UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2017
Commission File Number 001-35297
Fortuna Silver Mines Inc.
(Translation of registrants name into English)
200 Burrard Street, Suite 650, Vancouver, British Columbia, Canada V6C 3L6
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
FORM 20-F ☐ FORM 40-F ☑
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Fortuna Silver Mines Inc. (Registrant) | ||||||||
Date: | November 9, 2017 | By: | /s/ Jorge Ganoza Durant | |||||
Jorge Ganoza Durant | ||||||||
President and CEO |
Exhibits:
99.1 | Interim Financial Statements for the period ended September 30, 2017 | |
99.2 | Managements Discussion and Analysis for the period ended September 30, 2017 | |
99.3 | CEO Certification | |
99.4 | CFO Certification | |
99.5 | News release dated November 8, 2017 |
Exhibit 99.1
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2017 AND 2016
(Presented in thousands of United States dollars, unless otherwise stated)
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Income Statements
(Unaudited Presented in thousands of US dollars, except for shares and per share amounts)
Three months ended September 30, |
Nine months ended September 30 |
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Sales (note 21) |
$ | 64,012 | $ | 65,212 | $ | 192,757 | $ | 152,389 | ||||||||
Cost of sales (note 22) |
39,068 | 36,798 | 118,419 | 92,504 | ||||||||||||
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Mine operating income |
24,944 | 28,414 | 74,338 | 59,885 | ||||||||||||
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Other expenses |
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Selling, general and administrative (note 23) |
5,045 | 7,153 | 16,242 | 29,138 | ||||||||||||
Exploration and evaluation |
41 | 18 | 193 | 194 | ||||||||||||
Share of loss of equity-accounted investee |
47 | | 88 | | ||||||||||||
Foreign exchange loss (gain) |
102 | 83 | 3,329 | (378 | ) | |||||||||||
Other expenses (income) |
821 | | 1,828 | (4 | ) | |||||||||||
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6,056 | 7,254 | 21,680 | 28,950 | |||||||||||||
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Operating income |
18,888 | 21,160 | 52,658 | 30,935 | ||||||||||||
Finance items |
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Interest income |
(674 | ) | (89 | ) | (1,474 | ) | (235 | ) | ||||||||
Interest expense |
439 | 531 | 1,375 | 1,545 | ||||||||||||
Accretion of provisions |
173 | 124 | 498 | 399 | ||||||||||||
Loss (gain) on financial assets and liabilities carried at fair value |
3,206 | (203 | ) | 4,223 | (346 | ) | ||||||||||
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3,144 | 363 | 4,622 | 1,363 | |||||||||||||
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Income before income taxes |
15,744 | 20,797 | 48,036 | 29,572 | ||||||||||||
Income taxes |
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Current income tax expense |
6,675 | 10,296 | 23,476 | 17,792 | ||||||||||||
Deferred income tax (recovery) expense |
(1,199 | ) | 344 | (7,605 | ) | 435 | ||||||||||
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5,476 | 10,640 | 15,871 | 18,227 | |||||||||||||
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Net income for the period |
$ | 10,268 | $ | 10,157 | $ | 32,165 | $ | 11,345 | ||||||||
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Earnings per share (note 20) |
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Basic |
$ | 0.06 | $ | 0.08 | $ | 0.20 | $ | 0.08 | ||||||||
Diluted |
$ | 0.06 | $ | 0.07 | $ | 0.20 | $ | 0.08 | ||||||||
Weighted average number of common shares outstanding during the period (000s) |
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Basic |
159,307 | 141,062 | 157,503 | 133,676 | ||||||||||||
Diluted |
159,534 | 142,462 | 157,849 | 134,796 |
The accompanying notes are an integral part of these financial statements.
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Comprehensive Income
(Unaudited Presented in thousands of US dollars)
Three months ended September 30, |
Nine months ended September 30, |
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income for the period |
$ | 10,268 | $ | 10,157 | $ | 32,165 | $ | 11,345 | ||||||||
Items that may in the future be reclassified to profit or loss: |
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Change in fair value of hedging instruments, net of nil tax (note 10b) |
55 | 274 | 235 | (425 | ) | |||||||||||
Change in fair value of marketable securities, net of nil tax (note 6) |
(24 | ) | 286 | 162 | 593 | |||||||||||
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Comprehensive income for the period |
$ | 10,299 | $ | 10,717 | $ | 32,562 | $ | 11,513 | ||||||||
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The accompanying notes are an integral part of these financial statements.
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited Presented in thousands of US dollars)
September 30, 2017 |
December 31, 2016 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
$ | 118,660 | $ | 82,484 | ||||
Short term investments (note 5) |
77,113 | 41,100 | ||||||
Marketable securities (note 6) |
1,086 | 1,579 | ||||||
Derivative assets (note 10) |
2 | 973 | ||||||
Accounts and other receivables (note 8) |
32,658 | 24,987 | ||||||
Income tax receivable |
129 | 72 | ||||||
Prepaid expenses |
2,385 | 2,145 | ||||||
Inventories (note 9) |
16,662 | 13,572 | ||||||
Assets held for sale |
1,434 | | ||||||
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250,129 | 166,912 | |||||||
Deposits on non-current assets (note 11) |
1,265 | 572 | ||||||
Investment in associate (note 7) |
2,798 | | ||||||
Other non-current receivables |
889 | 562 | ||||||
Deferred tax assets |
282 | 471 | ||||||
Mineral properties and exploration and evaluation assets (note 12) |
276,228 | 263,535 | ||||||
Plant and equipment (note 13) |
121,300 | 130,863 | ||||||
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Total assets |
$ | 652,891 | $ | 562,915 | ||||
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LIABILITIES |
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CURRENT LIABILITIES |
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Trade and other payables (note 14) |
$ | 36,400 | $ | 40,160 | ||||
Closure and rehabilitation provisions (note 17) |
1,397 | 1,121 | ||||||
Income taxes payable |
10,147 | 14,447 | ||||||
Current portion of finance lease obligations |
1,444 | 2,128 | ||||||
Derivative liabilities (note 10) |
3,107 | 254 | ||||||
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52,495 | 58,110 | |||||||
Bank loan |
39,845 | 39,768 | ||||||
Lease obligations |
| 906 | ||||||
Other liabilities (note 16) |
1,339 | 3,544 | ||||||
Closure and rehabilitation provisions (note 17) |
12,652 | 12,091 | ||||||
Deferred tax liabilities |
17,551 | 25,345 | ||||||
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Total liabilities |
123,882 | 139,764 | ||||||
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EQUITY |
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Share capital (note 19) |
417,762 | 343,963 | ||||||
Reserves |
15,986 | 16,092 | ||||||
Retained earnings |
95,261 | 63,096 | ||||||
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Total equity |
529,009 | 423,151 | ||||||
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Total liabilities and equity |
$ | 652,891 | $ | 562,915 | ||||
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/s/ Jorge Ganoza Durant | /s/ Robert R. Gilmore | |||||||
Jorge Ganoza Durant | Robert R. Gilmore | |||||||
Director | Director |
The accompanying notes are an integral part of these financial statements.
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited Presented in thousands of US dollars)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
OPERATING ACTIVITIES |
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Net income for the period |
$ | 10,268 | $ | 10,157 | $ | 32,165 | $ | 11,345 | ||||||||
Items not involving cash |
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Depletion, depreciation, and amortization |
10,842 | 9,532 | 32,879 | 22,764 | ||||||||||||
Accretion |
423 | 124 | 748 | 399 | ||||||||||||
Income taxes |
5,476 | 10,640 | 15,871 | 18,227 | ||||||||||||
Share based payments |
499 | 101 | 779 | 399 | ||||||||||||
Share of loss of equity-accounted investee |
47 | | 88 | | ||||||||||||
Write-down of inventories |
| | 566 | | ||||||||||||
Write-down of mineral properties, plant and equipment |
823 | 4 | 1,262 | | ||||||||||||
Unrealized foreign exchange loss (gain) |
(341 | ) | (121 | ) | 458 | | ||||||||||
Unrealized gain (loss) on financial assets carried at fair value |
3,135 | (203 | ) | 4,143 | (346 | ) | ||||||||||
Other |
527 | 494 | 522 | (14 | ) | |||||||||||
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31,699 | 30,729 | 89,481 | 52,774 | |||||||||||||
Accounts and other receivables |
(2,543 | ) | (5,070 | ) | (7,770 | ) | (20,869 | ) | ||||||||
Prepaid expenses |
(629 | ) | 647 | (54 | ) | 696 | ||||||||||
Inventories |
(1,972 | ) | (578 | ) | (3,798 | ) | (1,501 | ) | ||||||||
Trade and other payables |
62 | 6,532 | (4,166 | ) | (1,095 | ) | ||||||||||
Share units payable |
(454 | ) | 1,045 | (3,780 | ) | 10,262 | ||||||||||
Payments on closure and rehabilitation provisions |
(227 | ) | (57 | ) | (462 | ) | (202 | ) | ||||||||
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Cash provided by operating activities |
25,936 | 33,248 | 69,451 | 40,065 | ||||||||||||
Income taxes paid |
(5,776 | ) | (3,756 | ) | (27,832 | ) | (12,141 | ) | ||||||||
Interest paid |
(450 | ) | (572 | ) | (1,355 | ) | (1,308 | ) | ||||||||
Interest income |
692 | 93 | 958 | 240 | ||||||||||||
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Net cash provided by operating activities |
20,402 | 29,014 | 41,222 | 26,856 | ||||||||||||
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INVESTING ACTIVITIES |
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Purchase of Lindero Project |
| (4,876 | ) | | (4,876 | ) | ||||||||||
Purchase of term deposits |
(1,132 | ) | (22,900 | ) | (150,566 | ) | (42,410 | ) | ||||||||
Redemption of term deposits |
76,995 | 17,500 | 113,595 | 39,841 | ||||||||||||
Investment in marketable securities (notes 6 and 7) |
| | (2,153 | ) | (1,165 | ) | ||||||||||
Settlement of derivative instruments |
(25 | ) | | (32 | ) | | ||||||||||
Purchase of mineral properties, plant and equipment |
(11,199 | ) | (10,644 | ) | (35,571 | ) | (30,683 | ) | ||||||||
Proceeds from sale of assets |
27 | | 42 | 9 | ||||||||||||
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Cash provided by (used in) investing activities |
64,666 | (20,920 | ) | (74,685 | ) | (39,284 | ) | |||||||||
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FINANCING ACTIVITIES |
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Proceeds from issuance of common shares |
| 1,516 | 76,407 | 5,486 | ||||||||||||
Share issuance costs |
5 | | (5,018 | ) | | |||||||||||
Repayments of finance lease obligations |
(533 | ) | (518 | ) | (1,590 | ) | (690 | ) | ||||||||
Other |
| | | (6 | ) | |||||||||||
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Cash provided by (used in) financing activities |
(528 | ) | 998 | 69,799 | 4,790 | |||||||||||
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Effect of exchange rate changes on cash held |
26 | (501 | ) | (160 | ) | | ||||||||||
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Increase (decrease) in cash and cash equivalents during the period |
84,566 | 8,591 | 36,176 | (7,638 | ) | |||||||||||
Cash and cash equivalents, beginning of period |
34,094 | 55,989 | 82,484 | 72,218 | ||||||||||||
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Cash and cash equivalents, end of period |
$ | 118,660 | $ | 64,580 | $ | 118,660 | $ | 64,580 | ||||||||
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Cash and cash equivalents consists of: |
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Cash |
$ | 26,034 | $ | 62,830 | $ | 26,034 | $ | 62,830 | ||||||||
Cash equivalents |
92,626 | 1,750 | 92,626 | 1,750 | ||||||||||||
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Cash and cash equivalents, end of period |
$ | 118,660 | $ | 64,580 | $ | 118,660 | $ | 64,580 | ||||||||
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The accompanying notes are an integral part of these financial statements.
Fortuna Silver Mines Inc.
Condensed Interim Consolidated Statements of Changes in Equity
(Unaudited Presented in thousands of US dollars, except for shares)
Share capital | Reserves | |||||||||||||||||||||||||||||||
Number of common shares |
Amount | Equity reserve |
Hedging reserve |
Fair value reserve |
Foreign currency reserve |
Retained earnings |
Total equity |
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Balance at January 1, 2017 |
146,978,173 | $ | 343,963 | $ | 14,865 | $ | (222 | ) | $ | 334 | $ | 1,115 | $ | 63,096 | $ | 423,151 | ||||||||||||||||
Total comprehensive income |
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Net income for the period |
| | | | | | 32,165 | 32,165 | ||||||||||||||||||||||||
Other comprehensive income |
| | | 235 | 162 | | | 397 | ||||||||||||||||||||||||
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Total comprehensive income |
| | | 235 | 162 | | 32,165 | 32,562 | ||||||||||||||||||||||||
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Transactions with owners of the Company |
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Issuance of common shares |
11,873,750 | 74,804 | | | | | | 74,804 | ||||||||||||||||||||||||
Share issuance costs |
| (5,018 | ) | | | | | | (5,018 | ) | ||||||||||||||||||||||
Exercise of warrants |
238,515 | 1,083 | | | | | | 1,083 | ||||||||||||||||||||||||
Exercise of stock options |
133,060 | 520 | | | | | | 520 | ||||||||||||||||||||||||
Issuance of shares for mineral property |
239,385 | 1,128 | | | | | | 1,128 | ||||||||||||||||||||||||
Transfer upon exercise of stock options |
| 198 | (198 | ) | | | | | | |||||||||||||||||||||||
Transfer upon exercise of warrants |
| 1,084 | (1,084 | ) | | | | | | |||||||||||||||||||||||
Share-based payments (note 18 and 19) |
| | 779 | | | | | 779 | ||||||||||||||||||||||||
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12,484,710 | 73,799 | (503 | ) | | | | | 73,296 | ||||||||||||||||||||||||
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Balance at September 30, 2017 |
159,462,883 | $ | 417,762 | $ | 14,362 | $ | 13 | $ | 496 | $ | 1,115 | $ | 95,261 | $ | 529,009 | |||||||||||||||||
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Balance at January 1, 2016 |
129,240,567 | $ | 203,953 | $ | 14,169 | $ | (307 | ) | $ | | $ | 1,115 | $ | 45,238 | $ | 264,168 | ||||||||||||||||
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Total comprehensive income |
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Net income for the period |
| | | | | | 11,345 | 11,345 | ||||||||||||||||||||||||
Other comprehensive income |
| | | (425 | ) | 593 | | | 168 | |||||||||||||||||||||||
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Total comprehensive income |
| | | (425 | ) | 593 | | 11,345 | 11,513 | |||||||||||||||||||||||
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Transactions with owners of the Company |
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Exercise of stock options |
14,569,045 | 122,813 | | | | | | 122,813 | ||||||||||||||||||||||||
Transfer upon exercise of stock options |
2,021,861 | 7,833 | (2,347 | ) | | | | | 5,486 | |||||||||||||||||||||||
Share-based payments (note 18 and 19) |
| | 399 | | | | | 399 | ||||||||||||||||||||||||
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16,590,906 | 130,646 | (1,948 | ) | | | | | 128,698 | ||||||||||||||||||||||||
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Balance at September 30, 2016 |
145,831,473 | $ | 334,599 | $ | 12,221 | $ | (732 | ) | $ | 593 | $ | 1,115 | $ | 56,583 | $ | 404,379 | ||||||||||||||||
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The accompanying notes are an integral part of these financial statements.
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
1. | Reporting Entity |
Fortuna Silver Mines Inc. and its subsidiaries (the Company) is a publicly traded company incorporated and domiciled in British Columbia, Canada.
The Company is engaged in precious and base metal mining and related activities in Latin America, including exploration, extraction, and processing. The Company operates the Caylloma silver, lead, and zinc mine (Caylloma) in southern Peru and the San Jose silver and gold mine (San Jose) in southern Mexico, and is developing the Lindero Gold Project in northern Argentina.
Its common shares are listed on the New York Stock Exchange under the trading symbol FSM, and on the Toronto Stock Exchange under the trading symbol FVI.
The Companys registered office is located at Suite 650, 200 Burrard Street, Vancouver, Canada, V6C 3L6.
2. | Basis of Accounting |
Statement of Compliance
These unaudited condensed interim consolidated financial statements (interim financial statements) were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) applicable to the preparation of interim financial statements, including IAS 34 «Interim Financial Reporting». They do not include all the information required for full annual financial statements. These interim financial statements should be read in conjunction with the Companys audited consolidated financial statements for the year ended December 31, 2016, which includes information necessary for understanding the Companys business and financial presentation. The same accounting policies and methods of computation are followed in these interim financial statements as compared with the most recent annual financial statements, with the exception of the accounting policy for investments in associates, described in note 4(a).
On November 7, 2017, the Companys Board of Directors approved these interim financial statements for issuance.
3. | Functional and Presentation Currency |
These interim financial statements are presented in United States Dollars ($ or US$), which is the functional currency of the Company. All amounts in these financial statements have been rounded to the nearest thousand US dollars, unless otherwise stated.
Page | 1
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
4. | Significant Accounting Policies |
(a) | New Accounting Policy |
Investment in Associates
Associates are those entities in which the Company has significant influence, but not control or joint control, over the entitys financial and operating policies. Interests in associates are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Companys share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence ceases.
(b) | Significant Accounting Estimates and Judgements |
The preparation of these interim financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the balance sheet date and reported amounts of expenses during the reporting period. Such judgements and estimates are, by their nature, uncertain. Actual outcomes could differ from these estimates.
The impacts of such judgements and estimates are pervasive throughout the interim financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and are accounted for prospectively.
In preparing these interim consolidated financial statements for the three and nine months ended September 30, 2017, the Company applied the critical judgements and estimates as disclosed in note 5 of its audited consolidated financial statements for the year ended December 31, 2016.
(c) | Adoption of New Accounting Standards |
The following standards or amendments were adopted effective January 1, 2017. They had no significant impact on the financial position, results of operations, or cash flows of the Company previously reported.
Amendments to IAS 12 «Recognition of Deferred Tax Assets for Unrealized Losses». On January 19, 2016, the IASB issued amendments to IAS 12 to clarify how to account for deferred tax assets related to debt instruments measured at fair value. The Company applied this amendment on January 1, 2017 with no change to the condensed consolidated interim financial statements.
Amendments to IAS 7 «Statement of Cash Flows» Disclosure Initiative. On January 29, 2016, the IASB issued amendments to IAS 7 to provide investors with additional information to better understand changes in financial liabilities arising from both cash and non-cash items. The Company applied this amendment on January 1, 2017 with no change to the condensed consolidated interim financial statements.
Page | 2
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
(d) | New Accounting Standards issued but not yet effective |
In 2014, the IASB issued IFRS 9, Financial Instruments (IFRS 9), which will replace IAS 39, Financial Instruments: Recognition and Measurement. The standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after January 1, 2018 with early adoption permitted. IFRS 9 does not replace the requirements for portfolio fair value hedge accounting for interest rate risk (often referred to as the macro hedge accounting requirements) since this phase of the project was separated from the IFRS 9 project due to the longer-term nature of the macro hedging project which is currently at the discussion paper phase of the due process. The Company expects the following impact of this standard upon adoption on January 1, 2018:
i. | investments classified as available-for-sale will be re-designated as fair value through profit and loss financial instruments. The Company expects that there will be an adjustment to opening deficit and accumulated other comprehensive loss on transition for cumulative gains/losses on these instruments. |
ii. | the Company do not expect to apply hedge accounting to its metal forward and collar contracts and intends to continue to apply hedge accounting to its interest rate swap; and |
iii. | the Company does not expect a material impact to the measurement of its financial instruments from any of the other changes to this standard, including the new expected credit loss model for calculating impairment of financial assets. |
In 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15), which provides guidance on the nature, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The effective date of this standard is January 1, 2018, with earlier adoption permitted. The Company has made a preliminary assessment of all its contracts with customers with respect to the application of IFRS 15, and, do not believe it will change the point of revenue recognition or materially change the amount of revenue recognized compared to how we recognize revenue under our current policies.
Our revenues involve a relatively limited number of contracts and customers. In addition, our revenue contracts do not involve multiple types of performance obligations. Revenues from concentrates are recognized as provisional sales, at the time the metals sold and delivered to the customer. Provisional sales are marked to market at the end of each period and adjusted for final settlement. We anticipate separately presenting the provisional pricing adjustments within our revenue note disclosure upon adoption of IFRS 15.
In 2016, the IASB issued IFRS 16 (IFRS 16), Leases, which requires lessees to recognize assets and liabilities for most leases. Application of the standard is mandatory for annual reporting periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company will be developing a transition plan for this new standard by the end of 2017. The effect of the implementation of IFRS 16 is expected to increase plant and equipment and related lease payable amounts.
Page | 3
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
5. | Short Term Investments |
September 30, 2017 |
December 31, 2016 |
|||||||
Term deposits and similar instruments |
$ | 77,113 | $ | 41,100 | ||||
|
|
|
|
The term deposits have maturities in excess of 90 days and less than one year on the date of purchase.
6. | Marketable Securities |
September 30, 2017 |
December 31, 2016 |
|||||||
Common shares of Medgold Resources Corp. |
$ | | $ | 1,266 | ||||
Warrants of Medgold Resources Corp. |
| 313 | ||||||
Common shares of Prospero Silver Corp. |
1,031 | | ||||||
Warrants of Prospero Silver Corp. |
55 | | ||||||
|
|
|
|
|||||
$ | 1,086 | $ | 1,579 | |||||
|
|
|
|
In June 2016, the Company acquired 10 million common shares and 10 million warrants of Medgold Resources Corp. (Medgold). In February 2017, the Company exercised all of the Medgold warrants it held. Upon exercise, the Company held 24.0% of the issued and outstanding common shares of Medgold (20.4% on a fully diluted basis) and reclassified the amounts to investment in associate (note 7).
In May 2017, the Company acquired by way of a private placement 5,357,142 units of Prospero Silver Corp. (Prospero) at a price of C$0.28 per unit for cash consideration of C$1.5 million. Each unit is comprised of one common share and one common share purchase warrant exercisable at C$0.35 per share for three years. Following the transaction, the Company owns 14.91% of the issued and outstanding common shares of Prospero and would own 25.95% if all of the warrants were exercised, and if the Board of Directors of Prospero approve an increase in the Companys ownership above 19.9%.
During the three and nine months ended September 30, 2017 the Company recognized an unrealized loss of $9 and $30, respectively related to fair value adjustments on its marketable securities to the income statement (2016$203 and $346 unrealized gain), and an unrealized loss of $24 and $86, respectively, related to fair value adjustments on its marketable securities through other comprehensive income (2016 $286 and $593 unrealized gain).
Page | 4
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
7. | Investment in Associate |
Medgold is a Canadian public company which trades on the TSX Venture Exchange under the ticker symbol MED and is quoted in Canadian dollars (C$). Medgolds principal business activity is the acquisition and exploration of resource properties in Serbia.
On February 7, 2017, the Company exercised its share purchase warrants to purchase 10 million common shares of Medgold (note 6) subsequent to which the Company holds a 24% equity interest in Medgold. The Company, has significant influence over Medgold commencing on February 7, 2017, and accounts for its investment using the equity method from that date. The Company is related to Medgold by virtue of a director in common.
Medgold shares and warrants presented as marketable securities, January 1, 2017 |
$ | 1,579 | ||
Cash paid upon exercise of warrants |
1,372 | |||
Fair value adjustments prior to February 7, 2017 |
(65 | ) | ||
|
|
|||
Balance of Medgold Investment at February 7, 2017 |
2,886 | |||
Share of Medgolds loss for the period February 7, 2017 to September 30, 2017 |
(88 | ) | ||
|
|
|||
Balance September 30, 2017 |
$ | 2,798 | ||
|
|
8. | Accounts and Other Receivables |
September 30, 2017 |
December 31, 2016 |
|||||||
Trade receivables from concentrate sales |
$ | 30,498 | $ | 23,185 | ||||
Advances and other receivables |
1,547 | 1,095 | ||||||
Value added taxes recoverable |
613 | 707 | ||||||
|
|
|
|
|||||
Accounts and other receivables |
$ | 32,658 | $ | 24,987 | ||||
|
|
|
|
Page | 5
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
The Companys trade receivables from concentrate sales are expected to be collected in accordance with the terms of the existing concentrate sales contracts with its customers and no amounts were past due at September 30, 2017 or December 31, 2016.
9. | Inventories |
September 30, 2017 |
December 31, 2016 |
|||||||
Concentrate stockpiles |
$ | 2,506 | $ | 1,285 | ||||
Ore stockpiles |
3,338 | 2,659 | ||||||
Materials and supplies |
10,818 | 9,628 | ||||||
|
|
|
|
|||||
Inventories |
$ | 16,662 | $ | 13,572 | ||||
|
|
|
|
During the three and nine months ended September 30, 2017, the Company expensed $38,281 and $116,880 (three and nine months ended September 30, 2016 $36,370 and $91,139), respectively, of inventories to cost of sales.
For the three and nine months ended September 30, 2017, the Company wrote down spare parts inventory of $nil and $566, respectively (September 30, 2016$nil and $nil, respectively).
10. | Derivative Assets and Derivative Liabilities |
September 30, 2017 |
December 31, 2016 |
|||||||
Assets |
||||||||
Interest rate swap |
$ | 2 | $ | | ||||
Commodity derivative contracts |
| 973 | ||||||
|
|
|
|
|||||
Derivative assets |
$ | 2 | $ | 973 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Interest rate swap |
$ | | $ | 254 | ||||
Commodity derivative contracts |
3,107 | | ||||||
|
|
|
|
|||||
Derivative liabilities |
$ | 3,107 | $ | 254 | ||||
|
|
|
|
Page | 6
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
(a) | Commodity derivative contracts |
In December 2016, the Company entered into two sets of zinc forward sales contracts with Scotiabank, to mitigate its commodity price risks. The zinc forward sales contracts consist of a total of 3900 tonnes of zinc at a price of $2,650 per tonne and 3900 tonnes of zinc at a price of $2,750 per tonne settling, on average 650 tonnes per month through to the end of December 2017.
In January 2017, the Company entered into a set of lead forward sales contracts with Scotiabank, to mitigate its commodity price risks. The lead forward sales contracts consist of 2,965 tonnes of lead at a price of $2,340 per tonne settling, on average 270 tonnes per month through to the end of December 2017.
In July 2017, the Company entered into zero cost collars for an aggregate 5,100 tonnes of lead with a floor price of $2,100 per tonne and a cap price of $2,500 per tonne, maturing from August 2017 to June 2018. The Company also entered into zero cost collars for an aggregate 3,900 tonnes of zinc with a floor price of $2,500 per tonne and a cap price of $2,965 per tonne, maturing during the first half of 2018.
The zinc and lead contracts are derivate financial instruments and are not accounted for as designated hedges under IAS 39. They were initially recognized at fair value on the date on which the related derivative contracts were entered into and are subsequently re-measured to estimated fair value. Any gains or losses arising from changes in the fair value of the derivatives are credited or charged to profit or loss.
The following table summarizes the gains (losses) from the settlement of and the open positions for the zinc and lead forward sales contracts as at September 30, 2017:
Page | 7
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Realized |
||||||||||||||||
Zinc Contracts |
||||||||||||||||
Tonnes settled |
2,060 | | 5,193 | | ||||||||||||
Average settlement price per tonne |
$ | 2,778 | $ | | $ | 2,191 | $ | | ||||||||
Settlement gains (losses) |
$ | 166 | $ | | $ | (202 | ) | $ | | |||||||
Lead Contracts |
||||||||||||||||
Tonnes settled |
821 | | 1,794 | | ||||||||||||
Average settlement price per tonne |
$ | 2,252 | $ | | $ | 2,245 | $ | | ||||||||
Settlement gains (losses) |
$ | 69 | $ | | $ | 169 | $ | | ||||||||
Unrealized |
||||||||||||||||
Zinc Contracts |
||||||||||||||||
Open positionstonnes |
7,810 | | 7,810 | | ||||||||||||
Price per tonne |
$ | 2,500-$2,965 | $ | | $ | 2,500-$2,965 | $ | | ||||||||
Unrealized gains (losses) |
$ | (2,045 | ) | $ | | $ | (2,770 | ) | $ | | ||||||
Lead Contracts |
||||||||||||||||
Open positionstonnes |
5,371 | | 5,371 | | ||||||||||||
Price per tonne |
$ | 2,100-$2,650 | $ | | $ | 2,100-$2,650 | $ | | ||||||||
Unrealized gains (losses) |
$ | 804 | $ | | $ | (669 | ) | $ | |
(b) | Interest rate swap |
Effective April 1, 2015, the Company entered into an interest rate swap (Swap) on a notional amount of $40,000, which expires on March 25, 2019 and matches the maturity of the bank loan. The swap has been designated as a hedge for accounting purposes. The swap was entered into to hedge the variable interest rate risk on the Companys bank loan. The fixed interest rate on the swap is 1.52% and the floating amount is based on the one-month LIBOR rate. The swap is settled on a monthly basis, with settlement being the net difference between the fixed and floating interest rates.
Page | 8
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
During the three and nine months ended September 30, 2017 the Company recognized unrealized gain of $55 and $235 (three and nine months ended September 30, 2016 unrealized gain of $274 and unrealized losses of $425), respectively, related to fair value adjustments through other comprehensive income. The Swap was determined to be an effective hedge for the periods.
11. | Deposits on Non-Current Assets |
September 30, 2017 |
December 31, 2016 |
|||||||
Deposits on equipment |
$ | 382 | $ | 119 | ||||
Deposits paid to contractors |
883 | 453 | ||||||
|
|
|
|
|||||
Deposits on non-current assets |
$ | 1,265 | $ | 572 | ||||
|
|
|
|
12. | Mineral Properties and Exploration and Evaluation Assets |
Depletable | Not depleted | |||||||||||||||||||
Caylloma | San Jose | Lindero | Other | Total | ||||||||||||||||
COST |
||||||||||||||||||||
Balance, January 1, 2017 |
$ | 100,630 | $ | 151,259 | $ | 130,590 | $ | 1,844 | $ | 384,323 | ||||||||||
Additions |
7,774 | 10,993 | 7,747 | 3,432 | 29,946 | |||||||||||||||
Change in rehabilitation provision |
41 | 429 | 39 | | 509 | |||||||||||||||
Write-offs |
| | | (117 | ) | (117 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, September 30, 2017 |
$ | 108,445 | $ | 162,681 | $ | 138,376 | $ | 5,159 | $ | 414,661 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
ACCUMULATED IMPAIRMENT |
||||||||||||||||||||
Balance, January 1, 2017 |
$ | 31,900 | $ | | $ | | $ | | $ | 31,900 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, September 30, 2017 |
$ | 31,900 | $ | | $ | | $ | | $ | 31,900 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
ACCUMULATED DEPLETION |
||||||||||||||||||||
Balance, January 1, 2017 |
$ | 42,059 | $ | 46,829 | $ | | $ | | $ | 88,888 | ||||||||||
Depletion |
4,929 | 12,716 | | | 17,645 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, September 30, 2017 |
$ | 46,988 | $ | 59,545 | $ | | $ | | $ | 106,533 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET BOOK VALUE, September 30, 2017 |
$ | 29,557 | $ | 103,136 | $ | 138,376 | $ | 5,159 | $ | 276,228 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Page | 9
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Depletable | Not depleted | |||||||||||||||||||
Caylloma | San Jose | Lindero | Other | Total | ||||||||||||||||
COST |
||||||||||||||||||||
Balance, January 1, 2016 |
$ | 92,973 | $ | 136,666 | $ | | $ | 1,533 | $ | 231,172 | ||||||||||
Acquisition of subsidiary |
| | 128,687 | | 128,687 | |||||||||||||||
Additions |
7,060 | 14,643 | 1,795 | 942 | 24,440 | |||||||||||||||
Change in rehabilitation provision |
597 | (414 | ) | 108 | | 291 | ||||||||||||||
Write-offs |
| (512 | ) | | (631 | ) | (1,143 | ) | ||||||||||||
Reclassifications (note 13) |
| 876 | | | 876 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2016 |
$ | 100,630 | $ | 151,259 | $ | 130,590 | $ | 1,844 | $ | 384,323 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
ACCUMULATED IMPAIRMENT |
||||||||||||||||||||
Balance, January 1, 2016 |
$ | 31,900 | $ | | $ | | $ | | $ | 31,900 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2016 |
$ | 31,900 | $ | | $ | | $ | | $ | 31,900 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
ACCUMULATED DEPLETION |
||||||||||||||||||||
Balance, January 1, 2016 |
$ | 37,552 | $ | 33,000 | $ | | $ | | $ | 70,552 | ||||||||||
Depletion |
4,507 | 13,829 | | | 18,336 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2016 |
$ | 42,059 | $ | 46,829 | $ | | $ | | $ | 88,888 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET BOOK VALUE, December 31, 2016 |
$ | 26,671 | $ | 104,430 | $ | 130,590 | $ | 1,844 | $ | 263,535 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The assets of Caylloma (Bateas) and San Jose (Cuzcatlan), and their holding companies are pledged as security under the Companys credit facility.
(a) | Exploration and Evaluation Assets |
Included in mineral properties are exploration and evaluation assets which are categorized as non-depleted other in the above tables. The Company is currently conducting exploration and evaluation activities on the following properties:
(i) | Tlacolula Property |
Pursuant to an agreement dated September 14, 2009, as amended December 18, 2012 and November 10, 2014, the Company, through its wholly owned subsidiary, Compañia Minera Cuzcatlan S.A de C.V. (Cuzcatlan), held an option (the Option) to acquire a 60% interest (the Interest) in the Tlacolula silver project (Property) located in the State of Oaxaca, Mexico, from Radius Gold Inc.s wholly owned subsidiary, Radius (Cayman) Inc. (Radius), a company with certain directors in common with the Company.
The option allowed the Company to earn the Interest by spending $2,000 on exploration of the Property (which includes a commitment to drill 1,500 meters within 12 months after Cuzcatlan has received a permit to drill the Property), making staged payments totaling $300 in cash, and issuing 250,000 common shares of the Company to Radius according to an agreed schedule.
Page | 10
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
On August 2, 2017, the Company completed a purchase and sale agreement with Radius to acquire the Property for total consideration of $1,328, comprising of $150 cash, and the issuance of 239,385 common shares. In addition, Radius was granted a 2% NSR royalty on the Property. The Company has the right to purchase one-half of the royalty for $1,500.
During the nine months ended September 30, 2017, the Company spent $1,486 on the property, including on the acquisition of the Property ($1,328) and on exploration ($158).
(ii) | Northwest Nevada Initiative |
In December 2016, the Company entered into an option agreement with an unrelated party to acquire 6,756 mineral claims in north west Nevada, USA, totaling 239,128 acres (96,773 hectares).
To maintain this agreement, the Company is required to make cash payments totaling $2.3 million, a combination of cash and shares of $4.1 million and spend $2.0 million of exploration expenditures by December 6, 2020.
A further success payment is required if the Company completes an economic study on a potential mine if certain minimum technical parameters based on resource size and rate of return are met.
Balance, December 31, 2016 |
$ | 200 | ||
Exploration expenditures |
1,232 | |||
|
|
|||
1,432 | ||||
Less: write down of exploration expenditures |
(115 | ) | ||
|
|
|||
Balance September 30, 2017 |
$ | 1,317 | ||
|
|
(iii) | Lindero Project |
On September 21, 2017, the Board of Directors approved the construction of the Lindero Gold Project, and the expenditures related to this project will no longer be classified as an exploration and evaluation asset.
Page | 11
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
13. | Plant and Equipment |
Machinery and equipment |
Land, buildings and leasehold improvements |
Furniture and other equipment |
Transport units |
Equipment under finance lease |
Capital work in progress |
Total | ||||||||||||||||||||||
COST |
||||||||||||||||||||||||||||
Balance, January 1, 2017 |
$ | 57,685 | $ | 132,067 | $ | 15,848 | $ | 1,095 | $ | 7,810 | $ | 941 | $ | 215,446 | ||||||||||||||
Additions |
1,705 | 19 | 397 | 51 | | 6,204 | 8,376 | |||||||||||||||||||||
Disposals |
(3,256 | ) | (1,111 | ) | | (87 | ) | (515 | ) | | (4,969 | ) | ||||||||||||||||
Reclassifications |
617 | 179 | 48 | 19 | | (863 | ) | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, September 30, 2017 |
$ | 56,751 | $ | 131,154 | $ | 16,293 | $ | 1,078 | $ | 7,295 | $ | 6,282 | $ | 218,853 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
ACCUMULATED IMPAIRMENT |
||||||||||||||||||||||||||||
Balance, January 1, 2017 |
$ | 3,776 | $ | 16,154 | $ | 2,365 | $ | | $ | 475 | $ | | $ | 22,770 | ||||||||||||||
Disposals |
(1 | ) | | | | (75 | ) | | (76 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, September 30, 2017 |
$ | 3,775 | $ | 16,154 | $ | 2,365 | $ | | $ | 400 | $ | | $ | 22,694 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
ACCUMULATED DEPRECIATION |
||||||||||||||||||||||||||||
Balance, January 1, 2017 |
$ | 17,864 | $ | 33,479 | $ | 6,748 | $ | 576 | $ | 3,146 | $ | | $ | 61,813 | ||||||||||||||
Disposals |
(1,934 | ) | (413 | ) | | (78 | ) | (440 | ) | | (2,865 | ) | ||||||||||||||||
Reclassifications |
(18 | ) | | 5 | 13 | | | | ||||||||||||||||||||
Depreciation |
3,424 | 10,008 | 1,930 | 129 | 420 | | 15,911 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, September 30, 2017 |
$ | 19,336 | $ | 43,074 | $ | 8,683 | $ | 640 | $ | 3,126 | $ | | $ | 74,859 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
NET BOOK VALUE, September 30, 2017 |
$ | 33,640 | $ | 71,926 | $ | 5,245 | $ | 438 | $ | 3,769 | $ | 6,282 | $ | 121,300 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page | 12
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Machinery and equipment |
Buildings and leasehold improvements |
Furniture and other equipment |
Transport units |
Equipment under finance lease |
Capital work in progress |
Total | ||||||||||||||||||||||
COST |
||||||||||||||||||||||||||||
Balance, January 1, 2016 |
$ | 28,462 | $ | 94,872 | $ | 15,476 | $ | 711 | $ | 5,215 | $ | 38,792 | $ | 183,528 | ||||||||||||||
Acquisition of subsidiary |
6,954 | | | | | | 6,954 | |||||||||||||||||||||
Additions |
1,627 | 258 | 368 | 181 | 2,013 | 21,849 | 26,296 | |||||||||||||||||||||
Disposals |
(211 | ) | | (106 | ) | (64 | ) | (75 | ) | | (456 | ) | ||||||||||||||||
Reclassifications (note 12) |
20,853 | 36,937 | 110 | 267 | 657 | (59,700 | ) | (876 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, December 31, 2016 |
$ | 57,685 | $ | 132,067 | $ | 15,848 | $ | 1,095 | $ | 7,810 | $ | 941 | $ | 215,446 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
ACCUMULATED IMPAIRMENT |
||||||||||||||||||||||||||||
Balance, January 1, 2016 |
$ | 3,784 | $ | 16,154 | $ | 2,405 | $ | | $ | 483 | $ | | $ | 22,826 | ||||||||||||||
Disposals |
(8 | ) | | (40 | ) | | (8 | ) | | (56 | ) | |||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, December 31, 2016 |
$ | 3,776 | $ | 16,154 | $ | 2,365 | $ | | $ | 475 | $ | | $ | 22,770 | ||||||||||||||
|
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|
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|
|||||||||||||||
ACCUMULATED DEPRECIATION |
||||||||||||||||||||||||||||
Balance, January 1, 2016 |
$ | 14,816 | $ | 24,466 | $ | 4,387 | $ | 505 | $ | 2,845 | $ | | $ | 47,019 | ||||||||||||||
Disposals |
(199 | ) | | (64 | ) | (60 | ) | (67 | ) | | (390 | ) | ||||||||||||||||
Reclassifications |
12 | 2 | (14 | ) | | | | | ||||||||||||||||||||
Depreciation |
3,235 | 9,011 | 2,439 | 131 | 368 | | 15,184 | |||||||||||||||||||||
|
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|
|
|
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|
|||||||||||||||
Balance, December 31, 2016 |
$ | 17,864 | $ | 33,479 | $ | 6,748 | $ | 576 | $ | 3,146 | $ | | $ | 61,813 | ||||||||||||||
|
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|
|||||||||||||||
NET BOOK VALUE, December 31, 2016 |
$ | 36,045 | $ | 82,434 | $ | 6,735 | $ | 519 | $ | 4,189 | $ | 941 | $ | 130,863 | ||||||||||||||
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Page | 13
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
14. | Trade and Other Payables |
September 30, 2017 |
December 31, 2016 |
|||||||
Trade accounts payable |
$ | 12,076 | $ | 15,251 | ||||
Refundable deposits to contractors |
811 | 1,514 | ||||||
Payroll payable |
11,003 | 10,755 | ||||||
Mining royalty |
767 | 755 | ||||||
Value added taxes payable |
2,429 | 1,866 | ||||||
Interest payable |
129 | 114 | ||||||
Due to related parties (note 15(a)) |
23 | 10 | ||||||
Other payables |
805 | 354 | ||||||
|
|
|
|
|||||
28,043 | 30,619 | |||||||
|
|
|
|
|||||
Deferred share units payable |
4,262 | 4,992 | ||||||
Restricted share units payable |
2,047 | 2,870 | ||||||
Performance share units payable |
2,048 | 1,679 | ||||||
|
|
|
|
|||||
Total current share units payable (note 18) |
8,357 | 9,541 | ||||||
|
|
|
|
|||||
Total trade and other payables |
$ | 36,400 | $ | 40,160 | ||||
|
|
|
|
15. | Related Party Transactions |
In addition to the related party transactions and balances disclosed elsewhere in these interim financial statements, the Company entered into the following related party transactions during the period:
Purchase of Goods and Services
During the three and nine months ended September 30, 2017 and 2016, the Company entered into the following related party transactions with Gold Group Management Inc. and Mill Street Services Ltd., companies with directors in common with the Company.
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Salaries and wages |
$ | 18 | $ | 14 | $ | 122 | $ | 105 | ||||||||
General and administrative expenses |
20 | 14 | 151 | 89 | ||||||||||||
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|
|||||||||
$ | 38 | $ | 28 | $ | 273 | $ | 194 | |||||||||
|
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The Company has outstanding balances payable with Gold Group Management Inc. of $23 as at September 30, 2017 (December 31, 2016 - $10). Amounts due to related parties are due on demand, and are unsecured.
Page | 14
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
16. | Other Liabilities |
September 30, 2017 |
December 31, 2016 |
|||||||
Restricted share units (note 18) |
$ | 889 | $ | 1,619 | ||||
Performance share units (note 18) |
| 1,866 | ||||||
Other non-current liabilities |
450 | 59 | ||||||
|
|
|
|
|||||
$ | 1,339 | $ | 3,544 | |||||
|
|
|
|
17. | Closure and Rehabilitation Provisions |
Closure and rehabilitation provisions | ||||||||||||||||
Caylloma Mine |
San Jose Mine |
Lindero Project |
Total | |||||||||||||
Balance January 1, 2017 |
$ | 8,182 | $ | 4,822 | $ | 208 | $ | 13,212 | ||||||||
Changes in estimate |
(146 | ) | (233 | ) | 39 | (340 | ) | |||||||||
Incurred and charged against the provision |
(341 | ) | (122 | ) | | (463 | ) | |||||||||
Accretion expense |
229 | 269 | 250 | 748 | ||||||||||||
Effect of foreign exchange changes |
230 | 662 | | 892 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance September 30, 2017 |
8,154 | 5,398 | 497 | 14,049 | ||||||||||||
Current portion |
1,127 | 270 | | 1,397 | ||||||||||||
|
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|
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|
|
|
|||||||||
Non-current portion |
$ | 7,027 | $ | 5,128 | $ | 497 | $ | 12,652 | ||||||||
|
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|
|
|
|
Closure and reclamation provisions represent the present value of rehabilitation costs relating to mine and development sites. There have been no significant changes in requirements, laws, regulations, operating assumptions, estimated timing and amount of closure and rehabilitation obligations during the nine months period ended September 30, 2017.
18. | Share Based Payments |
(a) | Deferred Share Units (DSUs) |
Deferred share units are typically granted to non-executive directors of the Company. They are payable in cash, upon resignation, retirement, removal, failure to achieve re-election, or upon a change of control of the Company. The DSUs are fair valued at the end of each reporting period with a corresponding expense to share-based payments, a component of selling, general and administrative costs.
Page | 15
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Number of Deferred Share Units |
Fair Value | |||||||
Outstanding, December 31, 2015 |
1,016,416 | $ | 2,279 | |||||
Grants |
201,319 | 781 | ||||||
Units paid out in cash |
(238,027 | ) | (1,721 | ) | ||||
Units transferred to trade payables paid F2017 |
(96,640 | ) | (902 | ) | ||||
Change in fair value |
| 4,555 | ||||||
|
|
|
|
|||||
Outstanding, December 31, 2016 |
883,068 | $ | 4,992 | |||||
Grants |
91,108 | 429 | ||||||
Change in fair value |
| (1,159 | ) | |||||
|
|
|
|
|||||
Outstanding, September 30, 2017 |
974,176 | $ | 4,262 | |||||
|
|
|
|
(b) | Restricted Share Units (RSUs) |
Restricted share units are from time to time granted to officers and employees of the Company and typically vest over three years, in tranches of 20%, 30%, and 50%. RSUs are settled in either cash or common shares (as determined by the Companys Board of Directors at the grant date) at each vesting date, or upon a change of control or termination without cause. The amount payable is calculated based on a five-day trailing average price. RSUs that settle in cash are amortized over the vesting period based on the Companys stock price at the end of each reporting period based on the Companys closing stock price. RSUs that settle in common shares are initially fair valued on grant date and amortized over the vesting period.
Number of Restricted Share Units |
Fair Value | |||||||
Outstanding, December 31, 2015 |
1,015,846 | $ | 2,179 | |||||
Grants to executive director |
317,276 | 1,161 | ||||||
Grants to officers |
389,991 | 1,509 | ||||||
Grants to employees |
82,679 | 323 | ||||||
Units paid out in cash |
(419,019 | ) | (2,104 | ) | ||||
Forfeited or cancelled |
(49,053 | ) | | |||||
Change in fair value |
| 1,421 | ||||||
|
|
|
|
|||||
Outstanding, December 31, 2016 |
1,337,720 | $ | 4,489 | |||||
Grants to officers |
406,499 | 1,919 | ||||||
Grants to employees |
36,698 | 175 | ||||||
Units paid out in cash |
(403,023 | ) | (2,100 | ) | ||||
Forfeited or cancelled |
(5,007 | ) | (5 | ) | ||||
Change in fair value and vesting |
| 303 | ||||||
|
|
|
|
|||||
Outstanding, September 30, 2017 |
1,372,887 | $ | 4,781 | |||||
Less: Equity grants to executive director and officers |
(390,751 | ) | $ | (1,845 | ) | |||
|
|
|
|
|||||
Cash settleable restricted share units, September 30, 2017 |
982,136 | $ | 2,936 | |||||
|
|
|
|
Page | 16
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
(c) | Performance Share Units (PSUs) |
Performance Share Units (PSUs) are performance-based awards for the achievement of specified performance metrics by specified deadlines, which are settled in cash and vest over a three-year period in tranches of 20%, 30% and 50%. PSUs for which the performance metrics have not been achieved are forfeited and cancelled. The PSUs for which the performance metrics have been achieved vest and are paid in cash based on a five-day trailing average price.
Number of Performance Share Units |
Fair Value | |||||||
Outstanding, December 31, 2015 |
1,236,620 | $ | 1,194 | |||||
Units paid out in cash |
(247,324 | ) | (961 | ) | ||||
Forfeited or cancelled |
(103,761 | ) | | |||||
Change in fair value |
| 3,312 | ||||||
|
|
|
|
|||||
Outstanding, December 31, 2016 |
885,535 | $ | 3,545 | |||||
Units paid out in cash |
(332,076 | ) | (1,770 | ) | ||||
Change in fair value and vesting |
| 273 | ||||||
|
|
|
|
|||||
Outstanding, September 30, 2017 |
553,459 | $ | 2,048 | |||||
|
|
|
|
19. | Share Capital |
(a) | Authorized share capital |
The Company has an unlimited number of common shares without par value authorized for issue.
(b) | Stock Options |
The Companys Stock Option Plan, as amended and approved from time to time, permits the Company to issue up to 12,200,000 stock options. As at September 30, 2017, a total of 2,222,905 common shares were available for issuance under the plan.
Page | 17
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Number of stock options |
Weighted average exercise price |
|||||||
Canadian dollars |
||||||||
Outstanding, December 31, 2015 |
3,105,355 | $ | 3.66 | |||||
Exercised |
(2,236,861 | ) | $ | 3.45 | ||||
Forfeited |
(23,501 | ) | $ | 4.79 | ||||
|
|
|
|
|||||
Outstanding, December 31, 2016 |
844,993 | $ | 4.19 | |||||
Exercised |
(133,060 | ) | $ | 5.17 | ||||
Granted |
617,694 | $ | 6.35 | |||||
|
|
|
|
|||||
Outstanding, September 30, 2017 |
1,329,627 | $ | 4.00 | |||||
|
|
|
|
|||||
Vested and exercisable, December 31, 2016 |
459,578 | $ | 3.68 | |||||
|
|
|
|
|||||
Vested and exercisable, September 30, 2017 |
711,933 | $ | 4.00 | |||||
|
|
|
|
During the nine months ended September 30, 2017, 617,694 options (year ended December 31, 2016nil) were granted.
The assumptions used to estimate the fair value of the stock options granted during the nine months ended September 30, 2017 were a risk-free interest rate of 0.77%, expected volatility of 63.02%, expected term of 3 years, expected forfeiture rate of 5.57%, and an expected dividend yield of nil. The fair value, as determined using the Black-Scholes model, per option granted in the period was $2.61.
During the three and nine months ended September 30, 2017, the Company expensed a total of $241 and $437, respectively in share-based payments related to the vesting of stock options (three and nine months ended September 30, 2016 $102 and $399).
Subsequent to September 30, 2017 there were 174,000 employee stock options exercised at prices ranging from C$0.85 to C$4.79.
Page | 18
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
20. | Earnings per Share |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income for the period |
$ | 10,268 | $ | 10,157 | $ | 32,165 | $ | 11,345 | ||||||||
Weighted average number of shares (000s) |
159,307 | 141,062 | 157,503 | 133,676 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per sharebasic |
$ | 0.06 | $ | 0.08 | $ | 0.20 | $ | 0.08 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income for the period |
$ | 10,268 | $ | 10,157 | $ | 32,165 | $ | 11,345 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of shares (000s) |
159,307 | 141,062 | 157,503 | 133,676 | ||||||||||||
Incremental shares from options |
227 | 916 | 308 | 1,045 | ||||||||||||
Incremental shares from warrants |
| 484 | 39 | 75 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average diluted number of shares (000s) |
159,534 | 142,462 | 157,850 | 134,796 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per share |
$ | 0.06 | $ | 0.07 | $ | 0.20 | $ | 0.08 | ||||||||
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2017 there were 617,694 (2016: nil) anti-dilutive options with exercise prices of C$6.35 and C$nil (2016: C$nil) and during the three and nine months ended September 30, 2017 there were 344,462 and nil (nil and nil) anti-dilutive warrants excluded from the above calculation with exercise prices of C$6.01 and C$nil (2016: C$nil).
Page | 19
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
21. | Sales |
(a) | By product and geographical area |
Three months ended September 30, 2017 | ||||||||||||||||||||
Canada | Peru | Mexico | Argentina | Total | ||||||||||||||||
Silver-gold concentrates |
$ | | $ | | $ | 41,819 | $ | | $ | 41,819 | ||||||||||
Silver-lead concentrates |
| 10,540 | | | 10,540 | |||||||||||||||
Zinc concentrates |
| 11,653 | | | 11,653 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Sales to external customers |
$ | | $ | 22,193 | $ | 41,819 | $ | | $ | 64,012 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three months ended September 30, 2016 | ||||||||||||||||||||
Canada | Peru | Mexico | Argentina | Total | ||||||||||||||||
Silver-gold concentrates |
$ | | $ | | $ | 46,781 | $ | | $ | 46,781 | ||||||||||
Silver-lead concentrates |
| 10,684 | | | 10,684 | |||||||||||||||
Zinc concentrates |
| 7,747 | | | 7,747 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Sales to external customers |
$ | | $ | 18,431 | $ | 46,781 | $ | | $ | 65,212 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Nine months ended September 30, 2017 | ||||||||||||||||||||
Canada | Peru | Mexico | Argentina | Total | ||||||||||||||||
Silver-gold concentrates |
$ | | $ | | $ | 129,909 | $ | | $ | 129,909 | ||||||||||
Silver-lead concentrates |
| 30,093 | | | 30,093 | |||||||||||||||
Zinc concentrates |
| 32,755 | | | 32,755 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Sales to external customers |
$ | | $ | 62,848 | $ | 129,909 | $ | | $ | 192,757 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Nine months ended September 30, 2016 | ||||||||||||||||||||
Canada | Peru | Mexico | Argentina | Total | ||||||||||||||||
Silver-gold concentrates |
$ | | $ | | $ | 103,308 | $ | | $ | 103,308 | ||||||||||
Silver-lead concentrates |
| 30,739 | | | 30,739 | |||||||||||||||
Zinc concentrates |
| 18,342 | | | 18,342 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Sales to external customers |
$ | | $ | 49,081 | $ | 103,308 | $ | | $ | 152,389 | ||||||||||
|
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|
Page | 20
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
(b) | By major customer |
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Customer 1 |
$ | 28,466 | $ | 25,248 | $ | 72,371 | $ | 53,317 | ||||||||
Customer 2 |
13,353 | 21,531 | 57,538 | 49,991 | ||||||||||||
Customer 3 |
22,193 | 3,762 | 54,256 | 14,151 | ||||||||||||
Customer 4 |
| 10,684 | 8,508 | 30,943 | ||||||||||||
Other Customers |
| 3,987 | 84 | 3,987 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 64,012 | $ | 65,212 | $ | 192,757 | $ | 152,389 | |||||||||
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2017, three and five (September 30, 2016: five) customers represented 100% of total sales to external customers, respectively.
22. | Cost of Sales |
Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, 2017 | September 30, 2017 | |||||||||||||||||||||||
Caylloma | San Jose | Total | Caylloma | San Jose | Total | |||||||||||||||||||
Direct mining costs |
$ | 8,310 | $ | 14,786 | $ | 23,096 | $ | 25,882 | $ | 43,965 | $ | 69,847 | ||||||||||||
Salaries and benefits |
1,487 | 1,376 | 2,863 | 4,465 | 3,964 | 8,429 | ||||||||||||||||||
Workers participation |
558 | 961 | 1,519 | 1,107 | 3,687 | 4,794 | ||||||||||||||||||
Depletion and depreciation |
2,428 | 8,316 | 10,744 | 7,414 | 25,138 | 32,552 | ||||||||||||||||||
Royalties |
276 | 570 | 846 | 760 | 2,037 | 2,797 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 13,059 | $ | 26,009 | $ | 39,068 | $ | 39,628 | $ | 78,791 | $ | 118,419 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Three months ended | Nine months ended | |||||||||||||||||||||||
September 30, 2016 | September 30, 2016 | |||||||||||||||||||||||
Caylloma | San Jose | Total | Caylloma | San Jose | Total | |||||||||||||||||||
Direct mining costs |
$ | 7,970 | $ | 13,451 | $ | 21,421 | $ | 23,866 | $ | 32,850 | $ | 56,716 | ||||||||||||
Salaries and benefits |
1,556 | 1,217 | 2,773 | 4,040 | 3,459 | 7,499 | ||||||||||||||||||
Workers participation |
394 | 1,969 | 2,363 | 743 | 3,335 | 4,078 | ||||||||||||||||||
Depletion and depreciation |
2,027 | 7,340 | 9,367 | 5,739 | 16,681 | 22,420 | ||||||||||||||||||
Royalties |
228 | 646 | 874 | 600 | 1,191 | 1,791 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 12,175 | $ | 24,623 | $ | 36,798 | $ | 34,988 | $ | 57,516 | $ | 92,504 | |||||||||||||
|
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Page | 21
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
23. | Selling, General, and Administrative |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
General and administrative |
$ | 4,644 | $ | 3,940 | $ | 14,228 | $ | 11,819 | ||||||||
Workers participation |
345 | 564 | 1,135 | 971 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
4,989 | 4,504 | 15,363 | 12,790 | |||||||||||||
Share-based payments |
56 | 2,649 | 879 | 16,348 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,045 | $ | 7,153 | $ | 16,242 | $ | 29,138 | |||||||||
|
|
|
|
|
|
|
|
24. | Fair Value Measurements |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (interest rate, yield curves), or inputs that are derived principally from or corroborated observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
The following sets up the methods and assumptions used to estimate the fair value of Level 2 and Level 3 financial instruments.
Financial asset or liability |
Methods and assumptions used to estimate fair value | |
Trade receivables |
Trade receivables arising from the sales of metal concentrates are subject to provisional pricing, and the final selling price is adjusted at the end of a quotational period. We mark these to market at each reporting date based on the forward price corresponding to the expected settlement date. | |
Interest rate swaps, and metal contracts |
Fair value is calculated as the present value of the estimated contractual cash flows. Estimates of future cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. These are discounted using a yield curve, and adjusted for credit risk of the Company or the counterparty. |
Page | 22
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Marketable securitieswarrants |
The Company determines the value of the warrants using a Black-Scholes valuation model which uses a combination of quoted prices and market-derived inputs, such as volatility and interest rate estimates. Fair value changes on the warrants are charged to profit and loss. |
During the three and nine months ended September 30, 2017, and 2016, there were no transfers of amounts between Level 1, Level 2, and Level 3 of the fair value hierarchy. The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not measured at fair value is not presented if the carrying amount is a reasonable approximation of fair value.
Page | 23
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Carrying value | Fair value | |||||||||||||||||||||||||||||||||||||||
September 30, 2017 |
Available for sale |
Fair value through profit or loss |
Fair Value (hedging) |
Loans and receivables |
Other liabilities |
Total | Level 1 | Level 2 | Level 3 | Carrying value approximates Fair Value |
||||||||||||||||||||||||||||||
Financial assets measured at Fair Value |
|
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Marketable securitiesshares |
$ | 1,031 | $ | | $ | | $ | | $ | | $ | 1,031 | $ | 1,031 | $ | | $ | | $ | | ||||||||||||||||||||
Marketable securitieswarrants |
| 55 | | | | 55 | | 55 | | | ||||||||||||||||||||||||||||||
Trade receivables concentrate sales |
| | | | | | | 30,498 | | (30,498 | ) | |||||||||||||||||||||||||||||
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$ | 1,031 | $ | 55 | $ | | $ | | $ | | $ | 1,086 | $ | 1,031 | $ | 30,553 | $ | | $ | (30,498 | ) | ||||||||||||||||||||
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Financial assets not measured at Fair Value |
|
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Cash and cash equivalents |
$ | | $ | | $ | | $ | 118,660 | $ | | $ | 118,660 | $ | | $ | | $ | | $ | 118,660 | ||||||||||||||||||||
Term deposits |
| | | 77,113 | | 77,113 | | | | 77,113 | ||||||||||||||||||||||||||||||
Other receivables |
| | | 1,547 | | 1,547 | | | | 1,547 | ||||||||||||||||||||||||||||||
Interest rate swap asset |
| | 2 | | | 2 | | 2 | | | ||||||||||||||||||||||||||||||
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$ | | $ | | $ | 2 | $ | 197,320 | $ | | $ | 197,322 | $ | | $ | 2 | $ | | $ | 197,320 | |||||||||||||||||||||
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Financial liabilities measured at Fair Value |
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Metal forward sales contracts |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | (3,107 | ) | $ | | $ | 3,107 | |||||||||||||||||||
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$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | (3,107 | ) | $ | | $ | 3,107 | ||||||||||||||||||||
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Financial liabilities not measured at Fair Value |
|
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Trade payables |
$ | | $ | | $ | | $ | | $ | (12,076 | ) | $ | (12,076 | ) | $ | | $ | | $ | | $ | (12,076 | ) | |||||||||||||||||
Payroll payable |
| | | | (11,003 | ) | (11,003 | ) | | | | (11,003 | ) | |||||||||||||||||||||||||||
Share units payable |
| | | | (9,246 | ) | (9,246 | ) | | (9,246 | ) | | | |||||||||||||||||||||||||||
Finance lease obligations |
| | | | (1,444 | ) | (1,444 | ) | | | | (1,444 | ) | |||||||||||||||||||||||||||
Bank loan payable |
| | | | (39,845 | ) | (39,845 | ) | | (40,000 | ) | | | |||||||||||||||||||||||||||
Other payables |
| | | | (2,174 | ) | (2,174 | ) | | | | (2,174 | ) | |||||||||||||||||||||||||||
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$ | | $ | | $ | | $ | | $ | (75,788 | ) | $ | (75,788 | ) | $ | | $ | (49,246 | ) | $ | | $ | (26,697 | ) | |||||||||||||||||
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Page | 24
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Carrying value | Fair value | |||||||||||||||||||||||||||||||||||||||
December 31, 2016 |
Available for sale |
Fair value through profit or loss |
Fair Value (hedging) |
Loans and receivables |
Other liabilities |
Total | Level 1 | Level 2 | Level 3 | Carrying value approximates Fair Value |
||||||||||||||||||||||||||||||
Financial assets measured at Fair Value |
|
|||||||||||||||||||||||||||||||||||||||
Marketable securitiesshares |
$ | 1,266 | $ | | $ | | $ | | $ | | $ | 1,266 | $ | 1,266 | $ | | $ | | $ | | ||||||||||||||||||||
Marketable securitieswarrants |
| 313 | | | | 313 | | 313 | | | ||||||||||||||||||||||||||||||
Trade receivables concentrate sales |
| 23,185 | | | | 23,185 | | 23,185 | | | ||||||||||||||||||||||||||||||
Zinc swaps |
| 973 | | | | 973 | | 973 | | | ||||||||||||||||||||||||||||||
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$ | 1,266 | $ | 24,471 | $ | | $ | | $ | | $ | 25,737 | $ | 1,266 | $ | 24,471 | $ | | $ | | |||||||||||||||||||||
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Financial assets not measured at Fair Value |
|
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Cash and cash equivalents |
$ | | $ | | $ | | $ | 82,484 | $ | | $ | 82,484 | $ | | $ | | $ | | $ | 82,484 | ||||||||||||||||||||
Term deposits |
| | | 41,100 | | 41,100 | | | | 41,100 | ||||||||||||||||||||||||||||||
Other receivables |
| | | 72 | | 72 | | | | 72 | ||||||||||||||||||||||||||||||
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$ | | $ | | $ | | $ | 123,656 | $ | | $ | 123,656 | $ | | $ | | $ | | $ | 123,656 | |||||||||||||||||||||
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Financial liabilities measured at Fair Value |
|
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Interest rate swap liability |
$ | | $ | | $ | (254 | ) | $ | | $ | | $ | (254 | ) | $ | | $ | (254 | ) | $ | | $ | | |||||||||||||||||
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$ | | $ | | $ | (254 | ) | $ | | $ | | $ | (254 | ) | $ | | $ | (254 | ) | $ | | $ | | ||||||||||||||||||
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Financial liabilities not measured at Fair Value |
|
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Trade payables |
$ | | $ | | $ | | $ | | $ | (15,251 | ) | $ | (15,251 | ) | $ | | $ | | $ | | $ | (15,251 | ) | |||||||||||||||||
Payroll payable |
| | | | (10,755 | ) | (10,755 | ) | | | | (10,755 | ) | |||||||||||||||||||||||||||
Share units payable |
| | | | (13,026 | ) | (13,026 | ) | | (13,026 | ) | | | |||||||||||||||||||||||||||
Finance lease obligations |
| | | | (3,034 | ) | (3,034 | ) | | | | (3,034 | ) | |||||||||||||||||||||||||||
Bank loan payable |
| | | | (39,768 | ) | (39,768 | ) | | (40,000 | ) | | | |||||||||||||||||||||||||||
Other payables |
| | | | (17,605 | ) | (17,605 | ) | | | | (17,605 | ) | |||||||||||||||||||||||||||
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$ | | $ | | $ | | $ | | $ | (99,439 | ) | $ | (99,439 | ) | $ | | $ | (53,026 | ) | $ | | $ | (46,645 | ) | |||||||||||||||||
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Page | 25
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
25. | Segmented Information |
The following summary describes the operations of each reportable segment.
| Bateas operates the Caylloma silver, lead, and zinc mine |
| Cuzcatlan operates the San Jose silver-gold mine |
| Lindero development of the Lindero Gold Project |
| Corporate corporate stewardship |
Three months ended September 30, 2017 | ||||||||||||||||||||
Corporate | Bateas | Cuzcatlan | Lindero | Total | ||||||||||||||||
Revenues from external customers |
$ | | $ | 22,193 | $ | 41,819 | $ | | $ | 64,012 | ||||||||||
Cost of sales |
| (13,059 | ) | (26,009 | ) | | (39,068 | ) | ||||||||||||
Selling, general, and administration |
(2,716 | ) | (889 | ) | (1,440 | ) | | (5,045 | ) | |||||||||||
Other expenses |
(120 | ) | (27 | ) | (864 | ) | | (1,011 | ) | |||||||||||
Finance items |
(160 | ) | (3,119 | ) | 135 | | (3,144 | ) | ||||||||||||
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Segment profit (loss) before taxes |
(2,997 | ) | 5,098 | 13,643 | | 15,744 | ||||||||||||||
Income taxes |
(175 | ) | (1,865 | ) | (3,328 | ) | (108 | ) | (5,476 | ) | ||||||||||
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Segment profit (loss) after taxes |
$ | (3,172 | ) | $ | 3,233 | $ | 10,315 | $ | (108 | ) | $ | 10,268 | ||||||||
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Three months ended September 30, 2016 | ||||||||||||||||||||
Corporate | Bateas | Cuzcatlan | Lindero | Total | ||||||||||||||||
Revenues from external customers |
$ | | $ | 18,431 | $ | 46,781 | $ | | $ | 65,212 | ||||||||||
Cost of sales |
| (12,175 | ) | (24,623 | ) | | (36,798 | ) | ||||||||||||
Selling, general, and administration |
(4,917 | ) | (738 | ) | (1,498 | ) | | (7,153 | ) | |||||||||||
Other (expenses) income |
(94 | ) | (90 | ) | 83 | | (101 | ) | ||||||||||||
Finance items |
(266 | ) | (32 | ) | (65 | ) | | (363 | ) | |||||||||||
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Segment profit (loss) before taxes |
(5,276 | ) | 5,396 | 20,677 | | 20,797 | ||||||||||||||
Income taxes |
1 | (2,565 | ) | (8,076 | ) | | (10,640 | ) | ||||||||||||
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Segment profit (loss) after taxes |
$ | (5,275 | ) | $ | 2,831 | $ | 12,601 | $ | | $ | 10,157 | |||||||||
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Nine months ended September 30, 2017 | ||||||||||||||||||||
Corporate | Bateas | Cuzcatlan | Lindero | Total | ||||||||||||||||
Revenues from external customers |
$ | | $ | 62,848 | $ | 129,909 | $ | | $ | 192,757 | ||||||||||
Cost of sales |
| (39,628 | ) | (78,791 | ) | | (118,419 | ) | ||||||||||||
Selling, general, and administration |
(10,091 | ) | (2,187 | ) | (3,964 | ) | | (16,242 | ) | |||||||||||
Other expenses |
(151 | ) | (71 | ) | (5,216 | ) | | (5,438 | ) | |||||||||||
Finance items |
(673 | ) | (4,032 | ) | 83 | | (4,622 | ) | ||||||||||||
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Segment profit (loss) before taxes |
(10,916 | ) | 16,930 | 42,022 | | 48,036 | ||||||||||||||
Income taxes |
(490 | ) | (5,183 | ) | (10,090 | ) | (108 | ) | (15,871 | ) | ||||||||||
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Segment profit (loss) after taxes |
$ | (11,406 | ) | $ | 11,747 | $ | 31,932 | $ | (108 | ) | $ | 32,165 | ||||||||
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Page | 26
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
Nine months ended September 30, 2016 | ||||||||||||||||||||
Corporate | Bateas | Cuzcatlan | Lindero | Total | ||||||||||||||||
Revenues from external customers |
$ | | $ | 49,081 | $ | 103,308 | $ | | $ | 152,389 | ||||||||||
Cost of sales |
| (34,988 | ) | (57,516 | ) | | (92,504 | ) | ||||||||||||
Selling, general, and administration |
(23,266 | ) | (2,006 | ) | (3,866 | ) | | (29,138 | ) | |||||||||||
Other income (expenses) |
313 | (75 | ) | (50 | ) | | 188 | |||||||||||||
Finance items |
(1,022 | ) | (150 | ) | (191 | ) | | (1,363 | ) | |||||||||||
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Segment profit (loss) before taxes |
(23,975 | ) | 11,862 | 41,685 | | 29,572 | ||||||||||||||
Income taxes |
20 | (3,645 | ) | (14,602 | ) | | (18,227 | ) | ||||||||||||
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Segment profit (loss) after taxes |
$ | (23,955 | ) | $ | 8,217 | $ | 27,083 | $ | | $ | 11,345 | |||||||||
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|
September 30, 2017 | ||||||||||||||||||||
Corporate | Bateas | Cuzcatlan | Lindero | Total | ||||||||||||||||
Total assets |
$ | 95,409 | $ | 116,433 | $ | 297,812 | $ | 143,237 | $ | 652,891 | ||||||||||
Total liabilities |
$ | 56,012 | $ | 23,840 | $ | 42,030 | $ | 2,000 | $ | 123,882 | ||||||||||
December 31, 2016 | ||||||||||||||||||||
Corporate | Bateas | Cuzcatlan | Lindero | Total | ||||||||||||||||
Total assets |
$ | 40,351 | $ | 105,001 | $ | 279,316 | $ | 138,247 | $ | 562,915 | ||||||||||
Total liabilities |
$ | 57,132 | $ | 23,622 | $ | 57,962 | $ | 1,048 | $ | 139,764 |
26. | Contingencies and Capital Commitments |
(a) | Bank Letter of Guarantee |
The Caylloma Mine closure plan was updated in March 2017, with total undiscounted closure costs of $9,230 consisting of progressive closure activities of $3,646, final closure activities of $4,971, and post-closure activities of $613. Pursuant to the closure regulations, the Company is required to place the following guarantees with the government:
| 2017 $3,179 |
| 2018 $4,990 |
| 2019 $6,928 |
Scotiabank Peru, a third party, has established a bank letter of guarantee in the amount of $3,179 (2016 $3,179), on behalf of Bateas in favor of the Peruvian mining regulatory agency, in compliance with local regulation and to collateralize Bateas mine closure plan. This bank letter of guarantee expires on December 31, 2017.
Page | 27
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
(b) | Other Commitments |
As at September 30, 2017, the Company had the following capital commitments, expected to be expended within one year:
| $1,108 for the filtration plant at the San Jose property, |
| $216 for plant and mine equipment at the San Jose property, |
| $388 for the plant and mine equipment at the Caylloma property, |
| $181 for civil work, equipment purchases and other services at the Lindero Gold Project. |
Operating leases includes leases for office premises, computer and other equipment used in the normal course of business.
The expected payments due by period, as at September 30, 2017 are as follows:
Expressed in $000s | ||||||||||||||||
Expected payments due by period as at September 30, 2017 | ||||||||||||||||
Less than 1 year |
1 - 3 years | 4 - 5 years | Total | |||||||||||||
Office premises |
$ | 474 | $ | 1,045 | $ | 780 | $ | 2,299 | ||||||||
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Computer equipment |
$ | 99 | $ | 54 | $ | | $ | 153 | ||||||||
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Machinery |
$ | 7 | $ | | $ | | $ | 7 | ||||||||
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Total operating leases |
$ | 580 | $ | 1,099 | $ | 780 | $ | 2,459 | ||||||||
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(c) | Tax Contingencies |
Peru
The Company has been assessed by SUNAT, the Peruvian tax authority, $1,739 including interest and penalties of $570 for tax years 2010 and 2011.
| The Company is appealing these assessments. |
| The Company has provided a guarantee by way of a letter bond in the amount of $816. |
No amounts have been accrued at September 30, 2017 or December 31, 2016 in respect of these tax assessments. The Company believes its more likely than not that the Companys appeal will be successful.
Mexico
During 2015, the Companys foreign trade operations for tax years 2011 to 2014 were reviewed by the Mexican Tax Administration Service (SAT) and faced an administrative customs procedure (PAMA) for specific temporary import documents (pediments). On October 27, 2015, the SAT issued an assessment regarding the Companys foreign trade operations for tax years 2011 to 2014,
Page | 28
Fortuna Silver Mines Inc.
Notes to Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2017 and 2016
(Unaudited- Presented in thousands of US dollars unless otherwise noted)
and denied certain claims, which resulted in the following assessments totaling $198 (the tax credit):
| $30 in general import tax, $90 in VAT, and $5 custom management tax, and |
| associated fines of $94 |
On December 11, 2015, the Company established a security bond in the amount of $211 in favor of PAMA to collateralize this tax credit of $198. This security bond has been renewed until February 2018. On January 21, 2016, the Company presented its arguments before the Mexican Federal Court for the nullification and voidance of the tax credit (the Company claim). On August 18, 2016, the Mexican Federal Court issued a first instance resolution declaring the nullity and voidance of the tax assessment, which the tax authority appealed.
On April 6, 2017, the Mexican Federal Court issued a ruling to reinstate the tax credits in dispute and ordered tax authority to settle the tax credits. The ruling is final and unappealable. Subsequent to September 30, 2017, the security bond was released and fully recovered.
(d) | Other Contingencies |
The Company is subject to various investigations, royalties and other claims, legal, labor, and tax proceedings covering matters that arise in the ordinary course of business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably for the Company. Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company. In our opinion, none of these matters is expected to have a material effect on the results of operations or financial conditions of the Company.
Page | 29
Exhibit 99.2
MANAGEMENTS DISCUSSION AND ANALYSIS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017
As of November 7, 2017
(Monetary amounts expressed in US dollars, unless otherwise indicated)
Table of Contents
Page | ||||
Business of the Company |
2 | |||
Third Quarter 2017 Highlights |
3 | |||
Lindero Project |
7 | |||
Greenfield Exploration |
9 | |||
2017 Guidance and Outlook |
10 | |||
Third Quarter and Year to Date 2017 Financial Results |
11 | |||
Results of Operations |
15 | |||
Quarterly Information |
19 | |||
Liquidity and Capital Resources |
19 | |||
Key Management Personnel |
22 | |||
New Accounting Standards issued but not yet effective |
23 | |||
Critical Accounting Estimates and Judgments |
23 | |||
Share Position and Outstanding Warrants and Options |
24 | |||
Controls and Procedures |
24 | |||
Non-GAAP Financial Measures |
25 | |||
Cautionary Statement on Forward-Looking Statements |
33 | |||
Cautionary Note to United States Investors Concerning Estimates of Reserves and Resources |
34 |
Managements Discussion and Analysis, page 1
FORTUNA SILVER MINES INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2017
Business of the Company
Fortuna Silver Mines Inc. (Fortuna or the Company) is engaged in precious and base metal mining and related activities in Latin America, including exploration, extraction, and processing. The Company
| operates the Caylloma silver, lead, and zinc mine (Caylloma) in southern Peru, |
| operates the San Jose silver and gold mine (San Jose) in southern Mexico, and |
| is developing the Lindero Gold Project (Lindero) in northern Argentina. |
Fortuna is a publicly traded company incorporated and domiciled in British Columbia, Canada. Its common shares are listed on the New York Stock Exchange under the trading symbol FSM, on the Toronto Stock Exchange under the trading symbol FVI, and on the Frankfurt Stock Exchange under the trading symbol F4S.F.
This Managements Discussion and Analysis (MD&A) is intended to help readers understand the significant factors that affect the performance of Fortuna and its subsidiaries, and those that may affect future performance. This MD&A has been prepared as of November 7, 2017, and should be read in conjunction with the Companys audited consolidated financial statements for the year ended December 31, 2016 (2016 Annual Financial Statements), its unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2017 (Q3 2017 Financial Statements) and the related notes contained therein. All amounts in this MD&A are expressed in United States Dollars (US$), unless indicated otherwise. The Company reports its financial position, results of operations and cash flows in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), including IAS 34, Interim financial reporting. The Companys significant accounting policies are set out in Note 4 of the 2016 Annual Financial Statements.
In this MD&A, we refer to various Non-GAAP Financial Measures. These measures are used by us to manage and evaluate the operating performance of our mines and the ability to generate cash, and are widely reported in the silver mining industry as benchmarks for performance. Refer to the discussion under the heading Non-GAAP Financial Measures.
Additional information about the Company, including our Annual Information Form, is available at SEDAR at www.sedar.com
This document contains Forward-Looking Statements. Refer to the cautionary language under the heading Cautionary Statement on Forward-Looking Statements.
Managements Discussion and Analysis, page 2
Third Quarter 2017 Highlights
| Financial Results |
Sales for the quarter ended September 30, 2017 were $64.0 million, a $1.2 million decrease from the same quarter in 2016 of $65.2 million. Sales volume for silver and gold were down 5% and 6% while realized prices for silver and gold were down 14% and 4% for the quarter. Partially offsetting the decline in the price of silver and gold was a 25% and 32% increase in the realized price of lead and zinc during the third quarter of 2017.
Adjusted EBITDA (refer to Non-GAAP Financial Measures) for the third quarter ended September 2017 was $30.6 million, which was the same for the comparable quarter in 2016.
Net income for the third quarter ended September 30, 2017 (Q3 2017) was $10.3 million or basic earnings per share of $0.06, compared to $10.2 million or $0.08 basic earnings per share for comparable period in 2016 (Q3 2016).
Net cashflow provided by operating activities for Q3 2017 was $20.4 million or $8.6 million lower than Q3 2016 due largely to higher income taxes paid and timing of settlement of working capital items.
| Strong liquidity and working capital |
Cash, cash equivalent and short-term investments were $195.8 million and working capital of $197.6 million at September 30, 2017, a $72.2 million and a $88.8 million increase since the beginning of the year. The principal amount of total debt outstanding remained steady at $40.0 million at September 30, 2017 and December 31, 2016.
| Lower Q3 2017 All-in sustaining cash cost |
Total all-in sustaining cash cost per payable ounce of silver (Refer to Non-GAAP Financial Measures) in Q3 2017 decreased to $6.06 per ounce of silver or 20% from the comparable quarter in 2016 per ounce of silver and 38% lower than guidance due primarily to higher by-product credits (refer to Non-GAAP Financial Measures).
| Construction decision made on Lindero Project |
On September 21, 2017, the Board of Directors approved the construction of the 100% owned Lindero Gold Project. Initial capital of $239.0 million will be funded primarily from our cash position, expansion of existing loan facility, and future operating cash flows. Detailed engineering and site preparation activities will commence in the fourth quarter of 2017 with commissioning expected in the second quarter of 2019. In the first full year of production, Lindero is expected to increase Fortunas annual production to approximately 9 million ounces of silver and 190,000 ounces of gold, or 340,000 gold equivalent ounces (gold equivalent ounces calculated using a gold to silver ratio of 1 to 60). (See Fortuna news release dated September 21, 2017.)
| Kylie Dickson appointment to Board of Directors |
Ms. Dickson is an executive with over 14 years of experience in the mining industry and has worked with companies at various stages of the mining lifecycle including exploration, mine development and operations as well as playing a key role in financings and M&A transactions. Ms. Dickson is currently the Vice-President, Business Development at Trek Mining Inc. and is a Canadian Chartered Professional Accountant.
Managements Discussion and Analysis, page 3
Financial highlights
Consolidated Financial Metrics |
Q3 2017 |
Q3 2016 |
% Change | YTD 2017 |
YTD 2016 |
% Change |
||||||||||||||||||
(Expressed in $ millions except per share information and all-in sustaining cash cost) |
||||||||||||||||||||||||
Sales |
$ | 64.0 | $ | 65.2 | -2 | % | $ | 192.8 | $ | 152.4 | 27 | % | ||||||||||||
Mine operating income |
24.9 | 28.4 | -12 | % | 74.3 | 59.9 | 24 | % | ||||||||||||||||
Operating income |
18.9 | 21.2 | -11 | % | 52.7 | 30.9 | 71 | % | ||||||||||||||||
Net income |
10.3 | 10.2 | 1 | % | 32.2 | 11.3 | 185 | % | ||||||||||||||||
Earnings per share (basic) |
0.06 | 0.08 | -25 | % | 0.20 | 0.08 | 150 | % | ||||||||||||||||
Earnings per share (diluted) |
0.06 | 0.07 | -14 | % | 0.20 | 0.08 | 150 | % | ||||||||||||||||
Adjusted net income* |
13.1 | 10.0 | 31 | % | 36.4 | 11.0 | 231 | % | ||||||||||||||||
Adjusted EBITDA* |
30.6 | 30.6 | 0 | % | 87.3 | 53.5 | 63 | % | ||||||||||||||||
Cash provided by operating activities |
20.4 | 29.0 | -30 | % | 41.2 | 26.9 | 53 | % | ||||||||||||||||
Cash generated by operating activities before changes in working capital |
26.2 | 26.5 | -1 | % | 61.3 | 39.6 | 55 | % | ||||||||||||||||
Capex (sustaining) |
7.5 | 5.4 | 39 | % | 19.9 | 14.5 | 37 | % | ||||||||||||||||
Capex (non-sustaining) |
6.1 | 3.6 | 69 | % | 11.2 | 21.0 | -47 | % | ||||||||||||||||
Capex (Brownfield) |
2.2 | 2.2 | 0 | % | 7.8 | 5.7 | 37 | % | ||||||||||||||||
All-in sustaining cash cost |
6.1 | 7.5 | -20 | % | 6.8 | 8.8 | -23 | % | ||||||||||||||||
Sep 30, 2017 |
Dec 31, 2016 |
% Change |
||||||||||||||||||||||
Cash, cash equivalents, and short-term investments |
195.8 | 123.6 | 58 | % | ||||||||||||||||||||
Total assets |
652.9 | 387.7 | 68 | % | ||||||||||||||||||||
Non-current bank loan |
39.8 | 39.6 | 1 | % |
* | refer to Non-GAAP Financial Measures |
Net income for the third quarter ended September 30, 2017 was $10.3 million or $0.06 per share compared to a net income of $10.2 million or $0.08 per share for the comparable quarter in 2016. The slightly higher net income was driven mostly by lower income tax expense of $5.2 million as the effective tax rate for the third quarter decreased to 34.7% compared to 51.2% for the comparable quarter in 2016.
Adjusted net income increased 31% during the third quarter to $13.1 million compared to $10.0 million for the comparable period in 2016. The adjusted net income includes addback of losses from financial instruments of $2.2 million and write-downs of inventories, mineral properties and plant and equipment totaling $0.6 million. All these items are net of tax.
Net cash provided by operating activities for the third quarter 2017 was $20.3 million, a decrease of $8.7 million from the comparable quarter in 2016. The following chart illustrates the changes in the
Managements Discussion and Analysis, page 4
components of working capital items that impact cash provided by operating activities, quarter over quarter.
Net cash provided by operating activities in the third quarter of 2017 was $20.4 million, an $8.6 million decrease from $29.0 million in the third quarter of 2016 due primarily to negative changes in working capital. The negative changes related to movements in trade receivables, inventory and accounts payable balances. Cash provided by operating activities before changes in working capital was $26.2 million, a $0.3 million decrease from $26.5 million in Q3 2016.
Adjusted EBITDA (refer to Non-GAAP Financial Measures) in the third quarter of 2017 was $30.6 million which was the same as the comparable quarter in 2016 due primarily to lower share-based payment expense and partially offset by higher mining and general and administrative costs.
At September 30, 2017, the Company had cash, cash equivalents, and short-term investments of $195.8 million (December 31, 2016 $123.6 million), an increase of $72.2 million since the beginning of the year. The increase was due primarily to a bought deal equity financing in the first quarter of 2017 for net proceeds of $70.9 million.
Managements Discussion and Analysis, page 5
Operating Performance
Consolidated Metrics |
Q3 2017 | Q3 2016 | % Change | YTD 2017 | YTD 2016 | % Change | ||||||||||||||||||
Key Indicators |
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Silver |
||||||||||||||||||||||||
Metal produced (oz) |
2,009,362 | 2,089,506 | -4 | % | 6,159,417 | 5,260,119 | 17 | % | ||||||||||||||||
Metal sold (oz) |
1,965,221 | 2,070,913 | -5 | % | 6,084,154 | 5,250,788 | 16 | % | ||||||||||||||||
Realized price ($/oz) |
16.9 | 19.5 | -14 | % | 17.2 | 17.3 | -1 | % | ||||||||||||||||
Gold |
||||||||||||||||||||||||
Metal produced (oz) |
13,412 | 14,111 | -5 | % | 41,158 | 32,739 | 26 | % | ||||||||||||||||
Metal sold (oz) |
12,931 | 13,739 | -6 | % | 40,259 | 32,155 | 25 | % | ||||||||||||||||
Realized price ($/oz) |
1,280 | 1,327 | -4 | % | 1,251 | 1,268 | -1 | % | ||||||||||||||||
Lead |
||||||||||||||||||||||||
Metal produced (000s lbs) |
7,650 | 7,452 | 3 | % | 22,031 | 25,383 | -13 | % | ||||||||||||||||
Metal sold (000s lbs) |
7,291 | 7,454 | -2 | % | 21,454 | 25,826 | -17 | % | ||||||||||||||||
Zinc |
||||||||||||||||||||||||
Metal produced (000s lbs) |
11,241 | 10,606 | 6 | % | 32,670 | 32,198 | 1 | % | ||||||||||||||||
Metal sold (000s lbs) |
10,867 | 10,600 | 3 | % | 32,512 | 32,504 | 0 | % | ||||||||||||||||
All-in sustaining cash cost (US$/oz Ag)* |
6.06 | 7.53 | -20 | % | 6.81 | 8.81 | -23 | % |
(net of by-product credits from gold, lead, and zinc)
* | (refer to Non-GAAP Financial Measures) |
Silver and gold production for the third quarter ended September 30, 2017 were 2,009,362 ounces and 13,412 ounces, respectively, which were 3% and 7% above plan. Silver production at the San Jose Mine totaled 1,774,556 ounces and was in line with Q3 2016 production. Silver production at Caylloma decreased 24% to 234,806 ounces compared to Q3 2016 production due to lower silver head grades. Silver and gold production is on track to meet our guidance for 2017.
Silver and gold metal sales for the third quarter ended September 30, 2017 decreased 5% and 6% respectively, over the comparable quarter in 2016, while realized metal prices decreased 13% for silver and 4% for gold.
The Company is on schedule to produce 8.1 million ounces of silver and 52.4 thousand ounces of gold, or 11.2 million silver equivalent ounces for 2017.
Lead and zinc production for the third quarter ended September 30, 2017 were 7,650,040 pounds and 11,241,371 pounds, which were 3% and 6% higher than the comparable quarter in 2016.
Total all-in sustaining cash cost (AISC) per payable ounce of silver, net of by-product credits, was $6.73 per ounce for the third quarter ended September 30, 2017, an 11% decrease from Q3 2016 and was $7.02 per ounce for the nine months ended September 30, 2017, a 20% decrease from YTD Q3 2016, and 28% lower than our 2017 guidance of $9.80. The decrease in AISC was due primarily to higher by-product credits.
Managements Discussion and Analysis, page 6
Lindero Project
On September 21, 2017, the Board of Directors approved the construction of the Lindero Gold Project (Lindero Project) located in the Province of Salta, Argentina. The Lindero Project was acquired in July 2016 through the acquisition of Goldrock Mines Corp, whose principle asset was the Lindero Project. The Lindero Project has an approved environmental impact study and all major permits for the construction of an 18,750 tpd open pit, heap leach gold mine.
The Lindero Project will contribute low cost gold production over a 15-year mine life and has a base case IRR of 18% with a 3.6 years payback. The initial capital cost for the construction is $239 million, includes $19 million for an owner operated mining fleet and $24 million for contingencies. Sustaining capital costs for the project are estimated at $105 million. The construction will be funded from our cash position of $195.8 million, expansion of the existing loan facility and future operating cash flows. The Company do not envision accessing capital markets or taking hedge positions for this project. The optimization work conducted over the past year has captured opportunities for improved metallurgical recovery and reduced leach time. At the same time, technical risks have been mitigated on the process side by adding a SART plant, ore agglomeration and a conveyor stacking system to year one. Detailed engineering and site activities are currently in process with commissioning expected in the second quarter of 2019.
Life of Mine Highlights
Production |
||||
Mine life1 (years) |
15 | |||
Annual ore placed in leach pad (Mt) |
6.75 | |||
Strip ratio (waste to ore ) |
1.2 | |||
Head grade (g/t) |
0.62 | |||
Recovery (%) |
75 | |||
Gold recovered to doré (Moz) |
1.3 | |||
Average annual gold recovered to doré 2 (koz) |
96 | |||
Peak annual gold recovered to doré (koz) |
138 | |||
AISC3 ($/oz Au) |
802 | |||
Initial capital ($ M) |
239 | |||
Sustaining capital ($ M) |
105 | |||
Base Case Economics |
||||
Gold price ($) |
1,250 | |||
Exchange rate (ARS4:USD) |
17.80 | |||
After-tax NPV5 @ 5% ($ M) |
130 | |||
After-tax IRR6 (%) |
18 | |||
Payback period7 (years) |
3.6 |
Managements Discussion and Analysis, page 7
Lindero After-Tax Economics Sensitivity Analysis
Gold Price ($/oz) |
NPV @ 5% ($ M) |
IRR (%) |
Payback Period (Years) | |||
1,150 |
68 | 12 | 4.7 | |||
1,250 |
130 | 18 | 3.6 | |||
1,350 |
192 | 23 | 3.1 | |||
1,450 |
253 | 28 | 2.4 |
Mineral Reserves and Resources
Mineral Reserves and Resources for the Lindero Project are reported as of September 9, 2017 based on 132 diamond drill holes totaling 37,897 meters and the addition of 12 new holes drilled by Fortuna in 2016 totaling 4,462 meters. The estimates incorporate a revised geological interpretation and updated metallurgical recoveries, metal prices and estimated operating costs.
Mineral Resource estimation involved the usage of drill hole samples in conjunction with surface mapping to construct three-dimensional wireframes defining lithologic, alteration, and grade domains. Samples were selected inside these wireframes, coded, composited and top cut. Boundaries were treated as hard, firm or soft based on statistical and geostatistical analysis. Gold and copper grades were estimated by ordinary kriging into a geological block model consisting of 10 m x 10 m x 4 m selective mining units representing each domain. Estimated grades were validated globally, locally, and visually prior to classification and are reported above a 0.20 g/t Au cut-off grade within a conceptual pit shell.
Mineral Reserve estimates have considered only Measured and Indicated Mineral Resources as only these categories have sufficient geological confidence to be considered Mineral Reserves. Subject to the application of certain modifying factors, Measured Resources may become Proven Reserves and Indicated Resources may become Probable Reserves.
Mineral Reserves - Proven and Probable |
Contained Metal | |||||||||||||||||
Property |
Classification |
Tonnes (000) |
Au (g/t) |
Cu (%) |
Au (koz) |
|||||||||||||
Proven |
26,009 | 0.74 | 0.11 | 618 | ||||||||||||||
Lindero, Argentina |
Probable |
62,263 | 0.57 | 0.11 | 1,131 | |||||||||||||
Proven + Probable | 88,272 | 0.62 | 0.11 | 1,749 | ||||||||||||||
Mineral Resources |
Contained Metal | |||||||||||||||||
Property |
Classification |
Tonnes (000) |
Au (g/t) |
Cu (%) |
Au (koz) |
|||||||||||||
Measured |
610 | 0.24 | 0.06 | 5 | ||||||||||||||
Indicated | 11,897 | 0.24 | 0.07 | 92 | ||||||||||||||
Lindero, Argentina |
Measured + Indicated | 12,507 | 0.24 | 0.07 | 97 | |||||||||||||
Inferred | 5,700 | 0.36 | 0.10 | 65 |
Managements Discussion and Analysis, page 8
Notes:
1. | Mineral Reserves and Resources are as defined by CIM Definition Standards on Mineral Resources and Mineral Reserves |
2. | Mineral Resources are exclusive of Mineral Reserves |
3. | Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability |
4. | There are no known legal, political, environmental, or other risks that could materially affect potential development of the Mineral Resources or Mineral Reserves at Lindero |
5. | Mineral Resources and Mineral Reserves for Lindero are reported as of September 9, 2017 |
6. | Mineral Reserves for Lindero are reported based on open pit mining within designed pit shells based on variable gold cut-off grades and gold recoveries by metallurgical type. Met type 1 cut-off 0.27 g/t Au, recovery 75.4%; Met type 2 cut-off 0.26 g/t Au, recovery 78.2%; Met type 3 cut-off 0.26 g/t Au, recovery 78.5%; and Met type 4 cut-off 0.30 g/t Au, recovery 61.7%. The cut-off grade and pit designs are considered appropriate for long term gold prices of $1,250/oz. |
7. | Lindero Mineral Resources are reported within a conceptual pit shell above a 0.2 g/t Au cut-off grade using a long-term price of $1,250/oz. mining costs at $1.67 per tonne of material, with total processing and process G&A costs of $7.84 per tonne of ore and an average process recovery of 75%. The refinery costs, net of pay factor, were estimated to be $6.90 per ounce of gold. Slope angles are based on 3 sectors (39°, 42° and 47°) consistent with geotechnical consultant recommendations |
8. | Eric Chapman, P. Geo. (APEGBC #36328) is the Qualified Person for resources and Edwin Gutierrez (SME Registered Member #411910RM) is the Qualified Person for reserves, both being employees of Fortuna Silver Mines Inc. |
9. | Totals may not add due to rounding procedures |
Greenfield Exploration
In May 2017, the Company entered into an equity investment agreement with Prospero Silver Corp whereby the Company can earn a 70% interest in certain selected properties by spending $8.0 million over six years and completing a Preliminary Economic Analysis of the selected properties as described below.
Matorral Project
Three drill holes (1,371 meters) were completed on three different targets in August testing for potential epithermal precious metal mineralization beneath extensive surface outcrops of jasperoid. Sporadic anomalous silver from trace up to 32 ppm was intersected and the project is on hold until completion of the entire drill program (see Prospero Silver news release dated August 24, 2017).
Drilling was initiated on September 18, 2017 and the program calls for drilling 11 holes on four separate targets. The project is the most advanced in the Prospero Silver portfolio with high level epithermal alteration exposed over a 5 kilometer by 4 kilometer area with highly anomalous gold and silver mineralization hosted in extensive outcrops and float of strata-bound jasperoid. Surface sampling by Prospero at the Apartadero target at Petate returned a best continuous channel sample of 67.5m @ 0.93 g/t Au (see Prospero Silver news release dated August 24, 2017). Drilling at the Pachuca SE and Bermudez projects will follow in order after completion of the drilling at Petate.
Serbia Prospects
In June 2016, the Company entered into an equity investment agreement with Medgold Resources Corp. whereby the Company can earn a 70% interest in the Tiamino Project, Barje and Karamanica prospects by spending $8.0 million over six years and completing a Preliminary Economic Analysis on these prospects. These prospects are located in Southern Serbia. (See Medgold Resources news releases for exploration update.)
Managements Discussion and Analysis, page 9
2017 Guidance and Outlook
2017 Production Guidance
Mine |
Silver | Gold | Lead | Zinc | Cash Cost** | AISCC** | ||||||||||||||||||
(Moz) | (koz) | (Mlbs) | (Mlbs) | ($/t) | ($/ oz Ag) | |||||||||||||||||||
San Jose, Mexico |
7.1 | 51.9 | NA | NA | 56.7 | 8.4 | ||||||||||||||||||
Caylloma, Peru |
1.0 | 0.5 | 30.0 | 41.0 | 75.5 | 10.8 | ||||||||||||||||||
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Total |
8.1 | 52.4 | 30.0 | 41.0 | | | ||||||||||||||||||
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** | Non-GAAP Financial Measures |
| 2017 silver equivalent production guidance of 11.2 million ounces |
| Silver equivalent production does not include lead or zinc and is calculated using a silver to gold ratio of 60 to 1 |
2017 All-In-Sustaining Cash Cost Per Silver Ounce Guidance
San Jose | Caylloma | Consoidated | ||||||||||
Cash cost, net of by-product credits |
$ | 2.4 | $ | (8.9 | ) | $ | 1.1 | |||||
Adjustments: |
||||||||||||
Commercial and government royalties and mining tax |
1.2 | 0.9 | 1.1 | |||||||||
Workers participation |
0.8 | 0.2 | 0.7 | |||||||||
Selling, general and administrative expenses (operations) |
0.7 | 3.4 | 1.0 | |||||||||
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5.1 | (4.4 | ) | 3.9 | |||||||||
Selling, general and administrative expenses (corporate) |
| | 1.1 | |||||||||
Sustaining capital expenditures |
2.3 | 11.0 | 3.4 | |||||||||
Brownfield exploration expenditures |
1.0 | 4.2 | 1.4 | |||||||||
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All-in-sustaining cash cost per payable ounce of silver |
$ | 8.4 | $ | 10.8 | $ | 9.8 | ||||||
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2017 Outlook
2017 capital expenditure and exploration guidance
The Company has revised its estimate for capital expenditures from $46.0 million to $56.3 million to reflect the estimated $10.3 million for detail engineering and site preparation at the Lindero Project in preparation for mine construction.
in millions of US dollar |
San Jose | Caylloma | Lindero | Other | Total | |||||||||||||||
Equipment and infrastructure |
$ | 3.2 | $ | 3.3 | $ | | $ | | $ | 6.5 | ||||||||||
Mine development |
6.5 | 6.9 | | | 13.4 | |||||||||||||||
Dry tailing deposit |
6.5 | | | | 6.5 | |||||||||||||||
Greenfield exploration |
| | | 3.9 | 3.9 | |||||||||||||||
Brownfield exploration |
7.0 | 3.9 | | | 10.9 | |||||||||||||||
Pre-construction |
| | 4.8 | | 4.8 | |||||||||||||||
Detailed engineering and site preparation |
| | 10.3 | | 10.3 | |||||||||||||||
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Total |
$ | 23.2 | $ | 14.1 | $ | 15.1 | $ | 3.9 | $ | 56.3 | ||||||||||
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Managements Discussion and Analysis, page 10
The Company is in discussion with our bank to expand the existing loan facility by up to $80.0 million to ensure the Company has sufficient liquidity to fund the construction of the Lindero Project.
At Caylloma, brownfield exploration budget for 2017 is $3.9 million, which includes 22,000 meters of drilling of which 18,700 meters have been drilled through to mid-September. Caylloma will continue with its exploration for the remainder of 2017.
At San Jose, brownfield exploration budget for 2017 is $7.0 million, which includes 31,000 meters of diamond drilling of which 18,045 meters have been drilled through to mid-September 2017.
Third Quarter and Year to Date 2017 Financial Results
SALES AND REALIZED PRICES | ||||||||||||||||||||||||
Three months ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Caylloma | San Jose | Consolidated | Caylloma | San Jose | Consolidated | |||||||||||||||||||
Provisional Sales ($ million) |
21.9 | 41.8 | 63.7 | 17.8 | 46.5 | 64.3 | ||||||||||||||||||
Adjustments ($ million) * |
0.3 | | 0.3 | 0.6 | 0.3 | 0.9 | ||||||||||||||||||
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Sales ($ million) |
22.2 | 41.8 | 64.0 | 18.4 | 46.8 | 65.2 | ||||||||||||||||||
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Silver |
||||||||||||||||||||||||
Provisional Sales (oz) |
226,155 | 1,739,066 | 1,965,221 | 309,813 | 1,761,101 | 2,070,913 | ||||||||||||||||||
Realized Price ($/oz)** |
16.89 | 16.85 | 16.85 | 19.56 | 19.47 | 19.49 | ||||||||||||||||||
Net Realized Price ($/oz)*** |
15.05 | 15.74 | 15.66 | 17.08 | 17.72 | 17.62 | ||||||||||||||||||
Gold |
||||||||||||||||||||||||
Provisional Sales (oz) |
114 | 12,817 | 12,931 | | 13,739 | 13,739 | ||||||||||||||||||
Realized Price ($/oz)** |
1,275 | 1,280 | 1,280 | | 1,327 | 1,327 | ||||||||||||||||||
Net Realized Price ($/oz)*** |
224 | 1,128 | 1,120 | | 1,115 | 1,115 | ||||||||||||||||||
Lead |
||||||||||||||||||||||||
Provisional Sales (000s lb) |
7,291 | | 7,291 | 7,454 | | 7,454 | ||||||||||||||||||
Realized Price ($/lb)** |
1.06 | | 1.06 | 0.85 | | 0.85 | ||||||||||||||||||
Net Realized Price ($/lb)*** |
0.98 | | 0.98 | 0.67 | | 0.67 | ||||||||||||||||||
Zinc |
||||||||||||||||||||||||
Provisional Sales (000s lb) |
10,867 | | 10,867 | 10,600 | | 10,600 | ||||||||||||||||||
Realized Price ($/lb)** |
1.35 | | 1.35 | 1.02 | | 1.02 | ||||||||||||||||||
Net Realized Price ($/lb)*** |
1.05 | | 1.05 | 0.71 | | 0.71 |
* | Adjustments consists of mark to market, final price adjustments, and final assay adjustments |
** | Based on provisional sales before final price adjustments |
*** | Net after payable metal deductions, treatment, and refining charges |
Treatment charges are allocated to the base metals in Caylloma and to gold in San Jose
Managements Discussion and Analysis, page 11
Sales for the third quarter ended September 30, 2017 were $64.0 million, a 2% decrease over the comparable period in 2016 due principally to a 14% and 4% decrease in realized silver and gold prices and lower sales volume. Decrease in silver and gold sales were partially offset by higher realized prices for lead by 25% and zinc by 32% as well as lower treatment and refining charges.
SALES AND REALIZED PRICES | ||||||||||||||||||||||||
Nine months ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Caylloma | San Jose | Consolidated | Caylloma | San Jose | Consolidated | |||||||||||||||||||
Provisional Sales ($ million) |
62.2 | 130.8 | 192.9 | 47.6 | 101.0 | 148.6 | ||||||||||||||||||
Adjustments ($ million) * |
0.6 | (0.8 | ) | (0.2 | ) | 1.5 | 2.3 | 3.8 | ||||||||||||||||
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|
|
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|
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|
|
|
|||||||||||||
Sales ($ million) |
62.8 | 129.9 | 192.7 | 49.1 | 103.3 | 152.4 | ||||||||||||||||||
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Silver |
||||||||||||||||||||||||
Provisional Sales (oz) |
691,659 | 5,392,495 | 6,084,154 | 980,418 | 4,270,370 | 5,250,788 | ||||||||||||||||||
Realized Price ($/oz)** |
17.19 | 17.16 | 17.17 | 16.91 | 17.37 | 17.28 | ||||||||||||||||||
Net Realized Price ($/oz)*** |
15.22 | 16.07 | 15.97 | 14.59 | 15.77 | 15.55 | ||||||||||||||||||
Gold |
||||||||||||||||||||||||
Provisional Sales (oz) |
180 | 40,079 | 40,259 | | 32,155 | 32,155 | ||||||||||||||||||
Realized Price ($/oz)** |
1,271 | 1,251 | 1,251 | | 1,268 | 1,268 | ||||||||||||||||||
Net Realized Price ($/oz)*** |
242 | 1,100 | 1,096 | | 1,048 | 1,048 | ||||||||||||||||||
Lead |
||||||||||||||||||||||||
Provisional Sales (000s lb) |
21,454 | | 21,454 | 25,826 | | 25,826 | ||||||||||||||||||
Realized Price ($/lb)** |
1.03 | | 1.03 | 0.80 | | 0.80 | ||||||||||||||||||
Net Realized Price ($/lb)*** |
0.90 | | 0.90 | 0.61 | | 0.61 | ||||||||||||||||||
Zinc |
||||||||||||||||||||||||
Provisional Sales (000s lb) |
32,512 | | 32,512 | 32,504 | | 32,504 | ||||||||||||||||||
Realized Price ($/lb)** |
1.26 | | 1.26 | 0.89 | | 0.89 | ||||||||||||||||||
Net Realized Price ($/lb)*** |
0.99 | | 0.99 | 0.54 | | 0.54 |
* | Adjustments consists of mark to market, final price adjustments, and final assay adjustments |
** | Based on provisional sales before final price adjustments |
*** | Net after payable metal deductions, treatment, and refining charges |
Treatment charges are allocated to the base metals in Caylloma and to gold in San Jose
Sales for the nine months ended September 30, 2017 were $192.7 million or 26% higher than the comparable period in 2016. This increase was due primarily to the third quarter 2016 being the first quarter of full production at a new rate of 3,000 tonnes per day at the San Jose Mine. Realized silver and gold price were down slightly for 2017. Lead and zinc sales increased $14.5 million to $32.8 million as realized prices for lead and zinc were up 28% and 42% for the year.
Managements Discussion and Analysis, page 12
QUARTERLY RESULTS | YEAR TO DATE RESULTS | |||||||||||||||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
(Expressed in $ millions) |
2017 | %* | 2016 | %* | 2017 | %* | 2016 | %* | ||||||||||||||||||||||||
Operating income (loss) |
||||||||||||||||||||||||||||||||
Caylloma |
$ | 8.2 | 37 | % | $ | 5.4 | 30 | % | $ | 21.0 | 33 | % | $ | 12.0 | 24 | % | ||||||||||||||||
San Jose |
13.5 | 32 | % | 20.7 | 44 | % | 41.9 | 32 | % | 41.9 | 41 | % | ||||||||||||||||||||
Corporate |
(2.8 | ) | (5.1 | ) | (10.2 | ) | (23.0 | ) | ||||||||||||||||||||||||
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|||||||||||||||||||||||||
Total |
$ | 18.9 | 30 | % | $ | 21.2 | 33 | % | $ | 52.7 | 27 | % | $ | 30.9 | 20 | % | ||||||||||||||||
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|||||||||||||||||||||||||
Adjusted EBITDA** |
||||||||||||||||||||||||||||||||
Caylloma |
$ | 10.6 | 48 | % | $ | 7.4 | 40 | % | $ | 28.4 | 45 | % | $ | 17.8 | 36 | % | ||||||||||||||||
San Jose |
22.6 | 54 | % | 28.1 | 60 | % | 69.0 | 53 | % | 58.6 | 57 | % | ||||||||||||||||||||
Corporate |
(2.6 | ) | (5.0 | ) | (10.1 | ) | (22.9 | ) | ||||||||||||||||||||||||
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|||||||||||||||||||||||||
Total |
$ | 30.6 | 48 | % | $ | 30.6 | 47 | % | $ | 87.3 | 45 | % | $ | 53.5 | 35 | % | ||||||||||||||||
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|
Note: figures may not add due to rounding
* | as a percentage of sales |
** | refer to Non-GAAP financial measures |
Operating Income for the third quarter ended September 30, 2017 decreased $2.3 million to $18.9 million compared to $21.2 million for the comparable quarter in 2016. The lower operating income was due to lower sales volume and realized price for silver and gold, higher direct mining costs and a $0.7 million write-down of a mill, crusher and obsolete spare parts inventory all at the San Jose Mine. These higher costs were partially offset by a $2.6 million decrease in share-based payments at corporate over the same quarter in 2016 and higher lead and zinc sales of $5.6 million at the Caylloma Mine.
Operating Income for the nine months ended September 30, 2017 was $52.7 million compared to $30.9 million for the comparable period in 2016. The higher operating income was due to foreign exchange losses from a stronger US dollar against other currencies that the Company transacts in and the results of San Jose Mine operating at full capacity for the full year 2017 compared to 2016 when it was operating at full capacity for only one quarter, after the completion of the 3,000 tpd plant expansion. Higher metal prices for lead and zinc also contributed approximately $18.0 million to sales at the Caylloma Mine.
Adjusted EBITDA for the third quarter ended September 30, 2017 was $30.6 million compared to $30.6 million for the comparable period in 2016. Except for the write down of a mill and obsolete inventories the same items affecting operating income also affect adjusted EBITDA.
Adjusted EBITDA for the nine months ended September 30, 2017 was $87.3 million compared to $53.5 million for the comparable period in 2016. At the San Jose Mine, adjusted EBITDA increased 18% to $69.0 million over comparable period in 2016 as the 2016 comparable period only had one quarter operating at full capacity as the 3,000 tpd plant expansion was completed at the end of the second quarter 2016. Lead and zinc sales at the Caylloma Mine increased $18.0 million to $52.2 million were driven by higher lead (29%) and zinc (43%) realized prices. Other items negatively impacting adjusted EBITDA were $3.4 million of foreign exchange losses from remeasuring its Mexican Pesos denominated monetary balances to U.S. dollar and higher direct mining costs at the San Jose Mine.
Managements Discussion and Analysis, page 13
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
$ millions |
2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||||
Operating mines SG&A |
$ | 1.9 | $ | 1.7 | 18 | % | $ | 5.0 | $ | 5.0 | 2 | % | ||||||||||||
Corporate SG&A |
2.7 | 2.3 | 17 | % | 9.2 | 6.9 | 33 | % | ||||||||||||||||
Share-based payments |
0.1 | 2.6 | -96 | % | 0.9 | 16.3 | -94 | % | ||||||||||||||||
Workers participation |
0.3 | 0.6 | -50 | % | 1.1 | 0.9 | 22 | % | ||||||||||||||||
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Total |
$ | 5.0 | $ | 7.2 | -29 | % | $ | 16.2 | $ | 29.1 | -44 | % | ||||||||||||
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Selling, general and administrative (SG&A) expenses for the third quarter ended September 30, 2017 decreased 29% to $5.0 million compared to $7.2 million for the comparable quarter in 2016. The decrease was due primarily to lower share based payments and partially offset by higher corporate SG&A costs, in particular, audit, legal and consulting fees. The higher share price in 2016 increased the cash settled share-based payment expense. Share-based payments decreased $2.5 million to $0.1 million for the third quarter of 2017.
For the nine months ended September 30, 2017, selling, general and administrative expenses decreased 44% to $16.2 million compared to $29.0 million for the comparable period in 2016. As explained above, the decrease was due primarily to higher mark-to-market effects on cash settled share-based payments for the comparable period in 2016 and partially offset by higher corporate SG&A costs, in particular, audit, legal and consulting fees.
Foreign exchange loss for the third quarter ended September 30, 2017 was $0.1 million compared to $0.1 million loss for the comparative period in 2016.
For the nine months ended September 30, 2017, foreign exchange loss totaled $3.3 million compared to a $0.4 million foreign exchange gain for the comparative period in 2016. The increase in foreign exchange loss was due primarily to a stronger Mexican Peso against the US dollar in 2017 compared to a weaker Mexican Peso in 2016 and its impact on Mexican Peso denominated financial assets and liabilities.
Other expenses (income) for the third quarter ended September 30, 2017 were $0.8 million compared to $Nil for the same quarter in 2016 due to writedown of inventories, mineral properties, plant and equipment at the San Jose Mine.
For the nine months ended September 30, 2017, other expenses (income) totaled $1.8 million, a $1.8 million increase over the comparable period in 2016 due to writedown of inventories, mineral properties, plant and equipment at the San Jose Mine.
Income tax expense for the third quarter ended September 30, 2017 was $5.5 million compared to $10.6 million for the comparable quarter in 2016 and is comprised of $6.7 million of current income tax expense (Q3 2016: $10.3 million) and a $1.2 million of deferred income tax recovery (Q3 2016: $0.3 million deferred income tax expense). The effective tax rate (ETR) for the third quarter of 2017 was 34.7% compared to 51.2% for the comparable quarter in 2016. The lower effective tax rate was due primarily to benefits from an unusually high inflation rate in Mexico (5.1% decrease to San Joses ETR), foreign exchange impact on the remeasurement of Mexican Pesos denominated tax balances to U.S. dollar (5.5% decrease to San Joses ETR), and from not recognizing the tax benefits of operating losses in Canada.
Income tax expense for the nine months ended September 30, 2017 was $15.9 million compared to $18.2 million for the comparable period in 2016 and is comprised of $23.5 million of current income tax expense (2016: $17.8 million) and $7.6 million of deferred income tax recovery (2016: $0.4 million deferred
Managements Discussion and Analysis, page 14
income tax expense). The ETR for the nine months ended September 30, 2017 was 33.0% compared to 61.6% for the comparative period in 2016. The decrease was due to the appreciation of the Mexican Pesos against the US dollar, a high Mexico inflation rate in 2017, and not recognizing the tax benefits of operating losses in Canada.
Results of Operations
San Jose Mine Operating Results
San Jose is an underground silver-gold mine located in the state of Oaxaca in southern Mexico. The following table shows the main variables used to measure the operating performance of the mine throughput, grade, recovery, gold and silver production and unit costs.
QUARTERLY RESULTS | YEAR TO DATE RESULTS | |||||||||||||||
San Jose |
Three months ended, September 30, |
Nine months ended, September 30, |
||||||||||||||
Mine Production |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Tonnes milled |
263,697 | 268,242 | 799,420 | 632,432 | ||||||||||||
Average tonnes milled per day |
3,038 | 3,056 | 3,054 | 2,425 | ||||||||||||
Silver |
||||||||||||||||
Grade (g/t) |
229 | 224 | 231 | 229 | ||||||||||||
Recovery (%) |
91 | 92 | 92 | 92 | ||||||||||||
Production (oz) |
1,774,556 | 1,780,825 | 5,454,793 | 4,296,125 | ||||||||||||
Metal sold (oz) |
1,739,066 | 1,761,101 | 5,392,495 | 4,270,370 | ||||||||||||
Realized price ($/oz) |
16.85 | 19.47 | 17.16 | 17.37 | ||||||||||||
Gold |
||||||||||||||||
Grade (g/t) |
1.71 | 1.76 | 1.74 | 1.73 | ||||||||||||
Recovery (%) |
91 | 92 | 91 | 92 | ||||||||||||
Production (oz) |
13,248 | 13,951 | 40,773 | 32,358 | ||||||||||||
Metal sold (oz) |
12,817 | 13,739 | 40,079 | 32,155 | ||||||||||||
Realized price ($/oz) |
1,280 | 1,327 | 1,251 | 1,268 | ||||||||||||
Unit Costs |
||||||||||||||||
Production cash cost (US$/oz Ag)* |
1.53 | 0.73 | 1.29 | 1.74 | ||||||||||||
Production cash cost (US$/tonne) |
62.23 | 54.83 | 60.31 | 57.69 | ||||||||||||
Unit Net Smelter Return (US$/tonne) |
162.62 | 175.61 | 165.76 | 160.73 | ||||||||||||
All-in sustaining cash cost (US$/oz Ag)* |
7.75 | 6.94 | 7.35 | 7.95 |
* | Net of by-product credits from gold |
Production cash costs and All-in sustaining cash cost are Non-GAAP Financial Measures
Managements Discussion and Analysis, page 15
QUARTERLY RESULTS | YEAR TO DATE RESULTS | |||||||||||||||
Three months ended, September 30, |
Nine months ended, September 30, |
|||||||||||||||
Financial Information (expressed in $000s) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales |
$ | 41,819 | $ | 46,781 | $ | 129,909 | $ | 103,308 | ||||||||
Operating income |
13,506 | 20,743 | 41,938 | 41,876 | ||||||||||||
Adjusted EBITDA |
22,604 | 28,142 | 69,021 | 58,621 | ||||||||||||
Sustaining capital expenditures |
5,736 | 3,533 | 13,270 | 9,738 | ||||||||||||
Non-sustaining capital expenditures |
| 2,464 | | 17,602 | ||||||||||||
Brownfield exploration expenditures |
1,086 | 1,963 | 5,163 | 5,080 |
The San Jose Mine produced 1,774,556 ounces of silver and 13,248 ounces of gold in the third quarter, 4% and 7% higher than plan but were 0.4% and 5% below the comparable period in 2016. Silver and gold production for the first nine months totaled 5,454,793 ounces and 40,773 ounces respectively; being 2% and 5% higher than plan, and 27% and 26% higher than the comparable period in 2016. Average head grades for silver and gold in the third quarter were 229 g/t and 1.71 g/t, 4% and 6% higher than plan and 2% higher and 3% lower than the comparable period in 2016, respectively. Mine production was sourced from Trinidad Central and Trinidad North, with each area contributing 53% and 47% of ore, respectively. The processing plant treated 799,420 tonnes for the nine months ended September 30, 2017.
Cash cost per tonne of processed ore for the third quarter ended September 30, 2017 was $62.23, which includes approximately $0.60 per tonne of non-recurring items relating to mine support works caused by the earthquake in September and $0.70 per tonne due to the appreciation of the Mexican Pesos against the US dollar. Excluding the non-recurring items and exchange rate effects, the cash cost per tonne of processed ore would have been 4% higher than plan due to higher mine support cost and local inflation on the cost of energy and materials. Cash cost per tonne of processed ore for the quarter was 14% higher than the $54.83 cash cost for the comparable quarter in 2016. Cash cost for 2017 is expected to remain within 5% of annual guidance
All-in sustaining cash cost per payable ounce of silver, net of by-product credits, was $7.35 for the first nine months of 2017 and was below the annual guidance of $8.40 as a result of higher gold credits and the timing of planned spending on sustaining capital.
Cash cost per payable ounce of silver, and cash cost per tonne of processed ore, and all-in sustaining cash cost per payable ounce are Non-GAAP Financial Measures (refer to Non-GAAP Financial Measures for the reconciliation of cash cost to the cost of sales).
Brownfield Exploration
Exploration drilling is currently underway at San Jose with four drill rigs. One rig is working along strike of the TrinidadBonanza-Stockwork complex, immediately to the north of the current Inferred Resource shell; another is conducting step-out drilling farther to the north at the Trinidad North Extension target; and two rigs are drilling on the sub-parallel Victoria vein (formerly the Ocotlan vein), a blind discovery made in 2015, located 350 meters to the east of current mine workings. Refer to Fortuna news release dated October 11, 2017 for details of drill results.
Managements Discussion and Analysis, page 16
Caylloma Mine Operating Results
Caylloma is an underground silver, lead, and zinc mine located in the Arequipa Department in southern Peru. Its commercial products are silver-lead and zinc concentrates. The table below shows the main variables used to measure the operating performance of the mine.
QUARTERLY RESULTS | YEAR TO DATE RESULTS | |||||||||||||||
Caylloma |
Three months ended, September 30, |
Nine months ended, September 30, |
||||||||||||||
Mine Production |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Tonnes milled |
133,726 | 132,558 | 395,069 | 379,707 | ||||||||||||
Average tonnes milled per day |
1,486 | 1,473 | 1,480 | 1,417 | ||||||||||||
Silver |
||||||||||||||||
Grade (g/t) |
66 | 87 | 66 | 93 | ||||||||||||
Recovery (%) |
83 | 83 | 84 | 85 | ||||||||||||
Production (oz) |
234,806 | 308,680 | 704,624 | 963,994 | ||||||||||||
Metal sold (oz) |
226,155 | 309,813 | 691,659 | 980,418 | ||||||||||||
Realized price ($/oz) |
16.89 | 19.56 | 17.19 | 16.91 | ||||||||||||
Lead |
||||||||||||||||
Grade (%) |
2.87 | 2.71 | 2.77 | 3.22 | ||||||||||||
Recovery (%) |
91 | 94 | 91 | 94 | ||||||||||||
Production (000s lbs) |
7,650 | 7,452 | 22,031 | 25,383 | ||||||||||||
Metal sold (000s lbs) |
7,291 | 7,454 | 21,454 | 25,826 | ||||||||||||
Realized price ($/lb) |
1.06 | 0.85 | 1.03 | 0.80 | ||||||||||||
Zinc |
||||||||||||||||
Grade (%) |
4.26 | 4.09 | 4.16 | 4.32 | ||||||||||||
Recovery (%) |
90 | 89 | 90 | 89 | ||||||||||||
Production (000s lbs) |
11,241 | 10,606 | 32,670 | 32,198 | ||||||||||||
Metal sold (000s lbs) |
10,867 | 10,600 | 32,512 | 32,504 | ||||||||||||
Realized price ($/lb) |
1.35 | 1.02 | 1.26 | 0.89 | ||||||||||||
Unit Costs |
||||||||||||||||
Production cash cost (US$/oz Ag)* |
(39.53 | ) | (8.49 | ) | (31.22 | ) | (4.41 | ) | ||||||||
Production cash cost (US$/tonne) |
76.00 | 71.83 | 78.12 | 72.16 | ||||||||||||
Unit Net Smelter Return (US$/tonne) |
170.37 | 134.17 | 159.86 | 123.59 | ||||||||||||
All-in sustaining cash cost (US$/oz Ag)* |
(18.79 | ) | 3.27 | (11.23 | ) | 5.14 |
* | Net of by-product credits from gold, lead and zinc |
Production cash costs and All-in sustaining cash cost are Non-GAAP Financial Measures
Managements Discussion and Analysis, page 17
QUARTERLY RESULTS | YEAR TO DATE RESULTS | |||||||||||||||
Three months ended, September 30, |
Nine months ended, September 30, |
|||||||||||||||
Financial Information (expressed in $000s) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales |
$ | 22,193 | $ | 18,431 | $ | 62,848 | $ | 49,081 | ||||||||
Operating income (loss) |
8,218 | 5,428 | 20,962 | 12,012 | ||||||||||||
Adjusted EBITDA |
10,951 | 7,460 | 28,274 | 17,766 | ||||||||||||
Sustaining capital expenditures |
1,801 | 1,874 | 6,667 | 4,782 | ||||||||||||
Non-sustaining capital expenditures |
| 344 | | 2,613 | ||||||||||||
Brownfield exploration expenditures |
1,101 | 213 | 2,659 | 611 |
The Caylloma Mine produced 234,806 ounces of silver in the third quarter or 6% below plan and 24% below the comparable period in 2016. Average silver head grade was 66 g/t or 9% below plan, being partially offset by a higher metallurgical recovery of 83.29% or 4% higher than plan. Silver production for the first nine months totaled 704,624 ounces or 2% lower than plan and 27% lower than the comparable period in 2016. Lead and zinc production was 7.7 million pounds and 11.2 million pounds, respectively, which was 3% lower and 5% higher than plan and 3% and 6% higher the comparable period in 2016. Base metals production for the first nine months totaled 22.0 million pounds of lead and 32.7 million pounds of zinc; being 1% and 7% higher than plan but 13% below and 1% higher than the comparable period in 2016. Average head grades for lead and zinc in the third quarter were 2.87% and 4.26% being in line with plan and 7% higher than plan, respectively.
Mine production was sourced primarily from the Animas NE and the Animas Central areas, with each contributing 65% and 34% of ore respectively. The processing plant treated 1,486 tpd.
Cash cost per tonne of processed ore for the third quarter ended September 30, 2017 was $76.00, which was 6% higher than the $71.83 cash cost for the comparable quarter in 2016 and 1% higher than plan. The increase over Q3 2016 was due mainly to higher energy, ground support and labour costs. Cash cost for the full year 2017 is expected to remain within 5% of annual guidance.
All-in sustaining cash cost per payable ounce of silver, net of by-product credits, was negative $11.23 for the first nine months of the year and was significantly below the annual guidance of $10.80 due primarily to higher by-product credits.
Cash cost per payable ounce of silver, and cash cost per tonne of processed ore, and all-in sustaining cash cost per payable ounce are Non-GAAP Financial Measures (refer to Non-GAAP Financial Measures for the reconciliation of cash cost to the cost of sales).
Brownfield Exploration
Exploration drilling ahead of production is an ongoing program at Caylloma. Further to previously reported successful step-out drilling results at the Animas NE silver-polymetallic vein recent drilling continues to support the discovery of a significant high-grade mineralized shoot that remains open in two directions. Refer to Fortuna news related dated October 11, 2017 for details of drill results.
Step-out drilling has been carried out below the present limit of the estimated Mineral Resources with drill holes spaced approximately 50 meters to 100 meters apart in two different locations over areas covering 150 meters and 700 meters along strike and 150 meters and 300 meters down dip, respectively. The mineralized intercepts show that the Animas NE vein remains open along strike to the northeast and southwest and at depth.
Managements Discussion and Analysis, page 18
Quarterly Information
The following table provides information for eight fiscal quarters up to September 30, 2017:
Expressed in $000s, except per share data | ||||||||||||||||||||||||||||||||
Quarters ended | ||||||||||||||||||||||||||||||||
Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | Q1 2016 | Q4 2015 | |||||||||||||||||||||||||
Sep 30, 2017 |
Jun 30, 2017 |
Mar 31, 2017 |
Dec 31, 2016 |
Sep 30, 2016 |
Jun 30, 2016 |
Mar 31, 2016 |
Dec 31, 2015 |
|||||||||||||||||||||||||
(restated) | ||||||||||||||||||||||||||||||||
Sales |
64,012 | 63,911 | 64,834 | 57,866 | 65,212 | 44,485 | 42,692 | 37,013 | ||||||||||||||||||||||||
Mine operating income |
24,944 | 22,211 | 27,183 | 20,721 | 28,414 | 15,917 | 15,554 | 10,332 | ||||||||||||||||||||||||
Operating income (loss) |
18,888 | 14,214 | 19,556 | 17,607 | 21,160 | 3,641 | 6,134 | (20,572 | ) | |||||||||||||||||||||||
Net income (loss) |
10,268 | 8,898 | 12,999 | 9,273 | 10,157 | (1,390 | ) | 2,578 | (17,290 | ) | ||||||||||||||||||||||
Basic EPS |
0.06 | 0.06 | 0.08 | 0.06 | 0.08 | (0.01 | ) | 0.02 | (0.13 | ) | ||||||||||||||||||||||
Diluted EPS |
0.06 | 0.06 | 0.08 | 0.08 | 0.07 | (0.01 | ) | 0.02 | (0.13 | ) | ||||||||||||||||||||||
Total assets |
652,889 | 637,805 | 638,285 | 562,914 | 543,356 | 387,713 | 392,165 | 379,654 | ||||||||||||||||||||||||
Long term bank loan |
39,845 | 39,820 | 39,794 | 39,768 | 39,633 | 39,568 | 39,531 | 39,486 |
Liquidity and Capital Resources
Cash and Short-Term Investments
The Company had cash and short-term investments of $195.8 million, a $72.2 million increase from $123.6 million at December 31, 2016. Cash and short-term investments consist of $118.7 million of cash and cash equivalent and short-term investments of $77.1 million. The increase in cash and short-term investments was primarily due to a $74.8 million bought deal equity financing which was completed in early February 2017 when the Company issued 11,873,750 common shares at a price of $6.30 per share for net proceeds of $70.9 million.
Working Capital
Working capital increased $88.8 million to $197.6 million at September 30, 2017 compared to $108.8 million of working capital at December 31, 2016. The increase in working capital was primarily due to the proceeds from the bought deal equity financing in the first quarter and slightly higher customer receivables, partially offset by a lower share based payments liability and income taxes payable.
Long-Term Debt
As of September 30, 2017, the Company had a $40.0 million term credit facility due on April 1, 2019. Interest on the term credit facility is calculated from the one, two, three, or six-month LIBOR plus a graduated margin based on the Companys leverage ratio, and is payable monthly in arrears.
Managements Discussion and Analysis, page 19
Subject to the various risks and uncertainties, the Company believes it will generate sufficient cash flows and has adequate cash to finance on-going operations, contractual obligations and planned capital and exploration investment programs.
Sensitivities
Sales are affected by fluctuations in metal prices beyond the Companys control. The following table illustrates the sensitivity of the Companys sales to a 10% change in metal prices:
Metal |
Change | Effect on Sales ($000s) |
||||||
Silver |
+/- 10 | % | $ | 9,685 | ||||
Gold |
+/- 10 | % | $ | 4,371 | ||||
Lead |
+/- 10 | % | $ | 1,944 | ||||
Zinc |
+/- 10 | % | $ | 3,276 |
The Company mitigates the price risk associated with its base metal production by entering into forward sale and collar contracts for some of its forecasted base metal production. The Board of Directors continually assesses the Companys strategy towards its base metal exposure, depending on market conditions. As at September 30, 2017, the Company has hedged 7,485 tonnes of zinc and 5,681 tonnes of lead representing 50% of its Caylloma zinc and lead production until June 2018.
The Company reports its financial statements in USD; however, the Company operates in jurisdictions that utilize other currencies. As a consequence, the financial results of the Companys operations as reported in USD are impacted by changes in the value of the USD relative to local currencies in the countries where the Company operates. Since the Companys sales are denominated in USD and a portion of the Companys operating costs and capital spending are in local currencies, the Company is negatively impacted by strengthening local currencies relative to the USD and positively impacted by the inverse.
The following table illustrate the Companys sensitivities to certain currencies and the impact the fluctuation in exchange rates, will have on foreign denominated financial assets and liabilities:
Currency |
Change | Effect on foreign denominated items ($000s) |
||||||
Mexican Peso |
+/- 10 | % | $ | 2,231 | ||||
Peruvian Soles |
+/- 10 | % | $ | 1,155 | ||||
Argentinian Peso |
+/- 10 | % | $ | 58 | ||||
Canadian Dollar |
+/- 10 | % | $ | 463 |
Managements Discussion and Analysis, page 20
Contractual Obligations
The Company expects the following maturities of its financial liabilities, finance leases, and other contractual commitments:
Expected payments due by period as at September 30, 2017 | ||||||||||||||||||||
Expressed in $000s |
Less than 1 year |
1 - 3 years | 4 - 5 years | After 5 years |
Total | |||||||||||||||
Trade and other payables |
$ | 36,400 | $ | | $ | | $ | | $ | 36,400 | ||||||||||
Bank loan |
| 40,000 | | | 40,000 | |||||||||||||||
Derivative liabilities |
3,105 | | | | 3,105 | |||||||||||||||
Income tax payable |
10,147 | | | | 10,147 | |||||||||||||||
Finance lease obligations |
1,459 | | | | 1,459 | |||||||||||||||
Other liabilities |
| 1,339 | | | 1,339 | |||||||||||||||
Operating leases |
580 | 1,099 | 780 | | 2,459 | |||||||||||||||
Closure provisions |
1,313 | 4,009 | 3,528 | 5,617 | 14,467 | |||||||||||||||
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$ | 53,004 | $ | 46,447 | $ | 4,308 | $ | 5,617 | $ | 109,376 | |||||||||||
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Operating leases include leases for office premises and for computer and other equipment used in the normal course of business.
Other Commitments
The Company has a contract to guarantee the power supply at its Caylloma Mine. Under the contract, the seller is obligated to deliver a maximum committed demand (for the present term this stands at 5,200 kW) and the Company is obligated to purchase subject to exemptions under provisions of Force Majeure. The contract period is 15 years and expires in 2022, after which it is automatically renewed for an additional two years. Renewal can be avoided without penalties by notification 10 months in advance of the renewal date.
In December 2016, the Company entered into an option agreement with an unrelated party to acquire 6,756 mineral claims in north west Nevada, USA, totaling 239,128 acres (96,773 hectares). The Company is committed to spend $700 for a drilling program within 24 months after receipt of drill permits. The first permit was issued in June 2017.
Capital Commitments (expressed in $000s)
As at September 30, 2017, the Company had the following capital commitments expected to be expended within one year:
| $1,108 for the filtration plant at the San Jose property, |
| $216 for plant and mine equipment at the San Jose property, |
| $388 for the plant and mine equipment purchases at the Caylloma property, |
| $181 for testing, and consulting at the Lindero Project. |
Managements Discussion and Analysis, page 21
Related Party Transactions
(a) Purchase of Goods and Services (expressed in $000s)
The Company shares office space, personnel and other administrative services with Gold Group Management Inc. (GGMI) and Mill Street Services Ltd for consulting services, related by a director in common. During the three and six months ended June 30, 2017 and 2016, GGMI provided the following services to the Company:
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Salaries and wages |
$ | 18 | $ | 14 | $ | 122 | $ | 105 | ||||||||
General and administrative expenses |
20 | 14 | 151 | 89 | ||||||||||||
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$ | 38 | $ | 28 | $ | 273 | $ | 194 | |||||||||
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The Company has outstanding balances payable with Gold Group Management Inc. of $23 as at September 30, 2017 (December 31, 2016 - $10). Amounts due to related parties are due on demand, and are unsecured.
(b) Acquisition of Tlacolula Silver Project (expressed in $000s)
On August 2, 2017, the Company completed a purchase and sale agreement with Radius to acquire the Tlacolula project for total consideration of $1,328, comprising of $150 cash, and the issuance of 239,385 common shares. In addition, Radius was granted a 2% NSR royalty on the Tlacolula project. The Company has the right to purchase one-half of the royalty for $1,500.
Key Management Personnel
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
(expressed in $000s) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Salaries and short-term employee benefits |
$ | 1,127 | $ | 818 | $ | 3,695 | $ | 3,140 | ||||||||
Directors fees |
171 | 70 | 408 | 263 | ||||||||||||
Consulting fees |
36 | 25 | 103 | 93 | ||||||||||||
Share-based payments |
20 | 2,538 | 801 | 15,716 | ||||||||||||
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$ | 1,354 | $ | 3,451 | $ | 5,007 | $ | 19,212 | |||||||||
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Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements or commitments that are expected to have a current or future effect on the financial condition, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Managements Discussion and Analysis, page 22
New Accounting Standards issued but not yet effective
In 2014, the IASB issued IFRS 9, Financial Instruments (IFRS 9), which will replace IAS 39, Financial Instruments: Recognition and Measurement. The standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after January 1, 2018 with early adoption permitted. IFRS 9 does not replace the requirements for portfolio fair value hedge accounting for interest rate risk (often referred to as the macro hedge accounting requirements) since this phase of the project was separated from the IFRS 9 project due to the longer-term nature of the macro hedging project which is currently at the discussion paper phase of the due process. The Company expects the following impact of this standard upon adoption on January 1, 2018:
i. | investments classified as available-for-sale will be re-designated as fair value through profit and loss financial instruments. The Company expects that there will be an adjustment to opening deficit and accumulated other comprehensive loss on transition for cumulative gains/losses on these instruments. |
ii. | the Company do not expect to apply hedge accounting to its metal forward and collar contracts and intends to continue to apply hedge accounting to its interest rate swap; and |
iii. | the Company do not expect a material impact to the measurement of its financial instruments from any of the other changes to this standard, including the new expected credit loss model for calculating impairment of financial assets. |
In 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15), which provides guidance on the nature, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The effective date of this standard is January 1, 2018, with earlier adoption permitted. The Company has made a preliminary assessment of all its contracts with customers with respect to the application of IFRS 15, and do not believe it will change the point of revenue recognition or materially change the amount of revenue recognized compared to how we recognize revenue under our current policies.
Our revenues involve a relatively limited number of contracts and customers. In addition, our revenue contracts do not involve multiple types of performance obligations. Revenues from concentrates are recognized as provisional sales, at the time the metals sold and delivered to the customer. Provisional sales are marked to market at the end of each period and adjusted for final settlement. We anticipate separately presenting the provisional pricing adjustments within our revenue note disclosure upon adoption of IFRS 15.
In 2016, the IASB issued IFRS 16 (IFRS 16), Leases, which requires lessees to recognize assets and liabilities for most leases. Application of the standard is mandatory for annual reporting periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company will be developing a transition plan for this new standard by the end of 2017. The effect of the implementation of IFRS 16 is expected to increase plant and equipment and related lease payable amounts.
Critical Accounting Estimates and Judgments
The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates and judgments. These estimates and judgments are based on managements knowledge of the relevant facts and circumstances taking into account previous experience, but actual results may differ materially from the amounts included in the financial statements. For a complete discussion of accounting estimates and judgments deemed most critical to the Company, refer to the Companys annual 2016 Managements Discussion and Analysis.
Managements Discussion and Analysis, page 23
Share Position and Outstanding Warrants and Options
The Companys outstanding share position as at November 7, 2017 is 159,636,983 common shares. In addition, 1,890,740 incentive stock options, restricted share units for equity, and warrants are currently outstanding as follows:
Type of Security |
No. of Shares | Exercise Price (CAD$) |
Expiry Date | |||||||||
Warrants |
344,462 | $ | 6.01 | October 31, 2018 | ||||||||
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Incentive Stock Options: |
20,000 | $ | 0.85 | November 5, 2018 | ||||||||
517,833 | $ | 4.79 | March 18, 2020 | |||||||||
617,694 | $ | 6.35 | May 28, 2022 | |||||||||
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1,155,527 | ||||||||||||
Share-Settled RSUs: |
390,751 | n/a | May 29, 2020 | |||||||||
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Total outstanding |
1,890,740 | |||||||||||
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Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures have been designed to provide reasonable assurance that all material information related to the Company is identified and communicated to management on a timely basis. Management of the Company, under the supervision of the President and Chief Executive Officer and the Chief Financial Officer, is responsible for the design and operation of disclosure controls and procedures in accordance with the requirements of National Instrument 52-109 of the Canadian Securities Administrators (National Instrument 52-109) and as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the U.S. Exchange Act).
Based on managements evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as at September 30, 2017.
Managements Report on Internal Control over Financial Reporting
The Companys internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external reporting purposes in accordance with the International Financial Reporting Standards. However, due to its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements and fraud.
Managements Discussion and Analysis, page 24
Control Framework
Management assesses the effectiveness of the Companys internal control over financial reporting using the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission.
Evaluation
The Companys CEO and CFO in its evaluation of the internal controls over financial reporting had concluded that material weaknesses existed as of December 31, 2016, relating to the Effectiveness of Risk Assessment, Design and Implementation of Control Activities and Monitoring Activities. As at the date of this MD&A, we have made significant progress towards remediation of these material weaknesses; however, successful remediation requires further assessment and evidence of effectiveness.
Remediation Activities
The following actions to remediate the material weaknesses were:
| Hired a Vice-President of Finance and Accounting, an Internal Controls Manager, and a Tax Manager at the corporate office and local internal control analysts at each of its operations; |
| Engaged external specialists to assist in the documentation and review of its internal controls; |
| Completed a fraud risk assessment; and |
| Redesigned general information technology controls over user access privileges, unauthorized access, and segregation of duties. |
Changes in Internal Control over Financial Reporting
Other than those described above, there have been no changes in the Companys internal control over financial reporting during the period ended September 30, 2017, that have materially affected, or that are reasonably likely to materially affect, the Companys internal control over financial reporting.
Non-GAAP Financial Measures
This MD&A refers to various non-GAAP financial measures, including cash cost per tonne of processed ore; cash cost per payable ounce of silver; total production cash cost per tonne; all-in sustaining cash cost; all-in sustaining cash cost per payable ounce; adjusted net (loss) income; operating cash flow per share before changes in working capital, income taxes, and interest income; and adjusted EBITDA.
These measures are used by the Company to manage and evaluate operating performance and ability to generate cash flow and are widely reported in the silver mining industry as benchmarks for performance. The Company believes that certain investors use these Non-GAAP Financial Measures to evaluate the Companys performance. However, the measures do not have a standardized meaning and may differ from methods used by other companies with similar descriptions. Accordingly, Non-GAAP Financial Measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with International Financial Reporting Standards (GAAP or IFRS). To facilitate a better understanding of these measures as calculated by the Company, descriptions and reconciliations are provided here.
Managements Discussion and Analysis, page 25
Cash Cost per Payable Ounce of Silver and Cash Cost per Tonne of Processed Ore
Cash cost per payable ounce of silver and cash cost per tonne of processed ore are key performance measures that management uses to monitor performance. Management believes that certain investors also use these Non-GAAP Financial Measures to evaluate the Companys performance. Cash cost is an industry-standard method of comparing certain costs on a per unit basis; however, they do not have a standardized meaning or method of calculation, even though the descriptions of such measures may be similar. These performance measures have no meaning under International Financial Reporting Standards (IFRS), and, therefore, amounts presented may not be comparable with similar data presented by other mining companies.
The following tables present a reconciliation of cash cost per tonne of processed ore and cash cost per payable ounce of silver to the cost of sales in the consolidated financial statements for the three and nine months ended September 30, 2017 and 2016.
CONSOLIDATED MINE CASH COST | ||||||||||||||||||||
Expressed in $000s, except unit costs | Q3 2017 | YTD Q3 2017 |
Q3 2016 | YTD Q3 2016 |
||||||||||||||||
Cost of sales |
39,068 | 118,419 | 36,798 | 92,504 | ||||||||||||||||
Add (subtract): |
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Change in concentrate inventory |
926 | 1,221 | 65 | (417 | ) | |||||||||||||||
Depletion and depreciation in concentrate inventory |
(311 | ) | (421 | ) | (30 | ) | 83 | |||||||||||||
Commercial and government royalties and mining taxes |
(846 | ) | (2,797 | ) | (874 | ) | (1,792 | ) | ||||||||||||
Workers participation |
(1,519 | ) | (4,794 | ) | (2,363 | ) | (4,078 | ) | ||||||||||||
Depletion and depreciation |
(10,744 | ) | (32,552 | ) | (9,367 | ) | (22,420 | ) | ||||||||||||
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Cash cost |
A | 26,574 | 79,076 | 24,229 | 63,880 | |||||||||||||||
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Cash cost |
A | 26,574 | 79,076 | 24,229 | 63,880 | |||||||||||||||
Add (subtract): |
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By-product credits from gold, lead and zinc |
(34,145 | ) | (97,285 | ) | (28,015 | ) | (66,765 | ) | ||||||||||||
Refining charges |
1,405 | 4,178 | 2,559 | 6,060 | ||||||||||||||||
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Cash cost applicable per payable ounce |
B | (6,166 | ) | (14,030 | ) | (1,227 | ) | 3,175 | ||||||||||||
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Payable ounces of silver production |
C | 1,951,786 | 5,974,602 | 2,013,314 | 5,063,496 | |||||||||||||||
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Cash cost per ounce of payable |
=B/C | $ | (3.16 | ) | $ | (2.35 | ) | $ | (0.61 | ) | $ | 0.63 | ||||||||
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Managements Discussion and Analysis, page 26
SAN JOSE MINE CASH COST | ||||||||||||||||||||
Expressed in $000s, except unit costs | Q3 2017 | YTD Q3 2017 |
Q3 2016 | YTD Q3 2016 |
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Cost of sales |
26,009 | 78,791 | 24,623 | 57,516 | ||||||||||||||||
Add (subtract): |
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Change in concentrate inventory |
386 | 460 | 73 | 291 | ||||||||||||||||
Depletion and depreciation in concentrate inventory |
(137 | ) | (175 | ) | (33 | ) | (117 | ) | ||||||||||||
Commercial and government royalties and mining taxes |
(570 | ) | (2,037 | ) | (646 | ) | (1,192 | ) | ||||||||||||
Workers participation |
(961 | ) | (3,687 | ) | (1,969 | ) | (3,335 | ) | ||||||||||||
Depletion and depreciation |
(8,316 | ) | (25,138 | ) | (7,340 | ) | (16,681 | ) | ||||||||||||
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Cash cost |
A | 16,411 | 48,214 | 14,708 | 36,482 | |||||||||||||||
Total processed ore (tonnes) |
B | 263,697 | 799,421 | 268,242 | 632,432 | |||||||||||||||
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Cash cost per tonne of processed ore ($/t) |
=A/B | $ | 62.23 | $ | 60.31 | $ | 54.83 | $ | 57.69 | |||||||||||
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Cash cost |
A | 16,411 | 48,214 | 14,708 | 36,482 | |||||||||||||||
Add (subtract): |
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By-product credits from gold, lead and zinc |
(14,942 | ) | (44,853 | ) | (15,539 | ) | (33,907 | ) | ||||||||||||
Refining charges |
1,182 | 3,509 | 2,093 | 4,637 | ||||||||||||||||
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Cash cost applicable per payable ounce |
B | 2,651 | 6,870 | 1,262 | 7,212 | |||||||||||||||
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Payable ounces of silver production |
C | 1,728,720 | 5,305,210 | 1,720,068 | 4,147,703 | |||||||||||||||
Cash cost per ounce of payable silver ($/oz) |
=B/C | $ | 1.53 | $ | 1.29 | $ | 0.73 | $ | 1.74 | |||||||||||
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Mining cost per tonne |
33.79 | 33.45 | 28.93 | 30.68 | ||||||||||||||||
Milling cost per tonne |
17.09 | 16.52 | 15.96 | 15.25 | ||||||||||||||||
Indirect cost per tonne |
6.69 | 5.99 | 5.71 | 6.90 | ||||||||||||||||
Community relations cost per tonne |
0.72 | 0.84 | 0.86 | 1.37 | ||||||||||||||||
Distribution cost per tonne |
3.94 | 3.51 | 3.37 | 3.49 | ||||||||||||||||
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Total production cost per tonne |
62.23 | 60.31 | 54.83 | 57.69 | ||||||||||||||||
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Managements Discussion and Analysis, page 27
CAYLLOMA MINE CASH COST | ||||||||||||||||||||
Expressed in $000s, except unit costs | Q3 2017 | YTD Q3 2017 |
Q3 2016 | YTD Q3 2016 |
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Cost of sales |
13,059 | 39,628 | 12,175 | 34,988 | ||||||||||||||||
Add (subtract): |
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Change in concentrate inventory |
540 | 761 | (8 | ) | (708 | ) | ||||||||||||||
Depletion and depreciation in concentrate inventory |
(174 | ) | (246 | ) | 3 | 200 | ||||||||||||||
Commercial and government royalties and mining taxes |
(276 | ) | (760 | ) | (228 | ) | (600 | ) | ||||||||||||
Workers participation |
(558 | ) | (1,107 | ) | (394 | ) | (743 | ) | ||||||||||||
Depletion and depreciation |
(2,428 | ) | (7,414 | ) | (2,027 | ) | (5,739 | ) | ||||||||||||
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Cash cost |
A | 10,163 | 30,862 | 9,521 | 27,398 | |||||||||||||||
Total processed ore (tonnes) |
B | 133,726 | 395,069 | 132,558 | 379,708 | |||||||||||||||
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Cash cost per tonne of processed ore ($/t) |
=A/B | $ | 76.00 | $ | 78.12 | $ | 71.83 | $ | 72.16 | |||||||||||
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Cash cost |
A | 10,163 | 30,862 | 9,521 | 27,398 | |||||||||||||||
Add (subtract): |
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By-product credits from gold, lead and zinc |
(19,203 | ) | (52,432 | ) | (12,476 | ) | (32,858 | ) | ||||||||||||
Refining charges |
223 | 670 | 466 | 1,423 | ||||||||||||||||
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Cash cost applicable per payable ounce |
B | (8,817 | ) | (20,900 | ) | (2,489 | ) | (4,037 | ) | |||||||||||
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Payable ounces of silver production |
C | 223,066 | 669,392 | 293,246 | 915,793 | |||||||||||||||
Cash cost per ounce of payable silver ($/oz) |
=B/C | $ | (39.53 | ) | $ | (31.22 | ) | $ | (8.49 | ) | $ | (4.41 | ) | |||||||
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Mining cost per tonne |
38.25 | 40.17 | 33.88 | 35.55 | ||||||||||||||||
Milling cost per tonne |
14.08 | 13.79 | 13.22 | 12.46 | ||||||||||||||||
Indirect cost per tonne |
17.02 | 16.81 | 16.53 | 14.95 | ||||||||||||||||
Community relations cost per tonne |
0.09 | 0.12 | 0.43 | 0.19 | ||||||||||||||||
Distribution cost per tonne |
6.55 | 7.23 | 7.77 | 9.01 | ||||||||||||||||
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Total production cost per tonne |
75.99 | 78.12 | 71.83 | 72.16 | ||||||||||||||||
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Managements Discussion and Analysis, page 28
All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver
The Company believes that all-in-sustaining cash cost and all-in cash cost meet the needs of management, analysts, investors, and other stakeholders of the Company in understanding the costs associated with producing silver, the economics of silver mining, the Companys operating performance and the Companys ability to generate free cash flow from current operations, and on an overall company basis.
The Company, in conjunction with an initiative undertaken within the gold mining industry, has adopted an all-in-sustaining cost performance measure; however, this performance measure has no standardized meaning. The Company conforms its all-in-sustaining definition to that set out in the guidance issued by the World Gold Council (WGC,), a non-regulatory market development organization for the gold industry whose members comprise global senior gold mining companies.
All-in-sustaining cash cost and all-in cash cost are intended to provide additional information only and do not have standardized definitions under the IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with the IFRS. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Although the WGC has published a standardized definition, companies may calculate these measures differently.
All-in sustaining cash cost includes total production cash costs incurred at the Companys mining operations, less by-product credits to calculate the cash cost. Sustaining capital expenditures, corporate selling, general and administrative expenses, and brownfield exploration expenditures are added to the cash cost to calculate the all-in-sustaining cost. The Company believes that this measure represents the total costs of producing silver from operations and provides the Company and its stakeholders with additional information on the Companys operational performance and the ability to generate cash flows. Certain cash expenditures such as new project spending, tax payments, dividends, and financing costs are also not included. We report this measure on a silver ounce sold basis.
The following tables show a breakdown of the all-in sustaining cash cost per ounce for the three and nine months ended September 30, 2017 and 2016:
CONSOLIDATED MINE ALL-IN CASH COST | ||||||||||||||||
Expressed in $000s, except unit costs |
Q3 2017 | YTD Q3 2017 |
Q3 2016 | YTD Q3 2016 |
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Cash cost applicable, net of by product credits |
(6,166 | ) | (14,030 | ) | (1,227 | ) | 3,175 | |||||||||
Commercial and government royalties and mining tax |
1,798 | 6,776 | 1,938 | 4,335 | ||||||||||||
Workers participation |
1,864 | 5,929 | 2,927 | 5,049 | ||||||||||||
Selling, general and administrative expenses (operations) |
1,984 | 5,016 | 1,777 | 5,006 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted operating cash cost |
(520 | ) | 3,691 | 5,415 | 17,565 | |||||||||||
Selling, general and administrative expenses (corporate) |
2,660 | 9,212 | 2,163 | 6,813 | ||||||||||||
Sustaining capital expenditures1 |
7,505 | 19,937 | 5,407 | 14,520 | ||||||||||||
Brownfield exploration expenditures1 |
2,187 | 7,822 | 2,176 | 5,691 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
All-in sustaining cash cost |
11,832 | 40,662 | 15,161 | 44,589 | ||||||||||||
Exploration and evaluation expenses |
41 | 193 | 19 | 194 | ||||||||||||
Non-sustaining capital expenditures1 |
6,127 | 11,232 | 3,555 | 20,962 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
All-in cash cost |
18,000 | 52,087 | 18,735 | 65,745 | ||||||||||||
Payable ounces of silver production |
1,951,786 | 5,974,602 | 2,013,314 | 5,063,496 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
All-in sustaining cash cost per ounce of payable silver |
$ | 6.06 | $ | 6.81 | $ | 7.53 | $ | 8.81 | ||||||||
|
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|
|
|
|
|
|
|||||||||
All-in cash cost per ounce of payable silver |
$ | 9.22 | $ | 8.72 | $ | 9.31 | $ | 12.98 | ||||||||
|
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|
|
|
|
|
|
1 | presented on a cash basis |
Managements Discussion and Analysis, page 29
SAN JOSE MINE ALL-IN CASH COST | ||||||||||||||||
Expressed in $000s, except unit costs |
Q3 2017 | YTD Q3 2017 |
Q3 2016 | YTD Q3 2016 |
||||||||||||
Cash cost applicable, net of by product credits |
2,651 | 6,870 | 1,262 | 7,212 | ||||||||||||
Commercial and government royalties and mining tax |
1,522 | 6,016 | 1,710 | 3,735 | ||||||||||||
Workers participation |
1,200 | 4,610 | 2,462 | 4,169 | ||||||||||||
Selling, general and administrative expenses (operations) |
1,201 | 3,041 | 1,005 | 3,032 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Adjusted operating cash cost |
6,574 | 20,537 | 6,439 | 18,148 | ||||||||||||
Sustaining capital expenditures1 |
5,736 | 13,270 | 3,533 | 9,738 | ||||||||||||
Brownfield exploration expenditures1 |
1,086 | 5,163 | 1,963 | 5,080 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
All-in sustaining cash cost |
13,396 | 38,970 | 11,935 | 32,966 | ||||||||||||
Exploration and evaluation expenses |
| 65 | 4 | 5 | ||||||||||||
Non-sustaining capital expenditures1 |
1,295 | 1,295 | 2,464 | 17,602 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
All-in cash cost |
14,691 | 40,330 | 14,403 | 50,573 | ||||||||||||
Payable ounces of silver production |
1,728,720 | 5,305,210 | 1,720,068 | 4,147,703 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
All-in sustaining cash cost per ounce of payable silver |
$ | 7.75 | $ | 7.35 | $ | 6.94 | $ | 7.95 | ||||||||
|
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|
|
|
|
|
|
|||||||||
All-in cash cost per ounce of payable silver |
$ | 8.50 | $ | 7.60 | $ | 8.37 | $ | 12.19 | ||||||||
|
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|
|
|
|
|
|
1 | presented on a cash basis |
CAYLLOMA MINE ALL-IN CASH COST | ||||||||||||||||
Expressed in $000s, except unit costs |
Q3 2017 | YTD Q3 2017 |
Q3 2016 | YTD Q4 2016 |
||||||||||||
Cash cost applicable, net of by product credits |
(8,817 | ) | (20,900 | ) | (2,489 | ) | (4,037 | ) | ||||||||
Commercial and government royalties and mining tax |
276 | 760 | 228 | 600 | ||||||||||||
Workers participation |
664 | 1,319 | 459 | 874 | ||||||||||||
Selling, general and administrative expenses (operations) |
783 | 1,975 | 673 | 1,875 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Adjusted operating cash cost |
(7,094 | ) | (16,846 | ) | (1,129 | ) | (688 | ) | ||||||||
Sustaining capital expenditures1 |
1,801 | 6,667 | 1,874 | 4,782 | ||||||||||||
Brownfield exploration expenditures1 |
1,101 | 2,659 | 213 | 611 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
All-in sustaining cash cost |
(4,192 | ) | (7,520 | ) | 958 | 4,705 | ||||||||||
Non-sustaining capital expenditures1 |
| | 344 | 2,613 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
All-in cash cost |
(4,192 | ) | (7,520 | ) | 1,302 | 7,318 | ||||||||||
Payable ounces of silver production |
223,066 | 669,392 | 293,246 | 915,793 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
All-in sustaining cash cost per ounce of payable silver |
$ | (18.79 | ) | $ | (11.23 | ) | $ | 3.27 | $ | 5.14 | ||||||
|
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|
|
|
|
|
|
|||||||||
All-in cash cost per ounce of payable silver |
$ | (18.79 | ) | $ | (11.23 | ) | $ | 4.44 | $ | 7.99 | ||||||
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|
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|
|
|
1 | presented on a cash basis |
Managements Discussion and Analysis, page 30
Adjusted Net Income
The Company uses the financial measure of adjusted net income to supplement information in its consolidated financial statements. The Company believes that in addition to conventional measures prepared in accordance with IFRS, the Company and certain investors and analysts use this information and information obtained from conventional IFRS measures to evaluate the Companys performance. The term adjusted net income does not have a standardized meaning prescribed by IFRS, and therefore the Companys definitions are unlikely to be comparable to similar measures presented by other companies.
Expressed in $ millions | ||||||||||||||||
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
NET INCOME FOR THE PERIOD |
$ | 10.3 | $ | 10.2 | $ | 32.2 | $ | 11.3 | ||||||||
Items of note, net of tax: |
||||||||||||||||
(Gain) loss on financial instruments |
2.2 | (0.2 | ) | 2.9 | (0.3 | ) | ||||||||||
Write-off of mineral properties |
0.1 | | 0.1 | | ||||||||||||
Write-down of inventories |
| | 0.4 | | ||||||||||||
Write-down of plant and equipment |
0.5 | | 0.8 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted Net Income* |
$ | 13.1 | $ | 10.0 | $ | 36.4 | $ | 11.0 | ||||||||
|
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|
|
|
|
|
|
* | a non-GAAP financial measure |
The Company uses other financial measures whose presentation is not meant to be a substitute for other subtotals or totals presented in accordance with IFRS measures but that rather should be evaluated in conjunction with IFRS measures. The following other financial measures are used: operating cash flow per share before changes in working capital, and adjusted EBITDA. These terms described and presented below do not have standardized meanings prescribed by IFRS, and therefore the Companys definitions are unlikely to be comparable to similar measures presented by other companies. The Company believes that its presentation provides useful information for investors.
Managements Discussion and Analysis, page 31
Adjusted EBITDA
ADJUSTED EBITDA | ||||||||||||||||
Three months ended September 30, | Nine months ended September 30, |
|||||||||||||||
Expressed in $000s |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Income |
$ | 10,268 | $ | 10,157 | $ | 32,165 | $ | 11,345 | ||||||||
Add back: |
||||||||||||||||
Net finance items |
3,104 | 363 | 4,510 | 1,363 | ||||||||||||
Depreciation, depletion, and amortization |
10,842 | 9,404 | 32,879 | 22,610 | ||||||||||||
Income taxes |
5,476 | 10,640 | 15,871 | 18,227 | ||||||||||||
Share of loss of equity-accounted investee |
47 | | 88 | | ||||||||||||
Other operating expenses |
821 | | 1,828 | (4 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | 30,558 | $ | 30,564 | $ | 87,341 | $ | 53,541 | ||||||||
|
|
|
|
|
|
|
|
Qualified Person
Eric Chapman, P.Geo (APEGBC #36328) is the Vice-President of Technical Services of the Company and is the Companys Qualified Person (as defined by National Instrument 43-101). Mr. Chapman is responsible for ensuring that the technical information contained in this M&DA is an accurate summary of the original reports and data provided to or developed by the Company.
Other Information, Risks and Uncertainties
For further information regarding the Companys operational risks, please refer to the section entitled Description of the Business - Risk Factors in the Annual Information Form for the year ended December 31, 2016 available at www.sedar.com and www.sec.gov/edgar.shtml.
Managements Discussion and Analysis, page 32
Managements Discussion and Analysis, page 33
Managements Discussion and Analysis, page 34
Managements Discussion and Analysis, page 35
Exhibit 99.3
FORTUNA SILVER MINES INC.
Form 52-109F2
Certification of Interim Filings Full Certificate
I, Jorge Ganoza Durant, Chief Executive Officer of Fortuna Silver Mines Inc., certify the following:
1. | Review: I have reviewed the interim financial report and interim MD&A (together, the Interim Filings) of Fortuna Silver Mines Inc. (the Issuer) for the interim period ended September 30, 2017. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the Interim Filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the Interim Filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the Interim Filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the Interim Filings. |
4. | Responsibility: The Issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109, Certification of Disclosure in Issuers Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuers other certifying officer and I have, as at the end of the period covered by the Interim Filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the Interim Filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuers GAAP. |
5.1 | Control framework: The control framework the Issuers other certifying officer and I used to design the Issuers ICFR is Committee of Sponsoring Organizations of the Treadway Commission. |
5.2 | ICFR material weakness relating to design: The Issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
(a) | a description of the material weakness; |
(b) | the impact of the material weakness on the Issuers financial reporting and its ICFR; and |
(c) | the Issuers current plans, if any, or any actions already undertaken, for remediating the material weakness. |
5.3 | N/A. |
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuers ICFR that occurred during the period beginning on July 1, 2017 and ended on September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Issuers ICFR. |
DATED: November 8, 2017 |
Jorge Ganoza Durant |
JORGE GANOZA DURANT, Chief Executive Officer |
-2-
Exhibit 99.4
FORTUNA SILVER MINES INC.
Form 52-109F2
Certification of Interim Filings Full Certificate
I, Luis Ganoza Durant, Chief Financial Officer of Fortuna Silver Mines Inc., certify the following:
1. | Review: I have reviewed the interim financial report and interim MD&A (together, the Interim Filings) of Fortuna Silver Mines Inc. (the Issuer) for the interim period ended September 30, 2017. |
2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the Interim Filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the Interim Filings. |
3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the Interim Filings fairly present in all material respects the financial condition, financial performance and cash flows of the Issuer, as of the date of and for the periods presented in the Interim Filings. |
4. | Responsibility: The Issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109, Certification of Disclosure in Issuers Annual and Interim Filings, for the Issuer. |
5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the Issuers other certifying officer and I have, as at the end of the period covered by the Interim Filings |
(a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
(i) | material information relating to the Issuer is made known to us by others, particularly during the period in which the Interim Filings are being prepared; and |
(ii) | information required to be disclosed by the Issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
(b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuers GAAP. |
5.1 | Control framework: The control framework the Issuers other certifying officer and I used to design the Issuers ICFR is Committee of Sponsoring Organizations of the Treadway Commission. |
5.2 | ICFR material weakness relating to design: The Issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period |
(a) | a description of the material weakness; |
(b) | the impact of the material weakness on the Issuers financial reporting and its ICFR; and |
(c) | the Issuers current plans, if any, or any actions already undertaken, for remediating the material weakness. |
5.3 | N/A. |
6. | Reporting changes in ICFR: The Issuer has disclosed in its interim MD&A any change in the Issuers ICFR that occurred during the period beginning on July 1, 2017 and ended on September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Issuers ICFR. |
DATED: November 8, 2017
Luis Ganoza Durant |
LUIS GANOZA DURANT, |
Chief Financial Officer |
-2-
Exhibit 99.5
Fortuna reports consolidated financial results for the third quarter 2017
(All amounts expressed in US dollars, unless otherwise stated)
Vancouver, November 8, 2017Fortuna Silver Mines Inc. (NYSE: FSM) (TSX: FVI) today reported net income of $10.3 million, Adjusted EBITDA of $30.6 million, and revenue of $64.0 million in the third quarter of 2017.
Jorge A. Ganoza, President and CEO, commented, We have had yet another quarter of strong operating and financial results at our operating mines in Peru and Mexico, positioning the company well on track to meet our annual production targets and financial objectives. Mr. Ganoza continued, Having announced a positive construction decision for our Lindero gold Project in Argentina, we expect free cash flow from our operations to contribute significantly towards the funding of the construction capital requirements.
Third quarter consolidated financial highlights
| Sales of $64.0 million, compared to $65.2 million in Q3 2016 |
| Net income of $10.3 million, compared to $10.2 million in Q3 2016 |
| Earnings per share of $0.06, compared to $0.08 in Q3 2016 |
| Adjusted net income of $13.1 compared to $10.0 million in Q3 2016 |
| Adjusted EBITDA of $30.6 million and Adjusted EBITDA margin over sales of 48% |
| Cash flow from operations before changes in non-cash working capital of $26.2 million, compared to $26.5 million in Q3 2016 |
| Cash position, including short term investments, and working capital as at September 30, 2017 were $195.8 million and $197.6 million, respectively |
| Silver and gold production of 2,009,362 and 13,412 ounces, respectively |
| AISC1 per ounce of payable silver was $6.1 |
Note
1 | All-in sustaining cash cost is net of by-product credits for gold, lead and zinc (Non-GAAP financial measure) |
Third quarter consolidated financial results
Consolidated Financial Metrics |
Q3 2017 |
Q3 2016 |
% Change |
YTD 2017 |
YTD 2016 |
% Change |
||||||||||||||||||
Figures expressed in $ millions except per share information and AISC |
| |||||||||||||||||||||||
Sales |
$ | 64.0 | $ | 65.2 | -2 | % | $ | 192.8 | $ | 152.4 | 27 | % | ||||||||||||
Mine operating income |
24.9 | 28.4 | -12 | % | 74.3 | 59.9 | 24 | % | ||||||||||||||||
Operating income |
18.9 | 21.2 | -11 | % | 52.7 | 30.9 | 71 | % | ||||||||||||||||
Net income |
10.3 | 10.2 | 1 | % | 32.2 | 11.3 | 185 | % | ||||||||||||||||
Earnings per share (basic) |
0.06 | 0.08 | -25 | % | 0.20 | 0.08 | 150 | % | ||||||||||||||||
Earnings per share (diluted) |
0.06 | 0.07 | -14 | % | 0.20 | 0.08 | 150 | % | ||||||||||||||||
Adjusted net income1 |
13.1 | 10.0 | 31 | % | 36.4 | 11.0 | 231 | % | ||||||||||||||||
Adjusted EBITDA1 |
30.6 | 30.6 | 0 | % | 87.3 | 53.5 | 63 | % | ||||||||||||||||
Cash provided by operating activities |
20.4 | 29.0 | -30 | % | 41.2 | 26.9 | 53 | % | ||||||||||||||||
Cash generated by operating activities before changes in working capital |
26.2 | 26.5 | -1 | % | 61.3 | 39.6 | 55 | % | ||||||||||||||||
Capex (sustaining) |
7.5 | 5.4 | 39 | % | 19.9 | 14.5 | 37 | % | ||||||||||||||||
Capex (non-sustaining) |
6.1 | 3.6 | 69 | % | 11.2 | 21.0 | -47 | % | ||||||||||||||||
Capex (Brownfield) |
2.2 | 2.2 | 0 | % | 7.8 | 5.7 | 37 | % | ||||||||||||||||
All-in sustaining cash cost |
6.1 | 7.5 | -20 | % | 6.8 | 8.8 | -23 | % | ||||||||||||||||
Cash, cash equivalents, and short-term investments2 |
195.8 | 123.6 | 58 | % | 195.8 | 123.6 | 58 | % | ||||||||||||||||
Total assets2 |
652.9 | 387.7 | 68 | % | 652.9 | 387.7 | 68 | % | ||||||||||||||||
Non-current bank loan2 |
39.8 | 39.6 | 1 | % | 39.8 | 39.6 | 1 | % | ||||||||||||||||
Other liabilities2 |
1.3 | 4.8 | -73 | % | 1.3 | 4.8 | -73 | % |
Note
1 | refer to Non-GAAP Financial Measures |
2 | Comparative figures are as at December 31, 2016 |
Net income for the third quarter ended September 30, 2017 was $10.3 million or $0.06 per share compared to a net income of $10.2 million or $0.08 per share for the comparable quarter in 2016. The slightly higher net income was driven mostly by lower income tax expense of $5.2 million as the effective tax rate for the third quarter was 34.7% compared to 51.2% for the comparable quarter in 2016. Adjusted net income was $13.1 million compared to $10.0 million in 2016, mostly after adjusting for a $2.2 million loss on financial instruments, net of tax, in the current quarter.
Operating income for the third quarter ended September 30, 2017 was $18.9 million, 11% below the comparable quarter in 2016, attributable mostly to lower financial results at our
-2-
San Jose Mine related in turn to a lower realized silver price of 14% and higher unit costs of 13%. These were partially offset by stronger financial results at our Caylloma Mine driven by strong zinc and lead prices and lower share based payments of $0.1 million, compared to $2.6 million in the third quarter of 2016.
Cash provided by operating activities in the third quarter of 2017 was $20.4 million, a $8.6 million decrease from $29.0 million in the comparable quarter of 2016. The decrease was due primarily to negative changes in working capital in the third quarter of 2017 compared to positive changes in Q3 2016. The negative changes in the current quarter are related to trade receivables and inventory. Cash provided by operating activities before changes in working capital was $26.2 million, a $0.3 million decrease from $26.5 million in the third quarter of 2016.
Liquidity
At September 30, 2017, the Company had cash, cash equivalents, and short-term investments of $195.8 million (December 31, 2016 $123.6 million), an increase of $7.8 million over the end of June 2017, and of $72.2 million since the beginning of the year. The increase over year end 2016 was due primarily to a bought deal equity financing in the first quarter of 2017 for net proceeds of $70.9 million.
The Company is in the process of amending its existing credit facility with Scotiabank from $40 million to $120 million. This will provide an additional $80 million of liquidity on top
-3-
of the $40 million which have been drawn as of September 30, 2017 and completes our funding requirement for the construction of the Lindero Project.
San Jose Mine, Mexico
QUARTERLY RESULTS | YEAR TO DATE RESULTS | |||||||||||||||
San Jose |
Three months ended, September 30, |
Nine months ended, September 30, |
||||||||||||||
Mine Production |
2017 | 2016 | 2017 | 2016 | ||||||||||||
t milled |
263,697 | 268,242 | 799,420 | 632,432 | ||||||||||||
Average t milled per day |
3,038 | 3,056 | 3,054 | 2,425 | ||||||||||||
Silver |
||||||||||||||||
Grade (g/t) |
229 | 224 | 231 | 229 | ||||||||||||
Recovery (%) |
91 | 92 | 92 | 92 | ||||||||||||
Production (oz) |
1,774,556 | 1,780,825 | 5,454,793 | 4,296,125 | ||||||||||||
Metal sold (oz) |
1,739,066 | 1,761,101 | 5,392,495 | 4,270,370 | ||||||||||||
Realized price ($/oz) |
16.85 | 19.47 | 17.16 | 17.37 | ||||||||||||
Gold |
||||||||||||||||
Grade (g/t) |
1.71 | 1.76 | 1.74 | 1.73 | ||||||||||||
Recovery (%) |
91 | 92 | 91 | 92 | ||||||||||||
Production (oz) |
13,248 | 13,951 | 40,773 | 32,358 | ||||||||||||
Metal sold (oz) |
12,817 | 13,739 | 40,079 | 32,155 | ||||||||||||
Realized price ($/oz) |
1,280 | 1,327 | 1,251 | 1,268 | ||||||||||||
Unit Costs |
||||||||||||||||
Production cash cost ($/oz Ag)1 |
1.53 | 0.73 | 1.29 | 1.74 | ||||||||||||
Production cash cost ($/t) |
62.23 | 54.83 | 60.31 | 57.69 | ||||||||||||
Unit Net Smelter Return ($/t) |
162.62 | 175.61 | 165.76 | 160.73 | ||||||||||||
All-in sustaining cash cost ($/oz Ag)1 |
7.75 | 6.94 | 7.35 | 7.95 |
1 | Net of by-product credits from gold |
The San Jose Mine produced 1,774,556 ounces of silver and 13,248 ounces of gold in the third quarter, 4% and 7% higher than plan. Compared to the third quarter of 2016 silver was slightly slower by 0.4% and gold was 5% lower. The decrease in gold compared to 2016 was the result of lower head grades of 3% and lower throughput of 2%.
Cash cost per tonne of processed ore for the third quarter ended September 30, 2017 was $62.2, which includes approximately $0.6 per tonne of non-recurring items mainly related to mine support works due to a major earthquake in September and $0.70 per tonne due to the appreciation of the Mexican Peso against the US dollar. Excluding non-recurring items and exchange rate effects the increase compared to budget was 4% and was related to higher mine support cost and local inflation on the cost of energy and materials. Cash cost per tonne of processed ore for the quarter was 13% higher than the $54.8 cash cost for the comparable quarter in 2016. Cash cost for 2017 is expected to remain within 5% of annual guidance (see Fortuna news release dated January 11, 2017).
-4-
All-in sustaining cash cost per payable ounce of silver, net of by-product credits, was $7.4 for the first nine months of 2017 and was below the annual guidance of $8.4 as a result of higher gold credits.
Caylloma Mine, Peru
QUARTERLY RESULTS | YEAR TO DATE RESULTS | |||||||||||||||
Caylloma |
Three months ended, September 30, |
Nine months ended, September 30, |
||||||||||||||
Mine Production |
2017 | 2016 | 2017 | 2016 | ||||||||||||
t milled |
133,726 | 132,558 | 395,069 | 379,707 | ||||||||||||
Average t milled per day |
1,486 | 1,473 | 1,480 | 1,417 | ||||||||||||
Silver |
||||||||||||||||
Grade (g/t) |
66 | 87 | 66 | 93 | ||||||||||||
Recovery (%) |
83 | 83 | 84 | 85 | ||||||||||||
Production (oz) |
234,806 | 308,680 | 704,624 | 963,994 | ||||||||||||
Metal sold (oz) |
226,155 | 309,813 | 691,659 | 980,418 | ||||||||||||
Realized price ($/oz) |
16.89 | 19.56 | 17.19 | 16.91 | ||||||||||||
Lead |
||||||||||||||||
Grade (%) |
2.87 | 2.71 | 2.77 | 3.22 | ||||||||||||
Recovery (%) |
91 | 94 | 91 | 94 | ||||||||||||
Production (000s lbs) |
7,650 | 7,452 | 22,031 | 25,383 | ||||||||||||
Metal sold (000s lbs) |
7,291 | 7,454 | 21,454 | 25,826 | ||||||||||||
Realized price ($/lb) |
1.06 | 0.85 | 1.03 | 0.80 | ||||||||||||
Zinc |
||||||||||||||||
Grade (%) |
4.26 | 4.09 | 4.16 | 4.32 | ||||||||||||
Recovery (%) |
90 | 89 | 90 | 89 | ||||||||||||
Production (000s lbs) |
11,241 | 10,606 | 32,670 | 32,198 | ||||||||||||
Metal sold (000s lbs) |
10,867 | 10,600 | 32,512 | 32,504 | ||||||||||||
Realized price ($/lb) |
1.35 | 1.02 | 1.26 | 0.89 | ||||||||||||
Unit Costs |
||||||||||||||||
Production cash cost ($/oz Ag)1 |
(39.53 | ) | (8.49 | ) | (31.22 | ) | (4.41 | ) | ||||||||
Production cash cost ($/t) |
76.00 | 71.83 | 78.12 | 72.16 | ||||||||||||
Unit Net Smelter Return ($/t) |
170.37 | 134.17 | 159.86 | 123.59 | ||||||||||||
All-in sustaining cash cost ($/oz Ag)1 |
(18.79 | ) | 3.27 | (11.23 | ) | 5.14 |
1 | Net of by-product credits from gold, lead and zinc |
Silver production at the Caylloma Mine for the third quarter of 2017 was 234,806 ounces, 24% lower than the comparable period in 2016. Lead and zinc production were 7.7 million and 11.2 million pounds, respectively; 3%, and 6% higher than the comparable quarter in 2016. Lower silver production for the third quarter was due to lower head grades of 25%. Higher lead production of 3% was the result of higher head grades of 6% partially offset by lower recovery of 4%, while higher zinc production of 6% was the result of higher head
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grade of 4%. Compared to plan silver and lead production were 6% and 3% below budget, while zinc production was 5% above budget.
Cash cost per tonne of processed ore for the third quarter ended September 30, 2017 was $76.0, which was 6% higher than the $71.8 cash cost for the comparable quarter in 2016 and 1% higher than budget. The increase over the third quarter of 2016 was mainly due to higher energy, ground support and labour costs. Cash cost for full year 2017 is expected to remain within 5% of annual guidance (see Fortuna news release dated January 11, 2017).
All-in sustaining cash cost per payable ounce of silver, net of by-product credits, was a negative $11.2 for the first nine months of the year and was significantly below the annual guidance of $10.8 due primarily to higher by-product credits.
The financial statements and MD&A are available on SEDAR and have also been posted on the Companys website at http://www.fortunasilver.com/s/financial_reports.asp.
Conference call details:
Date: Thursday, November 9, 2017
Time: 9:00 a.m. Pacific | 12:00 p.m. Eastern
Dial in number (Toll Free): +1.888.567.1603
Dial in number (International): +1.404.267.0368
Replay number (Toll Free): +1.877.481.4010
Replay number (International): +1.919.882.2331
Replay Passcode: 10434
Playback of the conference call will be available until November 23, 2017 at 11:59 p.m. Eastern. Playback of the webcast will be available until February 9, 2018. In addition, a transcript of the call will be archived in the companys website:
https://www.fortunasilver.com/investors/financials/2017/.
About Fortuna Silver Mines Inc.
Fortuna is a growth oriented, precious metal producer focused on mining opportunities in Latin America. The Companys primary assets are 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.
ON BEHALF OF THE BOARD
Jorge A. Ganoza
President, CEO and Director
Fortuna Silver Mines Inc.
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Trading symbols: NYSE: FSM | TSX: FVI
Investor Relations:
Carlos Baca- T (Peru): +51.1.616.6060, ext. 0
Forward looking Statements
This news release contains forward looking statements which constitute forward looking information within the meaning of applicable Canadian securities legislation and forward looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (collectively, Forward looking Statements). All statements included herein, other than statements of historical fact, are Forward looking Statements and are subject to a variety of known and unknown risks and uncertainties which could cause actual events or results to differ materially from those reflected in the Forward looking Statements. The Forward looking Statements in this news release include, without limitation, statements about the Companys plans for its mines and mineral properties; the Companys business strategy, plans and outlook; the merit of the Companys mines and mineral properties; the future financial or operating performance of the Company; and proposed expenditures. Often, but not always, these Forward looking Statements can be identified by the use of words such as estimated, potential, open, future, assumed, projected, used, detailed, has been, gain, planned, reflecting, will, containing, remaining, to be, or statements that events, could or should occur or be achieved and similar expressions, including negative variations.
Forward looking Statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any results, performance or achievements expressed or implied by the Forward looking Statements. Such uncertainties and factors include, among others, changes in general economic conditions and financial markets; changes in prices for silver and other metals; technological and operational hazards in Fortunas mining and mine development activities; risks inherent in mineral exploration; uncertainties inherent in the estimation of mineral reserves, mineral resources, and metal recoveries; governmental and other approvals; political unrest or instability in countries where Fortuna is active; labor relations issues; as well as those factors discussed under Risk Factors in the Companys Annual Information Form. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in Forward looking Statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended.
Forward looking Statements contained herein are based on the assumptions, beliefs, expectations and opinions of management, including but not limited to expectations regarding the Companys plans for its mines and mineral properties; mine production costs; expected trends in mineral prices and currency exchange rates; the accuracy of the Companys current mineral resource and reserve estimates; that the Companys activities will be in accordance with the Companys public statements and stated goals; that there will be no material adverse change affecting the Company or its properties; that all required approvals will be obtained; that there will be no significant disruptions affecting operations and such other assumptions as set out herein. Forward looking Statements are made as of the date hereof and the Company disclaims any obligation to update any Forward looking Statements, whether as a result of new information, future events or results or otherwise, except as required by law. There can be no assurance that Forward looking Statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, investors should not place undue reliance on Forward looking Statements.
This news release also refers to non-GAAP financial measures, such as cash cost per tonne of processed ore; cash cost per payable ounce of silver; total production cost per tonne; all-in sustaining cash cost; all-in cash cost; adjusted net (loss) income; operating cash flow per share before changes in working capital, income taxes, and interest income; and adjusted EBITDA. These measures do not have a standardized meaning or method of calculation, even though the descriptions of such measures may be similar. These performance measures have no meaning under International Financial Reporting Standards (IFRS) and therefore, amounts presented may not be comparable to similar data presented by other mining companies.
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