Introducing Progress and Exceeding Guidance in OaxacaMon, 10/22/2018 - 11:42
Q: How do you ensure responsible and sustainable operations and how do you add value to the communities you work with?
A: In Mexico, we work in Oaxaca, which is probably the most complex state in which to operate a mine. But Fortuna Silver Mines, through its subsidiary Compañía Minera Cuzcatlán, was able to change the mentality of the communities of San Jose del Progreso. This area was marginalized with little infrastructure development and scarce public services for education, health and sanitation. Today, the area around where we built our operations has flourished and developed sustainable communities, with schools, local stores and other amenities that benefit the community. Our company always prioritizes security, environmental and social aspects. Our operations in Oaxaca started producing in 2011 and are expected to be exhausted by 2024. From the exploration to the forecasted closure phases, our investment in the area totals over US$1 billion, including CAPEX, materials, supplies and services. The company will also contribute over US$340 million in taxes over its life cycle in the area
We are committed to the local communities of San Jose del Progreso and nearby communities. In 2017, we spent US$33 million in the area on supplies, labor and raw materials. This money included the workers’ share of the profits (PTU) and expenditures. This is a lot of money for such a small region. Also, our relationship with the local and federal authorities has been very good and they have been supportive of this project. The company’s policy is to be strictly transparent and in full compliance with local requirements.
Q: How close are you to accomplishing the company’s FY18 guidance and how much production is coming from Mexico?
A: Fortuna’s annual production guidance for 2018 is 8.3 million ounces of silver, 48,300 ounces of gold, 25.8 million pounds of lead and 44.8 million pounds of zinc at an estimated consolidated AISC of US$6.8/oz of silver. Ninety percent of the silver guidance and 100 percent of gold guidance comes from Mexico, while zinc and lead are predominantly from Peru. We expect to exceed our forecast by at least 10 percent. Regarding our San Jose mine in Oaxaca, our original forecast was to produce 850t/d but we were able to start outright with almost 1,000t/d in 2011. By 2014 our production was at 2,000t/d. In 2016 we reached the peak of the mine’s operations with 3,000t/d while adhering to budget.
Q: You have several exploration projects in joint venture with Prospero Silver. How successful has this been?
A: I think this JV is working very well. By the end of 2018, we will decide whether to increase our participation, which is less than 20 percent currently, or select some of the properties Prospero is analyzing and take them to development ourselves. We expect our property portfolios in Mexico to increase as a result of this JV.
As for other exploration activity, we are looking at both brownfield and greenfield projects. Compañía Minera Cuzcatlán’s 2018 budget for exploration in Mexico is almost US$10 million, most of which will be spent near our current operations in Oaxaca.
Q: What is Fortuna Silver Mines’ expectation for its operations in the country?
A: Fortuna Silver Mines is a relatively young company, having started 14 years ago, but our board and staff are experts in the mining industry and the opportunities that exist in Latin America. We have operations in Peru and Mexico and will start in Argentina in the third quarter of 2019. We are focused on strengthening the company’s foundation based on a culture of sustainable growth. We are also building a robust platform and organizational structure that can be replicated in other mining jurisdictions abroad. This implies analyzing the capabilities we have and harmonizing these with our needs. Fortuna’s first mine was in Peru, the second in Mexico, the third will be in Argentina. Our fourth mine most likely will be in Mexico.