Fortuna Silver OKs Lindero construction

Fortuna Silver Mines (TSX: FVI; NYSE: FSM) has greenlit construction of an open-pit heap leach mine at its 100% owned Lindero porphyry gold project, 260 km west of the city of Salta, in northwestern Argentina’s Salta province.

Fortuna acquired Lindero when it bought the property’s previous owner, Goldrock Mines, for US$129 million in shares in July 2016. Fortuna’s share price has declined steadily since, descending from $11.80 per share in August 2016 to $5.60 on Oct. 2. But with an approved environmental impact study and all major construction permits in hand, the company is looking to finally prove the full value of its property.   

“The timing for the acquisition was great,” Fortuna president and CEO Jorge Ganoza said during a September presentation at the Denver Gold Forum in Colorado Springs. “It was a bad market. It remains a difficult market. And I believe that in this difficult market investors are sitting, waiting, for us to push this project forward.

A worker at Fortuna Silver Mines’ San Jose silver-gold mine. Credit: Fortuna Silver Mines.

“Sometimes we get complaints from the bankers because they don’t see us as very aggressive, doing acquisition after acquisition. No. We take our time, we look for the right asset and then we move. Lindero is a good example of that. It’s a transformational asset for us.”

Fortuna Silver Mines’ CEO Jorge Ganoza

Fortuna expects to produce an average 96,000 oz. gold annually at Lindero for a total 1.3 million oz. over a 15-year mine life with a 1.2-to-1 strip ratio and head grade of 0.62 gram gold per tonne. Over the first two years, however, the mine would operate with a 0.77-to-1 strip ratio and an average head grade of 0.90 gram gold to produce 137,000 oz. gold in year one, and 138,000 oz. gold in year two.

Fortuna pegs initial capital expenditures at US$239 million and sustaining capital expenses at US$105 million. An 18-month construction period gets underway this October, with mine commissioning expected in the second quarter of 2019.

“We put out in a very transparent way the numbers of the project,” Ganoza said. “As we advance the project from today through its milestones all the way to commissioning and production in 2019, we’re going to start unlocking the value, but I think we need to show the market how we advance the project.”

Lindero contains 88.3 million proven and probable tonnes grading 0.62 gram gold and 0.11% copper, or 1.75 million contained oz. gold. Measured and indicated resources total 12.5 million tonnes grading 0.24 gram gold and 0.10% copper, or 97,000 contained oz. gold.

Inferred resources are 5.7 million tonnes at 0.36 gram gold, or 65,000 contained oz. gold.

These estimates are based on 144 diamond drill holes totalling 42,400 metres as of Sept. 9.

In its mine plan, Fortuna uses a US$1,250 per oz. gold price. The after-tax net present value is US$130 million at a 5% discount rate, with an 18% after-tax internal rate of return.

A crew works in the sun at Lindero. Credit: Goldrock Mines.

The mine would process 18,750 tonnes of ore per day over 13-year pit operation.

(This contrasts with Fortuna’s other two operations, the San Jose silver-gold underground mine in Mexico, and the Callyoma silver-lead-zinc underground mine in Peru, which Ganoza calls a “steady performer.” The mines produce at a rate of 3,000 and 1,430 tonnes per day after expansions in 2016, and could produce 4.8 million equivalent oz. silver and 10.3 million equivalent oz. silver in 2017.)

Fortuna estimates a 75% life-of-mine gold recovery at Lindero.

Power will be generated on-site by an 8 MW capacity diesel oil plant. Processing is projected to cost US$10.30 per tonne with an all-in sustaining cost of US$802 per oz. gold. 

Fortuna has also highlighted results from past drilling below the depth of the pit outline, including: hole 86, which cut 154 metres from 298 metres downhole grading 0.94 gram gold, including a 22-metre interval grading 1.25 grams gold; and hole 126, which intercepted 38 metres from 444 metres downhole grading 0.97 gram gold, including a 16-metre interval grading 1.27 grams gold.

Inspecting core at Fortuna Silver Mines’ San Jose underground silver-gold mine in Mexico. Credit: Fortuna Silver Mines.

Fortuna has also been exploring the Arizaro gold-copper porphyry system, 3.2 km southeast of the Lindero deposit, which the company says “could materially add economic benefit to the Lindero project.”

“The numbers are compelling,” Ganoza said of Lindero in his presentation. “And we just have to show once again that we can execute on our word.”

Fortuna has an $893-million market capitalization, US$188 million in cash and US$40 million in long-term debt.