VANCOUVER — Fresh from doubling the throughput at its San Jose silver–gold mine in Mexico, Fortuna Silver Mines (TSX: FVI; NYSE: FSM) is finding that a steady stream of high-grade drill results from the mine’s new Trinidad North zone has it thinking about growing the operation once again.
Trinidad North is contiguous with the main deposit at San Jose, a mine that taps into a low-sulphidation, epithermal silver–gold vein system. Fortuna discovered new mineralization north of the known deposit in early 2013, and by October the company had defined an initial resource at Trinidad North of 1.9 million inferred tonnes grading 269 grams silver per tonne and 1.67 grams gold per tonne.
The high-grade body is Fortuna’s main exploration target at San Jose, and the company has two rigs probing Trinidad North from underground. The drills are returning high grades over good widths, and the latest results include a strong intercept from the northern limit of current drilling, suggesting Trinidad North has room to grow.
The best result from the most recent set came from hole 349A, which returned 929 grams silver and 4.87 grams gold over 4.5 metres, followed by 1,808 grams silver and 12.31 grams gold over 4.1 metres. Hole 359 also cut a strong intercept: 887 grams silver and 4.04 grams gold over 3.4 metres.
Both of those were step-out holes and should help grow the deposit during the resource estimate update, expected in the third quarter. The most prospective results came from hole 364. Not only was the intercept impressive — 2,573 grams silver and 10.77 grams gold over 3 metres — but it came from the northern limit of known mineralization at Trinidad North.
The hit shows that Trinidad North remains open along strike to the north. The deposit, defined over 600 vertical metres, is also open to depth.
Fortuna has been producing silver and gold at San Jose since September 2011, churning through 1,000 tonnes daily until April, when the expansion doubled throughput.
Now Fortuna is investigating an expansion to 3,000 tonnes of ore per day.
This year Fortuna is forecasting that San Jose will process 683,000 tonnes averaging 203 grams silver and 1.56 grams gold to produce 4 million oz. silver and 30,400 oz. gold. In 2013, before the expansion, the mine produced 0.5 million oz. silver.
Fortuna expects to mine Trinidad North in the first quarter of next year, and adding the high-grade ore to the mill feed should boost output to 4.6 million oz. in 2015.
In addition to San Jose, Fortuna also owns and operates the Caylloma polymetallic mine in southern Peru.
The underground mine taps into a silver–gold–lead–zinc epithermal vein system. An average throughput of 1,284 tonnes per day gave Fortuna 2.1 million oz. silver, 2,212 oz. gold, 17,780 lb. lead and 25,211 lb. zinc at Caylloma in 2013.
With production growth on the horizon at San Jose and a balance sheet containing almost US$50 million in cash and equivalents — plus an undrawn US$40-million credit facility — Fortuna is not getting the valuation it deserves, according to Haywood Securities analyst Benjamin Asuncion.
“We feel a premium multiple relative to peers is justified, given Fortuna’s balance sheet strength and the significant organic growth potential presented by the high-grade Trinidad North zone at San Jose,” Asuncion wrote in a research note.
On news of the latest drill results from Trinidad North, Fortuna’s share price gained 24¢ to close at $4.54. The company has a 52-week trading range of $2.65 to $5.31, and 126 million shares outstanding.
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