Fortuna Silver Mines Inc

TSX:FVI

Earnings Call Transcript 2021-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Fortuna Silver Mines First Quarter 2021 Financial and Operational Results. [Operator Instructions]It is now my pleasure to turn the floor over to your host, Carlos Baca, Investor Relations Manager. Sir, the floor is yours.

[Carlos Baca, Investor Relations Manager]

Thank you, Kate. Good morning, ladies and gentlemen, I would like to welcome you to Fortuna Silver Mines and to our financial and operations results call for the first quarter of 2021. Hosting the call today on behalf of Fortuna, will be Jorge Alberto Ganoza, President and Chief Executive Officer; and with Luis Dario Ganoza, Chief Financial Officer. Today's webcast presentation will be available after this call on the latest presentation box on our homepage at fortunasilver.com. As a reminder, statements made during this call are subject to the reader advisories included in yesterday's news release and in the earnings call presentation. Financial figures contained in the presentation and discussed in today's call are presented in U.S. dollars unless otherwise stated.Before I turn over the call to Jorge, I would like to indicate that this earnings call contains forward-looking information that is based on the company's current expectations, estimates and beliefs. This forward-looking information is subject to a number of risks, uncertainties and other factors. Actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the company's annual information form and MD&A, which are publicly available on SEDAR. The company assumes no obligation to update such forward-looking information in the future, except as required by law.I would like -- I would now like to turn the call over to Jorge Alberto Ganoza, Co-Founder of Fortuna.

[Jorge A. Ganoza Durant, President, CEO & Director]

Thank you, Carlos. And we can move to Slide 6 in the presentation, Highlights. In this first quarter of the year, we're exceeding the soundness of our strategy and strength of our business. We have been investing in growth since late 2016, taking a counter-cyclical approach during a period where several of our peers restrained capital investment because of a depressed market for mining equities and low interest in precious metals. And now, with renewed interest in the sector over the last 24 months, we're in a strong position to harvest as our results show. We have reported record adjusted net income of $27.5 million or $0.14 per share ahead of analyst consensus of $0.10 per share. Adjusted EBITDA of $61 million with a peer leading given a margin of 52%.We maintain a strong balance sheet with $145 million in liquidity and a low debt to EBITDA ratio of 0.1. Lindero, our third mine, reported its first full quarter of production, delivering 22,300 gold ounces. We have been cash flow positive at Lindero since Q4 of 2020 and Q1 has also been a quarter of strong free cash flow generation even as we ramp up. Except for the conveyor stacking system and SART plant, all our unit operations are performing within design parameters. The equipment is fit for purpose, we need our operation team to get their performance and efficiency up during operation and server setup of the conveyor system and I believe we're going to be achieving design parameters at the conveyor operations this quarter, second quarter. It has been a challenge, again, due to the limitations imposed by COVID to get foreign experienced technical support in country. Our team is delivering a great job on site in spite of these challenges.On April 26, we announced the definitive agreement to acquire Roxgold. This combination will create a low-cost intermediate global precious metals producer with a significant silver credit. John and his team at Roxgold have successfully built a robust business platform in West Africa, and we believe that together with a strong balance sheet and diversified sizable production, we are better positioned to lower the risks of the business and unlock the value of the assets for the benefit of shareholders. Something I am particularly excited about is the opportunity to bring together 2 teams of high performance in their respective jurisdictions. Any investors seeking to invest in intermediate precious metals producer space, will have to give consideration to the pro forma company with gold equivalent production of 450,000 ounces of gold to 0.5 million ounces of gold and EBITDA margins in the 40% to 50% range with a robust pipeline of development and exploration projects.Next slide, please. In Slide 7, we share a 12-month rolling average performance for safety KPIs. We continue to show a trend of continued improvement for total recordable lost time and severity. 3 years ago, we embarked on a process of cultural change with respect to health and safety. We still have plenty of areas for improvement in our effort to achieve an accident-free work environment, but I'm pleased and continue to be pleased to see all key metrics trending in the right direction.Slide 8 please. We pre-released production for the quarter on April 12. Our gold equivalent production in the quarter was 60,000 ounces. All metals were basically in line with Q1 of last year with a notable exception of gold with an increase of 240% as a result of Lindero contribution.Next slide please. In Slide 10, as I stressed at the beginning of the call, financial performance has been record breaking for the company. Sorry, Slide 9. In Slide 9, our silver contribution to revenue in the period was 39% and precious metals accounted for 86% of revenue. We are able to capture not only the benefit of higher silver and gold prices, but this is amplified by our significant increase in annual gold production derived from Lindero.Next slide please. The financial performance has been record-breaking for the company in Q1, as I stressed at the beginning of the call. Sales jumped 148% to $117 million. Adjusted EBITDA jumped 280% to $60.8 million and adjusted net income was a record $27.5 million or $0.14 per share.Moving on to Slide 11. With respect to all-in sustaining costs at San Jose at $13.40, all-in sustaining was well within our guidance -- a range guidance of $12.20 to $40.50. Getting more granular on the all-in sustaining cost analysis for this mine compared to Q1 of last year on a per tonne basis, costs are basically aligned at $70 per tonne, CapEx is largely aligned as well. The driver for the 26% increase with respect to last year resides in the silver to gold ratios of 68 used now and 98 back in -- used back in Q1 of last year.Caylloma -- our Caylloma Mine came in line with all-in sustaining guidance that is in the range of $19 to $23. And for Lindero, we expect all-in sustaining cost to trend lower throughout the year as we complete the ramp-up phase and achieve a more stable operation towards mid-year. For Q1, Lindero all-in sustaining cost came in at $1,055 below mid-year guidance provided of $1,130, $1,335. The lower cost compared to guidance has to do with the timing of sustaining capital investments.Slide 12. Our total capital budget guidance for 2021 is $71 million. In Q1, we have executed $13 million, we expect capital investments to keep -- to pick up throughout the year. Next slide, please. Slide 13. Just a brief update on the ramp-up activities at Lindero. So as we note here in this slide, all systems are operating within a range of design parameters with the exception of the stacking system and SART plant. The HPGR-agglomeration and stacking system, which works in sync, as of the end of the quarter was operating at around 41% of design capacity. To date, early days of May, more closer to 50%, 60%. So we're trending in the right direction. Remember that ore stacking with trucks continues to supplement a conveyor stacking deficit. And the SART plant was placed on standby to focus all of our resources on critical path for gold production and in the -- in early May, the SART plant has been restarted.Something important to highlight with respect to Lindero is that we continue to see our reserve model reconciliating, well going into expectations with less than 55 -- 5% deviations in terms of ounces, tonnages and grades and reconciliate a model to production. And same with leaching key metrics. Gold leaching kinetics continue to perform according to our expectations and design parameters.Next slide, please. Our exploration budget for 2021 is $20 million, comprising approximately 50,000 meters of drilling across our mines and projects. The largest allocation of capital is towards San Jose Mine, where we reported initial drilling subset on March 29. We currently have 9 drill rigs turning, including drilling at the Santa Fe, silver/gold prospect in the state of Soledad mission.With that, I can turn it to Luis, so he can run you through the highlights of our financials.

[Luis Dario Ganoza Durant, Chief Financial Officer]

Sure. Thank you, Jorge. On Slide 16, as Jorge has mentioned, we had record sales, earnings per share and EBITDA. Overall, very strong financial performance across all our financial metrics. The recruiting sales is not only driven by Lindero's first full quarter contribution, but San Jose and Caylloma also had record sales on the back of strong operating performance and favorable metal prices. Net cash provided by operating activities of $21.1 million, increased 470% as we have restated the comparative period upon adoption of IAS 16 that deals with our proceeds before intended use, this is in relation to the commencement of sales have been narrow. The restatement is restricted to the cash flow statement and details are provided on all 3 of our financial statements. Without this effect, our net cash provided by operating activities would have increased 60%. As a reference and although, not shown here, cash provided by operating activities before changes in working capital increased 270%, which is in line with the rate of increase shown for EBITDA on this slide. Free cash flow from ongoing operations of $17.4 million was impacted by timing of trade receivables in the order of $14 million.On the next slide, Slide 17, sales increased by $70.3 million over Q1 2020 or 128% as shown in the prior slide, even excluding Lindero's contribution to sales in the quarter of $36.9 million. Sales increased 70% driven by higher prices and higher metal sold at both San Jose and Caylloma. The largest single impact on our sales in the quarter, excluding Lindero was the price of silver with an impact of $18 million as shown in the slide.The next slide, Slide 18. This slide highlights the strong financial and cost performance across all our operations. For San Jose and Caylloma, we recorded material increases in EBITDA with both mines operating within our cash cost guidance. As Jorge mentioned, the higher all-in sustaining costs for San Jose of 26% compared to the prior year is mainly related to changes in the gold-silver ratio and the impact this has on silver equivalent production. On the underlying cash cost per tonne at San Jose, we do expect the trend towards the mid-70s level, still within our guided range for the year. At Lindero, we recorded cash cost per gold ounce of $639, which is around 5% above our expected cash cost for the quarter based on our annual guidance. As the mine continues to ramp up, we see our main KPIs tracking our budgeted figures. We have placed 76% higher ore on the leach pad and processed less ore through the full crushing circuit compared to our plan. As Jorge has explained, these changes are allowing us to accommodate the impact of COVID-19 restrictions on the ramp-up as we maintain our gold production target for the year. In terms of cost effects, these changes have mostly netted each other out in the quarter. And our all-in sustaining cost should be lower guided range for the first half of the year, also mentioned before by Jorge, mainly due to a slower pace of execution of investment projects. We expect the expansion of the leach pad and the ADR systems to pick up speed in the second quarter.Next slide, Slide 19. We see our total liquidity already increasing and our net debt coming down compared to Q4 of 2020 as Lindero started contributing to free cash flow generation since the beginning of the ramp-up. We expect this trend to continue and intensify in the coming quarters. I would like to provide a comment with respect to cash flow repatriation at Lindero. In 2021, our intercompany funding structure in Argentina allows us to repatriate around $130 million to $140 million without any adverse effects from foreign exchange controls and we have started repatriating funds since early in the year.With that, I'll pass it back to you, Carlos. Thank you.

[Carlos Baca, Investor Relations Manager]

Thank you, Luis. We would now like to turn the call over to any questions that you may have.

[Operator]

[Operator Instructions] Our first question today is coming from Cosmos Chiu at CIBC.

[Cosmos Chiu]

I guess my questions are around Lindero here. As you talked about in your MD&A, you stacked about 56,000 ounces of gold and produced about 22,300 ounces. That works out to a ratio of about 39%. I know the tertiary crushing circuit isn't at full capacity yet and whatnot, but based on what you stacked in Q1. Can you remind us what kind of “recovery level”; are you expecting and how long is a leach curve at this point in time?

[Jorge A. Ganoza Durant, President, CEO & Director]

Yes, we have -- Cosmos, we are stacking different types of materials. For the material that is stacked, we are -- the stacking system is -- these are that material that runs through the HPGR. So a conveyor stacking, we're placing about right now were 9- and 12-millimeter crush material that comes with gold extractions in the range of 70%, 74%, then we have a coarser crush material, which is stacked via trucks. Expected recoveries for that 35-millimeter crush is in the range of 50%. And we're talking about those expected extraction rates in the 90-day period. So I don't have the balance in my head right now, but it is the balance of those expected recoveries that yields the extraction -- in line with extraction recovery considering inventory in the plant.

[Cosmos Chiu]

For sure. Thanks. That's really helpful. And then, on that -- that kind of leads into my second question here, Jorge. And I'm just trying to reconcile all these different numbers, so if I take your 2.13 million ounce -- or 2.13 million tonnes stacked in Q1, that works out to about 23,000, 24,000 tonnes per day. As you talked about the secondary -- primary, secondary capacity is right now -- I might be quoting the numbers not perfectly here, but I think it's about 16,000 tonnes per day. And then your tertiary crusher, which is your HPGR agglomerate stacking system is about 7,000 tonnes per day. So could you like help me reconcile those numbers? Are you putting any kind of run of mine material onto the leach pad right now? And as you ramp up the tertiary crushing circuit throughout 2021, how much of the material stacked in the second half are you expecting to come from the different parts, either it be the HPGR versus secondary versus if there is run of mine?

[Jorge A. Ganoza Durant, President, CEO & Director]

Let's -- So stacking is a short-term solution to meeting extractable ounces on the leach pad, right? So what we planned for is how many extractable ounces we need to place on the leach pad to meet or annual guidance, that's how this is working, right? So we balance those figures and that's what you're trying to better understand. So our primary and secondary crushing system is currently operating exceeding design capacity. The design capacity of primary, secondary crushing is 18,750 tonnes per day. As you noted, we're achieving 20,000 tonnes a day. So a part of that material, about 9,000 tonnes per day are running through the HPGR agglomeration and conveyor stacking and the balance is placed from the heap -- sorry, from the secondary stockpile directly trucked to the leach pad. And on top of that, we can place materials from stockpiles as well, right? So we want get -- want to get very granular on these, then we can have a session on this, we can have different times, even 3 different sources of materials being placed on the leach pad to meet extractable ounces, right? So we will be happy to have a session with you and give you the breakdown, but we are placing more ounces on the leach pad, than the original design calls for because the coarser material comes at a lower extraction on a 90-day period, right? That's why we are placing more ounces with the trucks and those ounces come from the secondary crushing and in some instances from the coarse ore stockpile. So -- and that is what we use to meet the 140,000 to 160,000 ounce guidance for 2021, right?

[Cosmos Chiu]

Yes, yes. That's perfect. And that's for sure the current situation right now. And -- but would you expect a majority of your stocking to be from the tertiary crushing circuit towards the end of 2021, if that's possible?

[Jorge A. Ganoza Durant, President, CEO & Director]

We expect to be placing 100% of the materials through the stacking during the second quarter, no? We're not there yet, but we're seeing a good increase. We already achieved days of 17,000 tonnes stacked. We had conveyor stacking, no? The issue is -- for us right now, is being able to achieve efficiency in the actual operation, a movement of the conveyor stacking. I want to stress the fact that ramping up commissioning and ramping up in the COVID pandemic -- during the COVID pandemic has been a tremendous challenge for the team because we have been working without the benefit of foreign vendor technicians and a trained personnel with the use of certain equipment like the conveyor stacking. We have -- we are in a way learning as we go because, we're using a lot of Zoom hours and this remote virtual reality goggles and tools, technological tools like that. We do not have the benefit of having to see some operators that you could bring from other site that we don't train in Argentina, right, they will have to come from abroad to help our operators. And so we're going at it alone and I believe that's why they delay, right? I mean, we have no mechanical issues at this time of any significance nor automation. We did battle at the beginning, some couple of months ago, with some issues regarding setting the system on the automation and some mechanical issues. Nothing big, but issues that need to be overcome. Those have been addressed. It's now really getting the team experienced enough, moving the system of conveyor stacking has to be like a pit stop in a car race, right? And we're not where we need to be yet, but we're getting there.

[Cosmos Chiu]

Of course. Thanks. And then, maybe one last question on the financial statements here. In the MD&A, you mentioned that $120 million credit facility is fully drawn right now, expires on January 26, 2022. However, you're trying to get that renewed for sure in Q2 2021. Maybe more a question for Luis, but can you remind us, what interest rate are you paying right now on that credit facility? Can you give us some kind of outlook in terms of how the credit market looks at this point in time? And would you be expecting more favorable terms on this renewal? And then, on top of that with the pending merger with Roxgold, has that changed your potential repayment of this credit facility vis-a-vis, how you're potentially financing say the construction of Seguela?

[Jorge A. Ganoza Durant, President, CEO & Director]

Yes So, I mean first of all we are cost of fully drawn is 3%, 3.5% from top of the reference rate. We do expect to be able to maintain similar terms and in, in the context of a transaction in the pro forma company. I mean, our view is, and that's really the reason to push back somewhat the renewal. So as to gain more visibility on what makes the most sense, so it is in that context that we expect to conclude the renewal in Q2 with an expanded facility that reflects the additional credit capacity of the pro forma entity and more based on the the terms that we see and that we believe what we believe we're able to achieve. I mean we. And considering the debt capacity of the pro forma entity. I mean I think we would be right to reconsider any plans to repay that early Right, it does make sense to think of that, that in the medium term it as more of a structural nature. In terms of how we manage the balance sheet Right. That's our view today.

[Operator]

Our next question today is coming from Trevor Turnbull at Scotiabank.

[Trevor Turnbull, Analyst]

A, I just wanted to get a little more color on Lindero and the tertiary crushing and and circuit related to that. I think when you put out your original Q1 production figures back in April. You had mentioned that you'd had some very strong weeks in terms of the availability of that tertiary crushing system. And I think you referenced it on this call. As I want to say 50% to 60% of capacity and I just wondered what it what it kind of needs to do to get back to those levels that you were experiencing at the early part of April where I think you were up closer to 87% on that system.

[Jorge A. Ganoza Durant, President, CEO & Director]

In the, in the period. You see the year agglomeration and stacking working zinc. So the bottleneck in the system we have is, has been mainly faced at the stacking system. As I explained before, we have issues relating automation and getting the all the train of conveyors speaking to each other and that was overcome. And today, we are achieving steady days in the entire system of around 9,000 to 11,000 tons per day stack. And we had, as I mentioned peak days of 17,000 tons, 14,000 tons stacked all in mechanical and automation issues that -- we part of with at the beginning of the process in early in the start of the year have been overcome. And they weren't never significant in the sense that I believe that a lot of these issues could have been resolved in a matter of hours or even days, having the right vendor representatives from superior on site, but we don't have that luxury because of the COVID pandemic, right?So sometimes those problems instead of being resolved in hours or days in the taking days or weeks. All right. But I think all those are behind and we just need the team to get more seasoned and experienced and be able to sustain the throughputs, be get more effective with the movement of the conveyors. Now with the setup, the planning for the setup, right? I think the team has been more immersed in solving the automation and mechanical issues I explained before for these past months rather than getting more seasoned and planning ahead for the movement of the equipment and sequencing of the movements of the conveyor stacking system.So I think, I don't think we're talking about rocket science here. It's just getting the team know more and more tune now that all of these mechanical automation issues are all behind, getting the team to get the performance in the equipment. The equipment is fit for purpose. It's just operational expertise, right now, right? And HPGR is performing according to whether we ask permits and agglomeration. Also, I mean, we had some minor mechanical and set-up issues. But really, the equipment is fit for purpose. And the biggest, but the bottleneck is the stacking. All right. And then, maybe I just wanted to change gears and follow up on something that Luis mentioned about getting money repatriated from Lindero. Perhaps I misunderstood a bit. I did think that when you had export sales that you tended to have to go through the conversion to the peso. And then, if you wanted to distribute that money out of the country, obviously you would want to re-convert it back into another currency. But it sounds like you don't have to go through that process and I was just curious why it is or how you've structured it such that those kind of mandatory conversions of exchange rates don't apply?

[Luis Dario Ganoza Durant, Chief Financial Officer]

Yes. So it has to do, generally speaking, it is accurate, your description is accurate. But it is possible within the existing structures in or restrictions in effect.

[Jorge A. Ganoza Durant, President, CEO & Director]

Regulatory framework.

[Luis Dario Ganoza Durant, Chief Financial Officer]

Yes. To set us intercompany bit by way of pre-export finance, which for all practical purposes allows to use the proceeds of sales to pay directly to the parent company. So that means that those proceeds are not coming back into pesos into Argentina. There is a limited pool for this, which is in the range that we've been mentioning, right? Once that pool is exhausted, we will shift to the regime you're describing, where restrictions are being analyzed and rolled by evolvement almost on a monthly basis, right, monthly-by-monthly basis.

[Trevor Turnbull, Analyst]

And maybe it is a moving target, which is what it sounds like. But if you were operating under--under those constraints. Can you give us a sense of what kind of percent you would lose through all that conversion process? Is this something that kind of erodes the amounts by 1% or 5% or 10%? Can you give us a sense of if going through that exercise, what you might expect the cost to be?

[Luis Dario Ganoza Durant, Chief Financial Officer]

Yes. So I mean, all exporters in Argentina finding themselves in that situation, have 2 options of course. One is to sit on the pesos and seek to protect those. There is a certain amount of liquidity in the forward, in the foreign exchange forward markets locally, that typically I would expect goes out 6 to 8 months, right? So that sort of gives you a framework for the type of protection you can achieve. And the alternative is to tap into the parallel FX market and the gap will vary widely. I think these days, it's a much higher than what you typically expect to see. It has been, I mean trending downwards. And we would expect that in the next few months that gap does close significantly with respect to what it is today. I'm sorry. Right. I mean that sort of a broad answer that in 2022, we would have to sit and look forward to 2022 and try to see what's going to happen with the effects at that moment. Right. And that's a difficult one.

[Operator]

Our next question today is coming from Don DeMarco at National Bank Financial.

[Don DeMarco, Analyst]

I just have a couple of questions on San Jose shifting to San Jose now. Can you elaborate on your exploration program at San Jose? I see that the exploration results that were announced in late March looked good. You had a few intercepts are over a kilogram per ton, that's encouraging. But, I see reserves are the updated reserves around 23 million ounces, 2021 guidance is about 6 million ounce of silver per year. So just curious how many rigs do you have running, what's changed in your program versus last year? And where are you most optimistic?

[Jorge A. Ganoza Durant, President, CEO & Director]

Yes. I'll start with the last one. What has changed with respect to last year. First is drilling meterage right. Today our drilling meterage for San Jose is in excess of 30,000 meters. Last year our drilling at San Jose was around 7,000 meters. Right. So we're drilling significantly more. We currently have 5 drill rigs currently. So 3 are currently working in underground and 2 on surface. So we have different type targets. One is we have multiple targets underground in and around the immediate vicinity of the resourced shell, the resource block model. So the results that we reported in March come from one of those initiatives for drilling a near-mine underground targets.So my expectation with respect to those targets and we have several of those in the range of 5 or 6 around the resource shell. Is that we will have opportunities, several opportunities I would expect like the ones we outlined in March, which is not are incremental, right, are incremental to reserve life and resource, extensions. Probably on their own, not very material in terms of tonnage. But on the aggregate they all will contribute to replace what we repeat. All right.And I think we have several of those ongoing. And as you noted, what I want also to come across is that San Jose is not just a simple vein. It's an integrated system of announced almost in structures, where we have identified 3 or 4 main structures and we've seen those structures. We have a stock work development. So within this area, we have a lot of room to create opportunities for potential expansions, right, because of the structural model, once you get to the details of it, it's right. And this one is, it was right in front of us. What we reported in March, during the doing that time close to surface. It's close to surface. It has been in front of us for years and it's only now that we decided to pursue the area, exploration in the area. Look at the 3D models in more detail, ensuring that we're coming up with some spectacular grades and hopefully some tonnage, that's a meaningful in the context of dealing with annual depletion rate. So we have multiple of those. Then, second, we have a parallel vein system, 400 meters due east from where we are mining is called the Victoria system. We have regular resources in the Victoria vein and we have discovered a new parallel structure. While drilling Victoria vein, we came across this second structure that is not main yet on the hanging wall of Victoria. And we're currently drilling Victoria and the parallel structure for extensions of Victoria and trying to see and explore further the parallel structure in the Honeywell. Apart from that, we have multiple veins on surface, where we have currently one drill rig pursuing those opportunities that can be located 4, 5 kilometers away from our current infrastructure, so well within trucking distance, we currently have one drill rig turning in an area called las DS, where we have vein structures and surface, diversification. We have discovered something that we have not seen before, it's got it and depth. We're in a volcanic panel. We had never seen more suitable conic type features like that don't. And that was geologically quite inspiring to the team from the perspective of where to focus more exploration ideas. So we have multiple of those. We have also option the Higo Blanco property, which is within the general area of San Jose within trucking distance of San Jose. The Higo Blanco it's an option the previous explorers drilled at the Higo Blanco in previous years with some exceptional results of high-grade mineralization for silver over broad with, and we have option the property and we are currently working on developing drill targets. So there is no shortage of ideas at San Jose. We just need to get the drilling meterage flowing, all right. And I have been stating 2021 is a big commitment year on the exploration front. We have roughly 4.5% of sales allocated to exploration. And we need to let the programs run and see some results hopefully come along.

[Don DeMarco, Analyst]

So in the past, I think you might released like a San Jose drilling update once a year and that might have been appropriate for the smaller program you had last year. Do you have plans to do more regular exploration updates coming out to San Jose?

[Jorge A. Ganoza Durant, President, CEO & Director]

Yes. Yes, yes, absolutely. And not only for San Jose, although we will understand that the San Jose program is important for everybody. But for example, we're drilling a new and exciting project that is called Santa Fe in the State of Sonora is some kilometers south view of the la project. This we do it's discovery there. So we're drilling there. We have one rig. And we're quite active on different ideas. We have also I know for your -- where we're going to be developing drill targets this year. That's so Santa Fe is more Silver project with some goals and regarding is more gold-silver project. So we're active on several fronts.

[Operator]

[Operator Instructions] Our next question today is coming from Justin Stevens at PI Financial.

[Justin Stevens, Precious Metals Analyst]

Most of my questions have already been asked and answered. But just a quick follow on from Don is asking there. I noticed at San Jose you guys spent only about 1.7 million of your 10 million ground field exploration budget at San Jose in Q1. Should we expect that to be ramping up quite a bit here? And is there any chance that you'll spend through that 10 million you think before the end of the year and then could you perhaps evaluate further expansion of the exploration budget?

[Jorge A. Ganoza Durant, President, CEO & Director]

The budget will be ramping up, getting a lot of the drilling has been done through underground. So we will see some spend advance as we -- advance with the underground development to prepare the drill chambers and whatnot. And then, the drilling meterage coming along. So that, but it will ramp up. We have the drills on site and turning as I stated. So I see no issues there. It's usually start of the year tends to be a bit lagging with speed for some of these programs. Right.

[Justin Stevens, Precious Metals Analyst]

Sure and no particular impacts from COVID that you're seeing either on the exploration side of things?

[Jorge A. Ganoza Durant, President, CEO & Director]

You know, particularly when you're in a mine, just the COVID does impact in all of our activities are slow down. I think we are not seeing the impact so much from the production side because of the initiatives that the teams bring in place. But at Caylloma, at Lindero and at San Jose, COVID remains a dealing with COVID and keeping the operations within the protocols and the stringent protocols that we have in place that's take all sometimes on the speed at which we can do things right. So yes, I mean, we remember that these 3 countries remain under severe restrictions due to COVID right.

[Justin Stevens, Precious Metals Analyst]

And just on in terms of exploration at Lindero. I know you guys have a small program planned for --. Is that expected to be in the first half and second half of the year here?

[Jorge A. Ganoza Durant, President, CEO & Director]

We're drilling there as we speak.

[Justin Stevens, Precious Metals Analyst]

And so, we can probably expect some result at some point in the next couple of weeks here then probably right?

[Jorge A. Ganoza Durant, President, CEO & Director]

Absolutely, absolutely. We're drilling at there.

[Operator]

Our next question today is coming from [ Guy Buckley ].

[Unknown Shareholder]

I want to ask you about that mine in Peru, Caylloma how you didn't see it, but you stated that continues to contribute significant gold production in the first quarter 2021, gold production was 1,922 ounces, an increase of 308% with respect to the comparable period of 2020.The increase in gold production is related to higher head grades in counter to the Aemetis Northeast vein. I've been I graduated in that. So I know what you were talking about, how is that vein expanding how many years, do you think you have left in that high-grade ore in that Aemetis Northeast vein?

[Jorge A. Ganoza Durant, President, CEO & Director]

Thank you for your question, [ Guy ]. I have to say that we have neglected for years or understanding of gold occurrences at the Animas vein, right? So it is only now as we have entered into this area and we started encountering this higher grade sustained higher gold grades that we have deployed resources to further understand the how meaningful today we cannot say that we believe the resource as we understand it has some inventory gold component. So we are trying to understand geologically what is controlling the position of gold in these areas, because I think especially the -- especially the gold reached zones are limited in size, but what we are trying to gauge here is through more science is if there are areas where we can extrapolate what we learn here and use some exploration to. We're getting a nice significant bump in gold production and therefore in revenue and margins derived from this small ounces because this is just incremental to everything right this mine has traditionally produced 0.3, 0.6g gold well under a gram and all of a sudden, we're finding areas with more diagram gold in addition to silver lead and zinc. But today these areas are limited in size. So there are not meaningful to overall research and what we're trying to learn here is, is there are things that we can use of exploration tools or even to reassess other portions of the mine areas for higher rates. So we were right now in the learning curve here, [ Guy ], trying to get or knowledge up on what is controlling the occurrence of these higher-grade gold in this portion of the Animas vein. Animas vein is stretches for over 4 kilometers. We have drill tested it for several hundred meters at depth and this is one small area within that bigger package. So I think it speaks about potential as well, right? I mean, the system is complex and we need to better understand the gold of importance here.

[Unknown Shareholder]

Okay. Now don't you folks in your company -- I have a lot of friends that I have buy stock in your company and that was before you made the announcement that you had bought out Rocks gold in West Africa and that brain side it is. I've got to be honest with you and some my friends, they dumped their stock, but I didn't. I held on but that stock went from $9.71 a share down to under 6 bucks. It's now coming back up, because I think long term will you will do well. I think that hopefully, that Roxgold start contributing something to the earning capacity of the company. And so I just want you to know that there are many people that are with you, feel like you're doing the right thing, but there is a -- there were no that felt you did the wrong thing when you acquired that Roxgold in West Africa.

[Jorge A. Ganoza Durant, President, CEO & Director]

Thank you for your comments. And we believe that there is tremendous value to be unlocked for Roxgold shareholders, for Fortuna's shareholders as we together deploy the assets because the driving principle behind this is putting together a basket of quality assets that can really perform throughout depreciate metals price cycle putting together a team of higher and performers and on the operations and exploration side, each with the required expertise for success in their respective jurisdictions. So you know sometimes markets and market participants tend to be short term oriented, I believe this is for the medium, long term, this will be the foundation for a company as I said at the beginning of the call, if you want to invest in precious metals, you really have to give serious consideration to the pro forma company.

[Unknown Shareholder]

One last question. Don't you believe -- don't your company believe that silver will eventually be $35 an ounce end of this year and gold will be up to 1950 an ounce?

[Jorge A. Ganoza Durant, President, CEO & Director]

I personally believe they could be higher.

[Unknown Shareholder]

Right. There's a bull market on the silver.

[Jorge A. Ganoza Durant, President, CEO & Director]

I tried to focus on the things we control, which is the assets we get involved with and the costs. I -- we need to operate the mines in a high price environment as well as we do on a low price environment. So we try to focus on the things we can control and let investors be more constructive or imaginative with respect to where prices are going to be. We are mining every day and with $80 silver hopefully one day or $14 silver as it was some 15 months ago, right? So…

[Unknown Shareholder]

It was $10 an ounce. But let me tell you silver hit $28 yesterday and she is going on up.

[Jorge A. Ganoza Durant, President, CEO & Director]

Yes.

[Unknown Shareholder]

So we want to thank -- I want to thank you as a shareholder for what you're doing. We're counting on you. I want to get other friends to invest and buy stock in your company because I think the name is appropriate.

[Jorge A. Ganoza Durant, President, CEO & Director]

Thank you, sir. Thank you for your support.

[Unknown Shareholder]

The name Fortuna, I love it.

[Jorge A. Ganoza Durant, President, CEO & Director]

Thank you for your support.

[Operator]

[Operator Instructions]

[Carlos Baca, Investor Relations Manager]

If there are no further questions, I would like to thank everyone for listening to today's earnings call and we look forward to you joining us next quarter. Have a good day.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.