TORONTO (miningweekly.com) – Latin America-focused silver producer Fortuna Silver Mines has swung to a fourth-quarter profit, compared with the same period a year earlier, mainly as a result of increased silver and gold production.

The company late on Wednesday reported net income of $8.5-million for the fourth quarter ended December 31, compared with a net loss in the same period of 2011 of $1.8-million. Fortuna said the higher earnings for the quarter resulted mainly from higher sales at San Jose, in Mexico and $6.4-million in lower income taxes.

Sales increased by 22% to $37.9-million, from $31-million in the same quarter of 2011. During this period the company produced 1.01-million ounces of silver and 4 368 oz of gold, which was 11% more silver and 5% more gold year-on-year.

San Jose mine operating earnings remained flat at $13.3-million for the quarter, and cash flow from operations, before changes in working capital, increased by 35% to $11.9-million.

Mine operating earnings remained flat, owing to lower results from Caylloma mine, in Peru, which was affected by higher depletion and depreciation charges, an inventory build-up, and a rise in unit cash costs.

The increase in cash flow from operations, before changes in working capital, reflected the contribution of San Jose to cash margins, as well as a lower tax rate in the period.

Compared with the third quarter of 2012, cash generated by operating activities, before changes in working capital, decreased by $8.1-million to $11.9-million, mainly owing to lower sales, of $5.9-million, driven by lower final sales adjustments of $3.5-million, changes in concentrate inventory, and lower head grades at San Jose, and to higher unit cash costs at Caylloma, which had an impact of $1.3-million. Cost at the mine was expected to increase by 10% this year.

For the year ended December 31, the company posted record net income of $31.5-million, up 62% when compared with $19.5-million in 2011. The increase in net income reflected the contribution of the San Jose mine, which started commercial operations in September 2011, and a lower effective tax rate, which reduced income taxes by $5-million.

Basic earnings per share increased by 56% to $0.25 in 2012, compared with $0.16 in 2011.

Fortuna recorded record production of 3.98-million ounces of silver and 20 699 oz of gold, at a consolidated cash cost per ounce, net of by-product credits, of $5.96/oz.

The company have budgeted $52-million in capital expenditures for this year. The most significant project would be the $14-million San Jose mill expansion from 1 000 t/d to 1 500 t/d, which was planned for commissioning early in the third quarter.

Fortuna expected to produce 10% more silver this year at 4.4-million ounces, and 13% more gold at 23 300 oz. The cash cost per ounce of payable silver, net of by-product credits was expected to be $5.

"Looking ahead, in 2013 we will continue to focus on maximising the production and cash flow of our current mines and actively explore our commanding land tracts in Peru and Mexico, while selectively evaluating external growth opportunities," CEO Jorge Ganoza said.

The company’s TSX-listed shares traded at C$4.40 apiece on Thursday afternoon.