DRIVING GROWTH
FROM WITHIN
2014 Annual Report
Who We Are
Fortuna owns and operates two underground mines, San Jose in Mexico and Caylloma in
Peru. We follow a disciplined strategy, driving low-risk, low-cost organic growth by
exploring and developing the 98,000 hectares that surround our mines. Production in
2015 is forecast to reach a total of 6.5 million ounces of silver and 35.3 thousand
ounces of gold, as well as lead and zinc by-products. The estimated annual consolidated
all-in sustaining cash cost, net of by-product credits, is $16.61 per ounce of silver, which
includes $4.00 attributed to sustaining capital costs for a dry stack tailings filter facility
and deposit at San Jose.
Our mission is to create value through the growth of silver reserves, metal production
and the efficient operation of our assets, with a commitment to safety, social and
environmental responsibility.
Our vision is to be valued by our workers, the community and our shareholders as a
leading silver mining company in Latin America.
In This Report
2 Chairman’s Letter
12 Outlook for 2015
22 Core Asset Review
33 Management’s Discussion
4 2014 Highlights
14 Sustainability
28 Board of Directors
7 CEO’s Letter
10 Our Growth Strategy
20 Mineral Reserves
and Resources
29 Senior Management
30 Our Contribution
to Society
and Analysis
66 Consolidated Financial
Statements
IBC Corporate Information
Capital Share Structure
Trading Symbols
Issued and Outstanding
Stock Options
Warrants
Fully Diluted
129,072,567
3,273,355
0
132,345,922
(June 18, 2015)
New York Stock Exchange: FSM
Toronto Stock Exchange: FVI
All figures are in US dollars unless otherwise noted.
This annual report contains forward-looking statements. Please refer to the cautionary language under Cautionary
Statement on Forward-Looking Statements on page 64 of the Management’s Discussion & Analysis.
COVER PHOTO: San Jose Mine, Mexico
DRIVING GROWTH FROM WITHIN
1
Corporate Office
Vancouver, BC Canada
SAN JOSE MINE
Oaxaca, Mexico
Silver, Gold
100%
Ownership:
Mill throughput rate: 2,000 tpd
Reserve life:
5.4 years
Proven & Probable 3.8 Mt averaging 233 g/t Ag
Reserves:
and 1.81 g/t Au containing
28.3 Moz Ag + 219.5 koz Au
Mine expansion to 3,000 tpd
underway, commissioning
scheduled for mid-2016
Status:
Read more on page 22
CAYLLOMA MINE
Arequipa, Peru
Silver, Gold, Lead, Zinc
Management Office
Lima, Peru
100%
Ownership:
Mill throughput rate: 1,300 tpd
6.5 years
Reserve life:
Proven & Probable 3.0 Mt averaging 134 g/t Ag,
Reserves:
0.33 g/t Au, 2.24% Pb and
3.13% Zn containing
13.0 Moz Ag + 32.3 koz Au
Plant optimization to increase
processing capacity by 10%
to be completed by the end
of 2015
Status:
Read more on page 26
2
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Chairman’s Letter
To our shareholders
and employees,
Driving growth from within is the theme of our 2014
annual report. This theme, however, has underpinned
our strategy since the formation of Fortuna in 2005.
Focusing on internal or organic growth has enabled
us to effectively manage technical risk and control
costs while steadily expanding our operations. Our
approach recognizes that precious metal and capital
markets are both inherently cyclical. We must,
therefore, make decisions with a focus on the
long-term.
By following this strategy we have built a sound,
successful business, one capable of withstanding
the inevitable swings in precious metal prices. Our
core assets – the San Jose Mine in Mexico and
Caylloma Mine in Peru – cover 98,000 hectares.
By actively exploring and developing these highly
prospective mineral concessions, we have kept
discovery costs low and increased production year-by-
year. At the same time, we have improved operational
and capital efficiency to maximize cash flow.
In 2014, we posted strong operating and financial
performance despite the ongoing weakness in silver
and gold prices. We also reported a gratifying
increase in proven and probable reserves. The
results speak to the strength of our underlying
assets and to management’s ability to effectively
allocate capital and deliver sustainable value.
Indeed, while other mining companies are pulling in
their horns because of low metal prices and
challenging capital markets, we are expanding.
Fortuna is one of the world’s fastest growing primary
silver producers. When the latest expansion at the
San Jose Mine is completed in 2016, Fortuna will be
catapulted to a new league as one of the leading and
lowest cost silver miners in the industry.
A proactive, responsible approach to sustainability
and community relationships has also been key to
our growth. Here again, we take a long-term
<< Table of Contents
approach, looking beyond our core operations to find
ways to improve lives and the quality of life in local
communities. Our goal is to strengthen communities
and provide direct benefits to residents by funding or
lending our expertise to healthcare, education and
business projects. Importantly, all of our work is
conducted under formal agreements with local,
state and federal authorities.
We continued to make great strides strengthening
local communities in 2014. From providing scholarships
to help students start a career, to supporting a local
trout farming cooperative and bringing electricity to
remote households, Fortuna worked alongside
residents of small communities in Mexico and Peru
to help them cope with poverty and isolation.
Year after year, management has followed a
disciplined approach, creating value through the
growth of reserves and production while maintaining
efficient operations and a commitment to safety,
social and environmental responsibility. In other
words, we’ve stayed true to our mission.
In closing, I applaud our management team for
aligning employees and contractors with our values
and vision. I also thank our employees for their
contributions to building a leading silver miner.
And I thank my fellow shareholders for their trust
and support. I am confident that together we can
continue to deliver growth from within for years
to come.
Simon Ridgway
Chairman of the Board
DRIVING GROWTH FROM WITHIN
3
Driving Growth From Within
By capturing growth opportunities available to us at our mines and surrounding land packages in Mexico
and Peru, we have delivered consistent growth since the start of full-scale operations in 2007.
Our goal is to maximize production and profitability through low-cost, low-risk organic growth, while actively
seeking to replace reserves and increase resources.
Increasing silver and gold production
)
z
o
M
(
q
E
g
A
10
8
6
4
2
0
CAGR 40%
C
• Expand our mines within our operational
and financial capabilities
• Increase production and processing
capacity to drive down costs
2007
2008
2008
2010
2011
2012
2013
2014
Growing reserves and resources
)
z
o
M
(
q
E
g
A
-
l
a
t
e
M
d
e
n
a
t
n
o
C
i
120
100
80
60
40
20
0
P
Proven & Probable
Inferred
Measured & Indicated
2007
2008
2008
2010
2011
2012
2013
2014
Generating sustainable value
• Conduct in-fill drilling to replace reserves
and explore to expand resources
• Target low-risk high-reward opportunities
to reduce discovery costs
M
$
200
160
120
80
40
0
Sales
Cash flow from operations
• Maximize operating margins and free cash flow
• Allocate capital to projects with the highest
potential returns
2007
2008
2008
2010
2011
2012
2013
2014
2
<< Table of Contents
4
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
2014 Highlights
Revenue
($ million)
161.0
137.4
174.0
156.4
Cash Flow
from Operations
($ million)
62.2
59.8
Cash Flow
per Share
($)
Adjusted Earnings
per Share**
($)
0.50
0.47
0.28
40.9
42.1
0.33
0.12
0.07
2012 2013 2014 2015E*
2012 2013 2014 2015E*
2012 2013 2014
2012 2013 2014
*
2015E: Au = $1,207/oz, Ag = $16.40/oz, Pb = $1,923/t and Zn = $2,176/t
** Net of tax
Disciplined strategy drives growth in earnings, production and reserves
Sales by Metal
67%
65%
66%
17%
7%
9%
14%
10%
11%
16%
11%
7%
Silver Gold
Lead
Zinc
Silver Gold
Lead
Zinc
Silver Gold
Lead
Zinc
2012
2013
2014
Concentrate transport at San Jose Mine, Mexico
2014 HIGHLIGHTS
DRIVING GROWTH FROM WITHIN
5
Strong financial performance
• Sales increase by 27% to $174.0 million
• Cash flow from operations increases by 46% to $59.8 million
• Adjusted net income improves by 67% to $15.7 million
• Earnings per share grow by 180% to $0.12
• Cash position at year-end rises by 57% to $77.3 million
Increased production and reserves
• Silver production increases by 42% to 6.6 million ounces
• Gold production rises by 66% to 35,316 ounces
• Proven and probable reserves increase to 6.8 Mt containing
41.3 Moz silver (up 14%) and 251,800 ounces gold (up 7%)
• San Jose mill capacity expanded from 1,800 to 2,000 tpd
Sustainability agreements build better futures
Funding agreements with government authorities in Mexico and Peru improve quality of life by
· providing students with scholarships, technical training and teaching equipment
· building and restoring vital road networks to remote towns
· extending the electricity grid to rural communities
2014 Head Count
Caylloma Mine
53%
San Jose Mine
43%
Corporate
4%
Employees: 697 people
Caylloma Mine
59%
San Jose Mine
41%
Contractors: 953 people
<< Table of Contents
6
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Operating Highlights
Caylloma
Mine
Peru
2014
San Jose
Mine
Mexico
Consolidated
Caylloma
Mine
Peru
2013
San Jose
Mine
Mexico
2012
Consolidated
Caylloma
Mine
Peru
San Jose
Mine
Mexico
Consolidated
464,823
1,302
676,959
1,928
458,560
1,284
456,048
1,296
462,222
1,266
369,022
1,055
174
85
2,202,540
226
89
4,396,760 6,599,300
173
82
2,104,061
194
89
177
77
188
88
2,527,203 4,631,264
2,038,579 1,949,178 3,987,757
18.90
16.77
35,316
1,260.64
959.74
16,152
0.95
0.71
27,361
0.98
0.65
4.69
23.49
20.97
21,242
1,394.91
1,040.51
17,780
0.97
0.72
25,211
0.87
0.61
7.03
30.91
27.40
20,699
1,648.83
1,295.32
17,886
0.94
0.63
22,396
0.88
0.66
5.96
0.40
47
2,781
1.74
87
17,918
1.99
88
17,886
2.56
86
22,396
8.07
87.28
183.29
3.76
74.10
209.70
0.36
42
2,212
1.46
89
19,031
1.92
91
17,780
2.83
88
25,211
7.65
91.22
161.19
6.53
71.41
160.76
0.31
40
1,820
1.72
90
33,496
1.70
93
16,152
2.97
90
27,361
7.02
90.57
144.57
3.52
62.99
157.55
14.13
12.07
14.48
20.83
15.89
20.45
24.05
15.64
23.02
Processed Ore
Tonnes milled
Average tpd milled
Silver
Grade (g/t)
Recovery (%)
Production (oz)
Realized Price ($/oz)*
Net Realized Price ($/oz)**
Gold
Grade (g/t)
Recovery (%)
Production (oz)
Realized Price ($/oz)*
Net Realized Price ($/oz)**
Lead
Grade (%)
Recovery (%)
Production (000 lbs)
Realized Price ($/lb)*
Net Realized Price ($/lb)**
Zinc
Grade (%)
Recovery (%)
Production (000 lbs)
Realized Price ($/lb)*
Net Realized Price ($/lb)**
Unit Costs
Cash Cost ($/oz Ag)***
Cash cost ($/t)
Unit Net Smelter Return ($/t)
All-in sustaining cash cost
($/oz Ag)***
*
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
*** Net of by-product credits for gold, lead and zinc
<< Table of Contents
DRIVING GROWTH FROM WITHIN
7
Jorge A. Ganoza – President,
CEO and Co-founder
CEO’s Letter
Dear Shareholders,
Our ongoing focus on initiatives to improve
productivity and prioritize capital spending on high-
return projects paid off in 2014. We increased silver
production 42%, reduced all-in sustaining cash costs
29% and raised contained silver in inferred resources
31%. Our decision in late 2014 to expand the San
Jose Mine to 3,000 tpd by mid-2016 underscores
our long-term improvements at the mine. Post
expansion, San Jose will rank among the 15 largest
primary silver producers in the world and in the lower
quartile in production cost.
Silver prices declined for the fourth consecutive year
in 2014. From a peak of $41.99 per ounce in 2011,
our average realized price fell to $19.01 per ounce in
2014. As I write this letter, silver and gold prices are
hovering around $16 and $1,200 per ounce,
respectively. Despite this price environment, I am
pleased to report that the strength of our mines and
balance sheet and the resolve and ingenuity of our
team have positioned Fortuna to continue to thrive
and grow.
Production to continue to rise
Precious metals sales in 2014 accounted for 83% of
revenue, of which 64% was from silver and 19% from
gold. We surpassed our 2014 guidance for silver and
gold production by 10% and 9%, respectively,
following the expansion of San Jose in April to 2,000
tpd from 1,800 tpd.
For 2015, we expect production to be similar to
2014 as we further expand San Jose to 3,000 tpd,
the third expansion since the mine was
commissioned in 2011. We expect to complete the
latest expansion in mid-2016, at which time we will
be able to annually produce approximately 9 million
ounces of silver and 55,000 ounces of gold from the
San Jose and Caylloma mines.
The Caylloma Mine continues to operate at a steady
state, annually contributing approximately 2 million
ounces of silver and 2,000 ounces of gold, plus 28
million pounds of zinc and 20 million pounds of lead.
The strength of our physical assets and balance sheet
and the resolve and ingenuity of our team have
positioned Fortuna to continue to thrive and grow.
<< Table of Contents
8
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
We invested $40 million in capital projects and
brownfields exploration in 2014. For 2015, our
capital budget is $70.5 million, which includes the
following primary investments:
• conversion of the tailings management system
at San Jose to filters and dry stacking for
$28.5 million,
• expansion of the San Jose plant for $12.6 million
of the $28 million total cost of the project,
• optimization of the Caylloma plant for $4 million,
and
• brownfields exploration in Mexico and Peru for
$4 million.
Capital expenditures fully funded
We believe that we are disciplined stewards of
capital. During the roaring upswing in the recent
commodity cycle, we focused on maintaining sound
business principles, generating organic growth and
ensuring prudent capital management. Today, in an
environment where deep value opportunities typically
start to emerge, that focus allows us to look for
growth opportunities from a position of strength.
Investments will further reduce costs
Our all-in sustaining cash cost (AISCC) in 2014 was
$14.48 per silver ounce, net of by-product credits,
or 18% below our annual guidance of $17.14. We
continued to improve productivity and to reduce
costs by increasing mill throughput, reducing head
count, optimizing mine plans and prioritizing
exploration, among other initiatives. For example,
tonnes produced per man-hour, a standard industry
measure of productivity, increased to 0.24 tonnes,
or 35%, compared with 2013.
We expect our consolidated AISCC to continue to
decline, reaching about $10 per silver ounce when
the San Jose expansion is completed. For 2015, our
AISCC guidance is $16.61. This figure includes
approximately $4 in capital costs for large sustaining
projects that we are bringing forward to support the
San Jose expansion.
Our focus must be placed on
human capital, asset selection,
capital allocation, discovery, cost
control and risk management,
among other manageable aspects
of our business.
<< Table of Contents
CEO’S LETTER
DRIVING GROWTH FROM WITHIN
9
Post expansion, San Jose will rank among the 15
largest primary silver producers in the world and
in the lower quartile in production cost.
Our available liquidity is in excess of $130 million
and our long-term debt is a modest $40 million.
We have funding available to meet all of our capital
investments over the next 18 months while
maintaining the flexibility to move on new business
opportunities as they arise.
Exploration focused on high-reward targets
Nothing in our industry attracts more attention and
creates more value than a good discovery. This was
certainly the case with our Trinidad North discovery
at San Jose in 2013. Two years later, the value is
materializing in the form of a significant expansion in
production. For 2015, we have a modest exploration
budget of $4.2 million, a reduction of 34% from
2014. We are concentrating on high-reward targets at
San Jose, where we plan to drill 12,000 meters in
new vein systems and along the south and north
extensions of the Trinidad deposit.
Looking ahead
I am often asked by the media and investors for my
views on metal prices. My short answer is that I find
mining executives spend too much time discussing
and analyzing metal prices. It is the one variable that
we do not control.
Our focus must instead be placed on human capital,
asset selection, capital allocation, discovery, cost
control and risk management, among other
manageable aspects of our business. We know that
precious metal prices will always swing like the
proverbial pendulum. At Fortuna, our goal is to be the
best call option on metal prices in the precious
metals mining space for investors.
Our vision is to be valued by our workers, the
community and our shareholders as a leading silver
mining company in Latin America. I thank all of our
employees, contractors and suppliers who help fulfill
that vision every day. To our shareholders, your
continued trust and support are much appreciated,
and I look forward to reporting on our continuing
progress and growth.
Jorge A. Ganoza
President and Chief Executive Officer
<< Table of Contents
10
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Our Growth Strategy
Generate sustainable stakeholder returns
through operational excellence and organic growth
Maximize production,
profitability and
cash flow
Conduct low-risk high-
reward brownfields
exploration
Foster collaborative
sustainability
programs
Seek M&A
opportunities
in the Americas
Continuous
improvement of
operating efficiency
to lower costs and
improve margins
Maintain financial
strength, liquidity and
flexibility by generating
sustainable free
cash flow
Evaluate and target
multiple prospects
within large,
prospective land
positions in Peru
and Mexico
Continue exploration of
Trinidad North zone
outside the shell of
existing resources at
the San Jose Mine
Partner with local
communities to enhance
capabilities and
implement self-
sustaining economic
activities
Develop social programs
and infrastructure
to improve local
healthcare, education,
housing and civic
services
Seek acquisition
opportunities in mining-
friendly jurisdictions of
the Americas
Focus on high-grade,
high-margin precious
metals projects
Our disciplined, organic growth strategy
will position Fortuna among the largest and
lowest-cost primary silver producers by 2017.
2,000 tpd processing plant at San Jose Mine, Mexico
OUR GROWTH STRATEGY
DRIVING GROWTH FROM WITHIN
11
Driving low-risk, low-cost growth since 2005
Our primary strategy is to drive low-risk, low-cost organic growth by exploring and developing the 98,000
hectares surrounding our mines in Peru and Mexico. We have followed this disciplined approach since Fortuna
was established in 2005. By 2014, we had steadily increased production to 8.7 million silver equivalent ounces,
while also reducing production costs.
Our highly prospective land portfolio remains the foundation of our growth. We expect annual production to
reach approximately 12 million silver equivalent ounces by 2017 on completion of our most recent mill
expansion at the San Jose Mine in Mexico.
To further drive growth, we are also seeking opportunities to acquire silver-gold rich properties in other mining-
friendly areas of the Americas. Our favored targets are those that will provide low-cost production with minimal
technical and financial risk.
Increasing silver equivalent production and reducing costs
)
z
o
M
(
q
E
g
A
12
10
8
6
4
2
0
Caylloma Mine, Peru
San Jose Mine, Mexico
AISCC ($/oz Ag)*
23.02
20.45
16.61
14.48
0.8
3.0
3.6
6.4
6.6
1.9
2.1
2.1
2.2
2.2
2.3
2.0
0.6
0.9
10.93
10.22
8.0
2.1
9.8
2.1
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
1. 2015-2017E AISCC estimated using Au = $1,200/oz Au, Pb = $2,000/t, Zn = $2,200/t; 2015E AISCC includes brownfields
exploration, however, brownfields exploration is not included in 2016E and 2017E
2. Ag Eq calculated using silver to gold ratio of 60 to 1
<< Table of Contents
12
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Outlook for 2015
Following eight consecutive years of record growth, we expect silver and gold production in 2015 to be similar to
2014. Tonnage milled will increase by 2% to 1.2 million tonnes overall, while silver and gold grades will decline
slightly from the higher than anticipated grades encountered at San Jose in 2014. On completion of the San
Jose mill expansion in mid-2016, our outlook is for the consolidated annual rate of silver production to increase
by 40–50% to 9–10 million ounces. Gold production, meanwhile, is forecast to increase by 55–65% to 54,000–
59,000 ounces annually.
Production Guidance
Cash Cost Guidance
Mine
San Jose
Caylloma
Total
Silver
(Moz)
4.6
1.9
6.5
Gold
(koz)
33.3
1.9
35.3
Zinc
(Mlb)
--
32.1
32.1
Lead
(Mlb)
--
19.5
19.5
Mine
San Jose
Caylloma
Consolidated
Cash Cost
($/t)
62.7
90.3
AISCC
($/oz Ag)
16.27
12.78
16.61
1. Cash cost per tonne includes all on-site direct and indirect production
costs, community relations expenses, concentrate transportation and
corporate management fees. It excludes government royalties and
workers participation
2. San Jose Mine AISCC of $16.27/oz Ag includes $5.96/oz Ag or $24.5
million attributed as sustaining capital investments related to the dry
stack tailings filter facility and deposit
3. Consolidated AISCC includes $4.00/oz attributed as sustaining capital
investments related to the dry stack tailings filter facility and deposit at
the San Jose Mine, Mexico
Caylloma Mine, Peru
<< Table of Contents
OUTLOOk FOR 2015
DRIVING GROWTH FROM WITHIN
13
2015 – 2017 Silver and Gold Production Forecast
SILVER
Caylloma Mine, Peru
San Jose Mine, Mexico
6.7
5.5
CAGR* 42%
4.4
4.6
2.5
1.9
0.5
0.4
2007
0.8
1.7
1.9
2.0
2.0
2.1
2.2
1.9
2.0
2.0
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
GOLD
Caylloma Mine, Peru
San Jose Mine, Mexico
52,300
41,800
CAGR* 34%
33,500
33,300
17,900
19,000
z
o
M
9
8
7
6
5
4
3
2
1
0
60,000
50,000
40,000
z
o
30,000
20,000
10,000
0
3,300
2007
2,200
2008
2,700
2009
2,600
2010
* CAGR = Compound Annual Growth Rate
4,600
2,400
2011
2,800
2012
2,200
2013
1,800
2014
1,900
2015E
1,700
2016E
1,600
2017E
<< Table of Contents
14
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
San Jose del Progreso, Oaxaca, Mexico
DRIVING GROWTH FROM WITHIN
15
Sustainability
We view sustainability as a key component of our growth strategy. By actively supporting local communities, we
strive to improve the quality of life in ways that are both good for business and human development. All of our
sustainability efforts are guided by our values.
Our Values
We value the health and safety of our workers: We do not tolerate unsafe acts or conditions
We value the environment: We subscribe to the highest environmental standards
We value our neighbours and other stakeholders: We respect cultural diversity and work as a
strategic partner towards the sustainable development of neighbouring communities
We value the commitment to excellence: We achieve high standards and best practices
We value integrity: We act according to our philosophy
Improving lives and the quality
of life in local communities
We fund or lend our expertise to projects that strengthen local
communities and provide sustainable direct benefits to residents.
Our resources are focused primarily on improving local
healthcare, education and economies through partnerships,
fellowships, sponsorships and donations. We also work to
protect wildlife and conserve water for agricultural purposes.
We provide funding directly to local, state or national
government authorities and only under formal agreements that
enable us to ensure that our funds are directed to the
intended project.
In everything we do, we recognize the unique culture,
traditions and needs of neighboring communities. The
aim is to enhance local capabilities and improve the
quality of life of residents by engaging actively and
responsibly with local stakeholders.
Luzmila Caferina Llacho, metallurgical
laboratory intern at the Caylloma Mine, Peru
<< Table of Contents
16
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
San Jose Mine, Mexico
Building roads to a better life
Building and maintaining roads is an effective means
of fighting rural poverty in Mexico. A reliable road
network improves mobility, providing easier access to
farms and local markets. Rural roads also aid social
development in remote communities by improving
supply routes, medical care and travel for residents.
In San Jose del Progreso, a network of small
unpaved roads was built in the 1960s to connect
surrounding villages. Since then, however, the
communities have lacked sufficient funds to maintain
<< Table of Contents
the roads. In 2011, we started the Road Opening
and Maintenance Program for the San Jose del
Progreso communities and the county seat under
an agreement with the municipality of San Jose del
Progreso. In 2014, we contributed $378,000 to the
program to build 53 kilometers of new roads. The
roads directly benefit 5,600 people living in San Jose
del Progreso, San Jose La Garzona, El Cuajilote,
Maguey Largo and El Jagüey. In addition to improving
communication between the communities, our
program also allows for the daily transportation of
residents and their animals.
Bringing electricity to remote households
Mexico has one of the highest levels of coverage of
electrical service in Latin America. Yet, many people
living in rural areas still do not have access to
electricity. This creates an obstacle to the provision
of public services, such as drinking water,
telecommunication, remote education, health
services and commerce. Additionally, new rural roads
(see story above) have given local residents of San
Jose del Progreso the opportunity to expand their
dwelling areas and thus increase demand for basic
services.
Under an agreement with the municipality of San
Jose del Progreso, we have provided financing to
local communities to extend the electrical grid. The
extension supplies electricity to households located
in the outskirts of the communities, helping
residents improve living conditions and start small
businesses.
In 2014, we contributed $63,000 to the project,
while municipal and federal governments provided
additional funding. The expanded grid serves more
than 100 families, as well as the San Isidro Chapel
and civic facilities, such as a home for the elderly at
San Jose del Progreso, a nursery facility and areas
open to the general public.
SUSTAINABILITY
DRIVING GROWTH FROM WITHIN
17
Funding education development and infrastructure
Improving education together with social infrastructure helps break the cycle of poverty and increase
participation in non‐farming activities. For the nearly 1,900 students in the county seat, however, these
benefits were out of reach because the state of Oaxaca, one of the most undeveloped areas in the country,
had fallen behind in funding education.
In 2014, we implemented a comprehensive social infrastructure program under an annual agreement with
the Municipality of San Jose, contributing $242,300 toward educational and cultural activities. The funds
were used to purchase new multimedia and teaching equipment and to rehabilitate and build
teaching facilities. Five preschools, five elementary schools and three distance-
education high schools, as well as the San José del Progreso daycare center and
cultural center, have all benefited from the program.
Additionally, three plots of land were purchased that will be used to expand an
elementary school, as a site for a cultural center and to host cultural and
sporting events in the community of Cuajilote.
<< Table of Contents
18
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Caylloma Mine, Peru
Offering scholarships to help students
start a career
Even for top students, the fragile social and
economic conditions in the District of Caylloma limit
opportunities for those seeking undergraduate or
technical education. To help outstanding students
further their schooling, we established a five-year
fellowship program in an agreement with the
Municipality of Caylloma and government educational
institutions.
The program started in 2012 and has an annual
budget of $40,000 for scholarships to help pay for
food, housing and local transportation. Scholarships
were awarded to 14 students in 2014 and to seven
more at the beginning of 2015.
The first group of students graduated in 2014 from
programs in accounting, agricultural and livestock
farming, and metallurgy. Two of the graduates are
now employed by our company as interns, completing
training requirements in their fields of study. Yesenia
Choquehuanca, who studied agriculture and livestock
farming, is monitoring farming activities near the
Caylloma Mine and providing technical assistance in
raising alpacas and llamas, as well as in commercial
trout farming operations (see story below).
Luzmila Ceferina Llacho Checco, a metallurgy graduate,
is employed in our metallurgical lab, monitoring
various milling processes and conducting tests.
Providing technical training for
high school graduates
To further support advanced education, we approved
funding in 2013 for the Productive and Technical
Education Center of Caylloma. The center was
established under an agreement with the Regional
Education Management of Arequipa, the Municipality
of Caylloma and Virgen del Chapi Association, a non-
profit fundraising organization formed by Fortuna.
The association is funding approximately $82,000 in
operating costs for two years.
The center opened in 2014, offering training in
metalwork and shoemaking. Sixteen students have
since completed their studies: nine in metalwork and
seven in shoemaking. The center expects to enroll at
least 30 students in 2015 and to expand its training
courses.
Supporting a local trout farming cooperative
We have supported the start-up of a commercial
trout farm in the Carhualaca Lagoon located near
our Caylloma Mine by contributing to start-up costs
and lending our operational expertise since 2012.
Together with Sierra Exportadora, a government
agency responsible for developing sustainable
economic activities in the Andes of Peru, we have
held workshops to help achieve commercial
production and to comply with local and national
standards. The cooperative formed to operate the
fish farm started with 40,000 fingerlings in fall
2012 and harvested 2,000 kilos of rainbow trout
in mid-2013.
Fisherman at the Carhualaca Lagoon,
near the Caylloma Mine, Peru
Yessenia Choquehuanca, Community
Relations intern at the Caylloma Mine, Peru
SUSTAINABILITY
DRIVING GROWTH FROM WITHIN
19
In 2014, the cooperative stocked its rearing pens
with 72,000 fingerlings and Fortuna contributed
$18,000 to the project. Operations remain in a pre-
commercialization stage, with production yields and
product quality being monitored and evaluated in
order to meet market needs. The cooperative is
reinvesting cash flow generated from the sale of fish
to improve the viability of the project and lessen the
need for support from Fortuna.
Improving local waste management
The District of Caylloma maintains a solid waste
landfill that is operated by the municipality. Until
recently, however, the municipality lacked suitable
equipment to provide timely residential waste
collection. In 2014, Fortuna donated a new garbage
compactor truck valued at $71,500. This specially
equipped truck can easily navigate the narrow
streets of Caylloma to collect waste and deliver it to
the landfill.
Vizcachani-Caylloma
Highway Project Area
ESPINAR
CAYLLOMA
TISCO
Caylloma Mine
CASTILLA
TAPAY
LARI
TUTI
SIBAYO
LAMPA
MADRIGAL
CALLALLI
COPORAQUE
CABANACONDE
MACA
CHIVAY
HUAMBO
YANQUE
ACHOMA
SAN ANTONIO
DE CHUCA
LLUTA
HUANCA
MAJES
L O M A P R O V INCE
L
Y
A
C
AREQUIPA
Contributing to the restoration
of a vital road network
The Vizcachani-Caylloma highway is part of a national
road network built between 1935 and 1960 to
connect highland villages in the province of Caylloma.
The highway has since deteriorated significantly
because of limited Government road-maintenance
budgets, hindering social and economic development
in several communities.
To help restore the roads, we entered into a public-
private cooperation agreement in 2014 with the
regional government of Arequipa, the District
Municipality of Sibayo and two other mining companies
operating in the area. The agreement set outs
guidelines and commitments for a feasibility study
and technical document to pave the Vizcachani-
Caylloma highway. The estimated cost is $980,000,
of which our share will be approximately $215,000.
<< Table of Contents
20
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Mineral Reserves & Resources
Proven and Probable Reserves
Property
Classification
Tonnes
(000)
Ag
(g/t)
Caylloma Mine, Peru
San Jose Mine, Mexico
Total
Proven
Probable
Proven + Probable
Proven
Probable
Proven + Probable
Proven + Probable
Measured and Indicated Resources
Property
Classification
Caylloma Mine, Peru
Measured
Indicated
Measured + Indicated
San Jose Mine, Mexico Measured
Indicated
Measured + Indicated
508
2,525
3,033
311
3,456
3,767
6,800
142
132
134
237
233
233
189
Tonnes
(000)
Ag
(g/t)
524
1,170
1,695
71
921
992
Total
Measured + Indicated
2,687
Inferred Resources
Property
Classification
Caylloma Mine, Peru
Inferred
San Jose Mine, Mexico
Inferred
Total
Inferred
Tonnes
(000)
4,356
7,127
11,483
74
77
76
88
82
83
79
Ag
(g/t)
133
257
210
Au
(g/t)
0.42
0.31
0.33
1.95
1.80
1.81
1.15
Au
(g/t)
0.33
0.29
0.31
0.72
0.74
0.74
0.47
Au
(g/t)
0.59
1.75
1.31
Pb
(%)
1.56
2.38
2.24
N/A
N/A
N/A
N/A
Pb
(%)
0.93
0.95
0.95
N/A
N/A
N/A
N/A
Pb
(%)
1.98
N/A
N/A
Zn
(%)
2.24
3.31
3.13
N/A
N/A
N/A
N/A
Zn
(%)
1.94
1.86
1.88
N/A
N/A
N/A
N/A
Zn
(%)
3.17
N/A
N/A
Contained Metal
Ag
(Moz)
2.3
10.7
13.0
2.4
25.9
28.3
41.3
Au
(koz)
6.8
25.4
32.3
19.5
200.0
219.5
251.8
Contained Metal
Ag
(Moz)
1.2
2.9
4.1
0.2
2.4
2.6
6.8
Au
(koz)
5.6
11.0
16.6
1.6
21.9
23.5
40.2
Contained Metal
Ag
(Moz)
18.6
58.9
77.4
Au
(koz)
83.1
400.8
483.9
1. Mineral Reserves and Mineral 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 which 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 the potential development of the Mineral Resources or Mineral
Reserves at Caylloma or San Jose
5. Mineral Resources and Mineral Reserves are estimated as of June 30, 2014 and reported as of December 31, 2014 taking into account production-related
depletion for the period through December 31, 2014
6. Mineral Reserves for San Jose are estimated using a break-even cut-off grade of 143 g/t Ag Eq based on assumed metal prices of US$19/oz Ag and
US$1,140/oz Au; estimated metallurgical recovery rates of 89% for Ag and 89% for Au and projected operating costs for year-end 2014. Mineral Resources are
estimated at a Ag Eq cut-off grade of 100 g/t, with Ag Eq in g/t = Ag (g/t) + Au (g/t) * ((US$1,140/US$19) * (89/89))
7. Mineral Reserves for Caylloma are estimated using break-even cut-off grades based on estimated NSR values using assumed metal prices of US$19/oz Ag,
US$1,140/oz Au, US$2,150/t Pb and US$2,300/t Zn; metallurgical recovery rates of 84% for Ag, 43% for Au, 92% for Pb and 90% for Zn; and projected
operating costs for year-end 2014. Caylloma Mineral Resources are reported based on an NSR cut-off grade of US$50/t for wide veins and US$100/t for
narrow veins used assumed metal prices and metallurgical recovery rates as detailed for Mineral Reserves with the exception of the Ramal Piso Carolina vein
that uses metallurgical recovery rates of 84% for Ag and 75% for Au.
8. Totals may not add due to rounding procedures
9. N/A = Not Applicable
<< Table of Contents
MINERAL RESERVES & RESOURCES
DRIVING GROWTH FROM WITHIN
21
Strong, steady growth in reserves and resources
)
z
o
M
q
E
g
A
(
l
a
t
e
M
d
e
n
a
t
n
o
C
i
Proven & Probable Reserves
Measured & Indicated Resources
Inferred Resources
100.0
80.0
60.0
40.0
20.0
0.0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1. Ag Eq calculated using Au = $1,140/oz and Ag = $19/oz
2. Reported as of December 31, 2014
San Jose Mine ore stockpile, Mexico
22
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
CORE ASSET
REVIEW
MEXICO
San Jose Mine
Commodities:
Silver, gold
Ownership:
100%
Land package:
64,400 hectares
Operation:
2,000 tpd underground mine
Reserve life:
5.2 years
Location:
Taviche Mining District,
Oaxaca, Mexico
(Latitude: 16° 41’ 40” N,
Longitude: 96° 42’ 00” W)
Deposit type:
High-grade, low-sulphidation,
epithermal vein deposit
Dry stack tailings filter facility under construction
2014 Unit Costs
Cash cost per ounce
of silver* ($/oz Ag)
$3.52
2013: $6.53
Unit net smelter return
per tonne ($/t)
$157.55
2013: $160.76
Cash cost per tonne*
($/t)
$62.99
2013: $71.41
* net of by-product credits
AISCC
($/oz Ag)
$12.07
2013: $15.89
<< Table of Contents
SAN JOSE MINE, MEXICO
DRIVING GROWTH FROM WITHIN
23
2014 Operating and Financial Highlights
Silver production increased by 74% to 4.4 million ounces and gold production by 76% to 33,496 ounces over
the prior year. Higher throughput of 48% from a mine and processing plant expansion from 1,800 tpd to 2,000
tpd in April 2014 and higher head grade for silver and gold of 17% contributed to the increase in production.
Silver and gold production in 2014 exceeded annual guidance by 10% and 9% respectively.
Cash cost per tonne of processed ore was $62.99 or 12% below the cost in 2013 and 6% below annual
guidance. The cost reduction is due mainly to higher throughput, devaluation of the peso and lower mine
development costs. AISCC per payable ounce of silver, net of by-products, was $12.07 or 24% lower than in
2013 and 16% below annual guidance.
Metallurgical recoveries remained stable for silver at 89% and improved slightly for gold to 90%.
Capital expenditures were $29.0 million in 2014. The most significant of these were $4.8 million for mine
development, $6.0 million for brownfields exploration and $12.3 million for tailings dam expansion and
evaporation control.
Outlook for 2015
San Jose mill to expand by 50%
In light of the significant growth of mineral reserves
and resources, we are proceeding with two major
capital projects. The mill will be expanded from
2,000 to 3,000 tonnes per day by mid-2016 and a
dry stack tailings deposit and filter facility will be
completed in 2015.
3,000 tpd mill expansion highlights
• Annual production: 10 to 12 million silver
equivalent ounces* or 7 to 8 million ounces of
silver and 52 to 57 thousand ounces of gold
• AISCC**: $8 to $9 per ounce silver, net of by-
product gold
• Economics: 36% after-tax IRR**, with payback in
two years
* Silver equivalent production estimated using silver-to-gold ratio of 60:1
** AISCC and After-tax Internal Rate of Return (IRR) estimated using $16/oz
Ag and $1,200/oz Au
Mine development is well ahead of production, with a
2.8-year projection of developed reserves by the end
of 2015. As this is sufficient to source 3,000 tpd, no
major infrastructure projects are required at the mine.
The capital cost estimate for the plant expansion is
$30 million, with $12.6 million budgeted for 2015
and the balance for 2016. The project is fully
permitted and commenced on schedule in the first
quarter of 2015. We expect to commission the mill
in mid-2016.
The dry stack tailings and filter facility will shift the
San Jose Mine from conventional slurry tailings
disposal. The project was started in the fourth
quarter of 2014 and is expected to be completed in
the fourth quarter of 2015. Capital cost is estimated
at $32 million.
<< Table of Contents
24
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Trinidad North yields robust mineralization
Favorable drilling results from the Trinidad North
Zone, a significant increase in Inferred resources and
the open exploration potential to the north and to
depth bode well for the future of the San Jose Mine
Drill results in 2014 confirm that the Bonanza and
Trinidad veins, as well as the structurally and
spatially related Trinidad North Stockwork Zone, all
remain open to the north and to depth along the
strike and plunge of the ore shoots.
Brownfields exploration
Our $3.5 million brownfields exploration budget for
2015 includes 12,000 meters of drilling, surface
mapping and sampling in areas west of the Trinidad
vein system. The program is focused on three
initiatives:
• Evaluation of and target generation on multiple
prospects within the property package, including
Veta Maria, La Noria, San Jose West, San Dionisio
Ocotlan, Los Ocotes and El Portillo
• Underground exploration drilling of a 300 meter
extension north of the Trinidad North zone outside
the shell of existing inferred resources
• Drill testing from the surface of the northern strike
projection of the vein system beyond Trinidad
North, subject to community agreements
Highlights
• Inferred resources increase by 68% in contained
silver and 48% in contained gold
• Trinidad North remains open for expansion in
three directions
• Estimated true widths of up to 18.8 meters, with
silver equivalent values ranging to 4.4 kg/t
As of December 31, 2014, Mineral Reserves at San
Jose increased by 24% in contained silver and by
12% in contained gold. Inferred resources also
improved, increasing by 68% in contained silver and
48% in contained gold, primarily due to the
expansion of Trinidad North Zone.
Step-out drilling of Trinidad North continues at
approximate 100 meter centers from underground
drill stations. As in the main Trinidad deposit, silver
and gold mineralization is hosted in hydrothermal
boiling breccias, crackle breccias and stockwork-like
vein systems controlled by the Bonanza and Trinidad
structures. The mineralized system pinches and
swells along strike reflecting the primary structural
controls of the epithermal system.
Mineral Reserves at San Jose
increased by 24% in contained
silver and by 12% in contained
gold as of December 31, 2014.
<< Table of Contents
SAN JOSE MINE, MEXICO
DRIVING GROWTH FROM WITHIN
25
2015 Production and Cost Guidance
Tonnes milled
700,000
Metal production
Silver (Moz)
Gold (koz)
Head grade
Silver (g/t)
Gold (g/t)
Unit costs
Cash cost ($/t)
AISCC ($/oz Ag)
4.6
33.3
214
1.66
$62.7
$16.27
Silver and Gold Production Guidance
2
Silver (Moz)
6.7
Gold (koz)
52.3
5.5
41.8
4.4
4.6
33.5
33.3
2.5
1.9
17.9
19.0
0.5
4.5
2011
2012
2013
2014 2015E 2016E 2017E
2011
2012
2013
2014 2015E 2016E 2017E
<< Table of Contents
26
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
CORE ASSET
REVIEW
PERU
Caylloma Mine
Commodities:
Silver, Gold, Lead, Zinc
2014 Unit Costs
Ownership:
100%
Land package:
35,500 hectares
Operation:
1,300 tpd underground mine
Reserve life:
6.5 years
Location:
Arequipa, Peru
(Latitude 15° 13” S,
Longitude 71° 49” W)
Deposit type:
Intermediate-sulphidation
epithermal deposit
Cash cost per ounce
of silver* ($/oz Ag)
$7.02
2013: $7.65
Unit net smelter return
per tonne ($/t)
$144.57
2013: $161.19
Cash cost per tonne*
($/t)
$90.57
2013: $91.22
* net of by-product credits
AISCC*
($/oz Ag)
$14.13
2013: $20.83
AlSCC declined by 32% to $14.13 per ounce of
silver in 2014, or 17% below annual guidance.
<< Table of Contents
CAYLLOMA MINE, PERU
DRIVING GROWTH FROM WITHIN
27
2014 Operating and Financial Highlights
Silver production increased by 5% over 2013 to 2.2 million ounces because of higher
metallurgical recovery and slightly higher head grade. Zinc production increased 9% as
a result of higher head grades and metallurgical recoveries. Lead production decreased
9% because of lower zinc head grades.
Cash cost per tonne was $90.57 per tonne of processed ore, a decrease of 1% from
the prior year and 3% above annual guidance. AISCC was $14.13, or 32% lower than
2013 and 17% below annual guidance.
Capital expenditures, primary property, plant and equipment and brownfields
exploration, were $9.9 million. This included $5.1 million for mine development
and $4.0 million for equipment and infrastructure.
Outlook for 2015
We have budgeted $10.4 million for mine development
and plant optimization in 2015. We expect the
improvements to increase the recovery of silver to
approximately 88% from 84.5% achieved in 2014.
Additionally, we anticipate a 10% gain in throughput
capacity from improvements to the lead floatation
circuit and the use of high-frequency sieving instead
of hydrocyclones for separation.
2015 Production and Cost Guidance
Tonnes milled
464,100
Metal production
Silver (Moz)
Gold (koz)
Zinc (Mlbs)
Lead (Mlbs)
Head grade
Silver (g/t)
Gold (g/t)
Lead (%)
Zinc (%)
Unit costs
Cash cost/t
AISCC ($/oz Ag)
1.9
1.9
32.1
19.5
175
0.30
2.05
3.12
$90.3
$12.78
Brownfields exploration
Our exploration budget of $0.7 million is similar to
the expenditure of $0.8 million in 2014. The modest
budget is temporary and made possible by our
success in building a Mineral Reserve and Resource
base. This is now sufficient to maintain short- or mid-
term production levels without compromising future
operations. Exploration in 2015 will focus on
evaluating and defining high-grade gold and silver
targets in the northern portion of the Caylloma District.
2015 – 2017 Production Guidance
Silver (Moz)
2.2
2.1
2.0
2.0
2.0
2.0
1.9
2011
2012
2013
2014 2015E 2016E 2017E
<< Table of Contents
2
28
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Board of Directors
Simon Ridgway
Chairman
Jorge A. Ganoza
David Farrell
Robert R. Gilmore
Michael Iverson
Thomas Kelly
Mario Szotlender
Simon Ridgway
Chairman of the Board
Simon Ridgway is a co-founder of Fortuna Silver
Mines Inc., a prospector, a mining financier and a
Casey Research Explorer’s League inductee. Simon
is the Chairman of Fortuna Silver Mines Inc., CEO of
Focus Ventures Ltd., President and CEO of Radius
Gold Inc.
Jorge A. Ganoza
President and CEO
Jorge A. Ganoza is a geological engineer with over 18
years of experience in mineral exploration, mining
and business development throughout Latin America.
He is a graduate from the New Mexico Institute of
Mining and Technology. Jorge also serves as
Chairman of the Board of Atico Mining Corporation.
David Farrell
David Farrell is President of Davisa Consulting, a private
consulting firm working with junior to mid-tier global
mining companies. He has twenty years of corporate
and mining experience, and has negotiated, structured
and closed more than US$25 billion worth of M&A and
structured financing transactions for junior and mid-tier
natural resource companies.
<< Table of Contents
Robert R. Gilmore
Robert Gilmore is a Certified Public Accountant and
a Member of the Colorado Society of Certified Public
Accountants and the American Institute of CPAs.
Currently serves as Chairman of the Board for
Eldorado Gold Corp. and as a Director of Layne
Christensen Company.
Michael Iverson
Michael Iverson is the President and CEO of several
publicly-listed TSX companies, including Niogold
Mining Corporation, Volcanic Metals, and past
President and CEO of Fortuna Silver Mines Inc.
Thomas kelly
Thomas kelly has bachelor and masters degrees in
mining engineering from the Colorado School of
Mines, is a Fellow of the Australasian Institute of
Mining and Metallurgy and a registered member of
the Society for Mining, Metallurgy & Exploration. Tom
is currently COO of Atico Mining Corporation.
Mario Szotlender
Mario Szotlender holds a degree in international
relations and is fluent in several languages. Mario is
also a Director of Radius Gold Inc. and Endeavour
Silver Corp.
DRIVING GROWTH FROM WITHIN
29
Senior Management
Jorge A. Ganoza
Luis D. Ganoza
Dr. Thomas I. Vehrs
Manuel Ruiz-Conejo
Jose Pacora
Manuel Ruiz-Conejo, B. Sc. Engineering
Vice President of Operations
Manuel Ruiz-Conejo is a mining engineer graduated
from the Universidad Nacional de Ingenieria in Lima,
Peru. Manuel also holds an Executive Management
Program from the Universidad de Piura in Peru.
Jose Pacora, B.Sc Engineering
Vice President of Project Development
Jose Pacora is a mechanical engineer graduated
from the Universidad Nacional de Ingenieria in Lima,
Peru. He has more than 30 years of experience in
the mining industry working for both, engineering
firms and mining companies developing strong
capabilities in engineering, construction and project
management.
Jorge A. Ganoza
President and CEO
Jorge A. Ganoza is a geological engineer with over
18 years of experience in mineral exploration, mining
and business development throughout Latin America.
He is a graduate from the New Mexico Institute of
Mining and Technology. Jorge also serves as
Chairman of the Board of Atico Mining Corporation.
Luis D. Ganoza, B. Sc. Engineering, MBA, M. Sc.
Chief Financial Officer/Chief Compliance Officer
Luis D. Ganoza has a B.Sc. in mining engineering
from the Universidad Nacional de Ingenieria in Peru,
and an M.Sc. in accounting and finance from The
London School of Economics. Luis also serves as a
Director of Atico Mining Corporation.
Dr. Thomas I. Vehrs, Ph.D.
Vice President of Exploration
Dr. Vehrs is a Founding Registered Member of The
Society for Mining, Metallurgy, and Exploration, Inc.
(SME Member Number 3323430RM), a Fellow of the
Society of Economic Geologists and a Member of The
Geological Society of America. Tom has been Vice
President of Exploration since 2006. He also serves
as an independent director for AQM Copper Inc.
<< Table of Contents
30
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Our contribution to society
The metals we mine – silver, gold, lead and zinc – are found in many areas
of our everyday lives. Some uses are obvious, while others may surprise
you. Regardless of their use, these precious and base metals are integral
to society and we are proud to help meet their growing global demand.
GALVANIZED STEEL
Zinc: Half of all
production is used to
protect steel from
corrosion, while rolled
zinc sheet and strip is
used for roofing,
cladding, flashings and
rainwater disposal
applications.
BRASS BUTTON
ON JEANS
Zinc
WINDOW GLASS
COATING
Gold
RADIO-
FREQUENCY
IDENTIFICATION
TAGS
Silver
COMPUTER
COMPONENTS
Gold
COMPUTER
BATTERIES &
KEYBOARDS
Silver
TELEVISION
COMPONENTS
Silver, gold
REAR WINDOW
DEFROSTER
Silver
BATTERIES FOR
ELECTRIC CARS
Silver, zinc
ATHLETIC SOCKS
Silver
PACEMAKER
Gold
CARPETING
Silver: More than 700 tonnes
(24 million ounces) are used each
year to produce ethylene oxide and
formaldehyde, both of which are
essential to the plastics industry.
WATCH
BATTERIES
Silver
INVESTMENT PORTFOLIO
Gold, silver
BELT BUCKLE
Zinc
TIRES
Zinc
NAIL POLISH
Silver
POLYESTER
FABRIC
Silver
SCULPTURE
Zinc
HEARING
AID
Gold
<< Table of Contents
L
E
TELEPHONE SYSTEMS
Silver
ANTIBIOTIC
OINTMENTS &
BANDAGES
Silver
X-RAY FILM
Silver
X-RAY
PROTECTION
Lead
JEWELRY, TABLEWARE & HOME DECOR
Silver, gold, zinc
WEDDING RINGS
Gold, silver
LAB TESTS
Gold
MEDICAL
GOWNS
Silver
ENGINE PARTS
Silver
TRAFFIC &
STREET SIGN
POLES
Zinc
VEHICLE BATTERIES
Lead: 80% of usage is in
batteries for vehicles, computers,
industrial equipment and
emergency power systems (e.g.
hospitals). More than 95% of
these batteries are recycled.
MOTOR AND
AUTOMOTIVE
PARTS
Zinc
P
DRIVING GROWTH FROM WITHIN
31
BARISTA COFFEE
MACHINES, TIMERS
Silver
PLUMBING
FIXTURES
Zinc
DOOR HANDLES
& LOCKS
Zinc
METAL
FURNITURE
Zinc
SOLAR PANELS
Silver
AUTOMOTIVE INDUSTRY
Silver: Over 36 million ounces are used
annually for silver contacts that activate
every electrical action in the modern car.
GUTTERS & DOWNPIPES
Zinc
MOBILE PHONE
Gold: The electronics
sector uses more than 300
tonnes (10 million ounces)
annually because of gold’s
ability to conduct electricity
efficiently and complete
resistance to corrosion.
DOG TAGS
Zinc
SUNBLOCK
Zinc
LAUNDRY DETERGENT
Silver
LAMPS &
LIGHT
FIXTURES
Zinc
MICROWAVE
Silver
ANTIFREEZE
Silver
USEFUL LINkS
www.silverinstitute.org
www.geology.com/articles/uses-of-silver/
www.gold.org/
www.geology.com/minerals/gold/uses-of-gold.shtml
www.geology.com/usgs/uses-of-zinc/
www.geology.com/usgs/lead/
<< Table of Contents
32
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Financial Review
Management’s Discussion and Analysis
Fourth Quarter 2014 Financial Results
2014 Highlights
2015 Guidance and Outlook
Property Option Agreements
Annual 2014 Financial Results
33 Business of the Company
34
35
37 Results of Operations
40
41
44 Quarterly Information
44
47 Non-GAAP Financial Measures
53
Liquidity and Capital Resources
55 Off-Balance Sheet Arrangements
56 Related Party Transactions
57 Significant Accounting Judgments and Estimates
58
61 Significant Changes, Including Initial Adoption of Accounting Standards
61 New Accounting Standards
62 Other Data
63 Share Position and Outstanding Warrants and Options
63 Other Risks and Uncertainties
63 Controls and Procedures
64 Qualified Persons
64 Cautionary Statement on Forward-Looking Statements
Financial Instruments and Related Risks
Consolidated Financial Statements
66 Report of Independent Registered Chartered Accountants
67 Consolidated Statements of Income (Loss)
68 Consolidated Statements of Comprehensive Income (Loss)
69 Consolidated Statements of Cash Flows
70 Consolidated Statements of Financial Position
71 Consolidated Statements of Changes in Equity
72 Notes to Consolidated Financial Statements
<< Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2014
As at March 12, 2015
(Dollar amounts expressed in US dollars, unless otherwise indicated)
Management’s discussion and analysis (“MD&A”) is intended to help the reader understand the significant factors that
have affected Fortuna Silver Mines Inc.’s and its subsidiaries’ (“Fortuna’s” or the “Company’s”) performance and factors
that may affect its future performance. This MD&A was prepared as of March 12, 2015. It should be read in conjunction
with the Company’s audited consolidated financial statements for the year ended December 31, 2014, and the related
notes contained therewith. The Company reports its financial position, financial performance and cash flows in accordance
with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). This MD&A refers to various 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
income, operating cash flow per share before changes in working capital, income taxes, and interest income, and mine
operating earnings. These measures are used by the Company to manage and evaluate operating performance and ability
to generate cash and are widely reported in the silver mining industry as benchmarks for performance. However, the
measures do not have a standardized meaning and may differ from methods used by other companies with similar
descriptions. The Company believes that certain investors use these non-GAAP financial measures to evaluate the
Company’s performance. Accordingly, non-GAAP financial measures should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with IFRS. To facilitate a better understanding of these
measures as calculated by the Company, we have provided detailed descriptions and reconciliations as required.
This document contains forward-looking statements. Please refer to the cautionary language under the heading
“Cautionary Statement on Forward-Looking Statements”.
Business of the Company
Fortuna Silver Mines Inc. (“Fortuna” or the “Company”) is engaged in silver 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.
Fortuna is a publicly traded company incorporated and domiciled in Canada. Its common shares are listed on the New
York Stock Exchange under the trading symbol FSM; on the Toronto Stock Exchange and Lima Stock Exchange, both
under the trading symbol FVI; and on the Frankfurt Stock Exchange under the trading symbol F4S.F.
The Company’s registered office is located at Suite 650, 200 Burrard Street, Vancouver, British Columbia, Canada V6C 3L6.
The financial results include the accounts of the Company and its wholly owned subsidiaries: Minera Bateas S.A.C.
(“Bateas”); Fortuna Silver (Barbados) Inc. (“Barbados”); Compania Minera Cuzcatlan SA (“Cuzcatlan”); Continuum
Resources Ltd. (“Continuum”); Fortuna Silver Mines Peru S.A.C. (“FSM Peru”); and Fortuna Silver Mexico, S.A. de CV.
(“FS Mexico”).
<< Financial Review Table of Contents
34
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
2014 Highlights
Full Year Financial and Operating Highlights
Net income for the year ended December 31, 2014 (“2014”) improved to $15.6 million compared with a $19.1 million
net loss for the year ended December 31, 2013 (“2013”), resulting in basic earnings per share of $0.12 (2013: loss
$0.15).
For the year ended December 31, 2014, the Company’s adjusted net income was $15.7 million (2013: $9.4 million)
related to the non-cash impairment of inventories of $0.1 million (refer to non-GAAP financial measures).
Silver sold increased 45% to 6,694,552 ounces, while the realized silver price decreased 20% to $18.90 per ounce,
from the prior year. Gold sold increased 70% to 35,758 ounces, while the realized gold price decreased 10% to $1,260.44
per ounce, from the prior year. Sales comprised 64% silver and 19% gold, compared with 65% and 14%, respectively, in
the prior year.
Cash flow from operations, before changes in working capital, increased 46% to $59.8 million (2013: $40.9 million),
reflecting a 27% higher sales and improved margins, from the prior year. Operating cash flow per share, before changes
in working capital items, increased to $0.47 (2013: $0.33) (refer to non-GAAP financial measures). Cash and cash
equivalent and short term investments increased $28.1 million (57%) to $77.3 million (2013: $49.1 million).
Silver production increased 42% to 6,599,300 ounces (2013: 4,631,264 ounces), and gold production increased 66%
to 35,316 ounces (2013: 21,242 ounces).
Consolidated all-in sustaining cash cost per payable ounce of silver, net of by-product credits, was $14.48 and below our
annual guidance of $17.14 for 2014 (refer to non-GAAP financial measures).
San Jose’s all-in sustaining cash cost per payable ounce of silver, net of by-product credits, was $12.07 and below the
annual guidance of $14.43 for 2014 (refer to non-GAAP financial measures).
Caylloma’s all-in sustaining cash cost per payable ounce of silver, net of by-product credits, was $14.13 and below our
annual guidance of $17.01 for 2014 (refer to non-GAAP financial measures).
Fourth Quarter 2014 Financial Highlights
Fourth quarter 2014 net income amounted to $0.1 million (Q4 2013: loss $14.9 million), resulting in basic earnings per
share of $nil (Q4 2013: loss $0.12). Net income in Q4 2014 was negatively affected by restructuring and severance
costs of $1.1 million and higher mark-to-market effects on share-based compensation to $1.4 million compared to Q4
2013. Silver sold increased 16% to 1,611,313 ounces while the realized silver price decreased 21% to $16.33 per
ounce from the same period in the prior year.
2015 Guidance and Outlook
2015 Production Guidance
For 2015, the production and cash cost guidance is noted in the below table.
Mine
San Jose, Mexico
Caylloma, Peru
Total
Silver
(Moz)
4.3
2.2
6.5
Gold
(koz)
33.3
1.9
35.3
Investments
($ millions)
Cash Cost
($/t)
AISCC**
($/oz Ag)
56.5
14.0
70.6
62.71
90.29
16.27
12.78
** All-in sustaining cash cost (“AISCC”) per ounce of silver is net of by-products gold, lead and zinc
All-in sustaining cash cost calculated using Au = $1,200/oz, Pb = $2,000/t and Zn = $2,200/t.
All-in sustaining cash cost is a non-GAAP financial measure
Total figures may not add due to rounding.
• The 2015 San Jose Mine AISCC of $16.27/oz Ag includes $5.96/oz Ag or $24.5 million attributed as sustaining
capital investments related to the filter facility and dry stack tailings deposit
• Consolidated AISCC of $16.61, refer to the table below for details
• Caylloma Mine zinc and lead production forecast of 28.8 million pounds and 19.4 million pounds, respectively
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
35
San Jose Mine AISCC
Item
Cash cost net of by-product credits
Government royalty and mining tax
Workers’ participation
Selling, general and administrative expenses (operations)
Adjusted operating cash cost
Sustaining capital expenditures
Brownfields exploration expenditures
All-in sustaining cash cost
Caylloma Mine AISCC
Item
Cash cost net of by-product credits
Government royalty and mining tax
Workers’ participation
Selling, general and administrative expenses (operations)
Adjusted operating cash cost
Sustaining capital expenditures
Brownfields exploration expenditures
All-in sustaining cash cost
Consolidated AISCC
Item
Cash cost net of by-product credits
Government royalty and mining tax
Workers’ participation
Selling, general and administrative expenses (operations)
Adjusted operating cash cost
Selling, general and administrative expenses (corporate)
Sustaining capital expenditures
Brownfields exploration expenditures
All-in sustaining cash cost
2015 Outlook
2015 Guidance
($/oz Ag)
4.44
0.66
0.44
0.97
6.50
8.92
0.84
16.27
2015 Guidance
($/oz Ag)
6.12
0.28
0.14
1.58
8.12
4.34
0.32
12.78
2015 Guidance
($/oz Ag)
5.01
0.53
0.34
1.17
7.05
1.51
7.38
0.67
16.61
San Jose Mine, Mexico
San Jose plans to process 700,000 tonnes of ore averaging 214 g/t Ag and 1.66 g/t Au. Capital investment for 2015
is estimated to be $56.5 million.
Major investments include:
Filter facility and dry stack tailings deposit:
3,000 tpd mill expansion:
Mine development:
Exploration:
$28.3 million
$12.6 million
$ 8.3 million
$ 3.5 million
On December 17, 2014, the company disclosed further details of capital investments related to the processing plant
expansion, and filter facility and dry stack tailings deposit (refer to “Fortuna announces expansion of its San Jose Mine
from 2,000 to 3,000 tpd” news release).
<< Financial Review Table of Contents
36
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
San Jose Mine expansion highlights include:
• Silver and gold production: Annual production rate ranging from 6.7 – 8.3 million ounces of silver and 52.0 - 56.7
thousand ounces of gold or 9.8 – 11.7 million silver equivalent* ounces
• Capital expenditure: $30 million
• Economics: 36% after-tax Internal Rate of Return (“IRR”)**; payback period of 2 years
• All-in sustaining cash cost (“AISCC”)**: Expansion will position San Jose´s AISCC in the range of $8 - 9/oz Ag, net
of by-product gold
* Silver equivalent production estimated using silver-to-gold ratio of 60:1
** After-tax IRR and AISCC estimated using a flat price of US$16/oz Ag and US$1,200/oz Au
3,000 tpd mill expansion
The capital cost estimate for the plant expansion to 3,000 tpd is $30 million. The budget for 2015 is $12.6 million with
the balance to be disbursed in 2016. The capital figures are based on a feasibility level capital estimate prepared by M3
Engineering, the same firm that carried out the EPCM for the on-time and on-budget construction of the processing plant
in 2011.
Direct capital costs of major items include:
Crushing:
Grinding:
Flotation:
Concentrate filter:
Power supply:
$ 2.5 million
$ 8.1 million
$ 3.9 million
$ 1.7 million
$ 1.0 million
Project activities are scheduled to commence in the first quarter of 2015 with commissioning planned for mid-2016.
The expansion project is permitted.
The mine is well ahead of production with a 2.8 year projection of developed reserves by the end of 2015; sufficient to
comfortably source 3,000 tpd. No major infrastructure projects are required at the mine.
Dry stack tailings deposit and plant facility
The San Jose Mine will be shifting from conventional slurry tailings disposal to dry stack tailings deposit. The capital
projection is $32 million based on basic engineering estimates prepared by M3 Engineering.
The project was initiated during the fourth quarter of 2014; $1.0 million has been spent to-date with the balance to be
expended in 2015. Purchase orders for filters and other major equipment have already been placed.
Direct capital costs of major items include:
Filtration:
$13.7 million
Dry stack tailings deposit earthwork and preparation: $ 2.3 million
$ 1.3 million
Thickening:
$ 1.4 million
Backfill plant:
Construction of the project started in February 2015. The layout of the project has been adjusted so as to allow
commencement of construction in parcels for which it has the necessary permits. Full completion of the project will
require regularization of the change in land use of a single outstanding parcel. Completion of the dry stack tailings deposit
is projected for the fourth quarter of 2015.
Caylloma Mine, Peru
Caylloma plans to process 464,100 tonnes averaging 175 g/t Ag. Twenty-one per cent of mill feed in the plan is estimated
to come from current inferred resource which are planned to be converted to measured and indicated categories during
the year. Capital expenditure for 2015 is estimated to be $14.0 million.
Major investments include:
Mine development:
Plant optimization:
Exploration:
$ 6.1 million
$ 4.3 million
$ 0.7 million
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
37
Brownfields Exploration
At the San Jose Mine, the exploration budget for 2015 is $3.5 million, which includes 12,000 meters of drilling. The
program at the mine’s 64,400 hectare concession package is focusing on three main initiatives:
• Continue exploring through underground drilling an additional 300 meters of the northern extent of the Trinidad
North zone outside the shell of existing inferred resources, drill testing on approximate 100 meter centers,
• Subject to community agreements, drill test from surface the northern strike projection of the vein system
beyond Trinidad North, and,
• Evaluation and target generation work on multiple prospects within the property package: Veta Maria, La Noria,
San Jose West, San Dionisio Ocotlan, Los Ocotes and El Portillo.
At the Caylloma Mine, the Company has allocated a modest exploration budget of $0.7 million for 2015. Over the years
the Company has built a sufficient resource and reserve base which permits a reduction in exploration drilling for a year
without compromising short or medium term production plans. The main exploration initiative for 2015 is the evaluation
of our concessions located approximately 25 kilometers to the south of the Caylloma District, where Compañia de Minas
Buenaventura is developing the high-grade Tambomayo silver and gold project.
Results of Operations
Consolidated Metal Production
QUARTERLY RESULTS
Three months ended December 31,
2014
2013
Consolidated Metal Production
Caylloma
San Jose
Consolidated
Caylloma
San Jose
Consolidated
Silver (oz)
Gold (oz)
Lead (000’s lbs)
Zinc (000’s lbs)
Production cash cost (US$/oz Ag)*
All-in sustaining cash cost (US$/oz Ag)*
544,977
335
4,084
6,986
7.70
14.64
1,083,215
8,561
–
–
4.13
9.42
1,628,191
8,896
4,084
6,986
5.32
12.51
542,457
632
3,770
6,676
8.29
18.55
917,668
6,420
–
–
5.55
10.78
1,460,125
7,052
3,770
6,676
6.56
15.49
* Net of by-product credits from gold, lead, and zinc
YEAR TO DATE RESULTS
Years ended December 31,
2014
2013
Consolidated Metal Production
Caylloma
San Jose
Consolidated
Caylloma
San Jose
Consolidated
Silver (oz)
Gold (oz)
Lead (000’s lbs)
Zinc (000’s lbs)
Production cash cost (US$/oz Ag)*
All-in sustaining cash cost (US$/oz Ag)*
2,202,540
1,820
16,152
27,361
7.02
14.13
4,396,760
33,496
–
–
3.52
12.07
6,599,300
35,316
16,152
27,361
4.69
14.48
2,104,061
2,212
17,780
25,211
7.65
20.83
2,527,203
19,031
–
–
6.53
15.89
4,631,264
21,242
17,780
25,211
7.03
20.45
* Net of by-product credits from gold, lead, and zinc
The 2014 consolidated production highlights are as follows:
Silver and gold production were 10% and 9% respectively above 2014 production guidance
Silver production of 6,599,300 ounces; 42% increase over 2013
Gold production of 35,316 ounces; 66% increase over 2013
Zinc production of 27,360,530 pounds; 9% increase over 2013
Lead production of 16,152,285 pounds; 9% decrease from 2013
Compared with the prior year, silver and gold production increased 42% and 66%, respectively, explained largely by the
commissioning of the San Jose plant expansion to 1,800 tpd in September 2013 and to 2,000 tpd in April 2014.
Consolidated Cash Cost per Payable Ounce of Silver
All-in sustaining cash cost per ounce of payable silver for 2014, net of by-product credits, decreased to $14.48 (2013:
$20.45) per ounce as a result of higher payable ounces of silver operations (refer to non-GAAP financial measures). All-
in sustaining cash cost per ounce of payable silver for 2014 was below the annual guidance.
<< Financial Review Table of Contents
<< Financial Review Table of Contents
38
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
San Jose Mine Review
San Jose is an underground silver-gold mine located in southern Mexico in the State of Oaxaca. The table below shows
the main variables used by management to measure the operating performance of the mine: throughput, grade, recovery,
gold and silver production, and unit costs.
Mine Production
Tonnes milled
Average tonnes milled per day
Silver
Grade (g/t)
Recovery (%)
Production (oz)
Gold
Grade (g/t)
Recovery (%)
Production (oz)
Unit Costs
Production cash cost (US$/oz Ag)*
Production cash cost (US$/tonne)
Unit Net Smelter Return (US$/tonne)
All-in sustaining cash cost (US$oz/Ag)*
* Net of by-product credits from gold
QUARTERLY RESULTS
YEAR TO DATE RESULTS
Three Months ended December 31,
Years ended December 31,
2014
San Jose
181,702
2,019
208
89
1,083,215
1.65
89
8,561
4.13
60.41
129.12
9.42
2013
San Jose
158,218
1,741
202
89
917,668
1.42
89
6,420
5.55
63.38
147.76
10.78
2014
San Jose
676,959
1,928
2013
San Jose
456,048
1,296
226
89
4,396,760
194
89
2,527,203
1.72
90
33,496
3.52
62.99
157.55
12.07
1.46
89
19,031
6.53
71.41
160.76
15.89
Production for the year ended December 31, 2014 was 4,396,760 ounces of silver and 33,496 ounces of gold, 74%
and 76%, respectively, above the prior year’s production. The increases are the result of higher throughput of 48% and
of higher head grade for silver and gold of 17%. The San Jose Mine and processing plant were expanded to 2,000 tpd
in April 2014 (see Fortuna news release of April 14, 2014). Compared to guidance for the year, silver and gold production
were 10% and 9% higher, respectively.
Cash cost per tonne of processed ore for the year ended December 31, 2014 was $62.99/t, or 12% below the cost in
the prior year due mainly to higher throughput, a 4% devaluation of the peso, and lower mining cost related to support
and preparation, and below the annual guidance of $67.10/t. All-in sustaining cash cost per payable ounce of silver, net
of by-product credits, was $12.07 for the year ended December 31, 2014 (refer to non-GAAP financial measures), below
the annual guidance of $14.43.
Investments in property, plant and equipment and brownfields exploration, on a cash basis, were $29.0 million for the
year ended December 31, 2014, and included $4.8 million for mine development, $1.4 million for infill drilling, $6.0
million for brownfields exploration, and $16.8 million for equipment and infrastructure, including $12.3 million for tailings
dam expansion and evaporation control.
In light of the significant growth of resources over 2013 (see Fortuna news release dated September, 2014) the Company
has made the decision to proceed with mill expansion from 2,000 to 3,000 tonnes per day and the construction of a
filter facility and dry stack tailings deposit.
Cash cost per payable ounce of silver and cash cost per tonne of processed ore are non-GAAP financial measures (refer
to non-GAAP financial measures for the reconciliation of cash cost to the cost of sales).
On January 21, 2015, the Company announced results for step-out drilling of the Trinidad North zone at the San Jose
Mine in Oaxaca. Results are included for twenty-three drill holes completed subsequent to the Mineral Resource and
Mineral Reserve estimates reported as of June 30, 2014 (see Fortuna news releases dated August 27, 2014 and
September 30, 2014). The new drill results confirm that the Bonanza and Trinidad veins and the structurally and spatially
related Trinidad North Stockwork Zone all remain open to the north and to depth along the strike and plunge of the ore
shoots. See Fortuna news release dated January 21, 2015.
On March 10, 2015, the Company announced the updated Mineral Reserve and Mineral Resource estimate as of
December 31, 2014 for the San Jose Mine located in Oaxaca, Mexico. See Fortuna news release dated March 10, 2015.
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
39
The 2015 Brownfields exploration program at San Jose includes 12,000 meters of exploration drilling to further test the
potential for extensions of the high-grade silver-gold mineralization identified at Trinidad North (see Fortuna news release
dated March 10, 2015, and January 21, 2015 for fourth quarter 2014 drill results).
An Infill drilling program of 9,200 meters for the upgrading of Inferred Resources into Measured or Indicated Resources
is budgeted for the San Jose Mine. The cost of the infill drilling program is $1.59 million (see Fortuna news release
dated March 10, 2015).
Caylloma Mine Review
Caylloma is an underground silver, lead, and zinc mine located in southern Peru, in the Arequipa Department. Its
commercial products are silver-lead and zinc concentrates. The table below shows the main variables used by
management to measure the operating performance of the mine.
QUARTERLY RESULTS
YEAR TO DATE RESULTS
Three Months ended December 31,
Years ended December 31,
Mine Production
Tonnes milled
Average tonnes milled per day
Silver
Grade (g/t)
Recovery (%)
Production (oz)
Gold
Grade (g/t)
Recovery (%)
Production (oz)
Lead
Grade (%)
Recovery (%)
Production (000’s lbs)
Zinc
Grade (%)
Recovery (%)
Production (000’s lbs)
Unit Costs
Production cash cost (US$/oz Ag)*
Production cash cost (US$/tonne)
Unit Net Smelter Return (US$/tonne)
All-in sustaining cash cost (US$oz/Ag)*
* Net of by-product credits from, gold, lead and zinc
2014
Caylloma
117,060
1,301
173
84
544,977
0.27
33
335
1.70
93
4,084
3.03
89
6,986
7.70
91.60
130.13
14.64
2013
Caylloma
116,127
1,290
174
83
542,457
0.38
44
632
1.59
93
3,770
2.88
91
6,676
8.29
90.49
145.51
18.55
2014
Caylloma
464,823
1,302
2013
Caylloma
458,560
1,284
174
85
2,202,540
173
82
2,104,061
0.31
40
1,820
1.70
93
16,152
2.97
90
27,361
7.02
90.57
144.57
14.13
0.36
42
2,212
1.92
91
17,780
2.83
88
25,211
7.65
91.22
161.19
20.83
Silver production for the year ended December 31, 2014 was 5% above production in the prior year due to higher
metallurgical recovery and slightly higher head grade. Zinc production increased 9% as a result of higher head grade and
higher metallurgical recoveries. Lead production decreased 9% because of reduced head grade. Caylloma met its annual
production guidance of 2.0 million ounces of silver.
Cash cost per tonne at Caylloma for the year ended December 31, 2014 was $90.57 per tonne of processed ore, a
decrease of 1% from the prior year and 3% above annual guidance. All-in sustaining cash cost per payable ounce of silver,
net of by-product credits, at Caylloma for the year ended December 31, 2014 was $14.13, below the annual guidance
of $17.01 (refer to non-GAAP financial measures).
Investments in property, plant and equipment and brownfields exploration, on a cash basis, were $9.9 million for the
year ended December 31, 2014, and included $5.1 million for mine development, $0.8 million for brownfields exploration,
and $4.0 million for equipment and infrastructure, including $0.8 million for tailings dam.
On March 10, 2015, the Company announced the updated Mineral Reserve and Mineral Resource estimate as of
December 31, 2014 for the Caylloma Mine located in Arequipa, Peru. See Fortuna news release dated March 10, 2015.
<< Financial Review Table of Contents
40
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
An Infill drilling program of 9,500 meters for the upgrading of Inferred Resources into Measured or Indicated Resources
is budgeted for the Caylloma Mine. The cost of the infill drilling program is budgeted at $0.83 million.
Caylloma Mine and San Jose Mine Concentrates
The table below shows the production and balance of commercial end-products at each of our operating mines.
Mine Concentrates
Caylloma
San Jose
Caylloma
San Jose
Caylloma
San Jose
Caylloma
San Jose
QUARTERLY RESULTS
Three months ended Decmber 31,
YEAR TO DATE RESULTS
Years ended December 31,
2014
2013
2014
2013
Silver-Gold
Opening Inventory (t)
Production (t)
Sales (t)
Adjustment (t)
Closing Inventory (t)
Zinc
Opening Inventory (t)
Production (t)
Sales (t)
Adjustment (t)
Closing Inventory (t)
Lead-Silver
Opening Inventory (t)
Production (t)
Sales (t)
Adjustment (t)
Closing Inventory (t)
–
–
–
–
–
198
5,081
4,952
–
327
–
–
–
–
–
433
4,580
4,282
(114)
617
–
–
–
–
–
617
20,014
20,303
1
329
–
–
–
–
–
466
13,152
12,888
(114)
617
408
6,288
6,256
24
464
287
3,600
3,689
21
220
–
–
–
–
–
–
–
–
–
–
355
5,966
5,843
7
485
198
3,386
3,406
29
208
–
–
–
–
–
–
–
–
–
–
485
24,410
24,501
70
464
208
14,318
14,411
105
220
–
–
–
–
–
–
–
–
–
–
521
22,333
22,384
16
485
443
15,762
16,094
97
208
–
–
–
–
–
–
–
–
–
–
Property Option Agreements
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 Cuzcatlan, holds an option (the “option”) to acquire a 60% interest (the
“interest”) in the Tlacolula silver project (the “property”) located in the State of Oaxaca, Mexico, from Radius Gold Inc.’s
wholly owned subsidiary, Radius (Cayman) Inc. (“Radius”).
The Company can earn the interest by spending $2.0 million, which includes a commitment to drill 1,500 meters within
12 months after Cuzcatlan has received a permit to drill the property, and by making staged payments totaling $0.30
million cash and providing $0.25 million in common shares of the Company to Radius according to the following schedule:
• $0.02 million cash and $0.02 million cash equivalent in shares upon stock exchange approval;
• $0.03 million cash and $0.03 million cash equivalent in shares by January 15, 2011;
• $0.05 million cash and $0.05 million cash equivalent in shares by January 15, 2012;
• $0.05 million cash and $0.05 million cash equivalent in shares by January 15, 2013;
• $0.05 million cash by January 19, 2015; and,
• $0.10 million cash and $0.10 million cash equivalent in shares within 90 days after Cuzcatlan has completed
the first 1,500 meters of drilling on the property.
Upon completion of the cash payments and share issuances and incurring the exploration expenditures as set forth
above, the Company will be deemed to have exercised the option and to have acquired a 60% interest in the property,
whereupon a joint venture will be formed to further develop the property on the basis of the Company owning 60% and
Radius 40%. Radius has the right to terminate the agreement if the option is not exercised by January 31, 2017.
As of December 31, 2014, the Company had issued an aggregate of 34,589 common shares, with a fair market value
of $0.15 million, and paid $0.15 million cash according to the terms of the option agreement. Subsequent to December
31, 2014, the Company paid $0.05 million under the option agreement.
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
41
Annual 2014 Financial Results
Expressed in $000's, except per share data
2014
2013
2012
Years ended December 31,
Sales
Mine operating earnings
Operating income (loss)
Net income (loss)
Earnings (loss) per share, basic
Earnings (loss) per share, diluted
Total assets
Other liabilities
174,006
60,253
33,750
15,602
0.12
0.12
350,310
4,661
137,394
41,775
(9,629)
(19,100)
(0.15)
(0.15)
302,215
2,343
161,020
70,662
45,168
31,463
0.25
0.25
316,983
2,250
For the year ended December 31, 2014, net income was $15.6 million, compared with a loss of $19.1 million for the
year ended December 31, 2013 (“2013”). Silver sold increased 45% to 6,694,552 ounces, while the realized silver
price decreased 20% to $18.90 per ounce, from the prior year. Gold sold increased 70% to 35,758 ounces, while the
realized gold price decreased 10% to $1,260.44 per ounce, from the prior year. Net income was negatively affected by
a higher share-based compensation expense of $3.5 million compared to 2013 mostly related to mark-to-market effects,
and restructuring and severance costs of $1.1 million.
For the year ended December 31, 2014, the Company’s adjusted net income was $15.7 million (2013: $9.4 million)
related to the non-cash impairment of inventories of $0.1 million (refer to non-GAAP financial measures).
For the year ended December 31, 2013, the Company’s adjusted net income was $9.4 million after adjustments for the
non-cash impairment charge related to the Caylloma Mine of $20.4 million, net of tax, a one-time non-cash income tax
provision of $7.7 million resulting from the initial recognition of the Mexican mining tax reform, and a non-cash write-off
of mineral properties, plant and equipment of $0.4 million, net of tax, related to the San Luisito concessions (refer to
non-GAAP financial measures).
Mine operating earnings increased 44% over the prior year, while gross margins (mine operating earnings over sales)
increased from 30% to 35% (refer to non-GAAP financial measures). The impact of lower metal prices on gross margins
was offset to a large extent by significantly lower unit cash costs (12% lower at San Jose and 1% lower at Caylloma) and
higher head grades and metal recovery for silver and gold.
Cash flow from operations, before changes in working capital, increased 46% to $59.8 million (2013: $40.9 million),
reflecting 27% higher sales and improved margins, from the prior year.
Basic earnings per share were $0.12 (2013: loss $0.15). Operating cash flow per share, before changes in working
capital items, increased to $0.47 (2013: $0.33) (refer to non-GAAP financial measures).
Sales for the year ended December 31, 2014, were $174.0 million (2013: $137.4 million). Silver and gold ounces sold
increased 45% and 70%, respectively, while realized silver and gold prices decreased 20% and 10%, respectively. Sales
at San Jose increased 66% to $108.0 million (2013: $65.1 million) as a result of higher production and a reduction of
inventories, while sales at Caylloma decreased 9% to $66.0 million (2013: $72.3 million) mainly as a result of lower
silver prices.
The Company’s metal concentrates are provisionally priced at the time of sale based on the prevailing commodity market
price. Final prices are set in a period subsequent to the date of sale based on a specified quotational period, either one,
two, or three months after delivery. Under current sales contracts, final pricing for all concentrates takes place one month
after the month of sale.
Our recorded sales during the year ended December 31, 2014, consisted of provisional sales of $176.0 million (2013:
$146.9 million); final price and mark-to-market adjustments of negative $0.5 million (2013: negative $4.5 million); and
negative assay adjustments of $1.5 million (2013: negative $5.0 million).
The net realized prices shown below are calculated based on provisional sales pricing and on contained metals in
concentrate sold and after accounting for payable metal deductions, treatment, and refining charges before government
royalties. To establish the net realized price for silver, treatment charges on our mineral concentrates are allocated to
the base metals at Caylloma and to gold at San Jose. The Company has not hedged its exposure to metal price risks.
<< Financial Review Table of Contents
42
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
YEAR TO DATE RESULTS
Years ended December 31,
2014
2013
Sales and Realized Prices
Caylloma
San Jose
Consolidated
Caylloma
San Jose
Consolidated
Provisional Sales
Adjustments*
Sales
Silver
Provisional Sales (oz)
Realized Price ($/oz)**
Net Realized Price ($/oz)***
Gold
Provisional Sales (oz)
Realized Price ($/oz)**
Net Realized Price ($/oz)***
Lead
Provisional Sales (000’s lb)
Realized Price ($/lb)**
Net Realized Price ($/lb)***
Zinc
Provisional Sales (000’s lb)
Realized Price ($/lb)**
Net Realized Price ($/lb)***
67,461,129 108,562,070 176,023,198
(1,407,018)
(2,017,325)
(610,307)
66,054,110 107,951,763 174,005,873
75,434,322
(3,128,808)
72,305,514
71,421,250 146,855,572
(6,332,971)
(9,461,779)
65,088,279 137,393,793
2,209,690
19.01
16.46
4,484,861
18.85
16.92
6,694,552
18.90
16.77
2,160,783
23.69
20.71
2,451,608
23.31
21.19
4,612,391
23.49
20.97
1,828
1,275.25
907.40
33,930
1,259.65
962.61
35,758
1,260.44
959.79
2,247
1,399.42
1,052.19
18,750
1,394.37
1,039.11
20,997
1,394.91
1,040.51
16,244
0.95
0.71
27,471
0.98
0.65
–
–
–
–
–
–
16,244
0.95
0.71
27,471
0.98
0.65
18,170
0.97
0.72
25,259
0.87
0.61
–
–
–
–
–
–
18,170
0.97
0.72
25,259
0.87
0.61
* Adjustments consists of mark to market and 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
Cost of sales for the year ended December 31, 2014, increased 19% to $113.8 million (2013: $95.6 million), driven by
a 58% higher tonnage of concentrate sold. Direct mining costs increased $10.7 million to $85.4 million (2013: $74.7
million). Depletion and depreciation increased $3.6 million to $22.7 million (2013: $19.1 million).
Workers’ participation for San Jose increased $3.5 million to $3.6 million (2013: $0.1 million).
(Refer to non-GAAP financial measures for the reconciliation of cash cost to the cost of sales.)
Direct mining costs 1
Workers’ participation
Depletion and depreciation
Royalty expenses
Expressed in $ millions
Years ended December 31,
2014
2013
Caylloma
San Jose
Total
Caylloma
San Jose
Total
$ 42.1
0.7
7.4
0.9
$ 51.1
$ 43.3
3.6
15.3
0.5
$ 85.4
4.3
22.7
1.4
$ 62.7
$ 113.8
$ 42.4
1.0
9.6
0.7
$ 53.7
$ 32.3
0.1
9.5
–
$ 41.9
$ 74.7
1.1
19.1
0.7
$ 95.6
1 Direct mining costs includes salaries and other short term benefits, contractor charges, energy, consumables and production related
costs.
Selling, general and administrative expenses for the year ended December 31, 2014, increased 28%, or $5.4 million, to
$25.2 million (2013: $19.8 million). The main driver for the increase was higher share-based payments to $6.7 million
compared with the prior year, mostly related to mark-to-market effects, in particular the increase in share price, compared
to the prior year.
Also explaining the increase were higher general and administrative expenses of $0.9 million and higher workers’
participation of $0.8 million.
General and administrative expenses consist primarily of corporate office and subsidiary expenses, such as salaries
and payroll-related costs for executives and management. These expenses include administrative, legal, financial,
information technology, and human and organizational development, procurement, and professional service fees. General
and administrative expenses for the year ended December 31, 2014, increased 6% to $17.6 million (2013: $16.7
million).
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
43
Expressed in $ millions
Years ended December 31,
2014
2013
Corporate
Bateas
Cuzcatlan
Total
Corporate
Bateas
Cuzcatlan
Total
General and administrative expenses $ 10.8
(0.7)
Foreign exchange
6.7
Share-based payments
–
Workers' participation
$ 16.8
$ 3.4
0.4
–
0.1
$ 3.9
$ 3.4
0.2
–
0.9
$ 17.6
(0.1)
6.7
1.0
$ 10.3
(0.7)
3.2
–
$ 4.5
$ 25.2
$ 12.8
$ 3.0
0.3
–
0.2
$ 3.5
$ 3.4
0.1
–
–
$ 16.7
(0.3)
3.2
0.2
$ 3.5
$ 19.8
Exploration and evaluation costs for the year ended December 31, 2014, decreased to $nil (2013: $0.4 million) as a
result of the Company’s reduction in its greenfields exploration program.
Salaries, wages, and benefits
Direct costs
Expressed in $ millions
Years ended December 31,
2014
$ –
–
$ –
2013
$ 0.3
0.1
$ 0.4
Loss on disposal of mineral properties, plant and equipment for the year ended December 31, 2014, amounted to $0.1
million (2013: $0.1 million) and pertained to the disposal of equipment.
Restructuring and severance costs for the year ended December 31, 2014, amounted to $1.1 million (2013: $0.5 million)
and pertained to the Company’s cost-reduction program, and include all salaries and post-employment costs.
Write-off of mineral properties, plant and equipment for the year ended December 31, 2014, amounted to $nil (2013:
$0.6 million, pertaining to the San Luisito concessions).
Impairment of mineral properties, plant and equipment for the year ended December 31, 2014, amounted to $nil (2013:
$30.0 million, related to the impairment of Caylloma Mine as a result of declining silver prices).
Impairment of inventories for the year ended December 31, 2014, amounted to $0.1 million (2013:$0.1 million) and
pertained to the write-down of materials in inventory to their net realizable value.
Interest income for the year ended December 31, 2014, amounted to $0.3 million (2013: $0.6 million).
Interest expense for the year ended December 31, 2014, amounted to $1.2 million (2013: $0.9 million).
Income taxes for the year ended December 31, 2014, increased to $17.3 million (2013: $9.1 million) mainly due to the
increase in current income taxes in Mexico even after accelerating the depletion of Mexico mining rights along with no
further impact of the Mexico special mining royalty on deferred income tax.
In 2013, income taxes included a $9.6 million tax impact related to the impairment charge of Caylloma and to the
deferred income provision of $7.7 million resulting from the Mexico special mining royalty, and a reduction of the tax
base.
The following table summarizes the details of income taxes by region and component:
Expressed in $ millions
Years ended December 31,
2014
Income Taxes
Peru
Meixco
Total
Peru
Current income tax
Deferred income tax
$ 3.6
1.6
$ 5.2
$ 9.9
2.2
$ 12.1
$ 13.5
3.8
$ 17.3
$ 4.9
(7.5)
$ (2.6)
2013
Mexico
$ –
11.7
$ 11.7
Total
$ 4.9
4.2
$ 9.1
<< Financial Review Table of Contents
44
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Quarterly Information
The following table provides information for eight fiscal quarters up to December 31, 2014:
Expressed in $000's, except per share data
31-Dec-14
30-Sep-14
30-Jun-14 31-Mar-14
31-Dec-13 30-Sep-13
30-Jun-13 31-Mar-13
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Quarters ended
Sales
Mine operating earnings
Operating income (loss)
Net income (loss)
Earnings (loss) per share, basic
Earnings (loss) per share, diluted
Total assets
Other liabilities
37,823
10,052
3,653
57
0.00
0.00
350,310
4,661
46,384
16,720
13,201
7,824
0.06
0.06
44,319
16,277
7,623
2,868
0.02
0.02
45,480
17,204
9,273
4,853
0.04
0.04
36,377
10,373
(8,312)
(14,930)
(0.12)
(0.12)
30,203
8,140
2,346
(264)
0.00
0.00
30,101
6,478
(14,669)
(10,571)
(0.08)
(0.08)
40,713
16,784
11,006
6,665
0.05
0.05
342,413 330,791 318,349 302,215 311,170 310,291 327,346
2,238
2,343
2,282
4,076
4,076
2,850
5,269
During Q4 2014, sales decreased 18%, or $8.6 million, from Q3 2014 as metal prices decreased. The Company’s
realized prices for silver and gold declined by 15% and 6%, respectively, to $16.33 and $1,192.86 per ounce, respectively.
During the fourth quarter of 2014, the Company’s operating income was negatively affected by the mark-to-market effects
on share-based compensation expense of $1.4 million compared with a recovery of $0.8 million in Q3 2014. In addition,
as a result of declining metal prices, the Company restructured its operations and took a restructuring and severance
costs of $1.1 million during the fourth quarter of 2014 that negatively affected its operating income in the fourth quarter
of 2014.
During Q3 2014, sales increased 5%, or $2.1 million, from Q2 2014 as a result of Caylloma’s and San Jose’s provisional
sales increasing $1.9 million and $3.8 million, respectively, and being offset by negative price and mark-to-market
adjustments that increased $1.0 million and $2.1 million, respectively. During Q3 2014, operating income increased
73% to $13.2 million from Q2 2014 as selling, general and administrative expenses decreased $5.1 million, or 60%, to
$3.5 million. The decrease in selling, general and administrative expenses is mainly attributed to the positive effect of
mark-to-market effects on share-based compensation of $4.1 million over Q2 2014.
During Q2 2014, sales decreased 3%, or $1.2 million, from Q1 2014 as a result of San Jose’s provisional sales declining
$1.9 million, offset by positive adjustments of $0.7 million. San Jose’s provisional sales of silver and gold declined 2%
and 5%, respectively, from Q1 2014, along with lower realized silver metal and gold prices of 3% and 1%, respectively.
During Q1 2014, sales increased 25% from Q4 2013 as a result of increases in silver and gold sold, of 17% and 29%,
respectively, offset by a lower realized silver metal price of 2%. Mine operating earnings increased 66% from Q4 2013
because of increased sales and the Company’s continuing efforts to contain costs. In Q4 2013, a net loss reflected a
non-cash impairment charge of $10.2 million, net of tax (Q3 2013: $nil), and a non-cash income tax provision of $7.7
million resulting from Mexico’s special mining royalty.
During Q3 2013, mine operating earnings increased from Q2 2013 in part as a result of the Company’s implementation
of efforts to contain costs. As part of the Company’s cost-reduction program, the Company recorded a $0.5 million
restructuring and severance costs in Q3 2013 covering 65 positions. In Q2 2013, the Company recorded a non-cash
impairment charge, related to the Caylloma Mine, of $15.0 million before tax and a non-cash write-off of mineral
properties, plant, and equipment of $0.4 million related to the San Luisito concessions that negatively affected operating
income.
Fourth Quarter 2014 Financial Results
Fourth quarter 2014 net income amounted to $0.1 million (Q4 2013: loss $14.9 million), resulting in basic earnings per
share of $nil (Q4 2013: loss $0.12). Net income in Q4 2014 was negatively affected by restructuring and severance
costs of $1.1 million and higher mark-to-market effects on share-based compensation to $1.4 million compared to Q4
2013. Silver sold increased 16% to 1,611,313 ounces while the realized silver price decreased 21% to $16.33 per
ounce from the same period in the prior year.
For the three months ended December 31, 2014, the Company’s adjusted net income was $0.2 million (2013: $3.0
million) related to the non-cash impairment of inventories of $0.1 million (refer to non-GAAP financial measures). The
decrease in adjusted net income was driven by lower silver price, a $1.1 million restructuring and severance costs and
a higher share-based compensation expense.
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
45
For the three months ended December 31, 2013, the Company’s adjusted net income was $3.0 million after adjustments
for the non-cash impairment charge of $10.2 million, net of tax, and after a one-time non-cash income tax provision of
$7.7 million resulting from the initial recognition of the Mexican mining tax reform.
Mine operating earnings decreased 4% from Q4 2013, while gross margins (mine operating earnings over sales)
decreased from 29% to 26%. The impact of lower metal prices on gross margins was partially offset by lower unit cash
costs at San Jose (down 5%), and by higher head grades for silver and gold.
Cash flow from operations, before changes in working capital, decreased 11% to $10.0 million (Q4 2013: $11.2 million)
driven by lower metal prices.
Operating cash flow per share, before changes in working capital items, decreased to $0.08 (Q4 2013: $0.09) (refer to
non-GAAP financial measures).
Sales for Q4 2014 were $37.8 million (Q4 2013: $36.4 million). Silver and gold ounces sold increased 16% and 29%,
respectively, while realized prices for silver and gold decreased 21% and 6%, respectively. Sales at San Jose increased
15% to $23.0 million (Q4 2013: $20.0 million), as a result of higher production. Sales by Caylloma decreased 9% to
$14.8 million (Q4 2013: $16.3 million), as a result of lower realized prices for silver.
Sales comprised 61% silver and 20% gold, compared with 66% and 16%, respectively, in the prior year.
The Company’s metal concentrates are provisionally priced at the time of sale based on the prevailing commodity market
price. Final prices are set in a period subsequent to the date of sale based on a specified quotational period, either one,
two, or three months after delivery. Under current sales contracts, final pricing for all concentrates takes place one month
after the month of sale. Our recorded sales during the fourth quarter consisted of provisional sales of $38.4 million (Q4
2013: $38.7 million); negative price and mark-to-market adjustments of $0.5 million (Q4 2013: negative $1.0 million);
and negative assay adjustments of $0.1 million (Q4 2013: negative $1.3 million).
The net realized prices shown below are calculated based on provisional sales pricing and on contained metals in
concentrate sold and after accounting for payable metal deductions, treatment, and refining charges before government
royalties. To establish the net realized price for silver, treatment charges on our mineral concentrates are allocated to
the base metals at Caylloma and to gold at San Jose. The Company has not hedged its exposure to metal price risks.
QUARTERLY RESULTS
Three months ended December 31,
2014
2013
Sales and Realized Prices
Caylloma
San Jose
Consolidated
Caylloma
San Jose
Consolidated
Provisional Sales
Adjustments*
Sales
Silver
Provisional Sales (oz)
Realized Price ($/oz)**
Net Realized Price ($/oz)***
Gold
Provisional Sales (oz)
Realized Price ($/oz)**
Net Realized Price ($/oz)***
Lead
Provisional Sales (000's lb)
Realized Price ($/lb)**
Net Realized Price ($/lb)***
Zinc
Provisional Sales (000's lb)
Realized Price ($/lb)**
Net Realized Price ($/lb)***
15,260,751
(429,376)
14,831,374
23,123,753
(132,291)
22,991,462
38,384,504
(561,668)
37,822,837
16,914,394
(572,594)
16,341,801
21,817,857
(1,782,823)
20,035,034
38,732,251
(2,355,416)
36,376,835
544,603
16.41
14.07
1,066,710
16.28
14.48
1,611,313
16.33
14.34
546,633
20.70
17.96
848,156
20.74
18.95
1,394,789
20.72
18.56
318
1,204.32
701.67
8,452
1,192.43
908.15
8,770
1,192.86
900.66
642
1,266.41
1,013.68
6,158
1,274.33
933.06
6,801
1,273.58
940.67
4,181
0.90
0.68
6,954
1.01
0.65
–
–
–
–
–
–
4,181
0.90
0.68
6,954
1.01
0.65
3,789
0.96
0.71
6,532
0.86
0.57
–
–
–
–
–
–
3,789
0.96
0.71
6,532
0.86
0.57
* Adjustments consists of mark to market and 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
<< Financial Review Table of Contents
46
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Cost of sales for Q4 2014 increased 7% to $27.8 million (Q4 2013: $26.0 million), driven by a 16% higher tonnage of
concentrate sold. Direct mining costs increased $1.4 million to $21.5 million (Q4 2013: $20.1 million). Depletion and
depreciation increased $0.1 million to $5.4 million (Q4 2013: $5.3 million).
Workers’ participation for San Jose increased $0.4 million to $0.5 million (Q4 2013: $0.1 million).
(Refer to non-GAAP financial measures for the reconciliation of cash cost to the cost of sales.)
Direct mining costs 1
Workers' participation
Depletion and depreciation
Royalty expenses
Expressed in $ millions
Three months ended December 31,
2014
2013
Caylloma
San Jose
Total
Caylloma
San Jose
Total
$ 10.8
0.1
2.0
0.2
$ 13.1
$ 10.7
0.5
3.4
0.1
$ 14.7
$ 21.5
0.6
5.4
0.3
$ 27.8
$ 10.4
0.3
2.0
0.2
$ 12.9
$ 9.7
0.1
3.3
–
$ 13.1
$ 20.1
0.4
5.3
0.2
$ 26.0
1 Direct mining costs includes salaries and other short term benefits, contractor charges, energy, consumables and production related
costs.
Selling, general and administrative expenses for Q4 2014 increased 46%, or $1.6 million, to $5.2 million (Q4 2013: $3.6
million). The main driver for the increase was the rise in share-based payments to $1.4 million, compared with the same
period in the prior year, mostly related to mark-to-market effects, in particular the increase in share price.
General and administrative expenses consist primarily of corporate office and subsidiary expenses, such as salaries
and payroll-related costs for executives and management. These expenses include administrative, legal, financial,
information technology, and human and organizational development, procurement, and professional service fees. General
and administrative expenses for Q4 2014 decreased 7% to $3.6 million (Q4 2013: $4.1 million).
Expressed in $ millions
Years ended December 31,
General and administrative expenses
Foreign exchange
Share-based payments
Workers' participation
2014
2013
Corporate
Bateas
Cuzcatlan
Total
Corporate
Bateas
Cuzcatlan
Total
$ 2.1
(0.3)
1.4
–
$ 3.2
$ 0.9
0.2
–
–
$ 1.1
$ 0.6
0.2
–
0.1
$ 0.9
$ 3.6
0.1
1.4
0.1
$ 5.2
$ 2.6
(0.6)
0.1
–
$ 2.1
$ 0.7
–
–
–
$ 0.7
$ 0.8
–
–
–
$ 0.8
$ 4.1
(0.6)
0.1
–
$ 3.6
Restructuring and severance costs for Q4 2014 amounted to $1.1 million (Q4 2013: $nil) and pertained to the Company’s
cost-reduction program, and include all salaries and post-employment costs.
Write-off of mineral properties, plant and equipment for Q4 2014 amounted to $nil (Q4 2013: $0.1 million, pertaining
to the San Luisito concessions).
Impairment of mineral properties, plant and equipment for Q4 2014 amounted to $nil (Q4 2013: $15.0 million related
to the impairment of Caylloma as a result of declining silver prices recorded in Q4 2013).
Impairment of inventories for Q4 2014 amounted to $0.1 million (Q4 2013: $0.1 million) and related to the write-down
of materials in inventory to their net realizable value.
Interest income for Q4 2014 amounted to $0.1 million (Q4 2013: $0.1 million).
Interest expense for Q4 2014 amounted to $0.3 million (Q4 2013: $0.2 million).
Income taxes for Q4 2014 decreased to $3.4 million (Q4 2013: $6.4 million) mainly because of no further impact of the
Mexico special mining royalty on deferred income tax along with an increase in current taxes in Mexico even after
accelerating the depletion of Mexico mining rights.
In Q4 2013, income taxes included a $4.8 million tax impact related to the impairment charge of Caylloma and to the
deferred income provision of $7.7 million resulting from the Mexico special mining royalty.
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
47
The following table summarizes the details of income taxes by region and component:
Expressed in $ millions
Years ended December 31,
2014
Income Taxes
Peru
Mexico
Total
Peru
Current income tax
Deferred income tax
$ 0.2
0.8
$ 1.0
$ 1.9
0.5
$ 2.4
$ 2.1
1.3
$ 3.4
$ 1.6
(4.7)
$ (3.1)
2013
Mexico
$ –
9.5
$ 9.5
Total
$ 1.6
4.8
$ 6.4
Non-GAAP Financial Measures
Cash cost per payable ounce of silver and cash cost per tonne of processed ore (non-GAAP financial
measure)
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 Company’s performance. Cash costs are 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 costs per tonne of processed ore and cash costs per payable ounce
of silver to the cost of sales in the consolidated financial statements for the three months and the years ended December
31, 2014 and 2013:
Consolidated Mine Cash Cost
Cost of sales 1
Add / (Subtract):
Change in concentrate inventory
Depletion and depreciation in
concentrate inventory
Government royalties and mining taxes
Workers participation
Depletion and depreciation
Cash cost (A)
Cash cost (A)
Add / (Subtract):
By-product credits from gold, lead, and zinc
Refining charges
Expressed in $‘000’s
Q4 2014
27,771
YTD
Q4 2014
113,753
Q4 2013
26,004
YTD
Q4 2013
95,619
235
(901)
562
(472)
(70)
(298)
(519)
(5,419)
21,700
21,700
(15,356)
1,899
211
(1,388)
(4,291)
(22,643)
84,741
84,741
(63,198)
7,920
29,463
(132)
(218)
(353)
(5,327)
20,536
20,536
(13,181)
1,809
9,164
194
(749)
(1,078)
(19,114)
74,400
74,400
(50,105)
6,794
31,089
Cash cost applicable per payable ounce (B)
8,243
Payable ounces of silver production (C)
1,549,464
6,287,593
1,396,295
4,420,241
Cash cost per ounce of payable silver
($/oz) (B/C)
5.32
4.69
6.56
7.03
1
Includes depletion, depreciation, distribution, community relations, government royalties and mining taxes, and workers participation
<< Financial Review Table of Contents
48
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
San Jose Mine Cash Cost
Cost of sales 1
Add / (Subtract):
Change in concentrate inventory
Depletion and depreciation in
concentrate inventory
Government royalties and mining taxes
Workers participation
Depletion and depreciation
Cash cost (A)
Expressed in $‘000’s
Q4 2014
14,661
YTD
Q4 2014
62,622
Q4 2013
13,080
YTD
Q4 2013
41,947
366
(1,006)
462
105
(98)
(71)
(456)
(3,425)
10,977
232
(487)
(3,556)
(15,161)
42,644
(113)
–
(81)
(3,320)
10,028
117
–
(81)
(9,520)
32,568
Total processed ore (tonnes) (B)
181,702
676,959
158,218
456,048
Cash cost per tonne of processed ore
($/t) (A/B)
Cash cost (A)
Add / (Subtract):
By-product credits from gold
Refining charges
Cash cost applicable per payable ounce (C)
60.41
10,977
(7,791)
1,071
4,257
62.99
42,644
(32,244)
4,369
14,769
63.38
10,028
(6,017)
881
4,892
71.41
32,568
(19,775)
3,007
15,800
Payable ounces of silver production (D)
1,031,736
4,195,180
880,961
2,421,383
Cash cost per ounce of payable silver
($/oz) (C/D)
Mining cost per tonne
Milling cost per tonne
Indirect cost per tonne
Community relations cost per tonne
Distribution cost per tonne
Total production cost per tonne
4.13
32.73
14.11
7.94
1.53
4.10
60.41
3.52
31.51
16.08
9.18
1.25
4.97
62.99
5.55
34.21
14.27
9.44
1.08
4.38
63.38
6.53
34.50
16.95
13.19
1.88
4.89
71.41
1
Includes depletion, depreciation, distribution, community relations, government royalties and mining taxes, and workers participation
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
49
Caylloma Mine Cash Cost
Cost of sales 1
Add / (Subtract):
Change in concentrate inventory
Depletion and depreciation in
concentrate inventory
Government royalties and mining taxes
Workers participation
Depletion and depreciation
Cash cost (A)
Expressed in $‘000’s
YTD
Q4 2014
51,131
Q4 2013
12,924
YTD
Q4 2013
53,672
Q4 2014
13,110
(131)
105
100
(577)
28
(227)
(63)
(1,994)
10,723
(21)
(901)
(735)
(7,482)
42,097
(19)
(218)
(272)
(2,007)
10,508
77
(749)
(997)
(9,594)
41,832
Total processed ore (tonnes) (B)
117,060
464,823
116,127
458,560
Cash cost per tonne of processed ore
($/t) (A/B)
Cash cost (A)
Add / (Subtract):
By-product credits from gold, lead, and zinc
Refining charges
Cash cost applicable per payable ounce (C)
91.60
10,723
(7,565)
828
3,986
90.57
42,097
(30,954)
3,551
14,694
90.49
10,508
(7,164)
928
4,272
91.22
41,832
(30,330)
3,787
15,289
Payable ounces of silver production (D)
517,728
2,092,413
515,334
1,998,858
Cash cost per ounce of payable silver
($/oz) (C/D)
Mining cost per tonne
Milling cost per tonne
Indirect cost per tonne
Community relations cost per tonne
Distribution cost per tonne
Total production cost per tonne
7.70
44.16
15.41
22.61
0.94
8.48
91.60
7.02
43.58
15.32
22.67
0.65
8.35
90.57
8.29
40.10
15.31
24.95
2.00
8.13
90.49
7.65
39.38
15.02
23.55
4.56
8.71
91.22
1
Includes depletion, depreciation, distribution, community relations, government royalties and mining taxes, and workers participation
<< Financial Review Table of Contents
50
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
All-in cash cost per payable ounce of silver (non-GAAP financial measure)
The Company believes that “all-in sustaining costs” and “all-in costs” will better meet the needs of analysts, investors,
and other stakeholders of the Company in understanding the costs associated with producing silver, the economics of
silver mining, the Company’s operating performance, and the Company’s 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. Effective June 30, 2013,
the Company conformed its all-in sustaining definition to that set out in the guidance note released by the World Gold
Council (“WGC,” a non-regulatory market development organization for the gold industry whose members comprise global
senior gold mining companies) on June 27, 2013, and that came into effect January 1, 2014. The comparative periods
have been restated accordingly.
All-in sustaining costs and all-in costs 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 the IFRS. Although the WGC has published a standardized definition, companies
may calculate these measures differently.
All-in sustaining costs include total production cash costs incurred at the Company’s mining operations, which form the
basis of the Company’s by-product cash costs. Additionally, the Company includes sustaining capital expenditures,
corporate selling, general and administrative expenses, and brownfields exploration expenditures. The Company believes
that this measure represents the total costs of producing silver from operations and provides the Company and
stakeholders of the Company with additional information on the Company’s operational performance and ability to
generate cash flows. As the measure seeks to reflect the full cost of silver production from operations, new project
capital is not included. Certain other cash expenditures, including tax payments, dividends, and financing costs, are also
not included. The Company reports this measure on a silver ounce sold basis.
The following tables provide a reconciliation of all-in sustaining costs per ounce to the consolidated financial statements
for the three months and the years ended December 31, 2014 and 2013:
Consolidated Mine All-in Cash Cost
Expressed in $‘000’s
Q4 2014
8,243
298
629
1,495
10,665
2,107
5,383
1,232
19,387
846
YTD
Q4 2014
29,463
1,388
5,321
6,877
43,049
10,825
30,395
6,757
91,026
1,704
Q4 2013
9,164
218
463
1,336
11,181
2,537
6,754
1,162
21,634
1,196
YTD
Q4 2013
31,089
749
1,306
6,084
39,228
10,253
30,728
10,198
90,407
8,910
20,233
1,549,464
92,730
6,287,593
22,830
1,396,295
99,317
4,420,241
12.51
13.06
14.48
14.75
15.49
16.35
20.45
22.47
Cash cost applicable per payable ounce
Government royalty and mining tax
Workers’ participation
Selling, general and administrative
expenses (operations)
Adjusted operating cash cost
Selling, general and administrative
expenses (corporate)
Sustaining capital expenditures 1
Brownfields exploration expenditures 1
All-in sustaining cash cost
Non-sustaining capital expenditures 1
All-in cash cost
Payable ounces of silver operations
All-in sustaining cash cost per payable
ounce of silver
All-in cash cost per payable ounce of silver
1
presented on a cash basis
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
51
San Jose Mine All-in Cash Cost
Cash cost applicable per payable ounce
Government royalty and mining tax
Workers’ participation
Selling, general and administrative
expenses (operations)
Adjusted operating cash cost
Sustaining capital expenditures 1
Brownfields exploration expenditures 1
All-in sustaining cash cost
Non-sustaining capital expenditures 1
All-in cash cost
Payable ounces of silver operations
All-in sustaining cash cost per payable
ounce of silver
All-in cash cost per payable ounce of silver
1 presented on a cash basis
Caylloma Mine All-in Cash Cost
Cash cost applicable per payable ounce
Government royalty and mining tax
Workers' participation
Selling, general and administrative
expenses (operations)
Adjusted operating cash cost
Sustaining capital expenditures 1
Brownfields exploration expenditures 1
All-in sustaining cash cost
Non-sustaining capital expenditures 1
All-in cash cost
Payable ounces of silver operations
All-in sustaining cash cost per payable
ounce of silver
All-in cash cost per payable ounce of silver
1 presented on a cash basis
Expressed in $‘000’s
Q4 2014
4,257
71
570
634
5,532
3,037
1,146
9,715
680
YTD
Q4 2014
14,769
487
4,445
3,466
23,167
21,477
5,978
50,622
1,551
Q4 2013
4,892
–
101
743
5,736
2,751
1,006
9,493
1,196
YTD
Q4 2013
15,800
–
101
3,347
19,248
13,045
6,180
38,473
8,910
10,395
1,031,736
52,173
4,195,180
10,689
880,961
47,383
2,421,383
9.42
10.08
12.07
12.44
10.78
12.13
15.89
19.57
Expressed in $‘000’s
Q4 2014
3,986
227
73
861
5,147
2,346
86
7,579
166
YTD
Q4 2014
14,694
901
859
3,411
19,865
8,918
779
29,562
153
Q4 2013
4,272
218
315
593
5,398
4,003
156
9,557
–
YTD
Q4 2013
15,289
749
1,158
2,737
19,933
17,683
4,018
41,634
–
7,745
517,728
29,715
2,092,413
9,557
515,334
41,634
1,998,858
14.64
14.96
14.13
14.20
18.55
18.55
20.83
20.83
Adjusted net income (non-GAAP financial measure)
The Company uses the financial measures “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 to evaluate the Company’s performance. The term
“adjusted net income” does not have a standardized meaning prescribed by IFRS, and therefore the Company’s definitions
are unlikely to be comparable to similar measures presented by other companies.
<< Financial Review Table of Contents
52
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Expressed in $ millions
NET INCOME (LOSS) FOR THE YEAR
Items of note, net of tax:
Write-off of mineral properties
Impairment of mineral properties, plant
and equipment
Impairment of inventories
Initial recognition impact of Mexican
mining tax reform
2014
$ 0.1
–
–
$ 0.1
–
Three months ended December 31,
2013
Years ended December 31,
2014
2013
$ (14.9)
$ 15.6
$ (19.1)
–
10.2
–
7.7
–
–
0.1
–
0.4
20.4
–
7.7
$ 9.4
ADJUSTED NET INCOME FOR THE YEAR 1
$ 0.2
$ 3.0
$ 15.7
1
A non-GAAP financial measure
Additional Measures (non-GAAP financial measures)
The Company uses other financial measures the presentation of which is not meant to be a substitute for other subtotals
or totals presented in accordance with IFRS, but rather should be evaluated in conjunction with such IFRS measures.
The following other financial measures are used: operating cash flow per share before changes in working capital, and
mine operating earnings. The terms described below do not have standardized meaning prescribed by IFRS, and therefore
the Company’s definitions are unlikely to be comparable to similar measures presented by other companies. The
Company’s management believes that their presentation provides useful information to investors.
Operating cash flow per share before changes in working capital (non-GAAP financial measure)
Net income (loss) for the year
Items not involving cash
Income taxes paid
Interest expense paid
Interest income received
Cash generated by operating activities
before changes in working capital
Divided by
Weighted average number of shares (‘000’s)
Operating cash flow per share before
changes in working capital 1
1
A non-GAAP financial measure
Expressed in $‘000’s (except per share measures)
Three months ended December 31,
2014
2013
Years ended December 31,
2014
2013
$ 57
10,712
$ 10,769
(890)
–
87
$ (14,930)
27,456
$ 12,526
(1,408)
(3)
69
$ 15,602
47,295
$ 62,897
(3,417)
(4)
275
$ (19,100)
63,851
$ 44,751
(4,430)
(20)
608
$ 9,966
$ 11,184
$ 59,751
$ 40,909
127,700
125,974
126,787
125,553
$ 0.08
$ 0.09
$ 0.47
$ 0.33
Mine operating earnings (non-GAAP financial measure)
Three months ended December 31,
2014
2013
Years ended December 31,
2014
2013
Expressed in $’000’s
$ 37,823
27,771
$ 10,052
$ 36,377
26,004
$ 10,373
$ 174,006
113,753
$ 137,394
95,619
$ 60,253
$ 41,775
Sales
Cost of sales
Mine operating earnings 1
1
A non-GAAP financial measure
<< Financial Review Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
53
Liquidity and Capital Resources
Full-Year 2014 Liquidity and Capital Resources
The capital of the Company consists of equity and an available credit facility, net of cash. The Board of Directors has not
established a quantitative return on capital criteria for management. The Company manages the capital structure and
makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.
The Company’s cash and cash equivalents as at December 31, 2014, totaled $42.9 million (December 31, 2013: $31.7
million), and short term investments totaled $34.4 million (December 31, 2013: $17.4 million).
Working capital for the year ended December 31, 2014 increased $16.0 million, to $82.4 million (December 31, 2013:
$66.4 million). This reflects the increases in cash and cash equivalents of $11.2 million, short term investments of
$17.0 million, accounts receivable and other assets of $3.5 million, and a decrease in the current portion of other
liabilities of $0.3 million. The increase in working capital was offset by a decrease in inventories of $0.6 million, and
increases in trade and other payables of $5.6 million, provisions of $0.1 million, and income taxes payable of $9.7
million.
During the year ended December 31, 2014, cash and cash equivalents increased $11.5 million (2013: decreased $26.4
million). The increase was due to net cash provided by operating activities of $60.2 million, net cash used in investing
activities of $57.0 million, and net cash provided by financing activities of $8.2 million. Exchange rate changes had a
negative impact of $0.3 million on cash and cash equivalents. Compared with 2013, the Company’s expenditures on
mineral properties, plant and equipment decreased $21.6 million, net purchases of short-term investments increased
$5.9 million, cash provided by operating activities increased $15.2 million, and exchange rate changes decreased $0.3
million.
During the year ended December 31, 2014, cash generated by operating activities before changes in non-cash working
capital items, income taxes paid, and interest income paid and received was $59.8 million (2013: $40.9 million). Net
cash provided by operating activities amounted to $60.2 million (2013: $45.0 million). This includes income taxes paid
and interest income paid and received of $3.1 million (2013: $3.8 million) and changes in non-cash working capital
items of $0.4 million (2013: $4.0 million).
Cash used by the Company in investing activities for the year ended December 31, 2014, totaled $57.0 million (2013:
$71.7 million) and comprised of the following:
• $18.0 million (2013: $12.1 million) in net purchases of short-term investments,
• $38.9 million (2013: $60.5 million) in expenditures on mineral properties, plant and equipment, and
• $0.1 million in net advances (2013: net receipts $0.9 million) on deposits on long-term assets.
Investing activities included $38.9 million of expenditures on mineral properties, plant and equipment that comprised of
the following $20.8 million for plant and equipment, $1.4 million for infill drilling, $9.9 million for mine development, and
$6.8 million for brownfields exploration.
During the year ended December 31, 2014, cash provided by financing activities totaled $8.2 million (2013: provided
$0.3 million) and comprised the repayment of finance lease obligations of $0.3 million (2013: $0.4 million) and net
proceeds on the issuance of common shares of $8.5 million (2013: $0.7 million).
Fourth Quarter 2014 Liquidity and Capital Resources
During the three months ended December 31, 2014, cash and cash equivalents increased $2.4 million (Q4 2013:
increased $0.7 million). The increase was due to net cash provided by operating activities of $9.3 million, net cash used
in investing activities of $11.7 million, and net cash provided by financing activities of $4.8 million. Exchange rate changes
had no impact on cash and cash equivalents. Compared with Q4 2013, the Company’s expenditures on mineral
properties, plant and equipment decreased $1.7 million, net purchase of short-term investments decreased $4.2 million,
cash provided by operating activities decreased $7.5 million, and exchange rate changes decreased by $0.3 million.
During the three months ended December 31, 2014, cash generated by operating activities before changes in non-cash
working capital items, income taxes paid, and interest income paid and received was $10.0 million (Q4 2013: $11.2
million). Net cash provided by operating activities amounted to $9.3 million (Q4 2013: $16.8 million). This includes
income taxes paid and interest income paid and received of $0.8 million (Q4 2013: $1.3 million) and changes in non-
cash working capital items of $0.7 million (Q4 2013: $5.6 million).
Cash used by the Company in investing activities for the three months ended December 31, 2014, totaled $11.7 million
(Q4 2013: $16.0 million) and comprised of the following:
• $3.2 million (Q4 2013: $7.4 million) in net purchases of short-term investments,
• $7.5 million (Q4 2013: $9.2 million) in expenditures on mineral properties, plant and equipment, and
• $1.0 million in net advances (Q4 2013: net receipts $0.6 million) on deposits on long-term assets.
<< Financial Review Table of Contents
54
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Investing activities included $7.5 million of expenditures on mineral properties, plant and equipment that comprised of
the following: $3.9 million for plant and equipment, $2.4 million for mine development, and $1.2 million for brownfields
exploration.
During the three months ended December 31, 2014, cash provided by financing activities totaled $4.8 million (Q4 2013:
$0.1 million) and comprised the repayment of finance lease obligations of $nil (Q4 2013: $0.1 million) and net proceeds
on the issuance of common shares of $4.8 million (Q4 2013: $nil).
Contractual Obligations
The Company expects the following maturities of its financial liabilities (including interest), finance leases, and other
contractual commitments:
Trade and other payables
Income tax payable
Long term liabilities
Operating leases
Provisions
Expressed in $ millions
Expected payments due by period as at December 31, 2014
Less than
1 year
$ 21.5
9.7
–
0.7
1.0
$ 32.9
1–3 years
4–5 years
$ –
–
4.7
1.3
0.9
$ 6.9
$ –
–
–
0.1
1.6
$ 1.7
After
5 years
$ –
–
–
–
11.4
$ 11.4
Total
$ 21.5
9.7
4.7
2.1
14.9
$ 52.9
Operating leases includes leases for office premises, computer and other equipment used in the normal course of
business.
Capital Commitments (expressed in $‘000’s)
As at December 31, 2014, there are no capital commitments.
Other Commitments (expressed in $‘000’s)
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 3,500 kW) and the Company
“is obligated to purchase subject to exemptions under provisions of “Force Majeure”. The contract is automatically
renewed every two years for a period of 10 years and expiring in 2017. Renewal can be avoided without penalties by
notification 10 months in advance of the renewal date.
Tariffs are established annually by the energy market regulator in accordance with applicable regulations in Peru. The
minimum committed demand is $19 per month and the average monthly charge for 2014 is $202.
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 December 31, 2014 are as follows:
Expressed in $‘000’s
Expected payments due by period as at December 31, 2014
Less than
1 year
$ 132
396
15
$ 543
185
17
1–3 years
4–5 years
Total
$ 452
$ 580
–
$ 1,032
164
–
$ 126
–
–
$ 126
–
–
$ 710
976
15
$ 1,701
349
17
$ 202
$ 164
$ –
$ 366
–
$ –
$ 745
79
$ 79
$ 1,275
–
$ –
$ 126
79
$ 79
$ 2,146
Office premises – Canada
Office premises – Peru
Office premises – Mexico
Total office premises
Computer equipment – Peru
Computer equipment – Mexico
Total computer equipment
Machinery – Mexico
Total machinery
Total operating leases
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MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
55
Tax Contingencies (expressed in $’000’s)
The Company has been assessed taxes and related interest and penalties, in Peru by SUNAT, for tax years 2010, 2011,
and 2012, in the amounts of $1,161, $740, and $110, respectively, for a total of $2,011. The Company is currently
appealing the assessments and believes the appeals with be ruled in favor of the Company. Subsequent to December
31, 2014, the Company has provided as a guarantee by way of letter bond in the amount of $776.
Other Contingencies
The Company is subject to various investigations, 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 which may result in a loss to the Company. In the opinion of management, none
of these matters are expected to have a material effect on the results of operations or financial conditions of the Company.
Guarantees and Indemnifications (expressed in $’000’s)
The Company may provide guarantees and indemnifications in conjunction with transactions in the normal course of
operations. These are recorded as liabilities when reasonable estimates of the obligations can be made. Indemnifications
that the Company has provided include the obligation to indemnify the following:
• directors and officers of the Company and its subsidiaries for potential liability while acting as a director or
officer of the Company, together with various expenses associated with defending and settling such suits or
actions due to association with the Company; and,
• certain vendors of an acquired company for obligations that may or may not have been known at the date of the
transaction.
The dollar value of guarantees and indemnifications cannot be reasonably estimated.
The Caylloma Mine closure plan was approved in November 2009 with total closure costs of $3,587 of which $1,756 is
subject to annual collateral in the form of a letter of guarantee, to be awarded each year in increments of $146 over 12
years based on the estimated life of the mine. In March 2013 the closure plan was updated with total closure costs of
$7,996 of which $4,167 is subject to annual collateral in the form of a letter of guarantee.
Scotiabank Peru, a third party, has established a bank letter of guarantee on behalf of Bateas in favor of the Peruvian
mining regulatory agency in compliance with local regulation and to collateralize Bateas’ mine closure plan, in the amount
of $1,842 (2013: $1,204). This bank letter of guarantee expires on December 31, 2015.
Scotiabank Peru, a third party, has established a bank letter of guarantee on behalf of Bateas in favor of the Peruvian
Energy and Mining Ministry to collateralize Bateas’s regulatory compliance with the electric transmission line project, in
the amount of $3 (2013: $3). This bank letter of guarantee expires on December 6, 2015
Scotiabank Peru, a third party, has established a bank letter of guarantee, for office rental, on behalf of Bateas in favor
of Centro Empresarial Nuevo Mundo S.A.C., in the amount of $58. This bank letter of guarantee expires on July 18,
2015.
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, other than those disclosed in this MD&A and the consolidated financial statements and the related
notes.
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56
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Related Party Transactions
(expressed in $’000’s)
a) Purchase of Goods and Services
The Company entered into the following related party transactions:
Salaries and wages 1,2
Other general and administrative expenses 2
Three months ended December 31,
Years ended December 31,
Expressed in $’000’s
2014
$ 15
16
$ 31
2013
$ 15
21
$ 36
2014
$ 83
108
$ 191
2013
$ 86
130
$ 216
1
Salaries and wages includes employees' salaries and benefits charged to the Company based on a percentage of the estimatedhours
worked for the Company.
2 Radius Gold Inc. (“Radius”) has directors in common with the Company and shares office space, and is reimbursed for general overhead
costs incurred on behalf of the Company. Gold Group Management Inc. ("Gold Group"), which is owned by a director in common with
the Company, provides various administrative, management, and other related services.
In 2013, the Company issued 11,415 common shares of the Company, at a fair market value of $4.38 per share and
paid $50 cash to Radius, under the option to acquire a 60% interest in the Tlacolula silver project located in the State
of Oaxaca, Mexico.
Subsequent to December 31, 2014, the Company paid $50 under the option agreement to Radius.
b) Key Management Compensation
key management includes all persons named or performing the duties of Vice-President, Chief Financial Officer, President,
Chief Executive Officer, and non-executive Directors of the Company. The compensation paid or payable to key
management for services is shown below:
Salaries and other short term
employee benefits
Directors fees
Consulting fees
Share-based payments
Three months ended December 31,
2014
2013
Years ended December 31,
2014
2013
Expressed in $’000’s
$ 1,292
97
40
1,437
$ 2,866
$ 884
106
43
(14)
$ 1,019
$ 4,828
390
163
6,178
$ 11,559
$ 2,849
409
175
2,683
$ 6,116
Consulting fees includes fees paid to two non-executive directors in both 2014 and 2013.
c) Period End Balances Arising From Purchases of Goods/Services
On October 10, 2012, the Company paid Gold Group Management Inc., which is owned by a director in common with the
Company, a retainer of $61 representing three months deposit under a services agreement effective July 1, 2012.
Amounts due from related parties
Expressed in $‘000’s
December 31,
2014
December 31,
2013
Owing to company(ies) with common directors 3
$ 9
$ 20
3 Owing to Gold Group Management Inc. ("Gold Group)" who has a director in common with the Company.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
57
Significant Accounting Judgments and Estimates
The preparation of the unaudited condensed interim consolidated financial statements (“Financial Statements”) requires
management to make judgments and estimates that affect the reported amounts of assets and liabilities at the date of
the Financial Statements and reported amounts of expenses during the reporting period. Actual outcomes could differ
from these judgments and estimates. The Financial Statements include judgments and estimates which, by their nature,
are uncertain. The impacts of such judgments and estimates are pervasive throughout the 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 the revision affects both current and future periods.
Significant assumptions about the future and other sources of judgments and estimates that management has made at
the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets
and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
i. Critical Judgments
• The analysis of the functional currency for each entity of the Company. In concluding that the United States dollar
functional currency for its Peruvian and Mexican entities and the Canadian and Barbados entities have a Canadian
dollar functional currency, management considered the currency that mainly influences the cost of providing goods
and services in each jurisdiction in which the Company operates. As no single currency was clearly dominant the
Company also considered secondary indicators including the currency in which funds from financing activities are
denominated and the currency in which funds are retained.
• In concluding when commercial production has been achieved, the Company considered the following factors:
• all major capital expenditures to bring the mine to the condition necessary for it to be capable of operating in
the manner intended by management have been completed;
• the mine or mill is operating as per design capacity and metallurgical recoveries were achieved; and,
• the ability to sustain ongoing production of ore at a steady or increasing level.
• The identification of reportable segments, basis for measurement and disclosure of the segmented information.
• The determination of estimated useful lives and residual values of tangible and long lived assets and the
measurement of depreciation expense.
• The identification of impairment indicators, cash generating units and determination of carrying value or fair value
less cost to sell and the write down of tangible and long lived assets.
• Measurement of financial instruments involve significant judgments related to interpretation of the terms of the
instrument, identification, classification, impairment and the overall measurement to approximate fair values.
ii. Estimates
• the recoverability of amounts receivable which are included in the consolidated statements of financial position;
• the estimation of assay grades of metal concentrates sold in the determination of the carrying value of accounts
receivable which are included in the consolidated statements of financial position and included as sales in the
consolidated statements of income;
• the determination of net realizable value of inventories on the consolidated statements of financial position;
• the estimated useful lives of property, plant and equipment which are included in the consolidated statements of
financial position and the related depreciation included in the consolidated statements of income;
• the determination of mineral reserves and the portion of mineral resources expected to be extracted economically,
carrying amount of mineral properties, and depletion of mineral properties included in the consolidated statements
of financial position and the related depletion included in the consolidated statements of income;
• the review of tangible and intangible assets carrying value, the determination of whether these assets are impaired
and the measurement of impairment charges or reversals which are included in the consolidated statements of
income;
• the assessment of indications of impairment of each mineral property and related determination of the net
realizable value and write-down of those properties where applicable;
• the determination of the fair value of financial instruments and derivatives included in the consolidated statements
of financial position;
• the fair value estimation of share-based awards included in the consolidated statements of financial position and
the inputs used in accounting for share-based compensation expense in the consolidated statements of income;
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58
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
• the provision for income taxes which is included in the consolidated statements of income and composition of
deferred income tax asset and liabilities included in the consolidated statement of financial position;
• the recognition of deferred income tax assets, amounts recorded for uncertain tax positions, the measurement of
income tax expense and indirect taxes included in the consolidated statement of financial position;
• the inputs used in determining the net present value of the liability for provisions related to decommissioning and
restoration included in the consolidated statements of financial position; and,
• the inputs used in determining the various commitments and contingencies accrued in the consolidated statements
of financial position.
Financial Instruments and Related Risks
(expressed in (‘000’s)
The Company is exposed to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk, and price
risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework and reviews the Company’s policies on an ongoing basis.
a) Fair Value of Financial Instruments
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.
During the year ended December 31, 2014, there have been no transfers of amounts between Level 1, Level 2, and
Level 3 of the fair value hierarchy.
i. Assets and Liabilities Measured At Fair Value on a Recurring Basis
Fair Value Measurements
Expressed in $’000’s
Quoted Prices in
Active Markets for
Identical Assets
Significant and
Other Observable
Inputs
Significant
Unobservable
inputs
At December 31, 2014
Level 1
Level 2
Level 3
Cash and cash equivalents
Short term investments
Trade receivable from concentrate sales 1
$ 42,867
34,391
–
$ 77,258
$ –
–
16,573
$ 16,573
$ –
–
–
$ –
Aggregate
Fair Value
$ 42,867
34,391
16,573
$ 93,831
1
Trade receivable from concentrate sales includes provisional pricing, and final price and assay adjustments. The fair value of trade
receivable from concentrate sales resulting from provisional pricing reflect observable market commodity prices and thereby classified
within Level 2 of the fair value hierarchy.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
59
Expressed in $’000’s
Quoted Prices in
Active Markets for
Identical Assets
Significant and
Other Observable
Inputs
Significant
Unobservable
inputs
At December 31, 2013
Level 1
Level 2
Level 3
Cash and cash equivalents
Short term investments
Trade receivable from concentrate sales 1
$ 31,704
17,411
–
$ 49,115
$ –
–
9,797
$ 9,797
$ –
–
–
$ –
Aggregate
Fair Value
$ 31,704
17,411
9,797
$ 58,912
ii. Fair Value of Financial Assets and Liabilities
Financial assets
Cash and cash equivalents 1
Short term investments 1
Trade receivable from concentrate sales 2
Advances and other receivables
Financial liabilities
Trade and other payables 1
Due to related parties 1
Other liabilities 3
Income tax payable 1
Expressed in $’000’s
December 31, 2014
Carrying
Amount
Estimated
Fair Value
December 31, 2013
Carrying
Amount
Estimated
Fair Value
$ 42,867
34,391
16,573
2,906
$ 96,737
$ 20,072
9
38
9,745
$ 29,864
$ 42,867
34,391
16,573
2,906
$ 96,737
$ 20,072
9
38
9,745
$ 29,864
$ 31,704
17,411
9,797
3,883
$ 62,795
$ 15,272
20
254
50
$ 15,596
$ 31,704
17,411
9,797
3,883
$ 62,795
$ 15,272
20
258
50
$ 15,600
1
2
Fair value approximates the carrying amount due to the short term nature and historically negible credit losses.
Trade receivable from concentrate sales includes provisional pricing, and final price and assay adjustments. The fair value of trade
receivable from concentrate sales resulting from provisional pricing reflect observable market commodity prices and thereby classified
within Level 2 of the fair value hierarchy.
3 Other liabilities are recorded at amortized costs. The fair value of other liabilities are primarily determined using quoted market prices.
Balance includes current portion of other liabilities.
b) Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company operates
in Canada, Peru and Mexico and a portion of its expenses are incurred in Canadian dollars, nuevo soles, and Mexican
pesos. A significant change in the currency exchange rates between the United States dollar relative to the other
currencies could have a material effect on the Company’s income, financial position, or cash flows. The Company has
not hedged its exposure to currency fluctuations.
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60
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
As at December 31, 2014, the Company is exposed to currency risk through the following assets and liabilities
denominated in Canadian dollars, nuevo soles and Mexican pesos (all amounts are expressed in thousands of Canadian
dollars, thousands of nuevo soles or thousands of Mexican pesos):
Cash and cash equivalents
Short term investments
Accounts receivable and other assets
Deposits on long term assets and long
term borrowing costs
Trade and other payables
Due to related parties
Provisions, current
Income tax payable
Other liabilities
Provisions
December 31, 2014
December 31, 2013
Expressed in ’000’s
Canadian
Dollars
$ 2,695
7,696
897
71
(2,220)
(11)
–
–
(5,376)
–-
Nuevo
Soles
Mexican
Pesos
S/. 8,633
–
4,190
–
(12,387)
–
(767)
(37)
–
(20,710)
$ 56,739
–
15,692
19,096
(117,848)
–
(8,138)
(143,426)
(563)
(73,001)
Canadian
Dollars
$ 2,699
3,286
306
355
(1,181)
(22)
–
–
(2,477)
–
Nuevo
Soles
S/. 619
–
7,917
–
(12,659)
–
(349)
(2,213)
–
(18,544)
Mexican
Pesos
$ 10,994
–
33,818
–
(49,618)
–
(6,499)
–
(350)
(45,499)
Total
$ 3,752 S/. (21,078)
$ (251,449)
$ 2,966
S/. (25,229)
$ (57,154)
Total US$ equivalent
$ 3,226
$ (7,052)
$ (17,084)
$ 2,773
$ (9,023)
$ (4,371)
Based on the above net exposure as at December 31, 2014, and assuming that all other variables remain constant, a
10% depreciation or appreciation of the US dollar against the above currencies would result in an increase or decrease,
as follows: impact to other comprehensive income of $358 (2013: $308) and an impact to net income of $2,682 (2013:
$1,489).
The sensitivity analyses included in the table above should be used with caution as the results are theoretical, based on
management’s best assumptions using material and practicable data which may generate results that are not necessarily
indicative of future performance. In addition, in deriving this analysis, the Company has made assumptions based on
the structure and relationship of variables as at the balance sheet date which may differ due to fluctuations throughout
the year with all other variables assumed to remain constant. Actual changes in one variable may contribute to changes
in another variable, which may amplify or offset the effect on earnings.
c) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its
contractual obligations. The Company’s cash and cash equivalents and short term investments are held through large
Canadian, international, and foreign national financial institutions. These investments mature at various dates within
one year. All of the Company’s trade accounts receivables from concentrate sales are held with large international metals
trading companies.
The Company’s maximum exposure to credit risk as at December 31, 2014 is as follows:
Cash and cash equivalents
Short term investments
Accounts receivable and other assets
Expressed in $‘000’s
December 31,
2014
December 31,
2013
$
42,867
34,391
20,585
$
31,704
17,411
17,040
$
97,843
$
66,155
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum
exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit
risk has not declined significantly from the prior year.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
61
d) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company
manages liquidity risk by continuing to monitor forecasted and actual cash flows. The Company has in place a planning
and budgeting process to help determine the funds required to support the Company’s normal operating requirements
on an ongoing basis and its development plans. The Company strives to maintain sufficient liquidity to meet its short
term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash, short
term investments, and its committed liabilities.
On April 23, 2013, the Company entered into an amended and restated credit agreement with the Bank of Nova Scotia
for a $40 million senior secured revolving credit facility (“credit facility”) to be refinanced or repaid on or within three
years or before April 22, 2016. The credit facility is secured by a first ranking lien on Bateas, Cuzcatlan, Continuum, and
Barbados, and their assets and bears interest and fees at prevailing market rates. In the event that utilization under the
credit facility is less than $10 million, a commitment fee of 1.0% per annum is payable quarterly on the unutilized portion
of the available credit facility. No funds were drawn from this credit facility.
Subsequent to December 31, 2014, the Company is proposing to enter into an amended and restated credit agreement
with the Bank of Nova Scotia for a $60 million senior secured financing (“credit facility”) consisting of a $40 million term
credit facility with a 4 year term and a $20 million revolving credit facility for a two year period. The credit facility is to be
secured by a first ranking lien on Bateas, Cuzcatlan, Continuum, and Barbados, and their assets and bears interest and
fees at prevailing market rates. In the event that utilization under the credit facility is less than $10 million, a commitment
fee of 1.0% per annum is payable quarterly on the unutilized portion of the available credit facility. No funds were drawn
from this credit facility.
(Refer to Contractual Obligations for the expected payments due as at December 31, 2014.)
Significant Changes, Including Initial Adoption of
Accounting Standards
The Company has adopted the following accounting standards along with any consequential amendments, effective
January 1, 2014:
IAS 32 Financial Instruments – Presentation in Respect of Offsetting (Amendment); IFRIC 21 – Levies; and, IAS 36 –
Impairment of Assets – Amendments for Recoverable Amount Disclosures for Non-Financial Asset.
The Company has adopted the following amendments, effective July 1, 2014:
IFRS 2 Share-based Payment – Definition of vesting condition (Amendment)
The amendment to IFRS 2 provides the definitions of vesting condition and market condition and adds definitions for
performance condition and service condition. The amendment is effective for transactions with a grant date on or after
July 1, 2014.
IFRS 3 Business Combinations – Contingent consideration (Amendment)
The amendment to IFRS 3 requires contingent consideration that is classified as an asset or a liability to be measured
at fair value at each reporting date. The amendment is effective for transactions with acquisition dates on or after July
1, 2014.
The Company has adopted the above amendments which did not have a significant impact on the Company’s Financial
Statements.
New Accounting Standards
IFRS 10, Consolidated Financial Statements, and IAS 28, Investments in Associates and Joint Ventures (2011) (Amendment)
On September 11, 2014, the IASB issued narrow-scope amendments to IFRS 10, Consolidated Financial Statements,
and IAS 28, Investments in Associates and Joint Ventures (2011). The amendments address an acknowledged
inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution
of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a
full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A
partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these
assets are housed in a subsidiary. The amendments will be effective from annual periods commencing on or after January
1, 2016.
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62
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
IFRS 11 Joint Arrangements (Amendment)
The amendment to IFRS 11 Joint Arrangements adds new guidance on how to account for the acquisition of an interest
in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such
acquisitions. The amendments are effective for annual periods beginning on or after January 1, 2016, with earlier
application permitted. Transactions before the adoption date are grandfathered.
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets (Amendment)
The amendment to IAS 16 Property, plant and equipment and IAS 38 Intangible assets on depreciation and amortisation
clarifies that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because
revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption
of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be
an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. The
amendment is effective for annual periods starting on or after January 1, 2016, with earlier application permitted.
IFRS 15 Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers specifies how and when revenue should be recognized as well as
requiring more informative and relevant disclosures. The standard supersedes IAS 18 Revenue, IAS 11 Construction
Contracts and a number of revenue-related interpretations. Application of the standard is mandatory and it applies to
nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts.
IFRS 15 is effective for annual periods starting on or after January 1, 2017, with earlier application permitted.
IFRS 9 Financial Instruments - Classification and Measurement
IFRS 9, Financial Instruments: IFRS 9 introduces the new requirements for the classification, measurement and de-
recognition of financial assets and financial liabilities. The amendments are effective for annual periods beginning on or
after January 1, 2018, with earlier application permitted.
IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (Amendment)
The amendment to IFRS 9 Financial Instruments which includes the new hedge accounting requirements and some related
amendments to IAS 39 Financial Instruments; Recognition and Measurement and IFRS 7 Financial Instruments;
Disclosures. IFRS 9 (2013) also replicates the amendments in IAS 39 in respect of novations. The amendments allow
for early adoption of the requirement to present fair value changes due to own credit on liabilities designated as at fair
value through profit or loss to be presented in other comprehensive income. The amendments are effective for annual
periods beginning on or after January 1, 2018, with earlier application permitted.
IFRS 9 Financial Instruments - Expected Credit Losses
On 24 July 2014, the International Accounting Standards Board (IASB) issued the final version of IFRS 9 Financial
Instruments, bringing together the classification and measurement, impairment and hedge accounting phases of the
IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS
9. The amendments are effective for annual periods beginning on or after January 1, 2018. Entities will also have the
option to early apply the accounting for own credit risk-related fair value gains and losses arising on financial liabilities
designated at fair value through profit or loss without applying the other requirements of IFRS 9.
Other Data
Additional information related to the Company is available for viewing at www.sedar.com and the Company’s website at
www.fortunasilver.com.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
63
Share Position and Outstanding Warrants and Options
The Company’s outstanding share position as at March 12, 2015 is 128,845,842 common shares. In addition,
2,636,146 incentive stock options are currently outstanding as follows:
Type of Security
No. of Shares
Incentive Stock Options:
245,000
160,000
10,000
888,880
103,800
250,000
49,084
659,382
250,000
20,000
Exercise
Price
(CAD$)
$4.03
$1.35
$1.75
$3.38
$1.55
$2.22
$6.67
$4.30
$0.85
$0.85
Expiry Date
May 29, 2015
February 5, 2016
May 8, 2016
May 29, 2016
July 5, 2016
January 11, 2017
February 20, 2017
March 23, 2017
October 5, 2018
November 5, 2018
Total Outstanding Options
2,636,146
Other Risks and Uncertainties
For further information regarding the Company’s operational risks, please refer to the section entitled “Description of the
Business – Risk Factors” in the Annual Information Form available at www.sedar.com and www.sec.gov/edgar.shtml.
Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, have
evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in the rules of the SEC
and the Canadian Securities Administrators (“CSA”) as of December 31, 2014, and have concluded that such disclosure
controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 and Canadian securities laws is (i) recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms and Canadian securities laws and (ii)
accumulated and communicated to them Company’s management, including its principal executive officer and principal
financial officer, to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
The Company’s management, with the participation of its CEO and CFO, are responsible for establishing a system of
internal control over financial reporting to provide reasonable assurance regarding the reliability and integrity of the
Company’s financial information and the preparation of its financial statements in accordance with IFRS as issued by the
IASB.
The Company’s management, including its CEO and CFO, believe that due to its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements on a timely basis. Also, projection of any evaluation of the
effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures
may deteriorate.
There has been no change in the Company’s internal control over financial reporting that occurred during the year that
has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Management concludes that, as of December 31, 2014, the Company’s internal control over financial reporting was
effective and no material weaknesses were identified.
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64
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Qualified Persons
Thomas I. Vehrs, Ph.D., Vice President of Exploration, is a Qualified Person for Fortuna Silver Mines Inc. as defined by
National Instrument 43-101. Dr. Vehrs is a Founding Registered Member of the Society for Mining, Metallurgy, and
Exploration, Inc. (SME Registered Member Number 3323430RM) and is responsible for ensuring that the technical
information contained in this Management’s Discussion and Analysis is an accurate summary of the original reports and
data provided to or developed by Fortuna Silver Mines Inc.
Cautionary Statement on Forward-Looking Statements
This MD&A and any documents incorporated by reference into this MD&A contain forward-looking statements which
constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995
and Section 21E of the United States Securities Exchange Act of 1934, as amended, and forward-looking information
within the meaning of applicable Canadian securities legislation (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 MD&A include, without
limitation, statements relating to:
• mineral “reserves” and “resources” as they involve the implied assessment, based on estimates and
assumptions that the reserves and resources described exist in the quantities predicted or estimated and can
be profitably produced in the future;
• timing of the completion of construction activities at the Company’s properties and their completion on budget;
• production rates at the Company’s properties;
• cash cost estimates;
• timing for delivery of materials and equipment for the Company’s properties;
• the sufficiency of the Company’s cash position and its ability to raise equity capital or access debt facilities;
• the Company’s planned processing and estimated major investments for mine development, plant expansion,
filter facility and dry stack tailings deposit project, and brownfields exploration at the San Jose property during
2015;
• the Company’s planned processing and estimated major investments for mine development, plant optimization
and brownfields exploration at the Caylloma property during 2015;
• management’s expectation that there are no off-balance sheet arrangements or commitments that will have a
material effect on the Company’s financial condition other than those disclosed in this MD&A and the
consolidated financial statements;
• maturities of the Company’s financial liabilities, finance leases and other contractual commitments;
• expiry dates of bank letters of guarantee;
• estimated mine closure costs;
• management’s expectation that any investigations, claims, and legal, labor and tax proceedings arising in the
ordinary course of business will not have a material effect on the results of operations or financial condition of
the Company; and,
• management’s belief that there has been no change in the Company’s internal control over financial reporting
that occurred during 2014 that is reasonably likely to materially affect its internal control over financial reporting.
Often, but not always, these Forward-looking Statements can be identified by the use of words such as “anticipates”,
“believes”, “plans”, “estimates”, “expects”, “forecasts”, “scheduled”, “targets”, “possible”, “strategy”, “potential”,
“intends”, “advance”, “goal”, “objective”, “projects”, “budget”, “calculates” or statements that events, “will”, “may”,
“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:
• uncertainty of mineral resource and reserve estimates;
• risks associated with mineral exploration and project development;
• operational risks associated with mining and mineral processing;
• uncertainty relating to concentrate treatment charges and transportation costs;
• uncertainty relating to capital and operating costs, production schedules, and economic returns;
• uncertainties relating to general economic conditions;
• competition;
• substantial reliance on the Caylloma and San Jose mines for revenues;
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MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
65
• risks related to the integration of businesses and assets acquired by the Company;
• risks associated with potential legal proceedings;
• changes in national and local government legislation, taxation, controls, regulations and political or economic
developments in countries in which the Company does or may carry on business;
• fluctuations in metal prices;
• risks associated with entering into commodity forward and option contracts for base metals production;
• environmental matters including potential liability claims;
• reliance on key personnel;
• potential conflicts of interest involving the Company’s directors and officers;
• property title matters;
• dilution from further equity financing;
• currency exchange rate fluctuations;
• adequacy of insurance coverage;
• sufficiency of monies allotted for land reclamation ; and
• potential legal proceedings;
as well as those factors referred to in the “Risks and Uncertainties” section in this MD&A and in the “Risk Factors”
section in the Company’s Annual Information Form filed with the Canadian Securities Administrators and the U.S. Securities
and Exchange Commission and available at www.sedar.com and www.sec.gov/edgar.shtml. 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 in this MD&A are based on the assumptions, beliefs, expectations and opinions
of management, including but not limited to:
• all required third party contractual, regulatory and governmental approvals will be obtained for the exploration,
development, construction and production of its properties;
• there being no significant disruptions affecting operations, whether relating to labor, supply, power, damage to
equipment or other matter;
• permitting, construction, development and expansion proceeding on a basis consistent with the Company’s
current expectations;
• expected trends and specific assumptions regarding metal prices and currency exchange rates;
• prices for and availability of fuel, electricity, parts and equipment and other key supplies remaining consistent
with current levels;
• production forecasts meeting expectations;
• the accuracy of the Company’s current mineral resource and reserve estimates;
and such other assumptions as set out herein. Forward-looking Statements are made as of the date of this MD&A 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, readers should not place undue reliance on Forward-looking Statements.
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66
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Fortuna Silver Mines Inc.
We have audited the accompanying consolidated financial statements of Fortuna Silver Mines Inc. (the “Company”),
which comprise the consolidated statements of financial position as at December 31, 2014 and December 31, 2013
and the consolidated statements of net income (loss), consolidated statements of comprehensive income (loss),
consolidated statements of cash flows, and consolidated statements of changes in equity for the years then ended
December 31, 2014 and December 31, 2013, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
from material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Fortuna Silver Mines Inc. as at December 31, 2014 and December 31, 2013 and its financial performance and its cash
flows for the years then ended December 31, 2014 and December 31, 2013 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
(Signed) Deloitte LLP
Chartered Accountants
March 12, 2015
Vancouver, Canada
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MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
67
Consolidated Statements of Net Income (Loss)
FOR THE YEARS ENDED DECEMBER 31,
(Expressed in thousands of US Dollars, except for share and per share amounts)
Sales
Cost of sales
Mine operating earnings
Other expenses
Selling, general and administrative expenses
Exploration and evaluation costs
Loss on disposal of mineral properties, plant and equipment
Restructuring and severance costs
Write-off of mineral properties, plant and equipment
Impairment of mineral properties, plant and equipment
Impairment of inventories
Operating income (loss)
Finance items
Interest income
Interest expense
Net finance expense
Income (loss) before tax
Income taxes
Net income (loss) for the year
Earnings (loss) per share – Basic
Earnings (loss) per share – Diluted
Weighted average number of shares outstanding – Basic
Weighted average number of shares outstanding – Diluted
Notes
2014
2013
17
18
$ 174,006
113,753
$ 137,394
95,619
60,253
41,775
9 a), 9 b), 19
20
21
7 b)
7 d)
6
22
12
13 e) i
13 e) ii
13 e) i
13 e) ii
25,225
–
66
1,091
–
–
121
33,750
281
(1,152)
(871)
32,879
17,277
15,602
0.12
0.12
$
$
$
19,783
418
78
493
570
30,000
62
(9,629)
591
(932)
(341)
(9,970)
9,130
(19,100)
(0.15)
(0.15)
$
$
$
126,786,921
125,552,597
128,142,977
126,547,754
The accompanying notes are an integral part of these consolidated financial statements.
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68
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Consolidated Statements of Comprehensive Income (Loss)
FOR THE YEARS ENDED DECEMBER 31,
(Expressed in thousands of US Dollars)
Net income (loss) for the year
Other comprehensive income (loss)
Items that may be classified subsequently to net income
Unrealized loss on translation of net investment, net of nil taxes
Unrealized gain on translation to presentation currency
on foreign operations, net of nil taxes
2014
2013
$ 15,602
$
(19,100)
(2,001)
887
(1,114)
(1,454)
230
(1,224)
Total comprehensive income (loss) for the year
$ 14,488
$
(20,324)
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
69
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31,
(Expressed in thousands of US Dollars)
Notes
2014
2013
$ 15,602
$
(19,100)
OPERATING ACTIVITIES
Net income (loss) for the year
Items not involving cash
Depletion and depreciation
Accretion of provisions
Income taxes
Share-based payments
Write-off of mineral properties
Impairment of mineral properties, plant and equipment
Impairment of inventories
Loss on disposal of mineral properties, plant and equipment
Accrued interest on long term loans receivable and payable
Other
Changes in non-cash working capital items
Accounts receivable and other assets
Prepaid expenses
Due from related parties
Inventories
Trade and other payables
Due to related parties
Provisions
Cash provided by operating activities before interest and income taxes
Income taxes paid
Interest expense paid
Interest income received
Net cash provided by operating activities
INVESTING ACTIVITIES
Purchase of short term investments
Redemptions of short term investments
Expenditures on mineral properties, plant and equipment
Advances of deposits on long term assets
Receipts of deposits on long term assets
Proceeds on disposal of mineral properties, plant and equipment
17
Net cash used in investing activities
FINANCING ACTIVITIES
Net proceeds on issuance of common shares
Repayment of finance lease obligations
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents – beginning of year
CASH AND CASH EQUIVALENTS – END OF YEAR
Supplemental cash flow information
14
The accompanying notes are an integral part of these consolidated financial statements.
23,517
744
17,277
5,586
–
–
121
66
(27)
11
62,897
(4,521)
(49)
–
282
4,910
(10)
(171)
63,338
(3,417)
(4)
275
60,192
(65,657)
47,641
(38,943)
(4,667)
4,599
67
(56,960)
8,458
(227)
8,231
(300)
11,463
31,704
20,304
539
9,130
3,221
570
30,000
62
78
(61)
8
44,751
8,538
(340)
4
(2,648)
(1,339)
(31)
(139)
48,796
(4,430)
(20)
608
44,954
(27,241)
15,178
(60,507)
(7,984)
8,846
49
(71,659)
707
(449)
258
(569)
(26,447)
58,720
$ 42,867
$ 31,704
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70
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Consolidated Statements of Financial Position
AS AT DECEMBER 31,
(Expressed in thousands of US Dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Short term investments
Accounts receivable and other assets
Prepaid expenses
Inventories
Total current assets
NON-CURRENT ASSETS
Deposits on long term assets
Deferred income tax assets
Mineral properties, plant and equipment
Total assets
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade and other payables
Due to related parties
Provisions
Income tax payable
Current portion of other liabilities
Total current liabilities
NON-CURRENT LIABILITIES
Other liabilities
Provisions
Deferred income tax liabilities
Total liabilities
EQUITY
Share capital
Share option and warrant reserve
Retained earnings
Accumulated other comprehensive income
Total equity
Total liabilities and equity
Notes
2014
2013
3
4
5
6
5
12
7
8
9 c)
11
12
10
10
11
12
$ 42,867
34,391
20,585
1,592
14,937
114,372
1,963
126
233,849
$ 31,704
17,411
17,040
1,578
15,488
83,221
1,882
151
216,961
$ 350,310
$ 302,215
$ 21,458
9
809
9,745
–
$ 15,897
20
622
50
227
32,021
16,816
4,661
11,889
29,026
77,597
201,057
13,800
55,846
2,010
272,713
2,343
10,112
25,284
54,555
189,092
15,200
40,244
3,124
247,660
$ 350,310
$ 302,215
Contingencies and capital commitments
23
APPROVED BY THE DIRECTORS:
“Jorge Ganoza Durant” , Director
“Robert R. Gilmore” , Director
Jorge Ganoza Durant
Robert R. Gilmore
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
71
Consolidated Statements of Changes in Equity
FOR THE YEARS ENDED DECEMBER 31,
(Expressed in thousands of US Dollars, except for share amounts)
Attributable to Equity Holders of the Company
Share Capital
Notes
Number of
Shares
Amount
Share
Option and
Warrant
Reserve
Retained
Earnings
Accumulated
Other
Compre-
hensive
Income
(“AOCI”)
Total
Equity
125,973,966
2,563,776
$ 189,092
8,458
$ 15,200
–
$ 40,244
–
$ 3,124 $ 247,660
8,458
–
–
–
–
–
–
3,507
–
(3,507)
2,108
–
–
–
–
–
–
–
–
15,602
–
–
–
–
–
–
2,108
15,602
(2,001)
(2,001)
887
887
15,602
(1,114)
14,488
Balance – December 31, 2013
Exercise of options
Transfer of share option and warrant
reserve on exercise of options
Share-based payments expense
Net income for the period
Unrealized loss on translation of
net investment
Unrealized gain on translation to
presentation currency on foreign
operations
Total comprehensive loss for the year
Balance – December 31, 2014
128,537,742
$ 201,057
$ 13,800
$ 55,846
$ 2,010 $ 272,713
Balance – December 31, 2012
Exercise of options
Issuance of shares for property
Transfer of share option and warrant
reserve on exercise of options
Share-based payments expense
Net loss for the period
Unrealized loss on translation of
net investment
Unrealized gain on translation to
presentation currency on foreign
operations
Total comprehensive loss for the year
125,268,751
693,800
11,415
$ 187,807
707
49
$ 12,944
–
–
$ 59,344
–
–
$ 4,348 $ 264,493
707
49
–
–
13 a)
–
–
–
–
–
529
–
(529)
2,734
–
–
–
–
–
–
–
–
(19,100)
–
–
–
–
–
–
2,734
(19,100)
(1,454)
(1,454)
230
230
(19,100)
(1,224)
(20,324)
Balance – December 31, 2013
125,973,966
$ 189,092
$ 15,200
$ 40,244
$ 3,124 $ 247,660
The accompanying notes are an integral part of these consolidated financial statements.
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72
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
1. Corporate Information
Fortuna Silver Mines Inc. (“Fortuna” or the “Company”) is engaged in silver 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.
Fortuna is a publicly traded company incorporated and domiciled in Canada. Its common shares are listed on the New
York Stock Exchange under the trading symbol FSM; on the Toronto Stock Exchange and Lima Stock Exchange, both
under the trading symbol FVI; and on the Frankfurt Stock Exchange under the trading symbol F4S.F.
The Company’s registered office is located at Suite 650, 200 Burrard Street, Vancouver, British Columbia, Canada, V6C 3L6.
2. Basis of Consolidation and Summary of
Significant Accounting Policies
a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with the International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The policies applied in these
consolidated financial statements are based on IFRS issued and effective as at December 31, 2014. The Board of
Directors approved these financial statements for issue on March 12, 2015.
b) Basis of Consolidation
These Financial Statements include the accounts of the Company and its subsidiaries. All significant inter-company
transactions, balances, revenues, and expenses have been eliminated upon consolidation.
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from the entity’s activities. Control is normally
achieved through ownership, directly or indirectly, of more than 50% of the voting power. Control can also be achieved
through power over more than half the voting rights by virtue of an agreement with other investors or through the exercise
of de facto control.
For non-wholly owned subsidiaries, the net assets attributable to outside equity shareholders are presented as “non-
controlling interests” in the equity section of the consolidated statements of financial position. Net income for the period
that is attributable to non-controlling interests is calculated based on the ownership of the minority shareholders in the
subsidiary.
Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up
to the effective date of disposition or loss of control. The principal subsidiaries of the Company and their geographic
locations at December 31, 2014 were as follows:
Name
Entity Type at
December 31,
2014
Subsidiary
Minera Bateas S.A.C. (“Bateas”)
Subsidiary
Fortuna Silver Mines Peru S.A.C. (“FSM Peru”)
Compania Minera Cuzcatlan SA (“Cuzcatlan”)
Subsidiary
Fortuna Silver Mexico, S.A. de CV. (“FS Mexico”) Subsidiary
Subsidiary
Fortuna Silver (Barbados) Inc. (“Barbados”)
Subsidiary
Continuum Resources Ltd. (“Continuum”)
Economic
Interest at
December 31,
2014
100%
100%
100%
100%
100%
100%
Location
Peru
Peru
Mexico
Mexico
Barbados
Canada
Principal Activity
Method
Caylloma Mine
Service company
San Jose Mine
Exploration company
Holding company
Holding company
Consolidation
Consolidation
Consolidation
Consolidation
Consolidation
Consolidation
As at December 31, 2014, the Company has no joint arrangements or associates.
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CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
c) Revenue Recognition
Revenue arising from the sale of metal concentrates is recognized when title or the significant risks and rewards of
ownership of the concentrates have been transferred to the buyer. The passing of title to the customer is based on the
terms of the sales contract. Final commodity prices are set in a period subsequent to the date of sale based on a
specified quotational period, either one, two, or three months after delivery. The Company’s metal concentrates are
provisionally priced at the time of sale based on the prevailing market price.
Variations between the price recorded at the delivery date and the final price set under the sales contracts are caused
by changes in market prices, and result in an embedded derivative in accounts receivable. The embedded derivative is
recorded at fair value each period until final settlement occurs, with changes in fair value classified as provisional price
adjustments and included in sales in the consolidated statement of income. Sales of metal concentrates are net of
refining and treatment charges.
Revenues from metal concentrate sales are subject to adjustment upon final settlement of metals prices, weights, and
assays as of a date that is typically one, two, or three months after the delivery date. Typically, the adjustment is based
on an inspection of the concentrate by the customer and in certain cases an inspection by a third party. The Company
records adjustments to revenues monthly based on quoted spot prices for the expected settlement period. Adjustments
for weights and assays are recorded when results are determinable or on final settlement.
d) Cash and Cash Equivalents
Cash and cash equivalents are designated as fair value through profit or loss (“FVTPL”). Cash and cash equivalents
include cash on hand, demand deposits, and money market instruments, with maturities from the date of acquisition of
90 days or less, which are readily convertible to known amounts of cash and are subject to insignificant changes in
value. Transaction costs are expensed when incurred through profit or loss.
e) Mineral Properties, Plant and Equipment
Costs directly related to construction projects are capitalized to work-in-progress until the asset is available for use in
the manner intended by management. Completed property, plant and equipment are recorded at cost, net of accumulated
depreciation and accumulated impairments. Assets, other than capital work in progress, will be depreciated to their
residual values over their estimated useful lives as follows:
Land and buildings
Land
Mineral properties
Buildings, located at the mine
Buildings, others
Leasehold improvements
Plant and equipment
Machinery and equipment
Furniture and other equipment
Transport units
Not depreciated
Units of production
Life of mine
6 – 20 years
7 – 8 years
3 – 15 years
3 – 13 years
4 – 5 years
Straight line
Straight line
Straight line
Straight line
Straight line
Capital work in progress
Not depreciated
Equipment under finance lease is initially recorded at the present value of minimum lease payments at the inception of
the lease and depreciated as above. Spare parts and components included in machinery and equipment, depending on
the replacement period of the initial component, are depreciated over 8 to 18 months.
Borrowing costs attributed to the construction of qualifying assets are capitalized to mineral properties, plant and
equipment are included in the carrying amounts of related assets until the asset is available for use in the manner
intended by management.
Costs associated with commissioning activities on constructed plants are deferred from the date of mechanical
completion of the facilities until the date the assets are ready for use in the manner intended by management.
On an annual basis, the depreciation method, useful economic life and the residual value of each component asset is
reviewed, with any changes recognized prospectively over its remaining useful economic life.
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74
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
e) Mineral Properties, Plant and Equipment (Continued)
Exploration and Evaluation Assets
i.
Significant payments related to the acquisition of land and mineral rights are capitalized as incurred. Prior to acquiring
such land or mineral rights, the Company makes a preliminary evaluation to determine that the property has significant
potential to develop an economic ore body. The time between initial acquisition and full evaluation of a property’s potential
is dependent on many factors including: location relative to existing infrastructure, the property’s stage of development,
geological controls and metal prices.
The Company defers the cost of acquiring, maintaining its interest, exploring and developing mineral properties as
exploration and evaluation assets when future inflow of economic benefits from the properties is probable and until such
time as the properties are placed into development, abandoned, sold or considered to be impaired in value.
If a mineable ore body is discovered, exploration and evaluation costs are reclassified to mining properties. If no mineable
ore body is discovered, such costs are expensed in the period in which it is determined the property has no future
economic value.
Proceeds received from the sale of interests in evaluation and exploration assets are credited to the carrying value of
the mineral properties, with any excess included in income as gain or loss on disposal of mineral properties, plant and
equipment.
Write-downs due to impairment in value are charged to income. The cash-generating unit for assessing impairment is a
geographic region and shall be no larger than the operating segment.
Exploration costs that do not relate to any specific property are expensed as incurred.
Operational Mining Properties and Mine Development
ii.
For operating mines, all exploration within the mineral deposit is capitalized and amortized on a unit-of-production basis
over proven and probable reserves and the portion of resources expected to be extracted economically as part of the
production cost.
Costs of producing properties are amortized on a unit-of-production basis over proven and probable reserves and the
portion of resources expected to be extracted economically, and costs of abandoned properties are written-off.
iii. Commercial Production
Capital work in progress consists of expenditures for the construction of future mines and includes pre-production
revenues and expenses prior to achieving commercial production. Commercial production is a convention for determining
the point in time in which a mine and plant has completed the operational commissioning and has operational results
that are expected to remain at a sustainable commercial level over a period of time, after which production costs are no
longer capitalized and are reported as operating costs. The determination of when commercial production commences
is based on several qualitative and quantitative factors including but not limited to the following:
• all major capital expenditures to bring the mine to the condition necessary for it to be capable of operating in the
manner intended by management have been completed;
• the mine or mill is operating within eighty percent of design capacity;
• metallurgical recoveries are achieved within eighty percent of projections; and,
• the ability to sustain ongoing production of ore at a steady or increasing level.
On the commencement of commercial production, depletion of each mining property will be provided on a unit-of-
production basis. Any costs incurred after the commencement of production are capitalized to the extent they give rise
to a future economic benefit.
f) Asset Impairment
Assets are reviewed and tested for impairment when an indicator of impairment is considered to exist. An assessment
of impairment indicators is performed at each reporting period or whenever indicators arise. Even with no indicators
present, the Company will test an intangible asset with an indefinite useful life or an intangible asset not yet available
for use for impairment at least annually. An impairment loss is recognized for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell
(“FVLCTS”) and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which
there are separately identifiable cash inflows or cash generating units. These are typically individual mines or development
projects. Brownfields exploration projects, located close to existing mine infrastructure, are assessed for impairment as
part of the associated mine cash generating unit.
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CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
f) Asset Impairment (Continued)
Fair value models are used to determine the recoverable amount of cash generating units. When the recoverable amount
is assessed using pre-tax discounted cash flow techniques, the resulting estimates are based on detailed mine and/or
production plans. For value in use, recent cost levels are considered, together with expected changes in costs that are
compatible with the current condition of the business. The cash flow forecasts are based on best estimates of expected
future revenues and costs, including the future cash costs of production, sustaining capital expenditure and reclamation
and closures costs.
Where a fair value less cost to sell model is used the cash flow forecast includes net cash flows expected to be realized
from extraction, processing and sale of mineral resources that do not currently qualify for inclusion in proven or probable
reserves and the portion of resources expected to be extracted economically.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased
to the revised estimate of recoverable amount, but not beyond the carrying amount that would have been determined
had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment
loss is recognized into earnings immediately.
g) Borrowing Costs
Interest and other financing costs incurred that are attributable to acquiring and developing exploration and development
stage mining properties and constructing new facilities (“qualifying assets”) are capitalized and included in the carrying
amounts of qualifying assets until those qualifying assets are ready for their intended use.
Capitalization of borrowing costs incurred commences on the date the following three conditions are met:
• expenditures for the qualifying asset are being incurred;
• borrowing costs are being incurred; and,
• activities that are necessary to prepare the qualifying asset for its intended use are being undertaken.
Borrowing costs incurred after the qualifying assets are ready for their intended use are expenses in the period in which
they are incurred.
Borrowing costs, comprised of legal fees and upfront commitment fee, associated with the credit facility for general
working capital and future expansion are recorded as Accounts Receivable and Other Assets and amortized over the
term of the credit facility.
All other borrowing costs are expensed in the period in which they are incurred.
h) Provisions
Decommissioning and restoration provisions
i.
Future obligations to retire an asset, including dismantling, remediation and ongoing treatment and monitoring of the
site related to normal operations are initially recognized and recorded as a liability based on estimated future cash flows
discounted at the risk-free rate.
The decommissioning and restoration provision (“DRP”) is adjusted at each reporting period for changes to factors
including the expected amount of cash flows required to discharge the liability, the timing of such cash flows and the
risk-free discount rate.
The liability is accreted to full value over time through periodic charges to income. This accretion of provisions is charged
to finance costs in the consolidated statements of income.
The amount of the DRP initially recognized is capitalized as part of the related asset’s carrying value and amortized to
income (loss). The method of amortization follows that of the underlying asset. The costs related to a DRP are only
capitalized to the extent that the amount meets the definition of an asset and can bring about future economic benefit.
For a closed site or where the asset which generated a DRP no longer exists, there is no longer future benefit related to
the costs and as such, the amounts are expensed. For operating sites, a revision in estimates or a new disturbance will
result in an adjustment to the liability with an offsetting adjustment to the capitalized retirement cost. For closed sites,
adjustments to the DRP that are required as a result of changes in estimates are charged to income in the period in
which the adjustment is identified.
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76
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
h) Provisions (Continued)
Environmental disturbance restoration provisions
ii.
During the operating life of an asset, events such as infractions of environmental laws or regulations may occur. These
events are not related to the normal operation of the asset and are referred to as environmental disturbance restoration
provisions (“EDRP”). The costs associated with an EDRP are accrued and charged to earnings in the period in which the
event giving rise to the liability occurs. Any subsequent adjustments to an EDRP due to changes in estimates are also
charged to earnings in the period of adjustment. These costs are not capitalized as part of the long-lived asset’s carrying
value.
iii. Other provisions
Provisions are recognized when a present legal or constructive obligation exists, as a result of past events, and it is
probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where the
effect is material, the provision is discounted using an appropriate current market-based pre-tax discount rate.
Inventories
i)
Inventories include metals contained in concentrates, stockpiled ore, materials, and supplies. The classification of metals
inventory is determined by the stage in the production process. Product inventories are sampled for metal content and
are valued based on the lower of actual production costs incurred or estimated net realizable value based upon the
period ending prices of contained metal.
Ore stockpile and finished goods inventories are valued at the lower of production cost and net realizable value. Materials
and supplies are valued at the lower of average cost and net realizable value. Production costs include all mine site
costs.
Assets Held for Sale
j)
A non-current asset is classified as held for sale when it meets the following criteria:
• the non-current asset is available for immediate sale in its present condition subject only to terms that are usual
and customary for sales of such assets; and,
• the sale of the non-current asset is highly probable. For the sale to be highly probable:
• the appropriate level of management must be committed to a plan to sell the asset;
• an active program to locate a buyer and complete the plan must have been initiated;
• the non-current asset or disposal group must be actively marketed for sale at a price that is reasonable in
relation to its current fair value;
• the sale should be expected to qualify for recognition as a completed sale within one year from the date of
classification as held for sale (with certain exceptions); and,
• actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will
be made or that the plan will be withdrawn.
Assets held for sale are not depreciated. When the sale of assets held for sale is expect to occur beyond one year, the
assets are measured at the lower of its carrying amount and fair value less costs to sell. Any gain or loss from initial
measurement and subsequent measurement are recorded in other comprehensive income but not in excess of cumulative
impairment losses.
Income Taxes
k)
Income tax expense consists of current and deferred tax expense. Income tax is recognized in the consolidated statement
of income.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantially enacted at period end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax assets and liabilities are recognized for deferred tax consequences attributable to unused tax loss carry
forwards, unused tax credits and differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted or
substantially enacted tax rates expected to apply when the asset is realized or the liability settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or loss in the period that
substantive enactment occurs.
A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against
which the asset can be utilized. To the extent that the Company does not consider it probable that deferred tax asset
will be recovered, the deferred tax asset is reduced.
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CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
k.) Income Taxes (Continued)
The following temporary differences do not result in deferred tax assets or liabilities:
• the initial recognition of assets or liabilities, not arising in a business combination, that does not affect accounting
or taxable income;
• goodwill; and,
• investments in subsidiaries, associates and jointly controlled entities where the timing of reversal of the temporary
differences can be controlled and reversal in the foreseeable future is not probable.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to the offset current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a net basis.
Share-Based Payments
l)
The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of share
options and other equity-settled share-based payment arrangements are recorded based on the estimated fair value at
the grant date and charged to earnings over the vesting period. Where awards are forfeited because non-market based
vesting conditions are not satisfied, the expense previously recognized is proportionately reversed in the period the
forfeiture occurs.
Share-based payment expense relating to cash-settled awards, including deferred and restricted share units is accrued
over the vesting period of the units based on the quoted market value of Company’s common shares. As these awards
will be settled in cash, the expense and liability are adjusted each reporting period for changes in the underlying share
price.
Stock Option Plan
i.
The Company applies the fair value method of accounting for all stock option awards. Under this method, the Company
recognizes a compensation expense for all stock options awarded to employees, based on the fair value of the options
on the date of grant which is determined by using the Black-Scholes option pricing model. The fair value of the options
is expensed over the graded vesting period of the options.
ii. Deferred Share Unit (“DSU”) Plan
The Company’s DSU compensation liability is accounted for based on the number of units outstanding and the quoted
market value of the Company’s common shares at the financial position date. The year-over-year change in the deferred
share unit compensation liability is recognized in income.
iii. Restricted Share Unit (“RSU”) Plan
The Company’s RSU compensation liability is accounted for based on the number of units outstanding and the quoted
market value of the Company’s common shares at the financial position date. The Company recognizes a compensation
cost in operating income on a graded vesting basis for each RSU granted equal to the quoted market value of the
Company’s common shares at the date of which RSUs are awarded to each participant prorated over the performance
period and adjusts for changes in the fair value until the end of the performance date. The cumulative effect of the
change in fair value is recognized in income in the period of change.
m) Earnings per Share
Basic earnings per share is computed by dividing net income for the year by the weighted average number of common
shares outstanding during the year.
The diluted earnings per share calculation is based on the weighted average number of common shares outstanding
during the year, plus the effects of dilutive common share equivalents. This method requires that the dilutive effect of
outstanding options issued should be calculated using the treasury stock method. This method assumes that all common
share equivalents have been exercised at the beginning of the year (or at the time of issuance, if later), and that the
funds obtained thereby were used to purchase common shares of the Company at the average trading price of the
common shares during the year, but only if dilutive.
n) Foreign Currency Translation
The presentation currency of the Company is the United States Dollar (“US$”).
The functional currency of each of the entities in the group is the US$, with the exception of the parent entity and certain
holding companies which have a Canadian dollar functional currency.
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78
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
n) Foreign Currency Translation (Continued)
Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange at
each financial position date. Foreign exchange gains or losses on translation to the functional currency of an entity are
recorded in income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rate as at the date of the initial transaction.
For entities with a functional currency different from the presentation currency of the Company, translation to the
presentation currency is required. Assets and liabilities are translated at the rate of exchange at the financial position
date. Revenue and expenses are translated at the average rate for the period. All resulting exchange differences are
recognized in other comprehensive income.
o) Financial Instruments
Financial Assets
i.
The Company classifies all financial assets as either fair value through profit or loss (“FVTPL”), held-to-maturity (“HTM”),
loans and receivables, or available-for-sale “(AFS”). The classification is determined at initial recognition and depends
on the nature and purpose of the financial asset.
Financial Assets at Fair Value Through Profit or Loss
a)
Financial assets are classified as FVTPL when the financial asset is held-for-trading or it is a designated FVTPL on initial
recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-
term.
Financial assets classified as FVTPL are stated at fair value with any resulting gain or loss recognized in income or loss
in the period in which they arise. Transaction costs related to financial assets classified as FVTPL are recognized
immediately in net income (loss).
Derivatives are not being accounted for as hedges and are categorized as held-for-trading. Derivatives are initially
recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair
value. Fair value of the Company’s recognized commodity-based derivatives are based on the forward prices of the
associated market index. Gains or losses are recorded in the consolidated statement of income.
b) Held-to-Maturity (“HTM”)
HTM investments are recognized on a trade-date basis and are initially measured at fair value, including transactioncosts.
The Company does not have any assets classified as HTM investments.
Loans and Receivables
c)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are initially measured at fair value, net of transaction costs and are classified as current or non-
current assets based on their maturity date. They are carried at amortized cost less any impairment. The impairment
loss of receivables is based on a review of all outstanding amounts at each reporting period. Interest income is recognized
by applying the effective interest rate, except for short term receivables when the recognition of interest would not be
significant.
d) Available-For-Sale (“AFS”) Assets
AFS financial assets are non-derivatives that are either designated in this category or not classified in any of the other
categories.
AFS financial assets are measured at fair value, determined by published market prices in an active market, except for
investments in equity instruments that do not have quoted market prices in an active market which are measured at
cost. Changes in fair value are recorded in other comprehensive income (loss) until realized through disposal or
impairment. Investments classified as available-for-sale are written down to fair value through income whenever it is
necessary to reflect prolonged or significant decline in the value of the assets. Realized gains and losses on the disposal
of available-for-sale securities are recognized in the consolidated statement of income.
The Company does not have any assets classified as AFS.
Impairment of Financial Assets
e)
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each reporting period. Financial
assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the
initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
o) Financial Instruments (Continued)
e) Impairment of Financial Assets (Continued)
Objective evidence of impairment could include the following:
• significant financial difficulty of the issuer or counterparty;
• default or delinquency in interest or principal payments; or
• it has become probable that the borrower will enter bankruptcy or financial reorganization.
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying
amount and the present value of the estimated future cash flows, discounted at the financial asset’s original effective
interest rate.
The carrying amount of all financial assets at amortized cost, excluding trade receivables, is directly reduced by the
impairment loss. The carrying amount of trade receivables is reduced through the use of an allowance account. When a
trade receivable is considered uncollectable, it is written off against the allowance account. Subsequent recoveries of
amounts previously written off are credited against the allowance account. Changes in the carrying amount of the
allowance account are recognized in income or loss.
With the exception of AFS equity instruments, if in a subsequent period, the amount of the impairment loss decreases
and the decrease relates to an event occurring after the impairment was recognized, the previously recognized impairment
loss is reversed through income or loss. On the date of impairment reversal, the carrying amount of the financial asset
cannot exceed its amortized cost had an impairment not been recognized.
Derecognition of Financial Assets
f)
A financial asset is derecognized when:
• the contractual right of the asset’s cash flows expire; or
• if the Company transfers the financial asset and substantially all risks and reward of ownership to another entity.
Financial Liabilities
ii.
Derivatives are categorized as held-for-trading. Derivatives are initially recognized at fair value on the date a derivative
contract is entered into and are subsequently remeasured at their fair value. Fair value of the Company’s recognized
commodity-based derivatives are based on the forward prices of the associated market index. Gains or losses are
recorded in the consolidated statement of income.
Long term debt and other financial liabilities are recognized initially at the fair value, net of transaction costs incurred,
and are subsequently stated at amortized cost. Any difference between the amounts originally received (net of transaction
costs) and the redemption value is recognized in the consolidated statement of income over the period to maturity using
the effective interest method.
iii. Classification and Subsequent Measurements
The Company has designated each of its significant categories of financial instruments as follows:
Financial Instrument
Classification
Cash and Cash Equivalents
Short Term Investments
Derivative Assets
Trade Receivable from Concentrate Sales
Other Accounts Receivables
Due from Related Parties
Long Term Receivables
Trade and Other Payables
Due to Related Parties
Derivative Liabilities
Income Tax Payable
Lease and Long Term Liabilities
FVTPL
FVTPL
FVTPL
FVTPL
Loans and receivables
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
FVTPL
Other liabilities
Other liabilities
Measurement
Fair value
Fair value
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
Effective Interest Method
iv.
The effective interest method calculates the amortized cost of a financial instrument and allocates interest income or
expense over the corresponding period. The effective interest rate is the rate that discounts estimated future cash
receipts or payments over the expected life of the financial instrument, or where appropriate, a shorter period, to the net
carrying amount on initial recognition. Income or expense is recognized on an effective interest basis for instruments
other than those financial instruments classified as FVTPL.
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80
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
p) Fair Value Measurement
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. Refer to
Note 16. a).
q) Segment Reporting
The Company’s operating segments are based on the reports reviewed by the senior management group that are used
to make strategic decisions. The Chief Executive Officer considers the business from a geographic perspective considering
the performance of the Company’s business units.
A geographical segment is a distinguishable component of the entity that is engaged in providing products or services
within a particular economic environment and is subject to risks and returns that are different than those of segments
operating in other economic environments.
The business operations comprise the mining and processing of silver-lead, zinc, and silver-gold and the sale of these
products.
Leases
r)
A lease is a finance lease when substantially all of the risks and rewards incidental to ownership of the leased asset are
transferred from the lessor to the lessee by the agreement. The leased assets are initially recorded at the lower of the
fair value and the present value of the minimum lease payments and are depreciated over the shorter of the asset’s
useful lives and the term of the lease. Interest on the lease instalments is recognized as interest expense over the lease
term using the effective interest method. Leases for land and buildings are recorded separately if the lease payments
can be allocated accordingly.
Leases that do not transfer all the risks and rewards of ownership are classified as operating leases. Payments are
recorded in the income statement using the straight line method over their estimated useful lives.
s) Share Capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of shares are shown in
equity as a deduction from the proceeds. Share-based payments including stock option plan, deferred share unit plan,
and restricted share unit plan are discussed in Note 2. l).
t) Related Party Transactions
Parties are considered to be related if one party has the ability directly, or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operating decisions. Parties are also considered to be
related if they are subject to common control, related parties may be individuals or corporate entities. A transaction is
considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
u) Significant Accounting Judgments and Estimates
The preparation of these Financial Statements requires management to make judgments and estimates that affect the
reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses
during the reporting period. Actual outcomes could differ from these judgments and estimates. The Financial Statements
include judgments and estimates which, by their nature, are uncertain. The impacts of such judgments and estimates
are pervasive throughout the 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 the revision affects
both current and future periods.
Significant assumptions about the future and other sources of judgments and estimates that management has made
at the statement of financial position date, that could result in a material adjustment to the carrying amounts of
assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to,
the following:
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
u) Significant Accounting Judgments and Estimates (Continued)
i.
Critical Judgments
• The analysis of the functional currency for each entity of the Company. In concluding that the United States dollar
functional currency for its Peruvian and Mexican entities and the Canadian and Barbados entities have a Canadian
dollar functional currency, management considered the currency that mainly influences the cost of providing goods
and services in each jurisdiction in which the Company operates. As no single currency was clearly dominant the
Company also considered secondary indicators including the currency in which funds from financing activities are
denominated and the currency in which funds are retained.
• In concluding when commercial production has been achieved, the Company considered the following factors:
• all major capital expenditures to bring the mine to the condition necessary for it to be capable of operating in
the manner intended by management have been completed;
• the mine or mill is operating as per design capacity and metallurgical recoveries were achieved; and,
• the ability to sustain ongoing production of ore at a steady or increasing level.
• The identification of reportable segments, basis for measurement and disclosure of the segmented information.
• The determination of estimated useful lives and residual values of tangible and long lived assets and the
measurement of depreciation expense.
• The identification of impairment indicators, cash generating units and determination of carrying value or fair value
less cost to sell and the write down of tangible and long lived assets.
• Measurement of financial instruments involve significant judgments related to interpretation of the terms of the
instrument, identification, classification, impairment and the overall measurement to approximate fair values.
ii.
Estimates
• the recoverability of amounts receivable which are included in the consolidated statements of financial position;
• the estimation of assay grades of metal concentrates sold in the determination of the carrying value of accounts
receivable which are included in the consolidated statements of financial position and included as sales in the
consolidated statements of income;
• the determination of net realizable value of inventories on the consolidated statements of financial position;
• the estimated useful lives of property, plant and equipment which are included in the consolidated statements of
financial position and the related depreciation included in the consolidated statements of income;
• the determination of mineral reserves and the portion of mineral resources expected to be extracted economically,
carrying amount of mineral properties, and depletion of mineral properties included in the consolidated statements
of financial position and the related depletion included in the consolidated statements of income;
• the review of tangible and intangible assets carrying value, the determination of whether these assets are impaired
and the measurement of impairment charges or reversals which are included in the consolidated statements of
income;
• the assessment of indications of impairment of each mineral property and related determination of the net
realizable value and write-down of those properties where applicable;
• the determination of the fair value of financial instruments and derivatives included in the consolidated statements
of financial position;
• the fair value estimation of share-based awards included in the consolidated statements of financial position and
the inputs used in accounting for share-based compensation expense in the consolidated statements of income;
• the provision for income taxes which is included in the consolidated statements of income and composition of
deferred income tax asset and liabilities included in the consolidated statement of financial position;
• the recognition of deferred income tax assets, amounts recorded for uncertain tax positions, the measurement of
income tax expense and indirect taxes included in the consolidated statement of financial position;
• the inputs used in determining the net present value of the liability for provisions related to decommissioning and
restoration included in the consolidated statements of financial position; and,
• the inputs used in determining the various commitments and contingencies accrued in the consolidated statements
of financial position.
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82
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
v) Significant Changes Including Initial Adoption of Accounting Standards
The Company has adopted the following accounting standards along with any consequential amendments, effective
January 1, 2014:
IAS 32 Financial Instruments – Presentation in Respect of Offsetting (Amendment); IFRIC 21 – Levies; and, IAS 36 –
Impairment of Assets – Amendments for Recoverable Amount Disclosures for Non-Financial Asset.
The Company has adopted the following amendments, effective July 1, 2014:
IFRS 2 Share-based Payment – Definition of vesting condition (Amendment)
The amendment to IFRS 2 provides the definitions of vesting condition and market condition and adds definitions for
performance condition and service condition. The amendment is effective for transactions with a grant date on or after
July 1, 2014.
IFRS 3 Business Combinations – Contingent consideration (Amendment)
The amendment to IFRS 3 requires contingent consideration that is classified as an asset or a liability to be measured
at fair value at each reporting date. The amendment is effective for transactions with acquisition dates on or after July 1,
2014.
The Company has adopted the above amendments which did not have a significant impact on the Company’s Financial
Statements.
w) New Accounting Standards
The Company is currently assessing the impact of adopting the following new accounting standards, noted below, on the
Company’s Financial Statements.
IFRS 10, Consolidated Financial Statements, and IAS 28, Investments in Associates and Joint Ventures (2011)(Amendment)
On September 11, 2014, the IASB issued narrow-scope amendments to IFRS 10, Consolidated Financial Statements,
and IAS 28, Investments in Associates and Joint Ventures (2011). The amendments address an acknowledged
inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution
of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a
full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A
partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these
assets are housed in a subsidiary. The amendments will be effective from annual periods commencing on or after January
1, 2016.
IFRS 11 Joint Arrangements (Amendment)
The amendment to IFRS 11 Joint Arrangements adds new guidance on how to account for the acquisition of an interest
in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such
acquisitions. The amendments are effective for annual periods beginning on or after January 1, 2016, with earlier
application permitted. Transactions before the adoption date are grandfathered.
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets (Amendment)
The amendment to IAS 16 Property, plant and equipment and IAS 38 Intangible assets on depreciation and amortisation
clarifies that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because
revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption
of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be
an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. The
amendment is effective for annual period starting on or after January 1, 2016, with earlier application permitted.
IFRS 15 Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers specifies how and when revenue should be recognized as well as
requiring more informative and relevant disclosures. The standard supersedes IAS 18 Revenue, IAS 11 Construction
Contracts and a number of revenue-related interpretations. Application of the standard is mandatory and it applies to
nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts.
IFRS 15 is effective for annual periods starting on or after January 1, 2017, with earlier application permitted.
IFRS 9 Financial Instruments – Classification and Measurement
IFRS 9, Financial Instruments: IFRS 9 introduces the new requirements for the classification, measurement and de-
recognition of financial assets and financial liabilities. The amendments are effective for annual periods beginning on or
after January 1, 2018, with earlier application permitted.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
w) New Accounting Standards (Continued)
IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (Amendment)
The amendment to IFRS 9 Financial Instruments which includes the new hedge accounting requirements and some related
amendments to IAS 39 Financial Instruments; Recognition and Measurement and IFRS 7 Financial Instruments;
Disclosures. IFRS 9 (2013) also replicates the amendments in IAS 39 in respect of novations. The amendments allow
for early adoption of the requirement to present fair value changes due to own credit on liabilities designated as at fair
value through profit or loss to be presented in other comprehensive income. The amendments are effective for annual
periods beginning on or after January 1, 2018, with earlier application permitted.
IFRS 9 Financial Instruments – Expected Credit Losses
On 24 July 2014, the International Accounting Standards Board (IASB) issued the final version of IFRS 9 Financial
Instruments, bringing together the classification and measurement, impairment and hedge accounting phases of the
IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS
9. The amendments are effective for annual periods beginning on or after January 1, 2018. Entities will also have the
option to early apply the accounting for own credit risk-related fair value gains and losses arising on financial liabilities
designated at fair value through profit or loss without applying the other requirements of IFRS 9.
3. Cash and Cash Equivalents
Cash
Cash equivalents
4. Short Term Investments
Held for trading short term investments
December 31,
2014
December 31,
2013
$ 15,234
27,633
$ 11,066
20,638
$ 42,867
$ 31,704
December 31,
2014
December 31,
2013
$
34,391
$
17,411
5. Accounts Receivable and Other Assets and Deposits
on Long Term Assets
The current accounts receivables and other assets are comprised of the following:
Trade receivables from concentrate sales
Current portion of long term receivables
Current portion of borrowing costs
Advances and other receivables
GST/HST and value added tax receivable
Accounts receivable and other assets
December 31,
2014
December 31,
2013
$ 16,573
209
244
2,906
653
$
9,797
488
265
3,883
2,607
$
20,585
$ 17,040
<< Financial Review Table of Contents
84
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
5. Accounts Receivable and Other Assets and Deposits on Long Term Assets (Continued)
Deposits on long term assets include non-current accounts receivable and other assets are comprised of the following:
Long term receivables and borrowing costs
Less: current portion of long term receivables
Less: current portion of long term borrowing costs
Non-current portion of long term receivables
Non-current portion of borrowing costs
Deposits on equipment
Deposits paid to contractors
Other
Deposits on long term assets
December 31,
2014
December 31,
2013
$
542
(209)
(244)
28
61
516
1,358
–
$
1,322
(488)
(265)
237
332
700
411
202
$
1,963
$
1,882
As at December 31, 2014, the Company had $nil trade receivables (2013: $245) which were over 90 days with no
impairment. The Company’s allowance for doubtful accounts is $nil for all reporting periods.
As at December 31, 2014, the Company has capitalized $nil (2013: $796) of borrowing costs comprised of legal fees
and upfront commitment fee in connection with the amended and restated credit agreement with the Bank of Nova
Scotia. The borrowing costs are amortized over a period of 36 months. Refer to Note 16. d).
The aging analysis of these trade receivables from concentrate sales is as follows
0-30 days
31-60 days
over 90 days
6.
Inventories
Concentrate stock piles
Ore stock piles
Materials and supplies
Total inventories
December 31,
2014
December 31,
2013
$
16,157
416
–
$
9,552
–
245
$
16,573
$
9,797
December 31,
2014
December 31,
2013
$
1,575
4,992
8,370
$
2,475
4,756
8,257
$ 14,937
$ 15,488
For the years ended December 31, 2014, $76,230 (2013: $64,284), respectively, of inventory was expensed in cost of
sales and $121 (2013: $62) of material was written down to its net realizable value and recorded as an impairment of
inventories.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
7. Mineral Properties, Plant and Equipment
Mineral
Properties
Non-
Depletable
(Tlacolula)
Mineral
Properties
Depletable
(Caylloma,
San Jose)
Land,
Buildings
and
Leasehold
Improvements
Machinery
and
Equipment
Furniture
and Other
Equipment
Transport
Units
Equipment
under
Finance
Lease
Capital
Work in
Progress
Total
Year ended December 31, 2014
Opening carrying amount,
January 1, 2014
Additions
Disposals
Depletion and depreciation
Reclassification
Adjustment on currency translation
Closing carrying amount,
December 31, 2014
As at December 31, 2014
Cost
Accumulated depletion
and depreciation
Closing carrying amount,
December 31, 2014
$ 1,277
71
–
–
–
–
$ 127,141
21,016
–
(13,395)
4,633
(204)
$ 14,301
1,297
(69)
(2,602)
418
–
$ 55,574
228
(28)
(5,619)
17,531
(8)
$ 5,215
1,147
(1)
(883)
2,533
(2)
$ 197
60
(7)
(99)
–
–
$ 1,406
–
(28)
(502)
–
–
$ 11,850
16,516
–
–
(25,115)
–
$ 216,961
40,335
(133)
(23,100)
–
(214)
$ 1,348
$ 139,191
$ 13,345
$ 67,678
$ 8,009
$ 151
$ 876
$ 3,251
$ 233,849
$ 1,348
$ 196,093
$ 25,768
$ 85,947
$ 11,220
$ 627
$ 3,991
$ 3,251
$ 328,245
–
(56,902)
(12,423)
(18,269)
(3,211)
(476)
(3,115)
–
(94,396)
$ 1,348
$ 139,191
$ 13,345
$ 67,678
$ 8,009
$ 151
$ 876
$ 3,251
$ 233,849
As at December 31, 2014, the non-depletable mineral property includes the Tlacolula property (2013: Tlacolula and San
Luisito properties).
Mineral
Properties
Non-
Depletable
(Tlacolula,
San Luisito)
Mineral
Properties
Depletable
(Caylloma,
San Jose)
Land,
Buildings
and
Leasehold
Improvements
Machinery
and
Equipment
Furniture
and Other
Equipment
Transport
Units
Equipment
under
Finance
Lease
Capital
Work in
Progress
Total
Year ended December 31, 2013
Opening carrying amount,
January 1, 2013
Additions
Disposals
Write–off of mineral properties
Depletion and depreciation
Impairment charge
Reclassification
Adjustment on
currency translation
Closing carrying amount,
December 31, 2013
As at December 31, 2013
Cost
Accumulated depletion
and depreciation
Closing carrying amount,
December 31, 2013
$ 960
887
–
(570)
–
–
–
$ 124,173
31,430
–
–
(11,158)
(16,868)
(217)
$ 19,047
(242)
(20)
–
(2,825)
(2,264)
605
$ 35,796
1,236
(2)
–
(4,454)
(8,180)
31,186
$ 3,984
1,192
(53)
––
(871)
(2,358)
3,323
–
(219)
–
(8)
(2)
$ 186
102
–
(90)
(1)
–
–
$ 2,468
–
–
–
(733)
(329)
–
$ 20,889
25,858
–
–
–
–
(34,897)
$ 207,503
60,463
(75)
(570)
(20,131)
(30,000)
–
–
–
(229)
$ 1,277
$ 127,141
$ 14,301
$ 55,574
$ 5,215
$ 197
$ 1,406
$ 11,850
$ 216,961
$ 1,277
$ 170,934
$ 25,167
$ 68,234
$ 7,685
$ 574
$ 4,795
$ 11,850
$ 290,516
–
(43,793)
(10,866)
(12,660)
(2,470)
(377)
(3,389)
–
(73,555)
$ 1,277
$ 127,141
$ 14,301
$ 55,574
$ 5,215
$ 197
$ 1,406
$ 11,850
$ 216,961
<< Financial Review Table of Contents
86
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
7. Mineral Properties, Plant and Equipment (Continued)
a) 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, Cuzcatlan, holds 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 related party by way of directors in common with the Company
described further in Note 9. a)).
The Company can 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, and by making staged
payments totalling $300 cash and providing $250 in common shares of the Company to Radius according to the following
schedule:
• $20 cash and $20 cash equivalent in shares upon stock exchange approval;
• $30 cash and $30 cash equivalent in shares by January 15, 2011;
• $50 cash and $50 cash equivalent in shares by January 15, 2012;
• $50 cash and $50 cash equivalent in shares by January 15, 2013;
• $50 cash by January 19, 2015; and,
• $100 cash and $100 cash equivalent in shares within 90 days after Cuzcatlan has completed the first 1,500
meters of drilling on the property.
Upon completion of the cash payments and share issuances and incurring the exploration expenditures as set forth
above, the Company will be deemed to have exercised the Option and to have acquired a 60% interest in the property,
whereupon a joint venture will be formed to further develop the property on the basis of the Company owning 60% and
Radius 40%. Radius has the right to terminate the agreement if the option is not exercised by January 31, 2017.
As at December 31, 2014, the Company had issued an aggregate of 34,589 (2013: 34,589) common shares of the
Company, with a fair market value of $150 (2013: $150), and paid $150 (2013: $150) cash according to the terms of
the option agreement. Subsequent to December 31, 2014, the Company paid $50 under the option agreement. Refer
to Note 9. a).
b) San Luisito Concessions
On February 26, 2013, the Company through its wholly owned subsidiary, Cuzcatlan, was granted an option with a third
party on concessions in the San Luisito Project, Sonora, Mexico and made a cash payment of $50. During the second
quarter of 2013, upon completion of the exploration program and given the current economic environment, the Company
abandoned its interest in the option agreement resulting in a write-off of $376. Additional costs of $125 and $69 were
written off in Q3 2013 and Q4 2013, respectively for a total write-off of $570.
Taviche Oeste Concession
c)
On February 4, 2013, the Company, through its wholly owned subsidiary, Cuzcatlan, acquired, through an option agreement
with Plata Pan American S.A. de C.V. (“Plata”, a wholly owned subsidiary of Pan American Silver Corp.), a 55% undivided
interest in the 6,254-hectare Taviche Oeste Concession (“concession”) immediately surrounding the San Jose Mine in
Oaxaca, Mexico. The Company made a cash payment of $4.0 million. On June 19, 2013, the Company made the final
$6.0 million cash payment to purchase the remaining 45% undivided interest in the concession. This property is included
in the San Jose depletable pool.
The concession is subject to a 2.5% net smelter royalty on ore production from this property.
Impairment of Mineral Properties, Plant and Equipment
d)
Assets are reviewed and tested for impairment when events or changes in circumstances suggest that the carrying
amount exceeds the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value
in use. Assets are grouped at the lowest level for which there are separately identifiable cash flows or cash generating
units. The Company’s cash generating units (“CGU”) have been identified as follows:
i. Cuzcatlan CGU includes the assets at San Jose, Taviche, Taviche Oeste, and Tlacolula properties in Mexico.
ii. Bateas CGU includes the assets at the Caylloma property in Peru. Bateas is considered as separate CGU within
the Peru geographical area.
The Company has determined that the Caylloma property represents a cash generating unit within the Peru geographic
region.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
7. Mineral Properties, Plant and Equipment (Continued)
d) Impairment of Mineral Properties, Plant and Equipment (Continued)
The recoverable amounts of the Company’s cash generating units (“CGUs”), which include mineral properties, plant and
equipment are determined on an annual basis, or where facts and circumstances provide impairment indicators. The
recoverable amounts are based on each CGUs future after-tax cash flows expected to be derived from the Company’s
mineral properties and represent each CGUs FVLCTS. The after-tax cash flows are determined based on life-of-mine
(“LOM”) after-tax cash flow projections which incorporate management’s best estimates of future metal prices, production
based on current estimates of recoverable reserves and resources, exploration potential, future operating costs and
non-expansionary capital expenditures. Projected cash flow are discounted using a weighted average cost of capital.
Management’s estimate of the FVLCTS of its CGUs is classified as level 3 in the fair value hierarchy.
For December 31, 2014, the Company performed an annual review of the recoverable amounts of its CGU’s which resulted
in no impairment or reversal of previously recorded impairments.
For the year ended December 31, 2013, the Company performed an annual review of the recoverable amounts of its
CGUs and recognized a $20,400, net of tax ($30,000, before tax) impairment charge, on the carrying value of net assets
of $78,064, in respect to the Company’s investment in Caylloma, which was driven by a reduction in silver prices. The
impairment charge was allocated on a pro rata basis against the net book value of the mineral properties, plant and
equipment of $79,413.
For December 31, 2014 and 2013, the key assumptions used for fair value less cost to sell calculations were as follows:
Metal Price Assumptions
2015
2016
2017
2018
2019
2020-2021
Gold price $ per ounce
Silver price $ per ounce
Lead price $ per tonne
Zinc price $ per tonne
$ 1,248.00
$ 17.98
$ 2,206.00
$ 2,374.00
$ 1,261.00
$ 18.27
$ 2,294.00
$ 2,533.00
$ 1,263.00
$ 19.39
$ 2,320.00
$ 2,599.00
$ 1,270.00
$ 19.60
$ 2,062.00
$ 2,200.00
$ 1,270.00
$ 19.60
$ 2,062.00
$ 2,200.00
$ 1,270.00
$ 19.60
$ 2,062.00
$ 2,200.00
Weighted average cost of capital
7.20%
7.20%
7.20%
7.20%
7.20%
7.20%
December 31, 2014
Metal Price Assumptions
2014
2015
2016
2017
2018
2019-2026
Gold price $ per ounce
Silver price $ per ounce
Lead price $ per tonne
Zinc price $ per tonne
$ 1,361.50
$ 21.35
$ 2,212.49
$ 2,028.25
$ 1,362.50
$ 22.66
$ 2,290.89
$ 2,204.62
$ 1,392.50
$ 23.00
$ 2,340.63
$ 2,385.50
$ 1,336.50
$ 22.40
$ 2,355.65
$ 2,129.00
$ 1,336.50
$ 22.40
$ 2,373.00
$ 2,149.00
$ 1,336.50
$ 22.40
$ 2,068.21
$ 2,149.00
Weighted average cost of capital
7.42%
7.42%
7.42%
7.42%
7.42%
7.42%
December 31, 2013
Expected future cash flows to determine the FVLCTS in the impairment testing of non-current assets are inherently
uncertain and could materially change over time. The cash flows are significantly affected by a number of factors including
estimates of production levels, operating costs, and capital expenditures reflected in the Company’s life of mine plans,
as well as economic factors beyond management’s control, such as silver and gold prices, discount rates, and observable
net asset valuation multiples. Should management’s estimate of the future not reflect actual events, further impairments,
or reversals of impairments may be identified.
8. Trade and Other Payables
Trade accounts payable
Payroll payable
Restricted share unit payable
Other payables
December 31,
2014
December 31,
2013
$ 10,105
8,005
1,386
1,962
$
9,928
4,216
625
1,128
$ 21,458
$ 15,897
<< Financial Review Table of Contents
88
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
9. Related Party Transactions
a) Purchase of Goods and Services
The Company entered into the following related party transactions:
Transaction with related parties
Salaries and wages 1, 2
Other general and administrative expenses 2
Years ended December 31,
2014
83
108
191
$
$
2013
86
130
216
$
$
1
Salaries and wages includes employees' salaries and benefits charged to the Company based on a percentage of the estimated hours
worked for the Company.
2 Radius Gold Inc. (“Radius”) has directors in common with the Company and shares office space, and is reimbursed for general overhead
costs incurred on behalf of the Company. Gold Group Management Inc. (“Gold Group”), which is owned by a director in common with
the Company, provides various administrative, management, and other related services.
In 2013, the Company issued 11,415 common shares of the Company, at a fair market value of $4.38 per share and
paid $50 cash to Radius, under the option to acquire a 60% interest in the Tlacolula silver project located in the State
of Oaxaca, Mexico.
Subsequent to December 31, 2014, the Company paid $50 under the option agreement to Radius. Refer to Note 7. a).
b) Key Management Compensation
key management includes all persons named or performing the duties of Vice-President, Chief Financial Officer, President,
Chief Executive Officer, and non-executive Directors of the Company. The compensation paid and payable to key
management for services is shown below:
Salaries and other short term employee benefits
Directors fees
Consulting fees
Share-based payments
Years ended December 31,
$
2014
4,828
390
163
6,178
$
11,559
$
2013
2,849
409
175
2,683
6,116
Consulting fees includes fees paid to two non-executive directors in both 2014 and 2013.
c) Period End Balances Arising From Purchases of Goods/Services
Amounts due to related parties
December 31,
2014
December 31,
2013
Owing to company(ies) with common directors 3
$
9
$
20
3 Owing to Gold Group Management Inc. (“Gold Group”) who has a director in common with the Company.
On October 10, 2012, the Company paid Gold Group Management Inc., which is owned by a director in common with the
Company, a retainer of $61 representing three months deposit under a services agreement effective July 1, 2012.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
10. Other Liabilities
Other liabilities are comprised of the following:
Obligations under finance lease (a)
Long term liabilities (b)
Deferred share units (Note 13 c))
Restricted share units (Note 13, d))
Less: current portion
Obligations under finance lease (a)
December 31,
2014
December 31,
2013
$
–
38
3,762
861
4,661
–
$
227
27
2,030
286
2,570
227
Leases and long term liabilities, non-current
$
4,661
$
2,343
a) Obligations under Finance Lease
The following is a schedule of the Company’s future minimum lease payments. These are related to the acquisition of
mining equipment, vehicles, and buildings.
Obligations under Finance Lease
Not later than 1 year
Less: future finance charges on finance lease
Present value of finance lease payments
December 31,
2014
December 31,
2013
$
$
–
–
–
$
$
231
(4)
227
b) Long Term Liabilities
The Company’s Mexican operation is required to provide a seniority premium to all employees as required under Mexican
labor law. The seniority premium, equal to 12 days of salary for each year of services rendered and is subject to a salary
limitation of up to twice the minimum wage, is payable to employees who: (i) voluntarily leave their employment after
completing 15 years of service; (ii) leave their employment for just cause; (iii) are dismissed by the Company with or
without just cause; or (iv) die during the labor relationship, in such event their beneficiaries must receive such premium.
In addition, an employee dismissed without cause has the option to be reinstated to his or her former job instead of
receiving the seniority payment, provided the employee does not work in a white-collar position.
<< Financial Review Table of Contents
90
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
10. Other Liabilities (Continued)
b. Long Term Liabilities (Continued)
A summary of the Company’s long term liabilities are presented below:
At December 31, 2014
Discount rate
General wage increase
Regular employees
Unionized employees
Increase in minimum wage
Long term inflation rate
Total seniority premium – December 31, 2012
Seniority premium expense
Foreign exchange differences
Cash payments
Total seniority premium – December 31, 2013
Less: current portion
Non current – December 31, 2013
Total seniority premium – December 31, 2013
Seniority premium expense
Foreign exchange differences
Cash payments
Total seniority premium – December 31, 2014
Less: current portion
Non current – December 31, 2014
7.5%
5.0%
4.5%
4.0%
4.0%
19
16
(1)
(7)
27
–
27
27
18
(5)
(2)
38
–
38
$
$
$
$
$
$
11. Provisions
A summary of the Company’s provisions for other liabilities and charges is presented below:
As at December 31, 2014
Anticipated settlement date to
Undiscounted value of estimated cash flow
Estimated mine life (years)
Discount rate
Inflation rate
Total provisions – December 31, 2012
Increase to existing provisions
Accretion of provisions
Foreign exchange differences
Cash payments
Total provisions – December 31, 2013
Less: current portion
Non current – December 31, 2013
Total provisions – December 31, 2013
Increase to existing provisions
Accretion of provisions
Foreign exchange differences
Cash payments
Total provisions – December 31, 2014
Less: current portion
Non current – December 31, 2014
<< Financial Review Table of Contents
Decommissioning and Restoration Liabilities
Caylloma Mine
San Jose Mine
Total
2028
8,113
7
6.19%
3.30%
7,059
103
291
(600)
(95)
6,758
(125)
6,633
6,758
695
398
(553)
(111)
7,187
(256)
6,931
$
$
$
$
$
$
$
2026
6,727
9
5.80%
4.08%
3,368
424
247
(19)
(44)
3,976
(497)
3,479
3,976
1,863
345
(613)
(60)
5,511
(553)
4,958
$
$
$
$
$
$
$
$ 14,840
$ 10,427
527
538
(619)
(139)
$
10,734
(622)
$ 10,112
$ 10,734
2,558
743
(1,166)
(171)
$ 12,698
(809)
$ 11,889
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
11. Provisions (Continued)
In view of the uncertainties concerning environmental reclamation, the ultimate cost of reclamation activities could differ
materially from the estimated amount recorded. The estimate of the Company’s decommissioning and restoration liability
relating to the Caylloma and San Jose mines are subject to change based on amendments to laws and regulations and
as new information regarding the Company’s operations becomes available.
Future changes, if any, to the estimated liability as a result of amended requirements, laws, regulations, operating
assumptions, estimated timing and amount of obligations may be significant and would be recognized prospectively as
a change in accounting estimate. Any such change would result in an increase or decrease to the liability and a
corresponding increase or decrease to the mineral properties, plant and equipment balance. Adjustments to the carrying
amounts of the related mineral properties, plant and equipment balance can result in a change to the future depletion
expense.
Income Tax
12.
a) Income tax expense differs from the amount that would be computed by applying the Canadian statutory income tax
rate of 26% (2013: 25.75%) to income before income taxes. The reasons for the differences are as follows:
Income before tax
Statutory income tax rate
Expected income tax
Items non-deductible for income tax purposes
Difference between Canadian and foreign tax rates
Effect of change in tax rates
Impact of foreign exchange on tax assets and liabilities
Special Mining Royalty
Other items
Unused tax losses and tax offsets not recognized in tax asset
Total income taxes
Represented by:
Current income tax
Deferred income tax
December 31,
2014
December 31,
2013
$ 32,879
26.00%
$
8,549
1,665
2,046
(41)
790
1,715
128
2,425
$
$
(9,970)
25.75%
(2,567)
1,458
407
306
1,244
7,677
(766)
1,371
$ 17,277
$
9,130
$ 13,510
3,767
$
4,926
4,204
$
17,277
$
9,130
The Canadian Federal corporate tax rate remained unchanged at 15% throughout 2013, and the British Columbia
provincial tax rate increased from 10% to 11% effective April 1, 2013. For 2014, the overall increase in tax rates has
resulted in an increase in the Company’s statutory tax rate from 25.75% to 26%.
In the fourth quarter 2014, a tax rate change was enacted in Peru, reducing corporate income tax rates. The Company
has a legal stability agreement with the Peruvian government and it is valid until 2017. The reduction in tax rate would
impact the temporary difference that will reverse subsequent to 2017. This resulted in a deferred tax recovery of $34
due to recording the deferred tax liability in Peru at the lower rates. The Company will be subject to a Peruvian income
tax rate of 27% in 2018 and 26% thereafter.
In December 2013, the Mexican President signed a bill approving significant tax reforms which have an effective date of
January 1, 2014. These tax reforms include a tax-deductible special mining royalty of 7.5% on EBITDA and an extraordinary
mining royalty of 0.5% on precious metals revenue. In addition, the Mexican corporate tax rate is to remain at 30%,
while previously expected to decrease to 28% in 2015.
The special mining royalty is an annual tax with the first payment due in March 2015 for 2014 activities. The Company
recognized an initial deferred tax liability of $7,677 in 2013 related to the special mining royalty of 7.5%. The balance
for 2014 is $5,870 resulting in a deferred tax recovery of $1,807 which offsets the current tax special mining royalty
expense of $3,522 in 2014. The deferred tax liability will be drawn down to $nil as a reduction to tax expense over the
life of mine as the mine and its related assets are depleted or depreciated.
Income taxes payable of $9,745 (December 31, 2013: $50) of which $6,223 relates to current taxes (December 31,
2013: $50) and $3,522 (December 31, 2013: $nil) relates to special mining royalty.
<< Financial Review Table of Contents
92
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
12. Income Tax (Continued)
b) The tax effected items that give rise to significant portions of the deferred income tax assets and deferred income
tax liabilities at December 31, 2014 and 2013 are presented below:
Deferred income tax assets:
Non-capital losses
Provisions and other
Equipment
Other
Net deferred income tax assets
Deferred income tax liabilities:
Mineral properties – Peru
Mineral properties – Mexico
Special Mining Royalty
Equipment
Other
Total deferred income tax liabilities
Net deferred income tax liabilities
Classification
Non-current assets
Non-current liabilities
December 31,
2014
December 31,
2013
$
$
–
3,889
–
2,515
6,404
(11,280)
(10,302)
(5,870)
(7,541)
(311)
$ (35,304)
$
(28,900)
$
126
(29,026)
$
$
$
$
$
6,148
3,301
–
898
10,347
(10,393)
(8,241)
(7,677)
(9,169)
–
(35,480)
(25,133)
151
(25,284)
Net deferred income tax liabilities
$
(28,900)
$
(25,133)
c) The Company recognizes tax benefits on losses or other deductible amounts generated in countries where the probable
criteria for the recognition of deferred tax assets has been met. The Company’s unrecognized deductible temporary
differences and unused tax losses for which no deferred tax asset is recognized consist of the following amounts:
Non-capital losses
Provisions and other
Share issue cost
Mineral properties, plant and equipment
Capital losses
December 31,
2014
December 31,
2013
$ 46,166
6,009
639
1,704
1,004
$ 44,961
2,941
1,119
1,593
–
Unrecognized deductible temporary differences
$
55,522
$ 50,614
The Company’s unrecognized taxable temporary difference consists of the following amounts:
Investment in subsidiaries
Unrecognized taxable temporary differences
The Company’s tax losses have the following expiry dates:
Non-capital losses, expiring as follows:
Canada
Mexico
Barbados
<< Financial Review Table of Contents
December 31,
2014
December 31,
2013
$
$
22,775
22,775
$ 13,599
$ 13,599
Expiry Date
2025 - 2034
2021 - 2026
2022 - 2023
$
45,634
419
113
$ 46,166
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
13. Share Capital
a) Unlimited Common Shares Without Par Value
During the year ended December 31, 2014, the Company issued nil (2013: 11,415) common shares of the Company, at
a fair market value of $nil (2013: $4.38) per share and paid $nil (2013: $50) cash to Radius, under the option to acquire
a 60% interest in the Tlacolula silver project located in the State of Oaxaca, Mexico. (Refer to Note 7. a)).
b) Share Options
Shareholder approval of the Company’s Stock Option Plan (the “Plan”), dated April 11, 2011, was obtained at the
Company’s annual general meeting held on May 26, 2011. The Plan provides that the number of common shares of the
Company issuable under the Plan, together with all of the Company’s other previously established or proposed share
compensation arrangements, may not exceed 12,200,000 shares, which equals 9.92% of the current total number of
issued and outstanding common shares of the Company, as at April 11, 2011. As at December 31, 2014, the number
of common shares available for issuance under the Plan is 3,719,067.
Option pricing models require the input of highly subjective assumptions including the estimate of the share price volatility,
risk-free interest rate and expected life of the options. Changes in the subjective input assumptions can materially affect
the fair value estimate. The following is a summary of share option transactions:
Outstanding at beginning of the year
Granted
Exercised
Forfeited
Expired
Outstanding at end of the year
Vested and exercisable at end of the year
December 31, 2014
December 31, 2013
Shares
(in ‘000’s)
6,437
828
(2,564)
(70)
(1,687)
2,944
1,776
Weighted
average
exercise price
(CAD$)
$ 3.42
4.30
3.68
5.26
4.55
$ 3.25
$ 2.80
Shares
(in ‘000’s)
6,117
1,153
(694)
(84)
(55)
6,437
3,949
Weighted
average
exercise price
(CAD$)
$ 3.42
3.38
1.01
4.69
2.27
$ 3.42
$ 3.55
During the year ended December 31, 2014, 828,242 share purchase options with a term of three years were granted
with an exercise price of CAD$4.30, vesting 50% after one year and 100% after two years from the grant date.
During the year ended December 31, 2014, 2,563,776 share purchase options with exercise prices ranging from
CAD$1.55 to CAD$4.46 per share were exercised, 70,255 share purchase options with exercise prices ranging from
CAD$4.03 to CAD$6.67 per share were forfeited, 1,686,654 share purchase options with an exercise prices ranging
from CAD$4.46 to CAD$6.67 per share expired, and 865,895 share purchase options were accelerated to expire as
follows:
Shares
Exercise price (CAD$)
Original Expiry Date
Accelerated Expiry Date
170,000
79,038
60,307
37,500
65,510
71,134
108,553
253,853
20,000
865,895 Total
$ 4.03
3.38
4.30
4.03
6.67
3.38
4.30
3.79
4.03
May 29, 2015
May 29, 2016
March 23, 2017
May 29, 2015
February 20, 2017
May 29, 2016
March 23, 2017
July 31, 2017
May 29, 2015
July 13, 2014
July 13, 2014
July 13, 2014
July 27, 2014
August 29, 2014
January 20, 2015
January 20, 2015
January 20, 2015
February 8, 2015
During the year ended December 31, 2014, the Company recorded a share-based payment charge of $2,108 (2013:
$2,734) in respect to options granted and vested.
<< Financial Review Table of Contents
94
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
13. Share Capital (Continued)
b) Share Options (Continued)
The assumptions used to estimate the fair value of the share purchase options granted during the year ended December
31, 2014 and 2013 were:
Risk-free interest rate
Expected stock price volatility
Expected term in years
Expected dividend yield
Expected forfeiture rate
Years ended December 31,
2014
1.19%
59.29%
3
0%
4.15%
2013
1.18%
57.81%
3
0%
4.15%
The expected volatility assumption is based on the historical volatility of the Company’s Canadian dollar common share
price on the Toronto Stock Exchange. The weighted average fair value per share purchase option was CAD$4.30 (2013:
CAD$3.68).
The following table summarizes information related to stock options outstanding and exercisable at December 31, 2014:
Number of
outstanding
share purchase
options (in ‘000’s)
Weighted average
remaining
contractual life
of outstanding
share purchase
options (years)
Weighted average
exercise price on
outstanding share
purchase options
CAD$
Exercisable
share purchase
options
(in ‘000’s)
Weighted average
exercise price on
exercisable share
purchase options
CAD$
270
274
250
889
1,212
49
2,944
3.8
1.3
2.0
1.4
1.4
2.1
1.7
$ 0.85
1.44
2.22
3.38
4.18
6.67
$ 3.25
270
274
250
397
552
33
1,776
$ 0.85
1.44
2.22
3.38
4.03
6.67
$ 2.80
Exercise price
in CAD$
$0.85 to $0.99
$1.00 to $1.99
$2.00 to $2.99
$3.00 to $3.99
$4.00 to $4.99
$6.00 to $6.67
$0.85 to $6.67
The weighted average remaining life of vested share purchase options at December 31, 2014 was 1.5 years (December
31, 2013: 1.6 years).
Subsequent to December 31, 2014, 308,100 share purchase options with an exercise price of CAD$4.03 were exercised
resulting in issued and outstanding shares of 128,845,842.
c) Deferred Share Units (“DSU”) Cost
During 2010, the Company implemented a DSU plan which allows for up to 1% of the number of shares outstanding
from time to time to be granted to eligible directors. All grants under the plan are fully vested upon credit to an eligible
directors’ account.
During the year ended December 31, 2014, the Company granted 244,188 (2013: 230,479) DSU with a market value
of CAD$1,050 (2013: CAD$782), at the date of grants, to non-executive directors.
During the year ended December 31, 2014, the Company paid $514 (2013: $nil) on 127,063 (2013: nil) DSU to a former
director of the Company.
As at December 31, 2014, there are 828,529 (2013: 711,944) DSU outstanding with a fair value of $3,762 (2013:
$2,030). Refer to Note 10.
d) Restricted Share Units (“RSU”) Cost
During 2010, the Company implemented a RSU plan for certain employees or officers. The RSU entitle employees or
officers to a cash payment after the end of a performance period of up to three years following the date of the award.
The RSU payment will be an amount equal to the fair market value of the Company’s common share on the five trading
days immediately prior to the end of the performance period multiplied by the number of RSU held by the employee.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
13. Share Capital (Continued)
d) Restricted Share Units ("RSU") Cost (Continued)
During the year ended December 31, 2014, the Company granted 424,425 (2013: 582,846) RSU with a market value
of CAD$1,825 (2013: CAD$1,970), at the date of grant, to an executive director and officer (103,721), officers (204,192),
and employees (116,512), payable 20% after one year, 30% after two years, and the remaining 50% after three years
from the date of grant.
During the year ended December 31, 2014, the Company cancelled 52,528 (2013: 39,201) RSUs, and paid $1,036
(2013: $nil) on 248,591 (2013: nil) RSUs to an executive director and officer, officers, employees, former officers, and
a former employee.
As at December 31, 2014, there were 822,625 (2013: 699,319) RSU outstanding with a fair value of $2,247 (2013:
$911). Refer to Note 8 and Note 10.
e) Earnings (Loss) per Share
Basic
i.
Basic earnings per share is calculated by dividing the net income for the period by the weighted average number of
shares outstanding during the period.
The following table sets forth the computation of basic earnings per share:
Income (loss) available to equity owners
Weighted average number of shares (in '000's)
Earnings (loss) per share – basic
Years ended December 31,
2014
2013
$ 15,602
$
(19,100)
126,787
125,553
$
0.12
$
(0.15)
ii. Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume
conversion of all potentially dilutive shares. The following table sets forth the computation of diluted earnings per share:
Income (loss) available to equity owners
Weighted average number of shares ('000's)
Incremental shares from share options
Weighted average diluted shares outstanding ('000's)
Earnings (loss) per share – diluted
Years ended December 31,
2014
2013
$ 15,602
$
(19,100)
126,787
1,356
128,143
125,553
996
126,549
$
0.12
$
(0.15)
For the year ended December 31, 2014, excluded from the calculation were 49,084 (2013: 4,180,104) anti-dilutive
options with exercise price of CAD$6.67 (2013: ranging from CAD$3.79 to CAD$6.67).
14. Supplemental Cash Flow Information
Non-cash Investing and Financing Activities:
Issuance of shares on purchase
of mineral properties, plant and equipment
Years ended December 31,
Note
2014
2013
7 a)
$
–
$
50
<< Financial Review Table of Contents
96
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
15. Capital Disclosure
The Company’s objectives when managing capital are to provide shareholder returns through maximization of the profitable
growth of the business and to maintain a degree of financial flexibility relevant to the underlying operating and metal
price risks while safeguarding the Company’s ability to continue as a going concern.
The capital of the Company consists of equity and available credit facility, net of cash. The Board of Directors has not
established a quantitative return on capital criteria for management. The Company manages the capital structure and
makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.
The management of the Company believes that the capital resources of the Company as at December 31, 2014, are
sufficient for its present needs for at least the next 12 months. The Company is not subject to externally imposed capital
requirements.
The Company’s overall strategy with respect to capital risk management remained unchanged during the year.
16. Management of Financial Risk
The Company is exposed to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk, and price
risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework and reviews the Company’s policies on an ongoing basis
a) Fair Value of Financial Instruments
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.
During the year ended December 31, 2014, there have been no transfers of amounts between Level 1, Level 2, and
Level 3 of the fair value hierarchy.
i.
Assets and Liabilities Measured At Fair Value on a Recurring Basis
Quoted Prices in
Active Markets for
Identical Assets
Significant and
other Observable
Inputs
Significant
Unobservable
Inputs
At December 31, 2014
Level 1
Level 2
Level 3
Cash and cash equivalents
Short term investments
Trade receivable from concentrate sales 1
$
42,867
34,391
–
$
–
–
16,573
$
$
77,258
$
16,573
$
–
–
–
–
Aggregate Fair
Value Total
$
42,867
34,391
16,573
$
93,831
1
1
Trade receivable from concentrate sales includes provisional pricing, and final price and assay adjustments. The fair value of trade
receivable from concentrate sales resulting from provisional pricing reflect observable market commodity prices and thereby classified
within Level 2 of the fair value hierarchy.
The Company's trade receivables arose from provisional concentrate sales and are valued using quoted market prices based on the
forward London Metal Exchange ("LME") for zinc and lead, the average London Bullion Market Association A.M. and P.M. fix ("London
A.M. fix" and "London P.M. fix") for gold and silver, and the London Bullion Market Association P.M. fix ("London P.M. fix") for gold and
silver.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
16. Management of Financial Risk (Continued)
a.) Fair Value of Financial Instruments (Continued)
i. Assets and Liabilities Measured At Fair Value on a Recurring Basis (Continued)
Quoted Prices in
Active Markets for
Identical Assets
Significant and
other Observable
Inputs
Significant
Unobservable
Inputs
At December 31, 2013
Level 1
Level 2
Level 3
Cash and cash equivalents
Short term investments
Trade receivable from concentrate sales 1
$
31,704
17,411
–
$
$
49,115
$
–
–
9,797
9,797
$
$
–
–
–
–
Aggregate Fair
Value Total
$
31,704
17,411
9,797
$
58,912
ii.
Fair Value of Financial Assets and Liabilities
Financial assets
Cash and cash equivalents 1
Short term investments 1
Trade receivable from concentrate sales 2
Advances and other receivables
Financial liabilities
Trade and other payables 1
Due to related parties 1
Other liabilities 3
Income tax payable 1
December 31, 2014
December 31, 2013
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
$
$
$
$
$
$
42,867
34,391
16,573
2,906
96,737
20,072
9
38
9,745
42,867
34,391
16,573
2,906
96,737
20,072
9
38
9,745
$
$
$
$
$
$
31,704
17,411
9,797
3,883
62,795
15,272
20
254
50
31,704
17,411
9,797
3,883
62,795
15,272
20
258
50
$
29,864
$
29,864
$
15,596
$
15,600
1
2
Fair value approximates the carrying amount due to the short term nature and historically negible credit losses.
Trade receivable from concentrate sales includes provisional pricing, and final price and assay adjustments. The fair value of trade
receivable from concentrate sales resulting from provisional pricing reflect observable market commodity prices and thereby classified
within Level 2 of the fair value hierarchy.
3 Other liabilities are recorded at amortized costs. The fair value of other liabilities are primarily determined using quoted market prices.
Balance includes current portion of other liabilities.
b) Currency Risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company operates
in Canada, Peru and Mexico and a portion of its expenses are incurred in Canadian dollars, nuevo soles, and Mexican
pesos. A significant change in the currency exchange rates between the United States dollar relative to the other
currencies could have a material effect on the Company’s income, financial position, or cash flows. The Company has
not hedged its exposure to currency fluctuations.
<< Financial Review Table of Contents
98
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
16. Management of Financial Risk (Continued)
b.) Currency Risk (Continued)
As at December 31, 2014, the Company is exposed to currency risk through the following assets and liabilities
denominated in Canadian dollars, nuevo soles and Mexican pesos (all amounts are expressed in thousands of Canadian
dollars, thousands of nuevo soles or thousands of Mexican pesos):
Cash and cash equivalents
Short term investments
Accounts receivable and other assets
Deposits on long term assets and long
term borrowing costs
Trade and other payables
Due to related parties
Provisions, current
Income tax payable
Other liabilities
Provisions
December 31, 2014
December 31, 2013
Canadian
Dollars
$ 2,695
7,696
897
71
(2,220)
(11)
–
–
(5,376)
–-
Nuevo
Soles
Mexican
Pesos
S/. 8,633
–
4,190
–
(12,387)
–
(767)
(37)
–
(20,710)
$ 56,739
–
15,692
19,096
(117,848)
–
(8,138)
(143,426)
(563)
(73,001)
Canadian
Dollars
$ 2,699
3,286
306
355
(1,181)
(22)
–
–
(2,477)
–
Nuevo
Soles
S/. 619
–
7,917
–
(12,659)
–
(349)
(2,213)
–
(18,544)
Mexican
Pesos
$ 10,994
–
33,818
–
(49,618)
–
(6,499)
-
(350)
(45,499)
Total
$ 3,752 S/. (21,078)
$ (251,449)
$ 2,966
S/. (25,229)
$ (57,154)
Total US$ equivalent
$ 3,226
$ (7,052)
$ (17,084)
$ 2,773
$ (9,023)
$ (4,371)
Based on the above net exposure as at December 31, 2014, and assuming that all other variables remain constant, a
10% depreciation or appreciation of the US dollar against the above currencies would result in an increase or decrease,
as follows: impact to other comprehensive income of $358 (2013: $308) and an impact to net income of $2,682 (2013:
$1,489).
The sensitivity analyses included in the table above should be used with caution as the results are theoretical, based on
management’s best assumptions using material and practicable data which may generate results that are not necessarily
indicative of future performance. In addition, in deriving this analysis, the Company has made assumptions based on
the structure and relationship of variables as at the balance sheet date which may differ due to fluctuations throughout
the year with all other variables assumed to remain constant. Actual changes in one variable may contribute to changes
in another variable, which may amplify or offset the effect on earnings.
c) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its
contractual obligations. The Company’s cash and cash equivalents and short term investments are held through large
Canadian, international, and foreign national financial institutions. These investments mature at various dates within
one year. All of the Company’s trade accounts receivables from concentrate sales are held with large international metals
trading companies.
The Company’s maximum exposure to credit risk as at December 31, 2014 is as follows:
Cash and cash equivalents
Short term investments
Accounts receivable and other assets
December 31,
2014
December 31,
2013
$
42,867
34,391
20,585
$ 31,704
17,411
17,040
$
97,843
$ 66,155
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum
exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company’s credit
risk has not declined significantly from the prior year.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
16. Management of Financial Risk (Continued)
d) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company
manages liquidity risk by continuing to monitor forecasted and actual cash flows. The Company has in place a planning
and budgeting process to help determine the funds required to support the Company’s normal operating requirements
on an ongoing basis and its development plans. The Company strives to maintain sufficient liquidity to meet its short
term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash, short
term investments, and its committed liabilities.
Trade and other payables
Due to related parties
Income tax payable
Other liabilities
Operating leases
Provisions
Expected payments due by period as at December 31, 2014
Less than
1 year
$ 21,458
9
9,745
–
745
871
$ 32,828
1–3 years
4–5 years
$ –
–
–
4,661
1,275
902
$ 6,838
$ –
–
–
–
126
1,620
$ 1,746
After
5 years
$ –
–
–
–
–
11,447
$ 11,447
Total
$ 21,458
9
9,745
4,661
2,146
14,840
$ 52,859
Operating leases includes leases for office premises, computer and other equipment used in the normal course of
business. Refer to Note 23. c).
On April 23, 2013, the Company entered into an amended and restated credit agreement with the Bank of Nova Scotia
for a $40 million senior secured revolving credit facility (“credit facility”) to be refinanced or repaid on or within three
years or before April 22, 2016. The credit facility is secured by a first ranking lien on Bateas, Cuzcatlan, Continuum, and
Barbados, and their assets and bears interest and fees at prevailing market rates. In the event that utilization under the
credit facility is less than $10 million, a commitment fee of 1.0% per annum is payable quarterly on the unutilized portion
of the available credit facility. No funds were drawn from this credit facility.
Subsequent to December 31, 2014, the Company is pending to enter an amended and restated credit agreement with
the Bank of Nova Scotia for a $60 million senior secured financing (“credit facility”) consisting of a $40 million term
credit facility with a 4 year term and a $20 million revolving credit facility for a two year period. The credit facility is to
be secured by a first ranking lien on Bateas, Cuzcatlan, Continuum, and Barbados, and their assets and bears interest
and fees at prevailing market rates. In the event that utilization under the credit facility is less than $10 million, a
commitment fee of 1.0% per annum is payable quarterly on the unutilized portion of the available credit facility. No funds
were drawn from this credit facility.
Interest Rate Risk
e)
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The risk that the Company will realize a loss as a result of a decline in the fair value
is limited because the balances are generally held with major financial institutions in demand deposit accounts.
A 10% change in interest rates would cause a $2 change in income on an annualized basis.
f) Metal Price Risk
The Company is exposed to metals price risk with respect to silver, gold, zinc, and lead sold through its mineral
concentrate products. As a matter of policy, the Company does not hedge its silver production.
A 10% change in zinc, lead, silver, and gold prices would cause an $881, $607, $8,294, $2,910, respectively, change in
net earnings on an annualized basis.
The Company also enters into provisional concentrate contracts to sell the silver-gold, zinc, lead-silver concentrates
produced by the San Jose and Caylloma mines. For the year ended December 31, 2014, the impact of price adjustments
was a loss of $539 (2013: loss $4,456).
<< Financial Review Table of Contents
100
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
17. Segmented Information
All of the Company’s operations are within the mining sector, conducted through operations in three countries. Due to
geographic and political diversity, the Company’s mining operations are decentralized whereby management are
responsible for achieving specified business results within a framework of global policies and standards. Country
corporate offices provide support infrastructure to the mine in addressing local and country issues including financial,
human resources, and exploration support.
Products are silver, gold, lead, zinc and copper produced from mines in Peru and Mexico, as operated by Bateas and
Cuzcatlan, respectively. Segments have been aggregated where operations in specific regions have similar products,
production processes, types of customers and economic environment.
The Company’s operating segments are based on the reports reviewed by the senior management group that are used
to make strategic decisions. The Chief Executive Officer considers the business from a geographic perspective considering
the performance of the Company’s business units. The segment information for the reportable segments for the years
ended December 31, 2014 and 2013 are as follows:
Reportable Segments
Corporate
Bateas
Cuzcatlan
Total
$
Year ended December 31, 2014
Sales to external customers
Silver-gold concentrates
Silver-lead concentrates
$
Zinc concentrates
Cost of sales*
Depletion and depreciation**
Selling, general and administrative expenses*
Restructuring and severance costs
Other material non-cash items
Impairment of inventories
Interest income
Interest expense
(Loss) income before tax
Income taxes
(Loss) income for the year
Capital expenditures***
–
–
–
–
–
465
16,789
1,021
–
–
93
404
(18,120)
315
(18,435)
87
66,054
–
47,978
18,076
51,13
7,521
3,903
70
50
121
100
403
10,475
4,852
5,623
9,850
$ 107,952
107,952
–
–
62,622
15,531
4,533
–
16
–
88
345
40,524
12,110
28,414
29,006
$
174,006
107,952
47,978
18,076
113,753
23,517
25,225
1,091
66
121
281
1,152
32,879
17,277
15,602
38,943
cost of sales and selling, general and administrative expenses includes depletion and depreciation
*
** included in cost of sales or selling, general and administrative expenses
*** segmented capital expenditures are presented on a cash basis
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
17. Segmented Information (Continued)
Reportable Segments
Corporate
Bateas
Cuzcatlan
Total
Year ended December 31, 2013
Sales to external customers
Silver-gold concentrates
Silver-lead concentrates
Zinc concentrates
Cost of sales*
Depletion and depreciation**
Selling, general and
administrative expenses*
Exploration and evaluation costs
Restructuring and severance costs
Write-off of mineral properties
Other material non-cash items
Impairment of mineral properties, plant
and equipment
Impairment of inventories
Interest income
Interest expense
(Loss) income before tax
Income taxes
(Loss) income for the year
Capital expenditures***
$
$
–
–
–
–
–
662
12,820
376
305
–
–
–
–
101
374
(13,774)
231
(14,005)
101
72,306
–
57,013
15,293
53,672
9,676
3,513
–
57
–
7
30,000
62
402
311
(14,914)
(2,816)
(12,098)
21,701
$
65,088
65,088
–
–
41,947
9,966
3,450
42
131
570
71
–
–
88
247
18,718
11,715
7,003
38,705
$
137,394
65,088
57,293
15,013
95,619
20,304
19,783
418
493
570
78
30,000
62
591
932
(9,970)
9,130
(19,100)
60,507
cost of sales and selling, general and administrative expenses includes depletion and depreciation
*
** included in cost of sales or selling, general and administrative expenses
*** segmented capital expenditures are presented on a cash basis
Reportable Segments
Corporate
Bateas
Cuzcatlan
Total
As at December 31, 2014
Mineral properties, plant and equipment
Total assets
Total liabilities
$
As at December 31, 2013
Mineral properties, plant and equipment
Total assets
Total liabilities
539
20,804
8,153
670
25,191
4,715
$
66,570
110,499
19,813
$ 166,740
219,007
49,631
$
64,197
104,398
19,091
152,094
172,626
30,749
233,849
350,310
77,597
216,961
302,215
54,555
<< Financial Review Table of Contents
102
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
17. Segmented Information (Continued)
The segment information by geographical region for the years ended December 31, 2014 and 2013 are as follows:
Reportable Segments
Canada
Peru
Mexico
Total
Year ended December 31, 2014
Sales to external customers
Silver-gold concentrates
Silver-lead concentrates
Zinc concentrates
Year ended December 31, 2013
Sales to external customers
Silver-gold concentrates
Silver-lead concentrates
Zinc concentrates
$
$
–
–
–
–
–
–
–
–
$
$
66,054
–
47,978
18,076
72,306
–
57,013
15,293
Reportable Segments
Canada
Peru
$
$
107,952
107,952
–
–
65,088
65,088
–
–
Mexico
$
$
174,006
107,952
47,978
18,076
137,394
65,088
57,013
15,293
Total
As at December 31, 2014
Non current assets
As at December 31, 2013
Non current assets
$
$
2,323
3,038
$
$
67,196
64,938
$
$
166,419
151,018
$
$
235,938
218,994
For the year ended December 31, 2014, there were six (2013: six) customers, respectively, represented 100% of total
sales to external customers as follows:
External Sales by Customer and Region
2014
2013
Years ended December 31,
Customer 1
Customer 2
Customer 3
Customer 4
Customer 5
Bateas/Peru
% of total sales
Customer 1
Customer 2
Customer 3
Cuzcatlan/Mexico
% of total sales
Consolidated
% of total sales
$
35,624
12,324
–
16,869
1,237
54%
19%
0%
26%
2%
$
29,341
42,968
9
(12)
–
41%
59%
0%
0%
0%
$
66,054
100%
$
72,306
100%
$
38%
50,278
–
57,674
$
107,952
62%
47%
0%
53%
100%
$
$
53%
63,955
1,133
–
98%
2%
0%
$
65,088
100%
47%
$
174,006
100%
$
137,394
100%
100%
100%
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
18. Cost of Sales
The cost of sales for the years ended December 31, 2014 and 2013 are as follows:
Years ended December 31,
2014
2013
Caylloma
San Jose
Total
Caylloma
San Jose
Total
Direct mining costs 1
Workers’ participation
Depletion and depreciation
Royalty expenses
$ 42,031
735
7,482
901
$ 43,418
3,556
15,161
487
$ 85,431
4,291
22,643
1,388
$ 42,331
998
9,594
749
$ 32,345
81
9,521
–
$ 74,676
1,079
19,115
749
$ 51,131
$ 62,622
$ 113,753
$ 53,672
$ 41,947
$ 95,619
1 Direct mining costs includes salaries and other short term benefits, contractor charges, energy, consumables and production related
costs.
19. Selling, General and Administrative Expenses
The selling, general and administrative expenses for the years ended December 31, 2014 and 2013 are as follows:
Salaries and benefits
Corporate administration
Audit, legal and professional fees
Filing and listing fees
Director's fees
Depreciation
Years ended December 31,
2014
2013
$ 18,599
(209)
5,269
223
546
797
$ 14,275
112
3,795
40
578
983
$
25,225
$ 19,783
20. Exploration and Evaluation Costs
The exploration and evaluation costs for the years ended December 31, 2014 and 2013 are as follows:
Share-based payments
Salaries, wages, and benefits
Direct costs
Years ended December 31,
2014
–
–
–
–
$
$
2013
22
312
84
418
$
$
<< Financial Review Table of Contents
104
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
21. Restructuring and Severance Costs
The restructuring and severance costs for the years ended December 31, 2014 and 2013 are as follows:
Restructuring costs
Severance costs
Years ended December 31,
2014
–
1,091
1,091
$
$
2013
493
–
493
$
$
The restructuring and severance costs include the Company’s cost-reduction program, and include all salaries and post-
employment costs.
22. Net Finance (Expense) Income
The net finance (expense) income for the years ended December 31, 2014 and 2013 are as follows:
Finance income
Interest income on FVTPL financial assets
Total finance income
Finance expenses
Interest expense
Standby and commitment fees
Accretion of provisions (Note 12)
Total finance expense
Net finance (expense) income
Years ended December 31,
2014
2013
$
281
281
5
404
743
1,152
$
591
591
21
373
538
932
$
(871)
$
(341)
23. Contingencies and Capital Commitments
a) Bank Letter of Guarantee
The Caylloma Mine closure plan was approved in November 2009 with total closure costs of $3,587 of which $1,756 is
subject to annual collateral in the form of a letter of guarantee, to be awarded each year in increments of $146 over 12
years based on the estimated life of the mine. In March 2013 the closure plan was updated with total closure costs of
$7,996 of which $4,167 is subject to annual collateral in the form of a letter of guarantee.
Scotiabank Peru, a third party, has established a bank letter of guarantee on behalf of Bateas in favor of the Peruvian
mining regulatory agency in compliance with local regulation and to collateralize Bateas’ mine closure plan, in the amount
of $1,842 (2013: $1,204). This bank letter of guarantee expires on December 31, 2015
Scotiabank Peru, a third party, has established a bank letter of guarantee on behalf of Bateas in favor of the Peruvian
Energy and Mining Ministry to collateralize Bateas’s regulatory compliance with the electric transmission line project, in
the amount of $3 (2013: $3). This bank letter of guarantee expires on December 6, 2015.
Scotiabank Peru, a third party, has established a bank letter of guarantee, for office rental, on behalf of Bateas in favor
of Centro Empresarial Nuevo Mundo S.A.C., in the amount of $58. This bank letter of guarantee expires on July 18,
2015.
<< Financial Review Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
DRIVING GROWTH FROM WITHIN
105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$‘000’s unless otherwise stated)
23. Contingencies and Capital Commitments (Continued)
b) Capital Commitments
As at December 31, 2014, there are no capital commitments
c) 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 3,500 kW) and the Company
is obligated to purchase subject to exemptions under provisions of "Force Majeure". The contract is automatically renewed
every two years for a period of 10 years and expiring in 2017. Renewal can be avoided without penalties by notification
10 months in advance of the renewal date.
Tariffs are established annually by the energy market regulator in accordance with applicable regulations in Peru. The
minimum committed demand is $19 per month and the average monthly charge for 2014 is $202.
Operating leases includes leases for office premises, computer and other equipment used in the normal course of
business. Refer to Note 16. d).
The expected payments due by period as at December 31, 2014 are as follows:
Office premises – Canada
Office premises – Peru
Office premises – Mexico
Total office premises
Computer equipment – Peru
Computer equipment – Mexico
Total computer equipment
Machinery – Mexico
Total machinery
Total operating leases
Expected payments due by period as at December 31, 2014
Less than
1 year
1–3 years
4–5 years
$
$
$
$
$
132
396
15
543
185
17
202
–
–
$
$
$
$
452
580
–
1,032
164
–
164
79
79
745
$
1,275
$
$
$
$
$
126
–
–
126
–
–
–
–
–
126
$
$
$
$
$
Total
710
976
15
1,701
349
17
366
79
79
2,146
d) Tax Contingencies
The Company has been assessed taxes and related interest and penalties, in Peru by SUNAT, for tax years 2010, 2011,
and 2012, in the amounts of $1,161, $740, and $110, respectively, for a total of $2,011. The Company is currently
appealing the assessments and believes the appeals with be ruled in favor of the Company. Subsequent to December
31, 2014, the Company has provided as a guarantee by way of letter bond in the amount of $776.
e) Other Contingencies
The Company is subject to various investigations, 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 the opinion of management, none of
these matters are expected to have a material effect on the results of operations or financial conditions of the Company.
<< Financial Review Table of Contents
106
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
NOTES
<< Table of Contents
Corporate Data
Corporate Office
Suite 650
200 Burrard Street
Vancouver, BC Canada V6C 3L6
T: +1.604.484.4085
Management Office
Piso 5
Av. Jorge Chavez # 154
Miraflores, Lima 18 – Peru
T: +51.1.616.6060
Investor Relations
Carlos Baca
Investor Relations Manager
info@fortunasilver.com
Stock Exchanges
NYSE: FSM
TSX: FVI
Legal Counsel
Blake Cassels & Graydon LP
Suite 2600
595 Burrard Street
Vancouver, BC Canada V7X 1L3
DRIVING GROWTH FROM WITHIN
Auditors
Deloitte LLP
Suite 2800
1055 Dunsmuir Street
Vancouver, BC Canada V7X 1P4
Share Transfer Agent
Computer Share Trust
8th Floor
100 University Avenue
Toronto, ON Canada M5J 2Y1
T: +1.514.982.7555
Qualified Person
Dr. Thomas I. Vehrs, Ph.D., Vice President of
Exploration, is the Qualified Person for Fortuna
Silver Mines Inc. as defined by National
Instrument 43-101. Dr. Vehrs is a Founding
Registered Member of The Society for Mining,
Metallurgy, and Exploration, Inc. (SME
Registered Member Number 3323430RM) and
is responsible for ensuring that the technical
information contained in this annual report is
an accurate summary of the original reports
and data provided to or developed by Fortuna
Silver Mines Inc.
silver
Abbreviations
Ag
Ag Eq silver equivalent
AISCC all-in sustaining cash cost
per ounce of silver, net of
by-product credits
gold
Au
CAGR compound annual
growth rate
g
g/t
koz
lbs
m
M
gram
grams per metric tonne
1,000 ounces
pounds
meters
million
Moz
oz
Pb
t
1,000,000 ounces
ounce
lead
metric tonne;
(2,204.62 pounds)
tpd metric tonnes per day
Zn
zinc
<< Table of Contents
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