Why Fortuna Silver Popped and Lundin Mining Dropped on Monday

While the news of the EIA extension cheered Fortuna Silver investors, Lundin Mining stock tanked after announcing a new acquisition deal.

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What happened?

The shares of Fortuna Silver Mines (TSX:FVI)(NYSE:FSM) surged by 17% Monday to $4.90 per share, making it the top gainer for the day among the TSX Composite components. On the flip side, Lundin Mining (TSX:LUN) stock was the worst performer on the main index, as it dove by 17% to $8.87 per share. By comparison, the TSX Composite benchmark fell by 1% yesterday.

So what?

Fortuna Silver is a Vancouver-based precious metals mining company with a market cap of about $1.4 billion. On December 20, the company announced in a press release that Mexico’s environmental ministry has granted a 12-year extension of the environmental impact authorization (EIA) at its Oaxaca-based San Jose Mine. This positive development came nearly a month and a half after Fortuna revealed its intentions to appeal against the environmental ministry’s denial to extend the EIA due to a pending evaluation. The news of the EIA extension cheered investors, triggering a buying spree in FVI stock.

In contrast, Lundin Mining stock tanked sharply after it announced the acquisition of Josemaria Resources. Lundin is willing to acquire all of the issued and outstanding shares of the Vancouver-based mining company by paying an implied equity value of roughly around $625 million.

After the deal, Lundin Mining expects to benefit from owning 100% of Josemaria’s Argentina-based copper-gold project, which could deliver large-scale copper-gold growth. However, investors seemingly didn’t see any big tangible benefit in the near term from this acquisition, which took Lundin Mining stock lower Monday.

Now what?

It’s important to note that FVI stock saw 26% value erosion in November, as investors feared its Mexican Silver mine’s closure due to expired EIA. That’s one of the reasons I don’t find Fortuna stock overvalued at the moment, despite its yesterday’s big rally.

Meanwhile, Lundin Mining’s bid to acquire Josemaria Resources might not look like a great deal to many investors at first. Nonetheless, I expect the deal to pay off well in the long term by helping Lundin improve its financial growth trends. That’s why long-term investors could take advantage of the recent drop in LUN stock to buy it cheap.

At the time of writing, the shares of Fortuna and Lundin are trading with 53% and 22% year-to-date losses, respectively.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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