

Operating income for the nine months ended September 30, 2020 was $29.0 million, an increase of $3.8 million from the $25.2 million reported in the same period in 2019. The increase was due primarily to higher silver and gold prices, which were 26% and 29% higher than in the same period in 2019, partially offset by lower sales volume as a result of a government mandated suspension of operations at the San Jose Mine for 54 days to contain the spread of the COVID-19 virus in the second quarter and a 21-day shutdown at Caylloma in July. The costs incurred during the shutdown of the two mines totaled $2.9 million and is reported as care and maintenance costs, which is a component of other expenses on the income statement. Other factors contributing to the increase in operating income were lower exploration and evaluation costs by $1.4 million, lower foreign exchange losses by $4.5 million and $3.3 million of investment gains from cross-border Argentine Pesos denominated securities trades. Offsetting these factors, share-based payment expense increased $4.3 million over 2019 due to the increase in the Company’s share price performance that directly impacts the value of the cash-settled share awards.

General and Administrative (“G&A”) Expenses

Three months ended Nine months ended
September 30, September 30,
(Expressed in $ millions) 2020 2019 % Change 2020 2019 % Change
Mine G&A 2.0 2.6 (23)% 6.7 7.4 (9)%
Corporate G&A 2.5 2.5 0% 7.0 8.4 (17)%
Share-based payments 3.7 1.5 147% 7.9 3.6 119%
Workers' participation 0.8 0.3 167% 1.3 1.0 30%
Total 9.0 6.9 30% 22.9 20.4 12%

Generaland administrative expenses for the three months ended September 30, 2020 increased 29% to $9.0 million compared to $6.9 million reported in the same period in 2019 due to a $2.1 million increase in share-based payment expense and higher workers participation expense. The Company’s share price increased 25% during the quarter which directly impacts the value of cash-settled share units. Mine and corporate G&A costs decreased $0.6 million due to lower personnel and other corporate administration costs as a result of cost reduction initiatives implemented to address the impact the COVID-19 pandemic had on our operations in the second quarter.

Generaland administrative expenses for the nine months ended September 30, 2020 increased 12% to $22.9 million compared to $20.4 million in the same period in 2019 due to the same reasons explained above. Share-based payment expense increased $4.3 million, which was driven by the impact of a 56% increase in the Company’s share price on cash-settled share units, partially offset by a $2.1 million decrease in mine and corporate personnel and administration costs.

Foreign Exchange Loss

Foreignexchange loss for the three months ended September 30, 2020 decreased $4.9 million to $3.6 million compared to $8.4 million reported in the same period in 2019. The loss is mainly related to the devaluation of the Argentine Peso against the U.S. dollar and its impact on Argentine Pesos denominated value added taxes receivable accumulated from the construction of the Lindero Mine. The decrease in foreign exchange loss was due primarily to an 8% quarter-over-quarter decline in the Argentine Peso compared to a 36% quarter-over-quarter decline in the same period in 2019 following the Argentina president’s defeat in the primary election in August 2019.

Foreignexchange loss for the nine months ended September 30, 2020 decreased $4.5 million to $7.5 million compared to $11.9 million reported in the same period in 2019. The depreciation of the Argentine Peso during for the nine months ended September 30, 2020 was less than in the same period in 2019 which impacted the value added receivable accumulated from the construction of the Lindero Mine.

Income Tax Expense

Incometax expense for the three months ended September 30, 2020 was $15.0 million or $8.8 million higher than the $6.2 million reported in the same period in 2019. The increase was due primarily to the strong operating performance at the San Jose Mine, where the higher silver and gold prices and higher sales volume, collectively, increased pre-tax income by $19.3 million and increased income tax expense by $8.4 million over the same period in 2019. The overall effective tax rate for the quarter was 53%, which reflects a negative impact of approximately 7 percentage points from the devaluation of the Mexican Peso and Peruvian Soles and their impact on the translation to U.S. dollars of local currency denominated mining assets.

Management's Discussion and Analysis, page 11

Fortuna Silver Mines Inc.

Incometax expense for the nine months ended September 30, 2020 was $28.3 million or $9.2 million higher than the $19.1 million reported in the same period in 2019. The effective tax rate for the nine months ended September 30, 2020 was 91% compared to 80% in the same period in 2019. Factors that contributed to a high effective tax rate were withholding taxes (+10%), the impact of foreign exchange fluctuations (+52%) on the translation of local currency denominated mining assets, and tax benefits not recognized (+13%), which was partially offset by benefits from higher inflation adjustments for tax purposes (-25%) on local currency denominated mining assets.

The Company is subject to tax in various jurisdictions, including Peru, Mexico, Argentina and Canada. There are a number of factors that can significantly impact the Company’s effective tax rate 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 effective tax rate and the sensitivity of the tax provision to these factors, the effective tax rate will fluctuate, sometimes significantly. This trend is expected to continue in future periods.

Management's Discussion and Analysis, page 12

Fortuna Silver Mines Inc.

Results of Operations

San Jose Mine Operating Results

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:

Nine months ended
September 30,
2019 2020 2019
Mine Production
Tonnes milled 255,226 267,998 662,203 795,656
Average tonnes milled per day 2,934 3,046 2,518 3,025
Silver
Grade (g/t) 254 219 232 253
Recovery (%) 92 91 92 91
Production (oz) 1,917,540 1,709,125 4,516,790 5,865,843
Metal sold (oz) 1,884,940 1,706,678 4,503,736 5,880,888
Realized price (/oz) 24.87 17.33 20.04 15.81
Gold
Grade (g/t) 1.52 1.40 1.42 1.60
Recovery (%) 92 91 91 90
Production (oz) 11,425 10,942 27,709 36,886
Metal sold (oz) 11,317 10,886 27,797 36,861
Realized price (/oz) 1,921 1,487 1,752 1,365
Unit Costs
Production cash cost (/t)2 67.62 70.53 68.53 69.40
Production cash cost (/oz Ag Eq)1,2 6.97 7.67 7.17 6.71
Net smelter return (/t) 255.64 161.83 196.93 168.67
All-in sustaining cash cost (/oz Ag Eq)1,2 12.00 10.77 11.32 9.6
Capital expenditures (000's)
Sustaining 3,774 2,026 6,518 6,232
Brownfields 1,017 776 2,517 3,428

All values are in US Dollars.

Notes:
^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-GAAP Financial Measures.  Refer to Non-GAAP Financial Measures. 
Management's Discussion and Analysis, page 13

Fortuna Silver Mines Inc.

Quarterly Results

The San Jose Mine produced 1,917,540 ounces of silver and 11,425 ounces of gold during the third quarter of 2020, which represents a 12% and 4% increase over the comparable quarter in 2019. The increase was due primarily to higher silver and gold head grades of 16% and 9%, respectively.

Cash cost per tonne for the three months ended September 30, 2020 decreased 4% to $67.62 per tonne (refer to Non-GAAP Financial Measures) compared to $70.53 per tonne in the same period in 2019. The decrease in cash cost per tonne was due mainly to lower mining preparation costs compared to the same period in 2019. Mine preparation for the three months ended September 30, 2020 is in line with plan.

All-in sustaining cash cost per ounce of payable silver equivalent was $12.0 for the quarter compared to $10.77 for the comparable period in 2019, due mainly to higher royalties and worker participation expenses related to higher sales and profits.

Management's Discussion and Analysis, page 14

Fortuna Silver Mines Inc.

Caylloma Mine Operating Results

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, lead and zinc production and unit costs:

Nine months ended
September 30,
2019 2020 2019
Mine Production
Tonnes milled 107,002 134,338 373,915 398,037
Average tonnes milled per day 1,189 1,493 1,530 1,496
Silver
Grade (g/t) 74 64 70 65
Recovery (%) 83 82 83 83
Production (oz) 210,206 228,168 704,190 692,005
Metal sold (oz) 217,281 224,504 704,843 695,836
Realized price (/oz) 24.96 17.12 19.27 15.84
Lead
Grade (%) 3.15 2.68 2.94 2.67
Recovery (%) 90 90 87 91
Production (000's lbs) 6,702 7,157 21,201 21,305
Metal sold (000's lbs) 6,884 7,069 21,196 21,410
Realized price (/lb) 0.86 0.92 0.82 0.90
Zinc
Grade (%) 4.93 4.35 4.58 4.31
Recovery (%) 89 89 88 90
Production (000's lbs) 10,313 11,518 33,110 33,986
Metal sold (000's lbs) 10,628 11,615 32,999 33,807
Realized price (/lb) 1.07 1.06 0.98 1.18
Unit Costs
Production cash cost (/t)2 82.55 93.03 79.20 86.25
Production cash cost (/oz Ag Eq)1,2 15.28 12.78 14.28 10.69
Net smelter return (/t) 162.82 132.06 119.79 137.71
All-in sustaining cash cost (/oz Ag Eq)1,2 19.37 15.78 17.15 13.97
Capital expenditures (000's)
Sustaining 1,213 1,926 4,042 7,953
Brownfields 65 181 415 486

All values are in US Dollars.

Notes:

^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-GAAP Financial Measures.  Refer to Non-GAAP Financial Measures.

Management's Discussion and Analysis, page 15

Fortuna Silver Mines Inc.

Quarterly Results

The Caylloma Mine produced 6.7 million pounds of lead and 10.3 million pounds of zinc during the third quarter of 2020, which were 6% lower and 10% lower than the 7.2 million pounds of lead and 11.5 million pounds of zinc produced in the same period in 2019. The lower production was due to lost production from a 21-day shutdown of the mine in early July to, among other things, sanitize and disinfect the mine and make infrastructure improvements to accommodate social distance guidelines. Lead and zinc head grades were 18% and 13% higher than in the same period in 2019. Silver production for the third quarter totaled 210,206 ounces with an average head grade of 74 g/t compared to the 228,168 ounces produced with an average head grade of 64 g/t in the same period in 2019. Caylloma produced 1,376 ounces of gold in the third quarter with an average head grade of 0.60 g/t.

Cash cost per tonne of processed ore for the three months ended September 30, 2020 was $82.55 (refer to Non-GAAP Financial Measures), which was 11% lower than the $93.03 cash cost per tonne in the same period in 2019. The lower cash cost per tonne was due to lower mine preparation costs as a result of cost cutting efforts taken to reduce the impact of the COVID-19 pandemic. Costs incurred during the shutdown were reported as care and maintenance costs, which is a component of other expenses in the income statement.

All-in sustaining cash cost per ounce of payable silver equivalent was $19.37 for the quarter compared to $15.78 for the comparable period in 2019, due to the impact of the 21-day voluntary suspension at the mine site in July.

Quarterly Information

The following table provides information for the last eight fiscal quarters up to September 30, 2020:

Expressed in millions, except per share amounts
Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018
Sales 44.5 47.5 69.0 61.3 67.9 59.0 59.6
Mine operating income 13.8 7.5 23.4 16.7 23.0 21.5 17.3
Operating income (loss) (1.3 ) 1.8 9.0 (1.5 ) 15.7 10.9 6.3
Net income (loss) (5.7 ) (4.5 ) 19.0 (7.7 ) 10.3 2.2 2.2
Basic earnings (loss) per share (0.03 ) (0.03 ) 0.12 (0.05 ) 0.07 0.01 0.01
Diluted earnings (loss) per share (0.03 ) (0.03 ) 0.12 (0.05 ) 0.07 0.01 0.01
Total assets 959.4 957.7 936.1 871.5 823.3 796.7 786.5
Debt 132.6 187.1 146.5 109.4 69.4 69.3 69.3

All values are in US Dollars.

Sales increased 87% in the third quarter to $83.4 million compared to $44.5 million in the second quarter of 2020 due to increases in the prices of silver and gold and the resumption of operations at the San Jose Mine after a 54-day shutdown of the mine in the second quarter. Mine operating income more than tripled to $42.1 million despite a 21-day shutdown of the Caylloma mine in July. The costs incurred during the shutdown totaled $0.9 million and are reported as care and maintenance costs. Income tax expense also increased $8.8 million over the second quarter to $15.0 million due primarily to higher pre-tax profit from the San Jose Mine, which impacted net income for the period.

Sales decreased 6% in the second quarter of 2020 to $44.5 million compared to $47.5 million in the first quarter of 2020. The primary reason for the decrease was the 54-day government mandated shutdown of the San Jose Mine as part of the Mexican Government’s response to curb the spread of COVID-19 which severely curtailed silver and gold production by 34% and 31% despite higher silver and gold prices. The net loss included $2.0 million of care and maintenance costs incurred during the 54-day shutdown and higher share-based payment expense, which were partially offset by $2.2 million of investment gains from cross-border bond trades.

Management's Discussion and Analysis, page 16

Fortuna Silver Mines Inc.

Sales decreased 31% in the first quarter of 2020 to $47.5 million compared to $69.0 million in the fourth quarter of 2019. The decrease in sales was due primarily to the beginning of the COVID-19 pandemic in mid-March which severely impacted metal prices and combined with a planned change in mine sequencing at the San Jose Mine, caused lower grade material to be mined. This reduction in production resulted in a decrease in the volume of silver and gold ounces sold of 14% and 17%, respectively, and mine operating income decreased $15.9 million quarter-over-quarter. Partially offsetting the lower mine operating income were lower mine site and corporate administration costs and lower share-based payment expense as the Company’s share price declined in the quarter impacting the valuation of cash-settled share units.

Sales increased 13% in the fourth quarter of 2019 to $69.0 million compared to $61.3 million in the third quarter of 2019 due primarily to a 15% and 7% increase in the volume of silver and gold ounces sold, respectively. Cash mine operating costs at the San Jose and Caylloma Mines were 6% higher and 4% lower, respectively. Pre-tax income included $11.0 million of investment gains from cross-border securities trades.

Sales decreased 10% in the third quarter of 2019 to $61.3 million compared to $67.9 million in the second quarter of 2019 due primarily to lower silver and gold ounces sold from the San Jose Mine as a result of scheduled mining at lower grade stopes. The lower sales and an $8.3 million foreign exchange loss from the devaluation of the Argentine Peso were the primary reasons for the $1.5 million operating loss and $7.7 million net loss in the third quarter of 2019.

Precious Metal Prices Trends

The sale of silver and gold ounces represents approximately 83% of the Company’s sales revenue while lead and zinc make up the remaining 17%. 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.

The metal price environment for silver and gold has evolved during the COVID-19 pandemic. Since the low of $1,498 per ounce in March 2020, gold steadily edged higher to close at $1,768 per ounce at the end of June. Gold continued to trend higher and peak at $2,067 per ounce on August 6, 2020 before retracing to close at $1,902 per ounce at the end of September. The price of gold at September 30, 2020 has increased 26% since the start of 2020. The US federal government and the US Treasury provided massive monetary and fiscal stimulus to the US economy which have helped to spur increases in the prices of silver and gold.

Management's Discussion and Analysis, page 17

Fortuna Silver Mines Inc.

The silver price plummeted to multi-year lows in March 2020 when U.S. stock markets had their greatest single day fall since the 1987 crash as silver fell from $17.02 per ounce to $12.01 per ounce on March 19, a decline of 29%. Following the March lows, the price of silver showed resilience during the second and third quarter of 2020 trending higher month-over-month and peaked at $29.37 per ounce on August 6, 2020, before retracing to close at $23.35 per ounce at the end of September. The price of silver at September 30, 2020 has increased 30% since the start of 2020.

Liquidity and Capital Resources

Cash and Cash Equivalents

The Company had cash and cash equivalents of $85.2 million at September 30, 2020, an increase of $1.8 million since the beginning of the year. The increase was due primarily to $62.1 million of cash generated from operations and the completion of a bought deal public equity financing for net proceeds of $65.7 million. Uses of funds include $92.1 million on construction and pre-production expenses at the Lindero Mine and sustaining capital expenditures at San Jose and Caylloma, a net repayment of $15.0 million on the Company’s credit facility, and $14.4 million of value added tax payments related to the construction of the Lindero Mine.

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 at September 30, 2020 was $59.0 million compared to $62.4 million at December 31, 2019.

Capital Resources

As at September 30, 2020, the Company had fully drawn $40 million from its non-revolving credit facility and has $55 million available for drawdown from the $110 million revolving credit facility (collectively, the “Credit Facility”). The interest rate on the revolving credit facility is on a sliding scale at one-month LIBOR plus an applicable margin ranging from 2.5% to 3.5%, based on the Company’s Net Senior Secured Debt to EBITDA Ratio as defined in the Credit Facility. The Credit Facility is secured by a first ranking lien on the assets of the San Jose and Caylloma mines as well as their holding companies.

Management's Discussion and Analysis, page 18

Fortuna Silver Mines Inc.

(Expressed in $ millions) September 30, 2020 December 31, 2019 Change
Cash and cash equivalents 85.2 83.4 1.8
Credit facility 150.0 150.0 -
Total liquidity available 235.2 233.4 1.8
Amount drawn on credit facility (95.0 ) (110.0 ) 15.0
Net liquidity position 140.2 123.4 16.8

Subsequent to September 30, 2020, the Company drew $10.0 million from the Credit Facility.

As at September 30, 2020, the Company was in compliance with its financial covenants.

The full extent and impact of COVID-19 on the Company’s operations and financial condition continues to be difficult to ascertain until the duration of the outbreak, the severity of the virus and the ability to treat it can reasonably be predicted, and when the government of the countries which host our operations lift restrictions on business activities. In the event of an unexpectedly prolonged duration of COVID-19, 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 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, 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 the construction of the Lindero Mine and planned capital and exploration programs.

The Company has contingencies and capital commitments as described in the Note 31 “Contingencies and Capital Commitments” in the Company’s Condensed Interim Consolidated 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.

Management's Discussion and Analysis, page 19

FortunaSilver Mines Inc.

Financial Instruments

The Company does not utilize complex financial instruments in hedging metal price, 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 speculation or trading purposes.

Provisional priced trade receivables of $23.4 million and an interest rate swap liability of $1.3 million are the Company’s only level 2 fair valued financial 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 interest rate swap is measured at estimated fair value.

Related Party Transactions

The Company has entered into the following related party transactions during the three and nine months ended September 30, 2020 and 2019:

(a)   Purchase of Goods and Services

The Company was charged 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 Chairman, is a director.

Three months ended Nine months ended
September 30, September 30,
(Expressed in $ thousands) 2020 2019 2020 2019
Personnel costs 5 6 15 11
General and administrative expenses 11 33 127 146
16 39 142 157

As at September 30, 2020, the Company had an outstanding balance payable to Gold Group Management Inc. of $5 (December 31, 2019 - $14). Amounts due to related parties are due on demand and are unsecured.

(b)   Key Management Personnel

During the three and nine months ended September 30, 2020 and 2019, the Company was charged for consulting services by Mario Szotlender, a director of the Company, and by Mill Street Services Ltd., a company of which Simon Ridgway, the Company’s Chairman, is a director. Such amounts, along with other amounts paid to key management personnel are as follows:

Three months ended Nine months ended
September 30, September 30,
(Expressed in $ thousands) 2020 2019 2020 2019
Salaries and benefits 815 1,347 2,397 4,433
Directors fees 158 164 531 526
Consulting fees 34 45 100 101
Share-based payments 3,259 1,621 7,171 3,099
4,266 3,177 10,199 8,159 
Management's Discussion and Analysis, page 20

FortunaSilver Mines Inc.

Amendments to Accounting Standards That Have Been Issued

In September 2019, the IASB issued first phase amendments IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Hedging and IFRS 7 Financial Instrument Disclosures to address the financial reporting impact of the reform on interest rate benchmarks, such as the discontinuance of the interbank offered rates. This amendment is effective on January 1, 2020 and the first phase amendment is focused on the impact to hedge accounting requirements. The Company adopted the first phase amendment and there was no material impact on its consolidated financial statements. The Company will continue to assess the effect of amendments related to the interest rate benchmark reform on its consolidated financial statements.

On May 14, 2020, the IASB published a narrow scope amendment to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use. The amendment prohibits deducting from the cost of property, plant and equipment amounts received from selling items produced while preparing the asset for its intended use. Instead, amounts received will be recognized as sales proceeds and related cost in profit or loss. The effective date is for annual periods beginning on or after January 1, 2022, with early adoption permissible. The Company is assessing the effect of the narrow scope amendment on its consolidated financial statements and the possibility of early adoption.

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 risk in relation to the construction, the timing of commissioning and commencement of commercial production at the Lindero Mine; political risks, environmental risks; and risks related to its relations with employees. These and other risks are described below and in the Company’s audited consolidated financial statements for 2019, 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

The Company currently conducts its operations in Peru, Mexico and Argentina. 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, 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.

All of the Company’s production and revenue to September 30, 2020 is derived from its operations in Peru and Mexico. 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 is currently in the process of construction at the Lindero Mine; changing political and fiscal regimes, and economic and regulatory instability; unanticipated changes to royalty and tax regulations; unreliable and undeveloped infrastructure, labor unrest and labor 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.

Management's Discussion and Analysis, page 21

FortunaSilver Mines Inc.

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.

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, 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.

Uncertainties and Risks Related to the Construction of the Lindero Mine

The Company is subject to inherent uncertainties and risks related to the construction and start-up of the Lindero Mine, the principal of which include: delays in pre-commissioning, and ramp-up to commercial production; delays associated with contractors; budget overruns due to changes in costs of fuel, labour, power, materials and supplies, inflation and exchange rate risks and potential opposition from non-governmental organizations, environmental groups or local groups which may delay or prevent activities.

Management's Discussion and Analysis, page 22

FortunaSilver Mines Inc.

The Company’s ability to meet construction, development, and production schedules and cost estimates for the Lindero Mine cannot be assured. The Company has prepared estimates of capital costs and/or operating costs for the Lindero Mine, but no assurance can be given that such estimates will be achieved. Delays in the commencement of commercial production, failure to achieve cost estimates or material increases in costs due to increases in foreign exchange rates; continuation of capital controls imposed in Argentina; imposition of exchange control restrictions; and delays in obtaining the value added tax refunds, could have an adverse impact in future cash flows, profitability, results of operations and financial condition of the Company.

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.

Environmental legislation is evolving in a manner requiring stricter standards and enforcement, increased fines and penalties for non-compliance, 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.

Uncertainties and Risks Relating to COVID-19

Epidemics, including the outbreak of COVID-19, which was declared a global pandemic by the World Health Organization in March 2020, unless contained could cause a slowdown in global economic growth and have a material adverse effect on the business, operations, financial condition and share price of the Company. COVID-19 has spread from China where the virus was originally reported, to other countries including Peru, Mexico, Argentina and Canada, the countries in which the Company operates.

The international response to the spread of COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock market volatility and a general reduction in consumer activity. Such public health crises can result in operating and supply chain delays and disruptions, global stock market and financial market volatility, declining trade and market sentiment, reduced movement of people and labour shortages, and travel and shipping disruption and shutdowns, including as a result of government regulation and prevention measures, or a fear of any of the foregoing, all of which could affect commodity prices, interest rates, credit ratings, credit risk and inflation.

Even though the Company has and continues to implement business continuity measures to mitigate and reduce any potential impacts of COVID-19 on its business, operations, supply chain and financial condition, the spread of COVID-19 in the countries in which it operates could have a material adverse impact on the Company’s workforce; the production at the Caylloma Mine and the San Jose Mine, the continued operation at these mines, the completion of construction at the Lindero Mine, and the Company’s financial condition. Until the number of cases and death rate start to flatten the curve and decline, there is no certainty that governments may not mandate another round of extreme measures, which could include the suspension of business activities, including mining, which would have an adverse impact on our business.

Management's Discussion and Analysis, page 23

FortunaSilver Mines Inc.

The Company remains focused on ensuring the health and safety of the workforce and in continuing measures to prevent and manage transmission of COVID-19 amongst the workforce and the wider community. Despite these measures, there can be no assurance that such measures will be successful.

The full extent and impact of COVID-19 on the Company’s operations cannot currently be ascertained, as it depends upon future developments which cannot be predicted, and includes among other matters: the duration of the outbreak, the severity of the virus and the ability to treat it, the ability to collect sufficient data to track the virus and the collective actions taken to curb the spread of the virus.

The continued spread of the virus could have a material adverse effect on the economies of the countries in which the Company operates, including the local communities close to the Company’s operations. In addition, COVID-19 has caused: volatility in commodity prices (including gold, silver, lead and zinc); volatility in the stock markets on which the Company’s Common Shares and Debentures are listed, and in the price of the Company’s securities. The continued adverse effects of the spread of COVID-19 if not contained, could have a material adverse effect on the business, operations and financial condition of Company.

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. Our cash and cash equivalents are held with large financial institutions and mature within 90 days.

The following table summarizes the Company’s maximum exposure to credit risk as follows:

September 30, December 31,
(Expressed in $ millions) 2020 2019
Cash and cash equivalents 85.2 83.4
Accounts receivable and other assets 35.5 47.7
Income tax receivable 1.9 2.6
Other non-current receivables 43.5 38.4
166.1 172.1

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 concentrate is sold to large well-known concentrate buyers.

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.

Management's Discussion and Analysis, page 24

FortunaSilver Mines Inc.

The following table illustrates the sensitivity to a +/-10% change in metal prices on the Company’s outstanding trade receivables as at September 30, 2020:

Metal (Expressed in $ millions) Change Effect on Sales
Silver +/- 10% 3.8
Gold +/- 10% 2.0
Lead +/- 10% 0.1
Zinc +/- 10% 0.2

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. The Board of Directors assesses the Company’s strategy towards its base metal exposure, depending on market conditions. As at September 30, 2020, the Company had no outstanding forward sales and zero cost collars contracts.

Currency Risk

The functional and reporting currency for all entities within the consolidated group is the US dollar. We are exposed to fluctuations in foreign exchange rates as a portion of our expenses are incurred in Canadian dollars, Peruvian Soles, Argentine Peso and Mexican Peso. 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. We have not hedged our exposure to foreign currency fluctuations.

The following table summarizes the sensitivity to a +/-10% change in foreign currency exchange rates on the Company’s foreign currency exposure as at September 30, 2020:

Effect on foreign
denominated
Currency (Expressed in $ millions) Change items
Mexican Peso +/- 10% 1.2
Peruvian Soles +/- 10% 0.2
Argentine<br> Peso +/- 10% 3.2
Canadian Dollar +/- 10% 0.5

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 capital controls are in effect when the Lindero Mine reaches commercial production, the Company will be 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.

Management's Discussion and Analysis, page 25

Fortuna Silver Mines Inc.

The following tables summarizes the Company’s exposure to currency risk through the following assets and liabilities denominated in foreign currencies:
(In millions of local currency) Peruvian<br> Soles Mexican<br> Pesos Argentine<br> Pesos
Cash and cash equivalents 3.7 9.3 58.5 1.4
Marketable securities 1.5 - - -
Accounts receivable and other assets 0.3 3.0 116.7 -
Income tax receivable - 6.1 - -
VAT - long term receivable - - 57.1 2,954.2
Trade and other payables (13.5 ) (25.3 ) (257.4 ) (219.3 )
Provisions, current - (1.1 ) - (67.8 )
Income tax payable - - (206.8 ) -
Other liabilities (0.1 ) - (4.8 ) -
Provisions, non-current - - (52.5 ) -
Total foreign currency exposure (8.1 ) (8.0 ) (289.2 ) 2,668.5
US equivalent of foreign currency exposure (6.0 ) (2.2 ) (12.9 ) 35.1

All values are in US Dollars.

Totals may not add due to rounding
(In millions of local currency) Peruvian<br> Soles Mexican<br> Pesos Argentine<br> Pesos
Cash and cash equivalents 0.6 2.3 13.1 11.8
Accounts receivable and other assets 0.3 1.8 4.0 117.5
Income tax receivable - 8.5 - -
Investments in associates 1.4 - - -
VAT - long term receivable - - 10.7 2,039.9
Trade and other payables (8.6 ) (19.4 ) (214.7 ) (1,454.4 )
Provisions, current - - (3.9 ) -
Income tax payable - - (161.9 ) -
Other liabilities - - (4.2 ) -
Provisions, non-current - - (87.5 ) -
Total foreign currency exposure (6.2 ) (6.8 ) (444.4 ) 714.8
US equivalent of foreign currency exposure (4.8 ) (2.1 ) (23.6 ) 11.8

All values are in US Dollars.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligation as they become due. The volatility of the metals market can impact the Company’s ability to forecast cash flow from operations. In addition, any temporary suspension of production at the Company’s operating mines as a result of COVID-19 will impact the Company’s liquidity.

The Company maintains sufficient liquidity to meet its short-term business requirements, taking into account anticipated cashflows from operations, holdings of cash, cash equivalents and short-term investments and committed loan facilities.

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. See also Liquidity and Capital Resources.

Management's Discussion and Analysis, page 26

Fortuna Silver Mines Inc.

As at September 30, 2020, 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
Less<br> than After
(Expressed<br> in $ millions) 1<br> year 1<br> - 3 years 4<br> - 5 years 5<br> years Total
Trade and<br> other payables 51.8 - - - 51.8
Debt - 95.0 46.0 - 141.0
Income taxes payable 15.2 - - - 15.2
Lease obligations 8.3 6.6 4.1 14.6 33.7
Other liabilities - 1.4 - - 1.4
Capital<br> commitments, Lindero ^2^ 2.2 - - - 2.2
Closure<br> and reclamation provisions 6.1 5.0 0.7 23.3 35.0
83.6 108.0 50.8 37.9 280.2

^1^ Figures may not add due to rounding

^2^Net of $4 million of advances to contractors

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 are in effect until December 31, 2025 and 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.

In September 2020, the Argentine Central Bank approved a new resolution which requires companies to restructure sixty percent of any individual debt exceeding $1.0 million, which has at least a two-year term and is maturing between October 15, 2020 and March 31, 2021. However, this resolution does not apply to intercompany debt and the Company does not hold any external debt at Lindero.

The Argentine Central Bank has also issued a temporary measure in effect until December 31, 2020, which requires the consent of the Central Bank to the repayment of certain types of intercompany loans. There can be no assurance that the temporary measure will not be extended.

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.

Management's Discussion and Analysis, page 27

Fortuna Silver Mines Inc.

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.

September 30, December 31,
(Expressed in $ millions) 2020 2019
Equity 706.8 635.4
Debt 133.1 146.5
Lease obligations 20.9 23.9
Less:  cash and cash equivalents (85.2 ) (83.4 )
775.6 722.4

Figures may not add due to rounding

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 credit facilities, the Company is not subject to any externally imposed capital requirements. As at September 30, 2020 and December 31, 2019, the Company was in compliance with its financial covenants in its Credit Facility. 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. As at September 30, 2020, the Company has outstanding an interest rate swap as a hedge on the $40.0 million non-revolving credit facility to mitigate the interest rate risk on our debt.

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 labor 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.

Critical Accounting Estimates, Assumptions and Judgements

Many of the amounts included in the consolidated financial statements require management to make estimates, assumptions and judgements. These estimates, assumptions and judgements are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. Areas where critical accounting estimates and assumptions have the most significant effect on the amounts recognized in the consolidated financial statements include:

Management's Discussion and Analysis, page 28

Fortuna Silver Mines Inc.

Mineral Reserves and Resources and the Life of Mine Plan

We estimate our mineral reserves and mineral resources in accordance with the requirements of National Instrument 43-101 Standards of Disclosure for Mineral Projects published by the Canadian Securities Administrators. Estimates of the quantities of the mineral reserves and mineral resources form the basis for our 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 rehabilitation provision.

Significant estimation is involved in determining the reserves and resources included within our life of mine plans. Changes in forecast prices of commodities, exchange rates, production costs or metallurgical recovery rates may result in our life of mine plan being revised and such changes could impact depletion rates, asset carrying values and our environmental rehabilitation provision. As at December 31, 2019 we have used the following long-term prices for our mineral reserve and mineral resource estimations: gold $1,380/oz, silver $17.00/oz, lead $2,170/t and zinc $2,590/t.

In addition to the estimates above, estimation is involved in determining the percentage of mineral resources ultimately expected to be converted to mineral reserves and hence included in our life of mine plans. Our life of mine plans include a portion of inferred mineral resources as we believe 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 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 judgment and actual outcomes may vary from these judgments and estimates and such changes could have a material impact on the financial results. Some of the key judgments of 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. See note 3(g)(i) to the audited consolidated financial statements for 2019.

Valuation of Mineral Properties and Exploration Properties

The Company carries its mineral properties at cost less accumulated depletion and any accumulated provision for 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. Costs are charged to the consolidated statement of income (loss) when a property is abandoned or when there is an impairment.

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 net 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, foreign exchange 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.

Management's Discussion and Analysis, page 29

Fortuna Silver Mines Inc.

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.

Revenue Recognition

Revenue from the sale of concentrate to customer is recognized when the customer obtains control of the concentrate. A provisional invoice is issued to the customer based on the monthly average metal prices on the expected date of final settlement at which time the final sale prices will be fixed. Variations between the prices at initial recognition and final settlement may occur due to changes in the market metal prices and result in an embedded derivative in the accounts receivable. The embedded derivative is recorded at fair value each period until final settlement occurs with changes in the fair value classified as revenue. For changes in metal quantities upon receipt of new information and assays, the provisional sale quantities are adjusted.

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 judgment 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.

In 2017 the Mexican Geological Service (“SGM”) advised the Company that a previous owner of one of the Company’s mineral concessions located at the San Jose Mine in Oaxaca, Mexico had granted the SGM a royalty of 3% of the billing value of minerals obtained from the concession. The Company, supported by legal opinions from three independent law firms, has previously advised the Mexican mining authorities that it is of the view that no royalty is payable, and in 2018 initiated administrative and legal proceedings (the “Administrative Proceedings”) in the Mexican Federal Administrative Court (“FAC”) against the Dirección General de Minas (“DGM”) to remove reference to the royalty on the title register. The proceedings are progressing in accordance with the procedures of the FAC.

In January 2020, the Company received notice from the DGM seeking to cancel the mining concession if the royalty, in the Mexican peso equivalent of $30 million plus VAT (being the amount of the claimed royalty from 2011 to 2019), was not paid before March 15, 2020. In February 2020, the Company initiated legal proceedings (the “Amparo Proceedings”) against the DGM in the Juzgado Séptimo de Distrito en Materia Administrativa en la Ciudad de México (“District Court”) to contest the cancellation procedure and also to stay the cancellation process. The District Court in Mexico City admitted the Company’s legal proceedings on March 2, 2020 and granted a permanent stay of execution, which protects the Company from the cancellation of the concession until a resolution by the District Court is reached on the legality of the cancellation procedure. The final hearing of the Amparo Proceedings took place on October 2, 2020, there are no further steps to be taken by the Company until the District Court issues its decision. The timing of a decision by the District Court at first instance in this action against the DGM is uncertain and may take several months. In the event that the Company is unsuccessful in these proceedings, it may appeal. If ultimately the Company does not prevail, it may be required to pay the disputed royalty in order to preserve the mining concession. If the Company is required to pay the royalty, it will do so from available capital resources.

Management's Discussion and Analysis, page 30

Fortuna Silver Mines Inc.

The Company has determined that it is more likely than not that it will succeed in these proceedings; therefore, no provision has been recorded as at September 30, 2020 and December 31, 2019.

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:

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 (“temporary differences”) and losses carried forward. The determination of the ability of the Company to utilize tax loss carry-forwards to offset deferred tax liabilities requires management to exercise judgment 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.

Assessment of Impairment and Reversal of Impairment Indicators

Management applies significant judgment in assessing whether indicators of impairment or reversal of impairment exist for an asset or a group of assets which could result in a testing for impairment. Internal and external factors such as significant changes in the use of the asset, commodity prices, life of mines, tax laws or regulations in the countries that our mines operate in and interest rates are used by management in determining whether there are any indicators of impairment or reversal of previous impairments.

Functional Currency

The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in which each operates. The Company has determined that its functional currency and that of its subsidiaries is the U.S. dollar. The determination of functional currency may require certain judgments 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.

IFRS 16 Leases

Significant estimates, assumptions and judgments made by management on adoption of IFRS 16 Leases primarily included judgement about 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 estimates, assumptions and judgements over these factors would affect the present value of the lease liabilities, as well as the associated amount of the ROU asset.

Management's Discussion and Analysis, page 31

Fortuna Silver Mines Inc.

Share Position and Outstanding Options and Equity Based Share Units

The Company has 184,195,727 common shares outstanding as at November 10, 2020. In addition, 3,427,106 incentive stock options and equity-settled restricted and performance share units are currently outstanding as follows:

Exercise
Price
Type of Security No. of Shares (CAD) Expiry Date
Incentive Stock Options: 511,645 May 28, 2022
535,374 March 18, 2023
7,551 June 4, 2023
1,054,570
Vesting Date
Equity-Settled Share Units: 709,650 March 19, 2021
2,447 June 5, 2021
845,219 March 15, 2022
815,220 April 20, 2023
2,372,536
Total outstanding 3,427,106

All values are in US Dollars.

An aggregate of 422,609 equity-settled performance share units issued in 2019 are subject to a multiplier ranging from 50% to 200% depending on the achievement level of certain performance targets.

On April 20, 2020, the Company granted 815,220 equity-settled restricted share units which vest 20% on the first anniversary of the date of grant, 30% on the second anniversary and 50% on the third anniversary. The fair value of each restricted share unit on the grant date was $2.36 (C$3.32).

As at September 30, 2020, the Company has $46.0 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 will not be redeemable by the Company prior to October 31, 2022. 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. 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.

Management's Discussion and Analysis, page 32

Fortuna Silver Mines Inc.

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 (“National Instrument 52-109”) and as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the U.S. Exchange Act).

Management’s Report on Internal Control over Financial Reporting

The Company’s internal control over financial reporting 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.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting for the three ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Non-GAAP Financial Measures

This MD&A refers to various Non-GAAP Financial Measures, including cash cost per payable ounce of silver equivalent; cash cost per tonne of processed ore; total production cash cost per tonne; all-in sustaining cash cost per payable ounce of silver equivalent production; all-in sustaining cash cost per payable ounce of silver equivalent production; free cash flow and free cashflow from ongoing operations; adjusted net income; and adjusted EBITDA.

These measures are used by the Company to manage and evaluate operating performance and ability to generate cash flow and are widely reported in the mining industry as benchmarks for performance. The Company believes that certain investors use these Non-GAAP Financial Measures to evaluate the Company’s performance. However, the measures do not have a standardized meaning and may differ from measures used by other companies with similar descriptions. Accordingly, Non-GAAP Financial Measures should not be considered in isolation or as a substitute for measures of 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 as calculated by the Company, descriptions and reconciliations are provided here.

Cash Cost per Payable Ounce of Silver Equivalent Production and Cash Cost per Tonne of Processed Ore

Cash cost per payable ounce of silver equivalent production and total production cash cost per tonne of processed ore are key performance measures that management uses to monitor performance. Management believes that certain investors also use these Non-GAAP Financial Measures to evaluate the Company’s performance. Cash cost is an industry-standard method of comparing certain costs on a per unit basis; however, they do not have a standardized meaning or method of calculation, even though the descriptions of such measures may be similar. These performance measures have no meaning under IFRS, and, therefore, amounts presented may not be comparable with similar data presented by other mining companies.

Management's Discussion and Analysis, page 33

Fortuna Silver Mines Inc.

The following tables present a reconciliation of cash cost per tonne of processed ore and cash cost per payable ounce of silver equivalent production to the cost of sales in the consolidated financial statements for the three and nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended
CONSOLIDATED MINE CASH COST SILVER EQUIVALENT September 30, September 30,
(Expressed in '000's, except unit costs) 2020 2019 2020 2019
Cost of sales 41,386 44,634 112,170 127,068
Changes in concentrate inventory 78 16 304 526
Depletion and depreciation in concentrate inventory (494 ) 5 (360 ) (102 )
Inventory adjustment - (70 ) 2 (70 )
IFRS 16 embedded lease adjustment 620 614 1,689 1,783
Royalties and mining taxes (1,310 ) (902 ) (3,268 ) (2,672 )
Provision for community support 2 167 101 154
Workers participation (3,553 ) (1,370 ) (5,470 ) (4,090 )
Depletion and depreciation (10,637 ) (11,694 ) (30,173 ) (33,048 )
Cash cost 26,092 31,400 74,995 89,549
Treatment charges 4,727 2,392 14,240 7,785
Refining charges 1,410 1,108 3,641 3,737
Cash cost applicable per payable ounce 32,229 34,900 92,876 101,071
Payable ounces of silver equivalent production1 3,567,133 3,743,432 9,844,255 12,674,670
Cash cost per ounce of payable silver equivalent2 (/oz) 9.03 9.32 9.43 7.97

All values are in US Dollars.

Notes:

^1^  Silver equivalent production for Q3 2020 is calculated using a silver to gold ratio of 77.3:1 (Q3 2019:  85.8:1), silver to lead ratio of 1:29.2 pounds (Q3 2019:  1:18.6), and silver to zinc ratio of 1:23.2 pounds (Q3 2019:  1:16.2).  Year-to-date ("YTD") for Q3 2020 YTD: silver gold ratio of 88.0:1 (Q3 2019 YTD : 86:1), silver to lead ratio of 1:23.6 pounds (Q3 2019 YTD: 1:17.6) and silver to zinc ratio of 1:19.7 pounds (Q3 2019 YTD: 1:13.4)

^2^  Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc.  Refer to Financial Results - Sales and Realized Prices

Management's Discussion and Analysis, page 34

Fortuna Silver Mines Inc.

Three months ended Nine months ended
SAN JOSE MINE September 30, September 30,
(Expressed in '000's, except unit costs) 2020 2019 2020 2019
Cost of sales 29,574 29,270 73,288 84,132
Changes in concentrate inventory 340 (107 ) 277 370
Depletion and depreciation in concentrate inventory (592 ) 28 (587 ) (94 )
Inventory adjustment - - 2 -
IFRS 16 embedded lease adjustment 5 15 15 62
Royalties and mining taxes (1,239 ) (860 ) (2,878 ) (2,541 )
Workers participation (2,970 ) (1,256 ) (5,059 ) (3,514 )
Depletion and depreciation (7,859 ) (8,188 ) (19,677 ) (23,195 )
Cash cost 17,259 18,902 45,381 55,220
Total processed ore (tonnes) 255,226 267,998 662,203 795,656
Cash cost per tonne of processed ore (/t) 67.62 70.53 68.53 69.40
Cash cost 17,259 18,902 45,381 55,220
Treatment charges 326 (433 ) 110 (448 )
Refining charges 1,082 972 2,560 3,337
Cash cost applicable per payable ounce 18,667 19,441 48,051 58,109
Payable ounces of silver equivalent production1 2,679,676 2,534,249 6,704,342 8,655,903
Cash cost per ounce of payable silver equivalent2 (/oz) 6.97 7.67 7.17 6.71
Mining cost per tonne 34.32 37.21 35.76 36.22
Milling cost per tonne 15.45 17.20 16.46 17.37
Indirect cost per tonne 9.38 8.87 8.91 8.59
Community relations cost per tonne 6.51 1.30 4.17 1.51
Distribution cost per tonne 1.96 5.97 3.23 5.65
Total production cost per tonne 67.62 70.55 68.53 69.34

All values are in US Dollars.

Notes:

^1^Silver equivalent production for Q3 2020 is calculated using a silver to gold ratio of 77.2:1 (Q3 2019:  85.8:1) and for Q3 2020 YTD: silver to gold ratio of 87.4:1 (Q3 2019 YTD: 86:1)

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

Management's Discussion and Analysis, page 35

Fortuna Silver Mines Inc.

Three months ended Nine months ended
CAYLLOMA MINE September 30, September 30,
(Expressed in '000's, except unit costs) 2020 2019 2020 2019
Cost of sales 11,812 15,364 38,882 42,936
Changes in concentrate inventory (262 ) 123 27 156
Depletion and depreciation in concentrate inventory 98 (23 ) 227 (8 )
Inventory adjustment - (70 ) - (70 )
IFRS 16 embedded lease adjustment 615 599 1,674 1,721
Royalties and mining taxes (71 ) (42 ) (390 ) (131 )
Provision for community support 2 167 101 154
Workers participation (583 ) (114 ) (411 ) (576 )
Depletion and depreciation (2,778 ) (3,506 ) (10,496 ) (9,853 )
Cash cost 8,833 12,498 29,614 34,329
Total processed ore (tonnes) 107,002 134,338 373,916 398,037
Cash cost per tonne of processed ore (/t) 82.55 93.03 79.20 86.25
Cash cost 8,833 12,498 29,614 34,329
Treatment charges 4,401 2,825 14,130 8,233
Refining charges 328 136 1,081 400
Cash cost applicable per payable ounce 13,562 15,459 44,825 42,962
Payable ounces of silver equivalent production1 887,457 1,209,183 3,139,913 4,018,767
Cash cost per ounce of payable silver equivalent2 (/oz) 15.28 12.78 14.28 10.69
Mining cost per tonne 36.55 42.60 37.12 41.14
Milling cost per tonne 14.58 14.97 13.94 14.18
Indirect cost per tonne 23.95 26.52 21.03 23.07
Community relations cost per tonne 6.92 1.73 4.58 0.83
Distribution cost per tonne 0.55 7.22 2.53 7.03
Total production cost per tonne 82.55 93.04 79.20 86.25

All values are in US Dollars.

Notes:

^1^Silver equivalent production for Q3 2020 is calculated using a silver to gold ratio of 78.3:1 (Q3 2019: 87.3:1) , silver to lead ratio of 1:29.2 pounds (Q3 2019:  1:18.6), and silver to zinc ratio of 1:23.2 pounds (Q3 2019:  1:16.2).  YTD 2020: silver to gold ratio of 96.4:1 (Q3 2019 YTD: 87.2:1), silver to lead ratio of 1:23.6 pounds (Q3 2019 YTD: 1:17.6, and silver to zinc ratio of 1:19.7 pounds (Q3 2019 YTD: 1:13.4)

^2^ Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc.  Refer to Financial Results - Sales and Realized Prices

All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver Equivalent Production

The Company believes that “all-in-sustaining cash cost silver equivalent” and “all-in cash cost silver equivalent” meet the needs of management, analysts, investors, and other stakeholders of the Company in understanding the costs associated with producing silver, the economics of silver mining, the Company’s operating performance and the Company’s ability to generate cash flow from current operations, and on an overall company basis.

The Company, in conjunction with an initiative undertaken within the gold mining industry, has adopted an all-in-sustaining cost performance measure; however, this performance measure has no standardized meaning. The Company conforms its all-in-sustaining cost definition to that set out in the guidance issued by the World Gold Council (“WGC”).

All-in-sustaining cash cost silver equivalent and all-in cash cost silver equivalent are intended to provide additional information only and do not have standardized definitions under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Although the WGC has published a standardized definition, companies may calculate these measures differently.

Management's Discussion and Analysis, page 36

Fortuna Silver Mines Inc.

All-in sustaining cash cost includes total production cash costs incurred at the Company’s mining operations. Sustaining capital expenditures, corporate selling, general and administrative expenses, and brownfield exploration expenditures are added to the cash cost to calculate the all-in-sustaining cost. The Company believes that this measure represents the total costs of producing silver from operations and provides the Company and its stakeholders with additional information on the Company’s operational performance and the ability to generate cash flows. Certain cash expenditures such as new project spending, tax payments, dividends, and financing costs are not included. We report this measure on a payable silver equivalent ounce produced basis. Silver equivalent production is calculated taking the total metal payable production of gold, lead and zinc multiplied by the realized prices of gold, lead, and zinc and divided by the realized silver price to calculate the silver equivalent production.

The following tables show a breakdown of the all-in sustaining cash cost per silver equivalent ounce for the three and nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended
SAN JOSE MINE September 30, September 30,
(Expressed in $'000's, except unit costs) 2020 2019 2020 2019
Cash cost applicable 18,667 19,441 48,051 58,109
Royalties and mining taxes 3,629 1,882 6,716 6,353
Workers' participation 3,713 1,570 6,324 4,393
General and administrative expenses (operations) 1,363 1,589 4,228 4,556
Adjusted operating cash cost 27,372 24,482 65,319 73,411
Care and maintenance costs (Impact of COVID-19) - - 1,568 -
Sustaining capital expenditures^3^ 3,774 2,026 6,518 6,232
Brownfield exploration expenditures^3^ 1,017 776 2,517 3,428
All-in sustaining cash cost 32,163 27,284 75,922 83,071
Non-sustaining capital expenditures^3^ 125 - 374 -
All-in cash cost 32,288 27,284 76,296 83,071
Payable ounces of silver equivalent production^1^ 2,679,676 2,534,249 6,704,342 8,655,903
All-in sustaining cash cost per ounce of payable silver equivalent^2^ 12.00 10.77 11.32 9.60
All-in cash cost per ounce of payable silver equivalent^2^ 12.05 10.77 11.38 9.60

Notes:

^1^Silver equivalent production for Q3 2020 is calculated using a silver to gold ratio of 77.2:1 (Q3 2019:  85.8:1) and for Q3 2020 YTD: silver to gold ratio of 87.4:1 (Q3 2019 YTD: 86:1)

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

^3^Presented on a cash basis

Three months ended Nine months ended
CAYLLOMA MINE September 30, September 30,
(Expressed in $'000's, except unit costs) 2020 2019 2020 2019
Cash cost applicable 13,562 15,459 44,825 42,962
Royalties and mining taxes 138 421 722 1,206
Workers' participation 644 138 477 685
General and administrative expenses (operations) 701 950 2,514 2,844
Adjusted operating cash cost 15,045 16,968 48,538 47,697
Care and maintenance costs 863 - 863 -
Sustaining capital expenditures^3^ 1,213 1,926 4,042 7,953
Brownfield exploration expenditures^3^ 65 181 415 486
All-in sustaining cash cost 17,186 19,075 53,858 56,136
Non-sustaining capital expenditures^1^ - 298 - 446
All-in cash cost 17,186 19,373 53,858 56,582
Payable ounces of silver equivalent production^1^ 887,457 1,209,183 3,139,913 4,018,767
All-in sustaining cash cost per ounce of payable silver equivalent^2^ 19.37 15.78 17.15 13.97
All-in cash cost per ounce of payable silver equivalent^2^ 19.37 16.02 17.15 14.08

Notes:

^1^Silver equivalent production for Q3 2020 is calculated using a silver to gold ratio of 78.3:1 (Q3 2019: 87.3:1) , silver to lead ratio of 1:29.2 pounds (Q3 2019:  1:18.6), and silver to zinc ratio of 1:23.2 pounds (Q3 2019:  1:16.2).  YTD 2020: silver to gold ratio of 96.4:1 (Q3 2019 YTD: 87.2:1), silver to lead ratio of 1:23.6 pounds (Q3 2019 YTD: 1:17.6, and silver to zinc ratio of 1:19.7 pounds (Q3 2019 YTD: 1:13.4)

^2^Silver 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

Management's Discussion and Analysis, page 37

Fortuna Silver Mines Inc.

Free Cash Flow From Ongoing Operations

The Company uses the financial measure of “free cash flow from ongoing operations” to supplement information in its consolidated financial statements. Free cash flow from ongoing operations is defined as cash provided from operating activities less changes in long-term receivable sustaining capital expenditures, less current income tax expense, and add back income taxes paid. This 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. These performance measures are intended to provide additional information only and do not have standardized definitions under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of operating profits or cash flow from operations as determined under IFRS.

The following table presents a reconciliation of free cash flow from ongoing operations for the three and nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended
September 30, September 30,
(Expressed in $ millions) 2020 2019 2020 2019
Net cash provided by operating activities, as reported 45.5 18.2 62.1 45.3
Less:  Change in long-term receivables (0.3 ) (1.5 ) (0.9 ) (1.5 )
Less:  Additions to sustaining capital (5.6 ) (7.2 ) (13.8 ) (18.2 )
Less:  Current income tax expense (15.5 ) (5.9 ) (25.5 ) (24.4 )
Add:  Income taxes paid 6.0 7.0 22.6 27.0
Free cash flow from ongoing operations 30.1 10.6 44.5 28.2

Adjusted Net Income

The Company uses the financial measure of “adjusted net income” to supplement information in its consolidated financial statements. Adjusted net income is defined as net income (loss) for the period adding back foreign exchange losses and other expenses and subtracting investment income related to the Lindero Mine and other non-cash items. The Company 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. The term “adjusted net income” does not have a standardized meaning prescribed by IFRS, and therefore the Company’s definitions are unlikely to be comparable to similar measures presented by other companies.

The following table presents a reconciliation of the adjusted net income for the three and nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended
September 30, September 30,
(Expressed in $ millions) 2020 2019 2020 2019
Net (loss) income for the period 13.1 (7.7 ) 2.9 4.8
Adjustments, net of tax:
Community support provision and accruals - (0.1 ) - (0.1 )
Foreign exchange loss, Lindero Mine 2.7 8.3 8.6 10.4
Income tax, Lindero Mine - - - (1.1 )
Share of loss from associates - - 0.1 0.2
Investment income - - (3.3 ) -
Other non-cash items 0.3 1.4 0.6 3.3
Adjusted net income 16.1 1.9 8.9 17.5 
Management's Discussion and Analysis, page 38

FortunaSilver Mines Inc.

Adjusted EBITDA

The Company uses other financial measures whose presentation is not meant to be a substitute for other subtotals or totals presented in accordance with IFRS measures, but that rather should be evaluated in conjunction with IFRS measures. The item described and presented below does not have a standardized meaning prescribed by IFRS, and therefore the Company’s definitions are unlikely to be comparable to similar measures presented by other companies. The Company believes that its presentation provides useful information for investors.

The following table presents a reconciliation of Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended
September 30, September 30,
(Expressed in $ millions) 2020 2019 2020 2019
Net (loss) income for the period 13.1 (7.7 ) 2.9 4.8
Adjustments:
Community support provision and accruals 0.1 (0.1 ) - (0.2 )
Inventory adjustment - 0.1 - 0.1
Foreign exchange loss, Lindero Mine 2.7 8.3 8.7 10.4
Net finance items 0.4 - 0.9 (0.3 )
Depreciation, depletion, and amortization 11.2 11.3 31.8 34.4
Income taxes 15.0 6.2 28.3 19.1
Share of loss from associates - - 0.1 0.2
Investment income - - (3.3 ) -
Other non-cash items (0.2 ) 1.1 (1.6 ) 1.7
Adjusted EBITDA 42.2 19.2 67.8 70.2

Figures may not add due to rounding

Qualified Person

Eric Chapman, P.Geo (APEGBC #36328) is the Vice-President of Technical Services for the Company 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 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.

Management's Discussion and Analysis, page 39

Fortuna Silver Mines Inc.

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 “reserves” and “resources” as they involve the implied assessment,<br>based on estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated and<br>can be profitably produced in the future;
· the potential impact of COVID-19 on the Company’s business and operations, and financial<br>condition, including the Company’s ability to operate or to continue operating at its sites;
--- ---
· the Company’s ability to manage challenges presented by COVID-19;
--- ---
· achieving the targets set out in the Company’s cost reduction programs;
--- ---
· the effectiveness of the preventative measures and safety protocols put in place by the Company<br>to curb the spread of COVID-19;
--- ---
· escalation of travel restrictions resulted from COVID-19;
--- ---
· production rates at the Company’s properties;
--- ---
· 2020 production forecast for the Lindero Mine;
--- ---
· cash cost estimates;
--- ---
· timing for delivery of materials and equipment for the Company’s properties;
--- ---
· the sufficiency of the Company’s cash position and its ability to raise equity capital or<br>access debt facilities;
--- ---
· the Company’s planned greenfield exploration programs;
--- ---
· the Company’s planned capital expenditures and brownfields exploration at the San Jose Mine;
--- ---
· the Company’s planned capital expenditures and brownfields exploration at the Caylloma Mine;
--- ---
· the Company’s planned capital expenditures and brownfields exploration at the Lindero Mine;
--- ---
· the Company’s construction of the open pit gold heap leach mine at the Lindero Mine and the<br>anticipated timing for the completion of the project and the commencement of commercial production of the mine;
--- ---
· the updated construction schedule and cost budget for the Lindero Mine to take into account the<br>impact of COVID-19;
--- ---
· maturities of the Company’s financial liabilities, finance leases and other contractual commitments;
--- ---
· expiry dates of bank letters of guarantee;
--- ---
· litigation matters;
--- ---
· estimated mine closure costs; and
--- ---
· management’s expectation that any investigations, claims, and legal, labour and tax proceedings<br>arising in the ordinary course of business will not have a material effect on the results of operations or financial condition<br>of the Company.
--- ---

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.

Management's Discussion and Analysis, page 40

Fortuna Silver Mines Inc.

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:

• 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 and risks related to the start-up of the Lindero Mine;
--- ---
• uncertainty relating to capital and operating costs and economic returns of development projects<br>such as the Lindero Mine;
--- ---
• risks related to the construction, commissioning and commencement of commercial production at the<br>Lindero Mine;
--- ---
• risks associated with mineral exploration and project development;
--- ---
• uncertainty relating to the repatriation of funds as a result of currency controls;
--- ---
• environmental matters including potential liability claims;
--- ---
• uncertainty relating to nature and climate conditions;
--- ---
• risks associated with political instability and changes to the regulations governing the Company’s<br>business operations;
--- ---
• changes in national and local government legislation, taxation, controls, regulations and political<br>or economic developments in countries in which the Company does or may carry on business;
--- ---
• risks relating to the termination of the Company’s mining concessions in certain circumstances;
--- ---
• risks related to International Labour Organization (“ILO”) Convention 169 compliance;
--- ---
• developing and maintaining relationships with local communities and stakeholders;
--- ---
• risks associated with losing control of public perception as a result of social media and other<br>web-based applications;
--- ---
• potential opposition of the Company’s exploration, development and operational activities;
--- ---
• risks related to the Company’s ability to obtain adequate financing for planned exploration<br>and development activities;
--- ---
• substantial reliance on the Caylloma Mine and San Jose Mine for revenues;
--- ---
• property title matters;
--- ---
• risks relating to the integration of businesses and assets acquired by the Company;
--- ---
• impairments;
--- ---
• risks associated with climate change legislation;
--- ---
• reliance on key personnel;
--- ---
• uncertainty relating to potential conflicts of interest involving the Company’s directors<br>and officers;
--- ---
• risks associated with the Company’s reliance on local counsel and advisors and the experience<br>of its management and board of directors in foreign jurisdictions;
--- --- 
Management's Discussion and Analysis, page 41

Fortuna Silver Mines Inc.

• adequacy of insurance coverage;
• 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;
--- ---
• potential legal proceedings to which it is a party;
--- ---
• the Company is subject to any adverse ruling in any of the litigation;
--- ---
• uncertainties relating to general economic conditions;
--- ---
• risks relating to a global pandemic, which unless contained could cause a slowdown in global economic<br>growth and impact the Company’s business, operations, financial condition and share price;
--- ---
• the duration of the COVID-19 pandemic and the impact of COVID-19 on the Company’s business,<br>operations and financial condition, including the Company’s ability operate or continue to operate at its sites;
--- ---
• possible future suspensions of operations at the mine sites or the Lindero Mine related to COVID-19;
--- ---
• the Company’s ability to manage challenges presented by COVID-19;
--- ---
• competition;
--- ---
• fluctuations in metal prices;
--- ---
• risks associated with entering into commodity forward and option contracts for base metals production;
--- ---
• fluctuations in currency exchange rates;
--- ---
• tax audits and reassessments;
--- ---
• uncertainty relating to concentrate treatment charges and transportation costs;
--- ---
• sufficiency of monies allotted by the Company for land reclamation;
--- ---
• dilution from further equity or convertible debenture financings; and
--- ---
• risks associated with dependence upon information technology systems, which are subject to disruption,<br>damage, failure and risks with implementation and integration;
--- ---

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.

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 for<br>the exploration, development, construction and production of its properties;
· there being no significant disruptions affecting operations, whether relating to labour, supply,<br>power, damage to equipment or other matter;
--- ---
· there being no material and negative impact to the various contractors, suppliers and subcontractors<br>at the Caylloma Mine and the San Jose Mine relating to COVID-19 or otherwise that would impair their ability to provide goods and<br>services;
--- ---
· there being no material and negative impact to the various contractors, suppliers and subcontractors<br>for the Lindero Mine relating to 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<br>with the Company’s current expectations;
--- ---
· 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<br>consistent with current levels;
--- ---
· production forecasts meeting expectations; and
--- ---
· the accuracy of the Company’s current mineral resource and 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.

Management's Discussion and Analysis, page 42

Fortuna Silver Mines Inc.

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 Exchange Act, 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.

Canadian standards, including National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), differ significantly from the disclosure requirements of U.S securities laws currently in effect, and Mineral Reserve and Mineral Resource information contained or incorporated by reference in this MD&A may not be comparable to similar information disclosed by United States companies. Equivalent U.S. disclosure requirements are currently governed by the United States Securities and Exchange Commission (“SEC”) Industry Guide 7 (“Industry Guide 7”) under the U.S. Securities Act of 1933, as amended. In particular, and without limiting the generality of the foregoing, the term Mineral Resource does not equate to the term “reserve”. Under the SEC’s disclosure standards currently in effect under Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would need to be in hand or issuance imminent in order to classify mineralized material as reserves under such U.S. standards currently in effect. The SEC has not recognised the reporting of mineral deposits which do not meet the Industry Guide 7 definition of “reserve” prior to the adoption of the Modernization of Property Disclosures for Mining Registrants, which rules will be required to be complied with in the first fiscal year beginning on or after January 1, 2021. As a result, the SEC’s disclosure standards currently in effect normally do not permit the inclusion of information concerning Measured Mineral Resources, Indicated Mineral Resources or Inferred Mineral Resources or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by United States standards in documents filed with the SEC.

United States investors are cautioned not to assume that all or any part of Measured Mineral Resources or Indicated Mineral Resources will ever be converted into reserves. United States investors should also understand that Inferred Mineral Resources have an even greater amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a category having a higher degree of certainty. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of Feasibility or Pre-Feasibility Studies except in rare cases. Investors are cautioned not to assume that all or any part of an Inferred Mineral Resource exists or is economically or legally mineable.

Disclosure of “contained tonnes” in a Mineral Resource estimate is permitted disclosure under NI 43-101 provided that the grade or quality and the quantity of each category is stated; however, the SEC’s disclosure standards currently in effect under Industry Guide 7 normally only permit issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of Mineral Reserves are also not the same as those of the SEC’s disclosure standards currently in effect under Industry Guide 7, and Mineral Reserves reported in compliance with NI 43-101 may not qualify as “reserves” under such SEC standards. Accordingly, information contained in this MD&A or any documents incorporated by reference herein containing descriptions of mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the U.S. federal securities laws and the rules and regulations thereunder.

Management's Discussion and Analysis, page 43

Exhibit 99.3

FORTUNA SILVER MINES INC.

Form 52-109F2

Certification of Interim Filings –Full Certificate

I, Jorge Ganoza Durant, Chief Executive Officer of Fortuna Silver Mines Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together,<br>the “Interim Filings”) of Fortuna Silver Mines Inc. (the “Issuer”) for the interim period ended September<br>30, 2020.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence,<br>the Interim Filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated<br>or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered<br>by the Interim Filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence,<br>the interim financial report together with the other financial information included in the Interim Filings fairly present in all<br>material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods<br>presented in the Interim Filings.
--- ---
4. Responsibility: The Issuer’s other certifying officer and I are responsible<br>for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR),<br>as those terms are defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings,<br>for the Issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3,<br>the Issuer’s other certifying officer and I have, as at the end of the period covered by the Interim Filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance<br>that
--- ---
(i) material information relating to the Issuer is made known to us by others, particularly during<br>the period in which the Interim Filings are being prepared; and
--- ---
(ii) information required to be disclosed by the Issuer in its annual filings, interim filings or other<br>reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods<br>specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance<br>regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance<br>with the Issuer’s GAAP.
5.1 Control framework: The control framework the Issuer’s other certifying officer<br>and I used to design the Issuer’s ICFR is Committee of Sponsoring Organizations of the Treadway Commission.
--- --- 
-2-
5.2 N/A.
5.3 N/A.
6. Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change<br>in the Issuer’s ICFR that occurred during the period beginning on July 1, 2020 and ended on September 30, 2020 that<br>has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR.
--- ---

DATED: November 12, 2020

“Jorge Ganoza Durant”
JORGE GANOZA DURANT,
Chief Executive Officer

Exhibit 99.4

FORTUNA SILVER MINES INC.

Form 52-109F2

Certification of Interim Filings –Full Certificate

I, Luis Ganoza Durant, Chief Financial Officer of Fortuna Silver Mines Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together,<br>the “Interim Filings”) of Fortuna Silver Mines Inc. (the “Issuer”) for the interim period ended September<br>30, 2020.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence,<br>the Interim Filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated<br>or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered<br>by the Interim Filings.
--- ---
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence,<br>the interim financial report together with the other financial information included in the Interim Filings fairly present in all<br>material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods<br>presented in the Interim Filings.
--- ---
4. Responsibility: The Issuer’s other certifying officer and I are responsible<br>for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR),<br>as those terms are defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings,<br>for the Issuer.
--- ---
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3,<br>the Issuer’s other certifying officer and I have, as at the end of the period covered by the Interim Filings
--- ---
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance<br>that
--- ---
(i) material information relating to the Issuer is made known to us by others, particularly during<br>the period in which the Interim Filings are being prepared; and
--- ---
(ii) information required to be disclosed by the Issuer in its annual filings, interim filings or other<br>reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods<br>specified in securities legislation; and
--- ---
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance<br>regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance<br>with the Issuer’s GAAP.
5.1 Control framework: The control framework the Issuer’s other certifying officer<br>and I used to design the Issuer’s ICFR is Committee of Sponsoring Organizations of the Treadway Commission.
--- --- 
-2-
5.2 N/A.
5.3 N/A.
6. Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change<br>in the Issuer’s ICFR that occurred during the period beginning on July 1, 2020 and ended on September 30, 2020 that<br>has materially affected, or is reasonably likely to materially affect, the Issuer’s ICFR.
--- ---

DATED: November 12, 2020

“Luis Ganoza Durant”
LUIS GANOZA DURANT,
Chief Financial Officer

Exhibit 99.5

Fortunareports consolidated financial results for the third quarter 2020

(All amounts expressed in US dollars,unless otherwise stated)

Vancouver, November 12, 2020: FortunaSilver Mines Inc. (NYSE: FSM) (TSX: FVI) today reported net income of $13.1 million, adjusted EBITDA of $42.2 million, and free cash flow from ongoing operations of $30.1 million for the third quarter of 2020.

Jorge A. Ganoza, President and CEO, commented, “We have reported a record breaking quarter in sales and free cash flow as we continue to capitalize on the current metals price environment through solid production results and cost containment measures.” Mr. Ganoza continued, “At Lindero, the ramp-up phase is progressing with first gold pour achieved in October.” Mr. Ganoza concluded, “We remain on track for commercial production at Lindero in the first quarter of 2021.”

Third quarter 2020 highlights

· Sales of $83.4 million, compared to $61.3 million in Q3 2019
· Net income of $13.1 million, compared to net loss of $7.7 million in Q3 2019
--- ---
· Adjusted net income^1^ of $16.1 million, compared to $1.9 million in Q3 2019
--- ---
· Adjusted EBITDA^1^ of $42.2 million, compared to $19.2 million in Q3 2019
--- ---
· Free cash flow from ongoing operations^1^ of $30.1 million, compared to $10.6 million<br>in Q3 2019
--- ---
· Silver and gold production of 2,127,746 ounces and 12,791 ounces, respectively
--- ---

Note:

^1.^ Refer to non-GAAP financial measures and Forward-Looking Statements at the end of this news<br>release

Third quarter COVID-19 related impactson operations

The COVID-19 pandemic continues to impact economies around the world and our operations. In response to the pandemic, the Governments of Mexico, Peru and Argentina implemented measures to curb the spread of COVID-19, which included among others, the closure of international borders, temporary suspension of all non-essential activities, and the declaration of mandatory quarantine periods. Certain of these measures have either been eliminated or relaxed during the third quarter.

The Company is managing the necessary country-by-country restrictions in order to assist in the protection of those most vulnerable. At each of our mine sites, health protocols are in place for control, isolation and quarantine, as necessary, and these continue to be reviewed and adjusted accordingly based on the circumstances at each location. Operations at the Caylloma Mine were temporarily suspended for a 21-day period in July to among other things sanitize and disinfect the mine and make infrastructure improvements to accommodate social distance guidelines. As a result of the shutdown, approximately $0.9 million has been recorded as care and maintenance costs.

In April 2020, the Company withdrew its production and cost guidance for the year until further notice due to the uncertainties related to the impact caused by COVID-19 constraints on the Company's business and operations (refer to Fortuna news release dated April 2, 2020).

| -2- |

| --- |

Third Quarter 2020 Consolidated Results

Three months ended Nine months ended
Consolidated Metrics September 30, September 30,
(Expressed in $ millions except per share information) 2020 2019 2020 2019
Sales 83.4 61.3 175.5 188.2
Mine operating income 42.1 16.7 63.3 61.1
Operating income (loss) 28.5 (1.5 ) 29.0 25.2
Net income (loss) 13.1 (7.7 ) 2.9 4.8
Earnings (loss) per share - basic 0.07 (0.05 ) 0.02 0.03
Adjusted net income^1^ 16.1 1.9 8.9 17.5
Adjusted EBITDA^1^ 42.2 19.2 67.8 70.2
Net cash provided by operating activities 45.5 18.2 62.1 45.3
Free cash flow from ongoing operations^1^ 30.1 10.6 44.5 28.2
Capex
Sustaining 4.9 4.0 10.6 13.7
Non-sustaining - 0.8 0.2 1.7
Lindero 9.9 68.5 36.2 161.5
Brownfields 1.0 1.0 2.9 3.9
Sept 30, 2020 Dec 31, 2019
--- --- ---
Cash and cash equivalents 85.2 83.4

Note:

1.  Refer to Non-GAAP financial<br> measures and Forward Looking Statements at the end of this news release

Sales for the three months ended September 30, 2020 were $83.4 million, a 36% increase from the $61.3 million reported in the same period in 2019 driven by higher silver and gold prices of 44% and 29%, along with increased volume of silver and gold ounces sold of 9% and 12%, respectively.

Operating income for the three months ended September 30, 2020 was $28.5 million, an increase of $30.0 million from a $1.5 million operating loss reported in the same period in 2019. The operating loss in 2019 was impacted by an $8.3 million foreign exchange loss related to the VAT construction receivable in Argentina. Excluding the effect of foreign exchange, our higher operating income in the third quarter was driven by higher precious metal prices and higher volumes of silver and gold ounces sold despite a 21-day shutdown that lowered sales volume at the Caylloma Mine. Other factors increasing operating income were lower cash production costs, and lower exploration and evaluation costs of $1.4 million, which were partially offset by higher share-based payment expense of $2.2 million. The Company’s increased share price performance during this quarter directly impacted the value of our cash-settled share awards.

Net income for the three months ended September 30, 2020 was $13.1 million, a $20.8 million increase over the $7.7 million net loss reported in the same period in 2019. The effective tax rate for the quarter was 53% which reflects a negative impact of approximately 7 percentage points derived from the devaluation of the Mexican peso.

Free cash flow from ongoing operations for the three months ended September 30, 2020 was $30.1 million compared to $10.6 million in the same period in 2019. Net cash provided by operating activities for the quarter increased $27.3 million to $45.5 million.

Capitalresources and liquidity

Total liquidity available to the Company as of September 30, 2020 was $140.0 million, which includes $55.0 million of available credit under our $150.0 million credit facility. At the end of the quarter, the Company had cash and cash equivalents of $85.2 million (December 31, 2019: $83.4 million).

| -3- |

| --- |

Third Quarter 2020 Consolidated Results

San Jose Mine, Mexico

Nine months ended <br>September 30,
2019 2020 2019
Mine Production
Tonnes milled 255,226 267,998 662,203 795,656
Average tonnes milled per day 2,934 3,046 2,518 3,025
Silver
Grade (g/t) 254 219 232 253
Recovery (%) 92 91 92 91
Production (oz) 1,917,540 1,709,125 4,516,790 5,865,843
Metal sold (oz) 1,884,940 1,706,678 4,503,736 5,880,888
Realized price (/oz) 24.87 17.33 20.04 15.81
Gold
Grade (g/t) 1.52 1.40 1.42 1.60
Recovery (%) 92 91 91 90
Production (oz) 11,425 10,942 27,709 36,886
Metal sold (oz) 11,317 10,886 27,797 36,861
Realized price (/oz) 1,921 1,487 1,752 1,365
Unit Costs
Production cash cost (/t) 67.62 70.53 68.53 69.40
Production cash cost (/oz Ag Eq)1,2 6.97 7.67 7.17 6.71
Unit net smelter return (/t) 255.64 161.83 196.93 168.67
AISC (/oz Ag Eq)1,2 12.00 10.77 11.32 9.60

All values are in US Dollars.

Notes:

^1^ Production<br> cash cost Ag Eq and AISC Ag Eq are calculated using realized metal prices for each period,<br> respectively
^2^ Production<br> cash cost, production cash cost Ag Eq, and AISC Ag Eq are non-GAAP financial measures;<br> refer to non-GAAP financial measures in the associated MD&A for a description and<br> calculation of these measures
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Quarterly Results

The San Jose Mine produced 1,917,540 ounces of silver and 11,425 ounces of gold during the third quarter of 2020, which represents a 12% and 4% increase over the comparable quarter in 2019. The increase was due primarily to higher silver and gold head grades of 16% and 9%, respectively.

Cash cost per tonne for the three months ended September 30, 2020 decreased 4% to $67.62 per tonne compared to $70.53 per tonne in the same period in 2019. The decrease in cash cost per tonne is mainly due to lower mine preparation costs compared to the same period in the prior year. Mine preparation in 2020 is in line with plan.

All-in sustaining cash cost per ounce of payable silver equivalent was $12.0 for the quarter compared to $10.77 for the comparable period in 2019, due mainly to higher royalties and worker participation expenses related to higher sales and profits.

Caylloma Mine, Peru

Nine months ended <br>September 30,
2019 2020 2019
Mine Production
Tonnes milled 107,002 134,338 373,915 398,037
Average tonnes milled per day 1,189 1,493 1,530 1,496
Silver
Grade (g/t) 74 64 70 65
Recovery (%) 83 82 83 83
Production (oz) 210,206 228,168 704,190 692,005
Metal sold (oz) 217,281 224,504 704,843 695,836
Realized price (/oz) 24.96 17.12 19.27 15.84
Lead
Grade (%) 3.15 2.68 2.94 2.67
Recovery (%) 90 90 87 91
Production (000's lbs) 6,702 7,157 21,201 21,305
Metal sold (000's lbs) 6,884 7,069 21,196 21,410
Realized price (/lb) 0.86 0.92 0.82 0.90
Zinc
Grade (%) 4.93 4.35 4.58 4.31
Recovery (%) 89 89 88 90
Production (000's lbs) 10,313 11,518 33,110 33,986
Metal sold (000's lbs) 10,628 11,615 32,999 33,807
Realized price (/lb) 1.07 1.06 0.98 1.18
Unit Costs
Production cash cost (/t) 82.55 93.03 79.20 86.25
Production cash cost (/oz Ag Eq)1,2 15.28 12.78 14.28 10.69
Unit net smelter return (/t) 162.82 132.06 119.79 137.71
AISC (/oz Ag Eq)1,2 19.37 15.78 17.15 13.97

All values are in US Dollars.

Notes:

^1^Production cash cost Ag Eq and AISC Ag Eq are calculated using realized metal prices for each period respectively
^2^ Production<br> cash cost, production cash cost Ag Eq, and AISC Ag Eq are non-GAAP financial measures; refer to non-GAAP financial measures<br> in the associated MD&A for a description and calculation of these measures 
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Quarterly Results

The Caylloma Mine produced 6.7 million pounds of lead and 10.3 million pounds of zinc during the third quarter of 2020, which were 6% lower and 10% lower than the 7.2 million pounds of lead and 11.5 million pounds of zinc produced in the same period in 2019. The lower production was due to lost production from a 21-day shutdown of the mine in early July to sanitize and disinfect the mine following the sudden death of a contractor’s employee. Lead and zinc head grades were 18% and 13% higher than in the same period in 2019. Silver production for the third quarter totaled 210,206 ounces with an average head grade of 74 g/t compared to the 228,168 ounces produced with an average head grade of 64 g/t in the same period in 2019. The Company incurred $0.9 million of costs during the 21-day shutdown of the mine and have been reported as care and maintenance costs.

Cash cost per tonne of processed ore for the three months ended September 30, 2020 was $82.55, which was 11% lower than the $93.03 cash cost per tonne in the same period in 2019. The lower cash cost per tonne was due to lower mine preparation as a result of cost-cutting efforts related to Covid-19. Cash costs incurred during the shutdown were reported as care and maintenance costs.

All-in sustaining cash cost per ounce of payable silver equivalent was $19.37 for the quarter compared to $15.78 for the comparable period in 2019, due to the impact of the 21-day voluntary suspension at the mine site in July.

Lindero Mine Update

Construction at the Lindero open pit heap leach gold mine located in Salta Province, Argentina is substantially complete as at September 30, 2020. On October 20, 2020, the Company announced the first gold pour of 728 ounces (refer to Fortuna news release dated October 20, 2020) as the mine ramps up towards commercial production in the first quarter of 2021.

The following table summarizes the spending on construction and preproduction related costs at the Lindero Mine for the nine months ended September 30, 2020:

Cumulative to Nine months ended
(Expressed in $ millions) December 31, 2019 September 30, 2020 Total
Construction capital expenditures 268.2 36.2 304.4
Contractor advances and deposits on equipment, net of transfers 10.5 (7.2 ) 3.3
Total Construction Spending 278.7 29.0 307.7
Preproduction costs 8.0 23.3 31.3
Spare parts, supplies and materials inventory 6.2 11.7 17.9
Other costs ^1^ 4.5 1.2 5.7
Total Lindero Mine Costs 297.4 65.2 362.6

Note:

^1.^ Consists<br> of Argentina financial transaction taxes, deposits and other costs

There were $15.2 million of construction trade payables outstanding as at the end of the third quarter.

During the third quarter of 2020, a total of 675,000 tonnes of ore have been placed on the leach pad averaging 0.83 g/t gold, containing an estimated 17,980 ounces of gold (refer to Fortuna news release dated October 14, 2020). Average gold head grade of ore placed on the leach pad is below budget of 1.00 g/t to 1.10 g/t (refer to Fortuna news release dated May 8, 2020). The lower average head grade is due to COVID-19 related restrictions which delayed the start of mining activities and limited the access to high-grade ore from the pit and resulted in the shortfall being sourced from the medium grade stockpile.

From the commencement of mining operations in September 2019 (refer to Fortuna news release dated September 13, 2019) to the end of the third quarter 2020, a total of 2.3 million tonnes of mineralized material averaging 0.61 g/t Au, containing 45,700 ounces of gold has been extracted from the pit. Of this amount, 1.6 million tonnes averaging 0.52 g/t Au, containing an estimated 27,500 ounces of gold has been stockpiled, with the remaining 682,000 tonnes averaging 0.83 g/t Au, containing 18,200 ounces sent to the crushers. (refer to Fortuna news release dated October 14, 2020).

Management confirms the reconciliation of the material movements from the pit for the third quarter of 2020 as satisfactory and indicates a good correlation between the grade control model versus the Mineral Reserve block model with differences of less than five percent for tonnes, grade and ounces (refer to Fortuna news release October 14, 2020).

Management has updated the production forecast for Lindero in 2020 and estimates between 13,000 to 15,000 ounces of gold doré will be produced (refer to Fortuna news release dated May 8, 2020). The new forecast considers the following operational issues which were encountered during commissioning and ramp-up activities:

· Despite placing 93% of planned gold ounces on the leach-pad as at the end of October, the adoption<br>of an advance stacking sequence limited the Company’s ability to implement an early irrigation strategy as per the original<br>plan. This issue will be resolved in mid-November when the conveyor stacking system is commissioned, and a retreat stacking sequence<br>is implemented which will accelerate the irrigation process.
· Additional time has been allocated to the commissioning and ramp-up schedule of the HPGR-Agglomeration-Stacking<br>system during November and December due to the challenges and limitations of completing these activities under COVID-19 related<br>restrictions. This will result in a reduction of contained gold ounces placed on the leach-pad for the two months from 38,000 ounces<br>to 24,000 ounces.
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· The shortfall of gold ounces placed on the leach pad in November and December along with the placement<br>of a greater quantity of coarser crushed material due to the extended commissioning of the HPGR has a compound effect on reducing<br>gold doré production.
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Qualified Person

Eric Chapman, 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.

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Non-GAAP Financial Measures

The following tables represent the calculation of certain non-GAAP financial measures as referenced in this news release.

Reconciliation to Adjusted Net Incomefor the three and nine months ended September 30, 2020 and 2019

(Expressed in $ millions) Q3,<br> 2020 Adjust. Q3<br> 2020 Adjusted Q3,<br> 2019 Adjust. Q3,<br> 2019 Adjusted
Sales 83.4 - 83.4 61.3 - 61.3
Cost of sales 41.4 (0.0 ) 41.4 44.6 0.1 44.7
Mine<br> operating income 42.1 0.0 42.1 16.7 (0.1 ) 16.6
General and administration 9.0 0.0 9.0 6.9 0.0 7.0
Exploration and evaluation 0.1 - 0.1 1.5 - 1.5
Share of loss from associates 0.0 (0.0 ) - 0.0 (0.0 ) -
Foreign exchange loss 3.6 (3.3 ) 0.3 8.4 (8.2 ) 0.2
Other<br> expenses, net 0.9 0.0 0.9 1.2 (1.3 ) (0.1 )
Operating<br> income (loss) 28.5 3.3 31.8 (1.5 ) 9.5 8.0
Interest<br> income and finance costs, net (0.4 ) 0.1 (0.4 ) (0.1 ) 0.1 0.0
Income<br> before taxes 28.1 3.4 31.4 (1.5 ) 9.6 8.0
Income<br> tax expense 15.0 0.4 15.4 6.2 (0.0 ) 6.2
Net<br> income (loss) and adjusted net income 13.1 3.0 16.1 (7.7 ) 9.6 1.9

Note: Certain figures may not add due to rounding and certain comparative figures have been reclassified to conform to the current year presentation

(Expressed in $ millions) Q3<br> 2020 YTD Adjust. Q3<br> 2020 YTD Adjusted Q3<br> 2019 YTD Adjust. Q3<br> 2019 YTD Adjusted
Sales 175.5 - 175.5 188.2 - 188.2
Cost of sales 112.2 0.1 112.3 127.1 0.2 127.3
Mine<br> operating income 63.3 (0.1 ) 63.2 61.1 (0.2 ) 61.0
General and administration 22.9 0.1 23.0 20.4 0.1 20.5
Exploration and evaluation 0.6 - 0.6 2.0 - 2.0
Share of loss from associates 0.1 (0.1 ) - 0.2 (0.2 ) -
Foreign exchange loss 7.5 (9.2 ) (1.8 ) 11.9 (10.5 ) 1.4
Other<br> expenses, net 3.1 (0.2 ) 2.8 1.5 (1.3 ) 0.2
Operating<br> Income 29.0 9.4 38.5 25.2 11.7 36.9
Investment income 3.3 (3.3 ) - - - -
Interest income and finance<br> costs, net (1.1 ) 0.2 (0.9 ) (0.0 ) 0.3 0.3
Gain<br> (loss) on derivatives - - - (1.2 ) 2.6 1.4
Income<br> before taxes 31.2 6.2 37.6 23.9 14.6 38.5
Income<br> tax expense 28.3 0.4 28.6 19.1 1.9 21.0
Net<br> income and adjusted net income 2.9 5.9 8.9 4.8 12.7 17.5

Note: Certain figures may not add due to rounding and certain comparative figures have been reclassified to conform to the current year presentation

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Reconciliation to Adjusted EBITDA forthe three and nine months ended September 30, 2020 and 2019

Three<br> months ended Nine<br> months ended
September<br> 30, September<br> 30,
(Expressed in $ millions) 2020 2019 2020 2019
Net income<br> (loss) for the period 13.1 (7.7 ) 2.9 4.8
Adjustments:
Community<br> support provision 0.1 (0.1 ) - (0.2 )
Inventory<br> adjustment - 0.1 - 0.1
Foreign<br> exchange loss, Lindero Mine 2.7 8.3 8.7 10.4
Net<br> finance items 0.4 - 0.9 (0.3 )
Depreciation,<br> depletion, and amortization 11.2 11.3 31.8 34.4
Income<br> taxes 15.0 6.2 28.3 19.1
Share of loss from associates - - 0.1 0.2
Investment<br> income - - (3.3 ) -
Other<br> non-cash items (0.2 ) 1.1 (1.6 ) 1.7
Adjusted<br> EBITDA 42.2 19.2 67.8 70.2

Reconciliationto free cash flow from ongoing operations for the three and nine months ended September 30, 2020 and 2019

Three<br> months ended Nine<br> months ended
September<br> 30, September<br> 30,
(Expressed in $ millions) 2020 2019 2020 2019
Net cash<br> provided by operating activities 45.5 18.2 62.1 45.3
Less:  Change<br> in long-term receivables (0.3 ) (1.5 ) (0.9 ) (1.5 )
Less:  Additions<br> to mineral properties, plant and equipment (5.6 ) (7.2 ) (13.8 ) (18.2 )
Less:  Current<br> income tax expense (15.5 ) (5.9 ) (25.5 ) (24.4 )
Add:  Income<br> taxes paid 6.0 7.0 22.6 27.0
Free cash flow from ongoing operations^1^ 30.1 10.6 44.5 28.2

Note:

1. From ongoing operations including San Jose and Caylloma and excludes Greenfields exploration

The financial statements and MD&A are available on SEDAR and on the Company's website:

https://www.fortunasilver.com/investors/financials/2020/.

Conference call to review third quarter2020 financial and operational results

A conference call to discuss the financial and operational results will be held on Friday, November 13, 2020 at 9:00 a.m. Pacific time | 12:00 p.m. Eastern time. Hosting the call will be Jorge A. Ganoza, President and CEO, and Luis D. Ganoza, Chief Financial Officer.

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/1696/38330 or over the phone by dialing in just prior to the starting time.

Conference call details:

Date: Friday, November 13, 2020

Time: 9:00 a.m. Pacific time | 12:00 p.m. Eastern time

Dial in number (Toll Free): +1.844.369.8770

Dial in number (International): +1.862.298.0840

Replay number (Toll Free): +1.877.481.4010

Replay number (International): +1.919.882.2331

Replay Passcode: 38330

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Playback of the conference call will be available until November 27, 2020. Playback of the webcast will be available until November 13, 2021. In addition, a transcript of the call will be archived on the company’s website: https://www.fortunasilver.com/investors/financials/2020/.

About Fortuna Silver Mines Inc.

Fortuna Silver Mines Inc. is a Canadian precious metals mining company with operations in Peru, Mexico and Argentina. Sustainability is integral to all our operations and relationships. We produce silver and gold and generate shared value over the long-term for our shareholders and stakeholders through efficient production, environmental protection, and social responsibility. For more information, please visit our website at www.fortunasilver.com.

ON BEHALF OF THE BOARD

Jorge A. Ganoza

President, CEO, and Director

Fortuna Silver Mines Inc.

Trading symbols: NYSE: FSM | TSX: FVI

Investor Relations:

Carlos Baca

T (Peru): +51.1.616.6060, ext. 0

E: info@fortunasilver.com

Forward looking Statements

This news release contains forward lookingstatements which constitute "forward looking information" within the meaning of applicable Canadian securities legislationand "forward looking statements" within the meaning of the "safe harbor" provisions of the Private SecuritiesLitigation Reform Act of 1995 (collectively, "Forward looking Statements"). All statements included herein, other thanstatements of historical fact, are Forward looking Statements and are subject to a variety of known and unknown risks and uncertaintieswhich could cause actual events or results to differ materially from those reflected in the Forward looking Statements. The Forwardlooking Statements in this news release include, without limitation, statements about the Company's plans for its mines and mineralproperties; the Company's business strategy, plans and outlook; the merit of the Company's mines and mineral properties; the futurefinancial or operating performance of the Company; the timing and amount of estimated futureproduction; recovery rates; mine plans and mine life; the future price of gold, silver and other metals; costs of production; and proposed expenditures; the construction of the Lindero mine and the related costs of construction, achieving steady operationsand timing of commencement of commercial production; and forecasted production at the Lindero Mine for 2020. 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 achievedand similar expressions, including negative variations.

Forward looking Statements involve knownand unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Companyto be materially different from any results, performance or achievements expressed or implied by the Forward looking Statements.Such uncertainties and factors include, among others, the duration and effects of COVID-19,and any other pandemics on our operations and workforce, and the effects on global economies and society; changes in generaleconomic conditions and financial markets; changes in prices for gold, silver and other metals; fluctuation in foreign exchangerates; any extension of the currency controls in Argentina; technological and operational hazards in Fortuna's mining and minedevelopment activities; delays in commissioning at Lindero; delays in achieving steady production and commencement of commercialproduction at Lindero; risks inherent in mineral exploration; uncertainties inherent in the estimation of mineral reserves, mineralresources, and metal recoveries; governmental and other approvals; political unrest or instability in countries where Fortuna isactive; labor relations issues; as well as those factors discussed under "Risk Factors" in the Company's Annual InformationForm. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differmaterially from those described in Forward looking Statements, there may be other factors that cause actions, events or resultsto differ from those anticipated, estimated or intended.

-9-

Forward looking Statementscontained herein are based on the assumptions, beliefs, expectations and opinions of management, including but not limited toexpectations regarding the Company's plans for its mines and mineral properties; mine production costs; expected trends inmineral prices and currency exchange rates; the accuracy of the Company's current mineral resource and reserve estimates;that the Company's activities will be in accordance with the Company's public statements and stated goals; that there will beno material adverse change affecting the Company or its properties; that all required approvals will be obtained; that therewill be no significant disruptions affecting operations and such other assumptions as set out herein. Forward lookingStatements 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 noassurance that Forward looking Statements will prove to be accurate, as actual results and future events could differmaterially from those anticipated in such statements. Accordingly, investors should not place undue reliance on Forwardlooking Statements.

This news release also refers to non-GAAPfinancial measures, such as cash cost per tonne of processed ore; cash cost per payable ounce of silver; total production costper tonne; all-in sustaining cash cost; all-in cash cost silver equivalent; adjusted net (loss) income; operating cash flow pershare before changes in working capital, income taxes, and interest income; free cashflow from ongoing operations; and adjustedEBITDA. These measures do not have a standardized meaning or method of calculation, even though the descriptions of such measuresmay be similar. These performance measures have no meaning under International Financial Reporting Standards (IFRS) and therefore,amounts presented may not be comparable to similar data presented by other mining companies.

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