Fortuna hits high grade at Caylloma and raises $30 million to build San Jose

Vancouver – With the discovery of high grade gold-silver segment of the main vein at the Caylloma mine, receipt of the final permits for development of the San Jose mine, and $50 million in new funding available from a financing and a debt facility, Fortuna Silver Mines (FVI-T) is moving full speed ahead.

Fortuna operates the polymetallic Caylloma mine in south Peru and is primed to develop a new silver-gold mine at San Jose, in Mexico. Of late, both projects have been producing their fair share of news.

The Animas vein at Caylloma, which currently accounts for 85% of the mine’s production, primarily hosts silver and base metal mineralization, with little gold; the five other veins at Caylloma, which were all partially mined in the past, are primary silver structures. But it now seems Animas also has gold to offer.

As part of its ongoing exploration effort, Fortuna drove raises and crosscuts above the highest working level at Caylloma. Channel samples from those workings revealed high grade silver-gold mineralization that is open laterally along 400 metres of strike and vertically to the surface, a distance of 150 to 200 metres.

In raise 418, 41 channel samples along 84 metres of vertical extent returned an average grade of 1,890 grams silver per tonne and 5.4 grams gold per tonne, over an average sample width of 1.4 metres. In raise 412, 30 channel samples along 60 metres of vertical extent averaged 404 grams silver and 1.26 grams gold, over an average sample width of 1.6 metres. Channel samples were taken every 2 metres.

Crosscut 418 also intersected precious metal mineralization. Over a true with of 4.4 metres the crosscut averaged 2,110 grams silver and 13.27 grams gold. And crosscut 407 returned average grades of 1,453 grams silver and 6.12 grams gold over 10 metres width.

Only one drill hole has tested the Animas vein above the highest working level, which is level 6. Hitting the vein just above the working level and roughly 200 metres along strike from raise 418, hole 7506 cut 5.2 metres grading 116 grams silver, 1.03 grams gold, 3.74% lead, 5.43% zinc, and 0.29% copper. Fortuna is currently planning a 15-hole drill program to test the lateral and vertical continuity of the high-grade, precious metal mineralization. Drilling is expected to start in mid-February.

Fortuna also plans to punch exploratory drill holes into two regional targets, known as Don Luis II and Vilafro, where surface sampling and mapping have identified mineralized structures.

The Caylloma mine came into its own in 2009, according to Fortuna’s production numbers from the last year. Production of silver, lead, and zinc all increased substantially compared to 2008 as a result of increasing mine output, mill throughput, silver grades, and recoveries.

In 2009 Caylloma produced 1.69 million oz. silver, almost doubling its 2008 production of 861,000 oz. The operation also churned out 28.4 million lbs. zinc and 25.1 million lbs. lead, increases of 22% and 52% respectively over the previous year. The head grade at the Caylloma mill averaged 155 grams silver, 3.66% zinc, 3.1% lead, and 0.25% copper during 2009.

For 2010 Fortuna expects to maintain production at the 2009 levels for every metal except copper, which will increase significantly with the commissioning of a new copper recovery circuit. In 2009 Caylloma produced just 189,000 lbs. copper; in 2010 the company expects to boost copper production to 1 million lbs.

Fortuna bought the Caylloma property from Hochschild Mining (HOC-L) in 2005; Hochschild had operated the mine for several yeas but shuttered it in 2003 due to low metal prices. The original mill, built in the 1970s, could handle just 500 tonnes of ore daily. In 2008 Fortuna increased its throughput capacity to 1,100 tonnes per day, then in 2009 increased it again slightly, to 1,200 tonnes.

With Caylloma up and running smoothly, Fortuna can shift its focus to preparing for development at San Jose. In mid-December the company received the last permit needed to break ground at the project, which is in the southern Mexican state of Oaxaca. With permits in hand Fortuna expects to publish a pre-feasibility study before the end of March and then immediately start construction. The goal is to commission the operation in mid-2011.

Fortuna’s plans for San Jose, which will be formalized in the pending pre-feasibility study, call for a 1,500-tonne-per-day underground mine feeding a conventional flotation facility producing gold and silver concentrates. Annual silver production is expected to average 3 million oz.

The mine will tap into two vein-based deposits, wherein precious metals are hosted in hydrothermal and crackle breccias and quartz-carbonate veins and stockworks. Various miners have extracted silver from San Jose since the 1850s, with the only significant mine operating from 1980 until 2003.

Fortuna’s drilling work since 2005 has defined an indicated resource of 2.7 million tonnes grading 295 grams silver and 2.27 grams gold, plus an inferred resource of 2.4 million tonnes averaging 262 grams silver and 2.11 grams gold.

A scoping study pegged development costs for San Jose at $46 million. Fortuna has already secured access to more than enough capital – the company recently inked a deal for a $20-million credit facility and announced a brokered $30-million private placement. In the financing, the company is selling 13 million shares at $2.30 a piece. Fortuna also has some $33 million cash on hand.

In mid-January Fortuna graduated to the TSX main board from the Venture board. In recent weeks the company’s share price has ranged between $2.25 and $2.70. Fortuna has a 52-week trading range of 77¢ to $3.01 and has 95 million shares outstanding.