Fortuna Silver's 'tiger by the tail'

We take an closer look at Fortuna Silver's San Jose silver-gold mine and substantial extensions it has started to define.

Author: Kip Keen

VANCOUVER, BC (MINEWEB) -

Over the past year Fortuna Silver Mines has outlined a promising extension to its San Jose silver-gold in Oaxaca, Mexico, that looks bound to secure it a lengthier mine life.

"It apppears to me that we are going into a deeper part of the system that is well endowed structurally, with broader width of mineralization, broader width for potential operations, and details like that," said Jorge Ganoza, Fortuna Silver President and CEO in a phone interview on Wednesday. "In short we feel the San Jose mine is on the fringe of what appears to be a much bigger deposit."

Two of the chief veins at San Jose - Trinidad and Bonanza - are holding up well in drilling this past year at depth and to the north of the main San Jose resources now being mined. Fortuna discovered the new extensions back in late 2012 and has since produced a maiden resource of 1.9 million @ 269 g/t silver and 1.67 g/t gold on the two parrallel and closely spaced veins in the Trinidad North area, which is adjacent to previously known resources. These add to about 3 million tonnes in existing inferred resources and 3.9 million tonnes in proven and probable resources @ 196 g/t Ag and 1.7 g/t Ag.

Meantime Fortuna has drilled north of the new inferred resources (further away from the San Jose mine) and continues to intersect the Trinidad and Bonanza veins with strong silver and gold mineralization often over multi-metre widths in what is believed to be a low-sulphidation deposit. Its deepest and most northerly hit came back with up to 4 metres @ 4,413 g/t Ag.

After a quick look at Fortuna long and cross sections of the growing mineralized areas (see below) it's clear that in terms of the Bonanza and Trinidad veins, which comprise the bulk of San Jose resources, Fortuna Silver has near doubled their extent of high grade areas in the past year of exploration. Now, drilling for additional extensions continues to the north and at depth.

Other facets of the Trinidad and Bonanza extensions (currently distinguished as Trinidad North and Trinidad North Extension) excite Ganoza. "Mineralization appears to be much more continuous and higher grade and broader than what we have at the San Jose mine," he said. "So we're quite excited about the way the deposit has evolved in the past 12 months."

It could have important ramifications for Fortuna's mine plan - which has already grown aggressively over the past few years since San Jose came online. Fortuna Silver initially planned San Jose as a 750-tonne-per-day operation, but started it at 1,000-tonne per day and then subsequently ramped it up to 1,800 tonnes per day late last year and is now on track to hit 2,000 tonnes per year early this year.

That's without considering the new resources and mineralized extensions at Trinidad North and to that end Fortuna hinted at the possibility of further expansions back in January, saying in a press release that it was planning on additional engineering studies of the mine in light of Trinidad North.

"It's just natural to start thinking, 'How do you do this now that we have a better handle on Trinidad?" Ganoza said.

To be clear, nothing's been decided, but I was still interested to hear if Ganoza, a geological engineer, would expand on the scope of potential expansion given the Trinidad North discovery. He didn't divulge much in terms of how much added tonnage Fortuna might consider (though you could see it easily looking at 500 to 1,000 tonnes per day more) other than to say Fortuna would have a good idea by the end of the first quarter.

He did add some context. "Even though it's early days and we've only been exploring Trinidad for a year, the history of resource conversion at this mine so far is excellent from inferred to measured and indicated and reserves," he said. "Our resource conversion is close to 100 percent."

In terms of growth Fortuna Silver's focus has been on its own assets. That is obvious with the ramp-up of operations at San Jose, subsequent discoveries there, and also at its other operating gold-silver mine, Caylloma, in Peru, where there is a new high grade gold zone. But with mergers and acquisition picking up early this year, I was also curious about his view of growth through M&A.

Is Fortuna considering it?

Indeed, Ganoza first highlighted expansion of existing Fortuna Silver project's as the cheapest way to deliver growth to shareholders. He said that in this regard Fortuna Silver's philosophy as regards M&A was "not to be reactive, but proactive in terms of our search" for assets.

That said, Ganoza was clear that Fortuna was considering possible opportunities. "We are active in looking and Fortuna's paper is strong relative to some of the companies in our space."

Moments later he expanded a little further.

"With Trinidad North I believe we have the tiger by the tail. That is certainly going to be the main source of growth we will focus on. And we will use the strength we devise from that to opportunistically look at things outside the farm."

Whatever the case there, Fortuna looks to have some promising years ahead of it at San Jose, as well as at Caylloma, assuming silver and gold prices hold. In this regard, Ganoza thinks a bottom is forming, though he wasn't making any price predictions.

"I think this environment continues to be supportive of higher prices," he said. "What those higher prices are, I wouldn't dare to say. $19 to $20 an ounce silver is lower than what we had two years ago, but still historically a high price on a relative basis."

"So you have to be able to make money at this price."

Fortuna Silver Production
2013: 4.6 million ounces silver, 21,242 ounces gold
2014: Projecting 6 million ounces silver and 32,3000 ounces gold in 2014 (about two thirds from San Jose) with $17.14 all in sustaining cash costs

SAN JOSE EXTENSIONS AT A GLANCE

This image shows a fairly typical cross section of the Trinidad North area and the parrallel Trinidad and Bonanza veins.

LONG SECTIONS

The next two images show long sections of the two parrallel Trinidad and Bonanza veins.

Bonanza Vein

Trinidad Vein

Image credits: Fortuna Silver