Fortuna Silver Mines Inc
NYSE FSM Corporate Highlights
- Founded in 2005
- 8.9 million ounces of Silver produced in 2018 makes the Company close to being a major Silver producer (10 million ounces per year)
- Two producing Silver mines, a Gold mine coming on line in Q1 2020
- All mines 100% owned
- Operating exclusively in Latin American
- US, Canadian, and German listings: NYSE: FSM, TSX: FVI, Frankfurt: F4S
- Headquarters: British Columbia, Canada
8.2 - 9.0
49.0 - 54.0
26.1 - 28.8
39.8 - 44.0
Leverage to the Price of Silver
In the current phase of the secular bull market in precious metals both Silver and Gold are likely to increase significantly in price.
Silver Bulls like myself believe that the percentage gains in Silver will far exceed the percentage gains that will occur in Gold and we therefore weight our portfolios (heavily) towards Silver.
When it comes to Mining company stocks that means looking for the companies with the maximum exposure to Silver.
Silver mineralization usually occurs along with other metals so even primary Silver producers (over half of revenue from Silver) earn some of their revenue from Gold and base metals.
A good example is First Majestic Silver which is one of the purest Silver miners on the planet. First Majestic earns about 60% of their revenue from Silver production.
As we can see in the table below Fortuna Silver clocks in at just over 50% Silver revenue.
Percentage of Revenue by Metal
Lead & Zinc
For 2019 those percentages will remain pretty much the same but in 2020 Fortuna’s Lindero Gold mine will start commercial production with an estimated 140,000 to 165,000 ounces of Gold.
Let’s look at how Lindero’s production will affect the leverage that Fortuna has to the price of Silver. We’ll assume the production of Silver, Lead, and Zinc remains the same as in 2018.
Percentage of Revenue by Metal in 2020
Lead & Zinc
This upcoming change is not a reason to cross Fortuna Silver Mines off the list of investment candidates. On the contrary, Lindero appears to be a low-cost Gold mine with at least a 13-year lifespan.
The revenue from Lindero will strengthen Fortuna Silver as a mining company and give them the ability to expand their existing Silver production and, hopefully, acquire additional Silver mines.
We do need to keep this leverage factor in mind, however, as we consider and compare Fortuna Silver against other Silver miners.
Fortuna Silver Management
Mr. Ganoza is highly qualified to lead this dynamic company to success. Besides earning a geological engineering degree from the New Mexico Institute of Mining and Technology, he worked at senior levels for multiple mining companies in Latin America before founding Fortuna Silver.
Mining may run in Mr. Ganoza’s blood since he’s the fourth generation of the family to work in the mineral extraction business.
He understands the value of focus and demonstrates this by only acquiring assets within Latin America.
Mr. Ganoza has assembled a portfolio of quality assets in Mexico, Peru, and Argentina and continues to evaluate acquisition opportunities in the region.
As an indication of his belief in the long-term success of Fortuna Silver Mines, Mr. Ganoza purchased 170,000 shares of the Company’s stock on the open market in May 2019.
Simon Ridgway - co-founder and Fortuna Silver Board Chairman
(image source: 2012 Annual Report)
Mr. Ridgway has a long history in mining beginning in the late-1970s when he prospected for Gold in the Yukon. He has played key roles in the development of multiple mining companies over the years, preferring to act as financer and adviser rather than actively running the companies.
That is the role he played with Fortuna Silver Mines, arranging the initial funding for the acquisition of the Caylloma Mine in Peru.
Mr. Ridgway runs the Gold Group, acting as the advisor and financier for several precious and base metals companies.
Fortuna Silver Mines Asset Base
Fortuna is 100% owner of two producing Silver mines and one near-production Gold mine:
- Caylloma Silver Lead Zinc Mine
- San Jose Silver Gold Mine
- Lindero Gold Mine
Caylloma Silver Lead Zinc Mine - Highlights
Location: Arequipa, Peru
Land package: 34,472 hectares (85,182 acres)
Mining methods: cut-and-fill
Ore processing facilities: 1,500 tpd flotation plant
Output: Silver-lead concentrate, zinc concentrate
Power: connected to national power grid, onsite diesel generators provide about 4% of the mine’s power requirements
Water: 70 % is recovered from the tailings impoundment area – the balance comes from the Santiago River which crosses the property
Workforce: approximately 400 Fortuna employees plus 770 contractors, primarily from the town of Caylloma and other nearby communities
Streaming agreements: none currently – a 2% NSR with Lemuria Royalties Corp begins after 21 million ounces of Silver have been recovered from specified mineral concessions – 18.1 million ounces have been recovered as of December 31, 2018
Quarterly production: 230,000 ounces Silver 6,976,000 pounds lead 11,173,000 pounds zinc
All-in sustaining costs (AISC): $13.48 per Silver equivalent ounce
LOM: almost 5 years based on current Reserves
Mine operator: Compania Minera Bateas S.A.C. (wholly-owned subsidiary of Fortuna Silver)
Look ahead for 2nd-Half 2019:
- 55 meters of development drift and 3,830 meters of infill drilling is planned for the Animas vein and the Animas NE vein which remains open at depth and to the northeast
- Mapping and sampling programs are planned for key silver-base metals structures to identify potential drill targets
Production of Silver and Gold
0.9 - 1.0
26.1 - 28.8
39.8 - 44.0
AISC per Silver-Equivalent Ounce (after by-product credits)
$11.80 to $14.50
Spanish miners began operating in the Caylloma district around 1620.
English miners were active in the region in the late-1800s and early-1900s after Mexico gained its independence from Spanish rule.
In 1981 Compania Minera Arcata (CMA), a subsidiary of Hochschild Mining plc, acquired the mine.
Due to low metal prices in the 1990s no funds were allocated towards developing Resources and production from the Caylloma mine ceased in 2002 after Reserves were depleted.
Fortuna Silver took ownership from CMA in 2005.
Commercial production resumed in October 2006 at the rate of 600 tpd.
Mineralization at Caylloma consists of two distinctly different types of ore:
silver-rich veins with low base metal concentrations located predominately in the northern portion of the property polymetallic veins with zinc, lead, Silver, copper, and Gold located in the southern portion
Prior to 2005 when Fortuna acquired the mine from CMA, production at Caylloma was focused on the silver-rich ore in the San Cristobal, Bateas, and Santa Catalina veins (see geologic map below).
Fortuna has focused on mining the polymetallic ore at Caylloma and continues that strategy today along the Animas, Animas NE, and Nancy veins.
Fault Interrupts Veins
A fault structure influences Caylloma’s mineralization by interrupting two of the key veins mined by CMA and Fortuna.
CMA mined the high-grade Silver in the Bateas vein but assumed that the fault terminated the vein.
The Bateas Piso vein to the northeast of the Bateas vein was not identified by CMA but it also contains high-grade Silver and Fortuna has done enough drilling to include this mineralization as part of its Mineral Resource estimate.
The Animas and Animas NE veins were also separated by the fault.
The 1,500 tpd processing plant at Caylloma produces two products: a lead-silver concentrate and a zinc concentrate. These products are transported by trucks to the purchaser.
Metallurgical recovery rates of 91% lead, 84% Silver, and 90% zinc are consistently achieved in the plant.
Crushing and Grinding
The three-stage crushing circuit at Caylloma consists of a jaw crusher and two cone crushers.
After crushing the ore is fed by conveyor to the two-stage grinding circuit with two ball mills in the primary stage and three ball mills in the secondary circuit.
Output from the ball mills reports to the lead-silver flotation circuit. Tailings from the lead-silver circuit feed the zinc flotation circuit.
Concentrates from the flotation circuits are thickened and filtered, with most of the water being removed in the process.
About 40% of the tailings from the processing plant are used as hydraulic backfill material in the mine.
The remaining tailings are pumped to the tailings impoundment area.
Water is recovered from the impoundment area and pumped back to the processing plant for reuse.
Processing Plant Upgrades
In 2009 a third ball mill was added to the secondary grinding circuit and throughput at the processing plant increased to 1,300 tpd.
Further plant refinement in 2016 expanded capacity to 1,500 tpd.
A zinc dryer was installed in 2018 to reduce the moisture content in the zinc concentrate.
The tailings impoundment area was expanded in January 2019 and a further expansion is planned for 2021. These projects will provide adequate capacity for the current LOM.
Fortuna continues to expand Resources at Caylloma with ongoing exploration programs.
The budget for brownfield exploration in 2019 is $800,000.
Current focus is on step-out drilling of the Animas NE vein which remains open at depth and to the northeast.
San Jose Silver Gold Mine - Highlights
Location: Taviche Mining District, Oaxaca, Mexico
Video overview: Fortuna Silver Mining Concessions in Oaxaca
Land package: 64,422 hectares (159,190 acres)
Mining methods: overhand cut-and-fill
Ore processing facilities: conventional crushing, milling, 3000 tpd Gold Silver flotation plant, dry stack tailings facility
Output: silver-gold concentrate
Power: connected to national power grid
Water: adequate water is provided by the underground dewatering system, the tailings storage facility, and a waste-water treatment plant for the town of Ocotlan de Morelos operated by Cuzcatlan
Workforce: approximately 400 Fortuna employees plus 625 contractors, mostly from San José del Progreso (pop. 2,500) and surrounding communities
Streaming agreements: 1.5 % NSR royalty to Maverix Minerals Inc., and a 1 % NSR royalty to SGM – there are two additional royalty agreements but they are on mining concessions where no mineralization has been identified
Quarterly production: 2,157,225 ounces Silver 13,204 ounces Gold
All-in sustaining costs (AISC): $9.26 per Silver equivalent ounce
LOM: just under five years based on current Reserves
Mine Operator: Compania Minera Cuzcatlan S.A. de C.V. (wholly-owned subsidiary of Fortuna Silver)
Look ahead for 2nd-Half 2019:
- Further definition of the Victoria mineralized zone which remains open in all directions
- Metallurgical test results from the Victoria mineralized zone
- Brownfields exploration program for Victoria and Trinidad including 11,500 meters of drilling and 450 meters of underground access development for drilling
- Infill drilling program of 2,780 meters
- Expansion of the dry stack tailings facility
Production of Silver and Gold
7.3 - 8.1
49 - 54
AISC per Silver-Equivalent Ounce (after by-product credits)
$8.30 to $10.20
The San Jose Mine consists of multiple mineralized zones as shown in the map below.
Mined intermittently by Minerales de Oaxaca S.A. (MIOXSA) from 1980 to 2006 at a rate of around 100 tpd.
This is the primary mineralized zone that has been mined by Fortuna Silver since commercial production began in 2011.
The primary veins in Trinidad are well-defined and they represent approximately 85% of the current Resources at San Jose.
A 2015 drilling program targeting the Trinidad deposit discovered mineralization in the Victoria zone about 350 meters east.
Initial exploration drilling (4,442 meters, 7 holes) was conducted at Victoria in H2 2015 with a follow-up program (5,588 meters, 9 holes) performed in 2016.
Mineralized intervals were found in most of the holes so drilling continued in 2017 (11,366 meters, 23 holes) and 2018 (6,275 meters, 12 holes).
With 51 drill holes completed (27,672 meters), it was possible to estimate the mineralization at Victoria using inverse distance weighting (IDW) and the February 2019 Technical Report for San Jose reflects this new Inferred Mineral Resource of 3.6 million ounces of Silver and 29,700 ounces of Gold.
The Victoria mineralized zone remains open in all directions.
The San Ignacio zone has multiple historic mines and shallow workings.
Fortuna has conducted several exploration drilling programs at San Ignacio and identified significant zones of Silver-Gold mineralization.
Accessibility issues in the historic workings have prevented underground mapping and sampling.
High-grade shallow mineralization was mined in the Taviche zone in the 19th and 20th centuries.
Fortuna conducted the first systematic exploration efforts at Taviche and the Company identified primarily base metals with some low-grade Silver-Gold mineralization.
Detailed mapping, exploration drilling, and surface sampling has been performed in the highly prospective La Noria zone.
Mineralization at La Noria may be similar to the Trinidad deposit but it may occur at greater depths due to downward displacement along the fault.
Systematic mapping, exploration drilling, and sampling has been performed in the Maria zone.
Mineralization in this area is predominately base metals with some Silver present.
Fortuna has drilled 14 holes totaling 4,427 meters at El Pochotle and La Altona but no significant mineralization has been identified.
Small-scale mining in the San Jose del Progreso region began in the 1850s. By the early 1900s there were numerous deposits of Silver and Gold being mined in the district.
Mining activity in the region dropped off significantly in 1910 when the Mexican Revolution began and then occurred periodically during the 1920s. It was the 1960s before steady small-scale mining resumed in San Jose.
In 1980 Minerales de Oaxaca (MIOXSA) acquired the San Jose Mine and worked it off-and-on until 2006, processing around 100 tpd and transporting the ore to a small processing plant approximately 11 miles away.
Pan American Silver obtained an option on the property in 1999 and drilled five holes during 2001.
In 2006 the mine was acquired by the Mexican company Cuzcatlán, jointly-owned by Fortuna Silver Mines Incand Continuum Resources Ltd. Fortuna took 100% ownership of the property in March 2009 by acquiring all of the issued and outstanding shares of Continuum.
Commercial production from San Jose began in September 2011 with 1,000 tpd throughput.
Drilling Programs at the San Jose Mine
Based on the drilling programs conducted at San Jose it is clear where Fortuna has focused its exploration and development efforts.
Trinidad is the primary mineralized zone being worked by Fortuna and infill drilling and brownfields exploration of this area continues.
San Ignacio is obviously an interesting target but the real standout is the Victoria zone.
Notice in the table below that in three years Fortuna has completed as much drilling as was performed in 12 years on San Ignacio.
Fortuna is clearly focused on developing and mining the Victoria zone.
This is exciting for investors because it means new Resources and extended LOM from an easily accessible area of the San Jose property.
Pan American Silver
Pan American Silver
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Crushing and Milling
Processing begins with a jaw crusher that reduces the ore to 102 mm before it travels by conveyor to a secondary crusher which outputs 25 mm product. A tertiary crusher reduces the ore to 12 mm.
The final product from the crushing circuit is 12.7 mm or smaller when it is stockpiled in preparation for the milling circuit.
Ball mills are used to reduce the fine ore to 200 mesh size before it enters the flotation circuit.
800 ton-per-day (tpd) Ball Mill
Flotation processing occurs in two stages with 10 propeller agitated cells in stage one and six cells in stage two.
Concentrates from the flotation process are cleaned in two stages to increase their purity before passing to the thickening stage.
Minerals that do not float during stage two are considered tailings.
Flocculating reagents are used to agglomerate the concentrated mineral particles before they are sent to a pressure filter which produces concentrate cake, San Jose's final product.
A similar process is used to create tailings cake which is then transported to the dry stack storage area.
Water recovered from the pressure filters is re-circulated through the processing plant.
There have been two expansions of the processing plant at San Jose.
The first occurred in September 2013, raising capacity from 1,150 tpd to 1,800 tpd, with a further increase to 2,000 tpd in April 2014.
A further plant expansion in June 2016 brought throughput to the 3,000 tpd level. This upgrade facilitated the mine’s current annual output of 7+ million ounces of Silver and 50,000+ ounces of Gold.
Tailings storage capacity was increased in May 2018 with the addition of a dry stack tailings facility. Further expansion of the tailings capacity is planned for 2019 and 2020 to provide storage through the current life of the mine (LOM).
Wastewater Plant in Oaxaca, Mexico
Successful mining operations require two critical utilities: energy and water.
The San Jose mine had access to the national power grid so the energy requirement was solved with the construction of a power substation on site.
Sourcing water presented a bigger challenge since San Jose is located in a semi-arid region where neither surface water nor groundwater for wells is readily available.
Fortuna Silver came up with a brilliant solution to this challenge and demonstrated the Company’s commitment to being a good neighbor by refurbishing a local sewage treatment plant that had fallen into disrepair and been abandoned.
The plant no longer processed the sewage that flowed to and through it. Raw sewage was being dumped straight into the Atoyac River which the community of Ocotlan de Morelos (population 25,000) used for drinking water and for irrigating crops. Needless to say, stomach infections were not uncommon among the local residents.
The abandoned plant caused other issues as well, flooding roads and a nearby athletics field with raw sewage during the rainy season, serving as a breeding ground for rodents and flies, and creating unbearable odors for anyone downwind.
Fortuna solved all these problems by agreeing to rebuild the plant and operate it for 15 years in return for the grey water output from the plant.
The modernized plant was fully operational in late-2010 and Fortuna had solved part of its water challenge and dramatically improved the lives of all of the residents in and around the Municipality of Ocotlan.
Grey water from the treatment plant provides about 5% of the water needed at San Jose. Additional water comes from dewatering the underground mine workings and from the tailings dam where water is collected and stored during the rainy season.
Lindero Gold Mine - Highlights
Location: Salta Province of Northern Argentina
Video overview: Lindero Project
Land package: 3,500 hectares (8,649 acres)
Mining methods: open pit heap leach
Ore processing facilities: three-stage crushing circuit, agglomeration circuit, leach pad, SART plant, CIC circuit, ADR plant, electrowinning cells, refinery
Output: Gold doré bars
Water: Water permits and rights of access to the Lindero Project are guaranteed through water and access licenses granted by the Mining Court of Salta. Requirements will be sourced from two existing wells located 13 km southeast of the Project site, along with an additional well to be drilled as part of construction activities.
Power: Power will be generated on-site by an 8 MW capacity diesel oil plant
Workforce: approximately 2,300 during the current construction phase, almost all are Argentinian and live in the Province of Salta and surrounding areas
Streaming agreements: none
Quarterly production: begins in Q1 2020
All-in sustaining costs (AISC): n/a
LOM: 13 years based on current mine plan and Reserves
Look ahead for 2nd-Half 2019 (and Beyond):
- Q4: commissioning of crushing and agglomeration circuits
- Q4: Ore stacking on leach pad
- Q1 2020: first doré bar poured
Lindero Mine Overview
Lindero is an open pit Gold heap leach project in the Salta Province of Northern Argentina.
The project is progressing according to plan with approximately 80% of the overall work already completed. Pouring of the first doré bar is scheduled for Q1 2020.
While Lindero is not a Silver mine, it does not detract from Fortuna’s attractiveness as an investment, even for hardcore Silver Bugs like myself.
Lindero is projected to add 145 to 160 thousand ounces of Gold to Fortuna’s overall production in 2020 and this will be low-cost Gold with an estimated AISC of just over $800 per ounce.
With an expected payback period of less than four years, Lindero will provide significant cash flow that Fortuna can use to expand their existing Silver mines and acquired additional Silver mines and projects.
145 to 160
Discovery and Exploration
The mineral-rich zone that includes Lindero was discovered in September 1999 by a graduate student at the Colorado School of Mines.
Dr. Murray Hitzman taught graduate level classes at the School of Mines and acted as technical advisor for Mansfield Minerals. Russell Dow needed a project for his master’s thesis and Dr. Hitzman tasked him with mapping the area surrounding Mansfield Minerals’ Arizaro property.
While looking at aerial photos and satellite imagery of Arizaro Mr. Dow noticed evidence of thermal activity which is often associated with Gold and Silver-rich mineralization.
The samples Mr. Dow collected during his field trip to Arizaro confirmed his suspicions and Mansfield Minerals quickly staked the property. The Company then developed an exploration program including geologic mapping, talus fine sampling, and trench sampling.
Arizaro Volcanic Complex with Lindero and Arizaro Cones Circled
In July 2000 the Mining Court of Salta Province granted Mansfield title to Arizaro and in September 2000 the Company’s exploration project identified the gold-copper mineralization of the Lindero Project.
Mansfield continued its exploration program in 2000 and 2001 before executing an option/joint-venture agreement on the Arizaro-Lindero property to Rio Tinto Mining in May 2002.
Rio Tinto performed ground magnetic surveys, induced polarization (IP) surveys, and drilled 10 holes (3,279 meters total) before returning the property to Mansfield in March 2003 prior to the due date of the May 2003 option payment. The Gold resources identified by Rio Tinto did not meet the company’s parameters for large-scale mining projects.
Along with extensive metallurgical testing and trench sampling, Mansfield performed an aggressive drilling project between 2005 and 2010 including:
- 2,609 meters (11 holes) in 2005-2006
- 28,768 meters (100 holes) in 2006-2008
- 3,480 meters (18 holes) in 2010
Feasibility Studies and a Name Change
Mansfield continued its exploration program and had a Pre-Feasibility Study prepared for the Lindero property in 2010. This study assumed a throughput of 30,000 tpd.
A Feasibility Study based on 18,750 tpd was completed in 2012.
In January 2013 Mansfield Minerals Inc changed its name to Goldrock Mines Corp while Mansfield Minera SA, a wholly-owned subsidiary of Mansfield Minerals, continued as the operator of the Lindero project. Some of the Goldrock and Fortuna corporate documents after this name change in 2013 can be confusing because they still refer to “Mansfield”, the mine’s operator.
The 2012 Feasibility Study was updated in 2015 and then in 2016 Goldrock commissioned a new Feasibility Study to incorporate the latest metallurgical testing, drilling program (4,461 meters in 12 holes), engineering design, cost estimations, and Gold price.
Fortuna Mines Takes Over and Moves Lindero Forward
In July 2016 Fortuna Silver Mines acquired all of the issued and outstanding shares of Goldrock Mines, making Goldrock a wholly-owned subsidiary and giving Fortuna 100% ownership of the Lindero Project.
Fortuna continued to optimize and advance the 2016 Feasibility Study for Lindero leading up to a decision about how to proceed with the project.
In a press release dated September 21, 2017 Fortuna Silver announced that the Board of Directors had given the go-ahead to construct an open pit, heap leach Gold mine at Lindero.
Mineral Processing Overview
Processing 18,750 tonnes (1 tonne = 1.1 US tons) of ore per day at Lindero begins with a jaw crusher which feeds into three cone crushers followed by high pressure grinding rolls (HPGR). The output from this three-stage crushing process is expected to have a size of 6 mm.
Crushed ore will travel to the agglomeration circuit where concentrated cyanide and cement will be added in a rotating drum. Cement is used to optimize the permeability of the leach pad and provide strength for a greater pad height which in Lindero’s case will be 100 meters.
Agglomerated ore will be stacked in the 105-hectare (260 acre) leach pad area using conveyors and a radial stacker.
A two-stage leaching process will be used with 30 days for stage one and 60 days for stage two.
Pregnant leach solution will be pumped to the SART (sulfidization, acidification, recycling and thickening) plant where copper content will be precipitated. Copper in leach solution can interfere with the Gold recovery process so the SART plant was added to Lindero’s mining plan in order to deal with the cyanide-soluble copper in the ore.
There will be two outputs from the SART plant. The first is copper-sulfide filter cake containing copper, Gold, Silver, and zinc which will be sold as by-product. The second output is the pregnant leach solution which will travel to the carbon-in-column (CIC) circuit and then the ADR (Adsorption-Desorption-Recovery) plant.
Following the ADR plant is electrowinning and refining where the final output, Gold doré bars, are produced.
Fortuna expects this overall process to recover 75% of the Gold contained in the Lindero ore.
Equipment for the three-stage 18,750 tpd crushing circuit is in place. Installation of the hydraulic, electrical, and lubrication systems is in progress. Commissioning of the crushing circuit is scheduled for Q4 2019.
Installation of the 8 MW power plant is complete and pre-commissioning is in progress. This 12-generator, diesel-fueled plant will provide all of the power needed at Lindero.
8 MW Power Plant
Potential Upside at Lindero
These factors create the potential for increased mineral Reserves and longer LOM at Lindero:
- the Lindero deposit remains open at depth
- the nearby Arizaro mineral deposit is not included as part of Lindero’s current Reserves
- several exploration targets have been identified within the existing Lindero land package
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