Jorge Ganoza, President & CEO Fortuna Silver Mines
INTERVIEW TRANSCRIPT BELOW
Fortuna Silver Mines is positioned for sustainable growth with two, 100%-owned operating silver mines and extensive property holdings in Peru and Mexico. Formed in 2005, the company has established a reputation as an efficient mine builder and operator. Today, Fortuna is one of Latin America's fastest-growing silver producers with production forecast to grow from 4.0 million ounces of silver and 20,700 ounces of gold, plus base metals, in 2012 to approximately 5 million oz of silver and 26,000 oz of gold, plus base metals by 2014.
Fortuna's land package of 95,600 hectares offers attractive opportunities for driving organic growth. A 51,000-meter drill program is underway to examine multiple silver and gold targets at the San Jose and Caylloma mines. More on Fortuna Silver Mines...
Chris Waltzek: Well we’re so glad you’ve chosen GoldSeek.com as a trusted investment and business information source. Today’s special guest, Mr. Jorge Ganoza from his offices in the other hemisphere in Lima, Peru.
Well it’s a pleasure to welcome back to GoldSeek.com radio my special guest, Mr. Jorge Ganoza, President, CEO and Director of Fortuna Silver Mines. Welcome back, Mr. Ganoza.
Jorge Ganoza: Good morning to you and your audience.
Chris Waltzek: Let’s begin the discussion, sir, with an overview of the Fortuna Silver Mines which operates two 100 percent owned underground mines in Latin America, the San Jose property in Mexico and the Callyoma Mine in Peru. Last year silver and gold production increased for the sixth consecutive year. Silver production increased 59 percent over 2011, gold increased 195 percent. I’d like for you to fill in the blanks regarding your mines.
Jorge Ganoza: Fortuna has been growing steadily since 2007 which was the first year of production basically by expanding our two core assets; the San Jose mine in Mexico and the Callyoma mine in Peru.
What’s exciting at the moment is the recent discovery we have made at our San Jose mine in Mexico. In February we announced the first discovery holds. We had a second release in – news release in April and on May 22 we announced a third release with additional holds which have confirmed the emergence of a new area which we called Trinidad North with grades and sicknesses of silver that are comparable with some of the best silver deposits in the world.
No, I can’t point out to drill hole 288 where we have a true thickness of 19 meters with almost a kilo of silver per ton, petro, silver, gold deposits and veins, hole 283 with seven meters and almost two kilos and a half of silver on hole 295 for example with hole – with six meters in a kilo and a half.
So basically we have outlined through these discovery holes a large and coherent sum that remains open in at least two directions and it’s in the immediate vicinity of existing research and resources, so we plan to incorporate this new area into our production within 18 months.
Chris Waltzek: Well I understand that the San Jose property, you actually had an interesting announcement and exciting development where you located high grade silver gold deposits and veins on the property and as you mentioned you did compare this in the announcement with some of the best silver deposits worldwide.
Jorge Ganoza: San Jose, our mine has been in production since September 2011. We currently have roughly 20 million ounces of silver in reserve, some 170,000 ounces of gold in reserves. The last 25 million ounces of silver and 215,000 ounces of gold in incurred resources, the mine currently operates at 1,000 tons per day and we’re ramping up production in August of this month to 1,500 and 1,800 tons per day.
This discovery is in the immediate vicinity to the north of existing reserves and resources where we’re doing the mining. We made the first discovery holes in – late in – late last year in the month of December. We had our first release as I mentioned in the month of February. In the first half of 2013 we’ve been drilling aggressively.
We have outlined a coherent zone of broad widths and high grades where grades in the magnitude of 700 grams per ton to two and a half kilos is the norm, so we are excited about the potential to have a core zone of very high grades and brought with – that can have a material in the production.
It is a factual statement when I say that the kinds of grades and sicknesses that we find in this Trinidad zone, in the central part of Trinidad zone which right now extends longitudinally for roughly 150 meters and vertically for another 150 meters. It’s consistent, what you see – what we’re seeing there is – from the dual intersects is consistent with what you find in some of the best silver deposits in the world and the zone remains open in at least two directions and, in fact, the best drill intercepts too late as the ones that outline the open zone to the north onto it.
Holes 295 which is the northernmost hole intercepted the six meters two thickness with a kilo and a half of silver that’s a silver-gold equivalent and the deepest hole in the zone right now is zone 283 which intersected seven meters with 2.3 kilos of silver per ton.
Chris Waltzek: Another important Fortuna Silver Mines property that we begin to discuss today, the Caylloma property, this is located in one of the most important metal productive provinces in the Andes. I understand you also made an important announcement regarding a high-grade silver gold find last month as well on this property.
Jorge Ganoza: Yes, over the course of the last two years our exploration teams have been working hard. You know the nature of exploration, we’ve been working for two years with little to report on the programs, seeing the fruit of the work carried over the last two years coming forward with the discovery of the zone we just spoke about it, San Jose Trinidad North, and the discovery of a grain code, Ramal Pisa Carolina, a long name for a vein, where we intersected a high gold rate.
Cayllma is a prolific silver vein system. Callyma, it’s – the mine itself, that vein system has been in production for over 500 years. It’s truly one of the historic silver deposits in Peru. It’s been at work since pre-colonial times. It’s been known for silver content but little known for gold.
So it’s been an exciting discovery because this new zone, this new vein carried grades, gold grades, the highest, 21 grams per ton, as we reported in the news release where the norm in the district and in the vein system that we control in our land package is usually around no higher than a gram – no between half a gram to a gram.
So we’re excited about this. It’s enhancing our knowledge of our robust and well-developed, and well-endowed vein system, and we’re pursuing this new discovery of high-grade gold in the system.
Chris Waltzek: I’d also like to discuss the Fortuna silver mines’ rock solid financial condition. Your company’s debt to equity ratio is excellent. You have less than roughly half a million dollars in total debt. That means that most of your financing is through equity plus your profit margin is exceptional, approaching 17 percent.
You know this classifies your shares for what I’d call a Warren Buffet portfolio candidate, a very solid company with excellent prospects. Care to share any other aspects of your financial condition?
Jorge Ganoza: Yes, something that characterizes Fortuna, as since its inception we’ve been good stewards of capital. We are very conscious of shareholder dilution and we have raised since inception back in 2005 $130 million.
With that money, with that capital we raised through equity we have built two mines. We are projecting sales this year of roughly $180 million. Our EBIDTA margin is around 42 percent and we have a treasury with $68 million in cash plus a credit facility that – a revolving credit facility for another $40 million which we have not touched, so yes, we are debt free. So we are in a very sound financial position and that one, a position that gives us flexibility in this context of declining prices, at least in the short term and also the observability to act when we see opportunity because we have the financial resources to do it.
And when I say act, act on the exploration front for to found organic growth, expanding our minds, reallocating capital to aggressive exploration programs and also in the case of Guda in many opportunities we can also move quickly.
Chris Waltzek: Another big plus for your shares is the discount in cash flow situation. According to my figures here Fortuna Silver Mines could be trading at least 50 percent below its intrinsic value. I think this is another big plus for investors. Any comments?
Jorge Ganoza: Yes, the entire sector has been hit lately on the valuation side but you know I think the shares have done relatively well and we’re recovering some of the ground.
When you look at our production profile, our growing production profile over the next few years at least on a three, four year outlook you see organic growth, a good eye for organic growth and even though it’s early and we still cannot factor into that growth the discovery of the Trinidad North area in the concept production model we expect we’ll be able to do that in the second half of next year as we have reserved conversion.
So right now we have a very exciting discovery in San Jose and we need to convert and do work there so we can convert the discovery into reserves that we can fit into our production models. I will be – there will be a better realization of the impact of that discovery as we get closer to that and we achieve the reserve conversion but we are already saying some analysts, we have good analyst coverage from Canadian institutions and North American institutions already adjusting their multiples and factoring in the impact of this new discovery in evaluation and in their target prices.
Chris Waltzek: Are there any other important challenges or hurdles ahead for Fortuna Silver Mines on the horizon?
Jorge Ganoza: We are a growth company. We’ve been sourcing organic growth over the course of the last seven years and with the discoveries we are making at both mines we continue to see good potential for continued organic growth which is the most creative best growth we can deliver on a per share basis and to the benefit of our shareholders. So I am glad to – we are all excited to see that there is nothing that gets you more passionate and excited than – than a discovery on your ground. That’s what we made.
Now the work ahead of us is to advance with the exploration, define these zones and have them see their production models or mine plants and production models. So but that is execution and I think we’ve proven the market and we are recognized for that for our ability to deliver on not just the exploration from but also on the execution.
We built our nines on time, on budget so we need to remain focused that we have always been on the execution of our plans and also looking for new opportunities for a group that could be growth. I believe that a good environment allows us to see opportunity out there and we’re out there actively looking also outside of the farm, so the organic growth is taking care of these discoveries. We just have to focus on execution.
We’re looking, scouting the market pursuing opportunities for quick growth outside the farm, so that’s something where we are also being very active.
Chris Waltzek: Have we covered everything or is there anything else you’d like to discuss?
Jorge Ganoza: No, I think we covered everything and again I can just only stress that we are all here very excited about this discovery and I’d like to thank you for your work.
Chris Waltzek: Thank you, sir, and we’ll look forward to having you back on GoldSeek.com Radio.
Jorge Ganoza: All the best.
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