Fortuna Silver Mines Inc

TSX:FVI

Earnings Call Analysis

Fortuna Mining Q2 2024 Financial and Operational Highlights

Fortuna Mining reported robust performance in Q2 2024, achieving total sales of $260 million, driven by a 66% increase in gold sales and a 17% rise in gold prices. Net income reached $43.3 million, a significant jump from $3.4 million in Q2 2023. The Lindero and Seguela mines were pivotal, with Seguela exceeding capacity by 36% and Lindero progressing its leach pad expansion. Despite minor setbacks, all operations are on track to meet annual guidance. The company maintains a strong balance sheet with $350 million in liquidity and low net debt-to-EBITDA ratio of 0.2, setting a solid foundation for strategic investments.

Strong Financial Performance in Q2 2024

In the second quarter of 2024, Fortuna Mining Corp reported impressive financial results, highlighted by total sales of $260 million, driven primarily by gold sales, which accounted for 81% of the revenue. The company's average realized gold price surged to $2,334 per ounce, up from $2,087 in the previous quarter. This rebound in gold prices positively influenced their operational performance, contributing to a net income of $43.3 million, or $0.13 per share, a significant increase from $3.4 million, or $0.01 per share, in Q2 2023. The adjusted EBITDA stood at $113 million, offering a robust 43% margin over sales.

Production and Exploration Highlights

During this quarter, the company produced 116,000 gold equivalent ounces, benefited by heightened precious metal prices. Notably, the Seguela mine played a crucial role, delivering 33,000 ounces of gold, representing 36% of total gold sold. Additionally, Fortuna is focusing on exploration opportunities, with the Kingfisher discovery at the Seguela mine promising potential resource estimates by the end of the year. The recent drilling has suggested continuous mineralization over a significant stretch of 2 kilometers.

Capital Expenditure and Projects

Fortuna updated its capital expenditure plans, stating a total budget of $42 million for the Lindero leach pad expansion, which is currently 60% complete. This project will significantly lower the all-in sustaining cost (AISC) for the Lindero mine, contributing approximately $400 to its AISC and $90 to the consolidated AISC. The completion of the leach pad is expected by Q4 2024, which will facilitate continuous operation for the next decade.

Balance Sheet Strength and Liquidity

Fortuna's balance sheet remains robust, marked by a successful placement of $172 million in convertible notes, which was oversubscribed three times. This raised their liquidity to $350 million, enabling them to effectively pursue growth opportunities while lowering their cost of capital from 7.7% to 3.75%. Their net debt-to-EBITDA ratio is at a low 0.2, reflecting solid financial health.

Guidance and Future Direction

For guidance, Fortuna aims to achieve gold production between 126,000 and 138,000 ounces for the year and is on track to meet its production guidance across its Latin American operations. Despite the challenges faced due to power supply issues, these operations have adapted successfully. The company is focused on optimizing production, and moving forward, their strategy includes advancing exploratory drilling while maintaining operational excellence and safety commitments.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings. Welcome to the Fortuna Mining Corp. Q2 2024 Financial and Operational Results Call. At this time, all participants are in listen mode. [Operator Instructions]. Please note, this conference is being recorded.

I will now hand the conference over to your host, Carlos Baca, Vice President of Investor Relations. Sir, the floor is yours.

[Carlos Baca, executive]

Thank you, Jenny. Good morning to all. I would like to welcome you to Fortuna Mining Second Quarter 2024 Financial and Operational Results Conference Call. Hosting the call today on behalf of the company will be Jorge Alberto Ganoza, President and Chief Executive Officer; Luis Dario Ganoza, Chief Financial Officer; Cesar Velasco, Chief Operating Officer, Latin America; David Whittle, Chief Operating Officer, West Africa.

Today's earnings call presentation is available on our website. As a reminder, statements made during this call are subject to the reader advisories included in yesterday's news release, the earnings call, webcast presentation, MD&A and a risk factors in our annual information form. Financial figures contained in the presentation and discussed in today's call are presented in U.S. dollars unless otherwise stated. Technical information in the presentation has been reviewed and approved by Eric Chapman, Fortuna's Senior Vice President of Technical Services and Qualified Person.

I would now like to turn the call over to Jorge Alberto Ganoza, President, Chief Executive Officer and Co-Founder of Fortuna.

[Jorge Durant, executive]

Thank you, Carlos, and good day to all. I'm pleased to report that Fortuna remains well positioned to continue capitalizing on the rising prices of gold and silver, while strategically maintaining a business capable of performing across varying market cycles. Q2 was marked by significant operational and financial results.

Specifically, we made strides in 3 relevant areas: advancement of key capital projects, capturing high-value exploration opportunities, and consolidating a fortressed balance sheet. Our mines produced 116,000 gold equivalent ounces, benefiting from the upward trend in precious metal prices. The average realized gold price increased to $2,334 per ounce from $2,087 in Q1.

The average realized price increased to $2,030 -- I thought I lost the line for a second here, $2,334 per ounce from $2,087 in Q1. This led to total sales of $260 million, with gold contributing 81%, silver 10% and byproducts in and making up the remainder. The business generated $93 million in cash flow before working capital adjustments, equivalent to $0.30 per share and achieved $39 million in free cash flow from operations.

Our adjusted EBITDA was $113 million, reflecting a robust margin of 43% over sales. I want to highlight 2 major capital projects. Firstly, the Lindero leach pad expansion has reached 60% completion with a total 2024 construction budget of $42 million. This is our largest capital project. This significant project weighs approximately $400 on the Lindero all-in sustaining cost and $90 on our consolidated all-in sustaining costs for this year. We anticipate the leach pad to be concluded and ready to receive ore by Q4, setting the stage for the next decade of reserves.

And secondly, the Seguela processing plant exceeded expectations, operating at an average rate of 208 dry metric tons per hour, which is 36% above its design capacity of $154 million. This optimization has delivered significant value and helped mitigate the power outages of the national grid in Cote d'Ivoire during the quarter, ensuring no material effect on our guided production for the year. On our high-value exploration opportunities, we are thrilled about the emerging Kingfisher discovery at the Seguela mine.

Through 14,000 meters of drilling, we have identified continuous mineralization over a 2-kilometer strike length. We plan to continue drilling with the aim of producing a first resource estimate by year-end. Kingfisher is a remarkable discovery as it does not have surface expression. The prospect is located just 4-kilometer from our processing plant and main antenna deposit. This discovery highlights the significant discovery potential within the 35-kilometer-long belt under our control.

And on the strength of our balance sheet, the successful placement of $172 million in convertible notes in the quarter was 3x oversubscribed. This has increased our liquidity to $350 million and lowered our cost of capital from 7.7% down to 3.75%. We also maintained a low total net debt-to-EBITDA ratio of 0.2. The strong balance sheet allows us to pursue value-focused opportunities in our regions throughout market cycles. All in all, Q2 performance demonstrates the strength of our business. We remain focused on delivering value to our shareholders through strategic investments, operational excellence, unlocking the geologic potential of our properties and responsible mining practices.

Now David Whittle will give you an overview of the performance of our business in West Africa. David?

[David Whittle, executive]

I'm pleased to report on the strong operational performance and significant milestones achieved by our West African operations at Seguela and Yaramoko during the second quarter 2024. Seguela and Yaramoko had a successful second quarter regarding production, combining for 64,430 ounces of gold for the quarter and 126,163 ounces for the first half of 2024. While both Seguela and Yaramoko had power supply limitations, they remain on target to achieve production targets, both mines also maintained their excellent safety record.

In the second quarter, Seguela mined 420,000 tonnes of ore at an average grade of 3.03 grams per tonne and 2.5 million tonnes of waste, achieving a strip ratio of 5.9 to 1. The processing plant treated 318,000 tonnes at an average gold grade of 3.47 grams per tonne, producing 32,900 ounces of gold for the quarter, totaling 67,539 ounces in the first half of 2024.

Despite our interruptions from the National Grid resulting in a reduction of 455 hours for 19 days of processing time. We were able to mitigate this by optimizing mining schedules to provide higher-grade ore to the plant and increasing plant throughputs, which have lease 208 tonnes per hour for the quarter with a high of 213 tonnes per hour of reached in June.

In the third quarter, Seguela experienced full power availability from the National Grid, backup power generating capacity has been expanded on site to mitigate any future power supply issues and construction of the on-site solar power plant is still scheduled to commence this year. As a result, Seguela remains ahead of schedule year-to-date and is on track to achieve annual production guidance of between 126,000 and 138,000 ounces.

Mining activities at Seguela have been focused on the Antenna pit to deliver higher-grade ore to the processing plant. Additionally, over 75,000 tonnes of ore have been mined at the Ancien and Koula pits year-to-date, surpassing the mine planned targets. Continued exploration success of the [indiscernible] and Gambro North Pit is providing further opportunities with the life of mine plan and opens the potential for underground mining at the Sunbird and NCM deposits.

These developments, along with the emerging Kingfisher discovery bode well for the future of the Seguela mine. Despite this power supply issues, the strong production performance at Seguela resulted in a cash cost of $564 per ounce, and an ASC of $1,097 per ounce of gold. In Yaramoko, 111,000 tonnes were mined at an average grade of 8.0 grams per tonne for 28,709 ounces of gold in the second quarter. The processing plant treated 121,000 tonnes at an average grade of 8.4 grams per tonne, reducing 31,447 ounces of gold, outperforming the mine plan and totaling 58,624 ounces for the first half of 2024.

During the quarter, mining operations were paused at the 55 Zone ore body due to a fall of ground caused by a seismic event. Access to the working areas of the mine was reduced by 10 days whilst rehabilitation works were conducted. During this time, the QVP ore body continue to produce bill feed, which was supplemented by existing stockpiles. To mitigate future seismic risks, mining operations have been rescheduled, resulting in a revised production profile that will lower expected production in the third quarter but to enhance output in the fourth quarter.

Yaramoko was also affected by power availability in Burkina Faso, resulting from power supply reductions in Ghana and in Cote d'Ivoire. Yaramoko already has backup diesel generating capacity, which was complemented by the mobilization of an additional genset, thereby mitigating any significant effects on the mining and processing operations. As experienced at Seguela, normal power supply has been provided from the national grid in the third quarter.

Mining and drilling operations at both the 55 Zone and the QVP ore bodies have revealed strike extensions beyond the initially anticipated mining balance. Consequently, 55 Zone development operations are now projected to continue until the first quarter of 2025. Although this extension will likely elevate the forecasted all-in sustaining cost per ounce in 2024, potentially reaching or exceeding the upper end of our current guidance and will significantly enhance the production and cost profile for 2025.

Originally, the 55 Zone development was scheduled to conclude in June 2024. Exploration operations at Yaramoko have identified a promising satellite open pit opportunity at the 109 Zone located just to the north of the processing plant. This opportunity has undergone all required studies and has been permanent by the Burkina Faso Human. We're currently evaluating tender submissions with mining expected to commence in the fourth quarter of 2024.

Yaramoko strong production during the quarter resulted in a cash cost of $953 at an ACE of $1,389 per ounce of gold and remains on track to achieve its production guidance of 105,000 to 119,000 ounces of coal. Overall, our West African operations have demonstrated resilience and a strong performance. We remain focused on optimizing production, advancing our exploration opportunities while maintaining our commitment to safety and operational excellence.

Thank you, and back to you, Jorge.

[Jorge Durant, executive]

Thank you, David. Cesar, can you please share with us the highlights of the LatAm business.

[Cesar Velasco, executive]

Thank you, Jorge, and good morning to everyone. In Dedo, San Jose and Caylloma had a strong second quarter, collectively producing 28,286 ounces of gold, bringing our total to 56,231 ounces for the first half of 2024. Silver production was also robust with a combined total of 990,534 ounces for the quarter and 2.1 million ounces for the first half of 2024.

I am pleased to report that all our Latin American operations are on track to meet their production guidance for the year. Our safety performance across all operations this quarter has been exemplary. Management at site continues to effectively implement our active leadership philosophy program, yielding excellent results.

So, starting in Argentina, Lindero's gold production in the quarter was 22,874 ounces, a slight 2% decrease compared to the previous quarter. This was due to a longer-than-expected maintenance costs of the HPGR and agglomeration plant, which required more spare parts than originally anticipated. During the quarter, 1.8 million tonnes of ore were mined at a stripping ratio of 0.7 to 1. A total of 1.4 million tons of ore were placed on the leach pad at an average gold grade of 0.61 grams per tonne, containing an estimated 27,663 ounces.

The operation experienced lower front-end loader mechanical availability, which mainly impacted the waste mining plan for the period. The mine plan has been adjusted to reflect higher waste mining during the third and fourth quarters with higher head grades and ore tonnage to be placed on the leach pad. This remains aligned with the annual guidance for the year.

As of the end of July, the $51.8 million leach pad expansion project, of which $41.7 million is to be spent in 2024 is approximately 64% complete. The construction package of the project commenced in January 2024, with contractors on site, undertaking airports, construction of the motion line and liner deployment. Procurement is practically complete with important items on site. The new impulsion line pump arrived on site in July, liner installation has progressed and contracts for the major mechanical works have been executed. The company expects to start placing ore on the leach pad expansion in the fourth quarter of 2024.

Gold production for the first 6 months of 2024 totaled 46,136 ounces. Lindero had a cash cost of $1,092 and an ASIC of $2,033 per ounce of gold for the quarter. The ASIC reflects timing of sales as the company maintained higher inventories involved as of the end of July. If we exclude the macroeconomic effects related to inflation and devaluation for the second quarter, our cash cost remains in line with company expectations at approximately $1,000 per ounce.

As anticipated in our guidance for the year, our ASIC carries a heavy component related to the leach pad expansion project. If we were to exclude the leach pad expansion and inflation devaluation effect, the ASIC of Lindero would be between $1,400 to $1,500 per ounce. For the second half of the year, the company expects Lindero 's cash cost and ASIC to remain aligned with annual guidance if the Argentine macroeconomics do not worsen.

Moving up to Mexico. San Jose produced 684,176 ounces of silver and 5,269 ounces of gold at an average at rates of 140 grams per tonne of silver and 1.09 grams per tonne of gold, respectively. Reflecting a 10% decrease and a 16% increase when compared to the first quarter of 2024. The processing plant yield 136,214 tonnes, averaging 1,980 tonnes per day, and the grade profile for the period was consistent with the geological model.

Silver and gold production for the first 6 months of 2024 totaled 1,443,287 ounces and 9,802 ounces, respectively, on track to meet annual guidance. For the first half of 2024, in alignment with the mining sequence and production plan, the operation conducted an intensive preparation campaign to position the mine for higher silver and gold production in the second half of the year.

As mineral reserves are scheduled to be exhausted by year-end, the company continues evaluating its options whether to execute a multiyear progressive mine transition and monetary plan or put in the mine on care and maintenance or maintaining operations at the mine. San Jose had a cash cost of $24.91 and an ASIC of $27.55 per silver equivalent ounce for the quarter. When compared to the previous quarter, the increase in cost is mainly explained by lower head grades, lower production and a stronger Mexican peso as 50% of our costs are denominated in pesos.

Nonetheless, as previously indicated, San Jose mine planned for the second half of the year accounts for higher production, lower development and lower preparation meters, which will reduce both cash costs and ASIC in alignment with our annual guidance for the year. Exploration drilling continues at the Yessi Vein to provide better understanding of the economic potential of the mineralized zone.

Moving to Peru. The Caylloma mine produced 306,398 ounces of silver at an average head grade of 83 grams per tonne of silver in the second quarter of 2024, 3% and 5% lower, respectively, when compared to the previous quarter. Silver production for the first 6 months of 2024 totaled 621,858 ounces, in line to meet annual guidance. Zinc and lead production was 13.0% and GBP 10.5 million at an average head grade of 4.8% and 3.83%, respectively, a 7% and 10% increase when compared to the first quarter.

Increased production is the result of higher head grades sourced from the lower levels of the Animas Vein. Zinc and lead production for the first 6 months of 2024 totaled GBP 25.2 million and GBP 20.1 million, respectively, well on track to meet the upper end of guidance for the year. The cash cost per silver equivalent ounce for the quarter was $13.94 driven primarily by lower treatment and refining charges. The ASIC per ounce of payable silver equivalent was $19.87, both cash costs and ASIC are aligned with annual guidance for the year. Back to you, Jorge.

[Jorge Durant, executive]

Thank you, Cesar. Luis, a briefing on the financial results.

[Luis Durant, executive]

Sure. Thank you. So, for Q2 2024, we have recorded net income attributable to Fortuna shareholders of $43.3 million, as previously stated by Jorge, $0.13 per share. This is compared to $3.4 million and $0.01 per share in Q2 of 2023. Net income in the period includes a large deferred tax credit related to the issuance of our convertible notes. Adjusting for this, another noncash nonrecurring items adjusted attributable net income was $30.4 million or $0.09 per share compared to $2.5 million and $0.01 per share in Q2 of 2023.

Main drivers for the higher net income were an increase in gold volumes sold of 66% as well as higher gold prices of 17%. As has been noted, the increase in gold sold is explained by the Seguela mine, which contributed 33,000 ounces in Q2 or 36% of total gold sold. Our consolidated cash cost per gold equivalent ounce was $988, slightly above our Q2 2023 cash cost of $968 excluding San Jose, for which we are currently expensing all capital items.

Our consolidated cash cost in the quarter was $879 per ounce, representing a reduction of approximately $90 per ounce year-over-year. The reduction was due to the low-cost contribution of Seguela with $564 per ounce, partially offset by higher cost per ounce at Lindero and Yaramoko. As in the case of Lindero, as Cesar has mentioned, we expect -- we can remain for the year within the ASIC guidance range.

However, it is worth noting that we have been seeing an increasing impact on our cost from the growing appreciation of the peso as even though inflation is trending down, the pace of the evaluation has been lagging the inflation rate. We expect this trend to continue for the remainder of the year. A few comments on the financials. Depreciation in the quarter was $57 million, which includes $17.5 million in depletion of the purchase price related to the acquisition of Roxgold in 2021.

On general and administration expenses, we recorded $22.4 million. And as shown in the breakdown we provided in the news release and in Page 10 of our MD&A, -- this was comprised of close to $10 million of in-country G&A at our mining operations, $6.6 million of corporate G&A and $5.8 million of share-based compensation.

Compared to Q2 of 2023, we have a higher mine G&A related to the addition of Seguela and higher share-based compensation explained by the rise of our share price in the second quarter to a large extent. Our effective tax rate for the quarter is distorted by the $12 million deferred tax recovery I previously alluded to. Excluding this effect, our effective tax rate was 39%, which is in the high end of the range of what we expect on average, which is between 32% and 36%.

Moving on to the cash flow and the cash flow statement. Moving on to cash flow and the cash flow statement, I'm sorry, we generated $73.5 million of net cash provided by operating activities, which includes $20.6 million of taxes paid, the majority of which is related to the Seguela mine in Ivory Coast, there is a pronounced timing effect impact in the quarter as the bolt of taxes paid at Seguela are concentrated in Q2.

In the investing section of the cash flow statement, we recorded $50.4 million under addition to mineral properties, plant and equipment, consisting of $2.8 million of sustaining capital, including brownfields exploration, and $17.6 million of non-sustaining capital expenses. This includes $6.5 million to acquire 1/2 of the 1.2% NSR royalty held by Franco-Nevada at Seguela, $5 million spent at [indiscernible] and $6.2 million of exploration.

Our free cash flow from growing operations was $38.6 million, which considers corporate expenses and sustaining capital, and our net free cash flow after all capital expenditures was $21 million. We expect to see a peak in sustaining capital expenditure levels in Q3, mostly associated to the progression of the leach pad expansion at the Lindero mine. And as Jorge has emphasized and as we have communicated before, 2024 is a heavy CapEx year at Lindero with a total budget, including capitalized stripping of $64 million, comprising around 50% of our consolidated capital expenditures, excluding exploration activity.

Moving on to the balance sheet. We closed the offering of $172.5 million of convertible notes on June 10. The notes of a 5-year maturity bear a 3.75% coupon and have a conversion price of $6.59 per share. At quarter end, the proceeds from the offering were partially used to fully repay the outstanding $125 million under our revolving credit facility. Subsequent to the end of the quarter, that $46 million of convertible notes issued in 2019 were settled with approximately $10 million redeemed in cash and $36 million converted into shares. Back to you, Jorge.

[Jorge Durant, executive]

Thank you. We can move on to Q&A, operator.

[Operator]

[Operator Instructions]. Your first question for today is from Adrian Day with Adrian Day Asset Management.

[Adrian Day, analyst]

I had 2 questions, if I may. The first question was on the base metals, zinc and lead. What proportion -- I should know, I could work this out, but what proportion of the revenue from the mine is that? And how do you see that going over the next 6 to 12 months? That's the first question.

[Jorge Durant, executive]

Hello, Adrian. I would say base metals, I can stand to be corrected here by Luis or Cesar, but I -- if my math doesn't fail me, base metals account for 2/3 of revenue today at the mine.

[Adrian Day, analyst]

And how do you see that changing in the next 12 months or so?

[Jorge Durant, executive]

In the previous cycle, just as a quick reference, talking about 2011, some years ago now, silver and base metals were pretty much 50-50 in terms of revenue contribution. That has shifted to some more base metal rich component, and we expect this break of silver and base metals will remain as what we have in our plans for 2024, 2025. Can we adjust that? Yes, we could. We have some silver-rich veins but those veins at these prices today are not in the mine plan.

[Adrian Day, analyst]

Okay. Okay. That's helpful. And then secondly, I don't know -- I know you talked a little bit about San Jose, but can you expand maybe a little bit on what your current thinking is about San Jose for next year?

[Jorge Durant, executive]

Yes. At San Jose, we have currently 3 options in front of us. We are set to exhaust reserves as they were -- the reserves we estimated early -- late last year, early this year. And we've been working on several fronts. One is exploration and Yessi Vein, something that we have been talking about. Second is there are changing scenarios, higher prices. The peso over the last weeks has weakened against the dollar. So, all of those variables are being assessed as we continue optimizing the resources we have.

We are short on reserves right now, but we have close to, I would say, around 20, 29 million ounces of silver in resources. And the work we are doing is trying to optimize our processes to see how many of those ounces we can bring into a reserve. So, we have 3 options in front of us. One, by year-end, we call a progressive closure. Second, we go into a current maintenance while our exploration and evaluations continue. Or third, we have the opportunity to continue mining depending on the success of the work we carry over the coming weeks, months before the end of the year.

We certainly need to have clarity on which of those 3 avenues we will take in the third quarter, right? So, we are updating our mine closure plan. We're conducting exploration. We are doing several iterations on the optimization of existing resources. All of that is taking place right now, but we certainly need to have a position where we expect we can have a position during the third quarter.

[Operator]

Your next question is from Tony Christ with Odyssey Investments.

[Tony Christ, analyst]

Yes. It's Christ pronounced like Chris anyway. Jorge, congratulations on the quarter. You're experiencing dramatic growth. I have a -- actually a 2-part question. I'm wondering if you can give an update on the share repurchase that you announced after the last quarter announcement and if the company is able to participate in any share repurchase and any guidance or color you can give on it?

And then -- and I -- and secondly, I'd like to know if your team might consider coming on a Zoom call with Water Tower Research, they're English and they handle smaller companies. I was on a call with B2Gold, and I was impressed they had 12 research analysts, and they have, I think, more stability. Well, they have less variability in the price of their stock.

And I think it helps get the word out to an entity -- through an entity that's not a vested interest entity. So, I'd like to ask if you consider that, if I can call them and arrange it having that. But -- and congratulations again, just an astronomical quarter. You're growing even if gold prices stay confident. So, congratulations.

[Jorge Durant, executive]

Thank you for that. With respect to the share repurchase program, yes, we have a program in place. We have not been active on the program over the last months. But that is something that we are revisiting constantly. And the -- when we participate in the market response to our use of funds at the time or view on valuation and movements in the market. So, you -- yes, you can expect to see us active in the market any time.

With respect to meeting and learning about other -- as I understand the new potential houses that can give -- be interested in learning more about the company. Yes, absolutely. There is a channel through Carlos Baca at Info Fortuna, and we can certainly arrange a conversation in any time.

[Tony Christ, analyst]

I will contact Carlos.

[Operator]

Your next question for today is from John Pereira, a private investor.

[Unknown Attendee]

Again, I got to reiterate congratulations on the quarter. Just as a follow-up to the previous question on San Jose. I know there's exploration going on with on -- with the Yessi Vein. When do you expect that we're going to see an update on that exploration. And I guess that is part, I guess, ties into one of the 3 options for the San Jose mine. So, the first question is, when do we expect to see an update on that exploration program?

[Jorge Durant, executive]

The bulk of our drilling is done. We're currently assessing the results and running iterations with the results we have in place. As I said, it is in this third quarter that we must have clarity on the path forward, bringing into consideration these exploration results, the iterations of the optimization of existing resources for reserves and the updating of the mine closure plan. So yes, it's work that it's ongoing. And hopefully, before the end of the quarter, we can be in a position to make a decision and share it with the market.

[Unknown Attendee]

Right. Okay. And then the second question is on the sustainable capital costs that the company is incurring -- and as indicated that Lindero was a $64 million CapEx plan for the leach pad and so on. I didn't -- maybe I missed it, but I didn't get an understanding of how much is left to be spent of that $64 million. I did read that the remainder of that was going to be spent here in Q3.

Maybe just give a little bit more clarity to that component of CapEx. How much more is to be spent on the 2 each pad and what additional capacity they're going to provide? And then maybe when that CapEx number drops -- and if you can give some clarity on when that CapEx number drops and into what it's going to -- you expect it to drop to as a normalized quarter-on-quarter CapEx rate for sustainable capital.

[Jorge Durant, executive]

Yes. Just a clarification. The total sustaining capital for Lindero this year is the $60-plus million you mentioned. Out of that figure, the leach pad is $42 million this year. Right? So, we are -- the 6 -- the leach pad is over 60% complete, 60%, 64% complete by the end of the quarter. And we do expect to see still CapEx execution in the third quarter and that CapEx execution tails off in the fourth quarter. The leach pad expansion is a project that was always in the technical report. It was a project scheduled to be executed on year 3 of operations.

And it is the -- it sets up the mine to receive or the path to receive reserves for over a decade. There are also -- throughout the next decade, other minor investments that will have to be done periodically as it would be expected. But the bulk of the investment is being executed now, and it sets the mine for the next decade, right? So perhaps Cesar or Luis have a detail right now on your expected CapEx for the fourth quarter, but the project is complete in the fourth quarter. So CapEx -- still heavy CapEx on Q3 and then tails off in Q4.

[Unknown Attendee]

Okay. So that $64 million number was the overall CapEx the total, of which you're saying $40 million was for the leach pad, 60% spent on that. So, say, $24 million, there's another $6 million to spend on the leach pad. And then the remainder of the $64 million will be spent between the third and into the fourth quarter. Yes, I understand you'll have ongoing nominal amounts for CapEx costs for maintenance on any mine. But the bulk of the leach pad and the other CapEx for Lindero will be -- so I'd say it's what -- somewhere around $30 million, $35 million still to be spent in Q3 and Q4 in terms of larger CapEx spend on Lindero. Would that be fair?

[Jorge Durant, executive]

Yes, perhaps Luis or Cesar can help complement here in that detail.

[Luis Durant, executive]

This is Luis here. That is accurate. That is a fair estimate of what we should expect in the -- for the second half of the year. And just to complement on an ongoing basis, annual CapEx for Lindero, we should expect to see it more in the range of $20 million on a recurring basis, right, beyond 2024.

[Unknown Attendee]

So annualized basis $20 million to $25 million ongoing CapEx on Lindero. And then there is a component in Argentina for a larger component in CapEx as well or no. Did I have that wrong?

[Luis Durant, executive]

No, I just wanted to provide a clarification. So, for 2024, I think we just recap what we should expect for the second half. And you correctly pointed out what we had indicated for the total year in terms of total CapEx, including the leach pad. And what we're clarifying now is that beyond the leach for expansion, the $20 million, $25 million is a fair estimate for the recurrent annual CapEx for Lindero moving forward. There's nothing else.

[Unknown Attendee]

Okay. So, I guess what I'm also saying is for anywhere else, any of the other mines, is there any additional major sustainable CapEx. And obviously, you got your CapEx for exploration, that's second line item there. But is there any other major sustainable CapEx expected here in Q3 and Q4 and going forward? If you're aware of?

[Jorge Durant, executive]

No, no, no. We have a lot of visibility and control on our capital projects for 2024 and 2025 and 2026. We have a daily mind, always an expansion of tailings facility and things like that. All of those are scheduled in our arms. But certainly, the elephant in the room here is a leach pad expansion with $42 million, right? And there is one, no other projects of that nature in the portfolio today.

[Unknown Attendee]

Okay. And then, sorry, and then the last clarification on the question is when the completion of -- you have a completion of that leach pad, it's not essentially going to enable additional throughput. It's just going to allow you to -- as you indicated, process product for the next several years, the next decade or so, correct?

[Jorge Durant, executive]

That is correct.

[Operator]

Your next question for today is from Thomas Bonovitz, a private investor.

[Unknown Attendee]

Yes. I have a question because of the lack of power and the amount of tonnage that you could produce through your mill, you used a higher grade of material to compensate for the less amount of tonnage. Going forward into the third and fourth quarter, are you still going to use that same amount of high-grade ore to mill? And if you do, I'm assuming that, that would be a much higher output of gold. And that's just what I want to kind of know is -- is that how you're going to do things going forward?

[Jorge Durant, executive]

Yes. You are right in how we mitigated the power outages. We lost at the Seguela mine 19 days, 19, 19 days of operation in the quarter, an aggregate of 19 days due to the intermittent power outages throughout the quarter. The way we mitigated that was we had the capacity to run the mill at a higher rate. So, we did and because we have some flexibility in the mine plan in the mine schedule, we were able to source higher grades. That was a mitigating plan put in place and executed well by our site team.

And in July, we have received 100% power from the grid almost. So, we are reverting back to our no mining schedule. You should expect to see grade decline with respect to what we saw in the second quarter. And we -- what we should do is continue -- what we're working to do, you should expect to see is us continuing pushing the throughput or debottlenecking efforts, initiatives, optimization, and you should continue to see higher throughput. So that's where the gain is more than grade right now.

[Unknown Attendee]

And I look forward to when Chris Marcus interviews you on Fortuna Silver on his site. And I'll be listening to that when you're on the air with him very shortly.

[Operator]

Your next question for today is from Don DeMarco with National Bank Financial.

[Don DeMarco, analyst]

I apologize if my question has already been asked, but I wanted to get a little bit more detail on Kingfisher. In June, you released some exploration updates, some intercepts and seeing some wide intercepts, high grades, certainly garner some attention. But I wonder what the next steps are at Kingfisher, namely -- how much infill drilling acquired? And how about like in terms of -- is there a potential to -- or is it too early to say just to plant some of the ore that's queued up over the next quarters or years with this higher-grade ore?

[Jorge Durant, executive]

Yes. At Kingfisher up to -- since a discovery hole to now, so basically throughout this year, we have already drilled about 14,000 meters. The 14,000 meters have outlined the gold mineralization in a sheer zone that was not previously identified for a strike length of 2 kilometers. And our plan right now is to continue drilling nonstop until the end of the year with the aim of producing a first resource estimate, we expect the bulk of that resource estimate will be in the inferred category.

We are not focused on tight infill drilling now to upgrade the quality of the resource, but rather fully understand the lateral and vertical extent of mineralization at this point. So that is the focus of the program right now. Something exciting about this discovery is that it's a blind discovery. It has no surface expression. If you are acquainted with West Africa, you know that a lot of the deposits, most of the deposits in production today throughout the region have some sort of artisanal mining on top of that. And this one doesn't. It's virgin ground.

And we are currently running orientation geophysical surveys to see if we can pick up signatures that we can extrapolate as part of our larger exploration program in the property, we control 35 kilometers here. On the belt, a lot of ground to cover still. So going back to Kingfisher, we expect to produce a first resource estimate by year-end. You should expect most of it to be in the inferred category in this first half. We expect to have a good sense of size and dimension and then probably follow with infill drilling in 2025 -- early 2025.

Kingfisher needs to first produce a resource and upgrade the resource in certainty category to indicate it. We need to work on permits not for this one deposit to incorporate it into our mine plan and schedules. But still early days, but we're thrilled about what we're seeing, wide zones of mineralization on a well-defined share that has not been identified before, striking for over 2 kilometers that remains open with a vertical extent that remains open as well. It's shaping up to be probably the largest deposit we have in inventory at Seguela today.

So, give us a bit of time to have the drill rigs through the deposit and probably in early 2025, we can start thinking about time lines for when this can contribute to a mine plan. I don't want to put the coverage in front of the horses. So -- but we are thrilled, we're excited. It looks meaningful. We just have to do our work, right?

[Don DeMarco, analyst]

Okay. Well, we'll keep an eye out for the maiden resource and any updates in the interim. That's all for me good luck with Q3.

[Operator]

[Operator Instructions] We have reached the end of the question-and-answer session, and I will now turn the call over to Carlos for closing remarks.

[Carlos Baca, executive]

Thank you, Holly. If there are no further questions, I would like to thank everyone for listening to today's earnings call. Have a great day.

[Operator]

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

[Jorge Durant, executive]

Thank you, everyone.