Latin America-focused Fortuna Silver Mines (FVI-T, FSM-N) says it is set to beat its full-year forecast helped by record third-quarter production driven by higher-than-expected grades at its two mines.
The Vancouver-based firm is targeting 3.7 million oz. silver and 17,400 oz. gold this year and by the end of the third quarter had reached 80% of its annual production guidance for silver and 94% for gold.
For the period ended Sept. 30, Fortuna produced 1.03 million oz. silver and 5,348 oz. gold from its San Jose mine in Mexico and Caylloma mine in Peru. This represents a production increase of 53% for silver and 230% for gold compared to a year ago. By-product production of lead and zinc dropped slightly in comparison to 4.4 million lbs. and 5.6 million lbs. in the third quarter.
For the first nine months of the year, Fortuna generated 2.9 million oz. silver and 16,331 oz. gold, plus significant zinc and lead by-products, putting it well on its way to reach its 2012 forecast as it continues to optimize its mines.
At San Jose, the firm is expanding the current 1,000-tonne-per-day operation to 1,500 tonnes a day by mid-2013.
To support that development, it is building the second stage of the tailings dam to boost its tailings and water storage capacity needed to treat the extra ore, with construction expected to wrap up in early 2013. Around this time, it should receive the 800-tonne-per-day ball mill and flotation cells that it has purchased to assist with the expansion.
For the year, San Jose is scheduled to churn out 1.7 million oz. silver and 15,000 oz. gold. In the third quarter, it processed 503,000 oz. silver and 4,500 oz. gold, reflecting 19% and 25% more silver and gold ounces than expected owing to higher grades. Average grades of 191 grams silver and 1.73 grams gold were 16% and 26% above plan, says Fortuna.
Earlier in the year, the company slated US$30.7 million for capital projects at the high-grade San Jose mine for the year, including the mill expansion and a new concentrate leaching facility.
At its Peruvian mine, Caylloma, it had estimated spending US$25 million during the year on a new tailings facility as well as for camp improvements and plant upgrades.
“At Caylloma, FVI has expanded the tailings facility, which now has enough capacity to see production through mid-2013,” writes BMO Capital Markets analyst Andrew Kaip in a note.
Fortuna has all the construction permits in hand for the new tailings plant and should collect the final operation permit in the coming weeks, says Kaip.
For quarter ended September, Caylloma delivered roughly 525,000 oz. silver, 850 oz. gold, 4.4 million lbs. lead and 5.6 million lbs. zinc. Head grades for silver and gold were 181 grams and 0.44 gram gold or 10% and 21% above expectations. This contributed to the mine producing 5% and 38% more silver and gold, respectively, than planned.
For the year, Caylloma should produce 2 million oz. silver with gold, lead and zinc as byproducts.
While cash costs were not disclosed, the company’s consolidated cash cost per oz. of payable silver for the second quarter was US$3.75, up from negative US$4.37 a year ago, mainly due to cost pressures, and a decrease in by-product credits at the Caylloma mine.
Fortuna is eyeing consolidated annual production of 5 million silver oz. and 26,000 oz. gold with lead and zinc by-products by 2014.
On the third-quarter production results, the stock gained 6% to close at $5 in Toronto. It has a 52-week range of $3.03-$7.50.
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