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3/16/12

Fortuna Silver (FVI.to) (FSM) fails miserably

You know what pisses me off? I'll tell you what pisses me off. When a company that I think displays all the hallmarks of best practices in the mining industry falls way, but way short of the mark. When a company in which I've held shares for years and watch grow in an extremely successful way, one that I've championed to others, turns out to prefer the shady way of doing business once it's reached a certain level of maturity and success.

On February 26th, Fortuna Silver (FVI.to) (FSM) suffered a fatality at its Caylloma mine in Peru. According to the mandatory filing at Peru's Ministry of Energy and Mining (MEM) Sixto Chambilla Apaza, a third party contractor working at Caylloma was killed "by explosives". As mentioned just the other day, we know that mining is a dangerous occupation and that however exacting a company may be, fatalities are (forgive the irony) a fact of life in the business. But what's hard to swallow is that Fortuna (FVI.to) (FSM) preferred to keep the death quiet, away from news media and out of any sort of news release that any responsible mining company, although it has no obligation to publish, should damn well publish.

No, FVI preferred to keep it quiet, which may have been a choice that was influenced by the arrival of PDAC just afterwards and the way in which company CEO Jorge Ganoza may have had to face difficult questions when presenting on his company. Coincidence? I think not.

I found out about the death this evening, March 15th, and it was only by some semi-chance as I was looking for another dataset at the MEM website and while there decided to check in on the accidents and deaths reports. On noticing the fatality at Caylloma, I immediately contacted FVI IR who told me the company felt "very perturbed" by the accident and that they planned to inform the public via the year-end report due out March 23rd and also at the conference call to discuss the company's year-end results slated for March 27th.

Yeah well, let's call bullshit on that immediately because how can a management team feel "very perturbed" and then decide not to disclose the thing they were all perturbed about until a full month (and one day) later? And what about that disclosure, stuck somewhere in the MD&A, all kinda "yes we did this and achieved that and revenues were this and profits were that and wow look at us and oh by the way some 3rd party grunt blew himself up the other day but the outlook for 2012 is great and we're just wonderful and look at all that silver....." , or in other words the type of disclosure that assuages the brass but is done in the least damaging way possible...over a month after the event and long after PDAC and all those pats on the back have passed.

Not good enough, Fortuna Silver. Not good enough by a long, long way. If this is the how you've decided to grow up and become a "leading force in world silver" (or whatever that soundbite was), while on the way discarding the best practices that made you an attractive stock to own in the first place, good luck to you. You can do it all on your own.

Finally, before publishing this evening your humble scribe sent a draft of the above to FVI to allow for comment and also asked for further details on the death of Sixto. This below was the reply received from the FVI IR department (translated by your author) approximately 90 minutes after the request. Except to note here that the government authority investigation is an automatic occurrence in Peru and it would be strange not to have one move into action immediately, the reply is offered with no further comment:

Let me start by stating that our company does not hide information from the market nor do we go about our business in a shady way.


To answer your question, Sixto died at 10am on February 26th on level 12 of the Animas vein when his set charge exploded in an uncoordinated way. This accident killed Sixto instantly and his immediate superior, Felix Larota, was injured. Felix is currently recovering.


The accident is under investigation by government authorities and an internal investigation is about to be concluded.

The company has decided to inform and discuss the unfortunate event via its MD&A and the telephone conference call. You have the right to disagree with our decision.
UPDATE: Thanks for all feedback, both here and in the comments section below, on this subject. I'd like to thank Gary BiiWii for the post and link, too. There's a follow-up post on this subject here. Also, here below is a selection of the unsolicited mails received this morning from readers (sorry if yours isn't included, there has to be a limit at some point):

From JM
So does that mean you're calling a sell on FVI?
 
I mean, I don't know what other good silver producer you could replace it with. Then again, you do have your ethical standards and nobody who knows you would expect otherwise.
(the answer to that one is in the follow-up post)

From HA, who was commenting on a mail exchange a few days previously in which we both praised FVI as a company.
" I think Fortuna's mgmt. has made their bones. "

Is there a word (usually German) for when you make a statement and it gets contradicted almost immediately?  There should be.

Good job. It kind of hurts when you like the company.

From GC
"...good piece on FVI today.  Not liking that one bit.  Was going to buy more today.  Am holding off - you said it - they need to make an announcement regarding the error of their ways, the accident, and it will NOT happen again."
From reader W:
Fortuna's reaction must have been coldly calculated over many hurried meetings fraught with clammy hand wringing and filled with maggots buzzing, "optics," "damage control," and "sad-sad-sad, this coffee's great."

Some thought might've even been given to compensation, but that compassion would be the bailiwick of legal, delegated by the boardroom.

Your own blog, via the Big Picture link provided this context:

Final word: There will be more on this in IKN150, out Sunday.