VANCOUVER — Shares of Mexico-focused producer Fortuna Silver Mines (TSX: FVI; NYSE: FSM) received a boost following news of a successful drill program at the company's San Jose silver-gold mine in Oaxaca State, Mexico. On Oct. 17 Fortuna released a resource and reserve update at San Jose, which includes a maiden resource on the company's high-grade Trinidad North discovery.
Excitement began to build for Fortuna back in February, when the company chased its Trinidad ore shoot to the north and cut grades and widths that were significantly higher than averages seen in San Jose's central vein systems. Trinidad North was given exploration priority following its discovery, and Fortuna also fast-tracked underground development in order to expand northern drill access and better test the extension of the mineralization at depth.
As a result, Fortuna was able to outline an initial resource at Trinidad North before year end, which totals 1.9 million tonnes grading 269 grams silver per tonne and 1.67 grams gold per tonne for 16.3 million oz. contained silver and 100,800 oz. contained gold assuming a 70 grams silver equivalent cut-off grade.
Fortuna notes the presence of an even higher-grade resource within Trinidad North's Bonanza vein system, where the company has delineated 1.2 million inferred tonnes grading 330 grams silver and 1.99 grams gold for 12.5 million oz. contained silver and 75,500 oz. contained gold at a 100 grams silver equivalent cut-off grade. The resource at Bonanza is roughly 50% higher in average grade than the company's proven-and-probable reserves at San Jose.
Trinidad North remains open at depth and along strike to the north, and Fortuna continues to chase its extensions via two underground drill stations. The company hopes to have its new discovery in production by first-quarter 2015. Fortuna had invested US$3.7 million on exploration at San Jose by the end of June, which puts it on target to meet its annual expenditure guidance of roughly US$6.4 million.
BMO Capital Markets Analyst Andrew Kaip, who maintains an "underperform" rating on Fortuna along with a $3.50 price target, noted on Oct. 17 that "the initial resource estimate at Trinidad North represents an important step toward demonstrating economic viability of the newly-discovered zone."
Fortuna also continued with an in-fill program at its Stockwork zone that resulted in approximately a 22% jump in silver-gold reserves, which the company expects to incorporate into its mine plan in 2014.
San Jose now hosts 3.9 million proven-and-probable tonnes grading 196 grams silver and 1.7 grams gold for 24.8 million contained oz. silver and 215,000 oz. contained gold at a 70 grams silver equivalent cut-off grade. Global inferred resources are up roughly 39% at 5.4 million tonnes grading 202 grams silver and 1.56 grams gold for 35.3 million contained oz. silver and 272,300 oz. contained gold.
And higher average head grades at San Jose will definitely help Fortuna's production profile moving forward. During the second quarter the company struggled with local variability in its production stopes that dropped average gold-silver grades. The company also experienced a series of mill stoppages related to the commissioning of a 1,800-tonnes-per-day plant expansion. Silver and gold output was 12% and 24% below guidance, respectively, for the quarter.
Fortuna's shares were up 10%, or 34¢, during the two days of trading following its resource update at San Jose, and closed at $3.79 at the time of writing. The company reported US$44 million in cash and equivalents at the end of June, and maintains 125 million shares outstanding for a $475 million press-time market capitalization.
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