Fortuna making San Jose bigger and stronger

Fortuna Silver (FVI-T) continues to bulk up its San Jose mine in the south of Mexico, and this time it is doing it for free.

The company has been steadily building up the asset both in terms of milling capacity and ounces in the ground over the last few years, and the latest news is that it has found a way to increase output at the mine without any additional capex.

Its ability to do so has to do with the fact that the plant was already being built to a larger scale and with better equipment, it has found a way to increase water availability by controlling evaporation loss. Such optimization will yield an extra 16% of silver per year at no additional capex the company says.

A mill expansion from the current 1,000 tonnes per day to 1,500 tonnes per day was already underway, but now the company says it will take that number even higher, up to the 1,800 tonnes per day mark. The expansion is expected to be commissioned in the third quarter.

“Fortuna has been a non-stop growth story but since 2012 has seemed like it could be at risk of losing much of this momentum given lower margins at Caylloma and the last leg of growth at San Jose,” CIBC analyst Leon Esterhuizen writes.

The latest news, however, addresses such concerns and Esterhuizen has a $6.00 price target for the stock and a ‘sector outperform’ rating.

Also boding well at San Jose are recent high-grade finds connected to a recent acquisition from Pan American Silver (PAA-T, PAAS-N). Fortuna bought 55% of the Taviche Oeste concession that surrounds the San Jose Silver mine earlier this year, and then at the end of the May announced it hit a highlight intercept of 19.3 metres with an average grade of 736 grams silver and 4.8 grams gold.

It has now locked up the entire concession for itself by exercising a US$6 million option payment for the remaining 45% interest. It expects to have an initial resource estimate out on the Trinidad North discovery at the concession in the fourth quarter.

San Jose is located in the state of Oaxaca, roughly 47-km south of the city of Oaxaca. The mine went into commercial production in September of 2011 with a milling rate of 1,000 tonnes per day.

The San Jose deposit currently has proven and probable reserves of 3.3 million tonnes grading 190 grams silver rand 1.58 grams gold for 20.4 million oz. of silver and 169,500 oz. of gold.

The deposit is described as a low sulfidation epithermal vein system characterized by mineralized multiphase quartz-carbonate-sulfide veins, hydrothermal breccias and stockwork veining. The mineralized system is hosted within a sequence of Tertiary andesitic volcanic and volcaniclastic rocks.