Fortuna Silver Mines (FVI.TSXV), a Canadian-based silver mining company, reported that it has signed a commitment letter under which it will enter into a $20 million senior secured revolving credit facility with The Bank of Nova Scotia. The credit facility will have a maturity of two and a half years. Fortuna Silver stated that the proceeds of the facility will be used for general corporate purposes, including the development of its high-grade San Jose Silver-Gold Project in Mexico. The silver mining company’s San Jose project is moving forward to production, and this credit facility provides Fortuna Silver with additional financial flexibility during the construction stage at San Jose. On December 14, 2009 the silver miner announced that it had obtained all the required construction and environmental permits for the operation of a 1,500 tonne per day underground mine at San Jose.

Earlier this week Casey’s International Speculator highlighted Fortuna Silver in their latest report and formally recommended it with a Buy rating. According to the report, the mining permit announcement for San Jose eliminated the fear of political risk and made Fortuna “a great pick again.” Casey went on to say that with the permitting process complete, it expected Fortuna to begin construction activity. In addition, with much of the engineering work already complete, Casey estimated that San Jose will add approximately 3.5 million ounces of silver per year to the silver miner’s production, and transform the company from a “small (and somewhat neglected) silver producer to a lower mid-tier silver producer” by the end of 2011. As a result, this process will elevate Fortuna into a position whereby it can acquire other silver producers, or become an attractive takeover target for a larger mining company.

In addition to the development of San Jose, Casey cited the transformation of the silver miner’s Caylloma Silver Mine “from an unwanted stepchild into a cash cow,” and cited the strong management team led by Fortuna Silver’s CEO, Jorge Ganoza, as the primary reason for the company’s success. When the Casey research team first visited Caylloma roughly four year ago, it said the place was a “shambles,” but production has steadily risen to the current rate of 1.6 million ounces of silver per year. Caylloma also has uncommonly clean ore, which allows its concentrates to attract premiums from smelters. From a financial perspective, Casey expects Caylloma to continue to generate cash flow that the silver mining company can use to build San Jose or to make acquisitions.

As a result of the quality of its assets and the silver mining company’s strong financial position, the Casey team argues that a value-adding acquisition is “always a possibility.” It goes on to describe Fortuna Silver as a low-cost producer “with a clear path to tripled production and plenty of blue sky potential.” Moreover, as San Jose approaches production, it believes the company’s stock will respond accordingly as the market takes notice. With San Jose moving forward to production, Fortuna will become a multi-project operator. The rising daily share volume in Fortuna is an indication that institutional shareholders are establishing positions.

Fortuna Silver Mines is a silver and base metal producer focused on mining opportunities in Latin America. The company’s primary assets are the Caylloma Silver Mine in southern Peru and the San Jose Silver-Gold Project in Mexico. In afternoon trading shares of FVI.TSXV were unchanged at C$2.48, while the gold price was up $19.50 to $1,139.19 per ounce and the silver price was up $0.42 to $18.22 per ounce.