Mr. Jorge Ganoza reports
FORTUNA PROVIDES CONSTRUCTION UPDATE AND REPORTS INITIAL ON-SITE ARRIVAL OF MINE EQUIPMENT AT ITS LINDERO GOLD PROJECT IN ARGENTINA
Fortuna Silver Mines Inc.
has provided an update on construction activities at its 100-per-cent-owned Lindero gold project located in the province of Salta, Argentina. Based on the progress of construction to date, the company continues to plan for the commencement of commercial operations during the third quarter of 2019. With Lindero in its first year of full production, Fortuna's consolidated precious metals annual production (1) is expected to increase in 2020 to 190,000 ounces of gold and nine million ounces of silver or 328,000 gold equivalent (2) ounces.
Jorge A. Ganoza, president, chief executive officer and director, commented: "Field activities at Lindero are picking up progressively, with a current on-site head count of 330 people and a planned peak of 950 workers for December. Delays in the building and expansion of the camp at the site have been a limiting factor for commencing certain contracts, which has compressed our timeline for the planned start of commercial operations from early to late in the third quarter of 2019. With a large portion of our major contracts awarded, our project team is working on opportunities to further optimize the sequencing of concrete, electromechanical and piping installations to streamline the project's schedule." Mr. Ganoza continued, "Mass earth movement and leach pad construction, one of the initial and largest field activities, is at full gear now after a slow start and is advancing according to plan for completion in the second quarter of 2019." Mr. Ganoza added: "Detailed engineering is between 70 per cent and 100 per cent completed for all project areas allowing for the start of construction on all scheduled fronts. The procurement of all key equipment and major construction contracts is progressing according to the project's timetable. As of the end of July, we estimate we have awarded contracts and purchase orders that represent approximately 71 per cent of the project's direct capital costs."
Initial on-site delivery of Komatsu mine equipment started in mid-July with the arrival of two graders and a dozer. The manufacturer is on schedule to deliver 11 additional pieces of equipment, including six 100-ton trucks and two 17-cubic-yard wheel loaders in September, 2018. Final delivery of two mine production drill rigs is scheduled for November, 2018. Mine development activities are scheduled to commence in December, 2018, with drilling and blasting scheduled for March, 2019.
(1) Based on annual production plans for the life of the San Jose, Caylloma and Lindero mines.
(2) Gold equivalent is calculated using a gold to silver ratio of 1:65 and does not include lead nor zinc byproducts.
Mass earthworks for the leach pad and solution ponds is advancing according to the commissioning and production plan after suffering from a slow start and ramp-up in development. Activities have been rescheduled and will not have an adverse impact on the company's construction timeline. The leach pad is programmed to receive first ore in the second quarter 2019 rather than the end of the first quarter; which is still in line with the commissioning and production plan.
The project was impacted by a setback in the acquisition of temporary camp modules from a local supplier which caused a two-month delay in the mobilization of the contractor for major concrete works to mid-August, 2018. This has compressed the project's schedule for the commencement of commercial operations from early to late in the third quarter of 2019, while still remaining within the original range of the schedule.
The company has increased the size of its temporary camp to host a peak of 950 workers in December, 2018, in order to accommodate for overlapping construction activities and higher head count.
As of the end of July, the company has assigned mainly through purchase orders and construction contracts approximately $131-million (U.S.), or 71 per cent of the project's total direct capital cost. Total direct capital costs are forecast to increase by approximately 6 per cent. The initial capital cost of the project is currently forecast to increase between 10 per cent and 17 per cent, the increment is mainly driven by the impact of higher head count in indirect costs and higher owner's cost. The forecast initial capital costs is subject to, among other matters, the final revision and negotiation of the large and labour intensive electromechanical and piping installation contract and initiatives for the optimization of head count at the site.
As of the end of June, total cash spent on construction at Lindero in 2018 amounted to approximately $38-million (U.S.), with $31-million (U.S.) spent in the second quarter. The pace of spending is expected to continue to increase over the following months to an anticipated total amount spent of $150-million (U.S.) to $175-million (U.S.) in 2018. As of the end of June, the company maintains a healthy liquidity position of over $278-million (U.S.), including $80-million (U.S.) of an undrawn credit facility, which along with cash generated from operations, is expected by management to meet financing requirements for the construction of the project.
An infill drill program at Lindero was completed successfully in June, with a focus on enhancing the geo-metallurgical model for the year one production plan. The drill rig has been moved for a 2,000-metre program to test the Arizaro satellite gold-copper target, located approximately three kilometres from the site of Lindero's ore processing facility.
Further updates on the construction of the Lindero gold project will be provided as the development of the project proceeds.
About the Lindero gold project
In September, 2017, the commencement of construction at Lindero was officially launched (see Fortuna news releases dated Sept. 21, 2017, and Dec. 21, 2017). Lindero has been designed as an 18,750-tonne-per-day owner-operated open-pit mine with a pit life of 13 years based on existing mineral reserves. The initial capital cost budget estimate for the construction of Lindero is $239-million (U.S.); this amount does not include VAT (value-added tax) which is expected to be recovered in the first 24 months from the start of mining operations. The technical report of the Lindero project is available on SEDAR and on the company's website.
Eric N. Chapman, MSc, vice-president of technical services, is the qualified person for Fortuna Silver Mines as defined by National Instrument 43-101. Mr. Chapman is a professional geoscientist of the Association of Professional Engineers and Geoscientists of the province of British Columbia (registration No. 36328) and has reviewed and approved the scientific and technical information contained in this news release.
Fortuna is a growth-oriented, precious metal producer with its primary assets being the Caylloma silver mine in southern Peru, the San Jose silver-gold mine in Mexico and the Lindero gold project in Argentina. The company is selectively pursuing acquisition opportunities throughout the Americas and in select other areas.
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