UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 40-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2021 Commission File Number: 001-35297
FORTUNA SILVER MINES INC.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English (if applicable))
British Columbia, Canada
(Province or other jurisdiction of incorporation or organization)
1040
(Primary Standard Industrial
Classification Code Number (if applicable))
N/A
(I.R.S. Employer
Identification Number (if applicable))
200 Burrard Street, Suite 650
Vancouver, British Columbia V6C 3L6, Canada
604-484-4085
(Address and telephone number of Registrant’s principal executive offices)
National Corporate Research, Ltd.
10 East 40th Street, 10th Floor
New York, New York 10016
212-947-7200
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Common Shares
Trading Symbol(s)
FSM
Name of each exchange on which registered
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
For annual reports, indicate by check mark the information filed with this Form:
Annual information form Audited annual financial statements
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report:
There were 291,529,330 common shares with no par value outstanding as of December 31, 2021.
Indicate by check mark whether the Registrant: (1) has filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit such files).
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Emerging growth company
Yes No
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its
Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
Disclosure Controls and Procedures.
DISCLOSURE REGARDING CONTROLS AND PROCEDURES
Disclosure controls and procedures are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”) as those controls and procedures designed to ensure that information
required to be disclosed in the annual filings and interim filings and other reports filed or submitted by Fortuna Silver
Mines Inc. (the “Company”) under the Exchange Act is duly recorded, processed, summarized and reported, within
the time periods specified in rules and forms of the United States Securities and Exchange Commission (the “SEC”).
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the Company’s reports and filings is accumulated and communicated to
management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as appropriate, to
allow timely decisions regarding required disclosure.
The Company evaluated, with the participation of its CEO and CFO, the effectiveness of its disclosure controls and
procedures as of December 31, 2021. Based on that evaluation, the CEO and the CFO have concluded that, as of the
end of the period covered by this Annual Report on Form 40-F, the disclosure controls and procedures were effective
to provide reasonable assurance that information required to be disclosed in the Company’s annual filings and
interim filings and other reports filed or submitted under the Exchange Act, is recorded, processed, summarized and
reported within time periods specified in SEC rules and forms and is accumulated and communicated to
management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Notwithstanding the foregoing, because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every
situation involving the failure of persons within the Company and its subsidiaries to disclose material information
otherwise required to be set forth in the Company’s periodic reports. The Company’s disclosure controls and
procedures are designed to provide reasonable assurance of achieving their objective of ensuring that information
required to be disclosed in the reports that the Company files or submits under the Exchange Act is communicated
to management to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) and has designed such internal
controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and
preparation of financial statements for external purposes in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board.
In designing and evaluating the Company’s internal control over financial reporting, the Company’s management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily applies its reasonable judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations,
internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2021. In making this assessment, management used the Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management concluded that the Company’s internal control over financial reporting was effective as
at December 31, 2021.
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Except for the controls over purchase price adjustments related to the acquisition by the Company of Roxgold Inc.
(“Roxgold”) on July 2, 2021, the Company has limited the scope of its internal control over financial reporting and
disclosure controls and procedures to exclude the controls and policies and procedures of Roxgold as allowed by the
United States Securities and Exchange Commission and Canadian Securities Administrators. The assets and revenues
of Roxgold represent 50% (inclusive of the purchase price adjustments) and 17%, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2021.
See “Management’s Report on Internal Control Over Financial Reporting” in the Management’s Discussion and
Analysis for the fiscal years ended December 31, 2021 and 2020, included as Exhibit 99.3 to this Annual Report on
Form 40-F. The Company’s auditors have issued an attestation report on management’s assessment of the
Company’s internal control over financial reporting. See “Attestation Report of the Registered Public Accounting
Firm” below.
Attestation Report of the Registered Public Accounting Firm. The Company’s internal control over financial reporting
as of December 31, 2021 has been audited by KPMG LLP, Independent Registered Public Accounting Firm,
Vancouver, BC, Canada, Audit Firm ID 85. The required report is included in the “Report of Independent Registered
Public Accounting Firm,” that accompanies the Company’s audited consolidated financial statements as at and for
the fiscal years ended December 31, 2021 and 2020, filed as part of this Annual Report on Form 40-F in Exhibit 99.2.
Changes in Internal Control Over Financial Reporting. During the fiscal year ended December 31, 2021, there were
no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
None.
NOTICES PURSUANT TO REGULATION BTR
IDENTIFICATION OF THE AUDIT COMMITTEE
The Company has a separately-designated standing audit committee established in accordance with Section
3(a)(58)(A) of the Exchange Act. The members of the audit committee are Kylie Dickson, Alfredo Sillau and David
Farrell. The board of directors has determined that each of Kylie Dickson, Alfredo Sillau and David Farrell is
independent, as that term is defined in Rule 10A-3 under the Exchange Act and the Listed Company Manual of the
New York Stock Exchange.
AUDIT COMMITTEE FINANCIAL EXPERT
The board of directors of the Company has determined that Kylie Dickson, a member of the Company’s audit
committee, qualifies as an audit committee financial expert for purposes of paragraph (8) of General Instruction B
to Form 40-F. The SEC has indicated that the designation of Kylie Dickson as an audit committee financial expert
does not: (i) make her an “expert” for any purpose, (ii) impose any duties, obligations or liabilities on her that are
greater than those imposed on members of the audit committee and the board of directors who do not carry this
designation, and (iii) or affect the duties, obligations or liabilities of any other member of the audit committee or the
board of directors.
CODE OF ETHICS
The Company has adopted a “code of ethics” (as that term is defined in Form 40-F), entitled the “Code of Business
Conduct and Ethics and Whistle-Blower Policy”, that applies to all of its directors, officers, employees, and
consultants including its principal executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions.
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The Code of Business Conduct and Ethics and Whistle-Blower Policy is available for viewing on the Company’s
website at www.fortunasilver.com under “About Fortuna / Our Governance”.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The required disclosure is included under the heading “Audit Committee” in the Company’s Annual Information
Form for the fiscal year ended December 31, 2021, filed as part of this Annual Report on Form 40-F in Exhibit 99.1.
PRE-APPROVAL POLICIES AND PROCEDURES
The auditors of the Company obtain, as necessary, the pre-approval of the Audit Committee for any anticipated
additional services required of the auditors for the coming fiscal year. If other service requirements arise during the
year, the Audit Committee will pre-approve such services at that time, prior to the commencement of such services.
No fees paid by the Company to its auditors during the fiscal year ended December 31, 2021, were approved by the
Audit Committee pursuant to the de minimus exception provided by Section (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements required to be disclosed in this Annual Report on
Form 40-F.
MINE SAFETY DISCLOSURE
The Company is currently not required to disclose the information required by Section 1503(a) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
NEW YORK STOCK EXCHANGE CORPORATE GOVERNANCE
The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act and Rule 405 under the
United States Securities Act of 1933, as amended, and the Company’s common shares are listed on the New York
Stock Exchange (the “NYSE”). Sections 103.00, 303A.00 and 303A.11 of the NYSE Listed Company Manual permit
foreign private issuers to follow home country practices in lieu of certain provisions of the NYSE Listed Company
Manual. A foreign private issuer that follows home country practices in lieu of certain provisions of the NYSE Listed
Company Manual must disclose any significant ways in which its corporate governance practices differ from those
followed by domestic companies either on its website or in the annual report that it distributes to shareholders in
the United States. A description of the significant ways in which the Company’s governance practices differ from
those followed by domestic companies pursuant to NYSE standards is disclosed on the Company’s website at
www.fortunasilver.com under “Company / Corporate Governance / New York Stock Exchange”.
The Company’s corporate governance practices, as described on its website, are consistent with the laws, customs
and practices in Canada.
INCORPORATION BY REFERENCE
Exhibits 99.1, 99.2 and 99.3 to this Annual Report on Form 40-F for the year ended December 31, 2021 are
incorporated by reference into the Registration Statement on Form F-10 (Commission File No. 333-237897) of the
Company.
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UNDERTAKING
The Company undertakes to make available, in person or by telephone, representatives to respond to inquiries made
by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to: the
securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report
on Form 40-F arises; or transactions in said securities.
CONSENT TO SERVICE OF PROCESS
A Form F-X signed by the Company and its agent for service of process has been previously filed with the SEC together
with the Company’s Registration Statement on Form 40-F (File No. 001-35297) in connection with its securities
registered on such form.
Any changes to the name or address of the agent for service of process of the Company shall be communicated
promptly to the SEC by an amendment to the Form F-X referencing the file number of the Company.
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SIGNATURE
Pursuant to the requirements of the Exchange Act, the Company certifies that it meets all of the requirements for
filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto
duly authorized.
Date: March 31, 2022
FORTUNA SILVER MINES INC.
By: “Jorge Ganoza Durant”
Name: Jorge Ganoza Durant
Title:
President, Chief Executive Officer & Director
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Exhibit
Description
EXHIBIT INDEX
99.1
99.2
99.3
99.4
99.5
99.6
99.7
99.8
99.9
99.10
99.11
99.12
99.13
99.14
99.15
99.16
99.17
99.18
Annual Information Form for the year ended December 31, 2021
Audited Consolidated Financial Statements as at and for the years ended December 31, 2021 and
2020, including the Reports of Independent Registered Public Accounting Firms with respect
thereto
Management’s Discussion and Analysis for the years ended December 31, 2021 and 2020
Consent of KPMG LLP (PCAOB ID 85)
Consent of Eric Chapman
Consent of Amri Sinuhaji
Consent of Matthew Cobb
Consent of Paul Criddle
Consent of Paul Weedon
Consent of Craig Richards
Consent of Hans Andersen
Consent of Geoff Bailey
Consent of Shane McLeay
Consent of David Morgan
Consent of Lycopodium Minerals Canada Ltd.
Consent of Edwin Gutierrez
Consent of Geoff Allard
Consent of Denys Parra Murrugarra
99.19
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.20
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.21
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.22
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
EXHIBIT 99.1
ANNUAL INFORMATION FORM
ANNUAL INFORMATION FORM
For the Fiscal Year Ended December 31, 2021
DATED: March 30, 2022
CORPORATE OFFICE:
Suite 650, 200 Burrard Street
Vancouver, BC V6C 3L6, Canada
Tel: 604.484.4085
Fax: 604.484.4029
MANAGEMENT HEAD OFFICE:
Piso 5, Av. Jorge Chávez #154
Miraflores, Lima, Peru
Tel: 511.616.6060, ext. 2
TABLE OF CONTENTS
PRELIMINARY NOTES ................................................................................................................................. 1
Cautionary Statement – Forward Looking Statements .............................................................................1
Notice Regarding Non-IFRS Measures .......................................................................................................4
Equivalent Ounces Sold .............................................................................................................................5
Cash Cost and AISC ....................................................................................................................................5
Cautionary Note to United States Investors Concerning Estimates of Reserves and Resources ..............6
Documents Incorporated by Reference ....................................................................................................6
Scientific and Technical Information .........................................................................................................6
Currency ....................................................................................................................................................6
CORPORATE STRUCTURE ........................................................................................................................... 7
Name, Address and Incorporation ............................................................................................................7
Intercorporate Relationships.....................................................................................................................7
GENERAL DEVELOPMENT OF THE BUSINESS .............................................................................................. 8
Business of the Company ..........................................................................................................................8
Three-Year History and Recent Developments .........................................................................................8
DESCRIPTION OF THE BUSINESS ............................................................................................................... 20
General ....................................................................................................................................................20
Risk Factors .............................................................................................................................................29
Material Mineral Properties ....................................................................................................................54
San Jose Mine, Mexico .....................................................................................................................55
Lindero Mine, Argentina ..................................................................................................................67
Yaramoko Mine, Burkina Faso .........................................................................................................80
Caylloma Mine, Peru ........................................................................................................................91
Séguéla Project, Cote d’Ivoire ........................................................................................................101
Non-Material Mineral Properties ..........................................................................................................116
DIVIDENDS ............................................................................................................................................ 117
DESCRIPTION OF CAPITAL STRUCTURE .................................................................................................. 117
MARKET FOR SECURITIES....................................................................................................................... 119
Common Shares ....................................................................................................................................119
Debentures ............................................................................................................................................119
Prior Sales ..............................................................................................................................................120
DIRECTORS AND EXECUTIVE OFFICERS ................................................................................................... 120
Name, Occupation and Shareholding ....................................................................................................120
Cease Trade Orders or Bankruptcies .....................................................................................................123
Penalties or Sanctions ...........................................................................................................................123
Conflicts of Interest ...............................................................................................................................124
AUDIT COMMITTEE ............................................................................................................................... 124
LEGAL PROCEEDINGS ............................................................................................................................. 125
TRANSFER AGENT AND REGISTRAR ....................................................................................................... 126
MATERIAL CONTRACTS .......................................................................................................................... 126
INTERESTS OF EXPERTS .......................................................................................................................... 126
ADDITIONAL INFORMATION .................................................................................................................. 127
Audit Committee Charter ....................................................................................................... Schedule “A”
PRELIMINARY NOTES
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This Annual Information Form (“AIF”) is dated March 30, 2022 and presents information about Fortuna Silver Mines
Inc. (referred to herein as the “Company” or “Fortuna”). Except as otherwise indicated, the information contained
herein is presented as at December 31, 2021, being the date of the Company’s most recently completed financial
year end.
Fortuna has a number of direct and indirect subsidiaries which own and operate assets and conduct activities in
different jurisdictions. The terms "Fortuna" or the "Company" are use in this AIF for simplicity of the discussion
provided herein and may include references to subsidiaries that have an affiliation with Fortuna, without necessarily
identifying the specific nature of such affiliation.
Cautionary Statement – Forward-Looking Statements
Certain statements contained in this AIF and the documents incorporated by reference into this AIF constitute
forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995
and Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 AIF include, without limitation, statements relating to:
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• Mineral Reserves and Mineral Resources, as they involve implied assessment, based on estimates and
assumptions that the Mineral Reserves and Mineral Resources described exist in the quantities predicted
or estimated and can be profitably produced in the future;
production rates and forecasted production for 2022 at the Company’s properties;
cash costs estimates;
forecasted cash cost and all-in sustaining cost estimates at the Company’s mines;
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 greenfields exploration programs including related activities and the costs and
timing thereof;
the Company’s planned capital expenditures and brownfields exploration programs planned at each of the
Company’s mines;
the Company’s construction of the open pit gold mine and processing plant at the Séguéla Project (as
defined herein), and the estimated initial capital investment for the construction of the mine, the duration
of the construction schedule and the timing for the ramp up to design capacity;
the ability to successfully integrate the acquisition of Roxgold Inc. (“Roxgold”) into the operations of the
Company, and risks that the anticipated benefits of the Roxgold acquisition will not be realized or fully
realized;
undisclosed risks and liabilities relating to the acquisition of Roxgold and the loss of key employees related
to same;
the Company’s ability to manage challenges presented by COVID-19 and the potential impact of COVID-19
on the Company’s business and operations, and financial condition, including the Company’s ability to
operate or to continue operating at its sites;
the effectiveness of the preventative measures and safety protocols put in place by the Company to curb
the spread of COVID-19;
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• maturities of the Company’s financial liabilities, finance leases and other contractual commitments;
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the expiry dates of bank letters of guarantee;
the effectiveness and impact of, and Fortuna’s commitment to, the Sustainability Framework and related
disclosure, ESG policies and targets and other operational and governance policies;
complying with anti-corruption laws and internal controls;
litigation matters;
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estimated mine closure costs and timing thereof; and
the Company's plans and expectations for its material properties and future exploration, development and
operating activities including, without limitation, capital expenditure and production estimates, exploration
activities and budgets, forecasts and schedule estimates, as well as their impact on the results of operations
or financial condition of the Company.
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.
The forward-looking statements in this AIF also include financial outlooks and other forward-looking metrics relating
to Fortuna and its business, including references to financial and business prospects and future results of operations,
including production, and cost guidance and anticipated future financial performance. Such information, which may
be considered future oriented financial information or financial outlooks within the meaning of applicable Canadian
securities legislation (collectively, “FOFI”), has been approved by management of the Company and is based on
assumptions which management believes were reasonable on the date such FOFI was prepared, having regard to
the industry, business, financial conditions, plans and prospects of Fortuna and its business and properties. These
projections are provided to describe the prospective performance of the Company's business. Nevertheless, readers
are cautioned that such information is highly subjective and should not be relied on as necessarily indicative of future
results and that actual results may differ significantly from such projections. FOFI constitutes forward-looking
statements and is subject to the same assumptions, uncertainties, risk factors and qualifications as set forth below.
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:
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operational risks associated with mining and mineral processing;
uncertainty relating to Mineral Resource and Mineral Reserve estimates;
uncertainty relating to capital and operating costs, production schedules and economic returns;
uncertainties related to new mining operations such as the Lindero Mine and development projects such
as the Séguéla Project, including the possibility that actual capital and operating costs and economic returns
will differ significantly from those estimated for such projects prior to production;
uncertainty relating to the costs of the construction, the financing of construction and timing for the
completion of the Séguéla Project;
risks relating to the Company’s ability to replace its Mineral Reserves;
risks associated with mineral exploration and project development;
uncertainty relating to the repatriation of funds as a result of currency controls;
environmental matters including obtaining or renewing environmental permits and potential liability
claims;
uncertainty relating to nature and climate conditions;
risks associated with political instability and changes to the regulations governing the Company’s business
operations;
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;
risks associated with war, hostilities or other conflicts, such as the Ukrainian – Russian conflict, and the
impact it may have on global economic activity;
risks relating to the termination of the Company’s mining concessions in certain circumstances;
risks related to International Labour Organization (“ILO”) Convention 169 compliance;
developing and maintaining relationships with local communities and stakeholders;
risks associated with losing control of public perception as a result of social media and other web-based
applications;
potential opposition to the Company’s exploration, development and operational activities;
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risks related to the Company’s ability to obtain adequate financing for planned exploration and
development activities;
substantial reliance on the Lindero Mine, the Yaramoko Mine and the San Jose Mine for revenues;
property title matters;
risks relating to the integration of businesses and assets acquired by the Company;
impairments;
risks associated with climate change legislation;
reliance on key personnel;
uncertainty relating to potential conflicts of interest involving the Company’s directors and officers;
risks associated with the Company’s reliance on local counsel and advisors and its management and Board
(as defined herein) in foreign jurisdictions;
adequacy of insurance coverage;
operational safety and security risks;
risks related to the Company’s compliance with the Sarbanes-Oxley Act;
risks related to the foreign corrupt practices regulations and anti-bribery laws;
legal proceedings and potential legal proceedings;
uncertainties relating to general economic conditions;
risks relating to a global pandemic, including COVID-19, which until contained could continue to cause a
slowdown in global economic growth and impact the Company’s business, operations, financial condition
and share price;
the duration of the COVID-19 pandemic and the impact of COVID-19 on the Company’s business, operations
and financial condition, including the Company’s ability to operate or to continue to operate at its mine
sites in the event of government restrictions, and possible future suspensions of operations at the mine
sites related to COVID-19;
the Company’s ability to manage the various challenges (both anticipated and not) presented by COVID-19
to its business, operations and financial condition;
competition;
fluctuations in metal prices;
risks associated with entering into commodity forward and option contracts for base metals production;
fluctuations in currency exchange rates;
failure to meet covenants under the 2021 Credit Facility (as defined herein), or an event of default which
may reduce the Company’s liquidity and adversely affect its business;
tax audits and reassessments;
risks related to hedging;
uncertainty relating to concentrate treatment charges and transportation costs;
sufficiency of monies allotted by the Company for land reclamation;
risks associated with dependence upon information technology systems, which are subject to disruption,
damage, failure and risks with implementation and integration;
risks associated with climate change legislation;
our ability to manage physical and transition risks related to climate change and successfully adapt our
business strategy to a low carbon global economy;
our plan to release climate-related goals in 2022 and the anticipated nature and effect of climate related
risks;
risks related to the volatility of the trading price of the Company’s common shares (“Common Shares”) and
the Company’s Debentures (as defined herein);
dilution from future equity or convertible debt financings;
risks related to future insufficient liquidity resulting from a decline in the price of the Common Shares or
Debentures;
uncertainty relating to the Company’s ability to pay dividends in the future;
risks relating to the market for the Company’s securities;
risks relating to the Debentures of the Company;
uncertainty relating to the enforcement of U.S. judgments against the Company; and
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•
risk factors referred to in the “Risk Factors” section in this AIF, and the documents incorporated by
reference herein (if any).
Forward-looking Statements contained in this AIF are based on the assumptions, beliefs, expectations and opinions
of management, including but not limited to:
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all required third party contractual, regulatory and governmental approvals will be obtained and
maintained for the exploration, development, construction and production of its properties;
the ability to successfully integrate the operations of Roxgold into the operations of the Company;
there being no significant disruptions affecting operations, whether relating to labor, supply, power,
damage to equipment or other matter;
the world-wide economic and social impact of COVID-19 is managed, and the duration and extent of the
coronavirus pandemic is minimized or not long-term;
there being no material and negative impact to the various contractors, suppliers and subcontractors at the
Company’s mine sites as a result of the Ukrainian – Russian conflict, COVID-19 or otherwise that would
impair their ability to provide goods and services;
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;
•
• 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
the accuracy of the Company’s current Mineral Resource and Mineral Reserve estimates.
•
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 not to be as anticipated, estimated or intended. These forward-looking statements are
made as of the date of this AIF. 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 are cautioned not to place undue reliance on forward-looking statements. Except as required by law, the
Company does not assume the obligation to revise or update these forward looking-statements after the date of
this document or to revise them to reflect the occurrence of future unanticipated events.
Notice Regarding Non-IFRS Measures
Fortuna's audited consolidated financial statements of the Company for the years ended December 31, 2021 and
2020 (the "2021 Financial Statements") which are referred to in this AIF have been prepared in accordance with
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.
However, this AIF includes certain financial measures and ratios that are not defined under IFRS and are not disclosed
in the 2021 Financial Statements, including but not limited to: cash cost per tonne of processed ore; cash cost per
ounce of gold sold; all in sustaining costs ("AISC") per payable ounce of gold sold; and AISC per payable ounce of
silver equivalent sold.
These non-IFRS financial measures and non-IFRS ratios are widely reported in the mining industry as benchmarks for
performance and are used by management to monitor and evaluate the Company's operating performance and
ability to generate cash. The Company believes that, in addition to financial measures and ratios prepared in
accordance with IFRS, certain investors use these non-IFRS financial measures and ratios to evaluate the Company’s
performance. However, the measures do not have a standardized meaning under IFRS and may not be comparable
to similar financial measures disclosed by other companies. Accordingly, non-IFRS financial measures and non-IFRS
ratios should not be considered in isolation or as a substitute for measures and ratios of the Company's performance
prepared in accordance with IFRS.
-5-
Except as otherwise described below, the Company has calculated these non-IFRS financial measures and non-IFRS
ratios consistently for all periods presented.
To facilitate a better understanding of these measures and ratios as calculated by the Company, descriptions are
provided below. In addition, see “Non-IFRS Financial Measures” in the Company’s management’s discussion and
analysis for the fiscal year ended December 31, 2021 (“2021 MD&A”), which section is incorporated by reference in
this AIF, for additional information regarding each non-IFRS financial measure and non-IFRS ratio disclosed in this
AIF, including an explanation of their composition; an explanation of how such measures and ratios provide useful
information to an investor and the additional purposes, if any, for which management of Fortuna uses such measures
and ratios; and a qualitative reconciliation of each non-IFRS financial measure to the most directly comparable
financial measure that is disclosed in the Company's 2021 Financial Statements. The 2021 MD&A may be accessed
on SEDAR at www.sedar.com under the Company’s profile, Fortuna Silver Mines Inc.
Equivalent Ounces Sold
At our San Jose and Caylloma Mines, production and sales of other metals are treated as a silver equivalent in
determining a combined precious metal production or sales unit, commonly referred to as silver equivalent ounces.
Silver equivalent ounces are calculated by converting other metal production to its silver equivalent using relative
metal/silver metal prices at realized prices and adding the converted metal production expressed in silver ounces to
the ounces of silver production. The Lindero and Yaramoko Mines do not make use of an equivalent ounce sold
measure as all material production is gold.
Cash Cost and AISC
In this AIF, the Company has disclosed certain cash cost and AISC figures on a per unit basis, with each such per unit
measure being a non-IFRS ratio.
Cash cost is a non-IFRS measure that is an industry-standard method of comparing certain costs on a per unit basis.
Cash costs include all direct and indirect operating cash costs related directly to the physical activities of producing
metals, including mining and processing costs, third-party refining and treatment charges, on-site general and
administrative expenses, applicable production taxes and royalties which are not based on sales or taxable income
calculations , net of by-product credits, but are exclusive of the impact of non-cash items that are included as part
of the cost of sales that is calculated in the consolidated Income Statement including depreciation and depletion,
reclamation, capital, development and exploration costs.
The most directly comparable financial measure to cash cost that is defined in IFRS and disclosed in the Company's
2021 Financial Statements is cost of sales. Unit based cash cost ratios contained in this AIF include:
•
•
cash cost per ounce of gold sold; and
cash cost per tonne of processed ore.
All-in sustaining cost is a non-IFRS measure that includes total production cash costs incurred at the applicable
mining operation but excludes mining royalty recognized as income tax within the scope of IAS-12, as well as non-
sustaining capital expenditures. Sustaining capital expenditures, corporate selling, general and administrative
expenses, and brownfield exploration expenditures are added to the cash cost. AISC is estimated at realized metal
prices. The most directly comparable financial measure to AISC that is defined in IFRS and disclosed in the Company's
2021 Financial Statements is cost of sales. Unit based AISC ratios contained in this AIF include:
•
•
all-in sustaining cash cost per ounce of gold sold; and
all-in sustaining cash cost per ounce of payable silver equivalent sold.
In 2020, the Company reported silver AISC on a payable silver equivalent ounce produced basis. In 2021 the Company
changed the reporting of this measure to a silver equivalent ounce sold basis. This change was made when the
Company adopted AISC and all-in sustaining cost to better align with the guidance published by the World Gold
-6-
Council as a result of the commencement of gold production from the Lindero Mine in the fourth quarter of 2020.
Comparative figures for 2020 have been updated in in the 2021 MD&A to reflect this change.
Cautionary Note to United States Investors Concerning Estimates of Reserves and Resources
The Company is a Canadian “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act and is permitted
to prepare the technical information contained herein in accordance with the requirements of the securities laws in
effect in Canada, which differ from the requirements of the securities laws currently in effect in the United States.
Technical disclosure regarding our properties included herein and in the documents incorporated herein by
reference, if applicable, was prepared in accordance with National Instrument 43-101 — Standards of Disclosure for
Mineral Projects (“NI 43-101”). NI 43-101 is a rule developed by the Canadian Securities Administrators that
establishes standards for all public disclosure an issuer makes of scientific and technical information concerning
mineral projects. NI 43-101 differs significantly from the disclosure requirements of the Securities and Exchange
Commission (the “SEC”) generally applicable to U.S. companies. Accordingly, information contained herein is not
comparable to similar information made public by U.S. companies reporting pursuant to SEC disclosure
requirements.
Documents Incorporated by Reference
The information provided in this AIF is supplemented by disclosure contained in the documents listed below which
are incorporated by reference into this AIF. These documents must be read together with the AIF in order to provide
full, true and plain disclosure of all material facts relating to Fortuna. The documents listed below are not contained
within or attached to this document. The documents may be accessed on SEDAR at www.sedar.com under the
Company’s profile for Fortuna Silver Mines Inc.:
Document
Effective Date
Date Filed on
SEDAR website
Document
Category on the
SEDAR website
Technical Report, Lindero Property, Argentina
October 31, 2017
November 2, 2017
Technical Report(s)
Technical Report, San Jose Mine, Mexico
February 22, 2019 March 28, 2019
Technical Report(s)
Technical Report, Caylloma Mine, Peru
March 8, 2019
March 28, 2019
Technical Report(s)
Technical Report, Séguéla Project, Côte d’Ivoire May 26, 2021
March 18, 2022
Technical Report(s)
Technical Report, Yaramoko Mine, Burkina Faso December 31, 2021 March 30, 2022
Technical Report(s)
Scientific and Technical Information
Eric Chapman, Senior Vice President of Technical Services of the Company, is a “Qualified Person” as defined by NI
43-101. Mr. Chapman is responsible for ensuring that the technical information contained in this AIF is an accurate
summary of the original reports and data provided to or developed by the Company and he has reviewed and
approved the scientific and technical information contained in this AIF.
Currency
Unless otherwise noted, all dollar amounts in this AIF are expressed in United States dollars. References to “$” or
“US$” in this AIF are to United States dollars and references to CAD$ are to Canadian dollars.
-7-
CORPORATE STRUCTURE
Name, Address and Incorporation
The Company was incorporated on September 4, 1990 pursuant to the Company Act (British Columbia) under the
name Jopec Resources Ltd. and subsequently transitioned under the Business Corporations Act (British Columbia).
On February 3, 1999, the Company changed its name to Fortuna Ventures Inc. and on June 28, 2005 to Fortuna Silver
Mines Inc.
The management head office of the Company is located at Piso 5, Av. Jorge Chávez #154, Miraflores, Lima, Peru.
The corporate head and registered office of the Company is located at 200 Burrard Street, Suite 650, Vancouver, BC
V6C 3L6.
Intercorporate Relationships
The chart below illustrates the Company’s intercorporate relationships with its subsidiaries including the name,
jurisdiction of incorporation and the Company’s respective percentage ownership of each subsidiary:
Notes:
1.
In some jurisdictions where the Company operates, laws require that a company operating mineral properties must
have more than one shareholder. For those jurisdictions, a nominal interest may be held by an individual or other
affiliated entity and this may not be represented on the above chart.
2. All ownership of subsidiaries is 100% unless otherwise indicated.
3. Ten percent of the issued and outstanding shares of Roxgold Sanu S.A. are held by the State of Burkina Faso
4. Ten percent of the issued and outstanding shares of Roxgold Sango S.A. are held by the State of Côte d’Ivoire.
-8-
GENERAL DEVELOPMENT OF THE BUSINESS
Business of the Company
Fortuna is engaged in precious and base metals mining and related activities in Latin America and West Africa,
including exploration, extraction, and processing. The Company’s principal products are silver and gold, although it
also produces and sells lead and zinc.
On July 2, 2021, the Company completed its acquisition (the "Roxgold Acquisition") of all of the issued and
outstanding common shares ("Roxgold Shares") of Roxgold by way of a court-approved plan of arrangement under
the Business Corporations Act (British Columbia) pursuant to an arrangement agreement between the Company and
Roxgold dated effective April 26, 2021 (the "Arrangement Agreement"). Under the terms of the Arrangement
Agreement, holders of Roxgold Shares received 0.283 of a common share of Fortuna and CAD$0.01 in cash for each
Roxgold Share held. Upon completion of the Roxgold Acquisition, Fortuna issued an aggregate of 106,106,225
common shares of Fortuna and CAD$374,934 in cash and Roxgold became a wholly-owned subsidiary of Fortuna.
As a result of the Roxgold Acquisition, the Company acquired the producing Yaramoko mine in Burkina Faso, the
Séguéla advanced gold project in Côte d’Ivoire and certain exploration projects in Burkina Faso and Côte d’Ivoire. On
August 16, 2021, the Company filed a Form 51-102F4 – Business Acquisition Report in respect of the Roxgold
Acquisition with applicable Canadian securities regulators, which is available under the Company's profile on SEDAR
at www.sedar.com.
Following completion of the Roxgold Acquisition and as at December 31, 2021, Fortuna:
•
•
•
•
•
operates the San Jose silver and gold mine (the “San Jose Mine”) (100% ownership) in southern Mexico,
operates the Lindero open pit gold mine (the “Lindero Mine”) (100% ownership) in northern Argentina;
operates the Yaramoko gold mine (the “Yaramoko Mine”) (90% ownership) in southwestern Burkina Faso,
operates the Caylloma silver, lead and zinc mine (the “Caylloma Mine”) (100% ownership) in southern
Peru, and
is constructing an open pit gold mine at the Séguéla project (the “Séguéla Project”) in northwestern Côte
d’Ivoire.
The Company also has various greenfields exploration properties at different stages of development in Côte d’Ivoire,
Mexico, Argentina and Burkina Faso, including the advanced stage exploration project at Boussoura located in the
province of Poni in Burkina Faso.
Three-Year History and Recent Developments
Over the three most recently completed financial years, the significant events described below contributed to the
development of the Company’s business.
2019 Developments
The Company reported full year production results for 2019 from its two underground operating mines: the San Jose
Mine in Mexico and the Caylloma Mine in Peru. In 2019, the Company produced 8,809,767 ounces of silver (one
percent decrease over 2018), 50,525 ounces of gold (seven percent decrease over 2018), 28,746,074 pounds of lead
(two percent increase over 2018) and 45,600,414 pounds of zinc (0.3 percent increase over 2018).
On March 12, 2019, the Board approved the establishment of a sustainability committee (the “Sustainability
Committee”) comprised of three directors.
On May 9, 2019, the Company published its first Sustainability Report, prepared using the Global Reporting Initiative
Standards: Core Option as a guide. The report provided information on the Company’s safety, environmental, social
and economic performance in 2018.
-9-
On October 2, 2019, the Company completed a bought-deal public financing (the “2019 Financing”) with a syndicate
of underwriters co-led by CIBC Capital Markets, Scotiabank, and including BMO Capital Markets, (collectively the
“Underwriters”), pursuant to which the Company issued US$40 million aggregate principal amount of senior
subordinated unsecured convertible debentures (the “Debentures”) at a price of US$1,000 per Debenture. Effective
October 8, 2019, an over-allotment option granted to the Underwriters was exercised in full and the Company issued
an additional US$6 million aggregate principal amount of Debentures, bringing the total aggregate gross proceeds
to the Company under the 2019 Financing to US$46 million.
The Debentures mature on October 31, 2024 and bear interest at a rate of 4.65% per annum, payable semi-annually
in arrears on the last business day of April and October in each year, commencing on April 30, 2020. The Debentures
are convertible at the holder’s option into Common Shares at a conversion price of US$5.00 per share, representing
a conversion rate of 200 Common Shares per US$1,000 principal amount of Debentures, subject to adjustment in
certain circumstances. Refer to “Description of Capital Structure – Debentures” in this AIF. Net proceeds from the
2019 Financing were $43.5 million after deduction of underwriting fees and expenses. The net proceeds from the
2019 Financing were used to pay expenses related to the start-up at the Lindero Project and for general working
capital purposes.
In September 2017, the board of directors of the Company (the “Board”) approved the construction of an open pit
gold heap leach mine at its Lindero property in Salta Province, Argentina. Construction at the Lindero property
progressed during 2019, pre-production mining started in early September and the project was 89 percent complete
by the end of January 2020.
2020 Developments
The Company reported full year production results for 2020 from its three operating mines the San Jose Mine in
Mexico, the Lindero Mine in Argentina, and the Caylloma Mine in Peru. In 2020, the Company produced 7,133,717
ounces of silver (19 percent decrease over 2019), 55,349 ounces of gold (10 percent increase over 2019), 29,627,923
pounds of lead (three percent increase over 2019) and 45,545,299 pounds of zinc (in line with 2019).
During 2020, in response to the pandemic, the Governments of Mexico, Peru and Argentina implemented measures
to curb the spread of COVID-19, which included among others, the closure of international borders, temporary
suspension of non-essential activities and the declaration of mandatory quarantine periods. Certain of these
measures were subsequently eliminated or relaxed during the year. However, the Company’s operations were
negatively impacted by the spread of the COVID-19 pandemic. Operations at the San Jose Mine were suspended for
54 days in the second quarter as a result of a government mandated national quarantine in Mexico, and construction
activities were suspended at the Lindero Mine for 60 days during the first and second quarter due to a government
mandated period of national social isolation in Argentina. In response to a period of social isolation mandated by
the Peruvian government in the first and second quarter of 2020, operations were able to continue at the Caylloma
Mine, initially by drawing ore from the coarse ore stockpile during the first quarter, and as the stockpile decreased
the mine was subsequently re-started in the second quarter using a reduced taskforce in compliance with applicable
Peruvian Government requirements. However, operations were voluntarily suspended for 21 days at the Caylloma
Mine in the third quarter to, among other things sanitize and disinfect the mine and make infrastructure
improvements to accommodate social distancing guidelines.
As the situation with respect to the COVID-19 pandemic was extremely uncertain and involved government
mandated restrictions on operations, the Company was unable to determine the impact of COVID-19 on its
production and cost guidance for 2020, and on April 2, 2020, it withdrew its production and cost guidance for the
remainder of 2020.
On May 11, 2020, the Company announced that it had entered into an agreement with a syndicate of underwriters
led by Scotia Capital Inc. and BMO Nesbitt Burns Inc., and including PI Financial Corp., CIBC World Markets Inc. and
National Bank Financial Inc. (collectively, the “2020 Underwriters”) who had agreed to purchase, on a “bought deal”
basis, an aggregate of 20,000,000 Common Shares at a purchase price of $3.00 per share (the “Offering Price”) for
gross proceeds to the Company of $60.0 million (the “2020 Financing”). The 2020 Financing was subject to an over-
allotment option (the “Over-Allotment Option”) granted to the 2020 Underwriters to purchase up to an additional
-10-
3,000,000 Common Shares at the Offering Price to cover over-allotments if any, and for market stabilization
purposes. The 2020 Financing was completed on May 20, 2020. The Company issued an aggregate of 23,000,000
Common Shares for gross proceeds to the Company of $69.0 million, which included the exercise by the 2020
Underwriters of the over-allotment option in full.
On June 4, 2020, the Company secured amendments to its existing US$150 million senior secured credit facility,
including amendments to the financial covenants contained in the credit facility in response to the constraints on
the Company’s operations resulting from the COVID-19 pandemic.
On September 3, 2020, the Company announced the start of irrigation and leaching of ore placed on the heap leach
pad at the Lindero project, and on October 20, 2020 announced the first gold pour at Lindero producing 728 ounces
of gold. Construction at the Lindero Mine was substantially complete by the end of December 2020.
2021 Developments
The Company reported full year production results for 2021 from its four operating mines: the San Jose Mine in
Mexico, the Lindero Mine in Argentina, the Yaramoko Mine in Burkina Faso, and the Caylloma Mine in Peru. In 2021,
the Company produced 207,192 ounces of gold (274 percent increase over 2020), 7,498,701 ounces of silver (five
percent increase over 2020), 32,989,973 pounds of lead (11 percent increase over 2020) and 47,549,301 pounds of
zinc (four percent increase 2020). Production results for each mine in 2021 compared to 2020 are as follows:
San Jose Mine: in 2021, the Company produced 6,425,029 ounces of silver, an increase over 2020 of 4 percent,
and 39,406 ounces of gold, an increase over 2020 of 4 percent. Average head grades for silver and gold for the
year were 209 g/t and 1.29 g/t, respectively, both a decrease of 7 percent over the respective head grades in
2020. Cash cost per tonne of processed ore1 for 2021 increased to $75.80 per tonne compared to $68.79 per
tonne for 2020 due to higher mine preparation and support and higher indirect costs.
Lindero Mine: in 2021, the Company produced 104,161 ounces of gold, comprised of 99,313 ounces in doré,
730 ounces of gold contained in precipitate/sludge and 4,118 ounces of gold-in-carbon (GIC) inventory, an
increase of 675 percent over the 13,435 ounces produced in 2020. Cash cost per ounce of gold sold1 for the
first full year of production in 2021 was $617.
Yaramoko Mine: as a result of the Roxgold Acquisition completed in July 2021, the Company acquired the
Yaramoko Mine. From July 2, 2021, the Company produced 57,538 ounces of gold with an average gold head
grade of 7.13 g/t. Cash cost per ounce of gold sold1 for the second semester of 2021 was $739.
Caylloma Mine: in 2021, the Company produced 1,073,62 ounces of silver, an increase over 2020 of 11 percent.
Annual average head grade for silver was 76 g/t. Base metal production at the Caylloma Mine in 2021 totaled
33.0 million pounds of lead, an increase of 11 percent over 2020, and 47.5 million pounds of zinc, an increase
of 4 percent over 2020. Average head grades for lead and zinc were 3.16% and 4.56%, respectively, for the year.
Gold production for 2021 totaled 6,086 ounces, an increase of 48 percent over 2020, with an average head
grade of 0.49 g/t. Cash cost per tonne of processed ore1 for the full year 2021 increased to $88.41 per tonne
compared to $77.19 per tonne for 2020 due to higher mine preparation and support and higher indirect costs
related to administration and energy.
On February 8, 2021, the Company announced the resignation of Simon Ridgway as a director and Chairman of the
Board. David Laing was appointed as an independent Chair of the Board.
On March 29, 2021, the Company announced the results from a successful 4,670 meters of step-out and infill drilling
over 22 drill holes at the San Jose Mine which established continuity of high-grade mineralization in the upper levels
of the Trinidad Footwall structures.
1 Refer to “Notice Regarding Non-IFRS Financial Measures” section above.
-11-
In 2009, the Secretaría de Medio Ambiente y Recursos Naturales (“SEMARNAT”) granted an Environmental Impact
Authorization (“EIA”) to Fortuna’s Mexican subsidiary, Companía Minera Cuzcatlán (“CMC”), which authorized the
construction, execution and maintenance of the San Jose Mine for a period of 12 years effective until October 23,
2021. In May 2021, CMC filed an application to extend the term of the EIA for an additional period of 10 years. On
November 10, 2021 CMC received written notification from SEMARNAT that the application to extend the EIA had
been denied. CMC appealed the decision of SEMARNAT and obtained the protection of the Mexican courts to
continue to operate the San Jose mine beyond the expiry date of the EIA. On December 20, 2021, the Company
announced that SEMARNAT had granted a 12 year extension to the EIA at the San Jose mine. On January 28, 2022,
the Company announced that it had received a notice from SEMARNAT which advised that SEMARNAT had made a
typographical error in the extension to the term of the EIA for the San Jose Mine and that the correct extension term
is two years. CMC initiated legal proceedings to challenge and revoke the allegation of the typographical error and
to reconfirm the 12 year extension granted by SEMARNAT in December 2021. The Mexican Federal Administrative
Court has admitted the Company’s legal proceedings and has granted an injunction in favour of the Company, which
suspends the reduction of the term of the EIA from 12 years to two years during the course of the legal proceedings.
On July 2, 2021, the Company completed the Roxgold Acquisition and acquired 100% of the issued and outstanding
Roxgold Shares, along with ownership of Roxgold’s assets, which assets included the Yaramoko Mine and the Séguéla
Project. See “Business of the Company”.
In connection with the Roxgold Acquisition, Kate Harcourt was appointed a director of the Company and a member
of the Sustainability Committee on July 2, 2021. Additionally, various changes in the Company’s ‘executive officers
were made during the second half of 2021 to reflect the expansion of the Company’s operations into West Africa.
On September 7, 2021, the Company announced continued high grade results from extension and scout drilling at
the Séguéla Project in Côte d’Ivoire and the Boussoura project on Burkina Faso. Exploration activities at the Séguéla
Project included a 7,115 meter step-out drilling program at the Koula deposit; a 1,774 meter 11 hole program at the
Sunbird prospect and a 2,070 meter 11 hole program at the Gabbro North prospect. Exploration activities at the
Boussoura project included a 5,958 meter 47 hole program at the Fofora Main prospect and a 3,419 meter 12 hole
program at the Galgouli prospect.
On September 29, 2021, the Company announced the decision to proceed with the construction of an open pit mine
at the Séguéla Project in Côte d’Ivoire with long lead items procured and development teams established on the
ground. The updated Séguéla Project budgeted total capital investment is $173.5 million. The anticipated
construction schedule is approximately 20 months, with ramp-up to design capacity expected in the third quarter of
2023.
On October 7, 2021, the Company and the Mexican Geological Service (“SGM”) entered into a settlement agreement
related to a disputed royalty on one of the mining concessions at the San Jose mine in Mexico. Pursuant to the
settlement agreement, the Company paid to the SGM the amount of $9.6 million plus value added tax to end any
prior dispute and agreed to pay to the SGM a three percent royalty on the billing value of minerals obtained from
the concession from May 1, 2021 on an ongoing basis. The terms of the royalty are set out in a royalty agreement
between the parties dated March 18, 2022. The remaining terms of the settlement are confidential and the Company
has not admitted any liability.
In November 2021, the Company entered into a fourth amended and restated credit agreement (the “2021 Credit
Facility”) with a syndicate of banks led by BNP Paribas, and including the Bank of Nova Scotia, Bank of Montreal and
Societe Generale which converted the Company’s non-revolving and revolving facility into a revolving credit facility
and increased the amount of the facility from $120 million to $200 million, subject to certain terms and conditions.
The 2021 Credit Facility has a term of four years and steps down to $150 million after three years. Interest accrues
on LIBOR loans under the 2021 Credit Facility at LIBOR plus the applicable margin of between two and three percent,
which varies according to the consolidated leverage levels of the Company. The Company’s principal operating
subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso, and their respective direct and indirect holding
companies, have guaranteed the obligations of the Company contemplated by the 2021 Credit Facility. The
Company has pledged all of its assets to secure the payment of its obligations contemplated by the 2021 Credit
Facility, and the Company’s principal operating subsidiaries in Mexico and Peru, as well as the direct and indirect
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holding companies of the Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina
Faso, have pledged all of their respective assets to secure their respective guarantees of such payment, including
the shares of the Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso. The
Company’s principal operating subsidiary in Burkina Faso has pledged its bank accounts to secure the obligations
under its guarantee.
On December 9, 2021, the Company announced results from the exploration programs at the: Séguéla Project; the
San Jose Mine; the Arizaro project in Argentina; and the Caylloma Mine.
As at February 28, 2022, the Company had drawn $160 million from the 2021 Credit Facility.
Outlook for 2022
The Company’s production and cost guidance set out below for 2022 assumes that operations will continue during
the year without any major interruptions related to COVID-19. Health protocols for control, isolation and quarantine
are in place at each of our mine sites, and these may be revised and modified based on the circumstances at each
location.
Mine
SILVER
San Jose, Mexico
Caylloma, Peru
GOLD
Lindero, Argentina
Yaramoko, Burkina Faso
CONSOLIDATED TOTAL
Silver
(Moz)
5.2 - 5.8
1.0 - 1.1
-
-
6.2 - 6.9
Gold
(koz)
32 - 36
1.8 - 2.0
115 - 127
95 - 115
244 - 280
Lead
(Mlbs)
-
29 - 32
-
-
29 - 32
Zinc
(Mlbs)
-
41 - 45
-
-
41 - 45
Cash Cost1
AISC1,2
(US$/t)
67.5 - 74.6
86.6 - 95.7
(US$/oz Au)
567 - 714
760 - 1,006
(US$/oz Ag Eq)
13.7 - 16.1
17.8 - 21.1
(US$/oz Au)
900 - 1,100
1,300 - 1,650
Notes:
1. Cash Cost and AISC are non-IFRS financial measures. Refer to “Notice Regarding Non-IFRS Financial Measures” section
above.
2. The estimated increase in all in sustaining costs at Yaramoko for 2022 are due to decreased estimated gold ounce
production coupled with increased operating and capital costs as mining moves to the deeper regions of the
underground mine.
3. Totals may not add due to rounding.
The corresponding equivalent cash costs and AISC for the Company’s four operating mines for the financial year
ended December 31, 2021 are set out in the table below:
Mine
2021 Cash Cost1,2
2021 AISC1,2
SILVER
San Jose, Mexico3
Caylloma, Peru4
GOLD
Lindero, Argentina
Yaramoko, Burkina Faso5
(US$/t)
75.80
88.41
(US$/oz Au)
617
739
(US$/oz Ag Eq)
14.38
18.94
(US$/oz Au)
1,116
1,317
Notes:
1. Cash Cost and AISC are non-IFRS financial measures. Refer to “Notice Regarding Non-IFRS Financial Measures” section
above.
2. Presented on a cash basis
3.
4.
Silver equivalent sold for 2021 is calculated for the San Jose Mine using a silver to gold ratio of 71.5:1
Silver equivalent sold for 2021 is calculated for the Caylloma Mine using a silver to gold ratio of 70.9:1, silver to lead
ratio of 1:25.3 pounds and silver to zinc ratio of 1:18.6 pounds
5. Cash costs are AISC for the Yaramoko Mine are presented subsequent to the completion of the Roxgold Acquisition and
are for the period from July 2, 2021 to December 31, 2021.
6. Totals may not add due to rounding.
San Jose Mine, Mexico - production guidance for 2022
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During 2022, the Company plans to process from the San Jose Mine 1.06 million tonnes of ore averaging 176 g/t
silver and 1.09 g/t gold. Silver production and costs reflect the declining grade profile of Mineral Reserves. Capital
investment is estimated at $20.8 million, including $13.4 million for sustaining capital expenditures and $7.4 million
for brownfields exploration programs. Major sustaining capital investment projects include $3.7 million for fleet
equipment acquisition, $5.7 million for underground mine development and $1.3 million for infill drilling.
Lindero Mine, Argentina – production guidance for 2022
During 2022, the Company plans to place on the leach pad at the Lindero Mine 6.2 million tonnes of ore averaging
0.80 g/t gold, containing an estimated 160,000 ounces of gold. Capital investment is estimated at $26.3 million,
including $17.7 million for sustaining capital expenditures, $7.3 million of capitalized stripping and $1.3 million for
brownfields exploration programs. Major sustaining capital investment projects include $4.4 million for engineering
and procurement for phase 2 of the leach pad expansion, $6.4 million for mine fleet maintenance and acquisition
and $1.8 million for maintenance of crushing, SART and ADR plants.
Yaramoko Mine, Burkina Faso – production guidance for 2022
During 2022, the Company plans to process from the Yaramoko Mine 516,000 tonnes of ore averaging 6.52 g/t gold.
Capital investments are estimated at $48.4 million, including $45.9 million for sustaining capital expenditures and
$2.5 million for brownfields exploration programs. Major sustaining capital investment projects include $32.6
million for mine development extending depth at the 55 Zone, $3.8 million for ventilation and refrigeration plant
upgrade and $0.9 million for underground pumping station.
Caylloma Mine, Peru – production guidance for 2022
During 2022, the Company plans to process from the Caylloma Mine 532,000 tonnes of ore averaging 73 g/t silver,
2.95% lead and 4.23% zinc. Capital investments are estimated at $17.7 million, including $16.3 million for sustaining
capital expenditures and $1.4 million for brownfields exploration programs. Major sustaining capital investment
projects include $5.7 million for mine underground development, $4.3 million for mine backfill system and $3.5
million for maintenance and energy projects.
Brownfields Exploration for 2022
The Company’s brownfields exploration budget for 2022, for all five of its properties totals $20.0 million, which
includes 113,000 metres of exploration drilling across all types (reverse circulation, diamond core and air core), and
1,120 meters of underground development. Consolidated brownfields expenses in 2021 were $18.5 million.
Reconnaissance exploration and evaluation of potential new projects will continue to be actively pursued during
2022 across various jurisdictions including Mexico, West Africa, Argentina in addition to other select other regions,
with an estimated budget of $8.8 million.
Séguéla Project, Côte d’Ivoire
As a result of the Roxgold Acquisition completed in July 2021, the Company acquired the Séguéla Project and related
mining concessions located in Côte d’Ivoire.
In September 2021, the Company made a construction decision to proceed to build a 3,750 tonnes per day open pit
mine at Séguéla, with first gold pour expected in mid-2023. Construction at the Séguéla Project is well underway.
Recent construction highlights and milestones include:
The overall project is 42% complete as of February 28, 2022
•
• Approximately $66.5 million of the $173.5 million initial capital budget accrued as of February 28, 2022
• Approximately $129.2 million committed as of February 28, 2022, consisting of $66.5 million accrued and
$62.7 million in construction and G&A commitments
-14-
• Major equipment packages secured
• Major construction contracts executed
•
Tender process and selection of the preferred mining contractor completed and contract negotiations
ongoing
First gold pour planned for mid-2023
•
Accommodation Camp
A 156-person accommodation camp is complete and ready for occupancy. Initially, this camp will support the
project’s development and house the owner’s and contractors’ construction personnel with surplus personnel
residing in the nearby town of Séguéla. The camp is approximately two kilometers from the processing plant area
and is complete with kitchen and mess, recreational facilities, water and sewage treatment plants, laundry services
and high-speed internet. The camp management contract has been tendered and awarded to Allterrain Services.
Processing Plant
De Simone was awarded the process plant bulk earthworks contract and activities are ongoing with excavation for
ground improvement in the mill/carbon-in-leach circuit, thickener and crusher areas complete. Rock backfill in these
areas was completed prior to the mobilization of the engineering procurement and construction contractor on
February 28, 2022.
Lycopodium was awarded the guaranteed maximum price contract for the engineering, procurement and
construction of the gold processing facility. As of December 31, 2021 engineering activities were 55 percent
complete, procurement activities 44 percent complete and construction activities are on-track to commence early
in the second quarter of 2022. Of note, the SAG mill purchase order has been placed and remains on-track to be
delivered to site in the third quarter of 2022. Detailed engineering for the SAG mill is complete and manufacturing
of core components such as shell, heads and trunnions and gear and pinion has commenced.
Site Bulk Earthworks
Contracts have been awarded for the site bulk earthworks contract for the construction of the tailings storage facility
(TSF), water storage dam (WSD) and sediment control structure (SCS). Bush clearing and topsoil stripping of the TSF
footprint has been completed. Bush clearing of the WSD commenced in early January and is on-track to be
completed by the middle of the second quarter of 2022, ahead of the upcoming wet season and will be capable of
storing raw water for the commissioning, ramp-up and operation of the processing plant. Procurement of materials
required for the TSF, WSD and SCS construction is underway with the TSF high density polyethylene liner already
secured and expected to be delivered to site in early April 2022.
Grid Connection
Contracts for the supply and installation of the 90 kV grid connection transmission line and 33 kV transmission line
diversion have been awarded. Likewise, contracts for the supply and construction of the substation have been
awarded. Delivery of the transmission lines tower steel started in March. Similarly, civil works for the substation
also started in March. Transformers were ready to be shipped to site in March 2022. Work is on-track to provide
power to the site by the end of the fourth quarter of 2022 ahead of commissioning activities at the processing plant.
Mining
Contract negotiations with a preferred bidder are ongoing, targeting contract execution and the placement of orders
for long lead equipment in early April 2022.
Cost
As of December 31, 2021, $124.5 million of the total approved budget of $173.5 million, including $8.9 million
contingency, has been committed. Approximately $108 million of total commitments to date include contracts for a
guaranteed maximum price for $87 million, fixed price contract for $7.5 million and earthworks bill of
quantity/schedule of rates for $13.5 million, mitigating risk to volatile market conditions and price escalations.
Remaining commitments include the onboarding of key operational personnel, pre-production mining, equipment
first fills and spare parts, mobile equipment and the implementation of livelihood restoration programs.
-15-
Selected upcoming milestones of the current construction schedule include:
2022
•
First quarter:
-
-
Commence construction of the processing plant
Commence construction of the high voltage substation
•
Second quarter:
-
-
-
Award mining contract
Agree upon terms and sign Mining Convention with the State of Côte d’Ivoire
Completion of the construction of the water storage dam
•
Fourth quarter:
-
Power on high voltage substation
- Mining contractor mobilizes to site
-
-
Completion of the construction of the tailings storage facility
Commence pre-strip of the Antenna deposit
2023
•
• Mid 2023: First gold pour
First quarter: Processing plant practical completion
Updated Mineral Reserve and Mineral Resource Estimates
During the past three years, the Company has released updated Mineral Reserve and Mineral Resource estimates
for its properties as follows:
•
•
•
•
•
for the Caylloma Mine and the San Jose Mine as at December 31, 2018 – released in March 2019;
for the Lindero project as at March 31, 2019 – released in April 2019;
for the Caylloma Mine and the San Jose Mine as at December 31, 2019 – released in March 2020; and
for the Caylloma Mine, the San Jose Mine and the Lindero Mine as at December 31, 2020 – released in
March 2021.
for the Company’s four mines and the Séguéla Project as at December 31, 2021 – released in March 2022.
A summary of the current Mineral Reserve and Mineral Resource estimates for the Company’s four mines and the
Séguéla Project as at December 31, 2021 is as follows:
Highlights of Mineral Reserve and Mineral Resource Update
•
•
Combined Proven and Probable Mineral Reserves are reported containing 3.3 Moz of gold and 25.9 Moz of
silver, representing a year-over-year increase of 81 percent and decrease of 10 percent, respectively
Combined Inferred Mineral Resources are reported containing 1.0 Moz of gold and 26.3 Moz of silver
reflecting a year-over-year increase of 82 percent and decrease of 8 percent, respectively
2021 Mineral Reserves and Mineral Resources
Mineral Reserves – Proven and Probable
Property
Classification
Silver
Mines
Caylloma,
Peru
San Jose,
Mexico
Proven
Probable
Proven + Probable
Proven
Probable
Proven + Probable
Total
Proven + Probable
Gold
Mines
Lindero,
Argentina
Proven
Probable
Proven + Probable
Yaramoko,
Burkina Faso
Proven
Probable
Proven + Probable
Total
Proven + Probable
Séguéla, Côte
d’Ivoire
Probable
Proven + Probable
Proven + Probable
Gold
Project
Total
Mineral Resources – Measured and Indicated
Property
Classification
Silver
Mines
Caylloma,
Peru
San Jose,
Mexico
Measured
Indicated
Measured + Indicated
Measured
Indicated
Measured + Indicated
Total
Measured + Indicated
Gold
Mines
Lindero,
Argentina
Measured
Indicated
Measured + Indicated
Yaramoko,
Burkina Faso
Measured
Indicated
Measured + Indicated
Total
Measured + Indicated
Gold
Project
Total
Séguéla, Côte
d’Ivoire
Indicated
Measured + Indicated
Measured + Indicated
-16-
Tonnes
(000)
Ag
(g/t)
Au
(g/t)
234
2,933
3,167
75
2,914
2,989
6,156
25,786
62,821
88,607
300
1,826
2,126
90,733
12,100
12,100
101
83
84
205
180
180
131
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.30
0.19
0.20
1.40
1.17
1.17
0.67
0.66
0.53
0.57
3.78
7.27
6.78
0.71
2.80
2.80
Tonnes
(000)
Ag
(g/t)
Au
(g/t)
724
1,994
2,718
38
901
940
3,658
1,723
31,552
33,275
48
456
504
33,779
3,811
3,811
97
82
86
121
98
99
89
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.34
0.24
0.26
0.82
0.65
0.66
0.37
0.50
0.38
0.39
5.83
5.80
5.80
0.47
2.00
2.00
Pb
(%)
2.38
Zn
(%)
2.96
2.55
2.53
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.76
3.70
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Pb
(%)
1.79
Zn
(%)
3.24
1.61
1.65
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.09
3.13
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Contained Metal
Ag
(Moz)
Au
(koz)
0.8
7.8
8.6
0.5
16.8
17.3
25.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
25.9
2
18
20
3
109
113
133
546
1,068
1,614
36
427
464
2,077
1,088
1,088
3,298
Contained Metal
Ag
(Moz)
Au
(koz)
2.3
5.3
7.5
0.2
2.8
3.0
10.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
10.5
8
15
23
1
19
20
43
28
387
415
9
85
94
509
244
244
796
-17-
Mineral Resources – Inferred
Contained Metal
Property
Classification
Tonnes
(000)
Ag
(g/t)
Au
(g/t)
Pb
(%)
Zn
(%)
Ag
(Moz)
Au
(koz)
Silver
Mines
Gold
Mines
Gold
Project
Total
Caylloma,
Peru
San Jose,
Mexico
Total
Lindero,
Argentina
Yaramoko,
Burkina Faso
Total
Séguéla, Côte
d’Ivoire
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
3,809
116
0.59
2.03
3.50
14.2
3,011
6,820
27,052
247
27,299
4,935
125
120
N/A
N/A
N/A
N/A
0.93
N/A
N/A
0.74
0.43
N/A
N/A
N/A
N/A
4.41
N/A
N/A
0.46
N/A
N/A
2.89
N/A
N/A
12.1
26.3
0.0
0.0
0.0
0.0
73
90
163
373
35
408
454
26.3
1,024
Notes:
1. Mineral Reserves and Mineral Resources are as defined by the 2014 CIM Definition Standards for Mineral Resources and
Mineral Reserves
2. Mineral Resources are exclusive of Mineral Reserves
3. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability
4. Factors that could materially affect the reported Mineral Resources or Mineral Reserves include changes in metal price and
exchange rate assumptions; changes in local interpretations of mineralization; changes to assumed metallurgical recoveries,
mining dilution and recovery; and assumptions as to the continued ability to access the site, retain mineral and surface rights
titles, maintain environmental and other regulatory permits, and maintain the social license to operate
5. Mineral Resources and Reserves for the San Jose and Caylloma mines are estimated as of June 30, 2021. Mineral Resources
and Reserves for the Lindero Mine are estimated as of July 31, 2021. Mineral Resources for the Yaramoko mine are estimated
as of June 30, 2021 for underground and as of February 2, 2021 for open pit. Mineral Reserves for the Yaramoko mine are
estimated as of June 30, 2021 for underground and as of February 2, 2021 for open pit, Mineral Resources and Reserves for
the San Jose, Caylloma, Yaramoko and Lindero mines are reported as of December 31, 2021, taking into account production-
related depletion for the period through December 31, 2021. Mineral Resources and Reserves for the Séguéla gold Project
are estimated and reported as of March 31, 2021 with the exception of the Sunbird deposit which is estimated and reported
as of December 31, 2021
6. Mineral Reserves for the San Jose Mine are based on underground mining within optimized stope designs using an estimated
NSR break-even cut-off grade of US$62.0/t to US$67.8/t equivalent to 109 to 120 g/t Ag Eq based on assumed metal prices
of US$21/oz Ag and US$1,600/oz Au; estimated metallurgical recovery rates of 91% for Ag and 90% for Au and mining costs
of US$33.89/t (C&F) to US$28.00/t (SLS); processing costs of US$16.23/t; and other costs including distribution, management,
community support and general service costs of US$17.73/t based on actual operating costs. Mining recovery is estimated to
92% (C&F) and 93% (SLS) and mining dilution 14% (C&R) and 24% (SLS). Mineral Resources are reported at a 100 g/t Ag Eq
cut-off grade based on the same parameters used for Mineral Reserves and a 15% upside in metal prices. Proven and Probable
Reserves include 1.94 Mt containing 11.3 Moz of silver and 63.5 koz of gold reported at a 111 to 122 g/t Ag Eq cut-off grade
and Inferred Resources totaling 2.2 Mt containing 8.8 Moz of silver and 65.4 koz of gold reported at a 100 g/t Ag Eq cut-off
grade located in the Taviche Oeste concession and subject to a 2.5% royalty
7. Mineral Reserves for the Caylloma Mine are reported above NSR breakeven cut-off values based on underground mining
methods including; mechanized (breasting) at US$82.79/t; mechanized (uppers) at US$77.33/t; semi-mechanized at
US$90.19/t; and a conventional method at US$155.1/t; using assumed metal prices of US$21/oz Ag, US$1,600/oz Au,
US$2,000/t Pb and US$2,500/t Zn; metallurgical recovery rates of 82.5% for Ag, 45% for Au, 90% for Pb and 89% for Zn.
Mining, processing and administrative costs used to determine NSR cut-off values were estimated based on actual operating
costs incurred from July 2020 through June 2021. Mining recovery is estimated to average 95% with average mining dilution
ranging from 21% to 37% depending on the mining methodology. Mineral Resources are reported at an NSR cut-off grade of
US$65/t for veins classified as wide (Animas, Animas NE, Nancy, San Cristobal veins) and US$135/t for veins classified as
narrow (all other veins) based on the same parameters used for Mineral Reserves, and a 15% upside in metal prices
8. Mineral Reserves for the Lindero Mine are reported based on open pit mining within a designed pit shell based on variable
gold cut-off grades and gold recoveries by metallurgical type. Met type 1 cut-off 0.26 g/t Au, recovery 75.4%; Met type 2 cut-
off 0.25 g/t Au, recovery 78.2%; Met type 3 cut-off 0.25 g/t Au, recovery 78.5%; and Met type 4 cut-off 0.28 g/t Au, recovery
68.5%. Mining recovery is estimated to average 100% and mining dilution 0% having been accounted for during block
regularization to 10-meter x 10-meter x 8-meter size. The cut-off grades and pit designs are considered appropriate for long
term gold prices of US$1,600/oz, estimated mining costs of US$1.51/t of material, total processing and process G&A costs of
-18-
US$6.97/t of ore, and refinery costs net of pay factor of US$7.10/oz Au. A new internal study suggested an increased heap
leach capacity to 115 Mt, which eliminates the previous year's Mineral Reserves restriction of 84.2 Mt. Reported Proven
Reserves include 4.7 Mt averaging 0.49 g/t Au of stockpiled material. Mineral Resources are reported within the same
conceptual pit shell above a 0.2 g/t Au cut-off grade based on the same parameters used for Mineral Reserves and a 15%
upside in metal prices
9. Mineral Reserves for Yaramoko are reported at a cut-off grade of 0.9 g/t Au for the 55 Zone open pit based on an assumed
gold price of US$1,500/oz, 3.4 g/t Au for 55 Zone underground and 3.0 g/t Au for Bagassi South underground, based on an
assumed gold price of US$1,600/oz, metallurgical recovery rates of 98.0%, surface mining costs of US$3.26/t, G&A costs of
US$14.5/t, and processing cost of US$22.85/t, underground mining costs of US$101.9/t, G&A costs of US$24.1/t and
processing cost of US$27.7/t. Underground mining recovery is estimated at 85% and 91% for Bagassi South and 55 Zone
stopes respectively and 100% for sill drifts. A mining dilution factor of 10% has been applied for sill drifts, 0.7 meter and
1.0 meter dilution skin has been applied for 55 Zone and Bagassi South stopes respectively. Surface Mineral Reserves are
reported in situ with modifying factors of 10% mining dilution and 85% mining recovery applied within an optimized pit shell
and only Proven and Probable categories reported within the final pit designs. Reported Proven Reserves include 214 kt
averaging 2.98 g/t Au of stockpiled material. Yaramoko Mineral Resources are reported in situ at a gold grade cut-off grade
of 0.5 g/t Au for the 55 Zone open pit and 2.7 g/t Au for underground, based on an assumed gold price of US$1,700/oz and
the same costs, metallurgical recovery and constrained within an optimized pit shell. The Yaramoko Mine is subject to a 10%
carried interest held by the government of Burkina Faso
10. Mineral Reserves for the Séguéla gold Project are reported constrained within optimized pit shells at an incremental cut-off
grade of 0.54 g/t Au for Antenna, 0.55 g/t Au for Agouti, 0.55 g/t Au for Boulder, 0.56 g/t Au for Koula and 0.56 g/t Au for
Ancien deposits based on an assumed gold price of US$1,500/oz, metallurgical recovery rate of 94.5%, mining cost of
US$2.87/t for Antenna, US$2.74/t for Agouti, US$2.81/t for Boulder, US$2.85/t for Koula and US$2.93/t for Ancien, processing
and G&A costs of US$21.64/t, mining owner cost of US$1.30/t, refining cost of US$2.60/oz and Royalty rate of 6%. The Mineral
Reserves pit design were completed based on overall slope angle recommendations of between 37° and 57° for Antenna,
Koula and Agouti deposits from oxide to fresh weathering profiles, between 34° and 56° for Ancien deposit from oxide to
fresh weathering profiles and 37° and 60° for Boulder deposit from oxide to fresh weathering profiles. Mineral Reserves are
reported in situ with modifying factors of 15% mining dilution and 90% mining recovery applied. Mineral Resources for the
Séguéla gold Project are reported in situ at a cut-off grade of 0.3 g/t Au for Antenna and 0.5 g/t Au for the satellite deposits,
based on an assumed gold price of US$1,700/oz and constrained within preliminary pit shells. The Séguéla gold Project is
subject to a 10% carried interest held by the government of Côte d'Ivoire
11. Eric Chapman is the Qualified Person responsible for Mineral Resources reported for the San Jose, Caylloma and Lindero
mines; Amri Sinuhaji is the Qualified Person responsible for Mineral Reserves reported for the San Jose, Caylloma and Lindero
mines; both being employees of Fortuna. Matthew Cobb is the Qualified Person responsible for Mineral Resources reported
for the Yaramoko Mine and Séguéla gold Project, being an employee of Roxgold Inc. (a wholly owned subsidiary of Fortuna).
Craig Richards is the Qualified Person responsible for the underground and open pit Mineral Reserves reported for the
Yaramoko Mine, being an employee of Fortuna). Shane McLeay is the Qualified Person responsible for Mineral Reserves
reported for the Séguéla gold Project, being an employee of Entech Pty Ltd
12. N/A = Not applicable
13. Totals may not add due to rounding
Lindero Mine, Argentina
As of December 31, 2021, the Lindero Mine has Proven and Probable Mineral Reserves of 88.6 Mt containing 1.6
Moz of gold, in addition to Measured and Indicated Resources, exclusive of Mineral Reserves, of 33.3 Mt containing
415,000 ounces of gold, and Inferred Resources of 27.0 Mt containing 373,000 ounces of gold.
Since December 31, 2020, Mineral Reserve tonnes increased by 7 percent, while gold grade decreased 8 percent to
0.57 g/t. Changes are primarily due to mining related depletion of 6.2 Mt of material delivered to the heap leach pad
in 2021 and an increase of the heap leach capacity limit to 114 Mt based on an updated internal design.
Measured and Indicated Resource tonnes, exclusive of Mineral Reserves, decreased slightly by 2.3 Mt or 6 percent
since December 31, 2020 to 33.3 Mt, due to minor adjustments in operating costs and the reserve cut-off grade.
Inferred Resources tonnes decreased by 3.3 Mt or 11 percent, to 27.1 Mt since December 31, 2020 with the gold
grade increasing 2 percent to 0.43 g/t. The decrease in Inferred Resources is due to the aforementioned changes in
operating costs and the ultimate pit shell design.
Yaramoko Mine, Burkina Faso
-19-
As of December 31, 2021, the Yaramoko Mine has Proven and Probable Mineral Reserves of 2.1 Mt containing
464,000 ounces of gold, in addition to Measured and Indicated Resources, exclusive of Mineral Reserves, of 0.5 Mt
containing 94,000 ounces of gold, and Inferred Resources of 0.25 Mt containing 35,000 ounces of gold.
Since June 30, 2020, Mineral Reserve tonnes decreased by 32 percent, while gold grade decreased slightly by
3 percent to 6.78 g/t. The reasons for the changes in Mineral Reserves are:
• Depletion related to production from the mine resulting in a decrease of 0.92 Mt or 203,000 ounces of gold
extracted from June 30, 2020 through December 31, 2021, of which 84,000 tonnes containing 6,000 ounces of
gold was added to Proven Reserves having been stockpiled
• Adjustments in the geological interpretation related to infill drilling and production data adjacent to currently
mined stopes resulted in a decrease of 0.31 Mt containing 55,000 ounces of gold
• Exploration and infill drilling in the deeper levels of the deposit resulted in the upgrade of 0.37 Mt or 91,000
ounces of gold
• Updating of estimation parameters including treatment of outliers, adjustments in expected mining recovery,
estimated costs and updating in classification resulted in a decrease of 0.24 Mt or 85,000 ounces of gold
Measured and Indicated Resource tonnes, exclusive of Mineral Reserves, decreased slightly from 0.6 Mt to 0.5 Mt
since June 30, 2020 with the changes being related to the reasons indicated above.
Inferred Resources tonnes decreased by 0.31 Mt or 56 percent, to 0.25 Mt since June 30, 2020 with the gold grade
decreasing 34 percent to 4.41 g/t. The decrease in Inferred Resources is due to the aforementioned infill drill
program which resulted in the upgrading of 0.37 Mt to reserves.
San Jose Mine, Mexico
As of December 31, 2021, the San Jose Mine has Proven and Probable Mineral Reserves of 3.0 Mt containing 17.3
Moz of silver and 113,000 ounces of gold, in addition to Inferred Resources of 3.0 Mt containing a further 12.1 Moz
of silver and 90,000 ounces of gold.
Year-over-year, Mineral Reserves decreased 17 percent in terms of tonnes, while silver grade decreased 10 percent
and gold grade decreased 13 percent after net changes of minus 956,000 tonnes resulting from production-related
depletion, adjustments amounting to 55,000 tonnes to the geological interpretation and updating of estimation
parameters and the upgrading and conversion of 301,000 tonnes of Inferred Resources to Mineral Reserves due to
infill and exploration drilling. Silver grade decreased 10 percent and gold grade decreased 13 percent to 180 g/t and
1.17 g/t, respectively due to upgraded grades having lower average grades than those depleted in 2021.
Measured and Indicated Resource tonnes exclusive of Mineral Reserves remained relatively unchanged year-over-
year with tonnes decreasing by 2 percent.
Year-over-year, Inferred Resources decreased 13 percent in terms of tonnes, with grades remaining relatively
unchanged. The net variation is due primarily to reductions resulting from the upgrading of Inferred Resources
related to infill drilling and adjustments in the geological interpretation.
Brownfields exploration remains a priority at San Jose with a 2022 program budget of US$7.4 million, which includes
26,200 meters of diamond drilling, aimed at expanding the mineralization at the mine (refer to Fortuna news release
dated January 18, 2022, “Fortuna reports 2021 full year record production of 305,859 gold equivalent ounces and
issues 2022 annual guidance”).
-20-
In addition, a technical evaluation is underway to test the viability of recovering mineralized pillars from the
Stockwork zone of the San Jose mine. Mineral Reserves and Mineral Resources will not include any potential tonnage
from this pillar material until sufficient technical studies have been completed to confirm the methodology for
recovery.
Caylloma Mine, Peru
As of December 31, 2021, the Caylloma Mine has Proven and Probable Mineral Reserves of 3.2 Mt containing 8.6
Moz of silver and 20,000 ounces of gold, in addition to Inferred Resources of 3.8 Mt containing 14.2 Moz of silver
and 73,000 ounces of gold.
Year-over-year, Mineral Reserve tonnes increased by 91 percent, while silver grade decreased 22 percent to 84 g/t,
lead grade decreased 4 percent to 2.53%, and zinc grade increased 5 percent to 3.70%. Changes are primarily due
to mining related depletion of 475,000 tonnes, upgrading and conversion of 1.39 Mt of Inferred Resources to Mineral
Reserves due to a successful infill drill program focused on the Animas and Animas NE veins and changes in zinc
metal prices and commercial terms accounting for 534,000 tonnes.
Measured and Indicated Resource tonnes, exclusive of Mineral Reserves, increased by 27 percent year-over-year to
2.7 Mt with silver, lead and zinc grades decreasing by 13 percent, 7 percent and 7 percent, respectively due to the
same reasons as detailed for reserves.
Inferred Resources tonnes increased slightly by 2 percent year-over-year. Silver, lead, and zinc grades decreased 5
percent, 25 percent, and 14 percent, respectively. The decrease in Inferred Mineral Resources is primarily due to a
successful infill drill program of the Animas and Animas NE veins resulting in the upgrading of Inferred Mineral
Resources to Mineral Reserves counteracted by the inclusion of new resources in relation to exploration drilling
expanding identified mineralized material in the lower levels of the Animas and Animas NE veins.
Séguéla Gold Project, Côte d’Ivoire
As of December 31, 2021, the Séguéla Project has Proven and Probable Mineral Reserves of 12.1 Mt containing
1,088,000 ounces of gold, in addition to Inferred Resources of 4.9 Mt containing 454,000 ounces of gold.
There have been no changes from the Mineral Reserve and Mineral Resource numbers reported for the Séguéla
Project as of March 2021, with the exception of the maiden estimation of Inferred Resources for the Sunbird
discovery comprising 3.45 Mt averaging 3.16 g/t Au containing 350,000 ounces of gold reported above a 0.5 g/t Au
cut-off grade. Please refer to “Material Properties - Séguéla Project Maiden Inferred Mineral Resource”.
DESCRIPTION OF THE BUSINESS
General
Summary. The Company is engaged in the mining of silver, gold and base metals and related activities in Latin
America and West Africa, including exploration, extraction, and processing. The Company operates the San Jose
Mine located in southern Mexico, the Lindero Mine located in northern Argentina, the Yaramoko Mine located in
Burkina Faso, and the Caylloma Mine located in southern Peru. The Company is also constructing an open pit gold
mine at the Séguéla Project in Côte d’Ivoire. Each of the Company's producing mines is generally considered to be
a reportable segment.
The Company’s gold production at the Lindero Mine and the Yaramoko Mine is in the form of gold doré bars. It has
entered into non-exclusive precious metals purchase agreement with Auramet International LLC, a precious metals
merchant headquartered in New Jersey, USA. Refining arrangements are provided by Metalor USA Refining
Corporation and Metalor Technologies SA.
The silver-lead, zinc, and silver-gold concentrates produced by the Company at its San Jose Mine and its Caylloma
Mine are sold to international metals traders who in turn deliver the products to different clients around the world.
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The material sources of revenue for 2021 and 2020 are as follows:
By type of concentrate:
2021
2020
Silver-lead concentrate
Zinc concentrate
Silver-gold concentrate
10%
7%
36%
47%(2)
Gold doré
By metal contained in concentrate:
Silver
Lead
Zinc
Gold
29%
5%
7%
59%
15%
9%
69%
7%(1)
52%
7%
9%
25%
Notes:
1.
2.
First gold was poured at the Lindero Mine on October 20, 2020. The Lindero Mine produced 13,435 ounces of gold in
2020.
Includes gold doré produced at the Yaramoko Mine from July 2, 2021, being the date of the completion of the Roxgold
Acquisition, to July 2, 2021.
Production Methods. The Lindero Mine is an open pit heap leach operation. Crushed ore is placed on a leach pad
with the pregnant solution pumped to a sulphidization-acidification-recycle-thickening plant (“SART”) and an
adsorption, desorption and recovery plant (“ADR”) prior to electrowinning and refining where gold is poured to doré
bars.
The Yaramoko Mine complex is an underground project with feed ore from two underground portals at the 55 Zone
and Bagassi South mines, where long hole open stoping and cemented rock backfill is the mining method. The mined
ore is fed to a traditional gold processing facility where the ore is crushed, milled and subject to carbon-in-leach
(“CIL”) extraction processes, prior to electrowinning and refining where gold is poured to doré bars.
The method of production both at the Caylloma Mine and the San Jose Mine consists of underground mining
principally through cut and fill mechanized operations. Extracted ore is trucked to a conventional crushing, milling
and flotation processing plant which consists of zinc, and lead-silver flotation circuits for the Caylloma Mine, and a
gold-silver circuit for the San Jose Mine.
Specialized Skill and Knowledge. All aspects of the Company’s business require specialized skills and knowledge.
Such skills and knowledge include the areas of geology, mining, metallurgy, engineering, environment issues,
permitting, social issues, and accounting. While competition in the resource mining industry can make it difficult to
locate and retain competent employees in such fields, the Company has been successful in finding and retaining
personnel for the majority of its key processes. Management considers training and re-training of its staff to be a
priority.
Competitive Conditions. The exploration and mining of precious metals and base metals is competitive.
Competition relates to: the acquisition of mineral property interests that can be explored, developed and operated;
technical experts that can find, develop and mine such mineral properties and interests; workers to operate the
mineral properties; and capital to finance, exploration, development and operations, and customers to purchase
products.
The Company competes with other mining companies, some of which have greater financial resources and technical
facilities, for the acquisition of mineral property interests, the recruitment and retention of qualified employees;
and for investment capital with which to fund its projects, and in the sale of its products.
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Employees. The Company and its subsidiaries had 2,297 direct employees and 2,680 indirect employees through
contractors as at December 31, 2021.
Foreign Operations. The Company’s material mineral resource properties are located in Argentina, Burkina Faso,
Côte d’Ivoire, Mexico and Peru. Through the Company’s history of successfully developing and operating mines in
foreign jurisdictions, Fortuna has developed various corporate governance policies, practices and frameworks to
manage the social, economic and political risks and challenges associated with operating in foreign jurisdictions. See
“Risk Factors” section for a detailed description of such risks.
Members of the Board and senior officers of the Company periodically visit the Company’s operations in Latin
America and West Africa. Most recently, the Board travelled to West Africa in January 2022. During these visits,
Board Members interact with local employees, government officials and businesspersons; such interactions enhance
the visiting directors’ or officers’ knowledge of local culture and business practices.
Additionally, in accordance with the Company's corporate governance practices, the Board regularly receives
management and technical updates, risk assessment and progress reports in connection with the Company’s
operations, and in doing so, maintains effective oversight over its business and operations. For example, the
Sustainability Committee meets at least quarterly and obtains such updates from management which is then
reported by the Committee to the Board. Through these updates, assessments and reports, the Board gains
familiarity with the conditions, laws and risks associated with the Company’s foreign operations.
Sustainability and ESG Policies and Framework
The Company’s business and operations involve the exploration, development, extraction and production of
precious and base metals in Latin America and in West Africa, since the consolidation with Roxgold Inc. in July 2021.
Our vision is to be valued by our stakeholders as a sustainable company and a leader in the precious metals industry
and our mission is to create sustainable value through growth of our mineral reserves, metals production and the
efficient operation of our assets, while remaining firmly committed to safety, and to social and environmental
responsibility. To do so, we value:
The health and safety of our employees. We do not tolerate unsafe actions or conditions.
The environment. We adhere to strict environmental standards and mitigate our impact.
•
•
• Our communities. We show respect for cultural diversity, and work as a strategic partner to enable the
sustainable development of our neighboring communities.
• A commitment to excellence. We achieve high standards and the best practices.
•
Integrity. We act in accordance with our philosophy.
The Company’s objective is to generate sustainable prosperity through its business operations which means,
protecting the environment, providing a safe workplace for our employees and contractors, supporting the local
communities in the areas in which the Company operates through education, employment and infrastructure
investment. The Company has built strong relationships with the stakeholders in which it operates, in particular with
local communities where we are dedicated to innovative, sustainable projects and partnerships that build trust in
local communities while respecting their values, customs and traditions. The Company’s operating practices are
governed by the principles set out in its Code of Business Conduct and Ethics and Whistle-Blower Policy, which was
adopted by the Board in order to promote integrity and honest and ethical conduct of the Company’s business. It
applies to all directors, officers, employees and consultants of the Company and its subsidiaries. In term of Board
oversight, a Sustainability Committee composed of members of the Board of Directors is appointed to assist in
fulfilling its oversight responsibilities related to health, safety, security, environmental, sustainable development and
social responsibility obligations and corporate objectives.
Sustainability Framework
At Fortuna, we see sustainability as the creation of long-term economic, social, and environmental value for our
stakeholders. This understanding has led us to make a fundamental commitment to integrate sustainability into our
business strategy, organizational culture, and day-to-day operational activities.
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Sustainability includes factors which affect all aspects of our business. Rather than isolating sustainability in a single,
stand-alone policy, we have created a Sustainability Framework that is integrated into our overall corporate strategy
and supported through a range of corporate policies and standards. The Sustainability Framework is a way to
transform our aspirations into actions and achieve our vision.
Strategic Sustainability Objectives
Consistent with our Vision, Mission and Values, we have identified three Strategic Sustainability Objectives
supported by six Sustainability Pillars. We provide disclosure on five Sustainability Pillars in our Sustainability Report
which is filed on the Company’s website, and we report on the sixth Sustainability Pillar, our financial performance,
through our regulatory filings in accordance with applicable securities laws and stock exchange requirements.
Strategic Sustainability Objectives
Sustainability Pillars
GOVERNANCE
Create through corporate governance: high ethical standards, respect
for human rights and promotion of diversity and equal opportunity.
1. Financial Performance: Maintain a sound financial position
while creating shared value.
2. Human Rights and Ethics: Be a responsible producer.
OUR PEOPLE
Create a culture of health, safety, and social responsibility, and
maintain positive relationships with our stakeholders.
3. Communities: Be a catalyst for sustainable development
independent of the presence of the Company in the community.
4. Occupational Health & Safety: Demonstrate commitment in
everything we do.
5. Human Resources: Attract and train a workforce which draws
on the local stakeholder community.
OUR ENVIRONMENT
Mitigate our impact on the environment through the efficient use of
our resources and the implementation of clean technologies.
6. Environment: Minimize our impact on the environment to
preserve it for future generations
To support the implementation of the Company’s Sustainability Framework, we have developed the policies and
standards listed below, relating to environmental, social and governance related matters:
• Human Rights Policy
• Diversity Policy
• Anti-corruption Policy
• Occupational Health and Safety Policy
•
• Business Code of Conduct and Ethics and Whistle-blower Policy
•
• Design Standards for Tailings and Filtered Storage Facilities, Heap Leach Facilities and Waste Rock Storage
Supplier Business Code of Conduct and Ethics
Environmental Policy
Facilities
In March 2022, our Board approved two new sustainability policies: the Community Relations Policy and the
Employee Relations Policy. All of our sustainability policies and standards are supported by guidelines, manuals,
training and other means to facilitate their successful implementation and performance in the field. Copies of our
main environmental and social policies can be found on the Company’s website.
Monitoring, reporting and disclosure framework
The Company measures and discloses its sustainability performance using the Global Reporting Initiative (GRI)
guidelines, the Metals and Mining Industry Standard of the Sustainability Accounting Standards Board (SASB) and
the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”).
Management reports on sustainability, including updates on environmental social and governance matters, updates
on sustainability key performance indicators (see “Corporate Plan and Targets below”), are provided to the Board of
Directors at least on a quarterly basis through the Sustainability Committee.
The Company has a dedicated Health, Safety, Security, Environment and Community (“HSSEC”) Corporate
Committee comprised of members of Senior and corporate management. The HSSE Committee is tasked with
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assisting the Company’s Senior Management in achieving its governance and management objectives in the areas
of health, safety, security, environment and the community. This includes the reporting and reviewing of health,
safety, security, environment and community management programs and their performance.
In addition, each operating subsidiary provides a monthly report on its sustainability performance. The Country
Managers present operational progress, sustainability data, and progress toward KPIs and goals. In all cases,
performance is measured against operational KPIs and metrics control tools, and the indicators correspond to each
of the six sustainability pillars.
Since 2019, the Company has released an annual Sustainability Report which is available on our website. The Report
discloses: material sustainable topics applicable to the Company and its operations; summarizes the actions that the
Company is taking in terms of economic, social and environmental sustainability in the Company’s mining
operations; and provides detailed information on the Company’s environmental, social, socio-economic and health
and safety performance, and compares its environmental, health, social and governance performance against its
performance in prior years.
Corporate plan and targets
In 2019, the Company developed a five-year sustainability plan which contains short, medium and long-term
commitments. As a result, key performance indicators (“KPIs”) related to sustainability have been integrated into
the management of the Company’s business. The Board approves the KPI goals and targets on an annual basis. The
achievement of these goals is monitored monthly. Management eligible for annual performance incentives as part
of their annual compensation are held accountable for the Company’s sustainability performance through the
achievement of annual target performance goals. Performance metrics which include environmental, safety and
social metrics have been included in the performance metrics for management eligible for annual performance
incentives since 2021. For 2022, the performance metrics have been extended to include climate change and ESG
framework and ratings metrics. ESG metrics performance metrics have a 35% weighting in the Company’s corporate
short-term incentive indicators.
2022 Outlook
During 2022, our Sustainability/ESG framework will be reviewed, and we will continue to review and update our ESG
policies to reflect the growth of the Company and the materiality assessment completed in 2021.
During 2022, the Company anticipates disclosing a position statement on Climate Change, and undertaking other
corporate initiatives to enhance the Company’s commitment to create a sustainable business while ensuring
Industry Standard performance in sustainability.
2021 Health and Safety management and performance
Health and safety statistics are collected from each of our operations on a monthly basis. Targets for health and
safety key performance indicators are set each year and are one factor used in determining management
compensation for 2022.
In 2021, our health and safety performance among our employees and contractors is highlighted by:
•
•
zero fatalities from work-related injuries or illnesses
zero cases of work-related illnesses
In 2021, our consolidated health and safety performance in terms of Recordable Incident Frequency Rate (“TRIFR”)
and Lost Time Incident Frequency Rate (“LTIFR”) improved by almost 50% (see table below) by means of additional
initiatives to develop visible leadership, encourage teamwork, and continuously enhance our management system
and tools including:
•
•
•
instilling operational discipline by reinforcing procedures and our zero-tolerance policy to unsafe working
conditions;
establishing a disciplinary committee that included the participation of employees from human resources,
operations, safety and sustainability;
conducting a deep dive evaluation for all high potential near miss incidents;
•
•
conducting additional incident cause analysis method (“ICAM”) training; and
enhancing data collection on material damage and operational delays.
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The following statistics are for employees and contractors at the mine sites and on a consolidated basis. The terms
set out below have the following meanings:
“FI” means fatal incidents
“LTI” means lost time injury
“MTI” means medical treatment injury
“TRI” means total recordable injuries
“TRIFR” means total recordable frequency incident rate = (number of FI+LTI+MTI) x 1,000,000/ worked-hours
“LTIFR” means lost time incident frequency rate = (number of LTI x 1,000,000) / worked-hours
“LTISR” means lost time incident severity rate = (number of days lost x 1,000,000/ worked-hours)
Lindero Mine
San José Mine
Caylloma Mine
2020
4.94
5.93
2021
2.53
6.07
2020
3.45
6.41
2021
2.03
3.72
2020
1.31
5.68
2021
1.09
2.18
361.81
336.37
144.04
139.97
41.92
55.54
LTIFR
TRIFR
LTISR
Yaramoko Mine
(last 6 months of 2021)
2020
2021
NA
NA
N/A
0.00
0.81
0.00
All 4 operations
2020
3.15
5.99
2021
1.57
3.36
176.64
138.10
Notes:
1. Data is included from the four operating mines. It does not include data from the corporates offices or the Séguéla
Project.
2. The information provided for Lindero in 2020 was collected during the construction phase of the mine.
In 2022, the Company intends to continue the implementation of new and improved corporate standards to support
the performance of all operations including West African operations. For example, all operations will be subject to
ISO 45001 as a mandatory standard with requirements to implement: critical controls management at site level; and
a new Health, Safety, Environment and Community management software to improve accountability and efficiency
in our health and safety activities.
The improvements in workplace safety achieved in 2021 were overshadowed in January 2022, when the Company
reported a fatality at the Lindero Mine. No other personnel were injured in the incident.
Company’s Response to Spread of COVID-19
In 2021, we continued our response to the COVID-19 pandemic and maintained the same contagion prevention
measures from 2020. Physical distancing was maintained where possible, and we conducted regular testing of
employees (PCR testing at least once a month). A key focus in 2021 was on vaccination. We carried out awareness
campaigns to promote vaccination by our employees. In 2021 in our operations in Latin America, 97% of our total
workforce received at least one dose of a COVID-19 vaccine. 100% of our workers in Peru, 85% of our workers in
Mexico and 88% of our workers in Argentina were fully vaccinated. In Burkina Faso, at least 92% of our workers in
were fully vaccinated in 2021.
Environmental protection, management and performance
We are committed to best practices and high standards of environmental performance in all aspects of our
operations, and we strive to avoid, or where this is not possible, minimize the impact of our activities on the
environment. We believe it is possible to design, construct, and operate our mines based on efficient use of energy
and resources, protection of the environment and biodiversity, compliance with all applicable laws and international
guidelines. When we close our operations, our aim is to return the land disturbed by our activities to as close to its
natural state as reasonably possible.
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All phases of the Company’s operations are subject to environmental laws and regulations in the jurisdictions in
which it operates. These environmental regulations provide directives and standards to avoid and/or limit spills,
releases and emission of various substances related to industrial mining operations that could result in
environmental contamination.
The Company conducts regular environmental and health and safety assessments of its operations. The overall
objective is to assess key environmental risks and their associated controls and to assess regulatory compliance.
Environmental statistics are collected from each of our operations on a monthly basis. To the best of management’s
knowledge, the Company is in compliance in all material respects with all environmental laws and regulations
applicable to its exploration, development, construction and operating activities, including the renewal of
environmental permits where applicable. Refer to “Risk Factors – Environmental Protection, Management and
Performance – Mine Closure" below for additional information in respect of the financial and operational effects of
such environmental laws and regulations on the Company.
Targets for environmental management plan key performance indicators are set each year and were one factor used
in determining management compensation for 2021 and 2022. In terms of performance, the environmental
management highlights for 2021 are:
•
•
•
•
•
•
zero significant environmental fines
significant reduction in waste intensity
zero tailings dam incidents
zero significant spills
continuing trend in reduction of freshwater withdrawals and consumption intensity
significant reduction in GHG emissions intensity and energy intensity
Tailings management
In 2021, we used our Tailings and Heap Leach Management Standard (the “Standard”), which is based on the
guidelines of the Mining Association of Canada and the Canadian Dam Association for our operations in Latin
America. At the Yaramoko Mine, the tailings facility is managed based on the ANCOLD Industry Standard and an
operating manual has been established there to ensure that the tailings storage facility is managed to prevent any
hazards.
Both Standards require the Company to locate, design, build, operate, and close all tailings storage facilities and
heap leach facilities using a risk-based approach with site-specific data, or as specified by local regulatory
requirements (whichever approach is more stringent). The Standards cover facility integrity, governance, monitoring
and emergency preparedness. Our tailings storage facilities and heap leach facilities are subject to regular routine
inspections, geotechnical and environmental monitoring and annual reviews to continually improve systems and
methods in order to minimize potential harm related to these long-term facilities. All our tailings storage facilities
were inspected in 2021 by third party engineering specialists to ensure their physical integrity and their proper
management, and no significant risks were found under the applicable standards. In 2021, we also started to assess
our facilities using the Global Industry Standard on Tailings Management (“GISTM”) with the intention of developing
an appropriate strategy to implement this standard.
Mine closure
The environmental permits under which the Company operates require it to reclaim certain lands that it disturbs
during mining operations. Reclamation and closure activities can be significant and include land rehabilitation,
decommissioning of mine facilities, ongoing care and maintenance and other costs. Costs of mine closures and
reclamation of mine sites vary considerably due to factors such as location, climate, rainfall, environmental
vulnerability, age of the mine, mining method, minerals being mined, waste characteristics, and labor costs. Closure
cost estimates are reviewed regularly to reflect changing circumstances and adjusted according to inflation and work
requirements.
Regulatory environmental requirements and best practices require the Company to establish mine closure plans and
to review and update same periodically when required. Except as set out below, there have been no significant
changes in requirements, laws, regulations, operating assumptions, estimated timing and amount of closure and
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reclamation obligations in respect of the San Jose Mine, the Lindero Mine, the Yaramoko Mine, the Caylloma Mine
and the Séguéla Project during the financial year ended December 31, 2021, other than the yearly update of the
closure plans and the addition of the Yaramoko Mine and Séguéla Project mine closure plans. According to the plans
in place, for accounting purposes the Company currently estimates the present value of the rehabilitation costs for
the San Jose Mine, the Lindero Mine, the Yaramoko Mine, the Caylloma Mine and the Séguéla Project to be
approximately US$56.56 million which will be incurred between 2022 and 2044, depending on the life of the
respective mines, as more particularly described in note 17 to the 2021 Financial Statements.
On August 19, 2021, the Peruvian Government approved Law N° 31347 which modifies the Mine Closing Law. This
new law includes, among other things, new criteria for the calculation of the guarantee required to be in place for
the closing of a mine in Peru. Currently the Mine Closing law requires a guarantee to be put in place for the final
closure activities and post closure-activities of the mine, as is the case for the Caylloma Mine. As a result, a guarantee
will be required to be put in place for the full mine closure plan, to include progressive closure costs, final closure
activities and post closure-activities. The effective date for the new Mine Closing Law has not yet been confirmed
by the Peruvian Government, but it is expected to be in effect in 2023, and when in effect it will apply to the Caylloma
Mine.
Climate Change
We recognize that climate change is a major global challenge that could have significant impacts on operations, host
communities, the resources used in production, the economy and society in general. Climate change is a systemic
risk with the potential to affect our mine infrastructure and operations; the regulatory frameworks under which we
operate; and the demand for the minerals we produce. It is an increasingly important issue for Fortuna’s
stakeholders, including investors who are seeking to understand the impact of climate change across their portfolios.
Fortuna recognizes the current climate change science, supports the goals of the Paris Agreement and the
recommendations of the Taskforce on Climate-related Financial Disclosures (“TCFD”). We believe that the mining
sector has a key role to play in reducing global GHG emissions, as well as in supporting the transition to a lower
carbon economy by supplying critical minerals and metals to advance low emission technologies and solutions.
Fortuna is taking a phased approach to implementing the TCFD recommendations. Our disclosures will evolve over
time as we continue to take action on climate change and further embed climate change into our business.
In term of governance, the Sustainability Committee of the Board of Directors provides oversight of climate change.
The Board of Directors is involved in any major climate-related decision that involve a capital investment program,
which are approved annually by the Board as part of the budget process. In 2021, the Board of Directors was actively
engaged in the development of the climate change strategy and the development of Fortuna’s Climate Change
Position Statement and climate-related management targets. The Senior Vice President, Sustainability has
accountability for all environmental issues, including climate change, at the Executive Leadership Team level and
reports to the Sustainability Committee and the Board of Directors on climate change factors on a quarterly basis.
In 2021, Fortuna undertook a Climate Change Materiality Assessment to better understand the financially material
climate change factors likely to impact company value. This was an important first step in the development of our
Climate Change Strategy to ensure the strategy fosters value creation. We assessed the materiality of the TCFD’s
climate-related risks and opportunities based on the potential of the climate change factor to impact company value
and the likelihood that a climate-related impact would occur over the short (0 to 1 years), medium (1 to 10 years) or
long term (10+ years). The Climate Change Materiality Assessment also took into consideration how climate change
factors are connected to other ESG factors and have the potential to increase exposure to ESG risks (e.g., community
relations, water management, waste and hazardous materials management, energy management, biodiversity
impacts). As part of this Climate Change Materiality Assessment, we considered:
• Existing climate-related regulations (e.g., Canadian Securities Administrators (CSA) Staff Notices, U.S.
Securities and Exchange Commission (SEC) guidance, climate-related regulation in Canada, Mexico, Peru,
Argentina and Burkina Faso)
• Climate-related guidance and industry initiatives (e.g., Mining Association of Canada’s Towards Sustainable
Mining Initiative, International Council on Mining & Metals’ Mining Principles, World Gold Council’s
Responsible Gold Mining Principles)
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• Climate change frameworks and standards (e.g., SASB Standards, SASB Climate Risk Technical Bulletin, TCFD
recommendations)
In 2021, we made significant progress on the development of our corporate climate change strategy. Notably, we
developed our Climate Change Position Statement to be published in the second quarter of 2022. This Statement
articulates our approach to climate change and our key climate-related commitments.
As part of the development of our company-wide climate change strategy, we also conducted gap assessments to
analyze how our current climate change practices compare to climate change best practices and the practices of our
peers in the areas of Governance, Strategy, Risk Management, Metrics and Targets, and Reporting and Disclosure.
In recognition that the development of a comprehensive and credible climate change strategy is an ongoing journey,
we have developed a multi-year climate change strategy implementation roadmap which focuses on addressing gaps
between our existing practices and climate change best practices. Future work to be conducted during 2022 includes:
•
•
•
Formalizing climate-related governance processes and internal reporting on climate change factors, such
Climate Change oversight by the Sustainability Committee and inclusion of Climate Change qualitative
targets in the executive short Term incentives program.
Conducting the required analysis to enable us to formalize climate-related metrics and set GHG emissions
reduction targets, including site-level energy audits, identification and prioritization of GHG emission
reduction opportunities and associated pathways, and internal capacity building.
Evaluating opportunities for the strategic and controlled use of carbon offsets to complement our climate
change actions plans.
We continue to evaluate our capacity to conduct climate change scenario analysis and are committed to continue
to enhance the alignment of our climate change disclosure with the TCFD Recommendations.
In light of the combination with Roxgold, we reviewed and updated the Company’s enterprise risk management
process accordingly. As an input to this project, we reviewed the TCFD’s best practices with respect to the integration
of climate change factors into enterprise risk management processes and we are currently evaluating opportunities
to enhance the integration of climate-related risks into our enterprise risk management processes.
2022 Outlook
In 2022, we intend to implement our Climate Change strategy such as formalizing climate-related governance
processes and internal reporting on climate change factors by the Sustainability Committee and the inclusion of
Climate Change qualitative targets in the executive short Term incentives program; conducting the required analysis
to enable us to formalize climate-related metrics and set credible GHG emissions reduction targets, including site-
level energy audits, identification and prioritization of GHG emission reduction opportunities and associated
pathways; and evaluating opportunities for the strategic and controlled use of carbon offsets to complement our
climate change actions plans. Also, we will continue our plan to use the GISTM as our standard concerning tailings
management while continuing to implement and/or certify our ISO 14001 management systems and other
environmental standards and best practices.
2021 Community relations management and performance
Mining operations can have significant environmental, social and economic impacts (both positive and negative) on
surrounding communities. We are committed to the high standards of social performance in all aspects of our
operations. An effective community relations approach can help to minimize conflicts and operational disruptions,
facilitate permits and approvals, and enhance the Company’s reputation. The COVID-19 pandemic has magnified the
risks, as communities hard hit by the pandemic may be seeking additional support from companies.
We seek to maintain good relations in the communities where we operate, based on dialogue, transparency and
respect, and to be a catalyst for social development. Our Country Heads and Vice Presidents, Operations have
executive responsibility for community relations at the subsidiary level, reporting directly to the regional Chief
Operating Officers, who report to the CEO. The Country Heads are supported by a Community Relations team
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recruited at each site. In line with the Corporate Sustainability Framework, the Country Heads are responsible for
developing and implementing a Community Relations Plan, which is approved annually. All community support
agreements prepared under the Community Relations Plan must be prepared in writing and referred to the CCO for
approval. Subsidiaries provide updates on their Community Relations Plans during reviews with the HSSEC Corporate
Committee.
In terms of performance, the highlights for 2021 are:
•
zero significant disputes with local communities
•
zero confirmed cases of human rights violations
• 43% of employees are from local communities
• 100% of internal and external security personnel received human rights training
Risk Factors
The Company’s ability to generate revenues and profits from its natural resource properties is subject to a number
of risks and uncertainties including those listed below, any of which, individually or together could cause actual
events to differ materially from those described in forward-looking statements and forward-looking information.
The risks described below are a summary only and are not exhaustive of the risks relating to Fortuna and its business
and operations. There may be additional risks not presently known to the Company, or that the Company currently
considers immaterial, which may also impair its business and operations.
Risks Relating to the Company’s Business Operations
The Company’s operations are subject to operating hazards and risks incidental to mining activities.
The operations of the Company are subject to all of the hazards and risks normally incidental to mining exploration,
development and operational activities, including fire, explosions, floods, structural collapses, industrial accidents,
unusual or unexpected geological conditions, ground control problems, power outages, pollution, industrial water
shortages, inclement weather, cave-ins and mechanical equipment failure. Any such hazards could result in work
stoppages, damage to or destruction of mines and other facilities, damage to life and property, environmental
damage and possible legal liability for any or all damages. While the Company maintains insurance against certain
risks, potential claims could exceed policy limits or be excluded from coverage. There are also risks against which
Fortuna cannot or may elect not to insure. The potential costs which could be associated with any liabilities not
covered by insurance or in excess of insurance coverage may have a material adverse effect on the Company’s
business, financial condition or results of operations.
Mineral resources, mineral reserves and precious metal recoveries are estimated.
There is a degree of uncertainty attributable to the estimation of mineral resources, mineral reserves and expected
mineral grades. The mineral resource and mineral reserve estimates included or incorporated by reference in this
AIF have been determined and valued based on assumed or estimated future prices, cut-off grades and operating
costs. However, until mineral deposits are actually mined and processed, mineral resources and mineral reserves
must be considered as estimates only. Any such estimates are expressions of judgment based on knowledge, mining
experience, analysis of drilling results and industry practices.
Mineral resources and mineral reserves may require revision based on actual production experience. Market
fluctuations in the price of metals, as well as increased production costs and reduced recovery rates, may render
certain mineral reserves uneconomic and may ultimately result in a restatement of mineral resources and/or mineral
reserves. Short-term operating factors relating to the mineral resources and mineral reserves, such as the need for
sequential development of ore bodies, may adversely affect the Company’s profitability in any accounting period.
Estimates of operating costs are based on assumptions including those relating to inflation and currency exchange,
which may prove incorrect. Estimates of mineralization can be imprecise and depend upon geometallurgical
assumptions, geological interpretation and statistical inferences drawn from drilling and sampling analysis, which
may prove to be unreliable. In addition, the grade and/or quantity of precious metals ultimately recovered may differ
-30-
from that indicated by drilling results. There can be no assurance that precious metals recovered in small scale tests
will be duplicated in large scale tests under onsite conditions or in production scale. Amendments to mine plans and
production profiles may be required as the amount of mineral resources changes or upon receipt of further
information during the implementation phase of the particular project. Extended declines in market prices for gold,
silver and other metals may render portions of the Company’s mineralization uneconomic and result in reduced
reported mineralization. Any material reduction in estimates of mineralization, or in the Company’s ability to
develop its properties and extract and sell such minerals, could have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company’s capital and operating costs, production schedules and economic returns are based on certain
assumptions which may prove to be inaccurate.
The Company’s expected capital and operating costs, production schedules and estimates, anticipated economic
returns and other projections, estimates and forecasts for its mineral properties that are included or incorporated
by reference in this AIF or included in any technical reports, scoping studies, pre-feasibility studies and feasibility
studies prepared for or by the Company, including in respect of the assets acquired from Roxgold, are based on
assumed or estimated future metals prices, cut-off grades, operating costs, capital costs, metallurgical recoveries,
that the actual ore mined is amenable to mining or treatment, environmental considerations, labour volumes,
permitting and other factors, any of which may prove to be inaccurate. As a result, technical reports, scoping studies,
pre-feasibility studies and feasibility studies prepared for or by the Company may prove to be unreliable.
The Company’s capital and operating costs are affected by the cost and availability of commodities and goods such
as steel, cement, explosives, fuel, electrical power and supplies, including reagents. Significant declines in market
prices for gold, silver and other metals could have an adverse effect on the Company’s economic projections.
Management assumes that the materials and supplies required for operations will be available for purchase and that
the Company will have access to the required amount of sufficiently skilled labour. As the Company relies on certain
third-party suppliers and contractors, these factors can be outside its control and an increase in the costs of, or a
lack of availability of, commodities, goods and labour may have an adverse impact on the Company’s financial
condition. The Company may experience difficulty in obtaining the necessary permits for its exploration,
development or operational activities, if such permits are obtained at all, and may face penalties as a result of
violations of permits or other environmental laws, which may cause delays and increases to projected budgets. Any
of these discrepancies from the Company’s expected capital and operating costs, production schedules and
economic returns could cause a material adverse effect on the Company’s business, financial condition or results of
operations.
The Company has in the past, and may in the future, provide estimates and projections of its future production, costs
and financial results. Any such information is forward looking. Neither the Company’s auditors nor any other
independent expert or outside party compiles or examines these forward looking statements. Accordingly, no such
person expresses any opinion or any other form of assurance with respect thereto. Such estimates are made by the
Company’s management and technical personnel and are qualified by, and subject to the assumptions, contained or
referred to in the filing, release or presentation in which they are made, including assumptions about the availability,
accessibility, sufficiency and quality of mineralized material, the Company’s costs of production, the market prices
of silver, gold and other metals, the Company’s ability to sustain and increase production levels, the ability to
produce and sell marketable concentrates, the sufficiency of its infrastructure, the performance of its personnel and
equipment, its ability to maintain and obtain mining interests and permits, the state of the government and
community relations, and its compliance with existing and future laws and regulations. Actual results and experience
may differ materially from these assumptions. Failure to achieve estimates or material increases costs could have a
material adverse impact on the Company’s future cashflows, profitability, results of operations and financial
condition. Any such production, cost, or financial results estimates speak only as of the date on which they are made,
and the Company disclaims any intent or obligation to update such estimates, whether as a result of new
information, future events or otherwise. Accordingly, such forward-looking statements should be considered in the
context in which they are made and undue reliance should not be placed on them.
Uncertainties related to new mining operations.
-31-
Without limiting the generality of the foregoing, Fortuna is in the process of the development and construction of
an open pit mine at the Séguéla Project. Any such development or expansion project which is progressed to
commercial operations will face a number of risks inherent in new mining operations.
The successful completion of the Company’s development and expansion projects requires the construction and
operation of mines, processing plants and related infrastructure. As a result, the Company is and will continue to be
subject to all of the risks associated with establishing new mining operations, including:
•
•
•
•
•
•
•
the timing and cost, which can be considerable, of the construction of mining and processing facilities;
the availability and cost of skilled labour, mining equipment and principal supplies needed for operations;
the availability and cost of appropriate smelting and refining arrangements;
the need to maintain necessary environmental and other governmental approvals and permits;
the availability of funds to finance construction and development activities;
potential opposition from governments, non-governmental organizations, environmental groups, local
groups or other stakeholders, which may delay or prevent development activities; and
potential increases in construction and operating costs due to changes in the cost of labour, fuel, power,
materials and supplies.
It is not unusual in the mining industry for new mining operations to experience unexpected difficulties during the
start-up phase or the initial production phase, resulting in production suspensions, delays and requiring more capital
than anticipated. It is also common in new mining operations to experience unexpected problems, delays and costs
during mine development and ramp-up to full production capacity. Such factors can add to the costs of the mine
development, production and operations and/or impair production and mining activities, thereby affecting the
Company’s cashflows and profitability. Any unexpected complications and delays in the completion and successful
functioning of these operational elements may result in additional costs being incurred by the Company beyond
those already incurred and budgeted. There can be no assurance that current or future development and expansion
plans in respect of the Yaramoko Mine and the Séguéla Project will be successful or completed on time or on budget.
Development projects such as the Séguéla Project are uncertain and it is possible that actual capital and operating
costs, production schedules and economic returns will differ significantly from those estimated for a project prior
to production.
Despite budget forecasting and planning activities undertaken by the Company, actual future capital and costs,
production schedules and economic returns of the Company’s development projects may differ significantly from
those anticipated. Accordingly, there are no assurances that any future development activities will result in
profitable operations.
The economic feasibility of the Company’s development and expansion projects is based on many factors such as:
estimation of mineral reserves, anticipated metallurgical recoveries, environmental considerations and permitting,
future market prices of silver, gold and other metals, and anticipated capital and operating costs of such projects.
The Séguéla Project has no operating history upon which to base estimates of future production and cash operating
costs. Particularly for development projects, estimates of proven and probable mineral reserves and cash operating
costs are, to a large extent, based upon the interpretation of geologic data obtained from drill holes and other
sampling techniques, and feasibility studies that derive estimates of cash operating costs based upon anticipated
tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates
of minerals from the ore, estimated operating costs, anticipated climactic conditions and other factors. As a result,
it is possible that actual capital and operating costs and economic returns will significantly differ from those currently
estimated for the Séguéla Project prior to production.
-32-
Estimates of future capital and operating costs, production and economic returns of the Company’s development
projects may differ significantly from those ultimately realized due to a variety of factors, including those discussed
above in respect of the Company’s capital and operating costs, production schedules and economic returns, as well
as in respect of uncertainties related to new mining operations, including but not limited to unanticipated changes
in grades and tonnes of ore to be mined and processed, unanticipated adverse geological conditions, unanticipated
metallurgical recovery problems and incorrect data on which engineering assumptions are made. Further, technical
considerations, delays in obtaining government approvals and necessary permits, the inability to obtain financing
and/or the unanticipated costs associated with the development and construction of such projects could prevent or
delay the development of such properties. Accordingly, the Company’s ability to meet development and production
schedules and cost estimates for its development projects such as the Séguéla Project cannot be assured. Delays in
development or production, or material increases in costs, could have an adverse impact on Fortuna’s future cash
flows, profitability, results of operation and financial condition.
The development of the Company’s properties requires substantial exploration, expenditures and the
development of infrastructure.
Development of the Company’s non-producing properties, including the Boussoura project and the Séguéla Project,
and the expansion of existing producing projects will only follow upon obtaining satisfactory exploration and
engineering results that confirm economically recoverable and saleable volumes of minerals and metal as well as
the legality of such development. The business of mineral exploration and development is speculative in nature and
involves a high degree of risk, as few properties which are explored are ultimately developed into producing mines.
Even with a combination of careful evaluation, experience and knowledge, there is no assurance that the Company’s
mineral exploration and development activities will result in any discoveries of mineral reserves. The long-term
profitability of the Company’s operations will be in part directly related to the cost and success of its exploration
programs, which may be affected by a number of factors.
Substantial expenditures are required to establish mineral resources and mineral reserves through drilling and
development and for mining and processing facilities and infrastructure. No assurance can be given that minerals
will be discovered in sufficient quantities to justify commercial operations or that the funds required for
development can be obtained on a timely basis. The economic feasibility of developing a mineral property is based
on several other factors including anticipated metallurgical recoveries, the cost of operations, environmental
considerations and permitting, future metal prices, and timely completion of the development plan.
In addition, completion of the development of the Company’s advanced projects is subject to various requirements,
including the availability and timing of acceptable arrangements for power, water, transportation, access and
facilities. The lack of, or delay in, availability of any one or more of these items could prevent or delay development
of the Company’s advanced projects. There can be no assurance that adequate infrastructure, including road access,
will be built, that it will be built in a timely manner or that the cost of such infrastructure will be reasonable or that
it will sufficiently satisfy the requirements of the advanced projects. As well, accidents or sabotage could affect the
provision or maintenance of adequate infrastructure.
The Company may be unable to replace its mineral reserves.
The Company must continually replace its mineral reserves depleted by production to maintain production levels
over the long term. Mineral reserves can be replaced by expanding known ore bodies, locating new deposits or
making acquisitions. Exploration is highly speculative in nature and involves many risks and is frequently
unsuccessful. Substantial expenditures are required to complete drilling programs which may take several years to
complete in order to establish mineral reserves. As a result, there is no assurance that current or future exploration
programs will be successful. There is a risk that depletion of the Company’s mineral reserves will not be offset by
discoveries or acquisitions. The Company’s mineral base may decline if mineral reserves are mined without adequate
replacement and the Company may not be able to sustain production beyond the current mine lives, based on
current production rates. If the Company’s mineral reserves are not replaced either by the development of additional
mineral reserves and/or additions to mineral reserves, there may be an adverse impact on the Company’s future
cash flows, earnings, results of operations and financial condition, and this may be compounded by requirements to
expend funds for reclamation and decommissioning.
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The Company’s operations are subject to extensive environmental regulation.
All phases of the Company’s operations are subject to environmental regulation in the various jurisdictions in which
it operates. These laws address emissions into the air, discharges into water, management of waste, management
of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of
lands disturbed by mining operations. The Company’s operations generate chemical and metals depositions in the
form of tailings. The Company’s ability to obtain, maintain and renew permits and approvals and to successfully
develop and operate mines may be adversely affected by real or perceived impacts associated with the Company’s
activities or of other mining companies that affect the environment, human health and safety. Environmental
hazards may exist on the Company’s properties which are unknown to the Company at present and were caused by
previous or existing owners or operators of the properties, for which the Company could be held liable.
Tailings Management
The Company operates six tailings storage facilities, which includes two tailings dam facilities at the Caylloma Mine,
one tailings dam storage facility and one dry stack tailings facility at the San Jose Mine, one heap leach pad at the
Lindero Mine and one tailings storage facility at the Yaramoko Mine. In addition, the Company has one closed tailings
dam facility at the Caylloma Mine. All tailings storage facilities operated by the Company are subject to the
Company’s tailings and heap leach management standard. As part of the Company’s risk management protocols, the
Company continually assesses its tailings dam management systems. Since 2019, the Company has planned and
executed an annual comprehensive review of all of its tailings facilities. However, in 2020 as travel to the sites was
restricted due to COVID-19, management completed an internal assessment of its tailings storage facilities and heap
leach facilities. All of the Company’s tailings storage facilities were externally audited in 2021 and no significant risks
were identified under applicable standards. While the Company believes that appropriate steps have been taken to
prevent safety incidents, there are inherent risks involved with tailings facilities, including among other things,
seismic activity, particularly in seismically active regions such as Peru, and the ability of field investigations
completed prior to construction of TSFs to detect weak foundation materials. There can be no assurance that a
tailings dam or other tailings facility safety incident will not occur and such an incident could have a material adverse
effect on the Company’s business, results of operations and financial condition.
Use of Cyanide
Operations at the Lindero Mine involve heap leaching and this method of mineral processing uses sodium cyanide,
a hazardous material, to leach metal bearing ore and then collect the resulting metal-bearing solution. There is an
inherent risk of unintended discharge of hazardous materials in the operation of leach pads. Should sodium cyanide
escape from a leach pad and collection infrastructure or otherwise be detected in the downstream surface and
ground water points, the Company could be subject to liability for remediation costs, which could be significant and
may not be insured against. In addition, metal production could be delayed or halted to prevent further discharges
and to allow for remediation. Such delays or cessations in production could be long-term or, in some cases,
permanent, and any interference with production could result in a significant reduction in, or loss of, cash flow and
value for the Company. While appropriate steps may be taken to prevent discharges of sodium cyanide and other
hazardous materials into the ground water, surface water, and the downstream environment, there is inherent risk
in the operation of leach pads and there can be no assurance that a release of hazardous materials will not occur.
Cyanide is used in the carbon-in leach processing plant at the Yaramoko Mine for the extraction of gold. Cyanide is
delivered by road in secure containers from our contractor’s warehouse to the mine site. It is then stored on a
covered concrete pad with roof to minimize the potential for soil contamination, to ensure good ventilation and to
prevent damage from ground moisture. Any leaks or spills of dry or wet cyanide at any stage of cyanide use could
lead to the pollution of the environment, including surface or ground water, soil, and air, and have potentially
adverse effects on the environment and biodiversity, our employees, and the communities living nearby.
Procedures have been implemented at the mine site outlining the responsibilities and methods to be followed to
ensure that a safe environment is maintained for all employees and nearby communities. This includes ensuring that
cyanide is stored and handled appropriately to avoid impacts on the environment, and that, in the event of a leak or
spill, the spill is contained and cleaned up.
-34-
Future Environmental Legislation.
Environmental legislation is evolving in a manner which is imposing stricter standards and enforcement, increased
fines and penalties for non-compliance, in addition to more stringent environmental assessments of proposed
projects and a heightened degree of responsibility for companies and their officers, directors and employees. New
environmental laws and regulations or more stringent enforcement of existing laws and regulations could have a
material adverse effect on the Company, both financially and operationally, by potentially increasing capital or
operating costs and delaying or preventing development activities at our mineral properties. Compliance with
environmental laws and regulations may require significant capital outlays on behalf of the Company and may cause
material changes or delays in the Company’s intended activities. Failure to comply with applicable environmental
laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders
issued by regulatory or judicial authorities, causing operations to cease or be curtailed. Such enforcement actions
may include the imposition of corrective measures requiring capital expenditure, installation of new equipment or
remedial action. There is no assurance that future changes in environmental regulation, if any, will not adversely
affect the Company’s operations.
The Company intends to, and attempts to, fully comply with all applicable environmental regulations. While the
health and safety of its people and responsible environmental stewardship are top priorities for the Company, there
can be no assurance that the Company has been or will be at all times in complete compliance with such laws,
regulations and permits, or that the costs of complying with current and future environmental and health and safety
laws and permits will not materially and adversely affect the Company’s business, results of operations or financial
condition.
The Company’s business is sensitive to nature and climate conditions.
The Company and the mining industry are facing continued geotechnical challenges, which could adversely impact
the Company’s production and profitability. Unanticipated adverse geotechnical and hydrological conditions, such
as landslides, floods, seismic activity, droughts and pit wall failures, may occur in the future and such events may not
be detected in advance. Such geotechnical risks could impact the structural integrity of our mines, stockpiles, leach
pads and tailings storage facilities. Geotechnical instabilities and adverse climatic conditions can be difficult to
predict and are often affected by risks and hazards outside of the Company’s control, such as severe weather,
droughts and considerable rainfall.
The Company’s operations require water, and the Lindero Mine and the San Jose Mine are located in regions where
water is scarce. While the Company believes it holds sufficient water rights to support its current operations, future
developments could limit the amount of water available to the Company. New water development projects, or
climatic conditions such as extended drought, could adversely affect the Company's operations. There can be no
guarantee that extreme weather events such as a prolonged drought will not affect the operations at these mines,
or that the Company will be successful in maintaining adequate supplies of water for its operations. In addition, too
much precipitation can pose a risk to the Company's operations and the Lindero Mine and the San Jose Mine have
in the past experienced abnormally high rainfall which has disrupted operations at these locations. Increased
precipitation, either due to normal variances in weather or due to global climate change, could result in flooding
that may adversely impact operations and could damage the Company’s facilities, plant and operating equipment.
Geotechnical failures could result in limited or restricted access to mine sites, suspension of operations, government
investigations, increased monitoring costs, remediation costs, loss of ore and other impacts, which could cause one
or more of the Company’s projects to be less profitable than currently anticipated and could result in a material
adverse effect on the Company’s business results of operations and financial position.
The Company’s operations are subject to political and other risks in the regions in which it operates.
The Company currently conducts, or plans to conduct, exploration, development and production activity in a number
of regions, including Peru, Mexico, Argentina and West Africa (including Burkina Faso and Côte d’Ivoire). The
Company's mining investments and operations are subject to various political, economic and social risks normally
associated with the conduct of business in foreign jurisdictions, which include:
•
•
cancellation or renegotiation of contracts by government authorities;
changes in foreign laws or regulations, including those relating to taxation, royalties, mineral title, imports
and/or exports, environmental controls and permitting;
-35-
•
•
•
•
•
•
expropriation or nationalization of property;
inflationary risks, including the inflation of costs that are not off-set by a currency devaluation;
restrictions on the ability of local operating companies to sell gold, silver or other minerals offshore for U.S.
dollars, and on the ability of companies to hold U.S. dollars or other foreign currencies;
restrictions on the purchase of foreign currencies and on the remittance of dividend and interest payments
offshore;
limitations on the repatriations of earnings;
opposition to mining development projects from governments, non-governmental organizations,
environmental groups, local groups or other stakeholders;
• mining companies are increasingly required to consider and provide benefits to the communities and
•
•
•
•
countries in which they operate;
uncertain political and economic environments, including increased risk of civil strife, acts of war, guerrilla
activities, insurrection and terrorism;
lack of certainty with respect to foreign legal systems, corruption and other factors that are inconsistent
with the rule of law;
reliance on advisors, consultants and employees in foreign jurisdictions to carry out the Company’s planned
exploration, operations, development and exploration activities, including in connection planned with
regulatory, permitting and other governmental requirements; and
other risks arising out of foreign sovereignty over the areas in which the Company’s operations are
conducted.
Such risks could potentially arise in any country in which the Company operates. These risks may limit or disrupt
operating mines or projects, restrict the movement of funds, cause the Company to have to expend more funds than
previously expected or required, and may materially adversely affect the Company’s business, financial condition or
results of operations. The Company may also evaluate business opportunities in other jurisdictions where such risks
may exist.
Challenges also exist with respect to inconsistent application of the rule of law in certain of the jurisdictions in which
the Company operates, as court systems in regions such as West Africa may offer less certainty as to the judicial
outcome or a more protracted judicial process than is the case in more established economies. Businesses can
become involved in lengthy court cases over simple issues when rulings are not clearly defined, and any
inconsistencies in the drafting of laws and excessive delays in the legal process for resolving issues or disputes
compound such problems. In addition, enforcement of laws may depend on and be subject to the interpretation
placed upon such laws by the relevant local authority, and such authority may adopt an interpretation of an aspect
of local law which differs from the advice that has been given to the Company by local lawyers or even previously by
the relevant local authority itself. Furthermore, there is limited relevant case law providing guidance on how courts
would interpret such laws and the application of such laws to the Company’s contracts, joint ventures, licenses,
license applications or other arrangements. Thus, there can be no assurance that contracts, joint ventures, licenses,
license applications or other legal arrangements will not be adversely affected by the actions of government
authorities.
Accordingly, the Company could face risks such as: (i) effective legal redress in the courts of certain jurisdictions in
which the Company operates being more difficult to obtain, whether in respect of a breach of law or regulation, or
in a contract or an ownership dispute, (ii) a higher degree of discretion on the part of governmental authorities and
therefore less certainty, (iii) the lack of judicial or administrative guidance on interpreting applicable rules and
regulations, (iv) inconsistencies or conflicts between and within various laws, regulations, decrees, orders and
resolutions, or (v) relative inexperience of the judiciary and courts in such matters.
Additionally, the introduction of new tax laws, regulations or rules, or changes to, or differing interpretation of, or
application of, existing tax laws, regulations or rules in any of the countries in which the Company operates, could
result in an increase in the Company’s taxes, or other governmental charges, duties or impositions. No assurance
can be given that new tax laws, rules or regulations will not be enacted or that existing tax laws will not be changed,
interpreted or applied in a manner that could result in the Company’s profits being subject to additional taxation or
that could otherwise have an adverse material effect on the Company.
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Argentina
The Company’s operations at the Lindero Mine are subject to the payment of government taxes, fees and duties.
This includes a 3 percent provincial royalty “boca mina” which is payable on revenue after deduction of direct
processing, commercial, general and administrative costs. Under Argentina’s federal laws exports of bullion, doré
and unrefined gold are subject to an 8 percent export tax until December 31, 2023.
Effective December 23, 2019, changes to Argentina’s tax laws proposed by the new Argentine Government were
implemented. The changes ratified and extended legislation which was to expire on December 31, 2019 and allow
the Argentine Central Bank to regulate funds coming into and flowing out of Argentina in order to maintain stability
and support the economic recovery of the country. The Argentine Government has not set an expiry date for these
restrictions, and they currently remain in place. These capital controls together with additional temporary controls
enacted on May 29, 2020, have the effect of: requiring exporters to convert the equivalent value of foreign currency
received from the export into Argentine Pesos; requiring the prior consent of the Argentine Central Bank to the
payment of cash dividends and distributions of currency out of Argentina; requiring Argentine companies to convert
foreign currency loans received from abroad into Argentine Pesos; and restricting the sale of Argentine Pesos for
foreign currency. Accordingly, the Company is required to convert the equivalent value of proceeds received in
foreign currency from the export of all gold doré from the Lindero Mine, into Argentine Pesos. In addition, the
Company is required to obtain the prior consent of the Argentine Central Bank to the payment of cash dividends and
distributions of profits out of Argentina.
Certain of the costs and expenses to fund the construction at the Lindero Mine were advanced by way of
intercompany loans. Under the terms of the Argentine Central Bank regulation, any funds in foreign currency which
were advanced by the Company as a loan to its Argentine subsidiary in connection with the payment of construction
costs and expenses at the Lindero Mine, are to the extent that the funds were advanced in foreign currency, required
to be converted into Argentine Pesos at a conversion rate negotiated at the foreign exchange market within five
business days from the date of the receipt of the funds in Argentina. When the loan is to be repaid, the regulation
requires proof that the loan was advanced in foreign currency and converted into local currency in order to repay
the loan in foreign currency. Due to the volatility of the exchange rate for Argentine Pesos, the Company will apply
additional measures in cash management to minimize potential gains or losses arising from the conversion of funds.
In addition, the Argentine Central Bank has also issued a temporary measure in effect until December 31, 2022,
which requires the consent of the Argentine Central Bank to the repayment of certain types of intercompany
loans. There can be no assurance that the temporary measure will not be extended.
As part of the structure used to fund the construction of the Lindero project and the operation of the Lindero Mine,
Fortuna has implemented a series of intercompany revolving pre-export financing facilities in an aggregate of $110
million. This allows exporters to apply the proceeds of sales directly towards payment of principal and interest under
the facility. The facilities are not impacted by the regulations described above, and the Company expects that it can
continue to repatriate funds during 2022 through this mechanism.
Mexico
The Company’s operations at the San Jose Mine are subject to the payment of government taxes, fees and duties.
Under Mexican federal corporate income tax law, titleholders of mining concessions are required to pay annually a
7.5 percent duty on their mining related profits and a 0.5 percent duty on revenues obtained from the sale of gold,
silver and platinum.
Additionally, the State of Oaxaca in Mexico has a history of social conflicts and political agitation which can lead to
public demonstrations and blockades that can from time to time affect the Company’s operations.
In 2015, the Mexican Government introduced a mining fund (the “Mining Fund”) which was funded from taxes paid
by mining companies operating in Mexico. The Mining Fund distributed monies to local communities where the
activities of mining companies take place to promote infrastructure and social development and to mitigate
environmental impacts. Effective January 1, 2020, 85 percent of the funds of the Mining Fund were reallocated to
the Public Education Ministry, and 5 percent are to be distributed among the municipalities where the mining
activities take place. The local communities where the Company operates may be affected by the cut-back in these
funds. It is not yet known if this may have an impact on the business and operations of the Company.
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In January 2020, the Oaxacan Congress approved a Previous, Free and Informed Consultation Law for the Indigenous
and Afromexican Communities in the State of Oaxaca (the “Consultation Law”), which is now in full force and effect.
The Consultation Law settles the procedure that the authority, in this case any public administration sector or the
legislative power of Oaxaca, must follow to acquire the prior and informed consent of the indigenous or Afromexican
communities that may be affected or jeopardized by the approval of a specific law, or by the authorization of an
administrative procedure or act. The Consultation Law is only applicable locally in the State of Oaxaca and specifically
to state matters. The mining operations at the San Jose Mine, including the granting of mining concessions and the
corresponding environmental impact authorizations are regulated federally and should not be affected by the
recently published Consultation Law.
The Consultation Law has no impact on the ongoing business of the Company at the San Jose Mine, as it has no effect
on the permits and authorizations already granted for the operations at the San Jose Mine. However, the new law
may be applicable in the case of a new local license or permit that is needed. The Company is unable to predict how
this new legislation may affect the business and operations of the Company at this time.
In June 2020, the Mexican Supreme Court of Justice mandated the Federal Congress to issue a Federal Consultation
Law to regulate the previous, free and informed consent rights of the Indigenous and Afromexican Communities in
compliance with Mexico´s obligations under ILO Convention 169. In April 2021, the House of Representatives
approved a General Consultation Law for the Indigenous and Afromexican Communities. Currently the Senate is
analyzing the House of Representative´s proposal and (i) may approve and send it to the Executive Branch for its
enactment; or (ii) modify it and send it back to the House of Representatives for further analysis. The General
Consultation Law settles the procedure that the authority, in this case the federal legislative and executive branches
of government, must follow to acquire the prior and informed consent of the Indigenous or Afromexican
Communities that may be affected or jeopardized by new legislation or by an administrative procedure or
administrative act. The Company is unable to predict at this time how this new legislation, if enacted, may affect the
business and operations of the Company at this time.
Peru
The Company’s operations at the Caylloma Mine are subject to the payment of government taxes, fees and duties.
Holders of mineral concessions are obliged to pay to the Peruvian Government, a mining royalty, as a consideration
for the exploitation of metallic and non-metallic natural resources, which is calculated based on the quarterly sales
revenues from metallic and non-metallic mineral resources at a minimum rate of 1 percent and up to 12 percent.
In addition, an additional tax called the “Special Mining Tax” is payable to the Peruvian Government which imposes
a tax on the operating profit of metallic resources at a tax rate that ranges from between 2 percent to 8.4 percent.
In some areas of Peru, the development of infrastructure projects and extractive industries have met with strong
rejection from the local population. Such social conflict may lead to public demonstrations and blockades which
could affect the Company’s operations.
West Africa
The Company’s operations at the Yaramoko Mine and the Boussoura project, as well as the Séguéla Project, are
subject to the payment of government taxes, fees and duties in Burkina Faso and Côte d’Ivoire, respectively.
Operations in Burkina Faso are subject to the royalty regime set forth in the Burkina Faso 2015 Mining Code
(“Burkina Faso Mining Code”). Pursuant to the Burkina Faso Mining Code, the granting of an exploitation permit
entails the allocation to the state of 10% of the share capital of the exploitation company, free of charge. This 10%
state participation must be maintained when there is an increase in the capital of the company. In addition, there is
a gold price based sliding scale 3% to 5% royalty, payable to the government, on all gold production.
Operations in Côte d’Ivoire are subject to a similar royalty regime as in Burkina Faso, as set forth in the Côte d’Ivoire
2014 Mining Code (“Côte d’Ivoire Mining Code”). Pursuant to the Côte d’Ivoire Mining Code, the granting of an
exploitation permit entails the allocation to the state of 10% of the share capital of the exploitation company, free
of charge. This 10% state participation must be maintained when there is an increase in the capital of the company.
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Future production (if any) from the Company’s Séguéla Project will be subject to a gold price based sliding scale 3%
to 6% royalty, payable to the government, which is calculated on the gross revenue from gold produced after
deduction of transportation and refining costs.
While the Company believes that the governments of Burkina Faso and Côte d’Ivoire support the development of
their natural resources by foreign companies, the Company’s West African operations may face a heightened level
of political and social risk, such as civil and ethnic unrest, war (including in neighbouring countries), terrorist actions,
hostage taking or detainment of personnel, military repression, criminal activity, nationalization, invalidation of
governmental orders, corruption and political instability.
Following instability in recent years in several West African countries, the prevailing security environment in these
countries has deteriorated due to the presence of various militant secessionist and Islamist paramilitary groups, as
well as a result of the January 2022 military coup in Burkina Faso. While the Company has implemented additional
measures in response to ensure the security of its various assets, personnel and contractors, and continues to
cooperate with regional governments, their security forces and applicable third parties, there can be no assurance
that these measures will be successful. Any failure to maintain the security of its assets, personnel and contractors
may have a material adverse effect on Company’s business, prospects, financial condition and results of operations.
To date, neither our employees nor our operations have been impacted by the security situation in Burkina Faso.
While there is no reason to believe that Fortuna's employees or operations will be targeted by criminal and/or
terrorist activities in West Africa, risks associated with conducting business in the region, along with the increased
perception that such incidents are likely to occur, may disrupt the Company’s operations, limit its ability to hire and
keep qualified personnel, and impair its access to sources of capital or insurance on terms and at rates that are
commercially viable. Further, although the Company has developed procedures regarding the mitigation of such
risks, due to the unpredictable nature of criminal and/or terrorist activities, there is no assurance that its efforts will
be able to effectively mitigate such risks and safeguard the Company’s personnel and assets.
As African governments continue to struggle with deficits and depressed economies, the strength of commodity
prices has resulted in the gold mining sector being targeted as a source of revenue. Governments in West Africa are
continually assessing the terms for a mining company to exploit resources in their country. Although the Company
believes it has good relations with both the government of Burkina Faso and the government of Côte d’Ivoire, there
can be no assurance that the actions of present or future governments will not materially adversely affect the
business or financial condition of the Company.
Any of the above events could delay or prevent the Company from operating, developing or exploring its properties
located in Burkina Faso and Côte d’Ivoire, even if economic quantities of minerals are found and could have a
material adverse impact upon the Company’s operations.
The Company is subject to global geopolitical risks.
In addition to the risks specific to the countries in which the Company operates, global events such as war and
occupation, terrorism and related geopolitical risks may lead to increased market volatility and may have adverse
short-term and long-term effects on world economies and markets generally. For example, in response to the
current conflict between Russia and Ukraine, countries in which Fortuna operates have implemented economic
sanctions against Russia and/or certain Russian individuals or organizations, and may impose further sanctions or
other restrictive actions against governmental or other individuals or organizations in Russia or elsewhere. The
effects of disruptive events could affect the global economy and financial and commodities markets in ways that
cannot necessarily be foreseen at the present time. These events could also exacerbate other pre-existing political,
social and economic risks, including those described elsewhere in this AIF.
The Company is subject to risks relating to the repatriation of funds.
The ability of the Company to repatriate funds from any foreign country may be hindered by the legal restriction of
the countries in which it operates. The Company currently generates cash flow and profits at its foreign subsidiaries,
and repatriates funds from those subsidiaries to fulfill its business plan. The Company may not be able to repatriate
funds or may incur tax payments or other costs when doing so, due to legal restrictions or tax requirements at local
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subsidiary levels or at the parent company level, which could be material. In light of the foregoing factors, the
amount of cash that appears on the balance sheet of the Company from time to time may overstate the amount of
liquidity it has available to meet its business or debt obligations. Although the Company has not historically
experienced difficulties in repatriating capital, there is no assurance that the government of any foreign country in
which it operates, or may operate in the future, will not impose additional restrictions on the repatriation of earnings
to foreign entities. Any inability to repatriate funds could have a material adverse effect on the liquidity of the
Company.
The Company is subject to risks relating to labour relations.
While the Company has good relations with its employees, there can be no assurance that it will be able to maintain
positive relationships with its employees or that new collective agreements will be entered into without
interruptions to the Company's operations. In addition, relations between the Company and its employees may be
impacted by regulatory or governmental changes introduced by the relevant authorities in whose jurisdictions that
the Company operates. Adverse changes in such legislation or in the relationship between the Company and its
employees could have a material adverse impact on the Company’s business, financial condition and results of
operations.
The Company is subject to risks relating to the use of outside contractors.
As per a mining services contract, the Yaramoko Mine underground mining operations is conducted by outside
contractors. As a result, the Company’s operations in Burkina Faso are subject to risks, some of which are outside of
the Company’s control, including: (i) the inability to replace a contractor and its operating equipment in the event
that either party terminates the agreement; (ii) reduced control over such aspects of operations that are the
responsibility of the contractor; (iii) failure of a contractor to perform under the related mining services contract;
(iv) interruption of operations in the event that a contractor ceases its business due to insolvency or other events;
(v) failure of a contractor to comply with applicable legal and regulatory requirements, to the extent that it is
responsible for such compliance, and; (vi) problems of a contractor with managing its workforce, labor unrest or
other employment issues. In addition, the Company may incur liability to third parties as a result of the actions of a
contractor. Although the mining contractors involved with the Company’s projects are well-known and reputable,
the occurrence of one or more of these risks could materially adversely affect the Company’s business, financial
condition and results of operations.
The Company is subject to extensive government regulations and permit requirements.
Operations, development and exploration on the Company’s properties are affected to varying degrees by political
stability and government regulations relating to such matters as environmental protection, health, safety and labor,
mining law reform, restrictions on production, price controls, tax increases, maintenance of claims, tenure, and
expropriation of property. Failure to comply with applicable laws and regulations may result in fines or
administrative penalties or enforcement actions, including orders issued by regulatory or judicial authorities
enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial
actions, any of which could result in the Company incurring significant expenditures.
The activities of the Company require licenses and permits from various governmental authorities. The Company
currently has been granted the requisite licenses and permits to enable it to carry on its existing business and
operations. On December 20, 2021, the Company announced that SEMARNAT had granted a 12-year extension to
the EIA for the San Jose Mine. Subsequently on January 28, 2022, the Company announced that it had received a
notice from SEMARNAT which advised that SEMARNAT had made a typographical error in the extension to the term
of the EIA for the San Jose Mine and that the correct extension term is two years. CMC is working with authorities
to resolve this matter and has initiated legal proceedings to challenge the asserted typographical error and reconfirm
the 12-year extension period for the San Jose EIA granted by SEMARNAT. The Mexican Federal Administrative Court
has admitted the Company’s legal proceedings and has granted an injunction in favour of the Company, which
suspends the reduction of the term of the EIA from 12 years to two years during the course of the legal proceedings.
The results of the legal challenge cannot be predicted with certainty due to the uncertainty inherent in litigation,
including the difficulty of predicting decisions and the timing required to render decisions. The process of
challenging the asserted typographical error could, as a result, take away from the time and effort of the Company’s
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management and could force the Company to pay substantial legal fees or penalties. Further, there can be no
assurances that the resolutions of any such matters will not have a material adverse effect on the Company’s
business, financial condition and results of operations.
In addition, there can be no assurance that the Company will be able to obtain all the necessary licenses and permits
which may be required to carry out exploration, development and mining operations for its projects in the future.
The Company might find itself in situations where the state of compliance with regulation and permits can be subject
to interpretation and challenge from authorities that could carry risk of fines or temporary stoppage.
The Company operates in countries with developing mining laws and regulations, and changes in such laws or
regulations could materially impact Fortuna’s rights or interests in its properties. For example, the recently elected
Peruvian government has raised the prospect of implementing changes to the Peruvian constitution, imposing
increased mining taxes and royalties, in addition to changes to mine closure requirements, and formalization of
small-scale miners and artisanal miners. In addition, previous regional and local governments and other political
parties have actively opposed mining projects in the Arequipa area. The Company is unable to predict the positions
that will be taken in the future on foreign investment, mining concessions, land tenure or other regulations, or
whether such positions will affect the Caylloma Mine.
Informal and artisanal mining occurs on or adjacent to certain of our properties exposing such sites to security
risks.
Informal and artisanal miners have been active on, or adjacent to, some of the Company’s properties, including
concession areas of the Caylloma Mine and the Company’s properties in Burkina Faso and Côte d’Ivoire. No such
activities currently occur in the area where the mineral resources and mineral reserves are located. Informal or
artisanal mining is associated with a number of potentially negative impacts, such as exposure to security risks and
environmental degradation. The activities of artisanal miners are largely unregulated and work conditions are often
unsafe and present health risks to the artisanal miners and local communities, which while unrelated to our
operations, may have an impact on them. At the Caylloma Mine, artisanal miners are in dialogue with the Peruvian
government to formalize their operation. Pursuant to Law No. 31388 published on December 31, 2021, artisanal
miners have a deadline of December 31, 2024 to conclude the formalization process. While the Company believes it
is unlikely that the artisanal miners will be successful in obtaining approval to formalize their operations, there can
be no assurance of same. In Burkina Faso and Côte d’Ivoire, the Company is aware that small scale unauthorized
artisanal mining activities are being conducted on land within the boundaries of its exploration and exploitation
permits at the Yaramoko Mine and the Séguéla Project, but not within the respective areas of defined mineral
resources and mineral reserves. The artisanal miners have no rights to access the land and no rights to conduct
mining activities. No approval to conduct such activities has been granted by either the Company or the Mines
Administrations in Burkina Faso or Côte d’Ivoire.
The Company’s mining concessions may be terminated in certain circumstances.
Under the laws of the jurisdictions where the Company’s operations, exploration and development projects and
prospects are located, mineral resources belong to the state and governmental concessions are required to explore
for, and exploit, mineral reserves. The Company holds mining, exploration and other related concessions in these
jurisdictions. The concessions held by the Company in respect of its operations, exploration and development
projects and prospects may be terminated under certain circumstances, including where minimum production levels
are not achieved by the Company (or a corresponding penalty is not paid), if certain fees and/or royalties are not
paid or if environmental and safety standards are not met. Termination of any of the Company’s concessions could
have a material adverse effect on the Company’s business, financial condition or results of operations.
The Company is subject to risks related to ILO Convention 169 compliance.
The Company may, or may in the future, operate in areas presently or previously inhabited or used by indigenous
peoples. As a result, the Company’s operations are subject to national and international laws, codes, resolutions,
conventions, guidelines and other similar rules respecting the rights of indigenous peoples, including the provisions
of ILO Convention 169. ILO Convention 169 mandates, among other things, that governments consult with
indigenous peoples who may be impacted by mining projects prior to granting rights, permits or approvals in respect
of such projects.
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ILO Convention 169 has been ratified by most Latin American countries including Argentina, Peru and Mexico. It is
possible however that these governments may not (i) have implemented procedures to ensure their compliance
with ILO Convention 169 or (ii) have complied with the requirements of ILO Convention 169 despite implementing
such procedures.
Government compliance with ILO Convention 169 can result in delays and significant additional expenses to the
Company arising from the consultation process with indigenous peoples in relation to the Company’s exploration,
mining or development projects. Moreover, any actual or perceived past contraventions, or potential future actual
or perceived contraventions, of ILO Convention 169 by ratifying governments in the countries in which the Company
operates create a risk that the permits, rights, approvals, and other governmental authorizations that the Company
has relied upon, or may in the future rely upon, to carry out its operations or plans in such countries could be
challenged by or on behalf of indigenous peoples in such countries.
Such challenges may result in, without limitation, additional expenses with respect to the Company’s operations,
the suspension, revocation or amendment of the Company’s rights or mining, environmental or export permits, a
delay or stoppage of the Company’s development, exploration or mining operations, the refusal by governmental
authorities to grant new permits or approvals required for the Company’s continuing operations until the settlement
of such challenges, or the requirement for the responsible government to undertake the requisite consultation
process in accordance with ILO Convention 169.
As a result of the inherent uncertainty in respect of such proceedings, the Company is unable to predict what the
results of any such challenges would be; however, any ILO Convention 169 proceedings relating to the Company’s
mining and exploration operations in Mexico or Peru, or its development of the Lindero Mine and exploration of
other properties in Argentina, may have a material adverse effect on the business, operations, and financial
condition of the Company.
On March 1, 2022, the Constitutional Court of Peru through Verdict N° 27/2022, declared the that the right to prior
consultation is not a fundamental right, therefore it is not possible to claim protection of ILO Convention 169 through
a constitutional process.
The Company’s success depends on developing and maintaining relationships with local communities and
stakeholders.
The Company’s ongoing and future success depends on developing and maintaining productive relationships with
the communities surrounding its operations, including indigenous peoples who may have rights or may assert rights
to certain of the Company’s properties, and other stakeholders in its operating locations. The Company believes its
operations can provide valuable benefits to surrounding communities, in terms of direct employment, training and
skills development and other benefits associated with ongoing payment of taxes. In addition, the Company seeks to
maintain its partnerships and relationships with local communities, including indigenous peoples, and stakeholders
in a variety of ways, including in-kind contributions, volunteer time, sponsorships and donations. Notwithstanding
the Company’s ongoing efforts, local communities and stakeholders can become dissatisfied with its activities or the
level of benefits provided, which may result in civil unrest, protests, direct action or campaigns against it. Any such
occurrence could materially and adversely affect the Company’s business, financial condition or results of
operations.
As a result of social media and other web-based applications, companies today are at much greater risk of losing
control over how they are perceived.
Damage to the Company’s reputation can be the result of the actual or perceived occurrence of any number of
events, and could include any negative publicity, whether true or not. Although the Company places a great emphasis
on protecting its image and reputation, it does not ultimately have direct control over how it is perceived by others.
Reputation loss may lead to increased challenges in developing and maintaining community relations, decreased
investor confidence and act as an impediment to the Company’s overall ability to advance its projects, thereby
having a material adverse impact on the Company’s business, financial condition or results of operations.
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Opposition of the Company’s exploration, development and operational activities may adversely affect the
Company’s reputation, its ability to receive mining rights or permits and its current or future activities.
Maintaining a positive relationship with the communities in which the Company operates is critical to continuing
successful exploration and development. Community support for operations is a key component of a successful
exploration or development project. Various international and national laws, codes, resolutions, conventions,
guidelines and other materials relating to corporate social responsibility (including rights with respect to health and
safety and the environment) may also require government consultation with communities on a variety of issues
affecting local stakeholders, including the approval of mining rights or permits.
The Company may come under pressure in the jurisdictions in which it explores or develops to demonstrate that
other stakeholders benefit and will continue to benefit from its commercial activities. Local stakeholders and other
groups may oppose the Company’s current and future exploration, development and operational activities through
legal or administrative proceedings, protests, roadblocks or other forms of public expression against the Company’s
activities. Opposition by such groups may have a negative impact on the Company’s reputation and its ability to
receive necessary mining rights or permits. Opposition may also require the Company to modify its exploration,
development or operational plans or enter into agreements with local stakeholders or governments with respect to
its projects, in some cases causing considerable project delays. Any of these outcomes could have a material adverse
effect on the Company’s business, financial condition, results of operations and Common Share price.
The Company is faced with uncertainty of funding for exploration and development.
The Company’s ability to continue production, development and exploration activities, if any, will depend on its
ability to generate sufficient operating cash flows from the Caylloma Mine, the San Jose Mine, the Lindero Mine and
the Yaramoko Mine, and to obtain additional external financing where necessary. Any unexpected costs, problems
or delays at the San Jose Mine, the Lindero Mine, the Yaramoko Mine or the Caylloma Mine could severely impact
the Company’s ability to generate sufficient cash flows and require greater reliance on alternative sources of
financing, including but not limited to: project or bank financing, or public or private offerings of equity and debt,
joint ventures, or utilize one or a combination of all of these alternatives. There can be no assurance that the
Company will be able to obtain additional financing or that the terms of such financing will be favorable. Failure to
obtain such additional financing could result in delay or indefinite postponement of further exploration and
development of some of its projects.
The Company is substantially reliant on its producing mines.
With the commencement of production at the Lindero Mine in 2020 and the acquisition of the Yaramoko Mine in
2021, the Company has secured additional operating revenue stream. However, until the Company develops
additional properties or projects, it remains largely dependent upon the operation of the San Jose Mine, the Lindero
Mine and the Yaramoko Mine and as its primary source of future revenue and profits, if any. If for any reason
production at any of these mines was reduced or stopped, the Company’s revenues and profits would decrease
significantly. In addition, existing foreign exchange controls in Argentina may impact the ability to repay
intercompany debt and to repatriate funds by way of the payment of dividends.
The title to the Company’s properties could be challenged or impugned.
Although the Company has or will receive title opinions for any properties in which it has a material interest, there
is no guarantee that title to such properties will not be challenged or impugned. The Company has not conducted
surveys of the claims in which it holds direct or indirect interests and, therefore the precise area and location of the
properties may be in doubt. The Company’s properties may be subject to prior unregistered agreements or transfers
or indigenous land claims and title may be affected by unidentified or unknown defects. Title insurance is generally
not available for mineral properties and the Company’s ability to ensure that it has obtained secure claims to
individual mineral properties or mining concessions may be constrained. A successful challenge to the Company’s
title to a property or to the precise area and location of a property could cause delays or stoppages to the Company’s
exploration, development or operating activities without reimbursement to the Company. Any such delays or
stoppages could have a material adverse effect on the Company’s business, financial condition and results of
operations.
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Additional businesses and assets that the Company acquires may not be successfully integrated.
The Company undertakes evaluations from time to time of opportunities to acquire additional mining assets and
businesses. For example, the Company completed the Roxgold Acquisition in July 2021, and the Company spent
significant time and effort integrating Roxgold’s operations and workforce during the remainder of 2021 and such
integration efforts remain ongoing. Fortuna expects to continue to evaluate acquisition opportunities from time to
time and to pursue opportunities the Company deems to be in its long-term best interest. Any such acquisitions may
be significant in size, may change the scale of the Company’s business, may require additional capital, and/or may
expose the Company to new geographic, political, operating, financial and geological risks. The Company’s success
in its acquisition activities depends on its ability to identify suitable acquisition candidates, acquire them on
acceptable terms, and integrate their operations successfully. Any acquisitions would be accompanied by risks such
as:
•
•
•
•
•
•
•
•
a significant decline in the relevant metal price after the Company commits to complete an acquisition on
certain terms;
the quality of the mineral deposit acquired proving to be lower than expected;
the difficulty of assimilating the operations and personnel of any acquired companies;
the potential disruption of the Company’s ongoing business;
the inability of management to realize anticipated synergies and maximize the financial and strategic
position of the Company;
the failure to maintain uniform standards, controls, procedures and policies;
the impairment of relationships with employees, customers and contractors as a result of any integration of
new management personnel; and
the potential unknown liabilities associated with acquired assets and businesses.
There can be no assurance that any assets or business acquired will prove to be profitable or that the Company will
be able to integrate the required businesses successfully, which could slow the Company’s rate of expansion and
cause the Company’s business, results of operations and financial condition to suffer.
The Company may need additional capital to finance future acquisitions. There can be no assurance that such
financing would be available, on favourable terms or at all. If the Company obtains further debt financing, it will be
exposed to the risk of leverage and its operations could become subject to restrictive loan and lease covenants and
undertakings. If the Company obtains equity financing, existing shareholders may suffer dilution. There can be no
assurance that the Company would be successful in overcoming these risks or any other problems encountered in
connection with such financings.
Impairments.
Mining and mineral interests are the most significant assets of the Company and represent capitalized expenditures
related to the development of mining properties and related plant and equipment.
The Company reviews and evaluates its mining interests for impairment at each reporting period or when events or
changes in circumstances indicate that the related carrying amounts may not be recoverable which evidences
greater risk levels. It is possible that material changes could occur that may adversely affect management’s estimate
of the carrying value of non-current assets which may have a material adverse effect on the Company. Impairment
estimates are based on management’s assumptions, and sensitivity analyses and actual future outcomes may differ
from these estimates.
The Company is dependent on key personnel.
The Company is dependent on a number of key management and employee personnel. The Company’s ability to
manage its exploration, development, construction and operating activities, and hence its success, will depend in
large part on the ability to retain current personnel and attract and retain new personnel, including management,
technical and skilled employees. The loss of the services of one or more key management personnel, as well as a
prolonged labour disruption, could have a material adverse effect on the Company’s ability to successfully manage
and expand its affairs.
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The Company will be required to recruit additional personnel and to train, motivate and manage its employees. The
international mining industry is very active and the Company is facing increased competition for personnel in all
disciplines and areas of operation, including geology and project management. In addition, as a result of the
implementation of restrictions related to the COVID-19 pandemic, technological improvements, and the growth in
work from home or hybrid employment arrangements, employees have become more mobile and available to a
wider pool of employers and industries, presenting further challenges in retaining key personnel. There can be no
assurance that the Company will be able to retain current personnel and attract and retain new personnel.
Incentive provisions for the Company’s key executives include the granting of stock options and various share units
that vest over time, which are designed to encourage such individuals to stay with the Company. However, a low
Common Share price, whether as a result of disappointing progress in the Company's exploration, development,
construction or operating activities or as a result of market conditions generally, could render such agreements of
little value to the Company’s key executives. In such event, the Company’s key executives could be susceptible to
being hired away by the Company's competitors who could offer a better compensation package. If the Company is
unable to attract and retain key personnel, its business, financial conditions and results of operations may be
adversely affected.
The Company relies on local counsel and advisors and the experience of its management and Board in foreign
jurisdictions.
The Company’s material mining or exploration property interests are located in Argentina, Burkina Faso,
Côte d’Ivoire, Mexico, and Peru. The legal and regulatory requirements in certain of these countries with respect to
mineral exploration and mining activities, as well as local business customs and practices, are different from those
in Canada. The officers and directors of the Company must rely, to a great extent, on the Company’s local legal
counsel and local consultants retained by the Company in order to keep abreast of material legal, regulatory and
governmental developments as they pertain to and affect the Company’s business operations, and to assist the
Company with its governmental relations. The Company must rely, to some extent, on those members of
management and the Board who have previous experience working and conducting business in these countries in
order to enhance its understanding of and appreciation for the local business customs and practices. The Company
also relies on the advice of local experts and professionals in connection with current and new regulations that
develop in respect of banking, financing, labour, litigation and tax matters in these countries. There can be no
guarantee that reliance on such local counsel and advisors and the Company’s management and the Board will result
in compliance at all times with such legal and regulatory requirements and business customs and practices. Any such
violations could result in a material adverse effect on the Company’s business, financial condition and results of
operations.
Certain of the Company’s directors and officers may have conflicts of interest.
Certain of the directors and officers of the Company also serve as directors and/or officers of other companies
involved in natural resource exploration and development and consequently there exists the possibility for such
directors and officers to be in a position of conflict. To the extent that such other companies may participate in
ventures that the Company may also participate in, or in ventures that the Company may seek to participate in, the
Company’s directors and officers may have a conflict of interest in negotiating and concluding terms respecting the
extent of such participation. As a result of these potential conflicts of interests, the Company may miss the
opportunity to participate in certain transactions. In all cases where the Company’s directors and officers have an
interest in other companies, such other companies may also compete with the Company for the acquisition of
mineral property investments. Such conflicts of the Company’s directors and officers may result in a material and
adverse effect on its business, financial condition and results of operations.
The insurance coverage on the Company’s operations may be inadequate.
The mining industry is subject to significant risks that could result in damage to, or destruction of, mineral properties
or producing facilities, personal injury or death, environmental damage, delays in mining, monetary losses and
possible legal liability. The Company’s policies of insurance may not provide sufficient coverage for losses related to
these or other risks. The Company’s insurance does not cover all risks that may result in loss or damages and may
not be adequate to reimburse the Company for all losses sustained. The occurrence of losses or damage not covered
by insurance could have a material and adverse effect on the Company’s business, operations and financial
condition.
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Insurance against certain environmental risks, including potential liability for pollution and other hazards as a result
of the disposal of waste products occurring from production, is not generally available to companies within the
mining industry. There is no assurance that the Company’s insurance will be adequate to cover all liabilities or that
it will continue to be available and at terms that are economically acceptable. Losses from un-insured or under-
insured events may cause the Company to incur significant costs that could have a material adverse effect on its
business and financial condition.
The Company must comply with the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act (“SOX”) requires an annual assessment by management of the effectiveness of the
Company’s internal control over financial reporting. Beginning with the Company’s 2016 fiscal year, its auditor is
also required to attest to the effectiveness of the Company’s internal control over financial reporting. The Company
may fail to maintain the adequacy of its internal control over financial reporting as such standards are modified,
supplemented or amended from time to time. If this occurs, the Company may not be able to conclude, on an
ongoing basis, that it has effective internal control over financial reporting in accordance with Section 404 of SOX
and the Company’s auditor may issue an adverse opinion on the effectiveness of its internal control over financial
reporting. The Company’s failure to satisfy the requirements of Section 404 of SOX on an ongoing, timely basis could
result in the loss of investor confidence in the reliability of the Company’s financial statements, which in turn could
harm its business and negatively impact the trading price or the market value of its securities. In addition, any failure
to implement required new or improved controls, or difficulties encountered in their implementation, could harm
the Company’s operating results or cause it to fail to meet its reporting obligations. Future acquisitions of
companies, if any, may provide the Company with challenges in implementing the required processes, procedures
and controls in its acquired operations. No evaluation can provide complete assurance that the Company’s internal
control over financial reporting will detect or uncover all failures of persons within the Company to disclose material
information otherwise required to be reported. The effectiveness of the Company’s processes, procedures and
controls could also be limited by simple errors or faulty judgments. As the Company continues to expand, the
challenges involved in implementing appropriate internal control over financial reporting will increase and will
require that the Company continue to monitor its internal control over financial reporting. Although the Company
intends to expend substantial time and incur substantial costs, as necessary, to ensure ongoing compliance, it cannot
be certain that it will be successful in complying with Section 404 of SOX.
The Company may be responsible for corruption and anti-bribery law violations.
The Company’s business is subject to the Foreign Corrupt Practices Act (the “FCPA”) and the Corrupt Foreign Public
Officials Act (Canada) (the “CFPOA”), which generally prohibit companies and company employees from engaging in
bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. The
FCPA also requires companies to maintain accurate books and records and internal controls, including at foreign-
controlled subsidiaries. Since all of the Company’s presently held interests are located in Argentina, Burkina Faso,
Côte d’Ivoire, Mexico, and Peru, there is a risk of potential FCPA violations. In addition, the Company is subject to
the anti-bribery laws of Argentina, Burkina Faso, Côte d’Ivoire, Mexico, and Peru and of any other countries in which
it conducts business in the future. The Company’s employees or other agents may, without its knowledge and
despite its efforts, engage in prohibited conduct under the Company’s policies and procedures and the FCPA, the
CFPOA or other anti-bribery laws for which the Company may be held responsible. If the Company’s employees or
other agents are found to have engaged in such practices, the Company could suffer severe penalties and other
consequences that may have a material adverse effect on its business, financial condition and results of operations.
The Company’s Anti-Corruption Policy and other corporate policies mandate compliance with these anti-bribery
laws; however there can be no assurance that the Company’s internal control policies and procedures always will
protect it from fraudulent behavior or dishonesty and other inappropriate acts committed by the Company’s
employees and agents. As such, the Company’s corporate policies and processes may not prevent all potential
breaches of law or other governance practices.
The Company may be subject to legal proceedings that arise in the ordinary course of business.
Due to the nature of its business, the Company is at the date of this AIF subject to litigation and claims in Mexico
and Peru and may, from time to time, be subject to regulatory investigations, claims, lawsuits and other proceedings
in the ordinary course of its business. The Company’s operations are subject to the risk of legal claims by employees,
unions, contractors, lenders, suppliers, joint venture partners, shareholders, governmental agencies or others
through private actions, class actions, administrative proceedings, regulatory actions or other litigation. Plaintiffs
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may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such
lawsuits may remain unknown for substantial periods of time. Defense and settlement costs can be substantial,
even with respect to claims that have no merit. The results of these legal proceedings cannot be predicted with
certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or
advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that
decisions may be reversed on appeal. The litigation process could, as a result, take away from the time and effort
of the Company’s management and could force the Company to pay substantial legal fees or penalties. There can
be no assurances that the resolutions of any such matters will not have a material adverse effect on the Company’s
business, financial condition and results of operations.
General economic conditions could impact the Company’s business.
Turmoil in global financial markets have at times caused a loss of confidence in global financial and credit
markets. Many industries, including the precious and base metals mining industry, have been impacted by these
market conditions. Some of the key impacts have included contraction in credit markets resulting in a widening of
credit risk, devaluations and high volatility in global equity, commodity, foreign exchange and precious metal
markets, and a lack of market liquidity. The global economic slowdown is an example of a visible risk to world
financial stability. A continued or worsened slowdown in economic conditions, including, but not limited to,
consumer spending, employment rates, business conditions, inflation, increasing government debt, fuel and energy
costs, consumer debt levels, lack of available credit, the state of the financial markets, interest rates, and tax rates
may adversely affect the Company’s growth and profitability. Specifically:
•
•
•
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a new global credit/liquidity crisis could impact the cost and availability of financing and the Company’s
overall market liquidity;
the volatility of metal prices could impact the Company’s revenues, profits, losses and cash flow;
volatile energy prices, commodity and consumables prices and currency exchange rates could impact the
Company’s production costs or projected economic returns; and
the devaluation and volatility of global stock markets, which are not related to the Company’s operations or
assets, could impact the valuation of the Company’s equity and other securities.
These factors are beyond the control of the Company and could have a material adverse effect on the Company’s
financial condition and results of operations.
Diseases, epidemics and pandemics (including the COVID-19 pandemic) may adversely impact the Company’s
operations, financial condition and share price.
The outbreak of the COVID-19 virus was declared a global pandemic by the World Health Organization in March 2020
and resulted in a widespread global health crisis. The international response to the spread of the COVID-19 virus has
led to significant restrictions on travel, temporary business closures, mandatory quarantines, global stock market
volatility, operating and supply chain delays and disruptions, and a general reduction in consumer activity. Although
a number of restrictions are in the process of being removed, the possibility of a resurgence of the COVID-19 virus,
spread of new variants or mutations thereof, or outbreak of other communicable disease in areas in which Fortuna
operates may result in the re-imposition of certain of the foregoing restrictions and/or may result in further
restrictions.
The Company’s business and operations have been and may continue to be materially affected by the COVID-19
pandemic (or any other disease, epidemic or pandemic), including ongoing uncertainty as to the extent and duration
of the pandemic. During the year ended December 31, 2021, our operations in Latin America were impacted by the
spread of the COVID-19 virus, including variants and mutations thereof which resulted in a reduced workforce at
times and quarantine periods for those affected.
Even though the Company has and continues to implement business continuity measures to mitigate and reduce
any potential impacts of the COVID-19 pandemic, future outbreaks of the COVID-19 virus (or any other disease,
epidemic or pandemic) in the countries in which the Company operates could materially and adversely affect the
domestic labour supply, the Company’s ability to maintain a skilled workforce and the operations of the Company’s
suppliers, any of which would have an effect on the Company’s financial condition. In particular, the materialization
of one or more such risks could have a material adverse impact on the Company's producing mines or construction
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and development activities at the Séguéla Project, the continued operation of the Company’s mines and exploration
projects, and the Company’s ability to transport and sell concentrates and doré.
Given the ever evolving nature of the COVID-19 pandemic, it is difficult to predict the extent of the impact of the
COVID-19 pandemic (or any other disease, epidemic or pandemic) on the Company and its business, which will
depend on future developments, including: the duration, severity and geographic spread of the COVID-19 virus (or
other communicable disease); further actions that may be taken by governmental authorities, which could include
travel restrictions and the suspension of business activities, including mining; the effectiveness and timing of actions
taken to contain and treat the COVID-19 virus and variants or mutations thereof, including the effectiveness and
uptake of vaccines; and how quickly and to what extent normal economic conditions and operating conditions can
resume.
In addition, the COVID-19 pandemic has and may continue to heighten many of the other risks described in this AIF,
including: volatility in commodity prices (including gold, silver, lead and zinc); volatility in the stock markets on which
the Company’s Common Shares and Debentures are listed; and in the price of the Company’s securities, any of which
could impact the Company’s ability to raise capital or refinance the Company’s debt obligations in the future, which
may have a material adverse effect on the business, operations and financial condition of Company. Additionally,
inflationary pressures relating to global financial support measures taken in response to the COVID-19 pandemic, as
well as the impact of current supply chain challenges related to the COVID-19 pandemic, are and may continue to
have both direct and indirect impacts on the Company’s operating costs, which could have a material impact on the
Company’s financial condition and results of operations.
The Company remains focused on ensuring the health and safety of the workforce and in continuing measures to
prevent and manage transmission of COVID-19 amongst the workforce and the wider community, however there
can be no assurance that such measures will continue to be successful.
The Company faces intense competition.
The mining industry is intensely competitive in all of its phases. Much of the Company’s competition is from larger
mining companies with greater liquidity, greater access to credit and other financial resources, and that may have
newer or more efficient equipment, lower cost structures, more effective risk management policies and procedures
and/or greater ability than the Company to withstand losses. The Company’s competitors may be able to respond
more quickly to new laws, regulations or emerging technologies, or devote greater resources to the expansion of
their operations, than the Company can. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with third parties. Competition could
adversely affect the Company’s ability to acquire suitable new producing properties or properties for exploration
and development in the future. Competition could also affect the Company’s ability to raise financing to fund the
exploration and development of its properties or to hire qualified personnel. The Company may not be able to
compete successfully against current and future competitors, and any failure to do so could have a material adverse
effect on the Company’s business, financial condition or results of operations.
Metal prices and the marketability of metals acquired or discovered by the Company may be affected by factors
beyond the Company’s control.
The marketability of metals acquired or discovered by the Company may be affected by numerous factors which are
beyond the Company’s control and which cannot be accurately foreseen or predicted, such as market fluctuations,
the global marketing conditions for precious and base metals, the proximity and capacity of milling facilities, metal
markets and processing equipment and government regulations, including regulations relating to royalties,
allowable production, importing and exporting metals and environmental protection.
The price of silver, gold or other metals fluctuates widely and is affected by numerous factors beyond the Company’s
control, such as the sale or purchase of metals by various central banks and financial institutions, interest rates,
exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies,
global and regional supply and demand, the political and economic conditions of major metal-producing countries
throughout the world, and the cost of substitutes, inventory levels and carrying charges.
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The price of the Common Shares and the Company’s financial condition and exploration, development and mining
activities may in the future be significantly adversely affected by declines in the price of silver, gold or other metals.
Declining metal prices can impact operations by requiring a reassessment of the feasibility of a particular project.
Such a reassessment may be the result of a management decision or may be required under financing arrangements
related to a particular project. The continued exploration and development of or commercial production from the
Company’s properties may no longer be economically viable if serious price declines in the market value of silver,
gold or other metals occur. Even if exploration, development or production is ultimately determined to be
economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt
operations until the reassessment can be completed. Depending on the price of silver, gold and other metals, cash
flow from mining operations may not be sufficient and the Company’s financial condition and results of operations
may be adversely affected. The Company may lose its interest in, or may be forced to sell, some of its properties as
a result. If any such circumstances occur, the price of the Common Shares may be significantly adversely affected.
The Company’s use of derivative contracts to protect against market volatility exposes the Company to risk of
opportunity loss and mark to market fair value adjustments.
From time to time the Company may enter into price risk management contracts to protect against fluctuations in
the prices of zinc, lead and precious metals, and changes in the prices of fuel and other input costs. These contracts
could include forward sales or purchase contracts, futures contracts, purchased or sold put and call options and
other derivative instruments.
In October 2021, the Company entered into zero cost collar contracts and forward swaps on 4,800 tonnes of
expected zinc production for 2021. The contracts were settled monthly. These contracts were entered into to
provide for a minimum level of revenue from the sales of the covered zinc produced at the Caylloma Mine in order
to secure a level of certainty related to the Company’s cashflows. (Refer to note 29(e) - Management of Financial
Risk - metal price risk - in the 2021 Financial Statements).
In December 2020, the Company entered into zero cost collar contracts on a total of 720,000 gallons of heating oil
and 1,680,000 gallons of jet fuel in 2021, and swap contracts on a total of 720,000 gallons of heating oil and 1,680,000
gallons of jet fuel in 2022 to protect against increases in the price of such commodities. The contracts are settled
monthly.
The use of derivative instruments can expose the Company to risk of opportunity loss and may also result in
significant mark-to-market fair value adjustments, which may have a material adverse effect on the Company’s
financial results. The zinc zero cost collar and forward swap contracts have a ceiling of $3,500 per tonne and $3,300
per tonne, respectively. The price ceilings may be lower than the actual zinc price at the time of settlement under
those contracts. On March 1, 2022, the closing price of zinc was $3,737 per tonne.
Similarly, if the price of heating oil falls below the floors of $1.520 per gallon in 2022, and the floor of $1.438 per
gallon for jet fuel in 2022 respectively, the Company would pay to settle these contracts. On March 1, 2022, the
closing prices of heating fuel and jet fuel were $3.15 per gallon and $3.00 per gallon respectively.
The Company may be adversely affected by operating expense exchange rate fluctuations.
The Company’s activities and operations in Argentina, Burkina Faso, Côte d’Ivoire, Mexico, and Peru make it subject
to foreign currency fluctuations. Although the Company uses U.S. dollars as the currency for the presentation of its
financial statements, the Company’s operating expenses are incurred in Mexican and Argentine Pesos, Peruvian Sol
and West African CFA francs in proportions that will typically range between 30 percent and 45 percent of total
expenses, depending on the country. The fluctuation of these currencies in relation to the U.S. dollar will
consequently have an impact upon the profitability of the Company’s mineral properties and therefore its ability to
continue to finance its exploration, development and operations. Such fluctuations may also affect the value of the
Company’s assets and shareholders’ equity. Future exploration, development and operational plans may need to
be altered or abandoned if actual exchange rates for these currencies are less than or more than the rates estimated
in any such future plans. In 2021, the Company hedged the purchase of $18.5 million Euros related to the
construction at the Séguéla Project. During the year ended December 31, 2021, the Company recognized an
unrealized loss of approximately $508,000. The Company cannot be sure that any hedging techniques it may
implement in the future will be successful or that its business, financial condition, and results of operations will not
be materially adversely affected by exchange rate fluctuations. During the year ended December 31, 2021, the
Company recognized an unrealized/realized foreign exchange loss of $0.3 million related to the value added tax
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recoverable on the construction of the Lindero Mine. There can be no assurance that further losses will not be
incurred.
Due to the volatility of the exchange rate for the Argentine Peso, the Company is applying additional measures in
cash management to minimize potential losses arising from the conversion of funds. There can be no assurance that
the Company will be successful in its cash management measures. With the capital controls currently in effect in
Argentina, the Company is required to convert the equivalent value into Argentine Peso from the export sale of all
gold doré from the Lindero Mine. In addition, the Company is required to obtain the prior consent of the Argentine
Central Bank for the payment of cash dividends and distributions of profits out of Argentina. There can be no
assurance that these capital controls will not have an adverse effect on the financial condition of the Company.
Tax Audits and Reassessments.
In the normal course of business, the Company is subject to assessment by taxation authorities in various
jurisdictions. Any reassessment by applicable tax authorities of the Company’s tax filings and the continuation or
timing of any such process is outside of the Company’s control. There is a risk that applicable tax authorities may
audit the Company or its subsidiaries and issue a notice of reassessment for material amounts. In the event that
applicable tax authorities issue one or more additional notices of reassessment for material amounts of tax, interest
and penalties, the Company is prepared to vigorously defend its position. If the Company is unable to resolve any
of these matters favourably, or if applicable tax authorities issue one or more additional notices of reassessment for
material amounts of tax, interest and penalties, this could have a material and adverse effect on the Company’s
business and its financial condition.
The Company is subject to credit risk through its VAT receivables.
The Company is subject to credit risk through its VAT receivables in Mexico, Argentina and Burkina Faso that are
collectible from the respective national governments. The balances are expected to be recoverable in full; however
due to legislative rules and the complex collection processes, a significant portion of the asset is classified as non-
current until government approvals of the respective recoveries are approved.
The 2021 Credit Facility contains financial covenants which the Company could fail to meet.
Under the terms of the 2021 Credit Facility, the Company is required to satisfy various affirmative and negative
covenants and to meet certain financial ratios and tests. There is no assurance that in the future the Company will
continue to satisfy these covenants. Furthermore, a breach of these covenants, including a failure to meet the
financial tests or ratios, would likely result in an event of default under the 2021 Credit Facility unless the Company
is able to obtain a waiver or consent in respect of any such breach. The Company cannot provide an assurance that
a waiver or consent would be granted. A breach of any of these covenants or the inability to comply with the required
financial tests or ratios could result in a default under the 2021 Credit Facility. In the event of any default under the
2021 Credit Facility, the lenders could elect to declare all outstanding borrowings, together with accrued interest,
fees and other amounts due thereunder, to be immediately due and payable, which may have a material adverse
impact on the Company’s business, profitability or financial condition. In the event of a substantially further
prolonged duration of COVID-19, or in the event that more rigorous capital controls are implemented in Argentina,
the Company may be required to restructure the 2021 Credit Facility. There can be no assurance that the lenders
will agree to such a request.
The Company is subject to fluctuating concentrate treatment charges and transportation costs.
The Company has entered into agreements to sell its concentrate production from the Caylloma Mine and the San
Jose Mine for 2022. Treatment charges have shown a decrease from 2021 to 2022 while refining charges for
2022 have remained similar to those established for 2021. There is no assurance that the Company will be able to
enter into smelting and refining contracts at similar competitive terms beyond 2022. The cost of transporting
concentrate
from the mines to off-takers is dependent on, among other things, the concentrate
destination. Transportation-related costs increased during 2021 and are expected to remain high in the mid-to-near
term due to a number of factors, including changes to the price of oil or a shortage in shipping availability. Increases
in rates costs would have an adverse impact on the Company’s results of operations and financial condition.
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The Company may not have reserved sufficient monies to cover the costs associated with reclamation.
Land reclamation requirements are generally imposed on companies with mineral exploration, development and
operations activity in order to minimize long-term effects of land disturbance. Reclamation may include
requirements to treat ground and surface water to drinking water standards, control dispersion of potentially
deleterious effluent and reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out
reclamation obligations imposed on the Company in connection with exploration, development and production
activities, the Company must allocate financial resources that might otherwise be spent on further exploration and
development programs. The actual costs of reclamation and mine closure are uncertain and planned expenditures
may differ from the actual expenditures required. There is a risk that monies allotted for land reclamation may not
be sufficient to cover all risks, due to changes in the nature of the waste rock or tailings and/or revisions to
government regulations. Therefore, additional funds, or reclamation bonds or other forms of financial assurance,
may be required over the tenure of any of the Company's projects to cover potential risks. These additional costs
may have material adverse impact on the Company’s business, financial condition and results of operations.
The Company is dependent upon information technology systems, which are subject to disruption, damage,
failure and risks with implementation and integration.
The Company’s information technology systems used in its operations are subject to disruption, damage or failure
from a variety of sources including without limitation, computer viruses, security breaches, cyberattacks, natural
disasters and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited
to, malicious software, attempts to gain unauthorize access to data or machines and equipment, and other electronic
security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise
protected information, the corruption of data or the disabling, misuse or malfunction or machines and equipment.
Various measures have been implemented to manage the Company’s risks related to information technology
systems and network disruptions. However, given the unpredictability of the timing, nature and scope of
information or operational technology disruptions, the Company could potentially be subject to production
downtimes, operational delays, operating accidents, the compromising of confidential or otherwise protected
information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems
and networks or financial losses from remedial actions, any of which would have a material and adverse effect on
the Company’s business, financial condition or results of operations.
The Company could also be adversely affected by system or network disruptions if new or upgraded information
technology systems are defective, not installed properly or not properly integrated into operations. Various
measures have been implemented to manage the risks related to the system implementation and modification, but
system modification failures could have a material and adverse effect on the Company’s business, financial condition
or results of operations.
The Company is subject to climate change legislation.
Governments are introducing climate change legislation and treaties at the international, national, and local levels.
Regulation relating to emission levels and energy efficiency is becoming more stringent. Some of the costs associated
with reducing emissions can be offset by increased energy efficiency and technological innovation. If the current
regulatory trend continues, this may result in increased costs at some of our operations. The physical risks of climate
change may also adversely impact the Company’s operations. These risks may include extreme weather events,
resource shortages, changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and
changing temperatures.
There is significant evidence of the negative effects of climate change on our planet and public support for climate
change action has grown in recent years, as has the impetus to pursue new technologies to mitigate the effects of
climate change. Governments around the world, including those in countries in which the Company operates, have
responded by adopting ambitious emissions reduction targets and supporting legislation, including measures
relating to carbon pricing, emissions reduction initiatives and alternative energy incentives and mandates.
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In 2021, Fortuna identified and assessed the physical and transitional risks of climate change based upon its business
and the final report on the Recommendations of the Task Force on Climate-Related Financial Disclosures (2017).
Fortuna has grouped its risks related to climate change into two main categories: (i) physical risks; and (ii) transition
risks. Physical risks have been further sub-divided into: (a) acute physical risks (those that are event-driven, including
increased severity of extreme weather events); and (b) chronic physical risks (those that relate to longer-term shifts
in climate patterns). Transition risks have been further sub-divided into: (a) regulatory and policy risks;
(b) reputational risks; and (c) technology risks.
Physical Risks – Acute Risks
Climate change has been linked to rising sea levels and increased extreme events, such as more intense hurricanes,
increasing ocean acidification, extreme hot and cold weather, heavy snowfall and rainfall and increased risk of
wildfires. Such extreme weather events may adversely impact the Company’s operations, increasing their cost and
negatively impacting current and future production. Fortuna’s operations are in San Jose del Progreso, Oaxaca,
Mexico; Caylloma, Arequipa, Peru; Tolar Grande, Salta, Argentina; and Bagassi, Bale Province, Burkina Faso. San Jose
del Progreso’s riverine and coastal flood risk is rated as low. Caylloma’s riverine flood risk is rated as low to medium,
and its coastal flood risk is rated as low. Tolar Grande’s riverine and coastal flood risk is rated as low. Bagassi’s
riverine flood risk is rated as medium to high and coastal flood risk is rated as low. Mexico, Peru and Argentina’s
overall vulnerability to the negative impacts of climate change are considered low. Burkina Faso’s overall
vulnerability to the negative impacts of climate is considered high.
Moreover, extreme weather conditions may lead to disruptions in Fortuna’s ability to transport its production, as
well as goods and services in its supply chains. Fortuna has already experienced negative impacts as a result of the
changing physical environment. Abnormally high rainfall at the San Jose mine in October 2018 and at the Lindero
Mine in February 2019 disrupted operations/construction at these locations. Climate change is expected to increase
the severity and frequency of extreme weather events over time, further exacerbating these impacts. The
governments of Mexico, Peru, Argentina, and Burkina Faso have acknowledged the risks posed to their countries by
climate change and have made commitments related to climate change mitigation and adaptation.
At this time, Fortuna is unable to determine the extent to which extreme weather events related to climate change
may lead to increased hazards affecting its operations and production.
Physical Risks – Chronic Risks
Anthropogenic climate change is estimated to have brought about a warming of 1.0° Celsius above pre-industrial
levels. As the level of activity in the mining industry is influenced by seasonal weather patterns, long-term shifts in
climate patterns increase the risk of exacerbating development and/or operational delays at the Company’s
properties, as well as the other risks posed by seasonal weather patterns and geotechnical challenges discussed
above. Fortuna’s operations are in San Jose del Progreso, Oaxaca, Mexico; Caylloma, Arequipa, Peru; Tolar Grande,
Salta, Argentina; and Bagassi, Bale Province, Burkina Faso. San Jose del Progreso’s water stress risk is rated as low,
and its drought risk is rated as medium. Caylloma’s water stress risk is rated as medium to high, and its drought risk
is rated as low to medium. Tolar Grande’s water stress risk is rated as low, and its drought risk is rated as low to
medium. Bagassi’s water stress risk is rated as extremely high and its drought risk is rated as medium. Mexico, Peru
and Argentina’s overall vulnerability to the negative impacts of climate change are considered low. Burkina Faso’s
overall vulnerability to the negative impacts of climate is considered high.
In particular, extended periods of drought or sustained increases in precipitation at the Lindero Mine or the San Jose
Mine, increases the risks that the Company will not have adequate supplies of water for its operations. In 2019, the
Yaramoko Mine experienced a drier season than normal and a pipeline was built between a nearby public dam and
the mine site to ensure adequate water supply.
In addition, long-term shifts in weather patterns, such as water scarcity, increased frequency and severity of storms
and fires and prolonged heat waves may require the Company to incur greater expenditures (time and capital) to
deal with the challenges posed by such changes to its development activities, operations, production supply chain,
transport needs, and employee safety, which may in turn have a material adverse effect on the Company’s business,
operations and financial condition.
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Transition Risks – Regulatory and Policy Risks
Climate change policy is evolving at regional, national and international levels and political and economic events may
significantly affect the scope and timing of climate change measures that are ultimately put in place to prevent
climate change or mitigate its effects. Existing and future laws and regulations may impose significant liabilities for
a failure to comply with their requirements. Concerns over climate change, fossil fuels, emissions and water and
land-use could lead to the enactment of more stringent laws and regulations applicable to the Company. Any new
laws and regulations (or additional requirements to existing laws and regulations) could have a material impact on
the Company’s business, financial condition, results of operations and prospects.
Fortuna operates in Mexico, Peru, Argentina, and Burkina Faso which have all ratified the Paris Agreement. Mexico
has committed to reducing its GHG emissions by 22% by 2030 compared to a baseline under a business-as-usual
scenario. Mexico has established a carbon tax and an emissions trading system. Peru has committed to reduce its
GHG emissions by 30% by 2030 compared to a baseline under a business-as-usual scenario. Peru is currently revising
its Nationally Determined Contribution (NDC) target and has announced it will move from a target of 30% reduction
in GHG emissions to a 35% reduction, while also aiming for carbon neutrality by 2050. Argentina has committed not
to exceed net emissions of 359 million tons of carbon dioxide equivalent (tCO2e) by 2030. Mexico and Peru’s NDCs
are rated as insufficient and Argentina’s NDC is rated as critically insufficient, raising the prospect that further
emissions reduction regulation could be enacted in these countries in the future. Burkina Faso has in place a National
Climate Change Adaptation Plan (NAP) however the NAP is focused on regulation related to climate change
adaptation as opposed to mitigation.
Adverse impacts to the Company’s business as a result of climate change-related legislation may include, but are not
limited to, increased compliance costs, permitting delays, increased operating costs and capital expenditures. Given
the evolving nature of climate change policy, emission controls and resulting requirements, it is expected that
current and future climate change regulations will have the effect of increasing Fortuna’s compliance costs and
operating expenses.
The Company’s exploration, development and production activities emit greenhouse gasses, which requires Fortuna
to comply with applicable emissions legislation. In addition, mining and processing operations are energy intensive
and result in greenhouse gas emissions either directly or through the purchase of fossil fuel-based electricity. As a
result, in addition to the Company’s currently producing properties, future production at the Boussoura project, the
Séguéla Project or any of the Company’s development projects will also emit greenhouse gasses and such projects
will also be required to comply with then applicable emissions legislation.
Transition Risks – Reputational Risks
Concerns regarding climate change may increase public scrutiny of industries that are thought to have more
significant environmental impacts.
The price of Common Shares and/or the Company’s business, financial condition or operations may be negatively
impacted as a result of any negative public opinion towards the mining and mineral processing industry or as a result
of any negative sentiment in respect of Fortuna’s reputation with stakeholders, special interest groups, political
leadership, the media or other entities. Public opinion may be influenced by certain media and special interest
groups’ negative portrayal of the mining industry, as well as their opposition to certain related projects. Concerns
about climate change, and environmental harm more generally, have resulted in a number of environmental activists
and members of the public opposing mining exploration, development and production activities, which may
influence investors’ willingness to invest in the mining industry. See also “Opposition of the Company’s exploration,
development and operational activities may adversely affect the Company’s reputation, its ability to receive mining
rights or permits and its current or future activities”.
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Transition Risks – Technology Risks
The Company is committed to operating responsibly and reducing the negative effects of its current and future
operations on the environment. However, the Company’s ability to reduce emissions, energy and water use and
adopt new innovations is constrained by technological advancement, operational realities and economics. The
adoption of new technologies by the Company to address climate change could require a significant capital
investment.
Risks Relating to the Securities of the Company
The market price of the Company’s Common Shares and Debentures is volatile.
In recent years, the securities markets in the United States and Canada have experienced a high level of price and
volume volatility, and the market prices of securities of many mining companies have experienced wide fluctuations
in price which have not necessarily been related to the operating performance, underlying asset values or prospects
of such companies. In particular, the price of the Common Shares on the Toronto Stock Exchange (the “TSX”) and
New York Stock Exchange (the “NYSE”) fluctuated significantly during the past 12 months. Additionally, the price of
the Debentures on the TSX has fluctuated significantly since being listed for trading in October 2019. There can be
no assurance that continual fluctuations in price will not occur.
There are many factors that may influence such volatility. Macroeconomic conditions in North America, Peru,
Mexico, Argentina or West Africa and changes in the laws and regulations of these regions may have a negative
effect on the development prospects, timelines or relationships for the Company’s properties. Negative changes in
the public's perception of the Company’s prospects or of mining companies in general could cause the price of the
Company’s securities, including the price of the Common Shares and Debentures, to decrease dramatically. The
price of the Common Shares and Debentures is also likely to be affected by short-term changes in precious metal
prices or other mineral prices, currency exchange fluctuations, the Company’s financial condition or results of
operations and the extent of research analyst coverage of its securities.
Securities class action litigation often has been brought against companies following periods of volatility in the
market price of their securities. The Company may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and damages and divert management's attention and resources.
Shareholders may suffer dilution as a result of future offerings of the Common Shares or securities convertible into
Common Shares.
The Company issued an aggregate of 106,106,224 Common Shares in connection with the Roxgold Acquisition. In
addition, the Company may sell equity securities in future offerings (including through the sale of securities
convertible into equity securities) and may issue additional equity securities to finance operations, exploration,
development, acquisitions or other projects. The Company may also issue Common Shares as a result of exercises
of the Company’s outstanding stock options, or the vesting of the Company's outstanding share units or as a result
of the conversion of the Company’s Debentures. Any such convertible securities are more likely to be exercised
when the market price of the Company’s Common Shares exceeds the exercise price of such instruments. The
Company cannot predict the size of future issuances of equity securities or the size and terms of future issuances of
debt instruments or other securities convertible into equity securities. The Board has the authority to authorize
certain offers and sales of additional securities without the vote of, or prior notice to, shareholders. It is likely that
the Company will issue additional securities to provide capital to fund expected expenditures and growth. Any
transaction involving the issuance of previously authorized but unissued Common Shares, or securities convertible
into Common Shares, would result in potentially substantial dilution to shareholders.
The market price of the Common Shares and Debentures could decline as a result of future issuances or sales of
the Company’s securities, which could result in insufficient liquidity.
The market price of the Common Shares and Debentures could decline as a result of issuances of securities by the
Company or sales by its existing shareholders of Common Shares or Debentures in the market, or the perception
that these sales could occur. The issuance of Common Shares upon the exercise of the Company's outstanding stock
options and Common Share purchase warrants or the vesting of the Company’s outstanding share units may also
reduce the market price of the Common Shares. Additional Common Shares, Debentures, stock options, Common
Share purchase warrants and share units may be issued in the future. A decrease in the market price of the Common
Shares could adversely affect the liquidity of the Common Shares on the TSX and the NYSE. Additionally, a decrease
-54-
in the market price of the Debentures could adversely affect the liquidity of the Common Shares on the TSX. The
Company’s shareholders may be unable, as a result, to sell significant quantities of the Common Shares or
Debentures into the public trading markets. The Company may not, as a result, have sufficient liquidity to meet the
continued listing requirements of the TSX and the NYSE. Sales of the Common Shares or Debentures by shareholders
might also make it more difficult for the Company to sell equity or debt securities at a time and price that it deems
appropriate, which may have a material adverse effect on the Company’s business, financial conditions and results
of operations.
The Company has never paid, and does not currently anticipate paying, dividends.
The Company has paid no dividends on the Common Shares since incorporation and does not anticipate paying
dividends in the immediate future. The payment of future dividends, if any, will be reviewed periodically by the
Board and will depend upon, among other things, conditions then existing including earnings, financial conditions,
cash on hand, financial requirements to fund its commercial activities, development and growth, and other factors
that the Board may consider appropriate in the circumstances.
Risks related to the Debentures of the Company.
The terms of the Debentures are governed by the terms and conditions set out in the Debenture indenture between
the Company and Computershare Trust Company of Canada entered into on October 2, 2019 (the “Indenture”). The
Indenture provides, among other things, for the repurchase, conversion and redemption of the Debentures in certain
circumstances and the Company agrees to certain restrictive and affirmative covenants which are set out in the
Indenture. Under the terms of the Indenture, there is a risk that the Company may choose to redeem the outstanding
Debentures for Common Shares or to repay outstanding principal amounts thereunder at maturity of the Debentures
by issuing additional Common Shares. Additionally, the Debentures are subordinate to all senior indebtedness of the
Company. If the Company becomes bankrupt, liquidates its assets, reorganizes or enters into certain other
transactions, the Company will be able to pay its obligations with respect to the Debentures only after it has paid
senior indebtedness and any other secured indebtedness in full. There may be insufficient assets remaining following
such payments to pay amounts due on any or all of the Debentures then outstanding. The Indenture does not restrict
the Company from incurring additional indebtedness for borrowed money or otherwise from mortgaging, pledging
or charging its real or personal property or properties to secure any indebtedness or other financing. A holder of a
Debenture will be subject to such terms and conditions, as further described in the Indenture. A full copy of the
Indenture is available under the Company’s issuer profile at www.sedar.com.
Foreign investors may find it difficult to enforce judgments against the Company.
The Company is incorporated under the laws of British Columbia, Canada and the majority of the Company’s
directors and officers are not residents of the United States. Because all or a substantial portion of the Company’s
assets and the assets of these persons are located outside of the United States, it may be difficult for U.S. investors
to effect service of process within the United States upon the Company or upon such persons who are not residents
of the United States, or to realize in the United States upon judgments of U.S. courts predicated upon civil liabilities
under U.S. securities laws. A judgment of a U.S. court predicated solely upon such civil liabilities may be enforceable
in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined
by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought
successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.
Furthermore, many of the subsidiaries of the Company and its assets are located outside of Canada. Accordingly, it
may be difficult for investors to enforce within Canada any judgments obtained against the Company, including
judgments predicated upon the civil liability provisions of applicable Canadian securities laws. Consequently,
investors may be effectively prevented from pursuing remedies against the Company under Canadian securities laws
or otherwise.
Material Mineral Properties
The Company has five material mineral projects, described below. The Company filed a technical report on the
Lindero Mine in 2017, on each of the San Jose Mine and the Caylloma Mine in 2019, and on the Yaramoko Mine in
March 2022. The Company also filed in March 2022, Roxgold’s technical report on the Séguéla Project. Each of
these reports is incorporated by reference into this AIF. The executive summary of each report is set out below.
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San Jose Mine, Mexico
The following is the Summary from the technical report (the “San Jose Technical Report”) entitled “Fortuna Silver
Mines Inc.: San Jose Mine, Oaxaca, Mexico” with an effective date of February 22, 2019 prepared by Eric Chapman,
P.Geo. and Amri Sinuhaji, P.Eng. This Summary is subject to certain assumptions, qualifications and procedures
described in the San Jose Technical Report and is qualified in its entirety by the full text of the San Jose Technical
Report which is available for viewing on SEDAR at www.sedar.com and is incorporated by reference in this AIF, and
is also filed with the SEC on EDGAR (available at www.sec.gov). Defined terms and abbreviations used herein and
not otherwise defined shall have the meanings ascribed to such terms in the San Jose Technical Report.
1. Introduction
This Technical Report (the Report) on the San Jose Mine in Oaxaca, Mexico (the San Jose Mine or the Project), has
been prepared by Mr Eric Chapman, P.Geo, and Mr Amri Sinuhaji, P.Eng. for Fortuna Silver Mines Inc. (Fortuna) in
accordance with the disclosure requirements of Canadian National Instrument 43-101 (NI 43-101). The Report
discloses updated Mineral Resource and Mineral Reserve estimates for the mine.
2. Property description, location and ownership
The San Jose Mine area is characterized by gently-sloping hills and adjoining colluvial-covered plains. Elevations
above mean sea level range from approximately 1,540 m to 1,675 m. The vegetation is grasslands and thorn-bush
that are typical of dry savannah climates being temperate in nature with an average annual temperature of 19.5 0C.
Mining operations are conducted on a year-round basis.
The mine is located in the central portion of the state of Oaxaca, Mexico. The mine site is 47 km by road south of the
city of Oaxaca, which provides access to an international airport, and 0.8 km east of federal highway 175, the major
highway between Oaxaca and Puerto Angel on the Pacific coast. The village of San Jose del Progreso is located 2 km
to the southeast of the project site.
The underground mine is operated by Compania Minera Cuzcatlan S.A. de C.V. (Cuzcatlan), a Mexican subsidiary
100% owned by Fortuna. The operation has a relatively small surface infrastructure consisting primarily of the
concentration plant, electrical power station, water storage facilities, filtered dry stack tailings facility, stockpiles,
and workshop facilities, all connected by unsealed roads. Additional structures located at the property include
offices, dining hall, laboratory, core logging and core storage warehouses. The tailings facility is located
approximately 1,500 m to the southwest of the concentration plant.
The property comprises mining concessions; surface rights; a permitted 3,000 tonnes per day (tpd) flotation plant;
connection to the national electric power grid; as well as permits for the infrastructure necessary to sustain mining
operations.
The San Jose Property consists of mineral rights for 31 mining concessions all located in the state of Oaxaca for a
total surface area of approximately 64,422 hectares (ha). Tenure is held in the name of Cuzcatlan with all mining
concessions having an expiry date beyond the expected mine life.
As of December 31, 2018, the only concession that contains Mineral Resources or Mineral Reserves subject to back-
in rights, liens, payments or encumbrances is Reduccion Taviche Oeste, which is subject to a 1.5 % NSR royalty to
Maverix Minerals Inc., and a 1 % NSR royalty to SGM.
Cuzcatlan has signed 44 usufruct contracts, which have been registered before the National Agrarian Registry, with
land owners to cover the surface area needed for the operation and tailings facilities.
Cuzcatlan has an environmental commitment related to the remediation of the current mining facilities located on
the Progreso and Reduccion Taviche Oeste concessions. Cuzcatlan is to set aside US$ 5.3 million to cover
remediation and closure requirements. These programs are ongoing with funds assigned to various projects on an
annual basis.
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3. History
The earliest recorded activity in the San Jose del Progreso area dates to the 1850s when the mines were exploited
on a small scale by the local hacienda. By the early 1900s, a large number of silver-and gold-bearing deposits were
being exploited in the San Jeronimo Taviche and San Pedro Taviche areas. Mining activity in the district diminished
drastically with the onset of the Mexican Revolution in 1910, only to resume sporadically in the 1920s.
Mining in the San Jose area was re-activated on a small scale in the 1960s and again in 1980 when the San Jose Mine
was acquired by Minerales de Oaxaca S.A. (MIOXSA). The mine was worked intermittingly by MIOXSA through to the
end of 2006 when the property was purchased by Cuzcatlán a Mexican registered company then owned jointly by
Fortuna and Continuum Resources Ltd. (Continuum) with sole ownership transferring to Fortuna in March 2009.
From 1980 through 2006, production by MIOXSA was intermittent and came primarily from existing stopes and from
development of the fourth, fifth, and sixth levels of the San Jose Mine. Ore was mined primarily from the Bonanza
and Trinidad veins and extracted at rates of approximately 100 tpd. The principal mining method used by MIOXSA
was shrinkage stoping. The ore was processed at a small crushing and flotation plant in San Jeronimo de Taviche,
located approximately 19 km from the San Jose Mine. Reliable estimates of the total production during MIOXSA’s
tenure are not available.
Commercial production commenced under the management of Cuzcatlan on September 1, 2011. Since then,
underground mining has focused on the Bonanza, Trinidad and Stockwork veins. Total production since September
2011 through December 31, 2018 is estimated as 35.9 Moz of silver and 269 koz of gold.
4. Geology and mineralization
The San Jose Mine area is underlain by a thick sequence of sub-horizontal andesitic to dacitic volcanic and
volcaniclastic rocks of presumed Paleogene age. These units have been significantly displaced along major north and
northwest-trending extensional fault systems with the precious metal mineralization being hosted in hydrothermal
breccias, crackle breccias, and sheeted stockwork-like zones of quartz/carbonate veins emplaced within zones of
high paleo permeability associated with the extensional structures.
The mineralized structural corridor extends for more than 3 km in a north-south direction and has been subdivided
into the Trinidad Deposit area and the San Ignacio area. The Mineral Resource and Mineral Reserve estimates
discussed in this Technical Report are located in the Trinidad Deposit area.
The major mineralized structure in the Trinidad Deposit area consists of a sheeted and stockworked quartz–
carbonate vein system referred to as the main Stockwork Zone located between the primary Trinidad and Bonanza
structures. In addition, several secondary vein systems are present locally in the hanging wall and footwall of the
Trinidad and Bonanza structures.
The Victoria mineralized zone is located approximately 350 m east of the Trinidad vein and north of the current
underground operations of the San Jose Mine. It is structurally related to the same extensional behavior that
dominates the Trinidad Deposit with a similar style of mineralization, corresponding to a low sulfidation epithermal
deposit formed in a shallow crustal environment with a relatively low temperature resulting in the precipitation of
silver and gold mineralization.
5. Exploration, drilling and sampling
The San Jose Mine has been subjected to a number of documented exploration programs since 1999 including:
•
•
•
In 1999 Pan American Silver (Pan American) optioned the property from MIOXSA and conducted surface
and underground mapping and sampling including the drilling of five diamond drill holes totaling 1,093.5 m
In 2004, Continuum completed an option agreement with MIOXSA and completed detailed mapping and
chip-channel sampling of the surface and of the existing underground workings in the Trinidad area
followed by the completion of 15 surface diamond drill holes totaling 4,876.55 m
From 2006 to 2015 the principal exploration conducted by Fortuna at the deposit has been surface and
underground drilling, both to explore the deposit to the north and to depth and for infill purposes to
increase the confidence level of the Mineral Resource estimates
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•
Since 2015, exploration has continued to explore the continuity of the mineralized system to the north,
south and at depth of the Trinidad Deposit. During this period the Victoria mineralized zone was discovered
approximately 350 m east of the Trinidad Deposit and has been explored with the drilling of 51 holes from
underground totaling 27,671.60 m as of June 30, 2018
As of June 30, 2018, the data cut-off date for estimation of Mineral Resources, a total of 845 drill holes totaling
299,319.45 m have been completed on the San Jose Mine area with the drilling being concentrated in the Trinidad
Deposit area and extensions to the south of the mineralized structural system. Wide-spaced exploration drilling has
also been completed in the San Ignacio area along the southern extension of the structurally controlled mineralized
corridor and to the far north of the Trinidad Deposit, as well as in the newly discovered Victoria mineralized zone.
All of the drilling was conducted by diamond core drilling methods with the exception of 1,476 m of reverse
circulation pre-collars in six of the 845 diamond drill holes.
A total of 662 diamond core holes totaling 221,400.75 m have been drilled in the Trinidad Deposit area and 51 holes
totaling 27,671.60 m in the Victoria mineralized zone. In Trinidad, the majority of the holes have been drilled from
east to west to cross-cut the steeply east-dipping mineralized zone at high angles, whereas in the Victoria
mineralized zone, the holes have been drilled from west to east from underground to intersect the subvertical
Victoria main structure. Of the 723 holes, 250 have been drilled from the surface and the remainder from
underground.
The diamond drilling typically commences with HQ-diameter core (63.5 mm) and continues to the maximum depth
allowable based on the mechanical capabilities of the drill equipment. Once this point is reached or poor ground
conditions are encountered the hole is cased and further drilling undertaken with smaller diameter drilling tools with
the core diameter being reduced to NQ2 (50.6 mm) or NQ-size (47.6 mm) to completion of the hole. In the Trinidad
Deposit, five of the drill holes were further reduced to BQ-size (36.5 mm) diameter in order to complete the drill
holes to the target depths. All of the drilling completed in the project area has been carried out by contract drilling
service companies. Ground conditions are generally good with core recovery averaging 99 %.
Surface drill hole collars were surveyed using differential global positioning system (GPS) and total station survey
methods. Concrete monuments are constructed at each collar location recording the drill hole name, azimuth,
inclination and total depth. At locations where the drill hole collar is located in a cultivated field, the collar monument
is constructed approximately 50 cm below the actual surface.
Underground drill hole collars were surveyed using total station survey methods. Concrete monuments similar to
those used for surface collars are constructed to mark the location with the drill hole name, azimuth, inclination and
total depth recorded.
Down-hole surveys have been completed for 827 of the 845 drill holes completed as of the data cut-off date. For the
18 holes where downhole surveys are not recorded, 17 were drilled prior to 2007 with only three being drilled in the
Trinidad Deposit. The azimuth and dip orientation of these holes was recorded at the collar to account for drilling
direction. The absence of downhole surveys in three of the 662 holes drilled at Trinidad is not regarded as material
to the resource estimate.
Downhole surveys are typically completed at 50 m intervals although recent drill holes include downhole surveys at
10 m intervals until reaching 50 m depth and then at 50 m intervals thereafter. All downhole surveys have been
carried out by the drilling contractor using Reflex electronic downhole survey tools.
To-date, drilling has been conducted at the Trinidad Deposit over a strike length of approximately 2,500 m and to
depths exceeding 800 m from surface. Exploration drilling has generally increased in depth to the north.
Drilling of the Victoria mineralized zone has been conducted over a strike length of approximately 1,300 m and
covers a vertical extent of approximately 500 m, with upper holes intersecting the structure at least 250 m below
the surface.
The extent of drilling of the San Ignacio area continues directly to the south of the Trinidad Deposit and has been
conducted over a strike length of approximately 1,000 m and to depths of up to 500 m from surface.
The relationship between the sample intercept lengths and the true width of the mineralization varies in relation to
the intersect angle between the steeply dipping zone of mineralized veins and the inclined nature of the diamond
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core holes. Calculated estimated true widths (ETWs) are always reported together with actual sample lengths by
taking into account the angle of intersection between drill hole and the mineralized structure.
In 2018 all logging became digital, being incorporated daily into the Maxwell DataShed database system. Data were
recorded initially with Excel templates, and later with the Maxwell LogChief application using essentially the same
structure. Both input methods used pick-lists and data validation rules to ensure consistency between loggers.
Separate pages were designed to capture metadata, lithology, alteration, minerals (sulfides, oxides, and limonite),
structure (contacts, fractures, veins, and faults with attitudes to core axis). Intensity of alteration phases was
recorded using a numeric 1 to 4 scale (weak, moderate, strong, complete).
Geotechnical logging consists of the collection of specified data fields including; recovery percentage and rock quality
designation (RQD) length. Joint filling and joint weathering are described during the geologic logging. A tablet-based
data entry program was developed by Cuzcatlan using the Maxwell LogChief software. Data checks are implemented
into this program to prevent entry of erroneous data.
The sampling methodology, preparation, and analyses differ depending on whether it is drill core or a channel
sample. All samples are collected by Cuzcatlan geological staff with sample preparation and analysis being conducted
either at the onsite Cuzcatlan Laboratory or transported to the ALS Global preparation facility in Guadalajara prior
to being sent on for analysis at their laboratory in Vancouver.
The Cuzcatlan Laboratory used by Fortuna/Cuzcatlan since 2012 for assaying channel samples was accredited as a
testing laboratory with the requirements of ISO/IEC 17025:2005 for sample preparation and assaying of silver and
gold on March 2, 2018, prior to this the laboratory was not certified. The Cuzcatlan Laboratory is not independent
of Fortuna/Cuzcatlan.
The ALS Global Laboratory is an independent, privately-owned analytical laboratory group. The Vancouver
laboratory holds ISO 17025 accreditation. The Mexican laboratory holds ISO 9001:2000 certification.
The SGS Laboratory used by Cuzcatlan as an umpire laboratory is an independent privately-owned analytical
laboratory located in Durango, Mexico and holds ISO/IEC 17025:2005 accreditation for sample preparation and
assaying.
Channel chip samples are generally collected from the face of newly exposed underground workings. The entire
process is carried out under the mine geology department’s supervision. Sampling is carried out at 3 m intervals
within the drifts and stopes of all veins. The channel’s length and orientation are identified using paint in the
underground working and by painting the channel number on the footwall. The channel is typically approximately
20 cm wide and approximately 1 to 2 cm deep, with each individual sample preferably being no smaller than 0.4 m
and no longer than 1.5 m.
Drill core is laid out for sampling and logging at the core logging facility at the camp. Sample intervals are marked on
the core and depths recorded on the appropriate box. A geologist is responsible for determining and marking the
drill core intervals to be sampled, selecting them based on geological and structural logging. The sample length must
not exceed 2 m or be less than 20 cm.
All samples collected by Cuzcatlan are assayed by atomic absorption (AA) spectroscopy and by fire assay (FA) with
gravimetric finish. For drill samples only, a full suite of trace elements is analyzed using an aqua regia digestion
followed by inductively-coupled plasma (ICP) analysis. Assay results and certificates are reported electronically by e-
mail. Since mid-2018 the onsite laboratory has also assayed channel samples and selected composites for fluorine
using a selective ion electrode (ISE) technique.
Bulk density samples have been primarily sourced from drill core with a limited number being sampled from
underground workings. Bulk density measurements are performed at the ALS Global Laboratory in Vancouver using
the OA-GRA08 methodology.
Sample collection and transportation of drill core and channel samples is the responsibility of Brownfields
exploration and the Cuzcatlan mine geology departments and must follow strict security and chain of custody
requirements established by Fortuna. Samples are retained in accordance with the Fortuna corporate sample
retention policy.
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Implementation of a quality assurance/quality control (QAQC) program is current industry best practice and involves
establishing appropriate procedures and the routine insertion of certified reference material (CRMs), blanks, and
duplicates to monitor the sampling, sample preparation and analytical process. Fortuna implemented a full QAQC
program to monitor the sampling, sample preparation and analytical process for all drilling campaigns in accordance
with its companywide procedures. The program involved the routine insertion of CRMs, blanks, and duplicates.
Evaluation of the QAQC data indicate that the data are sufficiently accurate and precise to support Mineral Resource
estimation.
6. Data verification
Cuzcatlan staff follow a stringent set of procedures for data storage and validation, performing verification of data
on a monthly basis. The operation employs a Database Administrator who is responsible for overseeing data entry,
verification and database maintenance. A separate Database Auditor is responsible for performing a detailed
independent review of the database on a quarterly basis and submitting a report to Fortuna management detailing
the findings. Any issues identified are immediately resolved by the administrator.
Data used for Mineral Resource estimation are stored in Maxwell GeoService’s commercial SQL database system
(DataShed), storing both mine related data (including channel samples) and drilling related results (exploration and
infill drilling).
Data was transferred from an inhouse SQL database system to DataShed in 2017 with the support of Maxwell
personnel. Both databases were run in tandem until a full verification process had been completed to prove parity
between the systems, at which point the original database was archived.
As a component of the 2018 Mineral Resource estimate, a preliminary validation of the Cuzcatlan database was
performed by the Database Administrator in June 2018. The database has a series of automated import, export, and
validation tools to minimize potential errors. Any inconsistencies identified were corrected during the analysis with
the database then being handed over to the QP for the resource estimate for final review on June 30, 2018 in
Microsoft Access format.
In addition, data verification by the QP was also conducted through the inspection of selected drill core to assess the
nature of the mineralization and to confirm geological descriptions as well as the inspection of geology and
mineralization in underground workings of the Trinidad, Bonanza, and Stockwork veins.
A series of plan and cross sections were generated displaying the lithologic and mineralization interpretation by the
Cuzcatlan geology and exploration departments and reviewed by the QP.
The QP is of the opinion that the data verification programs performed on the data collected by Cuzcatlan are
adequate to support the geological interpretations, the analytical and database quality, and Mineral Resource
estimation at the San Jose Mine.
7. Mineral processing and metallurgical testing
Initial metallurgical test work to assess the optimum processing methodology for treating ore from the Trinidad
Deposit was conducted by METCON in 2009 and reported in the prefeasibility study written by CAM (2010), with
Cuzcatlan continuing to build on this original work with additional tests to support operational requirements.
Metallurgical tests have not been conducted as of the effective date of this Report for material from the Victoria
mineralized zone but are planned for the second half of 2019. Petrographic studies conducted by Albinson (2018)
indicate that mineralogically the material is similar to that from the Trinidad Deposit.
It is the opinion of the QP that the San Jose Mine has an extensive body of metallurgical investigation comprising
several phases of testwork as well as an extensive history of treating ore at the operation since 2011. In the opinion
of the QP, the San Jose metallurgical samples tested and the ore that is presently treated in the plant is
representative of the material included in the life-of-mine plan (LOMP) in respect to grade and metallurgical
response. Metallurgical recovery is estimated to be constant for the LOMP at 92 % for silver and 91 % for gold.
Differences between vein systems are minimal with regard to recovery.
Deleterious elements detected in ore located in certain parts of the deposit have the potential to affect economics
due to penalties that could be applied during smelting. This includes elevated levels of fluorine (>1,000 ppm), which
has been accounted for as part of the financial analysis.
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8. Mineral Resources
Mineral Resource estimation involved the usage of drill hole and channel samples in conjunction with underground
mapping to construct three-dimensional wireframes to define individual vein structures. Samples were selected
inside these wireframes, coded, composited and top cuts applied if applicable. Boundaries were treated as hard with
statistical and geostatistical analysis conducted on composites identified in individual veins. Silver and gold grades
were estimated into a geological block model consisting of 4 m x 4 m x 4 m selective mining units (SMUs) representing
each vein. All veins in the Trinidad Deposit were estimated by sequential Gaussian simulation (SGS). The Victoria
main structure located in the Victoria mineralized zone was estimated by inverse distance weighting employing a
power of two (IDW). Estimated grades were validated globally, locally, visually, and (where possible) through
production reconciliation prior to tabulation of the Mineral Resources.
By the application of a silver equivalent value taking into consideration the average metallurgical recovery and long
term metal prices for each metal, and the determination of a reasonable cut-off grade using actual operating costs,
as well as the exclusion of Mineral Resources identified as being isolated or economically unviable using a floating
stope optimizer, the Mineral Resources have ‘reasonable prospects for eventual economic extraction’.
Resource confidence classification considers a number of aspects affecting confidence in the resource estimation
including; geological continuity and complexity; data density and orientation; data accuracy and precision; grade
continuity; and simulated grade variability.
Mineral Resources exclusive of Mineral Reserves as of December 31, 2018 are reported in Table 1.1.
Table 1.1 Mineral Resources as of December 31, 2018
Classification
Tonnes (000)
Ag (g/t)
Au (g/t)
Contained Metal
Ag (Moz)
Au (koz)
Measured
Indicated
Measured + Indicated
Inferred
Notes:
49
272
321
2,415
77
84
83
196
0.56
0.59
0.59
1.44
0.1
0.7
0.9
15.2
1
5
6
112
• Mineral Resources are as defined by the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves
• Mineral Resources are exclusive of Mineral Reserves
• Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability
• Mineral Resources are estimated as of June 30, 2018 and reported as of December 31, 2018 taking into account
•
production related depletion for the period through December 31, 2018
Eric Chapman, P.Geo. (APEGBC #36328) is the Qualified Person for resources being an employee of Fortuna Silver Mines
Inc.
• Mineral Resources are reported based on underground mining within optimized stope designs using a cut-off grade of
100 g/t Ag Eq based on assumed metal prices of US$ 18.25/oz Ag and US$ 1,320/oz Au, estimated metallurgical recovery
rates of 92 % for Ag and 91 % for Au (Ag Eq (g/t) = Ag (g/t) + (Au (g/t)*((1,320/18.25)*(92/91)), and an operating cost
of US$ 52.50/t
• Mineral Resource tonnes are rounded to the nearest thousand
•
Totals may not add due to rounding
Factors that may affect the estimates include metal price and exchange rate assumptions; changes to the
assumptions used to generate the cut-off grade; changes in local interpretations of mineralization geometry and
continuity of mineralized zones; changes to geological and mineralization shape and geological and grade continuity
assumptions; variations in density and domain assignments; geometallurgical assumptions; changes to geotechnical,
mining, dilution, and metallurgical recovery assumptions; change to the input and design parameter assumptions
that pertain to the conceptual stope designs constraining the estimates; and assumptions as to the continued ability
to access the site, retain mineral and surface rights titles, maintain environment and other regulatory permits, and
maintain the social license to operate.
There are no other known environmental, legal, title, taxation, socioeconomic, marketing, political or other relevant
factors that would materially affect the estimation of Mineral Resources or Mineral Reserves that are not discussed
in this Report.
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9. Mineral Reserves
Mineral Reserve estimates follow standard industry practices, considering only Measured and Indicated Mineral
Resources as only these categories have sufficient geological confidence to be considered Mineral Reserves (CIM,
2014). Subject to the application of modifying factors, Measured Resources may become Proven Reserves and
Indicated Resources may become Probable Reserves. Mineral Reserves are reconciled quarterly against production
to validate dilution and recovery factors.
Metal prices used for Mineral Reserve estimation were determined as of May 2018 by the corporate financial
department of Fortuna from market consensus.
Metallurgical recoveries were based on metallurgical test work and operational results at the plant from July 2017
to June 2018.
NSR values were dependent on various parameters including metal prices, metallurgical recovery, price deductions,
refining charges and penalties.
A breakeven cut-off grade was determined based on all variable and fixed costs applicable to the operation. These
include exploitation and treatment costs, general expenses and administrative and commercialization costs
(including concentrate transportation).
Mineral Reserves as of December 31, 2018 are reported in Table 1.2.
Table 1.2 Mineral Reserves as of December 31, 2018
Classification
Tonnes (000)
Ag (g/t)
Au (g/t)
Contained Metal
Ag (Moz)
Au (koz)
Proven
Probable
Proven + Probable
Notes:
393
4,779
5,172
237
235
235
1.97
1.51
1.55
3.0
36.0
39.0
25
232
257
• Mineral Reserves are as defined by the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves
• Mineral Reserves are estimated as of June 30, 2018 and reported as of December 31, 2018 taking into account
production-related depletion for the period through December 31, 2018
• Mineral Reserves are reported based on underground mining within optimized stope designs using an NSR breakeven
cut-off of US$ 65.90/t, equivalent to 131 g/t Ag Eq and 134 g/t Ag Eq for the Taviche Oeste concession due to an
additional 2.5 % royalty
• Metal prices used in the NSR evaluation are US$ 18.25/oz for silver and US$ 1,320/oz for gold
• Metallurgical recovery values used in the NSR evaluation are 92 % for silver and 91 % for gold based on actual plant
recoveries
• NSR values taking into account refining charges used in the estimation are US$ 15.67/oz for silver and US$ 1,129/oz for
gold with the exception of material located in the Taviche Oeste concession where NSR values are US$ 15.27/oz for
silver and US$ 1,100/oz for gold
Costs used in NSR breakeven cut-off determination are US$ 31.48/t for mining; US$ 16.55/t for processing; and US$
17.91/t for other costs including distribution, management, community support, general service and administration
•
• Mining recovery is estimated to average 89 % and mining dilution 12 %
•
Amri Sinuhaji, P.Eng (APEGBC #48305) is the Qualified Person for reserves, being an employee of Fortuna Silver Mines
Inc.
• Mineral Reserve tonnes are rounded to the nearest thousand
•
Totals may not add due to rounding
10. Mining methods
Cuzcatlan commenced production at the San Jose Mine in September 2011 and as of December 31, 2018 had
produced 35.9 Moz of silver and 269 koz of gold. The mining method applied in the exploitation of the veins is
overhand cut-and-fill using a mechanized extraction methodology.
Production capacity at the mine has been increased on two occasions; in September 2013 it was increased to 1,800
tonnes per day and most recently, in June 2016 the production capacity was increased to 3,000 tpd, through a further
plant expansion.
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In May of 2018, a third-stage filtered dry stack tailings facility was commissioned on time and on budget with an
increased capacity of filtered tailings to handle 1.5 years of production with further expansions planned for 2019
and 2020 that would be sufficient to store all tailings for the presently defined life-of-mine plan (LOMP). Cuzcatlan
is in the process of obtaining the permit to allow the construction of the 2019 tailings expansion.
Mineral Reserves are estimated at 5.2 million tonnes as of December 31 2018, which is sufficient for almost a five-
year life-of-mine (LOM) consisting of 350 days in the year at a mill throughput rate of 3,000 tpd. The LOM annual
average production will be approximately 7 Moz of silver and 46 koz of gold based on an average head grade of 232
g/t Ag and 1.52 g/t Au.
The QP is of the opinion that:
•
•
•
•
The mining method being used is appropriate for the deposit being mined. The underground mine design,
stockpiles, tailings facilities, and equipment fleet selection are appropriate for the operation
The mine plan is based on historical mining and planning methods practiced at the operation for the
previous seven years, and presents low risk
Inferred Mineral Resources are not included in the mine plan, and were set to waste
The mobile equipment fleet presented is based on the actual present-day mining operations, which is
known to achieve the production targets set out in the LOM
• All mine infrastructure and supporting facilities meet the needs of the current mine plan and production
rate
11. Recovery methods
The current process plant design is split into four principal stages including; crushing; milling; flotation; and
thickening, filtering and shipping.
The QP considers process requirements to be well understood, and consistent based on the actual observed
conditions in the operating plant. There is no indication that the characteristics of the material planned for mining
will change and therefore the recovery assumptions applied for future mining are considered as reasonable for the
LOM.
12. Project infrastructure
The QP is confident that all mine and process infrastructure and supporting facilities are included in the present
general layout to ensure that they meet the needs of the mine plan and production rate and notes that:
•
•
The San Jose Mine is located 47 km, or one hour by road from the city of Oaxaca, the main service center
for the operation, with good year-round access
The mine site infrastructure has a compact layout footprint of 50.15 ha, with an additional 69.69 ha for the
tailings storage facilities
• An expansion to the dry stack tailings facility will commence in 2019, with a second phase planned for 2020,
increasing total capacity to 4,039,000 m3, sufficient for the LOM
•
Power is provided to the mine from the main grid via a 115,000 volt circuit, as well as a secondary reserve
power supply line, all managed by CFE
• Water requirements are 2.7 m3 of water to process one tonne of ore being primarily sourced from water
pumped to the surface from the underground dewatering system
• All process buildings and offices for operating the mine have been constructed, with camp facilities not
required due to the proximity of the site to urban
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13. Market studies and contracts
Since the operation commenced commercial production in September 2011 a corporate decision was made to sell
the concentrate on the open market. In order to get the best commercial terms for the concentrates, it is Fortuna’s
policy to sign contracts for periods no longer than one year. All commercial terms entered between the buyer and
Cuzcatlan are regarded as confidential, but are considered to be within standard industry norms.
The QP has reviewed the information provided by Fortuna on marketing, contracts, metal price projections and
exchange rate forecasts and notes that the information provided support the assumptions used in this Report and
are consistent with the source documents, and that the information is consistent with what is publicly available
within industry norms.
14. Environmental studies and permitting
The mining operation has been developed in strict compliance with the regulations and permits required by the
government agencies involved in the mining sector. In addition, all work follows the international quality and safety
standards set forth under standards ISO 14001 and OHSAS 18000.
Despite the above, on October 8, 2018 abnormally high rainfall caused a contingency pond to overflow at the dry
stack tailings facility. The contingency pond collects water from a ditch system at the dry stack facility designed to
capture and manage rain water.
Cuzcatlan took steps to mitigate the risk of future overflows by immediately increasing its pumping capacity at the
contingency pond. No damage occurred to the tailings dam or to the dry stack infrastructure. San Jose tailings are
monitored and sampled continuously, are free of heavy metals or other contaminants, and are characterized as
sterile.
Cuzcatlan notified the relevant environmental authorities, PROFEPA and CONAGUA on the day of the incident.
Cuzcatlan worked with federal, state and local authorities as they conducted inspections of the facilities at San Jose
and sampling of the Coyote Creek. Results of the sampling indicated no contamination or pollution occurred due to
the overflow.
On February 14, 2019, PROFEPA released their final report on the incident confirming that the overflow did not
contaminate soil, and therefore no remediation was required. As of the effective date of this Report, Cuzcatlan is
awaiting issuance of the final report from CONAGUA.
To the extent known, all permits that are required by Mexican law for the mining operation have been obtained,
with the exception of the permit to construct the stage 4 expansion of the dry stack tailings facility. Cuzcatlan is in
the process of obtaining the permit from the Secretary of the Environment and Natural Resources (SEMARNAT) and
expect to obtain this in the second quarter of 2019.
Cuzcatlan continues developing sustainable annual programs for the benefit of local communities, including
educational, nutritional and economic programs. The above mentioned social and environmental responsibilities
support a good relationship between the company and local communities. This will aid the development and
continuity of the mining operation and improve the standard of living and economies of local communities.
The mine closure plan has been designed to ensure the rehabilitation of the area where the mine is located. The
projected total cost required to close present and future infrastructure at the mine is US$ 5.3 million.
15. Capital and operating costs
Capital and operating cost estimates are based on established cost experience gained from current operations,
projected budget data and quotes from manufacturers and suppliers.
The capital and operating cost provisions for the LOMP that supports Mineral Reserves have been reviewed. The
basis for the estimates is appropriate for the known mineralization; mining and production schedules; marketing
plans; and equipment replacement and maintenance requirements.
The QP considers the capital and operating costs estimated for the San Jose Mine as reasonable based on industry-
standard practices and actual costs observed for 2018.
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16. Economic analysis
Fortuna is using the provision for producing issuers, whereby producing issuers may exclude the information
required under Item 22 for technical reports on properties currently in production and where no material production
expansion is planned.
Mineral Reserve declaration is supported by a positive cashflow for the period set out in the LOMP based on the
assumptions detailed in this Report.
17. Other relevant data and information
Fortuna considers that this Report contains all the relevant information necessary to ensure the report is
understandable and not misleading.
18. Conclusions, risks and opportunities
This Report represents the most accurate interpretation of the Mineral Reserve and Mineral Resource available as
of the effective date of this report. The conversion of Mineral Resources to Mineral Reserves was undertaken using
industry-recognized methods, and estimated operational costs, capital costs, and plant performance data. Thus, it is
considered to be representative of future operational conditions. This Report has been prepared with the latest
information regarding environmental and closure cost requirements.
A number of opportunities and risks were identified by the QPs during the evaluation of the San Jose Mine.
Opportunities include:
•
•
The wide nature of mineralization of the Stockwork zone in combination with the medium to good rock
quality provides an opportunity to implement a more productive (bulk) mining methodology such as long
hole stoping to extract this material. Implementation of this method could potentially reduce mining costs
and increase mine productivity.
Improvements in mining productivity through optimizing the mining cycle. As shotcreting comprises a
significant component of the mining cycle, a better accelerator agent could shorten the curing and overall
cycle times. Additionally, cycle times could be further reduced by implementing a trim or controlled blasting
system so that less ground support is required due to over-blasting or over scaling.
• Operational delays could be reduced by implementing a better underground communication system.
•
•
The ventilation system could be improved in specific areas of the mine where elevated temperature are
encountered improving productivity in these areas.
Significant exploration potential exists for the Victoria mineralized zone as mineralization remains open in
all directions.
Risks include:
•
•
•
The recently discovered presence of elevated fluorine in the concentrate resulting in unexpected penalties
to sales. Limited information is currently available to understand the orogenesis, dynamics, and distribution
of fluorine within the deposit, although preliminary sampling suggests it is focused in the Trinidad vein with
a limited spatial extent. However, a risk exists that fluorine levels may be elevated in other veins and areas
of the deposit.
Environmental liability from the pond over-flow in October 2018, mitigated by the rapid response to the
incident and independent testing of the affected area that indicates no heavy metals or other contaminants
are present.
Potential litigation regarding the disputed royalty on the Progresso concession, which has been mitigated
by Cuzcatlan obtaining multiple legal opinions that state the royalty is invalid and taking steps to remove
the royalty from the register.
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19. Recommendations
Recommendations for the next phase of work have been broken into those related to ongoing exploration activities
and those related to additional technical and operational studies. Recommended work programs are independent
of each other and can be conducted concurrently unless otherwise stated. The exploration-related programs are
estimated at a total cost of US$ 4.22 million. The operational improvement studies are recommended to be
conducted inhouse and therefore do not involve a direct cost.
•
•
i)
Exploration activities
Exploration of the Trinidad Deposit. The Fortuna vein is known to extend south of the presently-estimated
Mineral Resource by the presence of historical workings and previous drilling demarking where the Fortuna
vein was located in the San Ignacio area. It is recommended that Cuzcatlan explore the mineralized
continuity of this vein as it extends from the Trinidad Deposit into the San Ignacio area with a first phase
drill program involving the drilling of 3,500 m diamond holes at an estimated cost of US$ 492,000. In
addition to testing the extents of the Fortuna vein, the Paloma vein remains open at higher elevations and
it is recommended that upon the issuance of appropriate permits the near-surface potential of the Paloma
vein be explored with the drilling of 1,500 m of diamond holes from surface at an estimated cost of
US$ 203,000.
Exploration of the Victoria mineralized zone. It is recommended that Cuzcatlan continue to explore the
extent of the Victoria mineralized zone above and to the north of the presently-estimated Mineral
Resource. The higher elevations of the vein system can be drilled from surface, with the issuance of the
appropriate permits, and would involve the drilling of 2,000 m diamond holes at an estimated cost of
US$ 257,000. To gain access for exploration of the vein to the north and at depth it is recommended that
a 200 m exploration drift be mined at a cost of US$ 520,000. The drive will allow the drilling of 4,500 m of
underground diamond drill holes to explore the vein continuity at an estimated cost of US$ 509,000.
• Metallurgical testwork. It is recommended that metallurgical testwork be conducted on samples obtained
from the Victoria mineralized zone to establish
likely metallurgical recoveries and processing
characteristics. Testwork should include mineralogical evaluations, along with bond work index, grinding,
flotation and granulometry tests. The estimated cost of the testwork is US$ 32,000.
• Other exploration programs. The Guilla concession of the San Jose Mine has been identified as an area that
has high potential for the discovery of epithermal veins based on surface mapping. It is recommended that
permits be obtained to allow targets to be drilled on this concession. If permits are obtained a drill program
consisting of 9,000 m of diamond holes at an estimated cost of US$ 1,305,000 is recommended. In addition,
it is recommended that a 250 m underground exploration drift be mined in 2019 to the north of the Trinidad
Deposit to facilitate future underground drilling programs to explore the convergence of the Trinidad
Deposit and the Victoria mineralized zone where obtaining surface drill permits has proved problematic.
The estimated cost of this drift is US$ 500,000.
• Delineation (infill) drilling. Cuzcatlan is planning to continue the delineation drilling from underground in
2019 of the Trinidad Deposit. A total of 2,780 m of drilling is planned at a budgeted cost of US$ 400,000.
ii)
Technical and operational studies
•
Fluorine. It is recommended that the operation continues to assay representative pulps for fluorine and
uses these to improve short term and long-term estimates of fluorine behavior in the deposit as well as
conducting metallurgical tests at the plant to determine methods to reduce fluorine levels in the
concentrate.
• Mine plan optimization and risk analysis. The conditional simulation methodology used in the estimation
of the primary veins results in the generation of 50 equi-probable realizations. By assessing these multiple
potential scenarios, the mine plan can be optimized with the identification of low- and high-risk regions of
the deposit.
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• Bulk density measurements. It is recommended that the number of bulk density measurements be
increased in secondary veins. If sufficient measurements are obtained, bulk density can be estimated rather
than the presently-used density assignment methodology.
• Mining method. As part of continuous improvement initiatives to reduce mining cost and to increase mine
productivity, it is recommended that a study be conducted to evaluate the feasibility of a bulk mining
method. Part of the considerations for the mining method selection is to investigate mining method and
mining sequence that eliminate the necessity to leave mineralized material as pillars. Additionally, the study
should investigate mine productivity, equipment and manpower requirements, as well as infrastructure
and cost evaluations.
• Mining recovery. A review on pillar design is recommended, particularly for narrow veins with more
competent country rock where mining recovery could be increased. Cell mapping and geotechnical logging
should be performed on a more frequent basis and detailed pillar analysis conducted based on the specific
local rock conditions.
• Mining dilution. It is recommended that the mine implements an improved survey practice by increasing
the number of points taken per survey or to implement the usage of a scanner. It is further recommended
that the mine reconciles the dilution estimate on a more frequent basis and stores the information into a
database so that statistical analysis such as trends, variations and local dilution analysis can be performed.
This information will assist the Cuzcatlan mine planning department in making timely decisions to
remediate dilution issues and improve Mineral Reserve estimates.
[End of Extract of Summary from San Jose Technical Report]
See “Three Year History and Recent Developments - Mineral Reserve and Mineral Resource Estimates” herein for
further information regarding the San Jose Mine.
Exploration Work Subsequent to the San Jose Technical Report
San Jose Brownfields Exploration Results 2021
During the second half of 2020 and the first quarter of 2021, the Company undertook step-out and infill drilling at
the San Jose Mine which has established continuity of high-grade mineralization in the upper levels of the Trinidad
Footwall structures. The successful drill program represents 4,670 meters of step-out and infill drilling in 22 drill
holes and targeted both resource upgrades and the potential to expand the resource outside of the current area of
Mineral Reserves. Mineralization remains open in at least two directions and it is adjacent to existing mine
infrastructure, and as a result there is potential for inclusion of this material in near-term production. Highlights of
the step-out and infill drilling include:
Step-out drill highlights:
SJOM-955: 699 g/t Ag and 3.57 g/t Au over an estimated true width of 4.1 meters
SJOM-1002: 1,931 g/t Ag and 6.76 g/t Au over an estimated true width of 5.4 meters
Infill drill highlights include:
SJOM-1014: 306 g/t Ag and 1.38 g/t Au over an estimated true width of 9.5 meters
SJOM-1016: 760 g/t Ag and 3.24 g/t Au over an estimated true width of 3.4 meters
SJOM-1017: 967 g/t Ag and 4.25 g/t Au over an estimated true width of 8.4 meters
SJOM-1020: 809 g/t Ag and 2.78 g/t Au over an estimated true width of 1.4 meters
SJOM-1021: 473 g/t Ag and 1.25 g/t Au over an estimated true width of 14.9 meters
Please refer to the Company’s news release dated March 29, 2021 entitled “Fortuna intersects 1.93 kilos of silver
and 6.76 g/t gold over 5.4 meters at the San Jose Mine, Mexico”, for full details.
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On December 9, 2021, the Company the announced the results of a 25,064 meter, 59 hole step-out exploration
drilling program from underground platforms ahead of production at San Jose, started in March 2021 and which has
continued to define continuity of key mineralized structures and targeted the Bonanza Hanging wall (Bhw), Trinidad
Norte and Victoria mineralized zone (VMZ) structures. In addition to the underground drilling, testing of two target
zones to the north and south of the mine was successful in identifying additional mineralized structures with drilling
continuing. Highlights of the program include:
• SJOM1053 (VMZ): 290 g/t Ag and 2.00 g/t Au over an estimated true width of 1.5 meters
• SJOM1088 (Magdalena): 245 g/t Ag and 1.41 g/t Au over an estimated true width of 4.6 meters
• SJOM1091 (Magdalena): 506 g/t Ag and 2.61 g/t Au over an estimated true width of 1.7 meters
• SJOM1103 (San Ignacio): 209 g/t Ag and 1.47 g/t Au over an estimated true width of 1.1 meters
• SJOM1105 (Magdalena): 302 g/t Ag and 0.77 g/t Au over an estimated true width of 1.8 meters
including 1,010 g/t Ag over 0.5 meters
Please refer to the Company’s news release dated December 9, 2021 entitled “Fortuna drills 16.5 g/t gold over 6.3
meters at Séguéla and provides exploration update”, for full details.
Lindero Mine, Argentina
The following is the Summary from the technical report (the “Lindero Technical Report”) entitled “Fortuna Silver
Mines Inc.: Lindero Property, Salta Province, Argentina”, with an effective date of October 31, 2017 prepared by
Eric Chapman, P.Geo, Edwin Gutierrez, SME Registered Member, Geoff Allard, PE, and Denys Parra Murrugarra,
SME Registered Member. This Summary is subject to certain assumptions, qualifications and procedures described
in the Lindero Technical Report and is qualified in its entirety by the full text of the Lindero Technical Report which
is available for viewing on SEDAR at www.sedar.com and is incorporated by reference in this AIF, and is also filed
with the SEC on EDGAR (available at www.sec.gov). Defined terms and abbreviations used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Lindero Technical Report.
Property Description, Location and Access
The Project is in the Argentine puna, a cool, arid zone with a minimum elevation of approximately 3,500 to 4,000 m.
The climate is generally dry and windy; it can be cold and snowy during storms.
The Lindero Project is located 260 km due west of Salta, Argentina, the main service center of the region, at latitude
25° 05’ south and longitude 67° 47’ west. Drive time from Salta to the Project is approximately 7 to 7.5 hours, over
a road distance of 420 km. The nearest town to the Lindero Project is Tolar Grande (population 250) located 75 km
to the northeast.
Access to the Lindero Project is via National Route 51, which passes through the towns of San Antonio de Los Cobres
and Olacapato; and Provincial Route 27, via Pocitos and Tolar Grande.
The Lindero Project contains two known porphyry gold-copper deposits. The Lindero Deposit is the focus of the
Feasibility Study and the Lindero Technical Report; whereas the Arizaro Deposit, located 3.2 km southeast of the
Lindero Deposit, is described only in terms of exploration conducted to date.
The mineral tenement holdings cover 3,500 ha, and comprise 35 pertenencias, each of 100 ha, which are constrained
by Gauss Kruger Posgar co-ordinates generated by survey. Tenure is held in the name of Mansfield Minera S.A.
(“Mansfield”), an indirectly wholly-owned subsidiary of the Company. There is no expiry date on the pertenencias,
providing Mansfield meets expenditure and environmental requirements, and pays the appropriate annual mining
fees.
A 3 % provincial royalty “boca mina” is payable on revenue after deduction of direct processing, commercial, general
and administrative costs. There are no royalties payable to any other third party.
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Surface rights are owned by the provincial state (Propiedad Fiscal) of Salta. There are no reservations, restrictions,
rights-of-way or easements on the Lindero Project to any third-party. Mansfield holds a registered camp concession,
and a granted and surveyed access right-of-way. Water permits and rights of access to the Lindero Project are
guaranteed through water and access licenses granted by the Mining Court of Salta.
Surface rights for construction of a mining operation and plant have not been granted from the Provincial authorities.
Development of such infrastructure will require additional negotiation and potentially, supporting studies. Mansfield
does not foresee any issues with obtaining the necessary permits for construction.
History
Gold–copper mineralization associated with potassic alteration was first discovered at the Lindero Project by
Goldrock geologists in November 1999, and led to claim staking.
The area was explored using reconnaissance and detailed geological mapping, soil geochemistry (talus fines), trench
sampling and mapping during 2000 and early 2001. As a result of this work, mineralization at what is now the Lindero
Deposit was identified in September 2000.
From April 2002 to March 2003, Rio Tinto had an option on the property with Goldrock, during which time additional
exploration including drilling and metallurgical testwork was conducted. An inhouse preliminary Mineral Resource
estimate for the Lindero Deposit was performed. As the tonnage and grade estimate did not meet Rio Tinto’s
corporate targets, the option was not exercised.
Goldrock resumed as project operator, and between 2005 and 2013 completed additional exploration and drilling.
Based on this, a Pre-Feasibility Study for the Lindero Deposit was completed by AMEC in 2010, assuming a production
throughput of 30,000 tonnes of ore per day (AMEC Americas Ltd., 2010a; 2010b). In 2012, Goldrock commissioned
Kappes, Cassiday & Associates (KCA) to complete a Feasibility Study using a reduced throughput of 18,750 tpd.
In 2015, Goldrock commissioned KCA to work with local engineering firms in advancing the engineering design for
the Project to a basic engineering level, and update the 2013 Feasibility Study. A new Feasibility Study incorporating
these design changes, additional metallurgical testwork, and updated costs and gold price assumptions was filed by
KCA in 2016 (KCA, 2016a).
In July 2016, the Company completed the acquisition of all issued and outstanding shares of Goldrock, making
Mansfield a wholly-owned subsidiary of Fortuna. Upon completion of the transaction, Fortuna continued to advance
the optimization of the 2016 Feasibility Study through additional drilling as well as conducting tradeoff metallurgical
tests and detailed engineering revisions with the objective of reaching a construction decision for the Lindero
Project.
Geology and Mineralization
In the Central Andes, the altiplano or puna is a high plateau of more subdued relief between the Eastern Cordillera,
a rugged region usually rising to between 3 km and 4.5 km, and the Western Cordillera, which is a high spine of
mountains that may reach as much as 5 km in height. The Arizaro Volcanic Complex consists of two superimposed
concentric volcanic centers, the Arizaro and the Lindero cones, located in the Archibarca volcanic arc at the southern
margin of the Salar de Arizaro basin. Basement rocks crop out to the north of the Lindero Deposit, and consist of
coarse-grained Ordovician granites uncomformably overlain by Early Tertiary red bed sandstones. The Lindero–
Arizaro complex, a series of diorite to monzonite porphyritic stocks, intrudes these units.
Mineralized zones at the Lindero Deposit form a semi-circular shape about 600 m in diameter which extends to a
depth of 600 m, consisting of four different zones at the surface. The distribution of gold–copper mineralization at
Lindero shows a strong relationship to lithology, stockwork veinlets, and alteration assemblages. Gold values average
0.70 g/t Au and copper values are typically about 0.11 % Cu. Higher grades of gold–copper (approximately 1 g/t Au
and 0.1 % Cu) are commonly associated with sigmoidal quartz, quartz–magnetite–sulfide, biotite-magnetite–
chalcopyrite, magnetite–chalcopyrite and quartz–limonite–hematite stockworks that are strongly associated with K-
feldspar alteration. This association is very common in the east zone of the deposit, where the highest gold grades
occur. At other locations where one or more stockwork types are missing or the intensity of fracturing is lower,
mineralization tends to be weaker and the grades of gold tends to be lower (approximately 0.4 g/t Au).
Gold mineralization at Lindero is characterized by native, free-milling gold associated with chalcopyrite and/or
magnetite grains with rare interstitial quartz.
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The weathered oxidation zone at Lindero is generally poorly developed and averages 44 m in thickness.
The Arizaro volcanic center is characterized by fine- to medium-grained hornblende diorite to monzonite porphyritic
stocks. The Arizaro Deposit is dominated by a main, moderately to strongly mineralized intrusive unit that crops out
in the central part of the prospect area. It consists of fine hornblende porphyritic diorite intruded by several stocks,
dikes, igneous-cemented breccias and hydrothermal breccias. Smaller stocks are exposed in a few areas. Dikes of
andesitic and dacitic composition are generally distributed radially to the main intrusive unit.
Several alteration assemblages are noted in the Arizaro Deposit area. Alteration patterns are semi-concentric and
asymmetric, with a core of moderate to strong potassic alteration including zones of K-feldspar-rich magnetite–silica
alteration. An incomplete rim of chloritic alteration is developed outboard of the potassic alteration. In the southeast
part of the deposit, intermediate argillic alteration has formed and overprints potassic alteration. Sericitic and very
weak argillic alteration (hydrolytic alteration) has developed in the volcanic tuffs. To the south and west of the
deposit, chloritic alteration passes directly to propylitic alteration. An actinolite–magnetite alteration assemblage
forms in the eastern part of the deposit area.
Arizaro gold–copper mineralization is hosted in one body which has a semi-oval shape at the surface. In the center
there is a high-grade body with a semi-ellipsoidal form, extending north-south for 480 m and about 50 m wide. The
Arizaro Deposit has mineralization styles with copper–gold grades that are strongly correlated with different
alteration assemblages. Mineralization is mainly associated with potassic alteration. This occurs generally in multi-
directional veins, vein stockworks and disseminations. In some areas, the vein density is high, forming vein
stockworks in the intrusive rocks. These vein stockworks are limited to magnetite–biotite veinlets, quartz–
magnetite–chalcopyrite veinlets, late magnetite breccias and in late-stage mineralization events, anhydrite–sulfide
veinlets. Chalcopyrite and bornite are the main copper minerals. Coarse gold was observed and confirmed with X-
ray diffraction analysis in the University of Neuquen, Argentina, laboratory.
Lindero and Arizaro are examples of gold-rich porphyry copper deposits as described by Sillitoe (2000). More
specifically, they show affinities with the porphyry gold deposit model (Rytuba and Cox, 1991; also termed dioritic
porphyry gold deposits by Seedorff et al., 2005). These are exemplified by the Refugio, Cerro Casale, Marte, and
Lobo gold deposits of the Miocene-age Maricunga belt, Chile, approximately 200 km south of Lindero. Vila and
Sillitoe (1991) and Muntean and Einaudi (2000, 2001) described those deposits in detail.
The deposits of the Project area are considered to be examples of porphyry-style deposits, in particular gold-rich
porphyries based on the following:
• High level (epizonal) stock emplacement levels in magmatic arc
• High-level stocks and related dikes intrude their coeval and cogenetic volcanic piles. Intrusions range from
fine through coarse-grained, equigranular to coarsely porphyritic
• Mineralization in or adjoining porphyritic intrusions of quartz diorite/monzonite composition
• Mineralization is spatially, temporally, and genetically associated with hydrothermal alteration of the
intrusive bodies and host rocks
• Gold–copper mineralization formed during intrusion of multiple phases of similar composition intrusive
rocks
•
•
Large zones of quartz veining, stockwork mineralization, and disseminated pyrite
Tenor of gold and copper grades, i.e., large tonnage but low grade
At the Lindero Deposit, native gold and electrum are finely disseminated in subparallel to stockwork quartz + sulfide
± magnetite ± anhydrite veins and in some cases in matrices of hydrothermal breccias. Magnetite is common to
abundant in mineralized zones. These mineralized stockworks and potassic alteration are interpreted to have formed
as the result of degassing of the early intrusive bodies. Fluid pressures during degassing triggered fracturing of the
intrusions and wall rock, allowing gold-rich fluids to circulate and precipitate, forming a gold–copper orebody. Later
intrusions resulted in weak to moderate gold–copper mineralization forming mostly along and immediately fringing
these intrusive contacts. Finally, post mineralized intrusives were overprinted onto the north and west of the
deposit.
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Understanding of the geological setting and model concept of the Lindero and Arizaro is adequate to provide
guidance for exploration and development of the deposits.
Exploration, Drilling and Sampling
The Lindero Deposit was discovered in late 2000. Several exploration programs have been conducted by Rio Tinto,
Goldrock and Fortuna on the Lindero Property:
• Goldrock campaign: August 2000 to October 2001, which included geologic mapping, soil sampling, and
trench sampling
• Rio Tinto Campaign: May 2002 to February 2003, which included road sampling, geophysics (43 km of
ground magnetics and 11 km of induced polarization (IP)), and drilling (10 holes for a total of 3,279 m)
• Goldrock campaign: October 2005 to January 2008, which included geologic mapping and modeling,
trenching, and a significant drilling program (106 holes for a total of 30,024 m)
• Goldrock campaign: September 2008 and August 2010 to November 2010, which consisted of additional
drilling (23 holes) for the Pre-Feasibility Study
•
Fortuna campaign: September 2016 to December 2016 consisting of 8 holes for metallurgical samples, 2
holes for geologic interpretation and 2 twin holes
Drilling completed at the Lindero Property comprises 151 diamond drill holes totaling 42,598 m at the Lindero
Deposit, as well as 29 diamond drill holes totaling 8,855 m at the Arizaro Deposit. Mineral Resources are only
estimated at the Lindero Deposit. Ground conditions were good, and core recovery was generally above 90 %. Drill
hole collars were marked with PVC pipes introduced in the hole at surface and then cemented. All holes drilled since
2005 as well as the 10 holes drilled during the 2002 campaign were surveyed by Servicios Topograficos with a
differential GPS. Coordinates are projected on the WGS 84 Datum ellipsoid and calibrated according to the position
of Geodetic point IGM N° PR-02-015, located a few kilometers from the Project. The results are available in
geographic co-ordinates and in metric co-ordinates (UTM and Gauss Kruger), using the WGS 84 datum.
During Rio Tinto’s exploration drilling campaign in 2002, undertaken by Connors Drilling, no downhole surveys were
completed despite the fact that many of the holes extended beyond 300 m in depth. Holes drilled during the first
Goldrock campaign were not originally downhole surveyed either. In June 2006 GEC-Geophysical Exploration &
Consulting S.A. (GEC) was contracted by Goldrock to perform borehole surveying services with a Reflex Maxibor II
System 3™ Probe (Maxibor™), which is not affected by magnetism. In 2008, Goldrock detected that the Maxibor™
surveys showed an unacceptably large deviation in the drill holes and a decision was made to re-survey all holes that
showed a deviation of more than 5 %. Comprobe Chile Ltd. (Comprobe) was contracted to re-survey the holes
considered by Goldrock as having incorrect downhole deviations. A surface-recording gyroscopic instrument was
used, and orientation and dip parameters were recorded every 10 m. For the 2016 drilling campaign, Fortuna
retained the services of Construccion & Mineria S.A., based out of Mendoza, Argentina, to complete downhole
surveys for each hole upon completion. Downhole surveys were conducted using Reflex™ gyroscopic equipment
with readings taken at 5-m intervals.
All core was logged for geology and geotechnical characteristics. All logging was digital, and was incorporated daily
into the Maxwell DataShed™ database system. Data were recorded initially with Excel™ templates, and later with
Maxwell LogChief™ application using essentially the same structure. Separate pages were designed to capture
metadata, lithology, alteration, veins, sulfide–oxide zones, sulfide–oxide surfaces, minerals (sulfides, oxides, and
limonite), sulfates, structures (contacts, fractures, veins, and faults with attitudes to core axis), magnetic
susceptibility, and special data (samples collected for geochemistry, thin section examinations, the core library,
skeleton core, etc.). Intensity of alteration phases was recorded using a numeric 1 to 4 scale (weak, moderate, strong,
complete); abundance of veins and most other minerals were estimated in volume percent.
The Lindero Deposit is a gold-rich porphyry with low-grade mineralization permeating throughout the deposit,
making the calculation of true thickness impossible as no definitive across strike direction exists. The mineralization
appears to be annular in shape at surface due to the intrusion of barren to low-grade intrusive rocks into the core of
the system, but this circular shape is not representative of true thickness.
-71-
Core samples are marked and collected on 2 m intervals that honor lithological boundaries. Samples weigh between
4 and 8 kg depending on core diameter and recovery. Channel samples were collected using a rock saw to cut a 2 x
3 cm channel in exposed bedrock in trenches and road cuts. The material was removed from the channel with a
chisel. Sample preparation for most samples consisted of crushing to 70 % passing 10 mesh and pulverization to 95%
passing 150 mesh. Density samples are routinely collected by Mansfield from drill core on approximate 10-m
intervals. Samples consist of pieces of core approximately 7 cm in length and weighing between 93 g and 408 g.
All samples collected by Mansfield were assayed for gold using a 30 g fire assay–atomic absorption (FA-AA) finish
and a second aliquot was selected for copper analysis using aqua regia digestion and AA analyses. For the drill
samples only, a full suite of trace elements was analyzed using an aqua regia digestion followed by inductively-
coupled plasma (ICP) analysis. Assay results and certificates were reported electronically by e-mail.
Fortuna samples were sent to the ALS Global sample preparation facility in Mendoza, Argentina. Following drying at
55°C, the samples were weighed and the entire sample crushed using a two-stage method, first with a jaw crusher
to 1 cm, and then by cone crusher to 70 % passing 10 mesh. The entire crushed sample was then pulverized to a
minimum of 95 % passing 80 mesh. Pulverized samples were then split using a riffle splitter to generate a 300 g
subsample that was pulverized to 95 % passing 150 mesh. This subsample was then split again using a riffle splitter
to generate three 100 g samples.
All samples were sent to accredited laboratories independent of Mansfield, Rio Tinto, and Fortuna.
Implementation of a quality assurance/quality control (“QAQC”) program is current industry best practice and
involves establishing appropriate procedures and the routine insertion of standard reference material (SRMs),
blanks, and duplicates to monitor the sampling, sample preparation and analytical process. Fortuna implemented a
full QAQC program to monitor the sampling, sample preparation and analytical process for the 2016 drilling
campaign in accordance with its companywide procedures. The program involved the routine insertion of SRMs,
blanks, and duplicates. Evaluation of the QAQC data indicate that the data are sufficiently accurate and precise to
support Mineral Resource estimation.
Data Verification
In 2009 an independent audit of the information used for the estimation of Mineral Resources and Mineral Reserves
at the time was conducted by AMEC, and summarized in the KCA (2016a) Technical Report. The work included
independent audits of the database, collar and downhole surveys, drill logs, assays, bulk density measurements, core
recovery, and QAQC results.
The 2009 audit concluded that the data verification programs undertaken on the data collected from the Lindero
Deposit up to 2009 supported the geologic interpretations, and the analytical and database quality, and therefore
the data could support Mineral Resource and Mineral Reserve estimation.
Fortuna reviewed the work performed by AMEC and concurs with their opinion. Fortuna has conducted additional
audits and verification of historical information used in prior Mineral Resource and Mineral Reserve estimates as
well as verifying new data generated during the 2016 drilling campaign to support assumptions for a construction
decision and the Mineral Resource and Mineral Reserve estimates reported in Section 14 and Section 15 of the
Lindero Technical Report. The verification process focused on the database; collars and downhole surveys; lithologic
logs; assays; metallurgical results; and geotechnical parameters. Fortuna checked all collar and downhole survey
information for each campaign against source documentation and completed a hand-held GPS survey of randomly
selected drill hole collars. The results showed a good agreement with locations in the database. In August 2016,
Fortuna initiated a comprehensive program of relogging to verify the original lithologic descriptions.
Fortuna contracted Call & Nicholas Inc. (CNI) to validate all geotechnical data, data collection methods, slope stability
analysis methods, and slope angle recommendations presented previously by other consultants to determine
feasibility-level slope angle recommendations for design of the planned Lindero final pit.
The QP is of the opinion that the data verification programs performed on the data collected from the Project are
adequate to support the geological interpretations, the analytical and database quality, and Mineral Resource
estimation at the Lindero Project.
-72-
Mineral Processing and Metallurgical Testing
The Lindero Project has an extensive body of metallurgical investigation comprising several phases of testwork as
indicated in the KCA (2016a) Technical Report, and summarized in Section 13 of the Lindero Technical Report. In
general, the testwork was done to industry standards. However, some leach conditions set for the testwork made
interpretation difficult. Reinterpretation of the raw test data provided the basis for advancing the metallurgical
knowledge base for Fortuna.
Since September 2016, Fortuna has performed complementary metallurgical testwork in the areas of comminution,
heap permeability and cement agglomeration, gold extraction in column tests, and copper removal with
sulfidization-acidification-recycle-thickening (SART) technology with the purpose of confirming and optimizing
process design criteria.
Table 1.1 shows key gold extraction results for 10-m columns from laboratory testwork, carried out in the first
semester of 2017, on material cured in a cyanide solution and agglomerated. A 4 % deduction (absolute) has been
used in the design to allow for the differences between laboratory and expected operational results.
Table 1.1
Key gold extraction results for 10-m columns
Met Type
1
2
3
4
Met Type
Description
Fresh Intrusive
Oxide Porphyry
Fresh porphyry
Sediments
Met Type as
Percentage of
Reserve
63
20
9
8
Weighted average
Gold Extraction
Laboratory
(%)
Field
(%)
79.4
82.2
82.5
72.5
79.7
75.4
78.2
78.5
68.5
75.7
Optimization of the process design has confirmed the benefit of the use of a high-pressure-grinding-roll (HPGR), the
inclusion of cyanide cure of ore, and copper removal/cyanide recovery with a SART plant. Results indicate that these
components allow for improved gold leaching kinetics and effective extraction of copper from the pregnant solution.
Ore will be crushed at a nominal rate of 18,750 tpd using a three-stage crushing system including a HPGR in the
tertiary stage. A final crush size of P80 6.0 mm is projected. The crushed product will be agglomerated and cured with
a cyanide solution and then conveyed to the leach pad. A mobile conveying and stacking system will be used to stack
ore in 10-m-high lifts. The life-of-mine (LOM) leach pad area is projected at 105 ha with a maximum height of 110
m. Leaching will be carried out in two stages with a first stage of 30 days and a second stage of 60 days.
The gold pregnant solution will be pumped at a rate of 400 m3/hr to a SART plant, where copper in solution will be
precipitated to maintain copper levels below 400 ppm in the solution. The Project contemplates an expansion of the
pregnant solution flow rate from 400 m3/hr to 600 m3/hr in year four with the objective of reducing gold ounce
inventory in the heap at the end of mining.
Following the SART plant, the pregnant solution will go to an adsorption, desorption, recovery (ADR) plant and then
to electrowinning and refining where gold will be poured in doré bars. LOM recovery is estimated at 75 %.
It is the opinion of the QP that the Lindero samples tested represent the orebody with respect to grade and
metallurgical response. The differences between metallurgical lithologies are minimal with regard to extraction.
Cyanide consumptions are higher with the more oxidized Met 2 samples as would be expected. Minimal
metallurgical differences were expected after review of the historical work.
Physical differences appear to have greater impact on the processing of the Lindero met types. Of significant
importance is the ability of the agglomerated ore to support the planned heap height.
No significant deleterious materials such as mercury or clays were noted in the samples tested.
-73-
A high level of metallurgical and process risk mitigation is incorporated in the process design with HPGR crushing,
agglomeration and the SART plant. With these installations any expected short-term variation in ore composition
(i.e. elevated soluble copper content) or physical properties (i.e. elevated gypsum levels or increased ore hardness
at depth) can be accommodated in the normal course of operations.
Mineral Resources and Mineral Reserves
Mineral Resources have only been estimated for the Lindero Deposit.
Mineral Resource estimation of the Lindero Deposit involved the use of drill hole and channel sample data in
conjunction with surface mapping to construct three-dimensional (3-D) wireframes to define individual lithologic
structures and oxide–mixed–sulfide horizons. Drill hole samples were selected inside these wireframes, coded,
composited and grade top cuts applied if applicable. Boundaries were treated as either soft, firm or hard with
statistical and geostatistical analysis conducted on composites identified in individual lithologic units. Gold and
copper grades were estimated into a geological block model consisting of 10 m x 10 m x 4 m selective mining units
(SMUs). Grades were estimated using dynamic anisotropy by ordinary kriging (OK) and constrained within an
ultimate pit shell based on estimated metal prices, costs, geotechnical constraints, and metallurgical recoveries to
fulfill the expectation of reasonable prospects of eventual economic extraction. Estimated grades were validated
globally, locally, and visually prior to tabulation of the Mineral Resources.
Mineral Reserves are exclusive of Mineral Resources and Mineral Reserve estimates have considered only Measured
and Indicated Mineral Resources as only these categories can be considered Mineral Reserves (CIM, 2014). Subject
to the application of modifying factors, Measured Resources may become Proven Reserves and Indicated Resources
may become Probable Reserves.
Mineral Reserves and Mineral Resources exclusive of Mineral Reserves as of September 9, 2017 are reported in Table
1.2 and Table 1.3 respectively:
Table 1.2
Mineral Reserves as of September 9, 2017
Classification
Tonnes (000)
Au (g/t)
Cu (%)
Contained Metal
Au (koz)
Proven
Probable
Proven + Probable
26,009
62,263
88,272
0.74
0.57
0.62
0.11
0.11
0.11
618
1,131
1,749
Table 1.3
Mineral Resources as of September 9, 2017
Classification
Tonnes (000)
Au (g/t)
Cu (%)
Measured
Indicated
Measured + Indicated
Inferred
610
11,897
12,507
5,700
0.24
0.24
0.24
0.36
0.06
0.07
0.07
0.10
Contained Metal
Au (koz)
5
92
97
65
Notes:
• Mineral Reserves and Mineral Resources are as defined by CIM Definition Standards on Mineral Resources and Mineral
Reserves
• Mineral Resources are exclusive of Mineral Reserves
• Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability
•
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 Lindero
• Mineral Resources and Mineral Reserves are estimated and reported as of September 9, 2017
•
Eric Chapman, P.Geo. (APEGBC #36328) is the Qualified Person for resources and Edwin Gutierrez (SME Registered
Member #4119110RM) is the Qualified Person for reserves, both being current or former employees of Fortuna Silver
Mines Inc.
-74-
•
• Mineral Reserves for Lindero are reported based on open pit mining within designed pit shells based on variable gold
cut-off grades and gold recoveries by metallurgical type. Met type 1 cut-off 0.27 g/t Au, recovery 75.4 %; Met type 2
cut-off 0.26 g/t Au, recovery 78.2 %; Met type 3 cut-off 0.26 g/t Au, recovery 78.5 %; and Met type 4 cut-off 0.30 g/t
Au, recovery 68.5 %. The cut-off grades and pit designs are considered appropriate for long-term gold prices of US$
1,250/oz. Assumptions used in the pit design are the same as those for the resources
Lindero Mineral Resources are reported within a conceptual pit shell above a 0.2 g/t Au cut-off grade using a long-term
gold price of US$ 1,250/oz, mining costs at US$ 1.67 per tonne of material, with total processing and process G&A costs
of $7.84 per tonne of mineralized material and an average process recovery of 75 %. The refinery costs net of pay factor
were estimated to be US$ 6.90 per ounce gold. Slope angles are based on 3 sectors (39°, 42°, and 47°) consistent with
geotechnical consultant recommendations
Totals may not add due to rounding
•
Mineral Reserves are estimated at 88.3 Mt as of September 9, 2017 which is sufficient for a thirteen-year LOM
considering 350 days in the year for production and a capacity rate of 18,750 tpd. Expectation based on an optimized
production schedule is for an annual average production of 129,000 troy ounces of gold.
Proven and Probable Mineral Reserves are estimated to contain 1.75 Moz gold, reflecting a 12 % decrease in
contained gold ounces relative to the October, 2015 Mineral Reserve estimate. Variations are the result of:
• A smaller ultimate pit shell based on updated metal prices, mining costs, and metallurgical recoveries
resulting in a decrease in the Measured and Indicated Mineral Resources
•
2016 drilling which upgraded 12 Mt to Indicated Mineral Resources with a loss of that amount of Inferred
Mineral Resources
• Adjustments to the geological interpretation and estimation methodology
Mining methods
Lindero will be an owner-operated conventional open pit mining operation with a nominal rate of 18,750 tpd of
ore and a life of pit operations of 13 years using existing reserves. The ratio of waste to ore over the LOM is 1.2 to 1.
The key mining fleet equipment will be initially composed of six 91 tonne (100-ton) trucks and two 17 cubic yard
wheel loaders.
In the initial two years, the operation will benefit from mining the higher-grade, outcropping portion of the deposit,
with an average head grade of 0.90 g/t Au, and a low strip ratio of 0.77 to 1. For the initial four years, the average
head grade is projected at 0.77 g/t Au, and a strip ratio of 1 to 1.
Mining costs benefit from short haul distances from the pit to the primary crusher and waste dumps. Maximum
distances are in the range of 2 km. The LOM direct mining cost is estimated at US$ 1.1 per tonne moved.
The QP is of the opinion that:
•
•
•
•
•
The mining method being used is appropriate for the deposit being mined
The open pit, heap leach pad, stockpiles, waste dump designs, and equipment fleet selection are
appropriate to reach production targets
The mine plan is based on successful mining philosophy and planning, and presents low risk
Inferred Mineral Resources are not included in the mine plan and are considered as waste
The mobile equipment fleet presented is based on simulations and bench marks to similar operations
achieving similar production targets
• All mine infrastructure and supporting facilities meet the needs of the current mine plan and production
rate
• Major planned maintenance of the main equipment, such as loaders and trucks, have been covered in
sustaining capital by purchasing additional equipment that can replace any possible lost production hours
and not impact production targets
•
The ancillary equipment appears to be undersized, especially dozers, but this would be covered by renting
additional equipment as necessary
-75-
Recovery methods
Most of the major process concepts presented in the 2016 Technical Report such as: high pressure grind roll (HPGR)-
crushing, cyanide heap leaching and carbon adsorption recovery, remain unchanged for the updated 2017 Lindero
Technical Report. Additional physical and metallurgical understanding, developed by the testwork conducted by the
Company in 2016 and 2017, resulted in modifications in the approach to these major process concepts for the
Lindero Project as follows.
• A concentrated cyanide cure was added to shorten the leach cycle and increase extraction
• Agglomeration with cement was added to support a 110-m-high heap with the HPGR-crushed ore
• Conveyor stacking was included from startup
• Two-stage leaching was included to increase preg grades and reduce overall flowrate to the ADR plant
• A SART plant was included to control the copper in solution
• Leach solution flow will be increased 150 % in Year 4 to reduce in-heap gold inventory
Unit operations for the Lindero process were selected based on the physical and metallurgical needs of the Lindero
ore to achieve maximum extraction of gold. No novel or untried technology will be employed in the process.
Project infrastructure
The QP is confident that all mine and process infrastructure and supporting facilities have been included in the
general layout to ensure that they meet the needs of the mine plan and production rate and notes that:
•
•
•
•
•
The Project will have good year-round access with significant road improvements planned for stretches of
road between Tolar Grande and the Fortuna camp
The Project site infrastructure has a compact layout footprint of approximately 60 ha
Power will be generated on-site by a contractor through an 8 MW capacity diesel oil plant
Electrical power will be generated on site under a contract power supply arrangement with a local company
who specializes in such services
Total water requirements are 97.7 m3/hr and will be primarily sourced from two existing wells located
13km southeast of the Project site, along with an additional well to be drilled as part of construction
activities
• Most of the process buildings for the Lindero Project have been primarily designed as steel frame buildings
with modular thermo-acoustic panels; in general, these are pre-engineered and pre-fabricated steel
buildings which include all structural members, exterior doors and windows, roofs, insulation, interior and
exterior wall panels and all connectors required to erect and assemble the buildings on-site
• A permanent accommodation camp for 320 beds will be built for the LOM operation. For the construction
period, temporary accommodations will be implemented to accommodate the peak of construction
manpower estimated at 600 people
Market studies and contracts
No market studies are currently relevant as the Lindero Project will produce a readily-saleable commodity in the
form of doré.
As of the effective date of the Lindero Technical Report, Fortuna has not entered into any material contracts required
for the development of the Lindero Project including mining, concentrating, smelting, refining, transportation,
handling, sales and hedging, and forward sales contracts or arrangements.
The gold price used for the base case cash flow analysis is $1,250/oz. Sensitivities with variable price projections
have also been considered. The Lindero Project, like most gold projects, is highly sensitive to changes in the gold
price.
The Lindero mine product will be doré bars containing an estimated gold content averaging 84 % for the Project life.
Overall gold extraction in respect to ore placed on the heap leach is estimated to be approximately 75 %.
-76-
The QP has reviewed the information provided by Fortuna on marketing, contracts, metal price projections and
exchange rate forecasts and notes that the information provided is consistent with the source documents used, and
that the information is consistent with what is publicly available regarding industry norms. The information can be
used in mine planning and economic analyses for the Lindero Project in the context of the Lindero Technical Report.
Environmental studies and permitting
In November 2010, Mansfield submitted an Environmental Impact Assessment (EIA) for the Lindero Project, and in
November 2011 received approval through the issue of the Declaración de Impacto Ambiental (DIA). Approval of the
EIA represents formal approval for mine construction, allowing excavation to proceed. Environmental law requires
that the EIA be updated biannually with the current report submitted in December 2015 and an updated report
planned for submission in March 2018.
Mansfield received a mine permit to build a heap-leach gold mine at up to 30,000 tpd as detailed in the Pre-Feasibility
Study (AMEC, 2010b).
The Salta Provincial authorities have approved the building and electrical permits that Mansfield requires to
commence construction at Lindero. Electrical, structural, building and seismic plans have been reviewed and
approved by COPAIPA (Dec 2013), the professional engineering institution that overlooks all construction in Salta
Province. Mansfield is planning to submit additional information to COPAIPA in 2017 to obtain the permits for
construction of the agglomeration and SART plants that have been added to the process design. Mansfield does not
foresee any issues in obtaining the necessary permits to complete construction and commence operation at Lindero.
In addition, a formal public declaration of support for the Lindero development has been issued by the provincial
government, recognizing Lindero as the priority development project for the Salta Province.
Environmental risks during the closure stage will be reduced by remediation and monitoring work. At the closure
stage, soil will be contoured by heavy machinery to minimize the long-term impact of mining activity, and return the
topology of the land to resemble prior conditions. However, the movement of soil, and thus the risk, will be
significantly less than in the mining operations stage.
One social-environmental risk will be the completion of contracts of employment directly, or indirectly, through
contractors, and the surrounding communities. It will be imperative to implement measures to mitigate this impact
during the whole period of mine operation.
A significant environmental risk will also be present during the closure of facilities, which will cause significant
production of non-hazardous industrial waste and hazardous products from the movement of heavy machinery. It
will be essential to establish clear environmental policies with the contractors during this process.
It is the opinion of the QPs that the appropriate environmental, social and community impact studies have been
conducted to date at Lindero. Mansfield has maintained all necessary environmental permits that are the
prerequisites for the granting of construction permits that will need to be obtained upon completion of detailed
engineering designs for the Project infrastructure.
Capital and operating costs
Capital and operating costs for the Lindero Project were estimated by Fortuna with the assistance of Elbow Creek,
Allard Engineering Services, and Saxum Engineered Solutions (Saxum), a local engineering firm. These costs are based
on the design outlined in the Lindero Technical Report, and are considered to have an accuracy of +/-15 %. All costs
are in second and third quarter 2017 US dollars (US$). No escalation factors have been applied to any costs, present
or future capital. The total mine capital cost is estimated to be US$ 282 million.
Expansion (future) capital for the Project includes the Phase 2 leach pad construction in Year 3, and expansion of the
ADR plant and solutions handling in the leach pad area in Year 3. The total future capital is estimated at US$ 113
million.
Closure and reclamation costs are estimated at US$ 35 million, incurred in Year 13 through Year 17.
The total LOM operating cost for the Lindero Project is US$ 10.32 per tonne of ore processed.
-77-
Costs were estimated primarily by Fortuna for mine pre-production and mine equipment costs. Saxum provided cost
estimates for major and secondary equipment, buildings, infrastructure and major contracts. All equipment and
material requirements are based on the design information described in the Lindero Technical Report. Capital cost
estimates have been made primarily using budgetary supplier quotes for all major and most minor equipment items,
and major construction contract unit rates. Where supplier quotes were not available for minor items, a reasonable
cost estimate was made based on supplier quotes in Saxum’s project files. All capital cost estimates are based on
the purchase of equipment quoted new from the manufacturer, or estimated to be fabricated new.
Economic analysis
The results of the economic analysis discussed in the Lindero Technical Report represent forward-looking
information as defined under Canadian securities law. The results depend on inputs that are subject to a number of
known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from
those presented here. Such uncertainties and factors include, among others, changes in general economic conditions
and financial markets; changes in prices for gold and other metals; technological and operational hazards during the
development of the project; risks inherent in mineral exploration; uncertainties inherent in the estimation of mineral
reserves, mineral resources, and metal recoveries; the timing and availability of financing; governmental and other
approvals; political unrest or instability; labor relations issues; as well as those factors discussed under “Risk Factors”
in Fortuna’s Annual Information Form for fiscal 2016. Although Fortuna has attempted to identify important factors
that could cause actual actions, events or results to differ materially from those described in the Lindero Technical
Report, there may be other factors that cause actions, events or results to differ from those anticipated, estimated
or intended.
The Lindero Project economics were evaluated using a discounted cash flow (DCF) method, which estimates the net
present value (NPV) of future cash flow streams. The final economic model was developed by Fortuna using the
following assumptions:
•
Period of analysis of 16 years (includes one year of pre production and investment), 13 years of production,
and two years for closure and reclamation
• Gold price of US$ 1,250/oz
•
Processing rate of 18,750 tpd ore
• Metallurgical recovery of 75 %
•
•
Initial capital and operating costs as developed in Section 16.5 and 21 of the Lindero Technical Report
Closure capital costs as outlined in Section 20 of the Lindero Technical Report
The Lindero Project shows an NPV of US$ 130 million after tax using a discount rate of 5 %, with an internal rate of
return (IRR) of 18 %, and a payback period of 3.6 years, based on the LOM production plan, assumed metal prices,
and integrated leaching treatment of gold and copper.
NPV and IRR display the greatest sensitivity to gold metal prices and metallurgical recoveries according to the
sensitivity analysis.
The QP considers the financial model to be a reasonable estimate of the economic situation at Lindero and based
on the assumptions in the Lindero Technical Report, the Lindero Project shows a positive DCF over the LOM and
supports the Mineral Reserve estimate. The mine plan is achievable under the set of assumptions and parameters
presented.
Other Relevant Data and Information
Goldrock commissioned Vector Argentina SA (Ausenco; 2009a, b) and Conhidro (2013) to conduct a hydrologic study
of the Project area, during the detailing of the environment base line map and EIA study. As part of the study, the
Rio Grande hydrologic basin was defined through the evaluation of various field parameters and review of satellite
images. The basin was determined to be 1,687 km2 in size. Exploration for groundwater resources was undertaken,
and successfully identified possible sources.
-78-
A number of geotechnical studies were performed at the Lindero Project and reviewed by CNI. Those studies form
the basis for the pit slope estimates used in the mining model. Included in the studies were geotechnical surveys for
heap leach and waste dumps. These studies are considered by the Lindero Technical Report to be consistent with
industry practices and adequate to support mine design.
Conclusions, Risks, and Opportunities
The Lindero Technical Report represents the most accurate interpretation of the Mineral Reserve and Mineral
Resource available as of the effective date of the Lindero Technical Report. The conversion of Mineral Resources to
Mineral Reserves was undertaken using industry-recognized methods, and estimated operational costs, capital
costs, and plant performance data. Thus, it is considered to be representative of future operational conditions. The
Lindero Technical Report has been prepared with the latest information regarding environmental and closure cost
requirements.
A number of opportunities and risks were identified by the QPs during the evaluation of the Lindero Project.
Opportunities include:
• Once mining commences there is an opportunity to collect additional geotechnical data from the open pit
that could support an increase in final pit slope angles, potentially decreasing stripping ratios and/or
increasing Mineral Reserves.
•
•
•
•
•
•
The Arizaro porphyry system is not included in the current mine plan. However, it represents upside
opportunity for the Project if a satellite operation can be developed on the deposit.
Infill drilling could support the conversion of Inferred Resources to Measured or Indicated Resources and,
with the appropriate studies, to Mineral Reserves. This represents additional upside potential for the
planned operation.
The Lindero porphyry gold system remains open at depth below the pit shell constrained reported reserves
and resources. An area of interest has been identified by Fortuna during the drilling campaign carried out
in 2016 with drill hole LDH-126 encountering 0.97 g/t Au over a 38 m interval (refer to discussion in Section
10). This is supported by historical drilling from 2007 including drill hole LDH-86 averaging 1.06 g/t Au over
a 52 m interval which bottomed in mineralization. These intercepts warrant follow-up drill testing.
There are a number of local exploration targets within the concession boundary, that with further work,
represent upside opportunity to identify mineralization that can potentially add to the resource base.
If historical samples are assayed for cyanide-soluble copper, there is an opportunity to construct a
metallurgical model and incorporate this into the scheduling and process design. This would support
optimization of blending strategies and better understanding of recoverable copper as a by-product from
the SART plant. Improved copper recoveries could have a minor positive impact on the mine economics.
Performance of the equipment can be tracked with the implementation of a fleet management system to
record the main key performance indicators (KPI’s) which will provide an opportunity to improve utilization
and time loss productivity.
• Once mining commences there is an opportunity to conduct additional blasting fragmentation analysis so
as to improve mining productivity and optimize mining costs.
Risks include:
•
Local behavior of cyanide-soluble copper is not fully understood, and cannot be modeled due to a lack of
assays from historical core. Levels of soluble copper could be higher than anticipated in certain areas of the
deposit requiring adjustments to mine plans and schedules to reduce the impact in the plant. The
introduction of a SART plant has greatly reduced the potential impact of soluble copper at the Project.
• Delaying the acquisition of fleet equipment could cause delays in the execution of certain activities. It is
therefore imperative that a clear schedule of lead times is established, and equipment purchased in a timely
manner to ensure on time delivery.
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•
•
•
Fortuna calculates that two loaders are needed from Year 3 onwards, but simulations indicate that three
may be required in Year 2. Once mining commences and data on loader productivity is collected, a new
fleet simulation should be performed to confirm if a third loader is required in Year 2 and if so how this will
affect sustaining capital expenditure.
There is a risk that two dozing machines in the original capital estimate are insufficient. Fortuna plans to
mitigate this risk by renting additional ancillary equipment as required.
There is a risk that haul truck tire life of 8,500 hours is higher than can be achieved at the operation, which
could lead to marginally higher operating costs than anticipated.
Recommendations
Recommendations for the next phase of work have been broken into those related to ongoing exploration activities
and those related to additional technical studies. Recommended work programs are independent of each other and
can be conducted concurrently unless otherwise stated and include:
•
Continued work at Arizaro that focuses on the controls of lithology, structure, and alteration on
mineralization so as to determine the suitability of material as a potential feed for the Lindero plant and to
support the estimation of Mineral Resources. It is recommended that a 2,000-m reverse circulation (RC)
drill program (approximately 100 holes at a 75 m spacing) is conducted at a cost of approximately US$
500,000.
• An infill drill program involving the drilling of approximately 3,000-m of RC drill holes is recommended to
improve the geological understanding of material planned for extraction in Years 1 and 2 of the mine. The
cost of such a program is estimated at approximately US$ 750,000.
•
•
Exploration work to date on the Lindero concession has been focused on outcropping porphyry
mineralization. It is recommended that the Company evaluate the property for mineralization beyond the
two known porphyry systems at Lindero and Arizaro. For example, alteration zones and silica structures
located within the concession, 2.5 km due south of the Lindero Project site, remain open for evaluation.
Exploration work would primarily involve mapping and carry no additional cost to the Lindero Project.
It is recommended that a drill hole spacing study be conducted to establish the density of sampling that is
required to reduce the grade variability to acceptable levels for specified extraction time frames in respect
to infill and blast control drilling. This will be used to support the estimated meters of infill drilling. The
study can be conducted either inhouse (at no cost) or by external consultants, at an estimated cost of
US$ 25,000.
• Additional analysis is recommended into the mine operating and ore control process, in particular, the
usage of optimum dig lines for open pit grade control, with the objective of minimizing ore loss and
maximizing profit. The cost of licenses and implementing such software is estimated at US$ 276,000.
• A fleet management system should be considered for KPI purposes, which will provide an opportunity to
improve utilization and time loss productivity. The cost of licenses and implementing such software is
estimated at US$ 1.5 million.
•
•
The cement in each lift on the heap will cure for several months before another lift is placed. It may be
several years before any block of agglomerated ore receives 110 m of loading. It is recommended that a
long-term stacking test be conducted to see if ageing will improve the ability of the ore to support the 110 m
height with less cement. The estimated cost of the testwork is US$ 20,000.
The high static holdup (adsorbed moisture) in the heap makes the secondary leach at 6 l/hr/m2 inefficient
when the heap height increases. There is a possibility that a surface tension modifier may reduce the
amount of adsorbed moisture in the heap reducing the inventory. The estimated cost of the testwork is
US$ 20,000.
[End of Extract of Summary from Lindero Technical Report]
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See “Three Year History and Recent Developments - Mineral Reserve and Mineral Resource Estimates” herein for
further information regarding the Lindero Mine.
Yaramoko Mine, Burkina Faso
The following is the Summary from the technical report (the “Yaramoko Technical Report”) entitled “Technical
Report for the Yaramoko Mine, Burkina Faso”, with an effective date of December 31, 2021 prepared by Paul
Criddle, FAUSIMM, Paul Weedon, MAIG, Matthew Cobb, MAIG, and Craig Richards, P.Eng. This Summary is subject
to certain assumptions, qualifications and procedures described in the Yaramoko Technical Report and is qualified
in its entirety by the full text of the Yaramoko Technical Report which is available for viewing on SEDAR at
www.sedar.com and is incorporated by reference in this AIF, and is also filed with the SEC on EDGAR (available at
www.sec.gov). Defined terms and abbreviations used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Yaramoko Technical Report.
Introduction
The Yaramoko gold mine (Yaramoko Gold Mine or Yaramoko) is an underground mining operation that commenced
production in 2016.
Recent exploration drilling and a review of mine engineering designs in 2020 and 2021 supports the development of
an open pit mine at the completion of the 55 Zone underground mine which includes the mining of near surface
mineralization remaining in the crown pillar and remnant mineralization from earlier underground mining. Open pit
mining would only commence at the conclusion of underground mining due to the need to remove certain key
surface infrastructure associated with the underground mine.
This updated technical report (Technical Report or Report) discloses the methodology for estimating the Mineral
Resources and Mineral Reserves reported as of December 31, 2021 and summarizes the scientific and technical
information that supports the current underground mine and proposed open pit operation. It presents the
assumptions and designs at a level of accuracy that is required to demonstrate the economic viability of the Mineral
Resources defined for the underground and open pit mining of the Yaramoko Gold Mine. The opinions contained
herein and effective as of December 31, 2021, are based on information collected by the company throughout the
course of its investigations. The Report will also be used to support the Annual Information Form (“AIF”) for the fiscal
year ended December 31, 2021.
Property Description and Ownership
The Yaramoko Gold Mine is located approximately 200 kilometers (km) southwest of Ouagadougou in the Balé
Province in western Burkina Faso. The centroid of the 55 Zone gold deposit in the Yaramoko gold mine (Yaramoko
or the Yaramoko Gold Mine) is located at 3 degrees and 16 minutes longitude west (3.28 degrees west) and 11
degrees and 45 minutes latitude north (11.75 degrees north).
The QV1 Zone which is the main deposit of the Bagassi South project, is geologically similar to the 55 Zone and is
located about 1.8 km south of the 55 Zone.
The Yaramoko Gold Mine is operated by Roxgold Sanu S.A. (Roxgold Sanu), a company incorporated, registered and
subsisting in accordance with the laws of Burkina Faso and which is a 90 percent directly owned subsidiary of Roxgold
Inc. (Roxgold) with the remaining 10 percent interest held by the State of Burkina Faso. Roxgold was a Canadian
public company listed on the Toronto Stock Exchange until July 2, 2021, when Fortuna Silver Mines Inc. (Fortuna or
the Company) acquired all of the issued and outstanding shares of Roxgold resulting in Roxgold becoming a wholly-
owned subsidiary of Fortuna. Fortuna is a Canadian public company with its shares listed on the Toronto Stock
Exchange under the symbol FVI and on the New York Stock Exchange under the symbol FSM.
The Government of Burkina Faso receives a 3 percent royalty on the revenues from mineral production if the gold
price is lower than $1,000 per ounce, 4 percent if the gold price is between $1,000 and $1,300 per ounce and 5
percent if the gold price is higher than $1,300 per ounce. The Government also collects various taxes and duties on
the imports of fuels, supplies, equipment and outside services, as specified by the Burkina Faso Mining Code.
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Roxgold Sanu was awarded a Permis d’exploitation industrielle, the Burkina Faso equivalent of a Mining Permit,
through Decree 2015-074 PRES-TRANS/PM/MME/MEF/ MERH for Yaramoko on January 30, 2015. This was followed
by the approval of the National Mines Commission meeting held on May 24, 2015.
An extension to the Mining Permit to incorporate the Bagassi South Zone Bagassi South project into the Mining
Permit was awarded through Decree 2018-0656/PRES/PM/MMC/MINEFID/MEEVCC for Yaramoko dated July 30,
2018. This extension (Bagassi South Zone) adds 7.2 square kilometers (km2) to the permit, for a total of 22.9 km2.
The extension decree only defines the geographic scope of the original mining license which thus stays under the
Mining Code which granted it (2003 in this case), and the dates of grant or renewal remain unchanged.
The Yaramoko Gold Mine area has been explored since 1974. Ownership of the property has changed twice; the
Yaramoko Exploration Permit was initially granted to Riverstone Resources Inc. (Riverstone) in 2006 and was
transferred to Roxgold in September 2012. On July 2, 2021 Fortuna completed the acquisition of Roxgold.
History
Between 1974 and 1995, le Programme des Nations Unies pour le Développement (PNUD) and the Bureau des Mines
et de la Géologie du Burkina (BUMIGEB) conducted intermittent exploration work in and around the current permit
area, with significant results reported by Willemyns of PNUD in 1982 (as cited in Riverstone, 2008) from two quartz
vein core samples collected in the area of Bagassi East that returned 2.9 grams of gold per tonne (g/t Au) over a core
length interval of 1.45 meters (m), and 6.36 g/t Au over a core length interval of 0.30 m.
In 1995, Placer Outokumpu Exploration Limited conducted soil sampling in the area of Bagassi-Yaramoko on behalf
of Supply Services and Burkina. The sampling returned a small number of isolated values greater than 100 parts per
billion (ppb) gold. A single sample returned a value of 760 ppb gold and was reported to have been collected in an
area underlain by Tarkwaian sedimentary rocks (Riverstone, 2008).
In 1996, S.à.r.l. Shield Resources of Burkina Faso conducted exploration work in the Bagassi area with a few
anomalous points returned; however, no follow-up work was conducted (Riverstone, 2008).
Other than small scale orpaillage (artisanal mining) conducted on a few areas of the property there has not been
any known production from the Yaramoko Gold Mine prior to the start of operations in 2016 by Roxgold. Gold
production since 2016 to the end of December 2021 is 0.73 million ounces (Moz).
Accessibility, Climate, Local Resources, Infrastructure, and Physiography
The closest major town to the Yaramoko Gold Mine is Boromo, located 50 km away. It is serviced by the national
power grid and it hosts a hospital and additional suppliers. However, major purchases and procurements come from
Ouagadougou. It can be reached via the highway system by traveling west from Ouagadougou on paved highway for
approximately 200 km, or alternatively traveling east from Bobo-Dioulasso for approximately 150 km to the village
of Ouahabou, and then north-northwest by laterite road for approximately 20 km to the village of Bagassi.
Roxgold’s Sabarya camp is a purpose built 306-person accommodation camp built in 2015 with associated
recreational and messing facilities. Adjacent to the accommodation camp are the exploration offices and associated
secure area for logging and processing drill core and for storing exploration equipment. The milling complex,
administrative and mining contractor offices, warehouses and associated maintenance and back-up power facilities,
are accessed by a 1 km laterite road constructed by Roxgold. The 55 Zone mine portal is also located in this complex
while the Bagassi South mine portal is located 1.8 km to the south.
The closest village is Bagassi which has a population of approximately 3,000 people. Agriculture is the main industry
in the region with production of millet, groundnut, and cotton.
The climate is semi-arid with a rainy season from April to October and a warm dry season from November to February
and hot from March to June. Temperatures range from a low of about 15 degrees Celsius (°C) in December to highs
of about 45 °C in March and April. Annual total rainfall in the area averages 800 millimeters (mm).
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Geology and Mineralization
The north-northeast-trending Boni shear zone divides the Yaramoko Gold Mine between the predominantly Houndé
volcanic and volcaniclastic rock to the west and the Diébougou granitoid domain composed predominantly of
granitic rock with minor volcanic rock to the east. The main lithological units are mafic volcanic rocks, felsic
intrusions, and late dolerite dikes. This region is considered prospective for orogenic gold deposits, which typically
exhibit a strong relationship with regional arrays of major shear zones.
The largest granitic intrusion found on the Yaramoko concession is host to both the 55 Zone and Bagassi South gold
deposits. Both deposits are set on the eastern margin of the intrusive in the footwall of the Yaramoko shear along
conjugate dextral faults located in extensional position to the regional shear zone. The bulk of the gold mineralization
occurs in dilatational segments of the shear zones where quartz veins are thicker and exhibit greater continuity.
The Bagassi South deposit is located 1.8 km south of 55 Zone and the surface definition of the veins can be traced
over a strike length of some 800 m and dips to the northeast. Gold typically occurs as coarse free grain in quartz and
is associated with pyrite.
Exploration Drilling and Sampling
Riverstone started exploration work on the Yaramoko property in 2005 before Roxgold became involved in late 2010.
The exploration programs comprised soil and rock sampling, airborne and ground geophysics, rotary air blast, auger,
reverse circulation, and core drilling.
Rotary air blast drilling was used to follow up soil anomalies in 2011 and 2012 (1,887 rotary air blast boreholes) while
auger drilling was used for collecting soil samples under the transported cover in 2012 and 2013 (2,669 auger
boreholes totaling 13,480 m). Rotary air blast and reverse circulation drilling was then used to trace gold in soil
anomalies to bedrock, positive results from reverse circulation drilling were followed with core drilling to confirm
the geological setting of each target. This method successfully identified the 55 Zone, and thereafter other gold
mineralized zones on the property including Bagassi South.
From 2015 to 2021, Roxgold drilled a total of 417 core holes (77,964 m) from surface and underground at Bagassi
South on the QV1 and QV’ structures to infill and extend mineralization up and down dip, with increasing focus on
resource conversion and infill. In 2020-21 a final stage of extension drilling was completed.
A deep drilling program from surface was carried out at the 55 Zone during 2018-2019, following on from an earlier
2017 surface drilling program. This program was designed to infill mineralization previously intersected during the
2017 surface drilling campaigns between 700 m and 1,000 m below surface. A second phase of this program in 2019
saw additional drilling from surface testing further down-plunge extensions to approximately 1,300 m below surface.
In 2020 and 2021, additional diamond drilling from dedicated underground platforms was carried out at the 55 Zone,
focusing on infilling and mineral resource conversion, and testing for strike and down-plunge extensions. A total of
127 diamond drill holes for 72,503 m was drilled during the 2018-2021 campaigns.
Core drilling from surface typically utilized HQ sized core (63.5 mm diameter) from the top of the borehole to the
point where the rock showed no signs of oxidation; typically, 20 to 30 m in depth. At that point, the core size was
reduced to NQ (47.6 mm diameter). Down-hole deviation was monitored using a Reflex Instruments device at 15,
25, and 50 m intervals, and then approximately every 50 m thereafter. Core drilling from underground stations
utilized NQ core. Core recoveries are high, averaging 99 percent, reflecting the competent nature of the host
lithologies.
Surface drill collar surveys were carried out using a site based Differential Global Positioning System (DGPS) which
has been calibrated with the regional geodesic system. Underground drill collar surveys were carried out using a
total station operated and managed by the mining contractor surveyors, African Underground Mining Services
(AUMS).
Downhole surveys generally used Reflex cameras, either single-shot or multi-shot provided by the drilling contractor
and calibrated prior to use on site.
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Core boreholes considered for mineral resource modelling in the 55 Zone were drilled on centers of 12.5 m to a
vertical depth of 75 m, 25 to 30 m centers from 75 to 400 m vertical depth, 25 to 50 m centers from 400 to 800 m
vertical depth, and wider spacings at deeper depths. At Bagassi South, the QV1 structure was drilled to
approximately 30 to 35 m centers.
Standardized sampling protocols were used for core sampling by Riverstone in 2011 and by Roxgold between 2011
and 2021. Sample preparation and analyses were conducted by Activation Laboratories Ltd. (Actlabs), ALS Chemex
(ALS), BIGS Global S.A.R.L. (BIGS), and SGS Laboratories (SGS) located in Ouagadougou, as well as by SGS in Tarkwa
and TSL Laboratories (TSL) in Saskatoon. Seventy one percent of the core samples informing the mineral resource
(49,675 out of 69,548 samples) were prepared and assayed by Actlabs in Ouagadougou at 55 Zone, and ninety two
percent of the core samples informing the mineral resource (23,368 out of 25,419 samples) were prepared and
assayed by Actlabs in Ouagadougou for Bagassi South.
Actlabs, ALS, BIGS, SGS, and TSL are commercial laboratories independent of Roxgold and Riverstone. Actlabs is not
accredited to ISO/IEC 17025, but received ISO 9001:2008 certification for its quality management system in April
2013. The ALS Ouagadougou laboratory is also not accredited under recognized accreditation; however, it is part of
the ALS Group of laboratories that operates under a global quality management system accredited to ISO 9001:2008
and participates in international proficiency testing programs such as those managed by Geostats Pty Ltd. The SGS
Ouagadougou, Yaramoko and Tarkwa laboratories are not accredited under recognized accreditation, but are part
of the SGS Group of laboratories that operates under a global quality management system accredited to ISO
9001:2008 and participates in international proficiency testing programs such as those managed by Geostats Pty Ltd.
TSL has received ISO/IEC 17025:2005 certification by the Standards Council of Canada for numerous specific test
procedures, including the method used to assay samples submitted by Roxgold.
Sampling of core was performed by Roxgold personnel. From the drill site, core was transported by truck to a secure
logging facility at the Roxgold field office where it was photographed and logged by a geologist. Selective sampling
was employed where, at the discretion of the geologist, samples were collected from visible alteration or vein zones
outside of the expected intercepts. All core was sampled 100 m above and below the 55 Zone in boreholes drilled
prior to 2014, and thereafter were generally sampled starting from approximately 20 m above the main mineralized
zone.
Waste intervals were sampled at 2.0 m intervals, except where a significant geological change occurred and/or in
mineralized zones where the sampling intervals averaged between 1.0 m to 1.5 m. The core was then cut in half
lengthwise using an electrical rock saw. Half of the sample was placed inside a labelled plastic sample bag. The
remaining half was returned to the core box for archiving. Samples were then inserted into woven polypropylene
bags prior to being transported by truck to the preparation and assay laboratory.
Roxgold implemented logging onto Maxwell LogChief data capture software in 2019, enabling the direct capture and
traceability of logging data via dropdown menus and pre-set codes to promote data hygiene. Prior to 2019, all logging
was onto pre-set excel spreadsheets before importation into the database. Reviews of the logging data and
associated model interpretation are carried out on a regular basis by the site senior geological team and on each site
visit by the qualified person (QP).
Assay data are electronically reported from the laboratory in Microsoft Excel and pdf format and imported into the
database after validation, along with the corresponding assay certificates.
Samples received at Actlabs in Ouagadougou were first crushed to 90 percent under 2 mm grain size. A 300 gm split
was then pulverized to 95 percent, passing 150 mesh (preparation code RX1). For samples marked as mineralized, a
1,000 g split is pulverized (preparation code RX1+1.3). All samples were assayed using a 30 g fire assay procedure
with atomic absorption spectroscopy (AAS) finish with a detection limit of 5 ppb gold (procedure code 1A2) prior to
2014. A 50 g fire assay procedure was used subsequently.
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All samples grading over 5.0 g/t Au were re-assayed with a gravimetric finish. Selected samples within the
mineralized zones were re-assayed using a 1,000 g screen metallic fire assay procedure with gravimetric finish
(procedure code 1A4-1000). With this procedure, a representative 500 g or 1,000 g sample spilt is sieved at 100
mesh (150 micrometers) with fire assay performed on the entire +100 mesh fraction and two splits of the 100 mesh
fraction. The final assay result is calculated based on the results and the weight of each fraction. A total of 99,683
samples have been analyzed using fire assay at the 55 Zone and Bagassi South Zone, including 1,174 via screen fire
assay methods.
Implementation of a quality assurance/quality control (QAQC) program is current industry best practice and involves
establishing appropriate procedures and the routine insertion of certified reference material (CRMs), blanks, and
duplicates to monitor the sampling, sample preparation and analytical process. Roxgold implemented a full QAQC
program to monitor the sampling, sample preparation and analytical process for all drilling campaigns in accordance
with its companywide procedures. The program involved the routine insertion of CRMs, blanks, and duplicates.
Evaluation of the QAQC data indicates that it is sufficiently accurate and precise to support Mineral Resource
estimation.
Data Verification
Prior to March 2019, the database was managed by an external consultancy, Taiga Consultants Ltd. (Taiga) of Calgary,
Alberta. Exploration data was recorded digitally to minimize data entry errors. Core logging, surveying, and sampling
was monitored by qualified geologists and routinely verified for consistency. Electronic data was captured and
managed using an electronic database.
Assay results were delivered by the primary laboratories electronically to Roxgold and Taiga. Analytical data was
examined for consistency and completeness prior to being entered into the database. Sampling intervals that did
not meet analytical quality control standards were re-assayed where necessary.
In March 2019, Roxgold transitioned to Maxwell Geoservice Datashed SQL database system. The database has been
set up with a series of automated import, export and validation processes to minimize potential errors and
inconsistencies.
Data verification by the QP was conducted through the inspection of selected drill core to assess the nature of the
mineralization and to confirm geological descriptions as well as the inspection of geology and mineralization in
underground workings of the Zone 55 and Bagassi South veins in addition to reviews of production data.
A series of plan and cross sections were generated displaying the lithologic and mineralization interpretation by the
Roxgold geology and exploration departments and reviewed by the QP, while three-dimensional viewing for data
interpretation consistency was carried out on screen.
The QP is of the opinion that the data verification programs performed on the data collected by Roxgold are
adequate to support the geological interpretations, the analytical and database quality, and Mineral Resource
estimation at the Yaramoko Gold Mine.
Mineral Processing and Metallurgical Testing
In June 2013, Roxgold commissioned SRK Consulting (Canada) Inc. (SRK) to provide certain technical engineering
services and to prepare a feasibility study in accordance with the disclosure requirements of Canadian Securities
Administrators’ National Instrument 43-101 (NI 43-101) for the gold mineralization contained in the 55 Zone of the
Yaramoko Gold Mine. The study was documented in a technical report published on June 4, 2014.
Since 2014, there have been no further metallurgical test campaigns carried out for the 55 Zone deposit.
The testwork conducted on the 55 Zone samples are considered to be representative of the material intended to be
processed from the 55 Zone open pit, given it is the extension of the same deposit.
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Additional testwork carried out in support of the processing plant expansion and development of the Bagassi South
mine was performed in September 2015 at the ALS metallurgy assay laboratory in Perth, Western Australia, Australia
under the supervision of Roxgold and demonstrated very similar characteristics.
It is the opinion of the QP that operational experience since 2016 has demonstrated a consistent metallurgical
performance with recoveries between 98 to 99.3 percent supporting the historical test work and is representative
of the material remaining to be processed in the life of mine plan (LOMP), including material expected to be sourced
from the 55 Zone open pit mining operation.
Mineral Resource and Mineral Reserve Estimates
Since 2014, Roxgold has completed numerous near-mine exploration and resource definition drilling campaigns,
both from surface and underground and on a near continual basis, to support the extension of the Yaramoko Gold
Mine life at the 55 Zone and Bagassi South. In September 2020, Roxgold initiated a near-mine exploration and
resource definition drilling campaign and internally prepared an updated resource model for the Yaramoko Gold
Mine using drilling information to June 30, 2021. The Mineral Resources reported herein have been estimated using
a geostatistical block modelling approach informed from gold assay data collected in core boreholes. This updated
resource model formed the basis of the 2021 year-end Mineral Resources and Mineral Reserves of the Yaramoko
Gold Mine. The consolidated Mineral Resources (excluding the Mineral Reserves) for the 55 Zone underground and
open pit and Bagassi South underground are presented in Table 1.
Table 1: Mineral Resources for the Yaramoko Gold Mine, as of December 31, 2021
Category
Measured
Indicated
Measured + Indicated
Inferred
Notes:
Tonnes
(000)
Grade
Au (g/t)
Contained Gold
(000′ oz)
48
456
504
247
5.83
5.80
5.80
4.41
9
85
94
35
• Mineral Resources are as defined by the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves
• Mineral Resources are exclusive of Mineral Reserves
• Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability
•
Factors that could materially affect the reported Mineral Resources include; changes in metal price and exchange rate
assumptions; changes in local interpretations of mineralization; changes to assumed metallurgical recoveries, mining
dilution and recovery; and assumptions as to the continued ability to access the site, retain mineral and surface rights
titles, maintain environmental and other regulatory permits, and maintain the social license to operate
•
• Mineral Resources for the Yaramoko Gold Mine are estimated as of June 30, 2021 for underground and as of February
2, 2021 for open pit, and reported as of December 31, 2021, taking into account production related depletion for the
period through December 31, 2021
Yaramoko Mineral Resources are reported in situ at a gold grade cut-off grade of 0.5 g/t Au for the 55 Zone open pit
and 2.6 g/t Au for underground, based on an assumed gold price of US$1,700/oz and the same costs, metallurgical
recovery and constrained within an optimized pit shell. The Yaramoko Gold Mine, through Roxgold Sanu, is subject to
a 10% carried interest held by the State of Burkina Faso
Dr. Matthew Cobb is the Qualified Person responsible for Mineral Resources, and is an employee of Roxgold (a wholly-
owned subsidiary of Fortuna)
Totals may not add due to rounding procedures
•
•
The 55 Zone Mineral Resource block model was used to estimate underground Mineral Reserves using modifying
factors. Mining shapes were designed targeting the Measured and Indicated Mineral Resources only, using an in-situ
mining cut-off grade of 3.4 g/t Au and 3.0 g/t Au for 55 Zone and Bagassi South respectively based on a gold price of
$1,600 per ounce (oz), an estimated site operating cost of $154 per tonne (t) processed, and a metallurgical gold
recovery of 98.0 percent.
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The mining shapes follow the mineralization wireframes without attempting to trim off any areas below the cut-off
grade. Mining recovery and dilution parameters are based on the selected mining method and geotechnical
considerations. External dilution applied to the mining shapes, with grades from wall rock dilution directly extracted
from the block model and null grade from backfill. Dilution is defined as waste/ore tonnes.
Development ore dilution of 10 percent was included in the selected development drive profiles and reported
physicals are the diluted tonnes and grades. Mining recoveries vary from 85 to 93 percent, dependent on stope
location and category.
The 55 Zone open pit mineral reserve was estimated using a marginal cut-off grade of 0.9 g/t Au, with a gold price
of US$1,500/oz and a combination of existing relevant operating costs and recoveries, as well as mining contractor
rates provided by a reputable and experienced mining contractor operating within the region. Probable Mineral
Reserves were estimated from the Indicated Mineral Resource, above a cut-off grade of 0.9 g/t Au, within the
ultimate pit design, with 10 percent mining dilution at 0 g/t Au grade, 85 percent mining recovery, existing
underground workings and future underground workings within the life of mine plan depleted.
The Mineral Reserves for the Yaramoko Gold Mine are presented in Table 2.
Table 2: Mineral Reserves for the Yaramoko Gold Mine as of December 31, 2021
Category
Proven
Probable
Proven + Probable
Tonnes
(000)
Grade
Au (g/t)
Contained Gold
(000’ oz)
300
1,826
2,126
3.78
7.27
6.78
36
427
464
Notes:
• Mineral Reserves are as defined by the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves.
•
Factors that could materially affect the reported Mineral Reserves include: changes in metal price and exchange rate
assumptions; changes in local interpretations of mineralization; changes to assumed metallurgical recoveries, mining
dilution and recovery; and assumptions as to the continued ability to access the site, retain mineral and surface rights
titles, maintain environmental and other regulatory permits, and maintain the social license to operate.
• Mineral Reserves for the Yaramoko Gold Mine are estimated as of June 30, 2021 for underground and as of February
2, 2021 for open pit, and reported as of December 31, 2021, taking into account production related depletion for the
period through December 31, 2021
• Mineral Reserves for Yaramoko are reported at a cut-off grade of 0.9 g/t Au for the 55 Zone open pit based on an
assumed gold price of US$1,500/oz, 3.4 g/t Au for 55 Zone underground and 3.0 g/t Au for Bagassi South underground,
based on an assumed gold price of US$1,600/oz, metallurgical recovery rates of 98.0%, surface mining costs of
US$3.26/t, G&A costs of US$14.5/t, and processing cost of US$22.85/t, underground mining costs of US$101.9/t, G&A
costs of US$24.1/t, and processing cost of US$27.7/t. Underground mining recovery is estimated at 85% and 91% for
Bagassi South and 55 Zone stopes respectively and 100% for sill drifts. A mining dilution factor of 10% has been applied
for sill drifts, 0.7m and 1.0m dilution skin has been applied for 55 Zone and Bagassi South stopes respectively. Surface
Mineral Reserves are reported in situ with modifying factors of 10% mining dilution and 85% mining recovery applied
within an optimized pit shell and only Proven and Probable categories reported within the final pit designs. Reported
proven reserves includes surface stockpile material.
Craig Richards is the Qualified Person responsible for the underground and open pit Mineral Reserves reported for the
Yaramoko Gold Mine, being an employee of Fortuna.
Totals may not add due to rounding procedures
•
•
Mining Methods
Planned mine operations for the Yaramoko Gold Mine are comprised of the existing 55 Zone Mine and Bagassi South
underground mines and the 55 Zone open pit mine.
The 55 Zone and Bagassi South underground mines are a combined operating 1,640 tonne-per-day (tpd)
underground operation which utilizes longhole stoping with cemented rock fill as its primary mining method. Stoping
at 55 Zone and Bagassi South utilizes 20 m and 17 m sublevel spacing respectively, with longitudinal stope
sequencing, retreating towards centralized access declines. Mine development and stoping operations are
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conducted for Roxgold by AUMS under a mining services agreement which extends through to the end of 2024. The
55 Zone and Bagassi South operations benefit from shared infrastructure, management, and support services.
The 55 Zone mine has Proven and Probable Mineral Reserves to a depth of 1,100 m below surface with 0.94 million
tonnes (Mt) grading 7.35 g/t Au. Mine life for underground mining of the 55 Zone at the planned production rate is
currently to the end of 2024.
The Bagassi South mine has Proven and Probable Mineral Reserves to a depth of 235 m below surface with 0.15 Mt
grading 6.47 g/t Au comprising of the Bagassi South QV1 and QV′ deposits. The QV′ deposit is parallel to the main
QV1, accessed through the same decline utilizing the same contractors and combined fleet for both development
and production activities. Mine life for Baggasi South main QV1 deposit at the planned production rate is to complete
by March 31, 2022, with mining the QV′ deposit to commence following completion extending the mine life by an
additional 15 months.
As of December 31, 2021, the 55 Zone underground mine ore sublevels have been developed in advance of stoping
to the 4534 level, 780 m below surface and the access decline has reached a depth of 820 m. All development for
the QV1 deposit at the Bagassi South underground mine has been completed with the QV′ development planned to
be commenced following the completion of production activities in QV1. Development for the 55 Zone and Bagassi
South underground mines are well-advanced which provides operational flexibility.
At the time of compiling this Technical Report, there has been no open pit mining at the Yaramoko Gold Mine.
In September 2020, a geotechnical study was completed to support the 55 Zone open pit by geotechnical
consultancy MineGeoTech Pty Ltd (MineGeoTech). In February 2021, a mining study of the 55 Zone open pit was
completed by independent international mining consultancy Entech. The Entech (2021) mining study included an
economic assessment. The MineGeoTech (2020) geotechnical study and the Entech (2021) mining study were
reviewed by the QP prior to the release of this technical report. The QP regards the study work completed on the 55
Zone open pit to be at a preliminary feasibility study (PFS) level of confidence and of sufficient accuracy to support
the 55 Zone open pit Mineral Reserve estimate.
The 55 Zone open pit mining study supports mining the 55 Zone via conventional drill, blast, load and haul open pit
mining methods. Mining is proposed to be via a contract miner, with mining costs estimated from rates received
from an experienced mining contractor operating within the region. Open pit mining of the 55 Zone deposit is
proposed to commence upon completion of underground mining operations of the 55 Zone deposit.
Run of Mine (ROM) ore will be extracted from the ultimate pit via a 25 m wide haul road from the surface down
approximately 100 vertical meters to the 5,205 m reduced level (RL), and then via a 15 m wide single lane haul road
down another 95 vertical meters to the 5,110 m RL. The ultimate pit is approximately 800 m long, 375 m wide, and
200 m in depth. All pit haul road gradients have been designed at a 1:10 slope. Both pit stage designs utilize a
minimum mining width of 20 m and 5 m goodbye cuts (Entech 2021).
Recovery Methods
The mineral processing and metallurgical test work conducted on the 55 Zone and Bagassi South QV1 gold deposits
by ALS Metallurgy confirmed the coarse free gold nature of the deposit. Gold extraction using gravity and leaching
processes yields excellent gold recoveries for both deposits. As a result, the Yaramoko gold processing plant has
exhibited high rates of metallurgical performance in treating the 55 Zone and Bagassi South ore since commencing
operations in 2016.
In 2019, an expansion of the plant was undertaken to increase the nameplate capacity of the project from 270,000
tonnes per annum to 400,000 tonnes per annum (1,100 tpd) and was designed and constructed by DRA (Pty.) Ltd in
Johannesburg, South Africa.
The design of the Yaramoko plant is a simplistic flowsheet that incorporates secondary crushing, single stage SAG
milling, carbon in leach (CIL) and gravity recovery circuits, elution and smelting circuits to produce gold doré.
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Water is sourced primarily from the water storage facility and supplemented from the underground mining
dewatering activities and a bore field network. The water storage dam is located approximately 2 km from the plant,
adjacent to the tailings storage facility.
Project Infrastructure
The infrastructure and services at the Yaramoko Gold Mine adequately support the current operations being the 55
Zone and Bagassi South underground mines as well as the processing plant. This infrastructure consists of a process
plant, a mine service area (offices, workshops, and a warehouse), mine refrigeration and ventilation facilities, a
tailings storage facility, a water storage facility, mine access and haulage roads, an explosives magazine, a
gendarmerie, an electrical grid connection, and an accommodation camp. The site is also serviced by a laterite
airstrip, utilized to transport the operations personnel to and from the mine site, via contract aircraft services.
In 2017, the site was connected to the Burkina Faso electricity grid by teeing into the 90-kilovolt powerline from the
Pa substation to the Mana mine site. The capacity of the 90/11-kilovolt substation is 13 megavolt amperes (MVA),
which has sufficient spare capacity for the Bagassi South mine and expansion works. In the event of a power outage,
there is an emergency diesel generator power station, which is sized to power the entire site operations (except the
accommodation camp which has a dedicated emergency generator).
For the development of the open pit phase of the mine, some key underground mine infrastructure associated with
the 55 Zone will need to be decommissioned as it will fall within the blast radius of the open pit plan. The
underground operations workshop and offices, ventilation and refrigeration facilities as well as above ground power
reticulation in that area, would need to be decommissioned and removed before the ultimate pit outline is
developed.
The entire Yaramoko Gold Mine is contained within a security fence, with key infrastructures secured with double
fences.
Market Studies
Gold is a freely traded commodity on the world market for which there is a steady demand from numerous buyers.
The Fortuna financial department provides the Yaramoko Gold Mine with gold price projections for inclusion in
budget and business plan preparations. Pricing is based on long-term analyst and bank forecasts for gold.
For the current Yaramoko Gold Mine, a contract is in place with METALOR Technologies S.A. for the receival of gold
doré from Roxgold Sanu, to process/refine and either to buy or transfer the precious metal to a metal account
designated by Roxgold Sanu.
The QP has reviewed the information provided by Fortuna on metal price projections and exchange rate forecasts
and note that the information provided is consistent with what is publicly available for industry norms.
Environmental Studies, Permitting, and Social or Community Impact
The Mining Code (Loi No. 036-2015/CNT du 16 juin 2015) and the Environmental Code (Loi N°006-2013/AN du 2 avril
2013) of Burkina Faso outline the legal framework for social and environmental impacts from mining activities in
Burkina Faso. The primary environmental approval required by Roxgold Sanu to develop a mining project is an Avis
de Conformité et de Faisabilité Environmentale, which is issued by the Ministry of Environment and Sustainable
Development (MEDD) through its environmental agency named Agence National des Evaluations Environnementales
(ANEVE, ex BUNEE). The ANEVE has the mandate to promote, monitor and manage all the environmental assessment
process in the country. Such an Avis de Conformité et de Faisabilité Environmentale indicates a positive decision of
the Minister of Environment on the submitted ESIA. Avis de Conformité et de Faisabilité Environmentale were
received in 2014 for the first phase of the Yaramoko Gold Mine (55 Zone mine) and in 2017 for the expansion (Bagassi
South mine). The respective Avis are: (1) Decree N°2014-155/MEDD/CAB and (2) Decree n°2017-431/MEEVCC/CAB.
Any further development of the Yaramoko Gold Mine will follow the same process.
This framework will guide the requirements for future permit modifications to support the 55 Zone open pit
development, in a similar way to which the Bagassi South extension was granted in 2017.
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At present, the main potential environmental issues identified concern water quality due to seepage or runoff from
mine infrastructure; reduced groundwater supply due to the impact of a potential drawdown cone around the mine;
and dust from waste rock dumps and the tailings storage facility. The main social issues identified concern livelihood
changes due to the loss of farmland and loss of income from artisanal mining. Roxgold has been able to manage
these aspects through a comprehensive ESMS based on ISO 14001 and International Financial Corporation (IFC)
Performance Standards.
Since 2014, Roxgold Sanu has engaged with its local stakeholders through a stakeholder engagement management
plan. A specific stakeholder engagement strategy and plan based on the community analysis (stakeholder mapping),
the existing tools and the experience of the community relations team, including presentations of the expansion
projects, community representatives’ meetings, special committee, public enquiries, billboard and/or broadcasting
is in place.
The closure plan for the Yaramoko Gold Mine will be updated to incorporate plans for the development of the 55
Zone open pit at the appropriate time. It currently assumes the preferred final post-closure land use will be a
savannah landscape commensurate with the existing small-scale agriculture and livestock grazing land uses. The plan
assumes no salvage value. The mine areas will be reclaimed to a safe and environmentally sound condition consistent
with closure commitments developed during the LOMP.
Capital and operating costs
Cost estimates are derived from activity-based life of mine scheduling. Underground mining costs are estimated
using the schedule of rates within the existing mining contract with AUMS and a phased transition to owner operator
and increased nationalization of the workforce towards the end of the current underground mine life. Open pit
mining costs are based on estimated mining rates provided by a reputable and experienced mining contractor
operating within the region. Processing, sustaining capital, general and administrative, and selling cost estimates are
prepared using realized costs from recent operating years, with forecast labour and consumables from activity-based
scheduling aligned with the LOMP schedule.
The QP considers the capital and operating costs estimated for the operation as reasonable based on industry-
standard practices and actual costs observed for 2021.
Economic Analysis
Fortuna is using the provision for producing issuers, whereby producing issuers may exclude the information
required under Item 22 for technical reports on properties currently in production and where no material production
expansion is planned.
Mineral Reserve declaration is supported by a positive cashflow.
Conclusions, risks and opportunities
This Report represents the most accurate interpretation of the Mineral Reserve and Mineral Resource available as
of the effective date of this Report. The conversion of Mineral Resources to Mineral Reserves was undertaken using
industry-recognized methods, and estimated operational costs, capital costs, and plant performance data. This
Report also supports the development of an open pit mine at the completion of the 55 Zone underground mine.
Thus, it is considered to be representative of future operational plans. This Report has been prepared with the latest
information regarding environmental and closure cost requirements.
A number of opportunities and risks were identified by the QPs during the evaluation of the Yaramoko Gold Mine.
Opportunities include:
•
•
•
Exploration potential to increase the Mineral Resources of the Yaramoko Gold Mine deposits.
55 Zone open pit design and scheduling optimization to generate a reduction in waste movement, deferral
of waste mining and subsequent increase in cashflow.
Further optimized mining methods resulting in operating cost savings and lower total mining dilution, thus
increased head grade.
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•
•
Identify and explore alternative mining method to mine Bagassi South deposit to lower dilution and
resultant operating cost.
Further optimize mine scheduling
Risks include:
• Uncertainty about the accuracy of the tonnage and grade estimates and the geological continuity of the
gold mineralization at the reported cut-off grade, particularly when addressing the accuracy of depletion
from existing underground workings.
Excessive mining dilution and lower mining recovery of mineralized material directly adjacent to existing
underground workings. A management plan will be required to define mining methods and procedures to
mine above and adjacent to existing underground workings both safely and to minimize mining dilution and
maximize mining recovery.
•
• Unforeseen increases in cost due to inflation could impact the outcome of the mining study as well as future
open pit to underground transition studies. Contractor costs will need to be revalidated during
development plans.
Further geotechnical work prior to the commencement of mining will be required to further assess the
impact of underground voids on pit wall stability.
•
• Open pit mining will occur adjacent to the processing facility and key project infrastructure. Drill and blast
designs and processes will need to ensure vibration and fly rock is controlled such that any impact to key
project infrastructure is minimized.
• Unmet community expectations leading to potential for loss of social license to operate.
•
Long term impact of groundwater movement away from mine workings after closure.
Recommendations
Recommendations for the next phase of work have been broken down into those related to ongoing exploration
activities at the Yaramoko Gold Mine; underground mining activities and studies related to operational
improvements; exploration activities and development studies related to the development of the open pit at
Yaramoko; processing and infrastructure improvements; and environmental, permitting and social activities as set
out below.
Underground Mining:
•
Implement recommended cable bolt regime and record dilution improvement outcomes in the
reconciliation process. The cost is included in the operating costs for the mine.
•
Infill and step out drilling program. Expenditure of $2.5 million (M) is budgeted in 2022 for this program.
• Review potential alternative mining methods for narrow veins of the Bagassi South deposit to reduce cost
•
and dilution. The cost is included in the operating costs for the mine.
Further review of mining contract and its cost reduction opportunity through the staging process to an
owner operator operation, undertaking technical services, production activities, and remaining activities
following decline development completion. The cost is included in the operating costs for the mine.
Open Pit Mining
• Additional Mineral Resource drilling should provide further definition of mineralization directly adjacent to
existing underground workings. It is anticipated this would be in the order of 8,500 m of reverse
circulation/diamond drilling with a provisional budget estimate of $1.06 M, which would be proposed for
the 2023 budget cycle.
Future development studies should apply a variable dilution and mining recovery that is representative of
higher mining dilution and lower mining recovery of mineralization directly adjacent to existing
underground workings. Mining dilution and mining recovery studies will be undertaken by Roxgold and
Fortuna technical staff, with such costs included in the operating costs for the mine.
•
• An open pit to underground transition study is to be completed to define those parts of the deposit which
can be extracted via underground mining methods and those which can be extracted via open pit mining
methods, that is both technically achievable and maximizes discounted cashflow. This study will optimize
the pit design to reduce the risk associated with high waste stripping. The transition and optimization
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•
studies will be undertaken by Roxgold technical staff, with such costs included in the operating costs for the
mine.
Prior to mining commencing, a void management plan will be prepared to define the mining methods to
safely mine mineralization adjacent to underground workings while minimizing mining dilution and
maximizing recovery. The void management plan will be undertaken predominantly with Roxgold technical
staff, with such costs included in the operating costs for the mine. A budget of US$25 thousand (k) has been
budgeted for external geotechnical consultants to assist with this study.
Prior to mining commencing, a drill and blast study should define the drill and blast designs that protect key
project infrastructure from ground vibrations and fly rock within the blast perimeter. Drill and blast studies
will be undertaken by Roxgold technical staff, with such costs included in the operating costs for the mine.
• After the optimization studies are complete, a preferred mining contractor will be chosen and the mining
contractor scope of work will be further defined and compiled within a workable mining contract.
Contractor evaluation and preparation of the mining contract will be undertaken by Roxgold technical staff,
with such costs included in the operating costs for the mine.
•
Processing and Infrastructure
• As Bagassi South feed begins to reduce, there is the potential at times for the mill load to fluctuate and
potentially run low. The lifter angle of the SAG mill should be reviewed to ensure that it is not overly
aggressive with the reduced total load. The cost of such a review will be assessed internally by Roxgold
technical staff.
• Metallurgical behavior should continue to be monitored especially when there are major changes to the
proposed mine plan and mine development. Additional on-site testing should be completed from time to
time in accordance with an updated mine plan during production, to identify any potential issues especially
in the comminution circuit. This test work should be completed during operations. Such costs will be
included in the operating costs for the mine.
Environmental, Permitting and Social
•
•
•
Continue the implementation of the environmental management plan as required under applicable
environmental regulations and according to the Company’s ESAI, internal standards and applicable
international best practices. This includes the implementation of the monitoring and prevention programs
to avoid or mitigate our impacts, the regular update of the closure plan and the continuous improvement
of the Company’s environmental management system. Such costs will be included in the operating costs
for the mine.
Ensure the performance of the stakeholders’ engagement plan and continue to support the local
stakeholders in their social and economic development as part of our social corporate responsibility and
license to operate. Such costs will be included in the operating costs for the mine.
Continue the implementation of a rigorous health and safety management system to protect our employees
from injury and health issues, including leading preventative activities such as risks assessments,
inspections, audits, employee safety and competences training, leadership programs and the continuous
improvement of the health and safety management system. Such costs will be included in the operating
costs for the mine.
[End of Extract of Summary from Yaramoko Technical Report]
See “Three Year History and Recent Developments - Mineral Reserve and Mineral Resource Estimates” herein for
further information regarding the Yaramoko Mine.
Caylloma Mine, Peru
The following is the Summary from the technical report (the “Caylloma Technical Report”) entitled “Fortuna Silver
Mines Inc.: Caylloma Mine, Caylloma District, Peru” with an effective date of March 8, 2019 prepared by Eric
Chapman, P.Geo. and Amri Sinuhaji, P.Eng. This Summary is subject to certain assumptions, qualifications and
procedures described in the Caylloma Technical Report and is qualified in its entirety by the full text of the Caylloma
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Technical Report which is available for viewing on SEDAR at www.sedar.com and is incorporated by reference in this
AIF, and is also filed with the SEC on EDGAR (available at www.sec.gov). Defined terms and abbreviations used
herein and not otherwise defined shall have the meanings ascribed to such terms in the Caylloma Technical Report.
1. Introduction
This Technical Report (the Report) on the Caylloma Mine in the Caylloma District, Peru, has been prepared by Mr
Eric Chapman, P.Geo, and Mr Amri Sinuhaji, P.Eng. for Fortuna Silver Mines Inc. (Fortuna) in accordance with the
disclosure requirements of Canadian National Instrument 43-101 (NI 43-101). The Report discloses updated Mineral
Resource and Mineral Reserve estimates for the mine.
2. Property description, location and ownership
The Caylloma Mine is located in the Puna region of Peru at an altitude of between 4,300 and 5,000 meters above
sea level (masl). Surface topography is generally steep with vegetation being primarily comprised of grasses and
small shrubs common at high altitudes. The mine facilities are located at approximately 4,300 masl.
Access to the Caylloma Mine is by a combination of sealed and gravel road. The mine is located 225 road kilometers
from Arequipa, a city of approximately a million people that includes an international airport, and requires a trip of
approximately 5 hours by vehicle. Access is available to all concessions via a network of unsealed roads.
The Caylloma Mine is an operating underground mine located in the Caylloma Mining District 14 km northwest of
the town of Caylloma at the UTM grid location of 8192263E, 8321387N, (WGS84, UTM Zone 19S).
The underground mine is operated by Compania Minera Bateas S.A.C. (Bateas), a Peruvian subsidiary 100 % owned
by Fortuna. The operation has infrastructure consisting primarily of the concentration plant, electrical power station,
water storage facilities, tailings facilities, stockpiles, and workshop facilities, all connected by unsealed roads.
Additional structures located at the mine include offices, dining hall, laboratory, core logging and core storage
warehouses.
The property comprises mining concessions; surface rights; a permitted 1,500 tonnes per day (tpd) flotation plant;
connection to the national electric power grid; as well as permits for the infrastructure necessary to sustain mining
operations.
The Caylloma Mine consists of mineral rights for 66 mining concessions for a total surface area of 34,472 hectares
(ha).
Bateas has signed 21 surface rights or easement contracts covering a total of 3,529.89 ha with land owners to cover
the surface area needed for the operation and tailings facilities.
3. History
The earliest documented mining activity in the Caylloma District dates back to that of Spanish miners in 1620. English
miners carried out activities in the late 1800s and early 1900s. Numerous companies have been involved in mining
the district of Caylloma but limited records are available to detail these activities.
The Caylloma Mine was acquired by Compania Minera Arcata S.A. (CMA), a wholly owned subsidiary of Hochschild
Mining plc in 1981. Fortuna acquired the mine from CMA in 2005.
CMA focused exploration on identifying high-grade silver vein structures. Exploration was concentrated in the
northern portion of the district and focused on veins including Bateas, El Toro, Paralela, San Pedro, San Cristobal,
San Carlos, Don Luis, La Plata, and Apostles.
Production prior to 2005 came primarily from the San Cristobal vein, as well as from the Bateas, Santa Catalina and
the northern silver veins (including Paralela, San Pedro, and San Carlos) with production focused on silver ores and
no payable credits for base metals. While under CMA management production parameters fluctuated during the
late 1990s, as reserves were depleted. Owing to low metal prices, funds were not available to develop the Mineral
Resources at depth or extend along the strike of the veins. Ultimately this resulted in production being halted in
2002.
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Production under Bateas management focused on the development of polymetallic veins producing lead and zinc
concentrates with silver and gold credits. Total production since October 2006 through December 31, 2018 is
estimated as 18.1 Moz of silver, 23 koz of gold, 117 kt of lead, and 163 kt of zinc.
4. Geology and mineralization
The mine is within the historical mining district of Caylloma, northwest of the Caylloma caldera complex and
southwest of the Chonta caldera complex. Host rocks at the Caylloma Mine are volcanic in nature, belonging to the
Tacaza Group. Mineralization is in the form of low to intermediate sulfidation epithermal vein systems.
Epithermal veins at the Caylloma Mine are characterized by minerals such as pyrite, sphalerite, galena, chalcopyrite,
marcasite, native gold, stibnite, argentopyrite, and silver-bearing sulfosalts (tetrahedrite, polybasite, pyrargyrite,
stephanite, stromeyerite, jalpite, miargyrite and bournonite). These are accompanied by gangue minerals, such as
quartz, rhodonite, rhodochrosite, johannsenite (manganese-pyroxene) and calcite.
There are two different types of mineralization at Caylloma; the first is comprised of silver-rich veins with low
concentrations of base metals and includes the Bateas, Bateas Techo, La Plata, Cimoide La Plata, San Cristobal, San
Pedro, San Carlos, Paralela, and Ramal Paralela veins. The second type of vein is polymetallic in nature with elevated
lead, zinc, copper, silver and gold grades and includes the Animas, Animas NE, Santa Catalina, Soledad, Silvia, Pilar,
Patricia, and Nancy veins.
Underground operations are presently focused on mining the Animas and Animas NE veins.
5. Exploration, drilling, and sampling
CMA implemented a series of exploration programs to complement their mining activities prior to the closure of the
operation in 2002. There is no reliable information available to detail the exploration conducted by CMA at the
Caylloma Mine. Bateas were able to recover and validate information on 47 diamond drill holes totaling 8,177.67 m
drilled by CMA between 1981 and 2003 at the Caylloma Mine.
Since Fortuna took ownership of the property in 2005 the principal exploration conducted at the deposit has been
surface and underground drilling, to explore the numerous vein structures identified through surface mapping or
geophysical surveys conducted by Bateas, or for infill purposes to increase the confidence level of the Mineral
Resource estimates.
As of August 31, 2018, Bateas had completed 1,296 drill holes on the Caylloma Mine totaling 225,361.80 m since the
company took ownership in 2005 and represents all data compiled as of the data cut-off date used for Mineral
Resource estimation. All holes are diamond drill holes and include 544 from the surface totaling 151,774.55 m, and
752 from underground totaling 73,587.25 m. It is important to note that not all the holes presented encountered
mineralization and only drill holes in areas where reasonable geological continuity of mineralized structures could
be established were used in defining and ultimately estimating Mineral Resources.
Bateas has used a number of different drilling contractors to carry out exploration and definition drilling since it took
ownership of the mine in 2005. Both HQ (63.5 mm) and NQ (47.6 mm) diameter core were obtained, depending on
the depth of the hole. Ground conditions are generally good with core recovery averaging 94 %.
Proposed surface drill hole collar coordinates, azimuths and inclinations were designed based on the known
orientation of the veins and the planned depth of vein intersection using geological plan maps and sections as a
guide. Once the coordinates have been determined, the location of the collar is located in the field using differential
global positioning system (GPS) instruments. The drill pad is then prepared at this marked location. Upon completion
of the drill hole, a survey of the collar is performed using Total Station equipment, with results reported in the collar
coordinates using reference Datum WGS84, UTM Zone 19S.
The geologist in charge of drilling is responsible for orienting the azimuth and inclination of the hole at the collar
using a compass clinometer. Downhole surveys are completed by the drilling contractor using survey equipment
such as a Flexit or Reflex tool at approximately 50 m intervals for all surface drill holes and for underground drill
holes greater than 100 m in length. Bateas assesses the downhole survey measurements as a component of the data
validation.
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Drill holes are typically drilled on sections spaced 40 to 60 m apart along the strike of the vein with surface drilling
focusing on exploring the extents of the Animas, Bateas and Nancy veins and underground drilling used for a mix of
exploration and Mineral Resource and Mineral Reserve definition. The extent of drilling varies for each vein with
those having the greatest coverage having drill holes extending over 4,000 m of the vein’s strike length (Animas), to
exploration prospects having only a few drill holes extending over 50 m (Antimonio).
The relationship between the sample intercept lengths and the true width of the mineralization varies in relation to
the intersect angle between the steeply-dipping zone of mineralized veins and the inclined nature of the diamond
core holes. Calculated estimated true widths (ETWs) are always reported together with actual sample lengths by
taking into account the angle of intersection between drill hole and the mineralized structure.
In 2018 all logging became digital, being incorporated daily into the Maxwell DataShed database system. Data were
recorded initially with Excel templates, and later with the Maxwell LogChief application using essentially the same
structure. Both input methods used pick-lists and data validation rules to ensure consistency between loggers.
Separate pages were designed to capture, lithology, alteration, veins, sulfide-oxide zones, minerals, structure
(contacts, fractures, veins, and faults with attitudes to core axis), magnetic susceptibility, and special data (samples
collected for geochemistry, thin section examinations, the core library, density, etc.). Intensity of alteration phases
was recorded using a numeric 1 to 4 scale (weak, moderate, strong, very strong); abundance of veins and most other
minerals were estimated in volume percent.
Geotechnical logging is conducted prior to cutting of the core and involves the collection of drill core recovery and
rock-quality designation (RQD) data. Information is recorded in the field using the Maxwell LogChief application.
The sampling methodology, preparation, and analyses differ depending on whether it is drill core or a channel
sample. All samples are collected by geological staff of Bateas with sample preparation and analysis being conducted
either at the onsite Bateas Laboratory or transported to the ALS Global preparation facility in Arequipa prior to being
sent on for analysis at their laboratory in Lima.
The Bateas laboratory operated by Bateas is not independent and does not hold an international recognized
accreditation.
ALS Global is an independent, privately-owned analytical laboratory group. The preparation laboratory in Arequipa
and the analytical laboratory in Lima are supported by a Quality Management System (QMS) framework which is
designed to highlight data inconsistencies sufficiently early in the process to enable corrective action to be taken in
time to meet reporting deadlines. The QMS framework follows the most appropriate ISO Standard for the service at
hand i.e. ISO 9001:2015 for survey/inspection activity and ISO 17025:2005 UKAS ref 4028 for laboratory analysis.
Channel samples are collected from the backs of underground workings. The entire process is carried out under the
geology department’s supervision. Sampling is carried out at 2 m intervals within the drifts of all veins and 3 m
intervals in stopes (except for Bateas and Soledad, where due to the thickness of the vein, sampling is carried out
every 2 m in stopes). The channel lengths and orientations are identified using paint in the underground working
and by painting the channel number on the footwall. The channel is between 20 cm to 30 cm wide and approximately
2 cm deep, with each individual sample being no longer than 1.5 m.
Drill core is laid out for sampling and logging at the core logging facility at the camp. Sample intervals are marked on
the core and depths recorded on the appropriate box. A geologist is responsible for determining and marking the
drill core intervals to be sampled, selecting them based on geological and structural logging. The sample length must
not exceed 1.2 m or be less than 30 cm.
The elements of silver, copper, lead and zinc are assayed using either; atomic absorption (AA); inductively coupled
plasma atomic emission spectroscopy (ICP-AES); or for high lead and zinc grades volumetric/titration techniques
(VOL); or for high silver grades gravimetric techniques (GRAV) depending on the laboratory and assay value. Assay
results and certificates are reported electronically by e-mail.
Bulk density samples have been primarily sourced from drill core with a limited number being sampled from
underground workings. Bulk density measurements are performed at the ALS Global Laboratory in Lima using the
OA-GRA09A methodology.
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Sample collection and transportation of drill core and channel samples is the responsibility of Brownfields
exploration and the Bateas mine geology departments and must follow strict security and chain of custody
requirements established by Fortuna. Samples are retained in accordance with the Fortuna corporate sample
retention policy.
Implementation of a quality assurance/quality control (QAQC) program is current industry best practice and involves
establishing appropriate procedures and the routine insertion of certified reference material (CRMs), blanks, and
duplicates to monitor the sampling, sample preparation and analytical process. Fortuna implemented a full QAQC
program to monitor the sampling, sample preparation and analytical process for all drilling campaigns in accordance
with its companywide procedures. The program involved the routine insertion of CRMs, blanks, and duplicates.
Evaluation of the QAQC data indicate that the data are sufficiently accurate and precise to support Mineral Resource
estimation.
6. Data verification
Bateas staff follow a stringent set of procedures for data storage and validation, performing verification of data on
a monthly basis. The operation employs a Database Administrator who is responsible for overseeing data entry,
verification and database maintenance. A separate Database Auditor is responsible for performing a detailed
independent review of the database on a quarterly basis and submitting a report to Fortuna management detailing
the findings. Any issues identified are immediately resolved by the administrator.
Data used for Mineral Resource estimation are stored in Maxwell GeoService’s commercial SQL database system
(DataShed), storing both mine related data (including channel samples) and drilling related results (exploration and
infill drilling).
Data was transferred from an inhouse SQL database system to DataShed by early 2018 with the support of Maxwell
personnel. Both databases were run in tandem until a full verification process had been completed to prove parity
between the systems, at which point the original database was archived.
As a component of the 2018 Mineral Resource estimate, a preliminary validation of the Bateas database was
performed by the Database Administrator in June 2018. The database has a series of automated import, export, and
validation tools to minimize potential errors. Any inconsistencies identified were corrected during the analysis with
the database then being handed over for final QP review on August 31, 2018 in Microsoft Access format.
In addition, data verification by the QP was also conducted through the inspection of selected drill core to assess the
nature of the mineralization and to confirm geological descriptions as well as the inspection of geology and
mineralization in underground workings of the Bateas, Animas/Animas NE, and Nancy veins.
A series of plan and cross sections were generated displaying the lithologic and mineralization interpretation by the
Bateas geology and exploration departments and reviewed by the QP’s of Fortuna.
The QP is of the opinion that the data verification programs performed on the data collected by Bateas are adequate
to support the geological interpretations, the analytical and database quality, and Mineral Resource estimation at
the Caylloma Mine.
7. Mineral processing and metallurgical testing
The Caylloma Mine has an extensive body of metallurgical investigation focused primarily on testwork conducted
while treating ore at the operation since 2006. In the opinion of the QP, the Caylloma metallurgical samples tested
and the ore that is presently treated in the plant is representative of the orebody as a whole in respect to grade and
metallurgical response. Differences between vein systems are minimal with regard to recovery.
Metallurgical recovery values forecast in the LOM for sulfide material average 84 % for silver, 17 % for gold, 91 % for
lead, and 90 % for zinc with the exception of the Ramal Piso Carolina vein that forecasts a metallurgical recovery rate
of 75 % for Au. Metallurgical recovery is forecast for zinc oxide material to average 57 % for silver, 17 % for gold,
57 % for lead, and 35 % for zinc.
Until 2012 ore identified as containing high zinc oxide content was classified as not amenable for flotation.
Laboratory and plant tests conducted since 2013 include metallurgical testing of material from the different levels
of the Animas vein. The main conclusion was that zinc oxide contents greater than 0.20 % within the ore were related
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to lower metallurgical recoveries. In order to include this type of ore without affecting the metallurgical recoveries
blending has to be performed to limit the high zinc oxide ore content to no more than 5 % of the feed to the plant.
Beyond the loss in metallurgical recovery related to elevated zinc oxide material, as described above, there are no
additional deleterious elements that require special treatment in the plant as of the effective date of this Report.
8. Mineral Resources
The 2018 Mineral Resource update has relied on channel and drill hole sample information obtained by Bateas since
2005. Mineralized domains identifying potentially economically extractable material were modeled for each vein
and used to code drill holes and channel samples for geostatistical analysis, block modeling and grade interpolation
by ordinary kriging or inverse distance weighting.
Net smelter return (NSR) values for each mining block take into account expected commercial terms, the average
metallurgical recovery, the average grade in concentrate and long term projected metal prices. Mineral Resources
take into account operational costs and have been reported above a US$ 50/t NSR cut-off value for veins wider than
two meters and amenable to extraction by semi-mechanized mining methods (Animas, Animas NE, Nancy, and San
Cristobal veins); or above a US$ 135/t NSR cut-off value for veins narrower than two meters regarded as amenable
to conventional mining methods (all other veins).
Resource confidence classification considers a number of aspects affecting confidence in the resource estimation
including; geological continuity and complexity; data density and orientation; data accuracy and precision; and grade
continuity. Mineral Resources are categorized as Measured, Indicated or Inferred. The criteria used for classification
includes the number of samples, spatial distribution, distance to block centroid, kriging efficiency (KE) and slope of
regression (ZZ).
Mineral Resources exclusive of Mineral Reserves for the Caylloma Mine are reported as of December 31, 2018 and
detailed in Table 1.1.
Table 1.1 Mineral Resources as of December 31, 2018
Category
Measured
Indicated
Measured + Indicated
Inferred
Notes on Mineral Resources
Tonnes
(000)
524
1,633
2,157
5,354
Ag (g/t)
Au (g/t)
Pb (%)
Zn (%)
73
77
76
102
0.32
0.29
0.30
0.32
1.16
1.23
1.22
2.40
2.23
2.25
2.24
3.83
Contained Metal
Ag (Moz) Au (koz) Pb (kt)
6
20
1.2
4.1
5
15
5.3
17.6
21
56
26
129
Zn (kt)
12
37
48
205
• Mineral Resources are as defined by the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves
• Mineral Resources are exclusive of Mineral Reserves
• Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability
• Mineral Resources are estimated as of August 31, 2018 and reported as of December 31, 2018 taking into account
production related depletion for the period through December 31, 2018
• Mineral Resources are reported above an NSR cut-off grade of US$ 50/t for wide veins and US$ 135/t for narrow veins
based on actual operational costs
• Metal prices used in the NSR evaluation are US$ 18.25/oz for silver, US$ 1,320/oz for gold, US$ 2,270/t for lead and
US$ 2,750/t for zinc
• Metallurgical recovery values used in the NSR evaluation of sulfide material are 84 % for silver, 17 % for gold, 91 % for
lead, and 90 % for zinc with the exception of the Ramal Piso Carolina vein that uses metallurgical recovery rates of 75
% for Au
• Metallurgical recovery values used in the NSR evaluation of zinc oxide material are 57 % for silver, 17 % for gold, 57 %
for lead, and 35 % for zinc
• Mining, processing and administrative costs used to determine NSR cut-off values were estimated based on first half of
2018 actual operating costs
Eric Chapman, P.Geo. (APEGBC #36328) is the Qualified Person for resources being an employee of Fortuna Silver Mines
Inc.
Tonnes are rounded to the nearest thousand
Totals may not add due to rounding
•
•
•
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Factors that may affect the estimates include metal price and exchange rate assumptions; changes to the
assumptions used to generate the cut-off grade; changes in local interpretations of mineralization geometry and
continuity of mineralized zones; changes to geological and mineralization shape and geological and grade continuity
assumptions; variations in density and domain assignments; geometallurgical assumptions; changes to geotechnical,
mining, dilution, and metallurgical recovery assumptions; change to the input and design parameter assumptions
that pertain to the conceptual stope designs constraining the estimates; and assumptions as to the continued ability
to access the site, retain mineral and surface rights titles, maintain environment and other regulatory permits, and
maintain the social license to operate.
There are no other known environmental, legal, title, taxation, socioeconomic, marketing, political or other relevant
factors that would materially affect the estimation of Mineral Resources or Mineral Reserves that are not discussed
in this Report.
9. Mineral Reserves
Mineral Reserve estimates follow standard industry practices, considering only Measured and Indicated Mineral
Resources as only these categories have sufficient geological confidence to be considered Mineral Reserves (CIM,
2014). Subject to the application of modifying factors, Measured Resources may become Proven Reserves and
Indicated Resources may become Probable Reserves. Mineral Reserves are reconciled quarterly against production
to validate dilution and recovery factors.
Mineral Reserve estimates for the Caylloma Mine are reported as of December 31, 2018 and detailed in Table 1.2.
Table 1.2 Mineral Reserves as of December 31, 2018
Category
Proven
Probable
Proven +Probable
Notes on Mineral Reserves
Tonnes
(000)
149
2,477
2,626
Ag (g/t)
Au (g/t)
Pb (%)
Zn (%)
85
77
77
0.26
0.18
0.18
2.09
2.12
2.11
3.23
3.71
3.69
Contained Metal
Ag (Moz) Au (koz)
1
14
15
0.4
6.1
6.5
Pb (kt)
3
52
56
Zn (kt)
5
92
97
• Mineral Reserves are as defined by the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves
• Mineral Reserves are estimated as of August 31, 2018 and reported as of December 31, 2018 taking into account
production related depletion for the period through December 31, 2018
• Mineral Reserves are reported above NSR breakeven cut-off values based on the proposed mining method for
extraction including; mechanized (breasting) at US$ 82.90/t; mechanized (enhanced) at US$ 70.30/t; semi-mechanized
at US$ 93.10/t; and conventional at US$ 173.70/t
• Metal prices used in the NSR evaluation are US$ 18.25/oz for silver, US$ 1,320/oz for gold, US$ 2,270/t for lead, and
US$ 2,750/t for zinc
• Metallurgical recovery values used in the NSR evaluation of sulfide material are 84 % for silver, 17 % for gold, 91 % for
lead, and 90 % for zinc with the exception of the Ramal Piso Carolina vein that uses metallurgical recovery rates of 75
% for Au
• Metallurgical recovery values used in the NSR evaluation of zinc oxide material are 57 % for silver, 17 % for gold, 57 %
for lead, and 35 % for zinc
• Mining, processing and administrative costs used to determine NSR cut-off values were estimated based on first half of
2018 actual operating costs
• Mining recovery is estimated to average 92 % with mining dilution ranging from 10 % to 40 % depending on the mining
methodology
Amri Sinuhaji, P.Eng (APEGBC #48305) is the Qualified Person for reserves being an employee of Fortuna Silver Mines
Inc.
Tonnes are rounded to the nearest thousand
Totals may not add due to rounding
•
•
•
10. Mining methods
The mining method employed at the Caylloma Mine is cut-and-fill which is commonly used in the mining of steeply-
dipping orebodies in stable rock masses. Cut-and-fill is a bottom up mining method that consists of removing ore in
horizontal slices, starting from a bottom undercut and advancing upwards. The operation bases its mining plan on a
mix of mechanized, semi-mechanized, and conventional extraction methods based on vein width and rock quality.
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The mining production period extends from 2019 to 2023, almost 5 years. At full production the planned mining rate
is 1,500 tpd (535,500 tonnes per annum). Planned LOM ore production is 2.63 Mt at an average silver grade of 77 g/t,
gold grade of 0.18 g/t, lead grade of 2.11 %, and zinc grade of 3.69 %.
The QP is of the opinion that:
•
•
•
•
The mining method being used is appropriate for the deposit being mined. The underground mine design,
stockpiles, tailings facilities, and equipment fleet selection are appropriate for the operation
The mobile equipment fleet presented is based on the actual mining operations, which is known to achieve
the production targets set out in the LOM
The mine plan method is based on standard industry practices and has been employed at the operation for
the previous seven years, and presents low risk
Inferred Resources are not included in the mine plan
• All mine infrastructure and supporting facilities meet the needs of the current mine plan and production
rate
11. Recovery methods
The current process plant design is split into four principal stages including; crushing; milling; flotation; and
thickening, filtering and shipping.
The QP considers process requirements to be well understood, and consistent based on the actual observed
conditions in the operating plant. There is no indication that the characteristics of the material being mined will
change and therefore the recovery assumptions applied for future mining are considered as reasonable for the LOM.
12. Project infrastructure
All mine and process infrastructure and supporting facilities are in place at the operation with an increase in tailings
storage facility and designation of underground waste disposal area only required to meet the needs of the mine
plan and production rate. The QPs note that:
•
•
The Caylloma Mine is located 225 km, or 5 hours by road from the city of Arequipa, the main service center
for the operation, with good year-round access
The mine site infrastructure has a footprint of 91.12 ha associated with the Huayllacho beneficiation
concession
• An expansion to the tailings facility was completed in January 2019, with a second phase planned for
construction in 2021, providing sufficient capacity for the LOM
•
Power demand on the mine site is 5.5 MW provided mainly (96 %) through the national power grid and two
diesel generators on site to cover the shortfall and provide backup
• Water demand at the Caylloma Mine is 60 l/s, including 10 l/s for the camp. Approximately 70 % of the
processing plant total water consumption is recovered from tailings facility N° 3 with the other 30 % from
fresh water provided by the Santiago River
• All process buildings, offices, and camp facilities for operating the mine have been constructed
13. Market studies and contracts
Since the operation commenced production in October 2006 a corporate decision was made to sell the concentrate
on the open market. In order to get the best commercial terms for the concentrates, it is Fortuna’s policy to sign
contracts for periods no longer than one year. All commercial terms entered between the buyer and Bateas are
regarded as confidential, but are considered to be within standard industry norms.
The QP has reviewed the information provided by Fortuna on marketing, contracts, metal price projections and
exchange rate forecasts and notes that the information provided support the assumptions used in this Report and
are consistent with the source documents, and that the information is consistent with what is publicly available
within industry norms.
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14. Environmental studies and permitting
The mining operation has been developed under strict compliance of norms and permits required by public
institutions associated with the mining sector. Furthermore, all work follows quality and safety international norms
as set out in ISO 14001 and OHSAS 18000.
In addition to these norms and permits obtained from the environmental department, the operation also ensures
all environmental activities are regularly monitored and recorded as part of the quality control measures that are
presented to the Ministry of Energy and Mining (MEM) and other legal regulatory organizations.
Of particular importance is monitoring of the quality of river water in the area. This activity involves monitoring the
Santiago River, being the main river that passes through the property, employing people from the local communities
to verify the results.
Bateas has a very strong commitment to the development of neighboring communities of the Caylloma Mine. In this
respect, Bateas is committed to sustainable projects, direct support and partnerships that build company
engagement in local communities while respecting local values, customs and traditions. The company aims to
develop projects or programs based on respect for ethno-cultural diversity, open communication and effective
interaction with local stakeholders that improve education, health and infrastructure.
Mine closure is also included in the environmental program. For 2019 a total of US$ 655,000 has been budgeted for
the ongoing closure plan and environmental liabilities. The closure plan is performed to ensure compliance with the
programs and plans submitted to the MEM. Budgeted mine closure costs for the LOM total US$ 11.3 million.
15. Capital and operating costs
Capital and operating cost estimates are based on established cost experience gained from current operations,
projected budget data and quotes from manufacturers and suppliers.
The capital and operating cost provisions for the LOM plan that supports Mineral Reserves have been reviewed. The
basis for the estimates is appropriate for the known mineralization; mining and production schedules; marketing
plans; and equipment replacement and maintenance requirements.
The QP considers the capital and operating costs estimated for the Caylloma Mine as reasonable based on industry-
standard practices and actual costs observed for 2018.
16. Economic analysis
Fortuna is using the provision for producing issuers, whereby producing issuers may exclude the information
required under Item 22 for technical reports on properties currently in production and where no material production
expansion is planned.
Mineral Reserve declaration is supported by a positive cashflow for the period set out in the LOM based on the
assumptions detailed in this Report.
17. Conclusions, risks, and opportunities
This Report represents the most accurate interpretation of the Mineral Reserve and Mineral Resource available as
of the effective date of this report. The conversion of Mineral Resources to Mineral Reserves was undertaken using
industry-recognized methods, and estimated operational costs, capital costs, and plant performance data. Thus, it is
considered to be representative of future operational conditions. This Report has been prepared with the latest
information regarding environmental and closure cost requirements.
A number of opportunities and risks were identified by the QPs during the evaluation of the Caylloma Mine.
Opportunities include:
• Reduction in backfill costs through the optimization of the backfilling methodology in order to improve
mining productivity by reducing work cycle times
• Reduction in mining costs via improvements in the underground communication system which would allow
for faster and more efficient decision making, improve logistical coordination, and reduce downtime, hence
improve overall mining productivity
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• Reduction in overall pumping costs through improvements to the mine dewatering system resulting in
reduced power consumption and maintenance requirements
•
Potential to expand current resources through exploration of the Animas NE vein with mineralization
remaining open to the northeast and at depth
Risks include:
• Bateas management occasionally receives requests from local authorities and/or civil organizations
regarding unrealistic social expectations. Bateas are mitigating the risk of conflict regarding these demands
by working with local authorities, land owners, and communities to address expectation levels and to take
requests into account in preparing its annual community relations work program and budget
18. Recommendations
Recommendations for the next phase of work have been broken into those related to ongoing exploration activities
and those related to additional technical and operational studies. Recommended work programs are independent
of each other and can be conducted concurrently. The exploration phase is estimated to cost US$ 521,000 with
additional technical studies estimated to cost US$ 280,000.
i)
Exploration
•
Exploration. It is recommended that Bateas continue surface mapping and TerraSpec analysis of key areas
of interest including Animas, Antacollo, and Antimonio to identify potential future drill targets. The
budgeted cost of the surface mapping activities for 2019 is US$ 36,000 (excluding personnel costs).
• Delineation (infill) drilling. Bateas is planning to continue the delineation drilling from underground in 2019
focusing on the junction between the Animas and Animas NE vein at depth. A total of 3,830 m of drilling
and 55 m of development drift is planned at a budgeted total cost of US$ 480,000.
• Bulk density determination. It is recommended that the number of bulk density measurements by
increased in veins that lack sufficient values for meaningful statistical analysis. In addition to this it is also
recommended that a study be performed to improve the understanding of bulk density in the deposit. If a
correlation between density and mineralogy could be established it may provide a superior alternative than
the presently used density assignment methodology. This program cost is estimated at US$ 5,000.
ii)
Technical and operational studies
• Underground communication system. In 2019 it is recommended that the first phase of an improved
underground communication system be installed to connect key areas of the mine at a budgeted cost of
US$ 40,000. Based on positive results from the first phase the system could be extended throughout the
mine to reach other production and production related areas.
• Backfill system optimization. It is recommended that an evaluation of the backfilling system is conducted
at the operation. A trade off analysis should be conducted to benchmark the current hydraulic backfill
system against alternative methods. The study should investigate the potential impacts on OPEX and CAPEX.
The budgeted cost of the study is US$ 70,000.
• Review of mining methodology. The width of mineralization and rock quality varies greatly throughout the
deposit. It is recommended that an evaluation of mining method be conducted to assess if smaller
equipment could be used to extract mineralized material from narrow veins with poor rock quality, and if
more massive mining methods such as long-hole stoping could be employed in wide veins with good rock
quality. Any such study would need to account for the variable equipment that would be required to deal
with multiple mining methods. The study could be conducted inhouse or externally, with an external cost
estimated at US$ 50,000.
•
Plant expansion conceptual study. A conceptual cost-benefit analysis is recommended to assess if the
production rate at the Caylloma plant could be increased to reduce costs. The study could be conducted
inhouse or externally, with an external cost estimated at US$ 120,000.
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•
Zinc oxide study. The response of zinc oxide material to the flotation process requires additional testwork.
Initial plant testwork indicates that this material can be blended with low zinc oxide material and processed
through flotation without a significant loss in recovery, although the percentage blend at which the zinc
oxide becomes detrimental has not been established. It is recommended that inhouse analysis be
conducted to assess the impact of varying levels of zinc oxide on plant recovery to determine a blending
threshold at which recovery is not affected.
[End of Extract of Summary from Caylloma Technical Report]
See “Three Year History and Recent Developments - Mineral Reserve and Mineral Resource Estimates” herein for
further information regarding the Caylloma Mine.
Exploration Work Subsequent to the Caylloma Technical Report
Exploration drilling at Caylloma continued throughout 2021 totaling 10,121 meters in 26 diamond drill holes, testing
the depth continuity of the greater than 3-kilometer-long Animas NE silver-polymetallic vein system, and the strike
potential further to the north-east beyond the intersection of the Nancy vein. Drilling continues to intersect
mineralized shoots up to 200 meters beyond the current mineral resource boundary, extending known
mineralization more than 900 meters below surface along the 3 kilometer long Animas NE vein, where it remains
open at depth and along strike. Highlights of the program include:
• ANIM086321: 60 g/t Ag, 5.51% Pb and 6.22% Zn over an estimated true width of 7.2 meters
• ANIM084321: 51 g/t Ag, 2.94% Pb and 5.23% Zn over an estimated true width of 5.8 meters
• ANIM084721: 106 g/t Ag, 2.34% Pb and 3.13% Zn over an estimated true width of 11.8 meters
• ANIM085521: 159 g/t Ag, 2.92% Pb and 1.44% Zn over an estimated true width of 6.1 meters
• ANIM087321: 76 g/t Ag, 4.35% Pb and 7.45% Zn over an estimated true width of 11.3 meters
• ANIM087921: 93 g/t Ag, 4.83% Pb and 7.81% Zn over an estimated true width of 20.5 meters
Please refer to the Company’s news release dated December 9, 2021 entitled “Fortuna drills 16.5 g/t gold over 6.3
meters at Séguéla and provides exploration update”, for full details.
Séguéla Project, Côte d’Ivoire
The following is the Summary from the technical report (the “Séguéla Technical Report”) entitled “Séguéla Project,
Feasibility Study, Worodougou Region, Cote d’Ivoire”, with an effective date of May 26, 2021 prepared by Paul
Criddle, FAUSIMM, Hans Andersen, MAIG, Paul Weedon, MAIG, Dave Morgan, AIMM, CPEng, Geoff Bailey,
FIEAust, CPEng, NPER-E, REPQ, Shane McLeay, FAusIMM, and Niel Morrison, PEng. This Summary is subject to
certain assumptions, qualifications and procedures described in the Séguéla Technical Report and is qualified in its
entirety by the full text of the Séguéla Technical Report which is available for viewing on SEDAR at www.sedar.com
and is incorporated by reference in this AIF, and is also filed with the SEC on EDGAR (available at www.sec.gov).
Defined terms and abbreviations used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Séguéla Technical Report.
As the Séguéla Technical Report was prepared by Roxgold prior to the completion of the Roxgold Acquisition,
references in the following Summary to “the Company” or “the Issuer” refer to Roxgold.
1.1
Introduction
Roxgold Inc. (“Roxgold”, the “Company” or the “Issuer”) has compiled a Technical Report on the Séguéla Property
(“Séguéla”, the “Project”, the “Séguéla Property”, the “Séguéla Gold Project” or the “Séguéla Project”) in the
Worodougou Region of the Woroba District, Côte d’Ivoire. This Technical Report is prepared in accordance with the
reporting requirements set forth in National Instrument 43 101 – Standards for Disclosure for Mineral Projects (“NI
43‐101”), Companion Policy 43‐101CP, and Form 43‐101F1.
1.2
Property Description, Location and Access
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The Séguéla Gold Project is located approximately 500 km from Abidjan, via major highways to Séguéla. From
Séguéla, the property’s Antenna, Ancien, Agouti, Boulder and Koula deposits are accessed via 40 km of
unsealed roads. The Séguéla Gold Project covers an area of 35,360 hectares, defined by two exploration permits
(Permis de Recherche Miniére No. 252 and Permis de Recherche Miniére No. 638).
Permis de Recherche Miniére No. 252 has received its second renewal and is due to expire on December 17,
2021. The Antenna, Ancien, Koula, Agouti and Boulder deposits are located on this permit.
Permis de Recherche Miniére No. 638 is a three‐year permit due to expire 18 October 2023, which surrounds
Permis de Recherche Miniére No. 252.
Provided minimum expenditure requirements are met, Mineral Exploration Permits in Côte d’Ivoire are subject
to automatic grants of renewal applications for two terms of three years each, and a special third term of no more
than two years.
Ivorian Mineral Exploration Permits, within their boundaries, entitle the holder exclusive rights to explore for
the nominated mineral commodities specified (in this case, gold), as well as encumbrance‐ free disposal of materials
extracted during exploration process.
In addition to the Environmental Permit obtained on 22 September 2020, the Exploitation Permit (Permis
d’Exploitation No. 56) was granted by the Council of Ministers on 9 December 2020, and signed as a decree by
the President of Côte d’Ivoire (Decree No.2020‐960 dated 9 December, 2020 on gold exploitation permit in Séguéla
department). This permit covers an area of 353.6 km2 and is valid for 10 years, with opportunities to renew as
further growth and expansion is proven.
The Séguéla Gold Project is accessible year‐round by road vehicle. Bituminised national highways of variable
quality facilitate transport between Abidjan, Yamoussoukro, and the nearest major town to the Property;
Séguéla (population c. 65,000). From Séguéla, unsealed roads provide access to the Séguéla Gold Project
through the minor village of Fouio (population c. 3,000).
The Séguéla Gold Project is located within a tropical savannah climatic region on the southern margin of the Sahel
Savannah. This climatic zone is typified by high average temperatures, and a distinct wet season and dry season.
The average annual temperature for Séguéla is 25.3°C, with an annual average rainfall of 1,268 mm. August and
September are the wettest months of the year. Temperatures do not vary greatly over the course of the year, with
average monthly temperatures ranging from 23.5°C in August, to 26.9°C in March. Minima and maxima vary
more, but not in the extreme, with August’s minimum and maximum temperatures being 19.5°C and 27.6°C
respectively, while February shows the greatest range from 19.5°C to 33.4°C.
The Séguéla Gold Project occurs in a region of low forested hills, with elevations averaging 347 m above sea
level. The vegetation of the region is tropical savannah woodland. The area surrounding and covering the
Séguéla Gold Project is extensively cropped for cashews, and to a lesser extent, cacao.
The Séguéla Gold Project contains a 40‐person exploration camp proximal to the Antenna deposit and is serviced
by electrical power mains from the National Grid. Water is drawn via on‐site bores with potable water available
from an on‐site reverse osmosis plant. Food supplies are freighted by road from Yamoussoukro; approximately
270 km.
1.3
History
The Séguéla permit (Permis de Recherche Miniére No. 252) was granted to local Ivorian company, Geoservices
CI in February 2012. The Property was subsequently transferred to a local Ivorian joint venture company, Mont
Fouimba Resource in late 2012. Transferral of the permit then occurred in 2013 to Apollo Consolidated Ltd
(“Apollo”); an exploration company listed on the Australian Securities Exchange (code: AOP), which was the 51%
shareholder in Mont Fouimba, with Geoservices CI holding the remaining 49%. In February 2016, Apollo
announced the signing of an Option to Purchase Agreement by Newcrest Mining Ltd (“Newcrest”), for the
Séguéla Project. In February 2017, the permit was subsequently transferred to LGL Exploration CI S.A; a wholly
owned subsidiary of Newcrest. In April 2019, the Issuer acquired the Séguéla Project from Newcrest through the
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acquisition of LGL Exploration CI S.A. Newcrest acquired the adjacent permit (Permis de Recherche Miniére No.
638) to Séguéla permit (Permis de Recherche Miniére No. 252) on 19 October 2016. This was also acquired by the
Issuer in April 2019.
Throughout this period, there have been two renewals of the Séguéla permit (Permis de Recherche Miniére No.
252), with the permit due to expire on 17 December 2021.
Prior to this period, there is evidence to suggest that the ground contained within permit no. 252 was held by
Randgold Resources (“Randgold”), with press releases from Apollo referring to trenching completed by
Randgold over the Gabbro, Porphyry and Agouti prospects within the current permit limits.
1.4
Geology Setting, Mineralisation and Deposit Types
The Séguéla Property is situated within the Paleoproterozoic (“Birimian”) Baoule‐Mossi Domain of the West African
Craton. Two cycles of volcanism/sedimentation are recognised within the Birimian rocks of the Baoule‐Mossi
Domain; each followed by a period of orogenesis, and together described as the Eburnian Orogeny which is dated
c. 2.19–2.08 Ga. Rocks of the Baoule‐Mossi Domain are primarily polyphase granitoids, and volcano‐
sedimentary sequences forming granite‐greenstone terranes. The first cycle of sedimentation and orogenesis
(“Eburnian 1”) is described by the accumulation of volcanic and volcaniclastic rocks; then subsequently intruded
by early stage granitoids. Following a period of uplift and erosion, the Eburnian 2 cycle is described by the filling
of intra‐montaine basins with predominantly arenaceous sediments of the Tarkwaian Series.
The Antenna deposit occurs within a greenstone package deposited during Eburnian 1, that comprises (west to east)
an ultramafic hangingwall, which is in presumed fault contact with an interlayered package of felsic
volcaniclastic rocks and flow banded rhyolitic units, which are then in contact with a mafic (basaltic) footwall
unit. The faulted contacts between the mafic/ultramafic units and the felsic assemblage converge to the south
of the deposit forming a wedge shape to the felsic package.
The Antenna gold deposit is considered to be an orogenic lode‐style gold system, hosted by a brittle‐ ductile
quartz‐albite vein stockwork predominantly contained within flow banded rhyolite units. The stockwork lode
varies in width roughly in proportion with the widths of the rhyolitic units which host it (approximately 3–40 m)
and extends over a strike length of approximately 1,350 m. Stockwork veins which host mineralisation show two
principal orientations; steep east‐dipping and steep west‐dipping. Veins in the steep west‐dipping orientation
range from being ptygmatically folded to undeformed, while veins in the east‐dipping direction may be variably
boudinaged to undeformed. This evidence suggests syn‐deformational emplacement of the vein sets during
west and east movement along the main fault structures within the region. Mineralisation occurs as free gold,
associated with pyrite and pyrrhotite. Alteration assemblages associated with this mineralisation assemblage vary
from proximal intense silica – albite ± biotite ± chlorite alteration, through medial silica‐albite‐sericite ± chlorite
assemblages, to more distal sericite‐carbonate (ankerite/calcite) and carbonate‐magnetite assemblages. Pyrite
is the dominant sulphide associated with higher‐grade mineralisation within proximal alteration zones, while
sulphide mineralogy is pyrrhotite dominated in medial and distal assemblages and is associated with lower
grade gold mineralisation.
The Ancien deposit is associated with an interpreted D2 sinistral shear zone, informally labelled the Ancien
Shear, within the East Domain and comprises (from west to east) a chloritic pillow basalt footwall overlain by a
foliated/sheared tholeiitic basalt unit, which is in turn overlain by a second chloritic pillow basalt hangingwall
unit which is gradational into a coarser grained porphyritic basalt unit. Generally narrow quartz‐feldspar‐biotite
porphyries crosscut and intrude all other lithologies and are interpreted as late intrusives.
The Koula deposit is situated within the same package of mafic rocks as the Ancien deposit, which is informally
labelled as the Ancien‐Koula corridor. Koula is similarly hosted within a strongly foliated/sheared thoeliitic
basalt unit within a broader sequence of pillow basalt.
At both the Ancien and Koula deposits significant mineralization is restricted to the more reactive and competent
tholeiitic basalt unit and is best developed in zones of strong brittle‐ductile brecciation and shearing, with selective
sericite+/‐silica alteration and intense quartz and quartz‐carbonate veining. Mineralization occurs as free gold,
predominantly as small grains within microfractured milky‐white quartz veins and associated with pyrite and
lesser pyrrhotite at Ancien, that trends to being more pyrrhotite dominant at Koula. Generally lower grade
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mineralization is also developed at the margins of felsic porphyries that intrude the tholeiitic basalt, and in zones
of increased brecciation and veining within these porphyries.
The Boulder and Agouti prospects are both located within a distinct northerly‐trending litho‐structural corridor that
extends from Boulder in the south to Gabbro in the north. Regional mapping has defined a broad package of pillow
basalts and intercalated basaltic sediments, flanked to the west by a discontinuous gabbro unit and regionally
extensive doleritic sequence. The basaltic units are extensively intruded by quartz‐feldspar‐biotite porphyritic
felsic intrusives.
Gold mineralization at the Boulder and Agouti prospects is associated with strongly foliated or mylonitized,
quartz/quartz‐carbonate veined basalt and the margins of the felsic intrusives. Generally lower grade mineralization
occurs internal to the felsic intrusives where they are brecciated or extensively veined. The highest gold grades
generally correlate with the intersection of NNE and NW‐ trending structures. Mineralization occurs as free gold
within a network of milky white quartz veins and associated with foliation or quartz/quartz‐carbonate vein‐
controlled pyrite and minor pyrrhotite.
1.5
Exploration and Drilling
Exploration at the Séguéla Gold Project has been undertaken by Randgold (pre‐2012), Apollo (2012– 2016),
Newcrest (2016–2017) and Roxgold (2019 onwards).
This previous exploration activities included construction of a 40‐person exploration camp and core
storage/logging facilities, geological mapping, purchase and interpretation of aeromagnetic data, soil, trench, and
artisanal dump sampling, aircore (“AC”) and reverse circulation (“RC”) drilling.
As of the effective date of the Séguéla Technical Report, Roxgold has completed 121,272 metres of RC and diamond
drilling (“DD”) since the acquisition of the Séguéla Project in April 2019 from Newcrest.
Since the acquisition of the project in April 2019, Roxgold has completed reconnaissance AC and RC drilling at
Ancien, Agouti, Boulder, Bouti, Elephant, Folly, P1, P3, Kwenko West, Gabbro, Porphyry, Rollier, Sunbird and
resource definition (RC and DD) drilling at the Antenna, Ancien, Agouti, Boulder, and Koula deposits. Xcalibur
Airborne Geophysics Pty Ltd of South Africa conducted an aeromagnetic survey across the project in December
2019 and January 2020, with the results used to further enhance the prospectivity mapping and structural
understanding of the mineralization controls.
At the time of Roxgold’s acquisition in April 2019, 28 prospects were identified from historic geochemistry and
geophysical surveys with exploration activities actively testing 6 of these in 2019. Exploration activities including
geological mapping, collection and interpretation of aeromagnetic data, soil, trench and artisanal dump
sampling, AC, RC, DD and RC with a diamond core tail drilling are continuing to advance the remaining prospects,
with ongoing exploration and target generation activities continually identifying additional prospects such that
at least 30 targets require additional follow‐up exploration.
1.6
Sampling, Analysis and Data Verification
A qualified person who authored the Séguéla Technical Report verified the data disclosed therein, which,
among other things, underpins the disclosure of the Mineral Resource estimate contained in the Séguéla
Technical Report and is of the opinion that data collection and verification procedures adequately support the
integrity of the database. Verification was made through the on-site assessment of the data collection facilities
at Séguéla, discussions held with the geologists responsible for monitoring of the drilling activities, review of
sampling and data capture procedures, discussions with the data management staff responsible for the
integrity of the digitally stored data, and validation of the relational database supplied for use in Mineral
Resource estimation.
1.7
Mineral Processing and Metallurgical Testing
Previous owner, Newcrest, conducted a round of Leachwell assay test work on 61 samples from drillhole
SGDD001 in 2018. Comparison of the Leachwell tests to fire assays for the samples set (four‐ hour bottle roll used
for leach testing of a nominal 1 kg sample) demonstrated a near 1:1 correlation of results. This was used to
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conclude that the material is non‐refractory, and therefore amenable to standard carbon‐in‐leach (“CIL”)
treatment for extraction.
Roxgold supervised the metallurgical testing work completed by ALS Metallurgy assay lab in Perth, Australia on
representative samples from the Antenna, Agouti, Boulder, Ancien, and Koula deposits in 2019 to 2021. Five test
work programs were performed: (1) A19864 conducted between April and June 2019; (2) A20661 conducted
between December 2019 and January 2020; (3) A20721 conducted between February and July 2020; (4) A21926
conducted between January and February 2021; and (5) A21707 conducted also between January and February
2021.
As the Antenna deposit hosts the majority of the Séguéla Gold Project’s Mineral Resource and it forms the majority
of mill feed ore projected to be utilized in the feasibility study, it was examined more comprehensively and
represents the basis for the mineral processing design criteria. Satellite deposits in the form of Agouti, Boulder,
Ancien and Koula were also tested throughout the five programs for confirmation purposes. Test work included
comminution test work, head assays, mineralogical analysis, grind establishment test work, gravity gold
recovery and cyanide leach test work, flotation test work, carbon adsorption test work, oxygen uptake test
work, preg‐robbing test work, cyanide detox test work, sedimentation and rheology test work, and acid mine
drainage test work.
Samples tested were reasonably competent with average Bond Rod and Ball Mill Work Indices of 21.8kWh/t
and 19.7 kWh/t respectively, being amenable to a simple comminution circuit design.
The test work showed that leaching is substantially complete within 24 hours and there is no apparent preg‐robbing
or refractory characteristics in the ores tested. Furthermore, it showed a fast‐initial leaching rate with more
than 80% of the stage extraction completed within the first 2 hours of cyanidation. The highest gold recovery
was achieved for tests incorporating gravity recovery and elevated dissolved oxygen levels for the duration of
the leach.
The ore tested across all deposits exhibited a degree of grind sensitivity with an optimal grind size of 75 micron
being confirmed for all extraction test work. The results of that program, were very encouraging, indicating
free milling of the ore with good leach kinetics and overall recoveries averaging 94.5%.
As such, based on the test work to date, a flowsheet featuring single stage SAG grinding followed by gravity
concentration and cyanidation of the gravity tailings has been adopted. Roxgold believes that with the process
plant and recovery methods described in the Séguéla Technical Report, an average project gold recovery of
94.5% at the life‐of‐mine average grade of 2.8 g/t. can be expected.
1.8
Mineral Resource Estimates
Roxgold has completed Mineral Resource estimates for the Antenna, Ancien, Agouti, Boulder and Koula
deposits based on the drill hole data available to 31 March 2021. The reported Koula Mineral Resource is an
update to the maiden Inferred Mineral Resource reported on November 30, 2020. No changes are reported for
the Antenna, Agouti, Boulder and Ancien deposit Mineral Resources reported on November 30, 2020.
Table 1:
Séguéla Mineral Resource Statement Summary
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Séguéla Mineral Resource effective as at 31 March 2021
Measured
Indicated
Measured & Indicated
Inferred
Tonnes
Grade
Metal
Tonnes
Grade
Metal
Tonnes
Grade
Metal
Tonnes
Grade
Metal
(g/t Au)
(Mt)
(000 oz)
(Mt)
(g/t Au)
(000 oz)
(Mt)
(g/t Au)
(000 oz)
(Mt)
(g/t Au)
(000 oz)
Antenna
Ancien
Agouti
Boulder
Koula
Total
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
8.2
1.4
1.4
1.7
1.2
2.2
5.4
2.4
1.7
7.4
586
250
111
97
285
8.2
1.4
1.4
1.7
1.2
2.2
5.4
2.4
1.7
7.4
586
1.1
1.9
250
0.0
10.6
111
97
285
0.1
0.1
0.2
1.5
1.8
1.2
3.0
2.2
69
11
6
3
14
104
14.0
3.0
1,328
14.0
3.0
1,328
Notes:
(1) Mineral Resources are reported in accordance with NI 43-101 with an effective date of 31 March 2021, for the Séguéla Gold Project.
(2) The Séguéla Mineral Resources are reported on a 100% basis at a gold grade cut-off of 0.3g/t Au for Antenna and 0.5g/t gold (“Au”) for
the satellite deposits, based on a gold price of $1,700/ounce and constrained to MII preliminary pit shells.
(3) The identified Mineral Resources in the block model are classified according to the “CIM” definitions for the Measured, Indicated, and Inferred
categories. The Mineral Resources are reported in situ without modifying factors applied.
(4) The Séguéla Mineral Resource Statement was prepared under the supervision of Mr. Hans Andersen, Senior Resource Geologist at Roxgold
Inc. Mr. Andersen is a Qualified Person as defined in NI 43-101.
(5) All figures have been rounded to reflect the relative accuracy of the estimates and totals may not add due to rounding.
(6) Mineral Resources that are not Mineral Reserves do not necessarily demonstrate economic viability.
(7) Mineral Resources are reported inclusive of Mineral Reserves
(8) The Séguéla Gold Project is subject to a 10% carried interest held by the government of Cote d’Ivoire
Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. The estimate
of Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, socio‐
political, marketing or other relevant issues.
The Mineral Resource estimate incorporates data from all RC and DD holes to date comprising 125,510 metres in
910 drillholes targeting Antenna, Ancien, Agouti, Boulder, and Koula. A total of 216 RC and DD drill holes (32,263
metres) define the Antenna deposit on a drill hole spacing that ranges from 20 metres to 100 metres apart along
a strike extent of 1,700 metres. A total of 144 RC and DD drill holes (24,877 metres) define the Ancien deposit
on a drill hole spacing that ranges from 25 metres to 50 metres apart along a strike extent of 500 metres, which
remains open along strike to the south and at depth. A total of 145 RC and DD drill holes (23,397 metres) define
the Koula deposit on a drill hole spacing that ranges from 25 metres to 100 metres apart along a strike extent of
600 metres. The Koula deposit remains open along strike to the south and at depth, similar to the Ancien deposit.
The Agouti deposit covers three main zones defined by a total of 216 RC and DD holes (23,208 metres) on a drill
hole spacing that ranges from 25 metres to 50 metres apart along a strike extent of 1.3 kilometres. The Boulder
deposit is defined by a total of 189 RC and DD holes (21,765 metres) on a drill hole spacing that ranges from 25
metres to 50 metres apart along a strike extent of 1.1 kilometres. Both the Boulder and Agouti deposits remain
open along strike and depth.
The Ancien, Agouti, Boulder and Koula Mineral Resource models were developed using Leapfrog Geo and
Micromine software. Antenna’s Mineral Resource model was developed using Geovia’s Surpac software. All
gold assays from drillholes were composited to 1.0‐meter intervals within the mineralised wireframes at
Antenna, Agouti, Ancien, Boulder and Koula deposits. Top‐cuts were applied to individual domains based on
the analysis of gold grade outliers within the statistical data populations and ranged between 1.5 g/t to 80.0
g/t Au.
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Geostatistical exploratory data analysis, variogram modelling and Mineral Resource model validation was
conducted using Snowden Supervisor software.
The Mineral Resource model gold grades were estimated using a combination of Ordinary Kriging and Inverse
Distance methods using a multiple pass approach to inform the mineral resource model. The grade estimates are
validated visually by sectional comparison and through statistical approaches that encompass traditional validation
methods, such as Swath plots comparing composite and block model values for each deposit.
Mineral resource models and drill hole data at the Séguéla Project utilise the WGS84 (Zone 29N) coordinate
system. Block model parameters are shown in Table 85 and the list of attributes within the models are shown in
Table 86. The Antenna block model used a parent cell size of 5 m x 10 m x 5 m (XYZ) with standard sub‐celling
to 1.25 m x 2.5 m x 1.25 m, while the satellite deposits used a parent cell ranging between 5‐25 m in the
respective XYZ axis to provide sufficient volume resolution to the modelled mineralisation lodes.
Density values were assigned to the Mineral Resource models based on ascribed oxidisation state and lithological
unit, with mineralisation being assigned the density of its predominant host. A density of
1.2 to 1.8 t/m3 was assigned to transported and alluvial sediments, with a range of 1.8 to 2.2 t/m3 assigned to
the oxidised weathered profile and a range of 2.67 to 3.20 t/m3 assigned to fresh rock lithologies.
On 31 March 2021, Séguéla Mineral Resources were reported constrained by preliminary pit optimisations
generated in Micromine to satisfy the definition of Mineral Resources having reasonable prospects for eventual
economic extraction, and are based on the following parameters:
• Assumed gold price of $1,700 per troy ounce
• Assumed mining recovery of 90% and mining dilution of 10%
• Assumed processing recovery of 94.5%
• Overall slope angle of 52 to 58 for Antenna, 54 for Agouti, 55 for Ancien, 54 to 57 for Koula and 57 for
Boulder
• Assumed mining costs of $1.97 per tonne for Antenna and $2.28 per tonne for the satellite deposits
• Assumed total processing costs (including G&A) of $21.64 per tonne
• Assumed total selling costs (includes state and third‐party royalties) of $121.60/oz
The Mineral Resource models were classified into Indicated and Inferred Mineral Resource categories based on
analysis of the following criteria; number of samples informing the estimate, sample spacing, average sample
distance, kriging efficiency and slope of regression outputs, drill hole and sample QAQC thresholds and geological
confidence in modelled interpretations, grade continuity and level of geological understanding at each deposit.
1.9
Mineral Reserves Estimates
The Mineral Reserve estimate was prepared as of 31 March 2021 and is consistent with the CIM Definition
Standards for Mineral Resources and Mineral Reserves reporting. The Mineral Reserve estimate is stated at a
$1,500 per ounce gold price and based on the Mineral Resource block models.
Mineral Reserves for the Séguéla Gold Project are based on conversion of Indicated Mineral Resources to Probable
Mineral Reserves within the final pit designs constrained to an ultimate pit shell generated from open pit
optimizations at a $1,500 per ounce gold price with the incorporation of appropriate mining recovery and
mining dilution estimations. No Measured Mineral Resources that would have been converted to Proven
Mineral Reserves were part of the Mineral Resource model for any of the deposits. Inferred Mineral Resources
were not included in the Mineral Reserves estimate. Where Inferred Mineral Resources existed within the final
pit design, they were assigned a null Au grade and was classified as waste in the pit optimisation process.
Table 2 summarizes the open pit Mineral Reserve estimate for the Séguéla Gold Project that includes the
Antenna, Koula, Ancien, Agouti and Boulder deposits.
Table 2:
Séguéla Mineral Reserves Estimate Summary
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Séguéla Mineral Reserve effective as of 31 March 2021
Proven
Probable
Proven + Probable
Tonnes
Grade
Metal
Tonnes
Grade
Metal
Tonnes
Grade
Metal
(Mt)
(g/t Au)
(000 oz)
(Mt)
(g/t Au)
(000 oz)
(Mt)
(g/t Au)
(000 oz)
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
7.2
1.2
1.3
1.2
1.1
12.1
2.1
6.5
4.9
2.2
1.8
2.8
482
243
211
88
64
7.2
1.2
1.3
1.2
1.1
1,088
12.1
2.1
6.5
4.9
2.2
1.8
2.8
482
243
211
88
64
1,088
Antenna
Koula
Ancien
Agouti
Boulder
Total
3.
Notes:
1. Mineral Reserves are reported in accordance with NI 43-101 with an effective date of 31 March 2021, for Séguéla.
2.
The Séguéla Mineral Reserves are reported on a 100% basis at an incremental gold grade cut-off of 0.54 g/t Au for Antenna, 0.55 g/t Au for Agouti, 0.55 g/t
Au for Boulder, 0.56 g/t Au for Koula and 0.56 g/t Au for Ancien deposits based on a gold price of $1,500/ounce, constrained to optimization pit shells and
only Proven and Probable categories reported within the final pit designs.
The Mineral Reserves pit design were completed based on overall slope angle recommendations of between 37° and 57° for Antenna, Koula and Agouti
deposits from oxide to fresh weathering profiles, between 34° and 56° for Ancien deposit from oxide to fresh weathering profiles and 37° and 60° for Boulder
deposit from oxide to fresh weathering profiles.
The Mineral Reserves are reported with modifying factors of 15% mining dilution and 90% Mining recovery applied.
4.
5. Mineral Reserves reported based on each open pit deposit demonstrating economic viability.
6.
7.
The identified Mineral Reserves in the block model are classified according to the "CIM" definitions for the Proven and Probable categories.
The Séguéla Mineral Reserves Statement was prepared under the supervision of Mr. Shane McLeay, Principal Mining Engineer at Entech Pty Ltd. Mr.
McLeay is a Qualified Person as defined in NI 43-101.
All figures have been rounded to reflect the relative accuracy of the estimates and totals may not add due to rounding.
The Séguéla Gold Project is subject to a 10% carried interest held by the government of Cote d'Ivoire.
8.
9.
Roxgold is not aware of any known environmental, permitting, legal, title, taxation, socio‐economic, marketing,
political, or other relevant issues that could potentially affect this Mineral Reserve estimate. The reported
Mineral Reserve may be affected by future study assessments of mining, processing, environmental,
permitting, taxation, socio‐economic and other factors.
1.10 Mining Methods
A geotechnical study was completed on the Séguéla Gold Project by Entech. The study provided details on pit slope
recommendations for the different weathering zones, material type and orientations for each deposit of the
Séguéla Gold Project. Outcomes and recommendations from the study translated into inputs for the open pit
optimization and mine design phases.
Input mining unit rates for open pit optimization was generated from two cost models built up from first
principles, a contractor cost model generated from reputable West African Mining Contractors request for
quotation (“RFQ”) submissions, and an owner operator cost model generated by Entech utilising their West
African database and benchmarked against contractors RFQ submissions.
Mine designs were generated for each deposit utilising the selected optimum pit shells as a guide incorporating
geotechnical parameters, minimum mining dimensions and mining equipment considerations. Designs included
bench by bench convention and ramps from the crest to the bottom of the pit with waste dumps designed
adjacent to the planned open pit voids to minimise haulage distances.
The Séguéla Gold Project will consist of the simultaneous exploitation of the Antenna deposit and the satellite
deposits at Koula, Ancien, Agouti, and Boulder. The overall strategy is to have production from these satellite
deposits complement the production from Antenna.
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A conventional open pit mining method will be utilized for the Séguéla Gold Project with no free digging
assumed for any of the weathering zones. All material will be mined via drilling and blasting activities, followed
by conventional truck and shovel operations within the pits for movements of ore and waste material. Mining of
benches is proposed using 5.0 m benches done in two 2.5 m flitches.
Mining operations will occur year‐round with Roxgold engaging a mining contractor for initial operations,
before switching to an owner mining arrangement after 3.5 years. A common pool of equipment will be used
and scheduled across all active pits so that movement between the pits is minimized and consumables and
spare parts are shared within the fleet.
A total of fourteen mining stages were designed and scheduled for the Séguéla Gold Project, consisting of individual
pits or pit stages within a final pit design. Consideration for pit stages was for planning and scheduling
practicality purposes. The schedule utilizes the pit and phase designs and stockpiling strategy to fill the mill at
1.25 million tonnes per annum (“Mtpa”) initially and then increasing to 1.57 Mtpa in year 3.
The mine schedule delivers 12.1 Mt of ore grading 2.8g/t gold to the mill over a nine‐year mine life, including
three months of pre‐production.
1.11
Processing and Recovery Operations
The feasibility study in the Séguéla Technical Report contemplates a single stage primary crush/SAG milling
comminution circuit where the ore will be drawn from the ROM bin via an apron feeder, scalped via a vibrating
grizzly with the undersize reporting directly to the discharge conveyor and the oversize reporting to a primary jaw
crusher for further size reduction. All crushed and scalped material will by conveyed to a surge bin. Crushed ore
and water will be fed to the mill.
The mill will operate in closed circuit with hydrocyclones, with cyclone underflow reporting to the mill feed. A
portion of the cyclone underflow slurry will be fed to the gravity circuit for recovery of gravity gold. The gravity
concentrator tailings will flow to the cyclone feed hopper, while the gravity concentrate will report to an
intensive leach circuit. Gold in solution will be recovered in a dedicated electrowinning system.
Screened cyclone overflow will be thickened prior to the CIL circuit. Loaded carbon drawn from the CIL circuit
will be stripped by the split AARL method. The resultant gold in solution will be recovered by electrowinning.
Recovered gold from the cathodes will be filtered, dried, and smelted in a furnace to doré bars.
The feasibility study assumes a forecast gold recovery rate of 94.5% for the life of the production plan. A gold price
of $1,600/oz based on analyst consensus was used for the economic analysis.
The Séguéla Gold Project is expected to produce gold doré which is readily marketable on an 'ex‐ works' or
'delivered' basis to several refineries in Europe and Africa. There are no indications of the presence of penalty
elements that may impact the price or render the product unsalable.
Payment terms are widely available in the public domain and vary little from refinery to refinery.
1.12
Infrastructure, Permitting and Compliance Activities
The tailings system will comprise of two parallel tailings lines and associated tailings pumps. The tailings storage
facility (“TSF”) will comprise a side‐valley storage formed by two multi‐zoned earth‐fill embankments, designed to
accommodate 13.0 Mt of tailings, and built utilising the downstream construction methodology. The TSF will
be designed to comply to ANCOLD (2019) guidelines and will include a HDPE geomembrane liner.
A water storage dam supplied with runoff water, mine dewatering and underground water will be the main
collection and storage pond for clean raw and process water.
The envisioned power supply is through a connection to the Côte d’Ivoire electricity grid by a 2,400 m tee into the
90kV powerline from the Laboa to Séguéla substation. The Séguéla substation is fed via an existing 90kV
transmission line from the 225/90kV Laboa substation. The Laboa substation is part of a 225kV ring main system
around the country where various sources of generation are connected and, being a large ring main, offers a
great deal of redundancy at 225kV. The grid supply from Côte d’Ivoire is, by world standards, economically
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priced and much more financially favourable than other options including self‐generation as the tariff is based
on a mix of hydro and thermal generation with a large portion of hydro.
The Séguéla Gold Project’s peak total greenhouse gas (“GHG”) emissions is projected at 67,676 tCO2e. Based on
fuel and energy consumption and the total production of gold, the Séguéla Gold Project’s energy and GHG
emission intensities are estimated at 4.39 GJ/oz and 0.58 tCO2e/oz, respectively.
The primary environmental approval required to develop the Séguéla Gold Project is decreed by the Ivorian
Environment Minister and is necessary for the issuance of the mining license. Roxgold has contracted the
consulting firm CECAF to undertake the project baseline studies and compile the environmental and social
impact assessment (“ESIA”) required to obtain the environmental decree. The ESIA identifies the potential social
and environmental impacts of the development of the project and proposed mitigation measures. Part of the
ESIA, a conceptual resettlement action plan has been developed for any physical or economic displacement of
people or communities as a result of the project’s development as well as a conceptual mine closure plan.
Following environmental and social studies, public consultations, and governmental examination, the ESIA for the
Séguéla Gold Project has been approved by the Ministry of Environment and Sustainable Development by decree
signed on September 22, 2020 (Decree No.00261 dated September 22, 2020, on ESIA approbation for the
exploitation of a gold mine in Séguéla department). This decree allows the project to be built and exploited in
accordance to the conditions listed into the environmental permit application file and the decree.
Currently, there is no permanent artisanal (“ASM”) settlement on the identified deposits or nearby, with the
presence of only few hundred ASM miners from time to time in the project area. The ASM activities can be
characterized as being unauthorized, dispersed, intermittent and not mechanized for the exploitation of the
deposits. Because of the implementation of a stakeholder management plan ensuring a good relationship
between the company and the local authorities, village leaders, landowners, plus regular monitoring of the land
occupancy on the exploration sites and the intervention of the authorities to avoid the establishment of
organized ASM, the ASM activities in the project area can be qualified as being controlled.
The conceptual closure plan presented in the ESIA assumes the mine areas will be reclaimed to a safe and
environmentally sound condition consistent with closure commitments developed in compliance with the national
practices and regulations, and consistent with IFC and other guidelines.
At the end of 2020, in addition of the Environmental Permit, the Exploitation Permit was granted by the Council
of Ministers on December 9, 2020, and signed as a decree by the President of Côte d’Ivoire (Decree No.2020‐960
dated December 9, 2020 on gold exploitation permit in Séguéla department). This permit covers an area of
353.6 km2 and is valid for 10 years, with opportunities to renew as further growth and expansion is proven.
1.13
Capital and Operating Costs
The capital required to develop Séguéla Gold Project is estimated to be $142 million (including $8 million
contingency) with an additional $173 million of sustaining capital and $11 million of closure costs over the nine‐
year mine life. The mining pre‐production capital relates to mining activities, plant and infrastructure construction
activities and owners team assembly prior to first material being delivered to the processing facility, where
315,000 tonnes of ore and 625,000 tonnes of waste are mined in order to establish a reasonable stockpile
ahead of processing operations commencing. All contractor mobilization and setup costs are included in the
pre‐production capital allowance.
The processing plant capital relates to a facility with a nominal hard rock throughput of 1.25 Mtpa and compliant
with other key process design criteria summarized in Section 17. The capital cost estimate is based on a fixed sum
engineering, procurement and construction (“EPC”) implementation approach and horizontal (discipline based)
construction contract packaging. The EPC costs originate from a firm price from a reputable, experienced EPC
contractor selected via a competitive tendering process. These costs include the procurement of equipment,
materials and services to construct the complete process plant on a fixed cost basis as defined by the EPC scope
of work.
The infrastructure pre‐production cost includes site roads, utilities, buildings, mobile equipment, electrical
distribution, tailings management facility, and water storage dam. The sustainability pre‐ production cost
includes land compensation, livelihood restoration, and COVID‐19 management and medical expenses.
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Operating costs, which includes mining, processing, general and administrative costs, royalties and refining
costs totals $652 per payable ounce of gold sold over the nine‐year operating plan in the feasibility study. AISC,
which includes sustaining capital, reclamation, and corporate general and administration totals $832 per
payable ounce of gold sold over the nine‐year operating plan in the feasibility study.
1.14
Economic Analysis
The Séguéla Gold Project has been evaluated on a discounted cash flow basis. The results of the feasibility
study analysis show the project to be economically very robust. The pre‐tax net present value with a 5%
discount rate (NPV5%) is $455 million and with an IRR of 53% using a base gold price of $1,600/oz. The economic
analysis assumes that Roxgold will provide all development funding via inter‐company loans to the mine
operating entity, which will be repaid with interest from future gold sales. On this basis, over the nine‐year
operating mine plan outlined in the feasibility study, Roxgold’s 90% interest in the project is expected to provide
an after‐tax NPV5% of $380 million and an IRR of 49% at a gold price of $1,600/oz.
Payback period is expected to be 1.7‐years at a gold price of $1,600/oz. Payback period is defined as the time
after process plant start‐up that is required to recover the initial expenditures incurred developing the Séguéla
Gold Project.
Like most gold mining projects the key economic indicators of NPV5% and IRR are most sensitive to changes in
gold price. A $200/oz reduction in the gold price would reduce Roxgold’s after‐tax NPV5% by $109 million and
reduce the IRR by 11%. A $200/oz increase in the gold price would increase Roxgold’s NPV5% by $98 million
and increase the IRR by 15%.
The cash flow analysis has been prepared on a constant 2021 US dollar basis. No inflation or escalation of revenue
or costs has been incorporated.
1.15
Conclusions and Recommendations
Roxgold, in collaboration with independent consultants, has prepared a DFS which confirms the continued
economic viability of the Séguéla based on Mineral Reserves. This Technical Report provides a summary of the
results and findings from each major area of investigation to a level that is considered to be consistent with
that normally expected with feasibility studies for resource development projects. The financial analysis
performed from the results of this study demonstrates the robust economic viability of the proposed Séguéla
Project using the base case assumptions considered.
Analysis of the results of the investigations has identified a series of risks and opportunities associated with each of
the technical aspects considered for the development of the proposed project.
The key risks include:
• Environmental, permitting, legal, title, taxation, socio‐economic, marketing, and political or other
relevant issues could potentially materially affect access, title, or the right or ability to perform the
work recommended in this Technical Report on the Séguéla Property. However, at the time of this
report, the Authors are unaware of any such potential issues affecting the Séguéla Property and work
programs recommended in this Technical Report;
• The targeted mineralisation type may not be discovered or if discovered it may not be of sufficient
grade and/or tonnage to warrant commercial exploitation;
• Changes to metal price assumptions;
• Changes to the technical inputs used to estimate gold content (e.g. bulk density estimation, grade
interpolation methodology);
• Geological interpretation (e.g. dykes and structural offsets such as faults and shear zones);
• Changes to geotechnical, hydrogeological, and mining assumptions, including the minimum mining
thickness; or the application of alternative mining methods;
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• Changes to process plant recovery estimates if the metallurgical recovery in certain domains is lesser
or greater than currently assumed;
• The main risks to the project phase are cost and schedule overrun of construction and commissioning
activities. Associated with these risks are geotechnical ground conditions that could force relocation of
certain infrastructure with potential impact on cost and construction schedule;
• The cost and availability of construction materials for the mining operation;
• The design is based on an average tailings beach slope of 0.8% (125H:1V). However, the beach slope is
heavily dependent on the grind size and the ore blend. Thus, small changes in plant performance or
design, ore type, or the ore blend have the potential to change the tailings beach slope, and therefore
dam capacity;
• The staged TSF embankment crest elevations are based on assumed tailings characteristics and
throughput. Changes in these characteristics and/or throughput will result in changes in the achieved
densities in the TSF;
• Any changes to the life of Mine Plan or throughput will impact upon the tailings management
requirements for the site. Any significant increases in total throughput may require an expansion
review of the current TSF (in particular, the proximity to the plant site) and reconsideration of the
closure plan;
• There is a low risk that water seepage from the tailings storage facility may contaminate ground water.
This risk is mitigated with the use of an HDPE liner, which the DFS contemplates;
• The availability and reliability of grid power supply presents a risk. Permitting and delivery of the
proposed grid connection may force extending the use of diesel generation longer than anticipated
with an impact on power costs;
• The nearby communities have expectations relating to job creation, community development and
improvement in services and infrastructure. Meeting these expectations and minimizing impacts to
regional infrastructure and community livelihood is a challenge resulting in possible dissatisfaction with
Roxgold and the associated risks of community action against the project and loss of social license to
operate; and
• Endemic diseases will be monitored, with a malaria management plan in place to control standing
water and mosquito populations. A COVID‐19 management plan will be put in place to prevent a virus
outbreak on site and to manage the situation should one occur.
The key opportunities include:
• The Séguéla Property covers the entire greenstone belt exposure which hosts the Antenna, Ancien,
Agouti, Boulder and Koula deposits, which is considered to be a strike continuation of the Senoufo
greenstone belt which also hosts the Sissingue, Syama and Tongon gold deposits. The Séguéla Project is
still under active exploration with potential for expansion of known gold deposits, the advancement of
known prospects to drill stage (such as Sunbird), and the discovery of new prospects. These targets
have the potential to increase the Mineral Resource base and enhance the potential economics of the
Séguéla Project by adding additional ounces;
Further optimisations of the mining strategy may result in operating cost savings as well as optimized
mine designs and scheduling resulting in a reduction in stripping ratio and overall project waste
movement requirements;
•
• Optimisation on the open pit and underground mining transition of the Koula and Ancien deposits.
Optimal transition point from open pit to underground, lifting the pit floor up, reducing strip ratio
and waste movement yielding an increase in the overall project NPV;
• Optimisation in geotechnical pit slope angles for mine design improvements and reduction in the
overall strip ratio;
•
Improvements in mining operating cost through commercial negotiations with preferred contractors
may result in a lower mining cost;
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• Throughout the next engineering phases of the project, the optimisation of the plant throughput
and/or opportunities to cost effectively increase plant throughput or allow for future expansion will
be considered;
• There is the opportunity to maximize the benefit of this project for local communities as an
opportunity for social and economic development including social infrastructures, professional skills
and all the other aspects of the Sustainability Development Goals (“SDGs”) where possible;
• A good working relationship with local government, state services, traditional authorities,
communities and other stakeholders such as the artisanal miners, is in place due to the quality of the
early stakeholder’s engagement at the project. The opportunity to strengthen these existing
relationships will help mitigate the risks of project delays due to unmet expectations amongst the
community and other stakeholders; and
• The area is favourable to project development without legally protected and internationally
recognised biodiversity areas and mostly modified natural habitats mixed with agriculture, no traditional
sites, low population density, plus no established villages within the project's footprint.
Analysis of the results and findings from each major area of investigation suggests several recommendations
for further investigations to mitigate risks and improve the base case designs to be considered during the operation
of the project. Each recommendation is not contingent on the results of other recommendations and can be
completed in a single phase, concurrently. A summary of the recommendations as provided is as follows:
• Additional Mineral Resource definition drilling (infill and extension) where applicable, to upgrade the
Mineral Resource classification to Indicated and extend the known Mineral Resources;
• Review and re‐rank existing regional exploration results and targets followed by selective drill testing of
those proximal to the defined Mineral Resource estimates;
•
Further extension and infill drilling of the down‐plunge projections of high grade mineralization
beyond the presently defined open pit limits in support of underground mining potential. If successful,
this work should also consider trade‐off studies to further optimise the final pit depths and the potential
to mine current open pit ore via an underground operation;
• Detailed structural analysis of the Antenna, Ancien, Agouti, Boulder and Koula deposits, based on high‐
quality oriented drill core, with a view to developing exploration models for analogue or related systems
elsewhere within the Project;
• Roxgold intends to continue with the systematic approach to the exploration and development of
the Séguéla Project. Roxgold has budgeted for ongoing exploration, with approximately $5.4 million
allocated for 2021, and will proceed with the recommended work as planned, with any future work to
be planned contingent upon the results of this initial phase;
•
•
Finalization of the ground improvement requirements for critical structures at the process plant;
Investigate the potential for closer sources of construction materials, namely competent fill, sand and
rock (aggregate) supply to minimise importation costs;
• Carbon adsorption modelling for various combinations of carbon movement rates and concentration
profiles should be considered. The test results from the DFS indicates that gold adsorption is below
average for this slurry which was unexpected given the ‘clean’ nature of the ores. Confirmatory test
work is recommended but not essential as the impact on the CIL / elution circuit design will be modest;
• Undertake more comprehensive test work for silver and explore the economics to recover silver in
the process plant;
• An optimization study of the mining strategy, open pit to underground mining transition, and
geotechnical pit slope angles to reduce strip ratio and waste movement yielding an increase in the
overall project NPV. This study should be conducted in the next phase of engineering investigation in
2021 (approximately $530,000);
• Tender the major construction (e.g. bulk earthworks, grid connection) and mining contracts to more
accurately define the project costs and economics;
• Continuing climate data collection on site to establish variation between project site and other long‐term
monitoring data sources;
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• Continue to engage effectively with all the stakeholders as the project develops including those
concerned by the impacts on the regional infrastructures;
•
•
Further studies to investigate the impacts of the project on water quality and the long‐term potential
impacts of the tailings storage facility on surface and ground water quality;
Locate additional air quality and noise monitoring points at the boundary between the new project
infrastructure and the closest villages to provide a more robust baseline; and
• Consider the cover designs or dust suppression systems for the waste rock dumps and tailings facilities to
minimize the generation of windblown dust from the surface of these facilities.
[End of Extract of Summary from Séguéla Technical Report]
Exploration Work Subsequent to the Séguéla Technical Report
Séguéla Project Exploration Results 2021
On September 7, 2021, the Company announced the results of extension and scout drilling at the Séguéla Project
which has established continuity of high-grade mineralization at the Koula deposit, the Sunbird prospect and the
Gabbro North prospect.
At the Koula deposit, a combined 7,115-meter, 24-hole Hanging Wall (HW) and Main Zone drill program continued
to advance the high-grade Koula deposit with step-out drilling intersecting a new zone of hanging wall mineralization
as well as infilling the extension of the high-grade Koula structure. Highlights of the step-out drilling include:
•
•
•
SGRD1217: 28.8 g/t Au over 7 meters from 80 meters (Hanging wall lode)
SGRD1209: 19.8 g/t Au over 11 meters from 124 meters, including 83.3 g/t Au over 3 meters from 128
meters (Hanging wall lode)
SGDD085: 6.1 g/t Au over 18 meters from 246 meters (Central lode)
At the Sunbird prospect, a 1,774 meter, 11-hole depth extension drilling program extended the mineralized
envelope. Highlights of the drilling program include:
•
•
•
SGDD089: 17.2 g/t Au over 30 meters from 142 meters
SGDD087: 2.9 g/t Au over 20 meters from 110 meters
SGRC1306: 2.7 g/t Au over 12 meters from 63 meters
At the Gabbro North prospect, a 2,070-meter, 14-hole scout drilling program was conducted to follow up on the
previous high-grade results intersected in the first scout drilling phase conducted by Roxgold in the second quarter
of 2021. The results provided evidence of further continued high-grade mineralization. Highlights of the scout
drilling include:
•
•
SGRC1236: 23.0 g/t Au over 4 meters from 109 meters, and 9.2 g/t Au over 5 meters from 117 meters
SGRC1239: 2.5 g/t Au over 5 meters from 17 meters
Please refer to the Company’s news release dated September 7, 2021 entitled “Fortuna intersects 17.2 g/t Au over
30m at Sunbird Prospect, Séguéla, Côte d’Ivoire and 17.9 g/t Au over 5.4m at Galgouli Prospect, Boussoura, Burkina
Faso”, for full details.
On December 9, 2021, the Company the announced the results of a 13-hole, 3,059-meter drill program which tested
the continuity and tenor of mineralization at depth and along strike to the south. Drilling at depth was designed to
test projections of previous high-grade results a further 100 to 150 meters down plunge in the central zone and help
refine the understanding of the structural controls. Drilling to the south extended drill defined mineralization a
further 50 meters, helping refine the structural controls, with this area remaining open along strike and down-
plunge. The geometry and style of mineralization is consistent with that seen at the Koula and Ancien deposits,
located 1.5 kilometers and 5 kilometers to the north and south respectively, both of which are hosted in similar
structural settings within the same lithology package. Highlights of the drill programme include:
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•
•
•
•
•
•
SGRD1365: 9.4 g/t gold over an estimated true width of 7 meters from 197 meters
SGRD1366: 17.5 g/t gold over an estimated true width of 6.3 meters from 205 meters
SGRD1367: 14.8 g/t gold over an estimated true width of 1.4 meters from 214 meters and
52.2 g/t gold over an estimated true width of 1.4 meters from 242 meters
SGRD1368: 3.4 g/t gold over an estimated true width of 3.5 meters from 269 meters
SGRD1370: 8.0 g/t gold over an estimated true width of 8.4 meters from 241 meters
SGRD1376: 6.5 g/t gold over an estimated true width of 10.5 meters from 143 meters
Please refer to the Company’s news release dated December 9, 2021 entitled “Fortuna drills 16.5 g/t gold over 6.3
meters at Séguéla and provides exploration update”, for full details.
Séguéla Project Maiden Inferred Mineral Resource
On March 15, 2022, the Company announced a maiden Inferred Mineral Resource for the Sunbird discovery at the
Séguéla Project. The Company estimates the Sunbird deposit contains an Inferred Mineral Resource of 3.4 million
tonnes at an average grade of 3.16 g/t Au containing 350,000 gold ounces (refer to Table 1). The Inferred Mineral
Resource will not materially change the existing Mineral Resource estimate at the Séguéla gold Project or impact its
current construction plan.
Table 1: Sunbird deposit maiden Inferred Mineral Resource estimate
Classification
Inferred Mineral Resource
Tonnes
3,446,000
Au
(g/t)
3.16
Contained Au
(oz)
350,000
Notes:
1. Mineral Reserves and Mineral Resources are as defined by the 2014 CIM Definition Standards for Mineral
Resources and Mineral Reserves
2. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability
3.
Factors that could materially affect the reported Mineral Resources or Mineral Reserves include changes in
metal price and exchange rate assumptions; changes in local interpretations of mineralization; changes to
assumed metallurgical recoveries, mining dilution and recovery; and assumptions as to the continued ability
to access the site, retain mineral and surface rights titles, maintain environmental and other regulatory
permits, and maintain the social license to operate
4. Mineral Resources are estimated and reported as of December 31, 2021
5. Mineral Resources are reported constrained within an optimized pit shell at a cut-off grade of 0.5 g/t Au based
on an assumed gold price of US$1,700/oz, metallurgical recovery rate of 94.5%, mining cost of US$2.80/t,
processing and G&A costs of US$21.64/t, and refining/selling costs including state and third-party royalties of
US$121.60/oz. The pit design was completed based on overall slope angle of between 50° and 53.3°
6. Matthew Cobb is the Qualified Person responsible for Mineral Resources, being an employee of Roxgold Inc.
7. Totals may not add due to rounding procedures
Please refer to the Company’s news release dated March 15, 2022, entitled “Fortuna announces maiden inferred
mineral resource of 350,000 ounces at 3.16g/t gold at the Sunbird discover at Séguéla, Côte d’Ivoire”, for full details.
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Non-Material Mineral Properties
Boussoura Properties in Burkina Faso
On July 29, 2014, Roxgold obtained the permit to explore the Boussoura property located in the province of Poni.
The Boussoura permit was renewed to September, 2023.
The Boussoura permit covers an area of approximately 244.5km2. It is located in south west Burkina Faso on the
southern end of the Hounde Greenstone belt approximately 35 kilometres from the city of Gaoua, or 350 kilometres
from Ouagadougou, the capital of Burkina Faso. The Boussoura permit is also approximately 10 kilometres north of
the border of Côte d’Ivoire.
A drilling program was conducted in late 2019 and early 2020 targeting three prospects, following up on old field
mapping, regional soil and auger geochemical sampling and high-grade rock chip results at Galgouli, Fofora and
Niolkar. The Fofora area is host to at least nine sets of shear zones and vein corridors that have been identified to
date with an active 3km by 3km artisanal field. Scout drilling since September 2020 has progressively been testing
the higher priority targets across the fields, with results confirming extensive zones of mineralization within the
corridors.
Exploration at Galgouli has transitioned to target delineation with an extensive auger program underway testing the
northern and southern strike extension of the Galgouli structure and potential parallel zones. Several additional
anomalies were identified for scout RC drill testing.
On September 7, 2021, the Company announced the results of infill and extension drilling at the Boussoura prospect
which has increased the confidence in structural controls of mineralization at the Fofora Main and Galgouli
prospects.
At the Fofora Main prospect, a 47-hole, 5,958-meter infill and extension drill program increased confidence in the
structural controls of mineralization. Scout drilling at the adjacent vein corridors to the west continues to highlight
the regional potential, with drilling on vein corridors VC4 and VC5 intersecting extensive zones of alteration and
associated quartz veining and mineralization. Highlights of the program include:
•
•
FFR272: 6.7 g/t Au over 4 meters from 127 meters and 9.9 g/t Au over 8 meters from 136 meters
FFR270: 1.0 g/t Au over 27 meters from 40 meters, 11.4 g/t Au over 3 meters from 141 meters, and 1.5
g/t Au over 10 meters from 197 meters
At the Galgouli prospect, a 12-hole, 3,419-meter depth extension drilling program on the central zone tested the
structural controls and was successful in identifying extensions to the high-grade shoots at depth. A 32-hole, 4,022-
meter scout drilling program was also successful in identifying high-grade mineralization approximately 1 kilometer
to the south and south-east of the central Galgouli zone, testing interpreted parallel structures. Highlights of the
drilling program include:
Galgouli Central
• GAL055: 17.9 g/t Au over 5.4 meters from 232.2 meters, including 87.4 g/t Au over 0.95 meters from
235.05 meters
• GAL065: 6.6 g/t Au over 4.8 meters from 253.2 meters, including 58.9 g/t Au over 0.5 meters from 255.65
meters
Galgouli Regional
• RC096: 22.2 g/t Au over 2 meters from 100 meters
• RC077: 18.1 g/t Au over 1 meter from 44 meters and 7.8g/t Au over 2 meters from 53 meters
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Please refer to the Company’s news release dated September 7, 2021 entitled “Fortuna intersects 17.2 g/t Au over
30m at Sunbird Prospect, Séguéla, Côte d’Ivoire and 17.9 g/t Au over 5.4m at Galgouli Prospect, Boussoura, Burkina
Faso”, for full details.
DIVIDENDS
The Company has not to date paid any dividends on its Common Shares nor does it intend to pay any dividends on
its shares in the immediate future as management anticipates that all available funds will be invested to finance
further acquisition, exploration and development of its mineral properties.
DESCRIPTION OF CAPITAL STRUCTURE
Common Shares
The Company’s authorized share capital is an unlimited number of Common Shares without par value. All Common
Shares of the Company rank equally as to dividends, voting powers and participation in assets and in all other
respects.
Voting
The holders of Common Shares are entitled to receive notice of, attend and vote at any meeting of the shareholders
of the Company. Each Common Share carries one vote per share. There are no voting right ceilings attached to the
Common Shares.
Dividends
The holders of Common Shares are entitled to receive on a pro-rata basis such dividends as the Board from time to
time may declare, out of funds legally available therefor.
Rights on Dissolution
In the event of a liquidation, winding-up or dissolution of the Company, whether voluntary or involuntary or for the
purpose of a reorganization or otherwise or upon any distribution of capital, the holders of the Common Shares have
the right to receive on a pro-rata basis all of the assets of the Company remaining after payment of all of the
Company’s liabilities.
Pre-emptive, Conversion and Other Rights
No pre-emptive, redemption, retraction, exchange, sinking fund or conversion rights are attached to the Common
Shares, and the Common Shares, when fully paid, will not be liable to further call or assessment. No other class of
shares may be created without the approval of the holders of the Common Shares.
Debentures
In October 2019, the Company issued $46 million aggregate principal amount of Debentures by way of a public
offering at a price of $1,000 per Debenture. The Debentures are senior subordinated unsecured convertible
securities of the Company. Refer to “Three- Year History- Recent Developments and Financings”.
The Debentures mature on October 31, 2024 and bear interest at a rate of 4.65 percent per annum, payable semi-
annually in arrears on the last business day of April and October in each year, commencing on April 30, 2020. The
Debentures are convertible at the holder’s option into Common Shares at a conversion price of US$5.00 per share,
representing a conversion rate of 200 Common Shares per US$1,000 principal amount of Debentures, subject to
adjustment in certain circumstances. The Debentures are governed by way of a debenture indenture (the
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“Indenture”) between the Company and Computershare Trust Company of Canada dated October 2, 2019. The
Debentures are transferable and are listed for trading on the TSX.
Adjustment of Conversion Price
The Indenture provides for the adjustment of the conversion price upon certain events including: (i) the subdivision
or consolidation of the outstanding Common Shares; (ii) the issue of Common Shares or securities convertible into
Common Shares by way of stock dividend or other distribution to all or substantially all holders of Common Shares;
(iii) the issue of rights, options or warrants to all or substantially all of the holders of Common Shares entitling them
to acquire Common Shares or other securities convertible into Common Shares in certain circumstances and (iv) the
distribution to all or substantially all holders of Common Shares of any other class of shares, rights, options or
warrants, evidences of indebtedness or assets, at less than 95 percent of the then Current Market Price (as defined
below) of the Common Shares.
Redemption
The Debentures may not be redeemed (a “Redemption”) by the Company prior to October 31, 2022, except if certain
conditions are satisfied following a Change of Control (as defined below). On or after October 31, 2022 and prior to
October 31, 2023, the Debentures may be redeemed by the Company, in whole or in part from time to time, on not
more than 60 days and not less than 30 days prior notice (a “Redemption Notice”), at a redemption price equal to
the principal amount thereof plus accrued and unpaid interest, if any, up to but excluding the date set for
Redemption, provided that the arithmetic average of the volume weighted average trading price of the Common
Shares (as defined herein) on the NYSE for the 20 consecutive trading days ending five trading days prior to the date
on which the Redemption Notice is provided (the “Current Market Price”) is at least 125 percent of the conversion
price, subject to regulatory approval. On or after October 31, 2023 and prior to the maturity date, the Debentures
may be redeemed in whole or in part at the option of the Company on not more than 60 days and not less than 30
days prior notice, at a price equal to their principal amount plus accrued and unpaid interest, if any, up to but
excluding the date set for Redemption.
Change of Control
Within 30 days of the Company giving notice of the occurrence of: (i) the acquisition by any person or group of
persons acting jointly or in concert (within the meaning of National Instrument 62-104 - Take-Over Bids and Issuer
Bids as at the date of the Indenture) of ownership of, or voting control or direction over, fifty percent (50%) or more
of the then outstanding Common Shares; or (ii) the sale or other transfer of all or substantially all of the consolidated
assets of the Company (each, a “Change of Control”), the holders of the Debentures (the “Debentureholders”) may
require the Company to repurchase their Debentures then outstanding at a price equal to 100 percent of the
principal amount of the Debentures plus accrued and unpaid interest thereon, from and including the last Interest
Payment Date (as defined in the Indenture) to, but not including the purchase date. If holders of 90 percent of the
aggregate then outstanding principal amount of Debentures tender to the Change of Control offer, the Company
will have the option to call the remaining Debentures. A Change of Control will not include a sale, merger,
reorganization, arrangement or similar transaction if the previous holders of the Common Shares hold at least fifty
percent (50%) of the voting control or direction in such merged, reorganized, arranged or other continuing entity.
In the event of an acquisition of the Company where the consideration includes 10 percent or more in cash or assets
or shares (other than publicly traded shares), then, subject to regulatory approval, Debentureholders will be entitled
to convert their Debentures within a specified timeframe, in whole or in part, and receive, in addition to the number
of Common Shares that such holders are otherwise entitled to receive upon such conversion, an additional number
of Common Shares per $1,000 principal amount of Debentures converted as set forth in the Indenture.
Payment of Principal Upon Redemption of Maturity
Subject to applicable securities laws and regulatory approval and provided that no Event of Default (as defined in
the Indenture) has occurred and is continuing, the Company may, at its option, elect to satisfy its obligation to pay
the principal amount of the Debentures and accrued and unpaid interest on redemption or at maturity, in whole or
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in part, through the issuance of freely tradable Common Shares upon at least 30 days and not more than 60 days
prior notice, by issuing and delivering that number of Common Shares, as applicable, obtained by dividing the
principal amount of the Debentures and all accrued and unpaid interest thereon by 95 percent of the Current Market
Price on the date of redemption or maturity, as applicable.
MARKET FOR SECURITIES
Common Shares
The Company’s Common Shares were listed and posted for trading on the TSX Venture Exchange until January 18,
2010 when the Company graduated to the TSX. On September 19, 2011, the Company’s Common Shares were listed
and posted for trading on the NYSE. The Company’s shares currently trade on the NYSE under the symbol “FSM”
and on the TSX under the symbol “FVI”.
Trading Prices and Volume
The following table sets forth the monthly high and low sale prices and trading volumes of the Common Shares on
the TSX and the NYSE during the fiscal year ended December 31, 2021:
Toronto Stock Exchange
New York Stock Exchange
High (CAD$)
5.23
6.95
6.40
5.89
6.07
7.06
8.67
8.52
9.97
9.83
12.61
12.26
Low (CAD$)
3.77
4.33
4.71
4.88
4.90
5.42
6.58
7.31
7.24
7.45
8.90
8.43
Volume
23,668,500
32,172,800
18,651,800
18,477,100
18,027,300
24,877,100
20,930,300
23,417,700
23,927,700
16,861,000
20,935,400
21,743,300
High (US$)
4.08
5.52
5.18
4.68
4.85
5.68
7.22
7.00
7.98
7.77
9.85
9.69
Low (US$)
2.91
3.39
3.74
3.81
3.81
4.29
5.33
5.99
5.89
5.89
6.94
6.57
Volume
114,281,500
140,926,900
75,318,100
96,999,200
75,912,800
100,682,500
69,794,500
80,606,100
86,276,500
73,138,000
81,110,000
93,648,700
Month
December
November
October
September
August
July
June
May
April
March
February
January
Debentures
The Debentures are listed for trading on the TSX under the trading symbol “FVI.DB.U.”
Trading Prices and Volume
The following table sets forth the monthly high and low sale prices and trading volumes of the Debentures on the
TSX during the fiscal year ended December 31, 2021:
Month
December
November
October
September
August
July
June
May
April
March
February
January
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Toronto Stock Exchange
High (CAD$)
111.00
120.00
No trades
118.00
119.57
122.02
149.00
150.95
165.00
160.56
174.00
196.12
Low (CAD$)
100.00
105.00
No trades
110.03
112.88
122.02
129.24
145.00
165.00
150.96
174.00
148.00
Volume(1)
1,037,000
143,000
No trades
36,000
5,000
20,000
2,592,000
4,154,000
5,000
2,002,000
39,000
216,000
(1) Represents the total quantity of Debentures traded on the TSX for the applicable month.
Prior Sales
The following table summarizes the issuances of share-settled restricted share units (“RSUs”) and performance share
units (“PSUs”) by the Company during the financial year ended December 31, 2021, which securities are not listed
or quoted on a marketplace, and the issuances of Common Shares upon the vesting of RSUs, PSUs and the exercise
of stock options during the aforementioned year.
Date Issued
March 15, 2021
March 17, 2021
March 17, 2021
March 17, 2021
March 19, 2021
April 15, 2021
April 15, 2021
April 20, 2021
April 27, 2021
June 7, 2021
July 2, 2021
Sept. 21, 2021
Sept. 30, 2021
Sept. 30, 2021
Oct. 21, 2021
Issue/Exercise
Price
Number and Type of Security
Reason for Issuance
Issued
CAD$4.83
CAD$6.20
CAD$4.83
CAD$3.32
CAD$6.20
CAD$6.20
CAD$6.35
CAD$3.32
CAD$7.90
CAD$7.15
$5.49
CAD$4.98
CAD$4.83
CAD$3.32
$5.00
305,547 Common Shares
Settlement of PSUs and RSUs
10,877 Common Shares
14,683 Common Shares
22,598 Common Shares
Settlement of RSUs
Settlement of RSUs
Settlement of RSUs
573,493 Common Shares
Settlement of PSUs and RSUs
33,457 Common Shares
7,170 Common Shares
Option Exercise
Option Exercise
155,845 Common Shares
Settlement of RSUs
902,984 PSUs
2,447 Common Shares
106,106,224 Common Shares
28,300 Common Shares
27,476 Common Shares
35,933 Common Shares
12,000 Common Shares
Grant
Settlement of RSUs
Roxgold Acquisition
Option Exercise
Option Exercise
Option Exercise
Debenture Conversion
DIRECTORS AND EXECUTIVE OFFICERS
Name, Occupation and Shareholding
The Board presently consists of seven directors. The directors will hold office until the next annual general meeting
of the Company or until their successor is elected or appointed, unless their office is earlier vacated in accordance
with the Articles of the Company, or with the provisions of the Business Corporations Act (British Columbia).
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The following are the full name, place of residence, position with the Company, and principal occupation within the
preceding five years of each of the directors and executive officers of the Company as at the date of this AIF:
Name, Position and Residency (1)
JORGE GANOZA DURANT
President, Chief Executive Officer &
Director
Lima, Peru
DAVID LAING (3) (5)
Chair of the Board and Director
British Columbia, Canada
MARIO SZOTLENDER (5)
Director
Caracas, Venezuela
DAVID FARRELL (2) (3) (4)
Director
British Columbia, Canada
ALFREDO SILLAU (2) (3) (4)
Director
Lima, Peru
KYLIE DICKSON (2) (4)
Director
British Columbia, Canada
KATE HARCOURT (5)
Director
Monmouthshire, Wales
LUIS GANOZA DURANT
Chief Financial Officer
Lima, Peru
Principal Occupation or Employment (1)
President & CEO of the Company.
Period as a Director
of the Company
December 2, 2004
to present
Mining Engineer; Independent Mining
Consultant, November 2018 to present; Chief
Operating Officer of Equinox Gold Corp. and
predecessors (mining), Aug 2016 to Nov 2018.
September 26,
2016 to present
Independent Consultant and Director of several
public mineral exploration companies.
June 16, 2008
to present
President of Davisa Consulting (a private
consulting company).
July 15, 2013
to present
Managing Partner, CEO and Director of Faro
Capital (investment management).
November 29, 2016
to present
Corporate Director, Financial Consultant;
Director and Audit Committee Chair of Hillcrest
Energy Technologies Ltd. (energy solutions),
April 2021 to present; Director and Audit
Committee Chair of Star Royalties Ltd. (royalties
and streaming), Nov 2020 to present; Vice-
President, Business Development of Equinox
Gold Corp. and predecessors (mining), April
2017 to March 2020; Chief Financial Officer of
JDL Gold Corp. until its acquisition of Luna Gold
Corp. (mining), Oct 2016 to April 2017.
Chartered Environmentalist; Independent
Environmental and Social Advisor to the mining
industry; Director of Condor Gold plc since Mar
2015, Director of Orezone Gold Corporation
since 2018; ESG Officer for Cornish Lithium
since Jan 2021.
August 16, 2017
to present
July 2, 2021
to present
Chief Financial Officer of the Company.
N/A
CESAR VELASCO
Chief Operating Officer – Latin America
Lima, Peru
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Chief Operating Officer – Latin America of the
Company, Sept 2021 to present; General
Manager, Minera Bateas S.A. (subsidiary of
Fortuna), Nov 2018 to Aug 2021; Commercial
Manager, EXSA S.A. (mining supplies), Mar 2018
to October 2018 and Business Development
Manager, July 2010 to Feb 2018.
PAUL CRIDDLE
Chief Operating Officer – West Africa
Western Australia, Australia
Chief Operating Officer – West Africa of the
Company, July 2, 2021 to present; Director or
Senior Officer of Roxgold Inc., Dec 2012 to July
2021.
MANUEL RUIZ-CONEJO
Senior Vice-President, Mining
Lima, Peru
Senior Vice-President, Mining of the Company,
Sept 2021 to present; Vice-President,
Operations of the Company, Aug 2011 to Sept
2021.
JOSE PACORA
Senior Vice-President, Special Projects
Lima, Peru
Senior Vice-President, Special Projects of the
Company, Oct 2021 to present; Vice-President,
Project Development of the Company, Nov
2014 to Sept 2021.
ERIC CHAPMAN
Senior Vice-President, Technical
Services
British Columbia, Canada
Senior Vice-President, Technical Services of the
Company, Oct 2021 to present; Vice-President,
Technical Services of the Company, Jan 2017 to
Sept 2021.
PAUL WEEDON
Senior Vice-President, Exploration
Western Australia, Australia
JULIEN BAUDRAND
Senior Vice-President, Sustainability
Utah, USA
Senior Vice-President, Exploration of the
Company, Oct 2021 to present; Vice-President,
Exploration, West Africa of the Company, July 2,
2021 to Sept 2021; Vice-President, Exploration
of Roxgold Inc., Oct 2018 to July 2, 2021; Senior
Director – Exploration, APAC, Newmont Ltd.
(mining), Feb 2018 to Oct 2018; and Senior
Director – Exploration, Africa, May 2012 to
January 2018.
Senior Vice-President, Sustainability of the
Company, Dec 2021 to present; Vice-President
Sustainability, West Africa of the Company, Sept
2021 to Nov 2021; Group Sustainability Manager
of Roxgold Inc., 2019 to Sept 2021; and
Sustainability Manager of Roxgold Sanu S.A.,
2016 to 2019.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
As at December 31, 2021, the directors and executive officers of the Company beneficially owned or had control or
direction over, directly or indirectly, an aggregate of 2,873,245 Common Shares, representing approximately 1.0
percent of the issued Common Shares of the Company.
Notes:
(1) The information as to country of residence, principal occupation, and Common Shares held is not within the
knowledge of the management of the Company and has been furnished by the respective individuals.
(2) Member of the Audit Committee of the Company.
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(3) Member of the Compensation Committee of the Company.
(4) Member of the Corporate Governance and Nominating Committee of the Company.
(5) Member of the Sustainability Committee of the Company.
Cease Trade Orders or Bankruptcies
On April 3, 2017, a management cease trade order (“MCTO”) was issued by the British Columbia Securities
Commission and other Canadian provincial securities regulatory authorities pursuant to National Policy 12-203
Management Cease Trade Orders in connection with the late filing of the Company’s annual audited financial
statements and related management’s discussion and analysis for the years ended December 31, 2016 and 2015
and the AIF for the year ended December 31, 2016 (the “Annual Documents”). The MCTO prohibited the Chief
Executive Officer and the Chief Financial Officer of the Company from trading in securities of the Company until the
Company completed the required filing of the Annual Documents as well as its Interim Financial Documents (as
defined below) for the first quarter of 2017, and the regulator revokes the MCTO.
The Annual Documents were filed on May 15, 2017. Due to the delay in finalizing the Annual Financial Documents,
the Company was delayed in filing its interim financial statements and related management’s discussion and analysis
for the three months ended March 31, 2017 and 2016 (together, the “Interim Financial Documents”). The Company
filed the Interim Financial Documents on May 24, 2017, and the MCTO was revoked by the British Columbia
Securities Commission on May 25, 2017.
Other than as set forth above, as at the date of the AIF and during the 10 years prior to the date of the AIF, none of
the directors or executive officers of the Company or a shareholder holding a sufficient number of securities of the
Company to affect materially the control of the Company:
(a)
is or has been a director or executive officer of any company (including the Company), that while that
person was acting in that capacity:
(i)
(ii)
(iii)
was the subject of a cease trade order or similar order or an order that denied the relevant
company access to any exemption under securities legislation, for a period of more than 30
consecutive days, other than as disclosed above;
was subject to an event that resulted, after the director or executive officer ceased to be a director
or executive officer, in the company being the subject of a cease trade or similar order or an order
that denied the relevant company access to any exemption under securities legislation, for a period
of more than 30 consecutive days; or
within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold its assets; or
(b)
has become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or
become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a
receiver, receiver manager or trustee appointed to hold the assets of the director, officer and shareholder.
Penalties or Sanctions
As at the date of the AIF and during the 10 years prior to the date of the AIF, none of the directors or officers of the
Company or a shareholder holding a sufficient number of securities of the Company to affect materially the control
of the Company has been subject to:
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(a)
(b)
any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory
authority or has entered into a settlement agreement with a securities regulatory authority; or
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered
important to a reasonable investor making an investment decision.
Conflicts of Interest
There are no existing or potential material conflicts of interest between the Company or any of its subsidiaries and
a director or officer of the Company or any subsidiary.
AUDIT COMMITTEE
Pursuant to the provisions of National Instrument 52-110 Audit Committees (“NI 52-110”), the Company’s Audit
Committee has adopted a written charter (the “Charter”) that sets out its mandate and responsibilities. The Charter
is attached hereto as Schedule “A”.
The Audit Committee is presently comprised of Kylie Dickson, Alfredo Sillau and David Farrell. All members of the
Audit Committee are “independent” and “financially literate”, within the meanings given to those terms in NI 52-
110.
The education and experience of the Audit Committee members that is relevant to the performance of their
responsibilities as Audit Committee members is as follows:
Audit Committee Member Education and Experience
Kylie Dickson
Ms. Dickson is a Canadian Chartered Professional Accountant, Chartered
Accountant (CPA,CA) with more than 14 years’ experience working with publicly
traded resource companies. She received her Bachelor of Business Administration
degree in Accounting from Simon Fraser University. She is the Audit Committee
Chair of Hillcrest Energy Technologies Ltd. and Star Royalties Ltd., and she
previously held the positions of Vice-President, Business Development of Equinox
Gold Corp. and Chief Financial Officer of several mineral exploration and mining
companies. Prior to her work with public companies, Ms. Dickson was an audit
manager in the mining group of a major audit firm.
Alfredo Sillau
Mr. Sillau is Managing Partner, CEO and Director of Faro Capital, an investment
management firm that manages private equity and real estate funds. Previously,
he headed the business development in Peru for Compass Group, a regional
investment management firm, until late 2011. As CEO of Compass, Mr. Sillau
actively took part in the structuring, promoting and management of investment
funds with approximately US$500 million in assets under management. Mr. Sillau
is a graduate of Harvard Business School. His background has given him the
required experience to understand and assess the general application of the
accounting principles used by the Company and to understand internal controls
and procedures for financial reporting.
David Farrell
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Mr. Farrell is President of Davisa Consulting, a private consulting firm working with
junior to mid-tier global mining companies. He formerly was Managing Director of
Mergers & Acquisitions at Endeavour Financial where he successfully closed over
$25 billion worth of M&A transactions for junior and mid-tier natural resource
companies. Before his 12 years at Endeavour Financial, David was a lawyer at
Stikeman Elliott LLP, working in Vancouver, Budapest and London. Mr. Farrell
graduated from the University of British Columbia with a B.Comm. (Honours,
Finance) and an LL.B and was called to the bar in both British Columbia and
England. In addition, he has completed the ICD-Rotman Directors Education
Program and been awarded the ICD.D designation. His background has given him
the required experience to understand and assess the general application of the
accounting principles used by the Company and to understand internal controls
and procedures for financial reporting.
The auditor of the Company obtains, as necessary, the pre-approval of the Audit Committee for any anticipated
additional services required of the auditor for the coming fiscal year. If other service requirements arise during the
year, the Audit Committee pre-approves such services at that time, prior to the commencement of such services.
During the Company’s most recently completed fiscal year, no services were performed by the Company’s auditor
pursuant to the De-Minimus Non-audit Services exemption contained in NI 52-110.
During the Company’s most recently completed fiscal year, the Company’s auditor performed certain non-audit
services. Fees and out-of-pocket costs charged by the auditor during the last two fiscal years are as follows:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
2021
$1,441,200
16,300
87,900
Nil
$1,545,400
2020
$982,150
15,500
2,230
Nil
$999,880
“Audit Fees” are the aggregate amounts billed for the audit of the Company’s consolidated annual financial
statements, and review of the interim financial statements. These amounts include services relating to the
Company’s securities offering documents.
“Audit-Related Fees” are amounts charged for assurance and related services that are reasonably related to the
performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees”.
The amounts charged include services for attestation engagements.
“Tax Fees” are amounts for professional services rendered for tax compliance and tax advice on actual or
contemplated transactions.
“All Other Fees” are amounts not included in the categories above.
LEGAL PROCEEDINGS
There are no known legal proceedings involving an amount exceeding 10 percent of the current assets of the
Company to which the Company is a party or which any of its properties is the subject during the most recently
completed financial year, or any such proceedings known to the Company to be contemplated. The Company has
not been subject to any regulatory penalties or sanctions during the most recently completed financial year related
to securities legislation or imposed by a court or regulatory body, nor has Fortuna entered into any settlement
agreements relating to securities legislation during the most recently completed financial year.
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TRANSFER AGENT AND REGISTRAR
The Common Shares are listed for trading on the TSX in Canada and on the NYSE in the United States. The Debentures
are only listed for trading on the TSX. The Company’s transfer agent and registrar for its Common Shares and
Debentures is Computershare Trust Company, at its offices in Vancouver, BC and Toronto, ON. The Company’s co-
transfer agent and registrar for its Common Shares in the United States is Computershare Trust Company, N.A. at its
office in Golden, Colorado.
MATERIAL CONTRACTS
In connection with the Roxgold Acquisition, the Company entered into the Arrangement Agreement with Roxgold,
pursuant to which the Company agreed to purchase all of the issued and outstanding Roxgold Shares in exchange
for 0.283 of a common share of Fortuna and CAD$0.001 in cash for each Roxgold Share outstanding, subject to the
terms and conditions of the Arrangement Agreement. The Roxgold Acquisition was completed by way of a court-
approved plan of arrangement under the Business Corporations Act (British Columbia) on July 2, 2021. Refer to
“General Development of the Business – Business of the Company”.
In connection with the 2019 Financing described in this AIF under the heading “General Development of the Business
– Three-Year History and Recent Developments”, the Company entered into the Indenture. Refer to “Description of
Capital Structure – Debentures”.
Other than as disclosed in this AIF and other than those entered into in the ordinary course of the Company’s
business, there are no contracts that are material to the Company and that were entered into during the most
recently completed fiscal year ended December 31, 2021 or before the most recently completed financial year, but
are still in effect as of the date of this AIF.
INTERESTS OF EXPERTS
Auditors
The 2021 Financial Statements have been audited by KPMG LLP, as set forth in their report of independent registered
public accounting firm thereon. KPMG LLP is the independent registered public accounting firm of the Company and
is independent within the meaning of the relevant rules and related interpretations prescribed by the relevant
professional bodies in Canada and any applicable legislation or regulations and also that they are independent
accountants with respect to the Company under all relevant U.S. professional and regulatory standards.
Qualified Persons
Paul Criddle, FAUSIMM, Paul Weedon, MAIG, Matthew Cobb, MAIG, and Craig Richards, P.Eng. prepared the
Yaramoko Technical Report which was filed by the Company on SEDAR on March 30, 2022. See “Description of the
Business – Material Mineral Properties”.
Paul Criddle, Chief Operating Officer West Africa of the Company, Paul Weedon, Senior Vice-President Exploration
of the Company, Matthew Cobb, Senior Resource Geologist of Roxgold (a wholly owned subsidiary of the Company),
and Craig Richards, Chief Mining Engineer of the Company, is each a Qualified Person as defined by NI 43-101.
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To the knowledge of the Company, as at the date of the Yaramoko Technical Report and as of the date hereof, Paul
Criddle, Paul Weedon, Matthew Cobb, and Craig Richards together own, directly or indirectly, less than one percent
of the outstanding Common Shares. None of Paul Criddle, Paul Weedon, Matthew Cobb, and Craig Richards has
received a direct or indirect interest in the property of the Company.
ADDITIONAL INFORMATION
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the
Company’s securities and securities authorized for issuance under equity compensation plans, is contained in the
Company’s Management Information Circular for the most recent annual meeting of shareholders. Additional
financial information is provided in the 2021 Financial Statements and the 2021 MD&A. The foregoing disclosure
documents, along with additional information relating to the Company are available for viewing on SEDAR at
www.sedar.com.
SCHEDULE “A”
FORTUNA SILVER MINES INC.
(the “Company”)
Audit Committee Charter
PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors of the Company (the “Board”) in
fulfilling its oversight responsibilities by reviewing the financial information to be provided to the shareholders and
others, the systems of internal controls and management information systems established by the senior officers of
the Company (“Management”) and the Company’s internal and external audit process and monitoring compliance
with the Company's legal and regulatory requirements with respect to its financial statements.
The Audit Committee is accountable to the Board. In the course of fulfilling its specific responsibilities hereunder,
the Audit Committee is expected to maintain an open communication between the Company’s external auditors and
the Board.
The Audit Committee does not plan or perform audits or warrant the accuracy or completeness of the Company's
financial statements or financial disclosure or compliance with generally accepted accounting procedures as these
are the responsibility of Management.
RESPONSIBILITIES
Subject to the powers and duties of the Board, the Board hereby delegates to the Audit Committee the following
powers and duties to be performed by the Audit Committee on behalf of and for the Board. Nothing in this Charter
is intended to or does confer on any member a higher standard of care or diligence than that which applies to the
directors as a whole.
External Auditors
The Audit Committee has primary responsibility for the selection, appointment, dismissal, compensation and
oversight of the external auditors, subject to the overall approval of the Board. For this purpose, the Audit
Committee may consult with Management.
The external auditors shall report directly to the Audit Committee.
Also, the Audit Committee:
a.
recommends to the Board:
i. whether the current external auditors should be nominated for reappointment for the ensuing year
and if applicable, select and recommend a suitable alternative for nomination; and
ii.
the amount of compensation payable to the external auditors;
b.
resolves disagreements, if any, between Management and the external auditors regarding financial
reporting;
c. provides the Board with such recommendations and reports with respect to the financial statements of the
Company as it deems advisable;
A-2
d.
takes reasonable steps to confirm the independence of the external auditors, including but not limited to
pre-approving any non-audit related services provided by the external auditors to the Company or the
Company's subsidiaries, if any;
e. confirms that the external auditors are a 'participating audit' firm for the purpose of National Instrument
52-108 Auditor Oversight and are in compliance with governing regulations;
f.
g.
h.
reviews the plan and scope of the audit to be conducted by the external auditors of the Company;
reviews and evaluates the performance of the external auditors; and
reviews and approves the Company’s hiring policy regarding partners, employees and former partners and
employees of the Company’s present and former external auditors.
Audit and Review Process and Results
The Audit Committee has a duty to receive, review and make any inquiry regarding the completeness, accuracy and
presentation of the Company’s financial statements to ensure that the financial statements fairly present the
financial position and risks of the organization and that they are prepared in accordance with generally accepted
accounting principles. To accomplish this, the Audit Committee:
a. considers the scope and general extent of the external auditors' review, including their engagement letter
and major changes to the Company’s auditing and accounting principles and practices;
b. consults with management regarding the sufficiency of the Company's internal system of audit and financial
controls, internal audit procedures and results of such audits;
c. ensures the external auditors have full, unrestricted access to required information and have the
cooperation of management;
d.
e.
f.
g.
h.
reviews with the external auditors the audit process and standards, as well as regulatory or Company-
initiated changes in accounting practices and policies and the financial impact thereof, and selection or
application of appropriate accounting principles;
reviews with the external auditors and, if necessary, legal counsel, any litigation, claim or contingency,
including tax assessments, that could have a material effect upon the financial position of the Company and
the manner in which these matters are being disclosed in the financial statements;
reviews the appropriateness and disclosure of any off-balance sheet matters;
reviews disclosure of related-party transactions;
receives and reviews with the external auditors, the external auditors' audit report and the audited financial
statements;
i. makes recommendations to the Board respecting approval of the audited financial statements;
j. meets with the external auditors separately from management to review the integrity of the Company’s
financial reporting, including the clarity of financial disclosure and the degree of conservatism or
aggressiveness of the accounting policies and estimates, any significant disagreements or difficulties in
obtaining information, adequacy of internal controls over financial reporting, adequacy of disclosure
controls and procedures, and the degree of compliance by the Company with prior recommendations of
the external auditors;
A-3
k. directs management to implement such changes as the Audit Committee considers appropriate, subject to
any required approvals of the Board arising out of the review; and
l. meets at least annually with the external auditors, independent of management, and reports to the Board
on such meetings.
Interim Financial Statements
The Audit Committee:
a.
reviews and determines the Company's practice with respect to review of interim financial statements by
the external auditors;
b. conducts all such reviews and discussions with the external auditors and Management as it deems
appropriate; and
c. makes recommendations to the Board respecting approval of the interim financial statements.
Involvement with Management
The Audit Committee has primary responsibility for overseeing the actions of management in all aspects of financial
management and reporting. The Audit Committee:
a.
b.
reviews the Company’s annual and interim financial statements, Management’s Discussion and Analysis
and earnings press releases, if any, before the Company publicly discloses this information;
reviews all of the Company’s public disclosure of financial information extracted from the Company's
financial statements, if such financial statements have not previously been reviewed by the Committee,
prior to such information being made public by the Company and for such purpose, the CFO assumes
responsibility for providing the information to the Audit Committee for its review;
c.
reviews material financial risks with Management, the plan that Management has implemented to monitor
and deal with such risks and the success of Management in following the plan;
d. consults annually and otherwise as required with the Company's CEO and CFO respecting the adequacy of
the internal controls over financial reporting and disclosure controls and procedures and reviews any
breaches or deficiencies;
e. obtains such certifications of annual and interim filings by the CEO and CFO attesting to internal controls
over financial reporting and disclosure controls and procedures as deemed advisable;
f.
g.
h.
reviews Management's response to significant written reports and recommendations issued by the external
auditors and the extent to which such recommendations have been implemented by Management;
reviews with Management the Company's compliance with applicable laws and regulations respecting
financial reporting matters, and any proposed regulatory changes and their impact on the Company; and
reviews as required with Management and approves disclosure of the Audit Committee Charter, and Audit
Committee disclosure required in the Company's Annual Information Form, Information Circular and on the
Company's website.
PROCEDURAL MATTERS
The Audit Committee:
A-4
a.
b.
invites the Company’s external auditors, the CFO, and such other persons as deemed appropriate by the
Audit Committee to attend meetings of the Audit Committee;
reports material decisions and actions of the Audit Committee to the Board, together with such
recommendations as the Audit Committee may deem appropriate;
c. has the power to conduct or authorize investigations into any matter within the scope of its responsibilities;
d. has the right to engage independent counsel and other advisors as it determines necessary to carry out its
duties and the right to set the compensation for any advisors employed by the Audit Committee;
e. has the right to communicate directly with the CFO and other members of Management who have
responsibility for the internal and external audit process, as well as to communicate directly with the
internal and external auditors; and
f. pre-approves non-audit services to be performed by the external auditors, in accordance with the
provisions of National Instrument 52-110 – Audit Committees (“NI 52-110”).
COMPOSITION
The Audit Committee is composed of a minimum of three directors, all of whom are independent, subject to any
exemptions or relief that may be granted from such requirements under NI 52-110, and have relevant skills and/or
experience in the Audit Committee's areas of responsibility as may be required by the securities laws applicable to
the Company, including those of any stock exchange on which the Company’s securities are traded. No member
shall have served as the CEO of the Company, or an affiliate, within the past five years, or as the CFO of the Company,
or an affiliate, within the past three years.
The members of the Audit Committee shall not be members of more than three public company audit committees
(including the Company), except for a member with a demonstrable financial expertise such as a former CFO, who
shall not be a member of more than four audit committees (including the Company).
Appointment of Committee Members and Vacancies
Members of the Audit Committee are appointed or confirmed by the Board annually and hold office at the pleasure
of the Board. The Board fills any vacancy on, and may appoint any additional members to, the Audit Committee.
Committee Chair
The Board appoints a Chair for the Audit Committee.
STRUCTURE AND OPERATIONS
Meetings
The Chair of the Audit Committee or the Chair of the Board or any two of its members may call a meeting of the
Audit Committee. The Audit Committee meets at least four times each fiscal year, and at such other times during
each year as it deems appropriate.
Quorum
A majority of the members appointed to the Audit Committee constitutes a quorum.
Notice of Meetings
A-5
The Chair of the Audit Committee arranges to provide notice of the time and place of every meeting in writing
(including by electronic means) to each member of the Audit Committee at least two (2) business days prior to the
time fixed for such meeting, provided, however, that a member may in any manner waive a notice of a meeting.
Attendance of a member at a meeting constitutes a waiver of notice of the meeting, except where a member attends
a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting
is not lawfully called. The Chair also ensures that an agenda for the meeting and all required materials for review by
the members of the Audit Committee are delivered to the members with sufficient time for their review, or that
such requirement is waived.
Absence of Committee Chair
If the Chair of the Audit Committee is not present at any meeting of the Audit Committee, the other members of the
Audit Committee will choose a Chair to preside at the meeting.
Secretary of Committee
At each meeting the Audit Committee appoints a secretary who need not be a director of the Company.
Attendance of the Company's Officers at Meetings
The Chair of the Audit Committee or any two members of the Audit Committee may invite one or more officers of
the Company to attend any meeting of the Audit Committee.
Delegation
The Audit Committee may, in its discretion and where permitted by NI 52-110, delegate all or a portion of its duties
and responsibilities to a subcommittee, management or, to the extent otherwise permitted by applicable plans, laws
or regulations, to any other body or individual.
Procedure and Records
Subject to any statute or constating documents of the Company, the Audit Committee determines its own
procedures at meetings and may conduct meetings by telephone and keeps records of its proceedings.
COMPLAINTS
The Audit Committee has established a whistle-blower policy as detailed in the Code of Business Conduct and Ethics
and Whistle-Blower Policy, which sets out the procedures for:
a.
b.
the receipt, retention and treatment of complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters; and
the confidential, anonymous submission to the Company of concerns regarding questionable accounting or
auditing matters.
The Audit Committee reviews the whistle-blower policy annually.
REPORTING AND ASSESSMENT
The Audit Committee reports to the Board of Directors, and on an annual basis, presents to the Board a Committee
Annual Report consisting of the Audit Committee’s review of its charter, the Committee’s and its Chair’s performance
over the past year, and any recommendations the Audit Committee makes in respect thereto.
Approved by the Board: March 11, 2021
EXHIBIT 99.2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended
December 31, 2021 and 2020
MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management of Fortuna Silver Mines Inc. (the “Company”) (“we”, “us” or “our”) have prepared the consolidated financial
statements
in accordance with International Financial Reporting Standards (“IFRS”) and the accompanying
Management’s Discussion and Analysis (“MD&A”) and are responsible for their content. The financial information
presented in the MD&A is consistent with the information that is contained in the consolidated financial statements. The
consolidated financial statements include, where necessary, amounts based on our estimates and judgement.
In order to discharge our responsibility for the integrity of the financial statements, the Company maintains a system of
Internal Control over Financial Reporting and Disclosure Controls and Procedures. These controls are designed to provide
reasonable assurance that the Company’s assets are safeguarded, transactions are executed and recorded in accordance
with our authorization, proper records are maintained and relevant and reliable financial information is produced. These
controls include maintaining quality standards in the hiring and training of employees, policies and procedures manuals,
a corporate code of conduct and ensuring that there is proper accountability for performance within appropriate and
well defined areas of responsibility.
The Board of Directors is responsible for overseeing the performance of our responsibilities for financial reporting and
internal control over Financial Reporting and Disclosure Controls and Procedures. The Audit Committee, which is
composed of non-executive directors, meets with us as well as the external auditors to ensure that we are properly
fulfilling our financial reporting responsibilities to the Directors who approve the consolidated financial statements. The
external auditors have full and unrestricted access to the Audit Committee to discuss the scope of their audits, and the
adequacy of the system of internal controls, and to review financial reporting issues.
The consolidated financial statements have been audited by KPMG LLP, the Company’s independent registered public
accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States).
/s/ Jorge Ganoza Durant
President and Chief Executive Officer
/s /Luis Ganoza Durant
Chief Financial Officer
Vancouver, Canada
March 23, 2022
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Fortuna Silver Mines Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Fortuna Silver Mines Inc.
(the Company) as of December 31, 2021 and 2020, the related consolidated statements of income,
comprehensive income, cash flows, and changes in equity for each of the years then ended, and the related
notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020,
and the results of its operations and its cash flows for each of the years then ended, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission”, and our report dated March 23, 2022 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the Audit
Committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Fair value of the mineral properties and exploration and evaluation assets acquired as part of the Roxgold Inc.
acquisition
As discussed in Note 6 to the consolidated financial statements, on July 2, 2021, the Company acquired 100%
of the issued and outstanding shares of Roxgold Inc. (Roxgold) with an acquisition date fair value of $655,295
thousand. The transaction was accounted for as a business combination. In allocating the purchase
consideration to the acquired assets and liabilities, $810,000 thousand was allocated to mineral properties and
exploration and evaluation assets. To determine the fair value of mineral properties and exploration and
evaluation assets, the Company used a discounted cash flow model.
We identified the evaluation of the fair value of mineral properties and exploration and evaluation assets
acquired in the Roxgold acquisition as a critical audit matter. Significant auditor judgment was required because
there was a high degree of measurement uncertainty associated with the key inputs to the discounted cash
flow model, which included the estimated quantities of mineral reserves and mineral resources and the life of
mine plans, long-term gold prices, expected future production costs and capital expenditures, and discount
rates. Changes in any of these assumptions could have had a significant effect on the determination of the fair
value of the mineral properties and exploration and evaluation assets acquired.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This
included controls related to the Company’s valuation of the mineral properties and exploration and evaluation
assets acquired and the determination of the forecasted cash flow assumptions. We evaluated the competence,
capabilities, and objectivity of the Company’s personnel who determined the mineral reserves and mineral
resources and the life of mine plans. We compared the amount of mineral reserves and mineral resources in
the discounted cash flow model to the life of mine plan and to the mineral reserve and mineral resource
estimates. We compared expected future production costs and capital expenditures in the discounted cash flow
model to the life of mine plan and to historical expenditures. We involved valuation professionals with
specialized skills and knowledge, who assisted in (a) assessing the long-term gold prices by comparing to third
party data; and (b) evaluating the discount rates used by comparing them to independently calculated ranges
of discount rates using internal and external independent sources.
Recoverable amount of the Lindero cash-generating unit
As discussed in Note 10 to the consolidated financial statements, the carrying value of the Company’s mineral
properties, plant and equipment is $1,712,354 thousand as at December 31, 2021, which includes the carrying
amount of the Lindero cash-generating unit (CGU). As discussed in Note 5(b)(ii) to the consolidated financial
statements, the Company determined there were indicators of impairment associated with the Lindero CGU.
As discussed in note 3(i) to the consolidated financial statements, when an indicator of impairment exists, the
Company is required to determine the recoverable amount of the CGU to determine whether an impairment
should be recognized. To determine the recoverable amount of the CGU, the Company used a discounted cash
flow model. Based on the outcome of the impairment testing performed, the Company determined that there
was no impairment of the Lindero CGU as of December 31, 2021.
We identified the assessment of the recoverable amount of the Lindero CGU to be a critical audit matter. A high
degree of auditor judgment was required to evaluate the inputs used to estimate the recoverable amount.
Significant assumptions used in the determination of the recoverable amount included the estimated quantities
of mineral reserves and mineral resources and the life of mine plan, long-term gold prices, expected future
production costs and capital expenditures, and the discount rate. Changes in any of these assumptions could
have had a significant effect on the determination of the estimated recoverable amount.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls over the Company's process to
determine the recoverable amount of the CGU. This included controls over the Company’s development of the
significant assumptions used to estimate the recoverable amount of the Lindero CGU. We assessed the
competence, capabilities and objectivity of the Company’s personnel who determined the mineral reserves and
mineral resources and the life of mine plan. We compared the amount of mineral reserves and mineral
resources in the discounted cash flow model to the life of mine plan and to the mineral reserve and mineral
resource estimates. We compared the Company’s historical estimates of mineral reserves and resources, life
of mine plan and operating results to actual results to assess the accuracy of the Company’s forecasting
process. We compared expected future production costs and capital expenditures in the discounted cash flow
model to the life of mine plan and to historical expenditures. We involved valuations professionals with
specialized skills and knowledge, who assisted in (a) assessing the long-term gold prices by comparing to third
party data; and (b) evaluating the discount rate used by comparing it to an independently calculated range of
discount rates using internal and external independent sources.
Inferred resources used in the Caylloma and San Jose life of mine plans
As discussed in Note 10 to the consolidated financial statements, the carrying value of the Company’s mineral
properties, plant and equipment is $1,712,354 thousand as at December 31, 2021. These amounts include the
carrying amounts of the Caylloma and San Jose mines. Estimates of the quantities of the mineral reserves and
mineral resources form the basis for the Company’s life of mine plans, which are used for the calculation of
depletion expense under the units of production method and in impairment tests. The Company’s estimates of
the life of its mines includes the portion of inferred resources expected to be extracted economically. The
decision to use inferred resources, and the portion of inferred resources to be included in the life of mine, varies
for each operation and is based on the geological characteristics of the ore body, the quality and predictability
of inferred resources, and the conversion of inferred resources into measured and indicated resources that the
Company has historically achieved.
We identified the determination of the portion of inferred resources included in the life of mine plans for the
Caylloma and San Jose mines as a critical audit matter. A high degree of auditor judgment was required to
evaluate the significant assumptions that were developed by the Company’s personnel to determine the portion
of inferred resources included in the life of mine plans. Significant assumptions include the accessibility of
resources from existing mining infrastructure and the determination of the percentage of available inferred
resources expected to be converted to measured and indicated resources in future periods.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This
included controls related to the estimation of the portion of inferred resources included in the life of mine plans
for the Caylloma and San Jose mines. We assessed the competence, capabilities and objectivity of the
Company’s personnel who determined the portion of available inferred resources to be included in the Caylloma
and San Jose life of mine plans, including the accessibility of resources from existing mining infrastructure. We
evaluated the ability of the Company to estimate the portion of inferred resources included in the life of mine
plans by comparing historical estimates of inferred resources to the actual conversion of inferred resources to
measured and indicated resources.
//s// KPMG LLP
Chartered Professional Accountants
We have served as the Company’s auditor since 2017.
Vancouver, Canada
March 23, 2022
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Fortuna Silver Mines Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Fortuna Silver Mines Inc.’s (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31,
2021 and 2020, the related consolidated statements of income, comprehensive income, cash flows, and
changes in equity for each of the years then ended, and the related notes (collectively, the consolidated financial
statements), and our report dated March 23, 2022 expressed an unqualified opinion on those consolidated
financial statements.
The Company acquired Roxgold Inc. during 2021, and, except for controls over purchase price adjustments
related to the acquisition, management excluded from its assessment of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2021, Roxgold Inc.’s internal control over financial
reporting associated with 50% of total assets (inclusive of the purchase price adjustments) and 17% of total
revenues included in the consolidated financial statements of the Company as of and for the year ended
December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an
evaluation of the internal control over financial reporting of Roxgold Inc.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, which appears under the
heading Management’s Report on Internal Control Over Financial Reporting in the accompanying
Management’s Discussion and Analysis. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved.
on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
//s// KPMG LLP
Chartered Professional Accountants
Vancouver, Canada
March 23, 2022
Fortuna Silver Mines Inc.
Consolidated Income Statements
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Years ended December 31,
Sales
Cost of sales
Mine operating income
General and administration
Exploration and evaluation
Foreign exchange loss
Other expenses
Operating income
Investment gains
Interest and finance costs, net
Gain on derivatives
Roxgold transaction costs
Income before income taxes
Income taxes
Current income tax expense
Deferred income tax recovery
Net income for the year
Net income attributable to:
Fortuna shareholders
Non-controlling interest
Earnings per share
Basic
Diluted
Weighted average number of common shares outstanding (000's)
Basic
Diluted
The accompanying notes are an integral part of these financial statements.
Note
$
21
22
2021
599,853 $
394,376
205,477
2020
278,966
168,745
110,221
35,086
1,196
12,197
4,504
52,983
45,360
1,012
6,092
16,134
68,598
23
24
25
6
26
26
31
20
$
$
$
$
$
136,879
57,238
-
(12,863)
(2,751)
(14,085)
(29,699)
3,306
(1,413)
(176)
-
1,717
107,180
58,955
51,651
(3,870)
47,781
59,399 $
38,818
(1,416)
37,402
21,553
57,877 $
1,522
59,399 $
21,553
-
21,553
0.24 $
0.23 $
0.12
0.12
237,998
249,443
174,993
186,073
Page | 1
Fortuna Silver Mines Inc.
Consolidated Statements of Comprehensive Income
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Net income for the year
Years ended December 31,
Note
$
2021
59,399 $
2020
21,553
Items that will remain permanently in other comprehensive income:
Changes in fair value of investments in equity securities, net of $nil tax
Items that may in the future be reclassified to profit or loss:
Currency translation adjustment, net of $179 tax
Changes in fair value of hedging instruments, net of $nil tax
Total other comprehensive loss for the year
Comprehensive income for the year
(272)
(382)
(4,022)
1,006
(3,288)
56,111 $
-
(204)
(586)
20,967
$
Comprehensive income attributable to:
Fortuna shareholders
Non-controlling interest
31
$
54,589
1,522
56,111 $
20,967
-
20,967
The accompanying notes are an integral part of these financial statements.
Page | 2
Fortuna Silver Mines Inc.
Consolidated Statements of Financial Position
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
As at
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
NON-CURRENT ASSETS
Restricted cash
Mineral properties and property, plant and equipment
Other assets
Total assets
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Income taxes payable
Current portion of lease obligations
Current portion of closure and reclamation provisions
NON-CURRENT LIABILITIES
Debt
Deferred tax liabilities
Closure and reclamation provisions
Lease obligations
Other liabilities
Total liabilities
SHAREHOLDERS' EQUITY
Share capital
Reserves
Retained earnings
Equity attributable to Fortuna shareholders
Equity attributable to non-controlling interest
Total equity
Note December 31, 2021 December 31, 2020
$
7
8
9
10
11
$
12 $
14
17
15
26
17
14
16
19
31
107,097 $
76,487
85,819
11,679
281,082
2,056
1,712,354
26,430
2,021,922 $
131,898
76,555
35,274
4,340
248,067
-
791,127
16,144
1,055,338
133,805 $
20,563
10,523
1,882
166,773
157,489
191,668
54,230
18,882
3,310
592,352
1,079,746
28,785
266,617
1,375,148
54,422
1,429,570
65,275
23,808
6,978
380
96,441
158,616
19,499
39,970
12,519
2,523
329,568
492,306
24,724
208,740
725,770
-
725,770
Total liabilities and shareholders' equity
$
2,021,922 $
1,055,338
Contingencies and Capital Commitments (Note 32); Subsequent Events (Note 33)
/s/ Jorge Ganoza Durant
Jorge Ganoza Durant
Director
/s/ Kylie Dickson
Kylie Dickson
Director
The accompanying notes are an integral part of these financial statements.
Page | 3
Fortuna Silver Mines Inc.
Consolidated Statements of Cash Flows
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Years ended December 31,
Note
2021
2020
$
59,399 $
21,553
Operating activities:
Net income for the year
Items not involving cash
Depletion and depreciation
Accretion expense
Income taxes
Interest expense, net
Loss on extinguishment of debt facility
Share based payments (recovery) expense, net of cash settlements
Write-off of inventories
Unrealized foreign exchange loss
Investment gains
Unrealized loss on derivatives
Other
Closure and reclamation payments
Changes in working capital
Cash provided by operating activities
Income taxes paid
Interest paid
Interest received
Net cash provided by operating activities
Investing activities:
Cash consideration for acquistion of Roxgold
Cash acquired through acquisition of Roxgold
Promissory note receivable
Additions to mineral properties, plant and equipment
Purchases of investments
Proceeds from sale of investments
Proceeds from sale of assets
Recoveries of (additions to) Lindero construction VAT
Cash used in investing activities
Financing activities:
Transaction costs on credit facility
Proceeds from credit facility
Repayment of credit facility
Proceeds from issuance of common shares
Share issuance costs
Payments of lease obligations
Dividend payment to non-controlling interest
Cash (used in) provided by financing activities
15
30
6
6
6
15(a)
15(a)
15(a)
Effect of exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Cash and cash equivalents consist of:
Cash
Cash equivalents
Cash and cash equivalents, end of the year
Supplemental cash flow information (Note 30)
The accompanying notes are an integral part of these financial statements
$
$
$
122,272
3,799
47,781
8,469
595
(3,079)
7,035
4,304
-
1,260
3,360
(354)
(39,314)
215,526
(62,677)
(7,420)
1,708
147,138
(25,333)
65,622
(35,296)
(152,289)
-
14
12
28,771
(118,499)
(3,036)
-
(32,288)
313
-
(11,928)
(4,483)
(51,422)
(2,018)
(24,801)
131,898
107,097 $
45,408
751
37,401
662
-
12,284
(5)
14,656
(3,306)
178
1,680
(341)
(9,118)
121,803
(28,186)
(547)
315
93,385
-
-
-
(93,033)
(17,844)
10,575
72
(13,419)
(113,649)
-
65,000
(55,000)
70,011
(3,358)
(7,747)
-
68,906
(148)
48,494
83,404
131,898
64,096 $
43,001
107,097 $
52,130
79,768
131,898
Page | 4
Fortuna Silver Mines Inc.
Consolidated Statements of Changes in Equity
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Share capital
Reserves
Number
Note
of common shares Amount
Equity
reserve
Hedging
reserve
Fair value
reserve
Equity
component
of
convertible
debentures
Foreign
currency
reserve
184,195,727 $
492,306 $
20,086 $
(878) $
(424) $
4,825 $
1,115 $
Non-
controlling
interest
Retained
earnings
208,740 $
Total equity
725,770
- $
Balance at January 1, 2021
Total comprehensive income for the year
Net income for the year
Other comprehensive loss for the year
Total comprehensive income for the year
Transactions with owners of the Company
Acquisition of Roxgold
Exercise of stock options
Shares issued on vesting of share units
Convertible debenture conversion
Share-based payments
6
18
-
-
-
-
-
-
-
-
-
-
1,006
1,006
-
(272)
(272)
106,106,224
68,927
1,146,452
12,000
-
107,333,603
582,523
389
4,468
60
-
587,440
7,332
(136)
(4,468)
-
4,621
7,349
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,022)
(4,022)
57,877
-
57,877
1,522
-
1,522
59,399
(3,288)
56,111
-
-
-
-
-
-
-
-
-
-
-
-
52,900
-
-
-
-
52,900
642,755
253
-
60
4,621
647,689
Balance at December 31, 2021
291,529,330 $ 1,079,746 $
27,435 $
128 $
(696) $
4,825 $
(2,907) $
266,617 $
54,422 $ 1,429,570
Balance at January 1, 2020
Total comprehensive income for the year
Net income for the year
Other comprehensive loss for the year
Total comprehensive income for the year
Transactions with owners of the Company
Issuance of common shares
Share issuance costs
Exercise of stock options
Shares issued on vesting of share units
Share-based payments
160,291,553 $
422,145 $
20,870 $
(674) $
(42) $
4,825 $
1,115 $
187,187 $
- $
635,426
-
-
-
-
-
-
-
-
-
-
(204)
(204)
-
(382)
(382)
23,000,000
-
211,626
692,548
-
23,904,174
69,000
(3,358)
1,438
3,081
-
70,161
-
-
(427)
(3,081)
2,724
(784)
18
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,553
-
21,553
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,553
(586)
656,393
69,000
(3,358)
1,011
-
2,724
69,377
Balance at Decemer 31, 2020
184,195,727 $
492,306 $
20,086 $
(878) $
(424) $
4,825 $
1,115 $
208,740 $
- $
725,770
The accompanying notes are an integral part of these financial statements.
Page | 5
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
1. NATURE OF OPERATIONS
Fortuna Silver Mines Inc. and its subsidiaries (the “Company”) is a publicly traded company incorporated and
domiciled in British Columbia, Canada.
The Company is engaged in precious and base metal mining and related activities in Argentina, Burkina Faso, Mexico,
Peru, and Côte d’Ivoire. The Company operates the open pit Lindero gold mine (“Lindero”) in northern Argentina,
the underground Yaramoko mine (“Yaramoko”) in south western Burkina Faso, the underground San Jose silver and
gold mine (“San Jose”) in southern Mexico, the underground Caylloma silver, lead, and zinc mine (“Caylloma”) in
southern Peru, and is developing the open pit Séguéla gold mine (“Séguéla”) in south western Côte d’Ivoire.
On July 2, 2021, the Company acquired all of the issued and outstanding common shares of Roxgold Inc. (“Roxgold”)
(see Note 6). Through the completion of the acquisition, the Company acquired the Yaramoko mine and the Séguéla
advanced exploration project.
The Company’s common shares are listed on the New York Stock Exchange under the trading symbol FSM and on
the Toronto Stock Exchange under the trading symbol FVI.
The Company’s registered office is located at Suite 650 - 200 Burrard Street, Vancouver, Canada, V6C 3L6.
2. COVID-19 UNCERTAINTIES
In March 2020, the World Health Organization declared COVID-19 as a pandemic. In response to the pandemic,
Governments implemented measures to curb the spread of COVID-19. Government mandated measures in
Argentina, Mexico, and Peru included among others, the closure of international borders, the temporary suspension
of all non-essential business, including mining and the declaration of mandatory quarantine periods. These measures
resulted in the temporary suspension of operations at our operations in Argentina, Mexico and Peru, which impacted
our production and costs in 2020.
During 2021, there were no Government mandated suspensions of operations at any of our operations in Latin
America. However, operations in Latin America were affected by waves of COVID-19 during the year, which resulted
in reduced workforces and quarantine periods for those affected. The pandemic continued to cause difficulties and
hardship in the communities where we operate. The Company has, however, been able to continue operations in
West Africa largely unaffected since the outbreak of COVID-19.
Health protocols are in place at each mine site for control, isolation and quarantine, as necessary, and these continue
to be reviewed and adjusted accordingly based on the circumstances at each location. The Company’s focus is the
health and safety of the workforce and on measures to prevent and manage the transmission of COVID-19 amongst
the workforce and the communities in which the Company operates.
The Company’s operations and financial performance are dependent on it being able to operate at each of its mines
and projects. Given the fast-changing situation with respect to the COVID-19 pandemic, including further waves of
the virus and the emergence of variant forms of the virus, it is difficult to predict the exact nature and extent of the
impact the pandemic may have on the Company’s operations and its business. Outbreaks of COVID-19 in areas
where the Company operates or restrictive directives of government and public health authorities could cause
delays or disruptions in the Company’s supply chain, restrict access to its mine sites, restrict its ability to transport
and ship gold doré and/or metal concentrates, restrict access to processing and refinery facilities, or impediments
to market logistics. Suspensions of operations or curtailment of commissioning activities at the Company’s mines
remains a significant risk to its business and operations.
Page | 6
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
3. BASIS OF PRESENTATION
Statement of Compliance
These consolidated financial statements (“financial statements”) have been prepared by management of the
Company in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS”) effective as of December 31, 2021.
Certain comparative figures have been reclassified to conform to the presentation adopted for the year ended
December 31, 2021.
On March 23, 2022, the Company's Board of Directors approved these financial statements for issuance.
Basis of Measurement
These financial statements have been prepared on a historical cost basis, except for those assets and liabilities that
are measured at fair value (Note 28) at the end of each reporting period.
4. SIGNIFICANT ACCOUNTING POLICES
The Company has consistently applied the following accounting policies to all periods presented in these financial
statements.
(a) Basis of Consolidation
These financial statements include the accounts of the Company. All significant intercompany transactions, balances,
revenues, and expenses have been eliminated upon consolidation.
Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition
or control and up to the effective date of disposition or loss of control. Control is achieved when the Company has
power over the investee, is exposed to or has rights to variable returns from its involvement with an investee, and
had the ability to affect those returns through its power over the investee.
Fortuna Silver Mines Inc. is the ultimate parent entity of the group. At December 31, 2021, the principal subsidiaries
of the Company, their geographic locations, and the ownership interests held by the Company, were as follows:
Name
Minera Bateas S.A.C. ("Bateas")
Compania Minera Cuzcatlan S.A. de C.V. ("Cuzcatlan")
Mansfield Minera S.A. ("Mansfield")
Roxgold SANU S.A. (“Sanu”)
Roxgold SANGO S.A. (“Sango”)
(b) Business Combination
Location
Peru
Mexico
Argentina
Burkina Faso
Côte d’Ivoire
Ownership Principal Activity
100%
100%
100%
90%
90%
Caylloma Mine
San Jose Mine
Lindero Mine
Yaramoko Mine
Séguéla Exploration Project
A business combination is an acquisition of assets and liabilities that constitute a business. A business is an integrated
set of activities and assets that consist of inputs and processes, including operational processes that, when applied
to those inputs, have the ability to create outputs that provide a return to the Company and its shareholders. A
Page | 7
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
business also includes those assets and liabilities that do not necessarily have all the inputs and processes required
to produce outputs, but can be integrated with the inputs and processes of the Company to create outputs.
When acquiring a set of activities or assets in the exploration and development stage, which may not have outputs,
the Company considers other factors to determine whether the set of activities or assets is a business.
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is allocated to the identifiable assets acquired and liabilities
assumed based on the acquisition-date fair value. The excess of the cost of acquisition over the fair value of the
Company’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than
the fair value of the net assets acquired, the difference, or gain, is recognized directly in the consolidated statement
of operations. The results of businesses acquired during the period are included in the financial statements from the
date of acquisition. Acquisition-related costs are expensed as incurred. Provisional fair values are finalized within 12
months of the acquisition date. Measurement period adjustments are adjustments that arise from additional
information obtained during the measurement period about facts and circumstances that existed at the acquisition
date.
(c) Non-Controlling Interests
Non-controlling interest represents equity interests in subsidiaries owned by outside parties. Non-controlling
interests are recorded at their proportionate share of the fair value of identifiable net assets acquired on initial
recognition. The share of net assets of subsidiaries attributable to non-controlling interests is presented as a
component of equity. Their share of net income and other comprehensive income is recognized directly in equity
even if the results of the non-controlling interest have a deficit balance.
The Company recognises transactions with non-controlling interest as transactions with equity shareholders.
Changes in the Company’s ownership interest in subsidiaries that do not result in loss of control are accounted for
as equity transactions.
(d) Consolidation, Functional and Presentation Currency
These financial statements are presented in United States Dollars (“$” or “US$” or “US dollars”), which is the
functional currency of the Company. Reference to C$ are to Canadian dollars. All amounts in these financial
statements have been rounded to the nearest thousand US dollars, unless otherwise stated.
The functional currency for each entity consolidated within the Company's financial statements is determined by
the currency of the primary economic environment in which it operates. The functional currency of subsidiaries
acquired in the year are identified in the table below.
Page | 8
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Name of Subsidiary
Roxgold SANU S.A.
Roxgold SANGO S.A.
Roxgold Burkina Faso S.A.R.L.
Roxgold Exploration S.A.R.L.
Roxgold Boussoura S.A.R.L.
FR Mining Limited
FR Gold Limited
Roxgold CI Limited
Roxgold Boussoura
Roxgold Inc.
FR Gold Mining Inc.
Fortuna Silver Mines Australia Pty Ltd.
LGL Exploration Côte d’Ivoire SA
LGL Resources Côte d’Ivoire SA
Place of Incorporation
Burkina Faso
Côte d’Ivoire
Burkina Faso
Burkina Faso
Burkina Faso
British Virgin Islands
British Virgin Islands
Cayman Islands
Cayman Islands
Canada
Canada
Australia
Côte d’Ivoire
Côte d’Ivoire
Beneficial
Common
Share
Ownership
Interest
90%
90%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Principal Activity
Mining
Exploration
Exploration
Exploration
Exploration
Holding
Holding
Holding
Holding
Holding
Holding
Corporate
Exploration
Exploration
Functional
Currency
USD
USD
USD
USD
USD
USD
USD
USD
USD
CAD
CAD
AUD
XOF
XOF
Assets and liabilities of the subsidiaries that have a functional currency other than the US dollars are translated into
US dollars at the exchange rate in effect on the consolidated statements of financial position date and revenues and
expenses are translated at the average rate over the reporting period. Gains and losses from these translations are
recognized in other comprehensive income.
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 profit or loss. 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.
(e) Cash, Cash Equivalents and Short-Term Investments
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. Short-term investments consist of term deposits with original maturities in
excess of three months but less than twelve months. Cash, cash equivalents and short-term investments are
designated as amortized cost.
(f) Inventories
Inventories include mineral concentrates, doré, leach pad, gold in-circuit, stockpiled ore, materials and supplies, and
are valued at the lower of average production cost and estimated net realizable value. Production costs allocated to
metal inventories include direct mining costs, direct labor and material costs, mine site overhead, depletion and
amortization. Stockpiled ore that is not expected to be processed within the next twelve months is classified as non-
current. Costs allocated to materials and supplies are based on weighted average costs and include all costs of
purchase and other costs in bringing these inventories to their existing location and condition.
In the heap leaching process, ore is stacked on the leach pad and treated with a chemical solution that dissolves the
gold contained within the ore. The resulting pregnant solution is further processed in a plant where the gold is
recovered. The cost of leach pad inventory is based on cost of mining, crushing and leaching, including applicable
depletion and amortization, and is removed as ounces of gold are recovered at the weighted average cost per
recoverable ounce of gold on the leach pad. Estimates of recoverable gold in the leach pad are calculated based on
Page | 9
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
the quantities of ore placed on the leach pad (measured tonnes added to the leach pad), the estimated grade of ore
placed on the leach pad (based on assay data), and an estimated recovery percentage (based on estimated recovery
assumptions from metallurgical testing). The nature of the leaching process inherently limits the ability to precisely
monitor inventory levels. As a result, estimates are refined based on actual results and engineering studies over a
period of time. The final recovery of gold from leach pad will not be known until the leaching process is concluded
at the end of the mine life.
If the carrying value exceeds the net realizable amount, a write-down is recognized. The write-down may be reversed
in a subsequent period if the circumstances which caused the write-down no longer exist, to the extent that the
related inventory has not been sold. Net realizable value is calculated as the estimated price at the time of sale based
on prevailing metal prices less estimated future costs to convert the inventories into saleable form and estimated
costs to sell.
(g) Exploration and Evaluation Assets
Exploration expenditures on properties for which the Company does not have title or rights to are expensed when
incurred. Significant payments related to the acquisition of land and mineral rights and the costs to conduct a
preliminary evaluation to determine that the property has potential to develop an economic ore body are capitalized
as incurred. The time between initial acquisition and a full evaluation of a property’s potential is dependent on many
factors including, but not limited to, location relative to existing infrastructure, the property’s stage of development,
geological controls and metal prices.
The Company capitalizes the cost of acquiring, maintaining its interest and exploring mineral properties as
exploration and evaluation assets 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. The
Company uses the following criteria in its assessment:
•
the property has mineral reserves as referred to in Canadian National Instrument 43-101 Standards of
Disclosure for Mineral Projects (“NI 43-101”), and
• when legal, permitting and social matters have been resolved sufficiently to allow mining of the ore body.
Exploration and evaluation assets are tested for impairment when an indicator of impairment is identified and upon
reclassification to mining properties.
If no mineable ore body is discovered, all previously capitalized costs are expensed in the period in which it is
determined the property has no economic value.
Proceeds received from the sale of interests in exploration and evaluation assets are credited to the carrying value
of the mineral properties, plant and equipment. Exploration costs that do not relate to any specific property are
expensed as incurred.
(h) Mineral Properties, and Property, Plant and Equipment
i. Mineral Properties and Development Costs
For operating mines, all mineral property expenditures are capitalized and amortized based on a unit-of-production
method considering the expected production to be obtained over the life of the mineral property. The expected
Page | 10
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
production includes proven and probable reserves and for the San Jose, Caylloma and Yaramoko mines the portion
of inferred resources expected to be extracted economically as part of the production cost.
Capitalized costs of producing properties are amortized on a unit-of-production basis over proven and probable
reserves and the portion of inferred resources where it is considered highly probable that those resources are
expected to be extracted economically.
The expected production to be obtained over the life of the mineral property is based on our life-of-mine production
plans which for San Jose, Caylloma and Yaramoko include a portion of inferred resources, and therefore differ from
the life-of-mine plans we publish as part of our NI 43-101 compliant technical reports which are based on reserves
only. The decision to use inferred resources, and the portion of inferred resources to be included varies for each
operation and is based on the geological characteristics of the ore body, the quality and predictability of inferred
resources, and the conversion of inferred resources into measured and indicated (“M&I”) that we have historically
achieved in the past.
Many factors are taken into account during resource classification including; the quality of drilling and sampling,
drill/sample spacing, sample preparation and analysis, geological logging and modelling, database construction,
geological interpretation and modelling, statistical/geostatistical analysis, interpolation method, local estimation,
engineering studies, economic parameters, and reconciliation with actual results.
Once the integrity of the data has been established, two important considerations around classification of resources
are geologic continuity and possible variation of thickness and grade between samples. For our inferred resources
at San Jose, Caylloma and Yaramoko we are able to achieve a significant level of confidence on the existence of
mineable material as geological continuity has been established by consistent drill hole intercepts both along strike
and down-dip which provides us with reasonable confidence in the location of the structures. The vast majority of
the inferred resources are interpolated, estimated between existing drill hole intercepts, as opposed to extrapolated
where the grades are estimated beyond the furthest sample point, adding to our confidence in the geologic
continuity of the veins. Furthermore, San Jose, Caylloma and Yaramoko are not structurally complex deposits where
faulting has disrupted geologic continuity.
With regards to the variation of thickness and grade between samples, we use statistical means to calculate the
probability that tonnage and grade content falls within a certain accuracy over a given timeframe. If the potential
variation is estimated to be within ± 25% at 90 percent confidence globally, we classify it as an inferred resource.
This is equivalent to stating that we have 95 percent confidence that greater than 75% of the inferred tonnes, grade,
and metal content will ultimately be recovered by the mine and hence that the same percentage or higher will be
converted from an inferred resource to an indicated resource through infill drilling as per our policy of upgrading
prior to production.
As part of our process to include inferred resources into our life-of-mine production plans, we apply an economic
cut-off to identify only the material that can be considered profitable to mine within our mine designs, and at this
time we apply a conversion or “risk” factor to the mining blocks comprised of inferred resources that we include in
such mine production plans. This conversion factor is based on the predictability of conversion derived from
statistical estimates of confidence as described above and the support from historic conversion rates of inferred
resources into M&I at each of our mines. The conversion factors used in our 2021 and 2020 life-of-mine plans were
90% at San Jose, 80% at Caylloma and 100% at Yaramoko.
The percentage of inferred resources included as a component of the total mineable inventory (reserve + resource)
considered in the 2021 life-of-mine evaluation for each operation as of December 31, 2020, was San Jose 35% (2020:
35%), Caylloma 31% (2020: 52%), and Yaramoko 11%.
Page | 11
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
The Company reviews the conversion factors including past experience in assessing the future expected conversion
of inferred resources to be used in the life-of-mine plans for inclusion of inferred resources once a year in light of
new geologic information and conversion data and when events or circumstances indicate that a review should be
made. The Company continually monitors expected conversion and any changes in estimates that arise from this
review are accounted for prospectively.
Significant estimation is involved in determining resources and in determining the percentage of resources
ultimately expected to be converted to reserves, which we determine based on careful consideration of both
internal and external technical and economic data. Estimation of future conversion of resources is inherently
uncertain and involves significant judgment and actual outcomes may vary from these judgments and estimates and
such outcomes may have a material impact on the results. Revisions to these estimates are accounted for in the
period in which the change in the estimate arises.
ii. Property, Plant and Equipment
Property, plant and equipment are recorded at cost, net of accumulated depreciation and impairments. 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. Assets, other than capital works in progress, are 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 (1)
Leasehold improvements (1)
Plant and equipment
Processing plant
Machinery and equipment (1)
Furniture and other equipment (1)
Transport units
Capital work in progress
(1) The lesser of useful life or life of mine.
Not depreciated
Units of production
Units of production
6-10 years
4-8 years
Units of production
3-12 years
2-12 years
4-5 years
Not depreciated
Declining balance
Declining balance
Straight line
Straight line
Declining balance
Straight line
Straight line
Straight line
Equipment under finance lease is initially recorded at the present value of minimum lease payments at the inception
of the lease and depreciated over the shorter of the lease term or useful life.
Spare parts and components included in machinery and equipment are depreciated over the shorter of the useful
life of the component or the related machinery and equipment.
Borrowing costs attributed to the construction of qualifying assets are capitalized to mineral properties, plant and
equipment, and are included in the carrying amounts of related assets until the asset is available for use in the
manner intended by management.
The sales proceeds and associated production costs incurred during commissioning of qualifying assets under capital
works in progress are recognized in profit or loss.
On an annual basis, the depreciation method, useful economic life, and residual value of each component asset is
reviewed with any changes recognized prospectively over its remaining useful economic life.
Page | 12
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
iii. Stripping cost
Pre-production stripping costs are generally capitalized and amortized over the production life of the mine using
the unit-of-production method.
Stripping costs incurred during the production stage are incurred in order to produce inventory or to improve access
to ore which will be mined in the future. Where the costs are incurred to produce inventory, the production
stripping costs are accounted for as a cost of producing those inventories. Where the costs are incurred to improve
access to ore which will be mined in the future, the costs are deferred and capitalized to the statement of financial
position as a stripping activity asset (included in mining interest) if the following criteria are met:
•
•
•
improved access to the ore body is probable;
the component of the ore body can be accurately identified; and
the costs relating to the stripping activity associated with the component can be reliably measured.
If these criteria are not met, the costs are expensed in the period in which they are incurred.
The stripping activity asset is subsequently depleted using the units-of-production depletion method over the life of
the identified component of the ore body to which access has been improved as a result of the stripping activity.
(i) Asset Impairment
At the end of each reporting period, the Company assesses for impairment indicators and if there are such indicators,
then the Company performs a test of impairment.
For the purpose 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.
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 of disposal (“FVLCD”) and value in
use.
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 compatible with the current condition of the business. The cash flow forecasts are
based on best estimates of the expected future revenues and costs, including the future cash costs of production,
sustaining capital expenditures, and reclamation and closure costs.
Where a FVLCD 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.
Page | 13
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(j) 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 capable of operating in the
manner intended by management.
The capitalization of borrowing costs incurred commences on the date when 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 substantially complete are expensed.
Transaction costs, including legal, upfront commitment fees and other costs of issuance, associated with debt are
recorded against the debt and are amortized over the term of the credit facility using the effective interest rate
method.
All other borrowing costs are expensed in the period in which they are incurred.
(k) Assets Held for Sale
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:
o
o
o
o
o
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 and are recorded at the lower of their carrying amount and fair value less
costs to sell.
(l) Income Taxes
Income tax expense consists of current and deferred tax expense.
Current tax expense is the expected tax payable on the taxable income for the year using tax rates enacted or
substantively 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 (“temporary differences”). Deferred tax assets and liabilities are
measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized, or the
liability is settled.
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Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in profit 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 a deferred tax
asset will be recovered, the deferred tax asset is reduced.
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 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.
(m) Provisions
i. Closure and Reclamation Provisions
Future obligations to retire an asset, including dismantling, remediation and ongoing treatment and monitoring of
the site related to normal operation are initially recognized and recorded as a liability based on estimated future
cash flows discounted at the risk-free rate.
The closure and reclamation provision (“CRP”) is adjusted at each reporting period for changes to 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 profit or loss.
The amount of the CRP initially recognized is capitalized as part of the related asset’s carrying value and amortized
to profit or loss. The method of amortization follows that of the underlying asset. The costs related to a CRP 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 CRP no longer exists, there is no longer a future
benefit related to the costs and as such, the amounts are expensed. Revisions in estimates or new disturbances
result in an adjustment to the CRP with an offsetting adjustment to the asset, unless there is no future benefit, in
which case they are expensed.
Due to uncertainties inherent in environmental remediation, the ultimate cost of future site closure and reclamation
could differ from the amounts provided. The estimate of future site closure and reclamation costs is subject to
change based on amendments to laws and regulations, changes in technologies, price increases and changes in
interest rates, and as new information concerning the Company’s closure and reclamation obligations becomes
available. Such changes are reflected prospectively in the determination of the provision.
Page | 15
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
ii. Environmental Disturbance Restoration Provisions
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 of the time value of money is material the provision is discounted using an appropriate current market
based pre-tax discount rate.
(n) Common Share Capital
Shares are classified as equity. Costs directly attributable to the issuance of common shares are shown in equity as
a deduction from the proceeds.
(o) Share-Based Payments
The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of
stock 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 were not satisfied, the expense previously recognized is reversed in the period
the forfeiture occurs.
Share-based payment expenses relating to cash-settled awards, including deferred and restricted share units are
accrued and expensed over the vesting period based on the quoted market value of the Company’s common shares.
As these awards will be settled in cash, the expense and liability are adjusted at each reporting period for any
changes in the underlying share price.
Equity settled share-based payment transactions with parties other than employees are measured at the fair value
of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are
measured at the fair value of the equity instruments granted, measured at the date the Company obtains the goods
or the counter party renders the services.
i. Stock Option Plan
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.
Page | 16
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
ii. Deferred Share Unit Plan
Deferred share units (“DSU”) are typically granted to non-executive directors of the Company. They are payable in
cash upon resignation, retirement, removal, failure to achieve re-election, or upon a change of control of the
Company. The DSU compensation liability is accounted for based on the number of DSUs outstanding and the quoted
market value of the Company’s common shares at the financial position date. The year-over-year change in the DSU
compensation liability is recognized in profit or loss.
iii. Share Unit Plans
The Company’s amended and restated share unit plan (the “SU Plan”) covers all restricted share units (“RSUs”) and
performance share units (“PSUs”) granted by the Company on and after March 1, 2015.
Restricted Share Units
The Company’s RSUs are settled in either cash or equity, as determined by the Company’s Board of Directors at the
grant date and typically vest over three years.
For cash settled RSUs, the share-based payment expense is adjusted at each reporting period to reflect any change
in the quoted market price of the Company’s common shares and the vesting of each RSU grant, with a
corresponding amount recorded in Trade and Other Payables and Other Liabilities.
For equity-settled RSUs, the fair value is determined based on the quoted market price of the Company’s common
shares at the date of grant, and the fair value is recognized as a share-based payment expense over the vesting
period with a corresponding amount recorded in equity reserves.
Performance Share Units
The Company’s PSUs are performance-based awards for the achievement of specified performance metrics by
specified deadlines and are settled in either cash or equity, as determined by the Company’s Board of Directors at
the grant date and typically vest over three years.
For cash settled PSUs, the share-based payment expense is adjusted at each reporting period to reflect any change
in the quoted market price of the Company’s common shares, the vesting of each PSU grant and the expected
performance factors with a corresponding amount recorded in Trade and Other Payables.
For equity-settled PSUs, the fair value is determined based on the quoted market price of the Company’s common
shares at the date of grant and the number of PSUs expected to vest based on the performance factors. The fair
value is recognized as a share-based payment expense over the vesting period with a corresponding amount
recorded in equity reserves.
(p) Related Party Transactions
Parties are 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, and include key
management personnel of the Company. A transaction is a related party transaction when there is a transfer of
resources or obligations between related parties.
Page | 17
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(q) Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing the 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, adjusted for the effects of dilutive common share equivalents. This method requires that the dilutive
effect of outstanding options and equity settled units 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.
Dilution from convertible debentures is calculated using the if-converted method, based on the number of shares
to be issued upon conversion of the convertible debentures, with a corresponding adjustment to net income for the
after-tax interest expense related to the convertible debentures.
(r) Financial Instruments
i Classification and measurement of financial assets and financial liabilities
Financial assets are measured as either: amortized cost; fair value through other comprehensive income (“FVOCI”)
or fair value through profit or loss (“FVTPL”). All non-derivative financial liabilities are measured at amortized cost.
The classification of financial assets is generally based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset
in the scope of the standard are never separated, and instead the hybrid financial instrument is assessed for
classification.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as
at FVTPL:
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows;
and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
•
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at
FVTPL:
•
•
it is held within a business model whose objective is achieved by both collecting contractual cash flows
and selling financial assets; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to
present subsequent changes in the investment’s fair value in other comprehensive income (OCI). This election is
made on an investment-by-investment basis. All financial assets not classified as measured at amortized cost or
FVOCI as described above are measured at FVTPL.
Components of compound financial instruments are separately classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and the definitions of a financial liability and an
Page | 18
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
equity instrument. The financial liability is initially recognized at fair value, net of an allocation of issuance costs, and
is subsequently measured at amortized cost. The equity component is initially measured based on the residual
amount, net of an allocation of issuance costs, and is not subsequently remeasured.
Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.
Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss
is recognized in profit or loss on the purchase, sale, or cancellation of our own equity instruments. No gain or loss is
recognized on the issue of our own equity instruments, unless the equity is issued to settle a liability.
Financial Liabilities at Amortized Cost – Financial liabilities are measured at amortized cost using the effective
interest method, unless they are required to be measured at fair value through profit or loss, or the Company has
opted to measure them at FVTPL. Debt and accounts payable and accrued liabilities are recognized initially at fair
value, net of any transaction costs incurred, and subsequently at amortized cost using the effective interest method.
The following accounting policies apply to the subsequent measurement of financial assets:
•
•
•
Financial assets at FVTPL - These assets are subsequently measured at fair value. Net gains and losses,
including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost - These assets are subsequently measured at amortized cost using
the effective interest method. The amortized cost is reduced by impairment losses. Interest income,
foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on
derecognition is recognized in profit or loss.
Equity investments at FVOCI - These assets are subsequently measured at fair value. Dividends are
recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the
cost of the investment. Gains or losses recognized on the sale of the equity investment are recognized
in OCI and are never reclassified to profit or loss.
ii Impairment of Financial Assets
An entity is required to recognize expected credit losses when financial instruments are initially recognized and to
update the amount of expected credit losses recognized at each reporting date to reflect changes in the credit risk
of the financial instruments.
For the Company’s trade receivables, it determines the lifetime expected losses for all of its trade receivables. The
expected lifetime credit loss provision for the Company’s trade receivables is based on historical counterparty
default rates and adjusted for relevant forward-looking information, when required.
iii Hedge Accounting
The Company has established a strategy, in accordance with its current risk management policies, to use interest
rate swaps to hedge against the variability in cash flows arising from changes in USD LIBOR based floating interest
rate borrowing relating to its credit facility.
Page | 19
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Management qualitatively assess that the changes in value of the hedging instrument and the hedged item will move
in opposite directions and will be perfectly offset. As both counterparties to the derivative are investment grade,
the effect of credit risk is considered as neither material nor dominant in the economic relationship. The portion of
the gain or loss on the hedging instrument that is determined to be effective will be recognized directly in other
comprehensive income while the amount that is determined to be ineffective, if any, will be recorded in the profit
or loss during the life of the hedging relationship.
(s) Revenue Recognition
The Company earns revenue from contracts with customers related to its concentrate and doré sales. Revenue from
contracts with customers is recognized when a customer obtains control of the concentrate or the doré and the
Company satisfies its performance obligation. The Company considers the terms of the contract in determining the
transaction price, which is the amount the entity expects to be entitled to in exchange for the transferring of the
concentrates. The transaction price of a contract is allocated to each performance obligation based on its stand-
alone selling price.
The Company satisfies its performance obligations for its concentrate sales based upon specified contract terms
which are generally upon delivery to the customer at a specified warehouse or upon loading of the concentrate onto
a vessel. The Company typically receives payment within one to four weeks of delivery.
Doré sales are recognized when the Company satisfies its performance obligation and control is transferred to the
customer upon payment. Final weights and assays are adjusted on final settlement which is approximately one
month after delivery.
Revenue from concentrate sales is recorded based upon forward market price of the expected final sales price date.
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) does not consider provisional price adjustments
associated with concentrate sales to be revenue from contracts with customers as they arise from changes in market
pricing for silver, gold, lead and zinc between the delivery date and settlement date. As such, the provisional price
adjustments are accounted for as derivatives and presented separately in Note 21 of these financial statements.
(t) 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, as chief operating decision maker, 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 gold, silver-lead, zinc, and silver-gold and the sale
of these products.
(u) Adoption of New Accounting Standards, Interpretation or Amendments
In 2020, the IASB published Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS
4, and IFRS 16) (“Phase 2 amendments”) to address the financial reporting impacts of replacing one benchmark
interest rate with an alternative rate and became effective January 1, 2021. The adoption of these amounts did not
have a material effect on the Company’s financial statements.
Page | 20
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(v) New Accounting Standards Issued but not yet Effective
A number of new standards are effective for annual periods beginning after January 1, 2022 and earlier application
is permitted; however, the Company has not early adopted other new or amended standards in preparing these
financial statements.
The following amended standards and interpretations are not expected to have a significant impact on the
Company’s consolidated financial statements:
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) ; and
•
Classification of Liabilities as Current or Non-current (Amendments to IAS 1).
5. USE OF ESTIMATES, ASSUMPTIONS, AND JUDGEMENTS
The preparation of these financial statements requires management to make estimates and judgements that affect
the reported amounts of assets and liabilities at the period end date and reported amounts of expenses during the
reporting period. Such judgements and estimates are, by their nature, uncertain. Actual outcomes could differ from
these estimates.
The impact of such judgements and estimates are pervasive throughout the financial statements, and may require
accounting adjustments based on future occurrences. These judgements and estimates are continuously evaluated
and are based on management’s experience and knowledge of the relevant facts and circumstances. Revisions to
accounting estimates are recognized in the period in which the estimate is revised and are accounted for
prospectively.
In preparing these consolidated financial statements for the year ended December 31, 2021, the Company applied
the critical estimates, assumptions and judgements as disclosed below.
(a) Critical Accounting Estimates and Assumptions
Areas where critical accounting estimates and assumptions have the most significant effect on the amounts
recognized in the consolidated financial statements include:
i. Mineral Reserves and Resources and the Life of Mine Plan
The Company estimates its mineral reserves and mineral resources in accordance with the requirements of NI
43-101. Estimates of the quantities of the mineral reserves and mineral resources form the basis for the Company’s
life of mine plans, which are used for the calculation of depletion expense under the units of production method,
impairment tests, and forecasting the timing of the payments related to the environmental reclamation provision.
Significant estimation is involved in determining the reserves and resources included within the Company’s life of
mine plans. Changes in forecast prices of commodities, exchange rates, production costs or recovery rates may result
in the Company’s life of mine plan being revised and such changes could impact depletion rates, asset carrying values
and our environmental reclamation provision. As at December 31, 2021, the Company used the following long-term
prices for our reserve and resource estimations: gold $1,600/oz for all mines except Séguéla which used $1,500/oz,
silver $21/oz, lead $2,000/t and zinc $2,500/t.
In addition to the estimates above, estimation is involved in determining the percentage of resources ultimately
expected to be converted to reserves and hence included in the Company’s life of mine plans. The Company’s life of
mine plans include a portion of inferred resources as the Company believes this provides a better estimate of the
expected life of mine for certain types of deposits, in particular for vein type structures. The percentage of inferred
Page | 21
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
resources out of the total tonnage included in the life of mine plans is based on site specific geological, technical,
and economic considerations. Estimation of future conversion of resources is inherently uncertain and involves
judgement, and actual outcomes may vary from these judgements and estimates and such changes could have a
material impact on the financial results. Some of the key assumptions in the estimation process include geological
continuity, stationarity in the grades within defined domains, reasonable geotechnical and metallurgical conditions,
treatment of outlier (extreme) values, cut-off grade determination and the establishment of geostatistical and
search parameters. Revisions to these estimates are accounted for prospectively in the period in which the change
in estimate arises.
ii. Valuation of Mineral Properties and Exploration Properties
The Company carries its mineral properties at cost less accumulated depletion and any accumulated provision for
impairment. The costs of each property and related capitalized expenditures are depleted over the economic life of
the property on a units-of-production basis. When a property is abandoned or when there is an impairment, costs
are charged to profit or loss.
The Company undertakes a review of the carrying values of mining properties and related expenditures whenever
events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable
amounts determined by reference to estimated future operating results and discounted net cash flows. Where
previous impairment has been recorded, the Company analyzes any impairment reversal indicators. An impairment
loss is recognized when the carrying value of those assets is not recoverable.
In undertaking this review, management of the Company is required to make significant estimates of, amongst other
things, future production and sales volumes, metal prices, foreign exchange rates, mineral resource and reserve
quantities, future operating and capital costs to the end of the mine’s life, and reclamation costs. These estimates
are subject to various risks and uncertainties which may ultimately have an effect on the expected recoverability of
the carrying values of the mining properties and related expenditures.
The Company, from time to time, acquires exploration and development properties. When properties are acquired,
the Company must determine the fair value attributable to each of the properties. When the Company conducts
exploration on a mineral property and the results from the exploration do not support the carrying value, the
property is written down to its new fair value which could have a material effect on the consolidated statement of
financial position and the consolidated income statement.
iii. Deferred stripping costs
In determining whether stripping costs incurred during the production phase of a mining property relate to mineral
reserves that will be mined in a future period and therefore should be capitalized, the Company makes estimates of
the proportion of stripping activity which relates to extracting ore in the current period versus the proportion which
relates to obtaining access to ore reserves which will be mined in the future.
iv. Inventory
Finished goods, work-in-process, heap leach ore and stockpile ore are valued at the lower of the average production
costs or net realizable value. The assumptions used in the valuation of work-in process inventories include estimates
of gold contained in the ore stacked on leach pads, assumptions of the amount of gold stacked that is expected to
be recovered from the leach pads, the amount of gold in the mill circuits and assumption of the gold price expected
to be realized when the gold is recovered. If these estimates or assumptions prove to be inaccurate, the Company
could be required to write-down the recorded value of its work-in-process inventories, which would reduce the
Company's earnings and working capital.
Page | 22
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
v. Reclamation and Other Closure Provisions
The Company has obligations for reclamation and other closure activities related to its mining properties. The future
obligations for mine closure activities are estimated by the Company using mine closure plans or other similar studies
which outline the requirements that will be carried out to meet the obligations.
Because the obligations are dependent on the laws and regulations of the countries in which the mines operate, the
requirements could change as a result of amendments in the laws and regulations relating to environmental
protection and other legislation affecting resource companies. As the estimate of the obligations is based on future
expectations, a number of estimates and assumptions are made by management in the determination of closure
provisions.
vi. Revenue from metal in concentrate
The Company’s sales of metal in concentrates allow for price adjustments based on the market price at the end of
the relevant quotational period (“QP”) stipulated in the contract. These are referred to as provisional pricing
arrangements and are such that the selling price for metal in concentrate is based on the prevailing spot price on a
specified future date. At each balance sheet date, the Company estimates the value of the trade receivable using
forward metal prices.
Adjustments to the sale price occurs based on movements in quoted market prices up to the end of the QP. The
period between provisional invoicing and the end of the QP is generally between one and three months. Any future
changes over the QP are embedded within the provisionally priced trade receivables and are, therefore, within the
scope of IFRS 9 and not within the scope of IFRS 15. As such, the provisional price adjustments are accounted for as
derivatives and presented separately in Note 21 of these financial statements.
vii. Contingencies
Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will
only be resolved when one or more future events not within our control occur or fail to occur. The assessment of
such contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future
events. In assessing loss contingencies related to legal proceedings that are pending against the Company or
unasserted claims that may result in such proceedings or regulatory or government actions that may negatively
impact our business or operations, the Company with assistance from its legal counsel evaluates the perceived
merits of any legal proceedings or unasserted claims or actions.
A liability is recognized in the consolidated financial statements when the outcome of the legal proceedings is
probable and the estimated settlement amount can be estimated reliably. Contingent assets are not recognized in
the consolidated financial statements until virtually certain.
viii. Fair Value Estimates in the Acquisition of Roxgold (Note 6)
Accounting for acquisitions requires estimates with respect to the fair value of the assets acquired and liabilities
assumed. The determination of fair value requires management to use valuation methods including discounted cash
flow models, comparable transactions and other market-based information, and to make assumptions and
estimates about future events, such as production, future metal prices, production costs, capital expenditures,
discount rates and other assumptions. Changes in these assumptions or estimates could affect the fair values
assigned to assets acquired and liabilities assumed.
Page | 23
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete.
These provisional amounts are adjusted during the measurement period, or additional assets or liabilities are
recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition
date and, if known, would have affected the measurement of the amounts recognized as of that date. The
measurement period ends as soon as the Company receives the information it was seeking about facts and
circumstances that existed as of the acquisition date or learns that more information is not obtainable and shall not
exceed one year from the acquisition date.
(b) Critical Accounting Judgements in Applying the Entity’s Accounting Policies
Judgements that have the most significant effect on the amounts recognized in the Company’s consolidated financial
statements are as follows:
i. Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial statement carrying
values of assets and liabilities and their respective income tax bases and losses carried forward. The determination
of the ability of the Company to utilize tax loss carryforwards to offset deferred tax liabilities requires management
to exercise judgement and make certain assumptions about the future performance of the Company.
Management is required to assess whether it is “probable” that the Company will benefit from these prior losses
and other deferred tax assets. Changes in economic conditions, metal prices and other factors could result in
revisions to the estimates of the benefits to be realized or the timing of utilization of the losses.
ii. Assessment of Impairment and Reversal of Impairment Indicators
Management applies significant judgement in assessing whether indicators of impairment or reversal of impairment
exist for an asset or a group of assets which could result in a testing for impairment. Internal and external factors
such as significant changes in the use of the asset, commodity prices, life of mines, tax laws or regulations in the
countries that our mines operate in and interest rates are used by management in determining whether there are
any indicators of impairment or reversal of previous impairments.
As of December 31, 2021, the company determined there were indicators of impairment at the Lindero Mine due
to a decrease in operating performance relative to management’s expectations. In determining the recoverable
amounts of the Company’s mining interests, the Company makes estimates of the discounted future after-tax cash
flows expected to be derived from the Company’s mining properties, costs to sell the mining properties and the
appropriate discount rate. The projected cash flows are significantly affected by changes in assumptions related to
long-term metal prices, changes in the amount of recoverable reserves and resources, production cost estimates,
future capital expenditures, discount rates and exchange rates. The Company performed a test of impairment using
a discount rate of 6.25% and a long-term gold price of $1,650/oz. As a result, management estimated the recoverable
amount of the Lindero Mine as at December 31, 2021, determined on a fair value less cost of disposal basis, and
concluded no impairment charge was required. However, adverse changes in any of these assumptions in future
periods may result in an impairment.
iii. Functional Currency
The functional currency for the Company and its subsidiaries is the currency of the primary economic environment
in which each operates. The determination of functional currency may require certain judgements to determine the
Page | 24
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
primary economic environment. The Company reconsiders the functional currency used when there is a change in
the events and conditions which determined the primary economic environment.
iv. Leases
Significant judgments made by management in the accounting for leases primarily included whether the lease
conveys the right to use a specific asset, whether the Company obtains substantially all of the economic benefits
from the use of the asset, whether the Company has the right to direct the use of the asset, evaluating the
appropriate discount rate to use to discount the lease liability for each lease or groups of assets, and to determine
the lease term where a contract includes renewal options. Significant judgments over these factors would affect the
present value of the lease liabilities, as well as the associated amount of the right-of-use (“ROU”) asset.
v. Value-added tax (“VAT”) receivable
Timing of collection of VAT receivables is uncertain as VAT refund procedures require a significant amount of
information and follow-up. The Company assesses the recoverability of the amounts receivable at each reporting
date and the expected timing of the recovery, which are impacted by several factors, including the status of
discussions with the tax authorities, and current interpretation of relevant VAT legislation and regulation. Changes
in these judgements can materially affect the amount recognized as VAT receivable and could result in an increase
in other expenses recognized in profit or loss and the presentation of current and non-current VAT receivable.
6. ACQUISITION OF SUBSIDIARY
On July 2, 2021 (the “Closing Date"), the Company completed the acquisition of Roxgold (the "Transaction") and its
underground producing Yaramoko mine in Burkina Faso, the Séguéla development project in Côte d’Ivoire, and the
Boussoura exploration property in Burkina Faso. The Transaction was completed by way of a court-approved plan
of arrangement (the "Arrangement") under the Business Corporations Act (British Columbia) pursuant to the terms
of an Arrangement agreement between Fortuna and Roxgold dated effective April 26, 2021. Under the terms of the
Transaction, the Company acquired all of the issued and outstanding common shares ("Roxgold Shares") of Roxgold
in exchange for 0.283 of a common share of Fortuna and C$0.001 in cash for each Roxgold Share. Upon completion
of the Transaction, Roxgold became a wholly-owned subsidiary of Fortuna. The Company began consolidating the
operating results, cash flows, and net assets of Roxgold from July 2, 2021.
On the closing of the Transaction, the Company issued 106,106,224 common shares and paid $0.3 million in cash in
exchange for all of the issued and outstanding Roxgold Shares. In addition, the Company made the following cash
payments:
•
•
$5.6 million in change of control payments to non-continuing executives of Roxgold;
$14.5 million on the accelerated vesting of RSUs and PSUs upon the change of control of Roxgold to non-
continuing executives which has been determined to form part of the consideration;
$9.2 million on the accelerated vesting of DSUs upon the change of control of Roxgold to directors of
Roxgold which has been determined to form part of the consideration; and
$4.6 million on the accelerated vesting of RSUs and PSUs upon the change of control of Roxgold to
continuing executives and directors of Roxgold, $1.3 million of which has been determined to form part of
the consideration and $3.3 million was expensed as Roxgold transaction costs.
•
•
Under the terms of the Arrangement, all Roxgold stock options, RSUs and PSUs issued in 2018, 2019, and 2020 to
continuing employees and executives outstanding as at the effective time of the Arrangement were assumed by the
Company having the same terms and conditions as the original respective Roxgold long-term incentive plans
(including with respect to vesting and settlement), except that on settlement thereof the holder will receive 0.283
Page | 25
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
of a Fortuna common share or the cash equivalent at the time of settlement. Following the acquisition of Roxgold,
the Company assumed 405,240 options, 1,023,696 PSUs and 1,419,649 RSUs. The Company recorded $8.2 million
to equity reserve and $4.0 million to other liabilities. During the year ended December 31, 2021, $0.8 million of the
equity settled units assumed were settled in cash.
The Company advanced a promissory note of $35.3 million to Roxgold on June 29, 2021 in advance of closing of the
Transaction, to cover expected cash consideration, transaction costs, and liabilities in relation to the Transaction.
The promissory note was effectively settled upon closing of the Transaction.
The Company has determined that the Transaction represents a business combination, with the Company identified
as the acquirer. Based on the share price of the Company’s common shares immediately prior to the Closing Date,
the estimated fair value of the of the Options, RSUs, and PSUs assumed, the cash consideration paid, and settlement
of the pre-existing promissory note between Roxgold and Fortuna, the total consideration of the acquisition was
determined to be $655.3 million.
Consideration paid:
Fortuna shares issued to Roxgold shareholders
Options, RSUs, and PSUs assumed by Fortuna
Settlement of promissory note due from Roxgold
Cash consideration paid to Roxgold shareholders, PSU, RSU, and DSU holders
Total consideration
$
$
582,523
12,143
35,296
25,333
655,295
In accordance with the acquisition method of accounting, the acquisition cost was allocated to the underlying assets
acquired and liabilities assumed, based upon their estimated fair values at the date of acquisition. The Company
retained an independent appraiser to assist with determination of the fair value of certain assets acquired and
liabilities assumed. The consideration paid has been allocated to the assets acquired and liabilities assumed based
on their estimated fair values on the Closing Date.
Page | 26
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
During the year ended December 31, 2021, the Company completed the analysis to assign fair values to all assets
acquired and liabilities assumed. Figures previously presented have been updated to reflect the measurement
period adjustments detailed below. The following table summarizes the final purchase price allocation:
Final Allocation
$
Adjustments
Reported as of
September 30, 2021
Allocation of consideration:
(Expressed in $'000 rounded)
Cash and cash equivalents
Trade and other receivables
Other current assets
Inventory (1)
Restricted cash
Mineral properties and exploration and evaluation assets (2)
Property, plant and equipment
Trade and other payables (4)
Income taxes payable
Lease liabilities
Debt
Closure and reclamation provision (3)
Deferred tax liabilities (5)
Other labilities (4)
Non controlling interest
Net assets acquired
(1) The fair value of inventory was adjusted to reflect an update to the mine plan and expected timing of processing stockpiled ore.
(2) Measurement period adjustments to mineral properties were a result of updates to the mineral reserve and resource statement and
65,600 $
18,800
3,000
23,300
2,100
789,200
85,500
(56,400)
(5,400)
(13,600)
(31,700)
(3,300)
(162,600)
(6,405)
(52,800)
655,295 $
— $
—
—
1,200
—
20,800
—
(3,300)
—
—
—
(7,800)
(13,400)
2,600
(100)
— $
$
65,600
18,800
3,000
24,500
2,100
810,000
85,500
(59,700)
(5,400)
(13,600)
(31,700)
(11,100)
(176,000)
(3,805)
(52,900)
655,295
refinments to the timing of cash flows used in the discounted cash flow models used to value mineral properties.
(3) Adjustments to the fair value of closure and reclamation provisions were the result of management reviewing site closure plans during the
measurement period and making adjustments and refinements to the cost estimates.
(4) Relates to adustments to the opening balance sheet as of July 2, 2021 based on refinements to the treatment of executive payments.
(5) The deferred tax liabilities were updated to reflect the change in temporary differences which resulted from the changes to the fair value of
assests and liabilities acquired.
The fair value of mineral properties and exploration and evaluation assets (Level 3), debt (Level 2), and lease
liabilities (Level 2) were estimated using discounted cash flow models, comparable transactions and other market-
based information. The fair value of property, plant, and equipment (Level 3) was estimated using either market or
cost approaches. Expected future cash flows are based on estimates of future gold prices and projected revenues,
estimated quantities of mineral reserves and mineral resources, expected future production costs and capital
expenditures based on life-of-mine plans. The fair value of inventory (Level 3) was based on forward gold prices and
the cost to complete.
The non-controlling interest represents a 10% interest in the legal entities that own the Yaramoko and Séguéla
properties, by the Burkina Faso and Côte d’Ivoire governments, respectively. The non-controlling interest was
determined based on the present ownership instruments’ proportionate share in the recognized amounts of the
acquiree’s identifiable net assets.
For the year ended December 31, 2021, transaction and integration costs in the form of continuing employee
payouts, advisory, legal and other professional fees of $14.1 million were expensed as incurred and included in
Roxgold transaction costs in the Consolidated Income Statement.
Consolidated revenue for the year ended December 31, 2021 includes revenue from the properties acquired in the
Transaction of $101.3 million. Consolidated net income for the year ended December 31, 2021 includes net income
before tax from Roxgold of $9.4 million. Had the transaction occurred on January 1, 2021, pro-forma unaudited
Page | 27
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
consolidated revenue and net income before tax for the year ended December 31, 2021 would have been
approximately $704.7 million and $115.2 million, respectively.
7. TRADE AND OTHER RECEIVABLES
As at
Trade receivables from doré and concentrate sales
Advances and other receivables
Value added taxes recoverable - operations
Value added taxes recoverable - Lindero construction
Trade and other receivables
$
December 31, 2021 December 31, 2020
26,309
$
4,108
13,432
32,706
76,555
25,718
4,424
46,345
-
76,487
$
$
The Company’s trade receivables from concentrate and doré sales are expected to be collected in accordance with
the terms of the existing concentrate and doré sales contracts with its customers. No amounts were past due as at
December 31, 2021 and 2020.
During the year ended Deember 31, 2021, all of the Lindero construction value added taxes were recovered.
During the year ended December 31, 2021, the Company sold VAT receivables in the amount of $5.5 million at a
factor rate of 5% to a commercial bank in Burkina Faso, and recognized a provision of $0.9 million related to
estimated VAT receivables anticipated to be sold in the next twelve months.
8. INVENTORIES
As at
Concentrate stockpiles
Doré bars
Leach pad and gold-in-circuit
Ore stockpiles
Materials and supplies
Total inventories
Less: non-current portion
Current inventories
$
$
Note December 31, 2021 December 31, 2020
1,682
1,711
1,796
3,456
7,851
30,321
11,640
39,292
22,020
31,437
44,989
106,217
(9,715)
(20,398)
35,274
85,819
$
$
11
$
$
During the year ended December 31, 2021, the Company expensed $346.4 million (December 31, 2020 – $160.1
million) of inventories to cost of sales. During the year ended December 31, 2021, charges of $7.0 million, including
$2.8 million related to depreciation, were recognized in cost of sales to reduce low grade stockpiles at Lindero and
Yaramoko to net realizeable value.
9. OTHER CURRENT ASSETS
As at
Derivatives
Prepaid expenses
Investments in equity securities
Assets held for sale
Income tax recoverable
Other current assets
$
December 31, 2021 December 31, 2020
-
$
2,622
1,059
659
-
4,340
1,490
8,060
416
-
1,713
11,679
$
$
Page | 28
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Investments in equity securities are classified as fair value through other comprehensive income, and any changes
in the fair value of the investments are recorded in Other Comprehensive Income.
10. MINERAL PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT
COST
Balance at December 31, 2020
Acquisiton of Roxgold
Additions
Changes in closure and reclamation provision
Disposals
Transfers
Balance at December 31, 2021
ACCUMULATED DEPLETION
Balance at December 31, 2020
Disposals
Depletion and depreciation
Balance at December 31, 2021
Net Book Value at December 31, 2021
COST
Balance at December 31, 2019
Additions
Changes in closure and reclamation provision
Disposals
Transfers
Balance at December 31, 2020
ACCUMULATED DEPLETION
Balance at December 31, 2019
Disposals
Depletion and depreciation
Balance at December 31, 2020
Net Book Value at December 31, 2020
Note
$
6
$
$
$
$
$
$
$
$
$
Mineral
Properties -
Depletable
Mineral
Properties -
Non depletable
Construction in
Progress
Property, Plant &
Equipment
Total
327,414 $
112,499
54,882
2,262
-
261,055
758,112 $
191,842 $
-
83,618
275,460 $
250,145
697,537
59,600
1,552
-
(242,038)
766,796
-
-
-
-
$
$
$
$
188,960
15,047
34,210
-
-
(227,591)
10,626
-
-
-
-
$
$
$
$
378,754
70,453
23,433
(85)
(5,643)
208,574
675,486
162,304
(4,319)
65,221
223,206
$
$
$
$
1,145,273
895,536
172,125
3,729
(5,643)
-
2,211,020
354,146
(4,319)
148,839
498,666
482,652 $
766,796
$
10,626
$
452,280
$
1,712,354
Mineral
Properties -
Depletable
Mineral
Properties -
Non depletable
Construction in
Progress
Property, Plant &
Equipment
Total
312,577 $
12,143
3,927
(1,233)
-
327,414 $
170,857 $
(543)
21,528
191,842 $
211,799
33,804
4,730
(188)
-
250,145
-
-
-
-
$
$
$
$
222,906
49,333
-
-
(83,279)
188,960
-
-
-
-
$
$
$
$
286,732
9,805
682
(1,744)
83,279
378,754
133,982
(1,126)
29,448
162,304
$
$
$
$
1,034,014
105,085
9,339
(3,165)
-
1,145,273
304,839
(1,669)
50,976
354,146
135,572 $
250,145
$
188,960
$
216,450
$
791,127
Non-depletable mineral properties include $22.0 million of exploration and evaluation assets (December 31, 2020
- $9.0 million).
On November 4, 2021, the Company entered into a fourth amended and restated credit agreement, effective
November 5, 2021. The Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso,
and their respective direct and indirect holding companies, have guaranteed the obligations of the Company
contemplated by the Amended Credit Facility. The Company has pledged all of its assets to secure the payment of
its obligations contemplated by the Amended Credit Facility and the Company’s principal operating subsidiaries in
Mexico and Peru, as well as the direct and indirect holding companies of the Company’s principal operating
subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso, have pledged all of their respective assets to secure
their respective guarantees of such payment, including the shares of the Company’s principal operating subsidiaries
in Mexico, Peru, Côte d’Ivoire and Burkina Faso. The Company’s principal operating subsidiary in Burkina Faso has
pledged its bank accounts to secure the obligations under its guarantee. (Note 15 (a)).
Page | 29
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
11. OTHER ASSETS
As at
Ore stockpiles
Value added tax recoverable
Income tax recoverable
Deferred income tax recoverable
Derivatives
Other long-term assets
Total other assets
12. TRADE AND OTHER PAYABLES
As at
Trade accounts payable
Payroll and related payables
Mining royalty payable
Other payables
Derivative liabilities
Share units payable
Total trade and other payables
13. RELATED PARTY TRANSACTIONS
$
8
$
33(d)
Note December 31, 2021 December 31, 2020
9,715
20,398
3,386
3,426
1,199
1,087
-
22
-
129
1,844
1,368
16,144
26,430
$
$
$
$
Note December 31, 2021 December 31, 2020
31,573
82,533
15,878
23,311
1,094
2,416
3,103
12,161
1,260
3,077
12,367
10,307
65,275
133,805
$
$
18(a)(b)
In addition to the related party transactions and balances disclosed elsewhere in these financial statements, the
Company entered into the following related party transactions during the years ended December 31, 2021, and
2020:
(a) Purchase of Goods and Services
During the years ended December 31, 2021, the Company was charged $5 thousand (2020: $157 thousand) for
general and administrative services pursuant to a shared services agreement with Gold Group Management Inc., a
company of which Simon Ridgway, the Company’s former Chairman, is a director. Effective February 2, 2021, Mr.
Ridgway resigned as director and Chairman of the Board, and costs associated with the shared services agreement
with Gold Group Management Inc. are no longer reported as related party transactions.
As at December 31, 2021, the Company had $nil outstanding balances payable to Gold Group Management Inc.
(December 31, 2020 - $9 thousand). Amounts due to related parties are due on demand and are unsecured.
Page | 30
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(b) Key Management Personnel
During the year ended December 31, 2021 and 2020, the Company was charged for consulting services by Mario
Szotlender, a director of the Company and by Mill Street Services Ltd., a company of which Mr. Ridgway, the
Company’s former Chairman, is a director. Effective February 2, 2021, Mr. Ridgway resigned as director and
Chairman of the Board, and costs associated incurred with Mill Street Services Ltd. are no longer reported as related
party transactions. Such amounts, along with other amounts paid to key management personnel were as follows:
Salaries and benefits
Directors fees
Consulting fees
Share-based payments
14. LEASE OBLIGATIONS
As at
Less than one year
Between one and five years
More than five years
Less: future finance charges
Present value of minimum lease payments
Less: current portion
Non-current portion
Years ended December 31,
2021
7,639 $
658
78
2,565
10,940 $
2020
4,266
707
134
11,115
16,222
$
$
Minimum lease payments
$
December 31, 2021 December 31, 2020
7,367
$
10,209
14,127
31,703
(12,206)
19,497
(6,978)
12,519
12,292
13,380
15,983
41,655
(12,250)
29,405
(10,523)
18,882
$
$
As at December 31, 2021, there were $29.3 million of lease obligations related to mining equipment and $0.1 million
of other leases.
15. DEBT
The following table summarizes the changes in debt:
Balance at December 31, 2019
Amortization of discount
Drawdowns
Payments
Balance at December 31, 2020
Transaction costs
Acquisition of Roxgold
Amortization of discount
Extinguishment of debt
Payments
Balance at December 31, 2021
Non-current portion
Note
$
6
$
$
Credit
Facilities
109,430
420
65,000
(55,000)
119,850
(3,036)
31,711
242
603
(32,288)
117,082
117,082
$
$
$
Convertible
debentures
37,105
1,661
-
-
38,766
-
-
1,641
-
-
40,407
40,407
$
$
$
Total
146,535
2,081
65,000
(55,000)
158,616
(3,036)
31,711
1,883
603
(32,288)
157,489
157,489
Page | 31
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(a) Credit Facilities
The Company had two credit facilities comprising of a $40.0 million non-revolving credit facility and an $80.0 million
revolving credit facility, which both had a maturity date of January 26, 2022. Following the acquisition of Roxgold on
July 2, 2021, the Company assumed Roxgold’s credit facility, comprising a $60.0 million term loan and a $20.0 million
revolving credit facility with an interest rate of LIBOR plus 4%, which both had a maturity date of December 30, 2022.
The Company repaid the outstanding Roxgold credit facility on November 5, 2021.
On November 4, 2021, the Company entered into a fourth amended and restated credit agreement (the “Amended
Credit Facility”) effective November 5, 2021, with a syndicate of banks led by BNP Paribas, and including The Bank
of Nova Scotia, Bank of Montreal and Société Générale, which converted the Company’s prior non-revolving and
revolving facilities with the Bank of Nova Scotia and BNP Paribas (the “Scotiabank Facility”) into a revolving term
credit facility and increased the amount of the facility from $120.0 million to $200.0 million, subject to the conditions
described below. The facility has a term of four years and steps down to $150.0 million after three years. Interest
accrues on LIBOR loans under the facility at LIBOR plus an applicable margin of between two and three percent,
which varies according to the consolidated leverage levels of the Company, as defined in the Amended Credit
Facility.
On closing of the Amended Credit Facility, $120.0 million was available for drawdown and was drawn down in full.
The total Amended Credit Facility of up to $200.0 million became available to the Company upon its receipt of the
extension of the San Jose environmental impact authorization (“EIA”) on December 17, 2021. The Company
evaluated the Amended Credit Facility and concluded that it was an extinguishment of debt rather than a
modification as a result of the change in counter parties, increase in available credit and the posting of the Roxgold
assets as security.
On repayment of the Roxgold credit facility and closing of the Amended Credit Facility, the unamortized balance of
transaction costs in connection with the credit facitlities was $0.6 million, and this balance was written off and
recorded as loss on extinguishment of debt.
The Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso, and their respective
direct and indirect holding companies, have guaranteed the obligations of the Company contemplated by the
Amended Credit Facility. The Company has pledged all of its assets to secure the payment of its obligations
contemplated by the Amended Credit Facility and the Company’s principal operating subsidiaries in Mexico and
Peru, as well as the direct and indirect holding companies of the Company’s principal operating subsidiaries in
Mexico, Peru, Côte d’Ivoire and Burkina Faso, have pledged all of their respective assets to secure their respective
guarantees of such payment, including the shares of the Company’s principal operating subsidiaries in Mexico, Peru,
Côte d’Ivoire and Burkina Faso. The Company’s principal operating subsidiary in Burkina Faso has pledged its bank
accounts to secure the obligations under its guarantee.
The Amended Credit Facility includes covenants customary for a facility of this nature including, among other
matters, reporting requirements, and positive, negative, and financial covenants set out in therein. As at December
31, 2021, the Company was in compliance with all of the covenants under the Amended Credit Facility.
(b) Convertible Debentures
On October 2 and 6, 2019, the Company completed a bought deal public offering of senior subordinated unsecured
convertible debentures with an aggregate principal amount of $46.0 million (the “Debentures”).
Page | 32
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
The Debentures mature on October 31, 2024 and bear interest at a rate of 4.65% per annum, payable semi-annually
in arrears on the last business day of April and October, commencing on April 30, 2020. For the year ended December
31, 2021, the Company paid $2.1 million in interest on the Debentures.
The Debentures are convertible at the holder’s option into common shares in the capital of the Company at a
conversion price of $5.00 per share (the “Conversion Price”), representing a conversion rate of 200 Common Shares
per $1 thousand principal amount of Debentures, subject to adjustment in certain circumstances.
On or after October 31, 2022 and prior to October 31, 2023, the Debentures may be redeemed in whole or in part
from time to time at the Company’s option at a price equal to their principal amount plus accrued and unpaid
interest, provided that the volume weighted average trading price of the Common Shares on the NYSE for the 20
consecutive trading days ending on the fifth trading day preceding the date on which the notice of the redemption
is given is at least 125% of the Conversion Price. On and after October 31, 2023, the Debentures may be redeemed
in whole or in part from time to time at the Company’s option at a price equal to their principal amount plus accrued
and unpaid interest regardless of the trading price of the Common Shares.
Subject to applicable securities laws and regulatory approval and provided that no event of default has occurred and
is continuing, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the
Debentures and accrued and unpaid interest on the redemption date and the maturity date, in whole or in part,
through the issuance of Common Shares, by issuing and delivering that number of Common Shares, obtained by
dividing the principal amount of the Debentures and all accrued and unpaid interest thereon by 95% of the current
market price (as defined in the Debenture Indenture) on such redemption date or maturity date, as applicable.
During the year ended December 31, 2021, $0.1 milion of the Debentures were converted.
16. OTHER LIABILITIES
As at
Restricted share units
Other non-current liabilities
Note December 31, 2021 December 31, 2020
2,264
18(b) $
1,437
259
1,873
2,523
3,310
$
$
$
Page | 33
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
17. CLOSURE AND RECLAMATION PROVISIONS
The following table summarizes the changes in closure and reclamation provisions:
Closure and Reclamation Provisions
Balance at December 31, 2020
Acquisition of Roxgold
Changes in estimate
Reclamation expenditures
Accretion
Effect of changes in foreign exchange rates
Balance at December 31, 2021
Less: Current portion
Non-current portion
Balance at December 31, 2019
Changes in estimate
Reclamation expenditures
Accretion
Effect of changes in foreign exchange rates
Balance at December 31, 2020
Less: Current portion
Non-current portion
Caylloma
Mine
Note
$ 14,761 $
San Jose
Mine
5,905 $ 19,684 $
Lindero
Mine
Yaramoko
Mine
- $
11,122
1,609
-
164
-
12,895
-
Séguéla
Project
Total
- $ 40,350
11,122
-
3,729
1,552
(353)
-
1,449
-
(185)
-
56,112
1,552
(1,882)
-
1,552 $ 54,230
-
1,142
(173)
439
(185)
7,128
(652)
6,476
-
(422)
-
377
-
19,639
-
$
$
$ 19,639
$
12,895
$
Closure and Reclamation Provisions
Lindero
Project
San Jose
Mine
4,848 $ 14,953 $
1,328
(227)
249
(293)
5,905
(238)
4,482
-
249
-
19,684
-
$ 19,684
$
$
5,667
Mine
-
-
-
-
-
-
-
-
$
$
Séguéla
Project
Total
- 31,125
9,098
-
(341)
-
754
-
(286)
-
- 40,350
(380)
-
39,970
-
6
-
(152)
(180)
469
-
14,898
(1,230)
$ 13,668
Caylloma
Mine
$ 11,324
3,288
(114)
256
7
14,761
(142)
$ 14,619
Yaramoko
Closure and reclamation provisions represent the present value of reclamation costs related to mine and
development sites. For the year ended December 31, 2021 the Company recognized an initial obligation at Séguéla
related to the disturbance created from construction activities.
Undiscounted uninflated estimated cash flow
Discount rate
Inflation rate
Closure and Reclamation Provisions
$
Caylloma
Mine
15,816 $
3.22%
2.00%
San Jose
Mine
7,846 $
7.56%
5.55%
Lindero
Mine
18,772 $
1.94%
4.00%
Yaramoko
Mine
12,634 $
2.08%
2.60%
Séguéla
Project
1,489
2.08%
2.50%
Total
56,557
The Company is expecting to incur progressive reclamation costs throughout the life of its mines.
18. SHARE BASED PAYMENTS
During the year ended December 31, 2021, the Company recognized share-based payments of $3.8 million
(December 31, 2020 - $12.4 million) related to the amortization of deferred, restricted and performance share units
and $nil (December 31, 2020 – $0.1 million) related to amortization of stock options.
Page | 34
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(a) Deferred Share Units (DSUs)
Outstanding, December 31, 2019
Granted
Changes in fair value
Outstanding, December 31, 2020
Granted
Units paid out in cash
Changes in fair value
Outstanding, December 31, 2021
(b) Restricted Share Units (RSUs)
Outstanding, December 31, 2019
Granted
Units paid out in cash
Vested and paid out in shares
Changes in fair value and vesting
Outstanding, December 31, 2020
Granted
Units paid out in cash
Assumed on acquisition
Vested and paid out in shares
Transferred from equity to cash settled
Forfeited or cancelled
Changes in fair value and vesting
Outstanding, December 31, 2021
Less: current portion
Non-current portion
(c) Performance Share Units
Outstanding, December 31, 2019
Forfeited or cancelled
Vested and paid out in shares
Outstanding, December 31, 2020
Assumed on acquisition
Granted
Forfeited or cancelled
Vested and paid out in shares
Change in fair value and vesting
Outstanding, December 31, 2021
Cash Settled
Number of DSUs
961,871
162,648
-
1,124,519
55,245
(374,709)
-
805,055
$
$
Fair Value
3,918
383
4,938
9,239
347
(3,436)
(3,013)
3,137
Cash Settled
Number of RSUs
392,435 $
1,056,207
(81,152)
-
-
1,367,490
677,250
(618,357)
328,254
-
260,444
(155,942)
-
1,859,139
$
Cash Settled
Number of PSUs
-
-
-
-
515,008
-
-
-
-
515,008
Equity Settled
Fair Value Number of RSUs
1,166,912
815,220
-
(448,766)
-
1,533,366
-
-
1,091,395
(655,267)
(260,444)
(64,589)
-
1,644,461
1,157
2,489
(257)
-
2,003
5,392
4,111
(2,484)
1,590
-
-
(54)
(3,052)
5,503
(4,066)
1,437
Equity Settled
Fair Value Number of PSUs
1,274,450
(191,498)
(243,782)
839,170
508,688
1,196,012
(206,798)
(491,185)
-
1,845,887
-
-
-
-
2,390
-
-
-
714
3,104
Page | 35
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(d) Stock Options
The Company’s Stock Option Plan, as amended and approved from time to time, permits the Company to issue up
to 12,200,000 stock options. As at December 31, 2021, a total of 2,092,236 stock options are available for issuance
under the plan.
Outstanding, December 31, 2019
Exercised
Expired unexercised
Outstanding, December 31, 2020
Exercised
Assumed on acquisition
Expired unexercised
Outstanding, December 31, 2021
Vested and exercisable, December 31, 2020
Vested and exercisable, December 31, 2021
19. SHARE CAPITAL
(a) Authorized Share Capital
Number of stock options
$
Weighted average
exercise price
Canadian dollars
5.85
6.28
4.79
6.28
4.99
3.77
3.22
5.88
6.28
5.88
$
$
$
1,784,029
(211,626)
(517,833)
1,054,570
(68,927)
405,240
(141,500)
1,249,383
1,054,570
1,249,383
The Company has an unlimited number of common shares without par value authorized for issue.
(b) Share Issuances
Balance at January 1, 2020
Issuance of common shares (i)
Share issuance costs
Exercise of stock options
Shares issued on vesting of share units
Balance at December 31, 2020
Acquisition of Roxgold
Exercise of stock options
Shares issued on vesting of share units
Convertible debenture conversion
Balance December 31, 2021
Note
6
Number of
common shares
160,291,553
23,000,000
-
211,626
692,548
184,195,727
106,106,224
68,927
1,146,452
12,000
291,529,330
$
$
$
Amount
422,145
69,000
(3,358)
1,438
3,081
492,306
582,523
389
4,468
60
1,079,746
(i) On May 20, 2020, the Company completed a bought deal public equity offering and issued an aggregate of
23,000,000 common shares at a price of $3.00 per share for gross proceeds of $69.0 million, which included the
exercise, in full, of the over-allotment option. The Company incurred transaction costs of $3.4 million related to this
financing.
Page | 36
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
20. EARNINGS PER SHARE
Basic:
Net income for the period attributable to Fortuna shareholders
Weighted average number of shares (000's)
Earnings per share - basic
Diluted:
Net income for the period attributable to Fortuna shareholders
Add: finance costs on convertible debt, net of $nil tax
Diluted net income for the period
Weighted average number of shares (000's)
Incremental shares from dilutive potential shares
Weighted average diluted number of shares (000's)
Earnings per share - diluted
Years ended December 31
2021
2020
57,877
237,998
0.24
$
$
21,553
174,993
0.12
Years ended December 31
2021
57,877
3,779
61,656
237,998
11,445
249,443
0.23
$
$
$
2020
21,553
-
21,553
174,993
11,080
186,073
0.12
$
$
$
$
$
As at December 31, 2021, there were 7,551 out of the money options that were excluded from the diluted earnings
per share calculation as their effect would have been anti-dilutive (December 31, 2020 –7,551).
21. SALES
The Company’s geographical analysis of revenue from contracts with customers attributed to the location of the
products produced, is as follows:
Silver-gold concentrates
Silver-lead concentrates
Zinc concentrates
Gold doré
Provisional pricing adjustments
Sales to external customers
Silver-gold concentrates
Silver-lead concentrates
Zinc concentrates
Gold doré
Provisional pricing adjustments
Sales to external customers
$
$
$
$
Peru
-
59,755
42,990
-
799
103,544
Year ended December 31, 2021
Mexico
Argentina
219,663 $
Burkina Faso
-
-
-
(3,609)
- $
-
-
178,999
-
- $
-
-
101,256
-
$
216,054
$ 178,999 $
101,256
$
Year ended December 31, 2020
Mexico
Argentina
188,327 $
Burkina Faso
Peru
- $
43,055
23,980
-
608
-
-
-
2,699
- $
-
-
20,297
-
- $
-
-
-
-
-
$
$
67,643
$
191,026
$
20,297 $
Total
219,663
59,755
42,990
280,255
(2,810)
599,853
Total
188,327
43,055
23,980
20,297
3,307
278,966
Page | 37
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Customer 1
Customer 2
Customer 3
Customer 4
Customer 5
Customer 6
Customer 7
Years ended December 31
2021
178,999 $
103,544
101,256
91,950
48,032
47,212
28,860
599,853 $
2020
191,026
67,643
-
20,297
-
-
-
278,966
$
$
From time to time, the Company mitigates the price risk associated with its base metal production by entering into
forward sale and collar contracts for some of its forecasted base metal production and non-metal commodities.
During December 2020, the Company entered into the following contracts:
•
•
•
•
•
zero-cost collar for 12,300 tonnes of zinc with a floor price of $2,600 per tonne and a cap of $2,900 per
tonne, maturing monthly from January 1, 2021 to December 31, 2021;
zero-cost collar for 720,000 gallons of heating oil with a floor price of $1.40 per gallon and a cap of $1.6150
per gallon, maturing monthly from January 1, 2021 to December 31, 2021;
zero-cost collar for 1,680,000 gallons of jet fuel with a floor price of $1.30 per gallon and a cap of $1.4775
per gallon, maturing monthly from January 1, 2021 to December 31, 2021;
forward-swap for 720,000 gallons of heating oil with a price of $1.52 per gallon, maturing monthly from
January 1, 2022 to December 31, 2022; and
forward-swap for 1,680,000 gallons of jet fuel with a price of $1.438 per gallon, maturing monthly from
January 1, 2022 to December 31, 2022.
On February 11, 2021, the Company entered into a zero-cost collar for 6,237 tonnes of lead with a floor price of
$2,000 per tonne and a cap of $2,125 per tonne, maturing monthly from February 1, 2021 to December 31, 2022.
During October 2021, the Company entered into the following contracts:
•
•
•
•
•
•
•
•
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,200 per tonne and a cap of $3,500 per
tonne, maturing from January 1, 2022 to March 31, 2022;
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,200 per tonne and a cap of $3,400 per
tonne, maturing from April 1, 2022 to June 30, 2022;
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,200 per tonne and a cap of $3,290 per
tonne, maturing from July 1, 2022 to September 30, 2022;
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,100 per tonne and a cap of $3,225 per
tonne, maturing from October 1, 2022 to December 31, 2022;
forward-swap for 1,200 tonnes of zinc with a price of $3,300 per tonne, maturing quarterly from January
1, 2022 to March 31, 2022;
forward-swap for 1,200 tonnes of zinc with a price of $3,256 per tonne, maturing quarterly from April 1,
2022 to June 30, 2022;
forward-swap for 1,200 tonnes of zinc with a price of $3,256 per tonne, maturing quarterly from July 1,
2022 to September 30, 2022; and
forward-swap for 1,200 tonnes of zinc with a price of $3,175 per tonne, maturing quarterly from October
1, 2022 to December 31, 2022.
The zinc, lead and fuel contracts are derivative financial instruments and are not accounted for as designated hedges.
They were initially recognized at fair value on the date on which the related derivative contracts were entered into
Page | 38
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
and are subsequently re-measured to estimated fair value. Any gains or losses arising from changes in the fair value
of the derivatives are credited or charged to profit or loss.
During the year ended December 30, 2021 the Company recognized $1.5 million of realized loss on settlement of
swaps, and $1.3 million of unrealized loss, from changes in the fair value of the open positions (December 31, 2020
– $nil).
22. COST OF SALES
Direct mining costs
Salaries and benefits
Workers' participation
Depletion and depreciation
Royalties and other taxes
Impairment (recovery) of inventories
Cost of Sales
Years ended December 31,
2021
198,141 $
34,773
7,647
121,077
25,703
7,035
394,376 $
2020
94,609
16,586
7,459
43,778
6,318
(5)
168,745
$
$
For the year ended December 31, 2021, depletion and depreciation includes $6.3 million (December 31, 2020 - $2.5
million) of depreciation relating to right-of-use assets.
23. GENERAL AND ADMINISTRATION
General and administration
Workers' participation
Share-based payments
General and Administration
24. OTHER EXPENSES
Write-down (recovery) of investment in associates
Loss on disposal of assets and other write-downs
Provision for accounts receivable
SGM Royalty settlement
Other expenses (income)
Care and maintenance costs related to COVID-19
Share of loss from associates
Years ended December 31,
2021
39,386
1,813
41,199
4,161
45,360
$
$
2020
20,834
1,808
22,642
12,444
35,086
$
$
Years ended December 31,
Note
$
33 (e)
$
2021
$
327
818
659
9,600
4,730
-
-
16,134
$
2020
(194)
878
484
447
(308)
3,121
76
4,504
Page | 39
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
25. INTEREST AND FINANCE COSTS, NET
Interest income
Interest expense
Bank stand-by and commitment fees
Accretion expense
Loss on extinguishment of credit facility
26. INCOME TAX
(a) Reconciliation of Effective Tax Rate
Years ended December 31,
2021
$
1,846
(10,246)
(69)
(3,799)
(595)
(12,863)
$
2020
1,217
(1,510)
(369)
(751)
-
(1,413)
$
$
Income tax expense differs from the amount that would be computed by applying the applicable Canadian statutory
income tax rate to income before income taxes. The significant reasons for the differences are as follows:
Net income before tax
Statutory tax rate
Anticipated income tax at statutory rates
Non-deductible expenditures (deductible expenditures)
Differences between Canadian and foreign tax rates
Changes in estimate
Effect of change in tax rates
Inflation adjustment
Impact of foreign exchange
Changes in deferred tax assets not recognized
Mining taxes
Withholding taxes
Other items
Total income tax expense
Total income tax represented by:
Current income tax expense
Deferred tax recovery
Years ended December 31,
2021
107,180 $
27.0%
28,939
(5,535)
4,392
(93)
(1,919)
(24,873)
14,865
18,692
7,636
8,148
(2,471)
47,781 $
2020
58,955
27.0%
15,918
1,326
1,284
(192)
436
(10,634)
15,081
5,909
4,656
3,670
(52)
37,402
51,651 $
(3,870)
47,781 $
38,818
(1,416)
37,402
$
$
$
$
Page | 40
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(b) Tax Amounts Recognized in Profit or Loss
Current tax expense
Current taxes on profit for the year
Changes in estimates related to prior years
Deferred tax expense
Origination and reversal of temporary differences and foreign exchange
rate
Changes in estimates related to prior years
Effect of differences in tax rates
Effect of changes in tax rates
Total tax expense
Years ended December 31,
2021
51,106 $
545
51,651 $
$
(985)
(638)
(328)
(1,919)
(3,870) $
2020
38,603
215
38,818
(1,500)
(396)
44
436
(1,416)
47,781 $
37,402
$
$
$
$
$
Page | 41
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(c) Deferred Tax Balances
The significant components of the recognized deferred tax assets and liabilities are:
Deferred tax assets:
Reclamation and closure cost obligation
Carried forward tax loss
Equipment and buildings
Accounts payable and accrued liabilities
Deductibility of resource taxes
Lease obligations
Other
Total deferred tax assets
Deferred tax liabilities:
Mineral properties
Mining and foreign withholding taxes
Equipment and buildings
Convertible debenture
Inflation
Inventory and other
Total deferred tax liabilities
December 31,
2021
December 31,
2020
$
$
$
$
15,872 $
4,192
23,989
19,370
3,085
8,270
1,153
75,931 $
(244,296) $
(4,523)
-
(1,198)
(10,163)
(7,419)
(267,599) $
13,080
17,729
-
16,437
3,414
5,769
127
56,556
(55,134)
(4,862)
(1,928)
(1,544)
(11,210)
(1,377)
(76,055)
Net deferred tax liabilities
$
(191,668) $
(19,499)
Classification:
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
2021
2020
$
$
- $
(191,668)
(191,668) $
-
(19,499)
(19,499)
The Company's movement of net deferred tax liabilities is described below:
At January 1
Deferred income tax (recovery) expense through income statement
Deferred income tax expense through equity
At December 31
$
$
2021
19,499 $
(3,870)
176,039
191,668 $
2020
20,915
(1,416)
-
19,499
Page | 42
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
(d) Unrecognized Deferred Tax Assets and Liabilities
The Company recognizes tax benefits on losses or other deductible amounts where it is more likely than not that
the deferred tax asset will be realized. The Company’s unrecognized deductible temporary differences and unused
tax losses for which no deferred tax asset is recognized consists of the following amounts:
Unrecognized deductible temporary differences and unused tax losses:
Non capital losses
Provisions
Share issue costs
Mineral properties, plant and equipment
Lease obligation
Derivative liabilities
Capital losses
Investments in equity securities and associates
Unrecognized deductible temporary differences
December 31,
2021
December 31,
2020
$
$
136,072 $
11,657
1,711
12,705
863
-
4,204
901
168,114 $
90,192
14,488
3,894
-
555
1,111
255
1,534
112,029
As at December 31, 2021, the Company has temporary differences associated with investments in subsidiaries for
which an income tax liability has not been recognized as the Company can control the timing of the reversal of the
temporary differences and the Company plans to reinvest in its foreign subsidiaries. The temporary difference
associated with investments in subsidiaries aggregate as follow:
Mexico
Peru
West Africa
(e) Tax Loss Carry Forwards
Tax losses have the following expiry dates:
$
December 31,
2021
204,283 $
59,976
114,559
December 31,
2020
248,880
62,414
-
Canada
Argentina
Mexico
Peru
Year of expiry
2026 - 2041 $
2021 - 2030
December 31,
2021 Year of expiry
$
150,015 2026 - 2039
- 2020 - 2024
378 2021 - 2029
-
December 31,
2020
90,300
68,900
367
-
In addition, as at December 31, 2021, the Company has accumulated Canadian resource related expenses of $8.5
million (December 31, 2020- $8.5 million) for which the deferred tax benefit has not been recognized.
Page | 43
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
27. SEGMENTED INFORMATION
The following summary describes the operations of each reportable segment:
• Mansfield Minera S.A. (“Mansfield”) – operates the Lindero gold mine
• Roxgold SANU S.A. (“Sanu”) – operates the Yaramoko gold mine
• Roxgold SANGO S.A. (“Sango”) – construction of the Séguéla mine
•
• Minera Bateas S.A.C. (“Bateas”) – operates the Caylloma silver, lead and zinc mine
•
Corporate – corporate stewardship
Compania Minera Cuzcatlan S.A. de C.V. (“Cuzcatlan”) – operates the San Jose silver-gold mine
Years ended December 31, 2021
Revenues from external customers
Cost of sales before depreciation and depletion
Depreciation and depletion in cost of sales
General and administration
Other (expenses) income
Finance items
Segment income (loss) before taxes
Income taxes
Segment income (loss) after taxes
Mansfield
$ 178,999
(79,224)
(43,665)
(5,793)
(5,069)
(972)
44,276
(3,242)
41,034
$
Sanu
$ 101,256
(51,839)
(28,973)
(953)
(2,536)
(2,664)
14,291
(2,749)
11,542
$
$
$
Revenues from external customers
Cost of sales before depreciation and depletion
Depreciation and depletion in cost of sales
General and administration
Other (expenses) income
Finance items
Segment income (loss) before taxes
Income taxes
Segment income (loss) after taxes
Mansfield
20,297
$
$
(10,073)
-
-
(12,982)
4,208
1,450
(323)
1,127
$
$
Sanu
-
$
-
-
-
-
-
-
-
$
Sango
Cuzcatlan Bateas
$ 103,544
- $ 216,054
(90,499)
-
(32,257)
-
(10,007)
-
(15,793)
(472)
(882)
(96)
66,616
(568)
(23,586)
(499)
43,030
(1,067) $
Corporate
$
(51,737)
(16,182)
(4,127)
632
(5,034)
27,096
(9,415)
$
17,681
-
-
-
(24,480)
-
(20,051)
(44,531)
(8,290)
(52,821)
Total
$ 599,853
(273,299)
(121,077)
(45,360)
(23,238)
(29,699)
107,180
(47,781)
59,399
$
$
Years ended December 31, 2020
Sango
$
Corporate
Cuzcatlan Bateas
67,643
$
(40,056)
(14,301)
(3,891)
(1,214)
(698)
7,483
(4,312)
$
3,171
- $ 191,026
(76,459)
-
(27,856)
-
(8,054)
-
(3,742)
-
(104)
-
74,811
-
(28,926)
45,885
-
-
-
(23,141)
41
(1,689)
(24,789)
(3,841)
(28,630)
Total
$ 278,966
(126,588)
(42,157)
(35,086)
(17,897)
1,717
58,955
(37,402)
21,553
-
$
$
As at December 31, 2021
Total assets
Total liabilities
Capital expenditures1
1 Capital expenditures are on an accrual basis for the year ended December 31, 2021
Mansfield
$ 613,584
51,544
$
40,845 $
$
Cuzcatlan Bateas
$ 128,012
$ 760,220 $ 239,448
54,863
48,094
$
$
24,848
26,962 $
22,856 $
$ 249,153
$ 228,929
25,281 $
56,614 $
Sanu
Sango
As at December 31, 2020
Total assets
Total liabilities
Capital expenditures1
1 Capital expenditures are on an accrual basis for the year ended December 31, 2020
Mansfield
$
$ 622,122
50,650
$
$
79,686 $
$
Sanu
$
-
-
$
- $
Sango
Cuzcatlan Bateas
$ 125,286
- $ 280,602
42,710
49,500
- $
$
9,476
15,801 $
- $
Corporate
31,505
$
$
183,641
$
Total
$ 2,021,922
592,352
$
172,125
- $
Corporate
27,328
$
$
186,708
$
Total
$ 1,055,338
329,568
$
105,085
122 $
28. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
in the principal (or most advantageous) market at the measurement date under current market conditions (an exit
price) regardless of whether that price is directly observable or estimated using another valuation technique.
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair
value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs
Page | 44
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs
other than quoted prices that are observable for the asset or liability (interest rate, yield curves), or inputs that are
derived principally from or corroborated observable market data or other means. Level 3 inputs are unobservable
(supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and
the lowest priority to Level 3 inputs.
The following sets up the methods and assumptions used to estimate the fair value of Level 2 and Level 3 financial
instruments.
Financial asset or liability
Trade receivables
Investments in equity securities
Interest rate swap, metal, fuel
and foreign exchange contracts
Convertible Debentures
Methods and assumptions used to estimate fair value
Trade receivables arising from the sales of metal concentrates are subject to
provisional pricing, and the final selling price is adjusted at the end of a
quotational period. These are marked to market at each reporting date based on
the forward price corresponding to the expected settlement date.
Investments in equity securities are recorded at fair value based on the quoted
market price at the end of each reporting period with changes in fair value through
other comprehensive income.
Fair value is calculated as the present value of the estimated contractual cash
flows. Estimates of future cash flows are based on quoted swap rates, futures
prices and interbank borrowing rates. These are discounted using a yield curve,
and adjusted for credit risk of the Company or the counterparty.
The fair value of the convertible debentures represents both the debt and equity
components of the convertible debentures and has been determined with
reference to the quoted market price of the convertible debentures.
During the years ended December 31, 2021, and 2020, there were no transfers of amounts between Level 1, Level
2, and Level 3 of the fair value hierarchy. The following tables show the carrying amounts and fair values of financial
assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial
assets and financial liabilities not measured at fair value is not presented if the carrying amount is a reasonable
approximation of fair value.
Page | 45
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Carrying value
Fair value
December 31, 2021
Financial assets measured at Fair Value
Investments in equity securities
Trade receivables concentrate sales
Fuel hedge contracts asset
Financial assets not measured at Fair Value
Cash and cash equivalents
Trade receivables doré sales
Other receivables
Financial liabilities measured at Fair Value
Interest rate swap liability
Metal forward sales contracts liability
Foreign exchange forward contracts liability
Financial liabilities not measured at Fair Value
Trade payables
Payroll payable
Credit facilities
Convertible debentures
Other payables
Fair Value
through
Fair value
through
profit or loss
Amortized
cost
Total
Level 1
Level 2
Carrying value
approximates
Fair Value
Level 3
OCI
$
$
$
$
$
$
$
$
496
-
-
496
-
-
-
-
(78)
-
-
(78)
-
-
-
-
-
-
$
$
$
$
$
$
$
$
496 $
23,298
1,619
25,413 $
496
-
-
496
-
23,298
1,619
24,917
-
-
-
-
$
$
$
$
-
-
-
-
107,097
2,420
4,424
113,941
-
$
(2,547)
(508)
(3,055) $
-
-
-
-
$
$
$
$
$
$
107,097 $
2,420
4,424
113,941 $
(78) $
(2,547)
(508)
(3,133) $
-
-
-
-
-
-
$
(80,925) $
(23,311)
(80,925) $
(23,311)
(117,082) (117,082)
(40,407)
(44,427)
(40,407)
(44,427)
$ (306,152) $ (306,152) $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
-
23,298
1,619
24,917
-
-
-
-
(78)
(2,547)
(508)
(3,133)
$
-
-
(120,000)
(50,614)
-
$ (170,614)
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
-
-
-
-
107,097
2,420
4,424
113,941
-
-
-
-
(80,925)
(23,311)
-
-
(44,427)
(148,663)
Page | 46
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
December 31, 2020
Financial assets measured at Fair Value
Investments in equity securities
Trade receivables concentrate sales
Financial assets not measured at Fair Value
Cash and cash equivalents
Trade receivables doré sales
Other receivables
Financial liabilities measured at Fair Value
Interest rate swap liability
Metal forward sales contracts liability
Fuel forward contracts liability
Financial liabilities not measured at Fair Value
Trade payables
Payroll payable
Credit facilities
Convertible debentures
Other payables
Carrying value
Fair value
Fair Value
through OCI
Fair value
through
profit or loss
Amortized
cost
Total
Level 1
Level 2
Carrying value
approximates
Fair Value
Level 3
$
$
$
$
$
$
$
$
1,059
-
1,059
-
-
-
-
(1,084)
-
-
(1,084)
-
-
-
-
-
-
$
$
$
$
$
$
$
$
-
22,361
22,361
-
-
-
-
-
(124)
(52)
(176)
$
$
$
$
$
$
131,898
3,948
4,108
139,954
-
-
-
-
-
-
-
-
-
-
$
(26,140)
(17,676)
(119,850)
(38,766)
(22,784)
$ (225,216)
- $
-
-
$
1,059 $
22,361
23,420 $
1,059
-
1,059
$
$
$
$
$
131,898 $
3,948
4,108
139,954 $
(1,084) $
(124)
(52)
(1,260) $
(26,140) $
(17,676)
(119,850)
(38,766)
(22,784)
$ (225,216) $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
-
22,361
22,361
-
-
-
-
(1,084)
(124)
(52)
(1,260)
$
-
-
(120,000)
(78,315)
-
$ (198,315)
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
-
-
-
131,898
3,948
4,108
139,954
-
-
-
-
(26,140)
(17,676)
-
-
(22,784)
(66,600)
Page | 47
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
29. MANGEMENT OF FINACIAL 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.
The Company is exposed to certain financial risks, including credit risk, liquidity risk, currency risk, metal price risk,
and interest rate risk.
(a) 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. All our trade accounts receivables from concentrate sales are held with large international
metals trading companies.
The Company’s cash and cash equivalents and short-term investments are held through large financial institutions.
These investments mature at various dates within three months.
The Company’s maximum exposure to credit risk as at December 31, 2021 and 2020 is as follows:
As at
Cash and cash equivalents
Derivative assets
Trade and other receivables
Income tax receivable
Other non-current receivables
$
December 31, 2021 December 31, 2020
131,898
$
-
76,555
-
6,429
214,882
107,097
1,619
76,487
1,713
5,903
192,819
$
$
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum
exposure to credit risk. We limit our exposure to counterparty credit risk on cash and term deposits by only dealing
with financial institutions with high credit ratings and through our investment policy of purchasing only instruments
with a high credit rating. Almost all of our concentrate are sold to large well-known concentrate buyers.
(c) Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due. We manage our
liquidity risk by continually monitoring forecasted and actual cash flows. We have in place a planning and budgeting
process to help determine the funds required to support our normal operating requirements and our development
plans. We aim to maintain sufficient liquidity to meet our short term business requirements, taking into account our
anticipated cash flows from operations, our holdings of cash and cash equivalents, and our committed and
anticipated liabilities.
The Company had $187.1 million of liquidity comprised of cash and cash equivalents as at December 31, 2021, and
believes that its cash and cash equivalents will provide sufficient liquidity to meet the Company’s minimum
obligations for at least the next 12 months from December 31, 2021. On November 4, 2021, the Company entered
into a fourth amended and restated credit agreement, effective as of November 5, 2021, which converted the
Company’s existing non-revolving and revolving facility into a revolving term credit facility in the amount of $200.0
million, with a term of four years and a step down to $150.0 million after three years. On closing of the amended
credit facility, $120.0 million was available for drawdown and was drawn down in full. The total amended credit
facility of up to $200.0 million became available to the Company upon its receipt of the extension of the San Jose
environmental impact authorization on December 17, 2021.
Page | 48
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
The Company manages its liquidity risk by continuously monitoring forecasted and actual cashflows. A rigorous
reporting, planning and budgeting process are in place to help facilitate forecasting funding requirements, to support
operations on an ongoing basis and expansion plans, if any.
As at December 31, 2021, the Company expects the following maturities of its financial liabilities, lease obligations,
and other contractual commitments, excluding payments relating to interest:
Trade and other payables
Debt
Income taxes payable
Lease obligations
Other liabilities
Capital commitments, Séguéla
Closure and reclamation provisions
Trade and other payables
Debt
Income taxes payable
Lease obligations
Other liabilities
Capital commitments, Lindero
Closure and reclamation provisions
Expected payments due by year as at December 31, 2021
Less than
1 year
133,805
-
20,563
12,292
-
66,542
1,883
235,085
1 - 3 years
-
46,000
-
11,315
3,310
5,217
5,561
71,403
$
$
4 - 5 years
-
120,000
-
2,065
-
-
23,954
146,019
$
$
$
$
After
5 years
-
-
-
15,983
-
-
24,714
40,697
$
$
Expected payments due by year as at December 31, 2020
Less than
1 year
65,275
-
23,808
7,367
-
558
433
97,441
1 - 3 years
-
120,000
-
6,166
2,523
-
5,444
134,133
$
$
4 - 5 years
-
46,000
-
4,043
-
-
10,692
60,735
$
$
$
$
After
5 years
-
-
-
14,127
-
-
23,781
37,908
$
$
$
$
$
$
Total
133,805
166,000
20,563
41,655
3,310
71,759
56,112
493,204
Total
65,275
166,000
23,808
31,703
2,523
558
40,350
330,217
Operating leases includes leases for office premises, computer equipment and other equipment used in the normal
course of business.
(d) Currency risk
The Company is exposed to fluctuations in foreign exchange rates as a portion of our expenses are incurred in
Canadian dollars, Peruvian soles, Argentine peso, Mexican peso, West Africa CFA Franc and Australian dollars. A
significant change in the foreign exchange rates between the United States dollar relative to the other currencies
could have a material effect on the Company’s profit or loss, financial position, or cash flows.
During October 2021, the Company entered into a forward contract for $18.5 million Euros with a fixed rate of 1.173
maturing monthly from January 31, 2022 to April 28, 2023, related to the construction of Séguéla.
Page | 49
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
As at December 31, 2021 and 2020, the Company was exposed to currency risk through the following assets and
liabilities denominated in foreign currencies:
December 31, 2021
Cash and cash equivalents
Marketable securities
Restricted cash
Trade and VAT receivables
Income tax receivable
VAT - long term receivable
Trade and other payables
Provisions, current
Income tax payable
Other liabilities
Provisions, non current
Total foreign currency exposure
US$ equivalent of foreign currency
exposure
Cash and cash equivalents
Marketable securities
Trade and VAT receivables
Income tax receivable
VAT - long term receivable
Trade and other payables
Provisions, current
Income tax payable
Other liabilities
Provisions, non current
Total foreign currency exposure
US$ equivalent of foreign currency
exposure
Canadian
Peruvian
Mexican
Pesos
Dollars
1,660
527
-
690
-
-
(3,839)
-
-
-
-
(962)
Soles
5,508
-
-
2,144
20,707
-
(17,496)
(4,413)
-
-
-
6,450
18,126
-
-
174,229
-
70,520
(400,697)
(13,534)
(87,881)
(6,178)
(87,305)
(332,720)
Argentine
Pesos
4,319
-
-
1,526,506
-
-
(1,174,033)
(95,353)
-
-
-
261,439
West
African
CFA
Franc
11,494,909
-
1,166,963
13,433,368
-
-
(10,094,158)
-
-
-
-
16,001,082
Australian
Dollars
5
-
-
-
-
-
(939)
-
-
-
-
(934)
Euro
28
-
-
-
-
-
(1,431)
-
-
-
-
(1,403)
(755)
1,668
(16,802)
2,734
28,548
(804)
(1,207)
December 31, 2020
Canadian
Peruvian
Mexican
Dollars
1,402
1,348
53
-
-
(17,838)
-
-
(207)
-
(15,254)
Soles
9,658
-
3,563
6,915
-
(28,046)
100
(275)
-
(754)
(8,839)
Pesos
3,117
-
108,569
-
67,542
(311,747)
(4,871)
(297,083)
(5,160)
(67,102)
(506,735)
Argentine
Pesos
2,326
-
3,281,760
-
-
(764,331)
(77,549)
-
-
-
2,442,206
West
African
CFA
Franc
-
-
-
-
-
-
-
-
-
-
-
Australian
Dollars
-
-
-
-
-
-
-
-
-
-
-
(11,981)
(2,439)
(25,402)
29,091
-
-
Euro
-
-
-
-
-
-
-
-
-
-
-
-
Sensitivity as to change in foreign currency exchange rates on our foreign currency exposure as at December 31,
2021 is provided below:
Currency
Mexican pesos
Peruvian soles
Argentinian pesos
Canadian Dollar
West African CFA franc
Australian Dollar
Euro
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 10%
$
$
$
$
$
$
$
Effect on foreign
denominated
items
1,527
152
249
69
2,595
61
110
Page | 50
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Due to the volatility of the exchange rate for Argentine Peso, the Company is applying additional measures in cash
management to minimize potential losses arising from the conversion of funds. As discussed in note 30(g), with the
capital controls in effect, the Company is required to convert the equivalent value of foreign currency received from
the proceeds of the sale of all gold doré from the Lindero Mine.
(e) Metal Price Risk
The Company is exposed to metal price risk with respect to the sales of silver, gold, lead, and zinc concentrates. The
following table summarizes the effect on provisionally priced sales and accounts receivables of a 10% change in
metal prices from the prices used at December 31, 2021:
Metal
Silver
Gold
Lead
Zinc
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
$
$
$
$
Effect on Sales
1,154
562
343
318
During the year ended December 31, 2021, the Company recognized negative sales adjustments of $2.8 million
(December 31, 2020 – positive $3.3 million) as a result of changes in metal prices on the final settlement or during
the quotational period.
From time to time, the Company mitigates the price risk associated with its base metal production by entering into
forward sale and collar contracts for some of its forecasted base metal production and non-metal commodities (see
Note 21).
(f)
Interest Rate Risk
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. Currently, the Company’s interest rate exposure mainly relates to interest earned
on its cash, cash equivalent, and short-term investment balances, interest paid on its LIBOR-based debt, and the
mark-to-market value of derivative instruments which depend on interest rates.
(g) Capital Management
The Company’s objective when managing its capital is to maintain its ability to continue as a going concern while at
the same time maximizing the growth of its business and providing returns to its shareholders. The Company
manages its capital structure and makes adjustments based on changes to its economic environment and the risk
characteristics of the Company’s assets.
Effective December 23, 2019, changes to Argentina’s tax laws proposed by the new Argentine Government were
implemented. The changes ratified and extended legislation which was to expire on December 31, 2019 and allow
the Argentine Central Bank to regulate funds coming into and flowing out of Argentina in order to maintain stability
and support the economic recovery of the country. These capital controls have the effect of: requiring exporters to
convert the equivalent value of foreign currency received from the export into Argentine Pesos; requiring the prior
consent of the Argentine Central Bank to the payment of cash dividends and distributions of currency out of
Argentina; requiring Argentine companies to convert foreign currency loans received from abroad into Argentine
Pesos; and restricting the sale of Argentine Pesos for foreign currency.
Page | 51
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
The Company’s capital requirement is effectively managed based on the Company having a thorough reporting,
planning and forecasting process to help identify the funds required to ensure the Company is able to meet its
operating and growth objectives.
The Company’s capital structure consists of equity comprising of share capital, reserves and retained earnings as
well as debt facilities, equipment financing obligations less cash, cash equivalents and short-term investments.
Equity
Debt
Lease obligations
Less: cash and cash equivalents
December 31, 2021 December 31, 2020
725,770
$
158,616
19,497
(131,898)
771,985
1,375,148 $
157,489
29,405
(107,097)
1,454,945
$
$
As discussed above, the Company operates in Argentina where the new Argentine government has ratified and
extended legislation to December 31, 2025 to allow the Argentine Central Bank to regulate funds coming into and
flowing out of Argentina. Other than the restrictions related to these capital controls and complying with the debt
covenants under the Company’s credit facility, the Company is not subject to any externally imposed capital
requirements. As at December 31, 2021 and 2020, the Company was in compliance with its debt covenants.
30. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in working capital for the years ended December 31, 2021 and 2020 are as follows:
Trade and other receivables
Prepaid expenses
Inventories
Trade and other payables
Total changes in working capital
Years ended December 31,
2021
(16,897) $
(2,149)
(23,824)
3,556
(39,314) $
2020
10,258
161
(25,659)
6,122
(9,118)
$
$
Page | 52
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
The changes in liabilities arising from financing activities, including both changes arising from cash flows and non-
cash changes for the years as set out below are as follows:
As at December 31, 2019
Additions
Terminations
Interest
Payments
Foreign exchange
Changes in fair value
As at December 31, 2020
Additions
Terminations
Acquisition of Roxgold
Interest
Payments
Transaction costs
Foreign exchange
Changes in fair value
As at December 31, 2021
Note
$
6
$
Bank loan
109,430
65,000
-
420
(55,000)
-
-
119,850
-
-
31,711
845
(32,288)
(3,036)
-
-
117,082
Convertible
debentures
37,105
-
-
1,661
-
-
-
38,766
-
-
-
1,641
-
-
-
-
40,407
$
$
Lease
obligations
23,879
2,684
(497)
1,920
(8,438)
(51)
-
19,497
7,397
(1,203)
13,597
2,336
(11,928)
-
(291)
-
29,405
$
$
Derivatives
894
$
176
-
563
(560)
-
187
1,260
508
-
-
1,018
(2,105)
-
-
777
1,458
$
The significant non-cash financing and investing transactions during the years ended December 31, 2021 and 2020
are as follows:
Acquisition of Roxgold
Mineral properties, plant and equipment changes in closure
and reclamation provision
Stock options allocated to share capital upon exercise
Additions on right of use assets
Share units allocated to share capital upon settlement
Years ended December 31,
Note
6
$
$
$
$
$
2021
594,666
(3,729)
136
(2,551)
4,468
$
$
$
$
$
2020
-
(9,339)
427
(2,715)
3,081
Page | 53
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
31. NON-CONTROLLING INTEREST
As at December 31, 2021, the non-controlling interest (“NCI”) of the Government of Burkina Faso, which represents
10% in Roxgold SANU S.A. totalled $12.1 million. The income attributable to the NCI for the six months ended
December 31, 2021, totalling $1.5 million is based on the net income for Yaramoko.
As at December 31, 2021, the NCI of the Government of Côte d’Ivoire, which represents 10% in Roxgold Sango S.A.
totalled $42.3 million. The loss attributable to the NCI for the six months ended December 31, 2021, totalling $0.1
million is based on the net loss for Séguéla.
Summarized statement of financial position
As of December 31, 2021
Non-controlling interest percentage
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Non-controlling interest
Summarized income statement
For the period ended December 31, 2021
Revenue
Net income (loss) and comprehensive income (loss)
Summarized cash flows
For the period ended December 31, 2021
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows (used in) provided by financing activities
32. CONTINGENCIES AND CAPITAL COMMITMENTS
(a) Caylloma Letter of Guarantee
Yaramoko
Séguéla
10%
60,225 $
200,406
(32,754)
(111,353)
116,524 $
10%
12,036
62,146
(21,312)
(52,484)
386
12,095 $
42,327
Yaramoko
Séguéla
101,256 $
15,945 $
-
(729)
Yaramoko
Séguéla
28,566 $
(28,429)
(14,804) $
(144)
(25,631)
37,601
$
$
$
$
$
$
$
$
The Caylloma mine closure plan, as amended, that was in effect in January 2021, included total undiscounted closure
costs of $11.4 million, which consisted of progressive closure activities of $3.5 million, final closure activities of $7.2
million, and post closure activities of $0.8 million pursuant to the terms of the Mine Closing Law.
Under the terms of the current Mine Closing Law, the Company is required to provide the Peruvian Government
with a guarantee in respect of the Caylloma mine closure plan as it relates to final closure activities and post-closure
activities and related taxes. In 2021, the Company provided a guarantee of $9.7 million to the Peruvian Government
in respect of such closure costs and taxes, by way of a security bond in the amount of $1.5 million and a bank letter
of guarantee in the amount of $8.4 million. The security bond and the bank letter of guarantee expired on January
28, 2022.
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Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
On November 17, 2021 the Ministry of Energy and Mining approved a second amendment to the closure plan for
the Caylloma mine by Directorate Resolution No. 220-2021/MINEM-DGAAM. As a result, the total undiscounted
closure costs for the Caylloma Mine as at November 17, 2021 were $15.4 million, which amounts includes $5.2
million of progressive closure activities, $8.3 million of final closure activities, and $1.9 million of post-closure
activities. On January 19, 2022, the Company obtained a new bank letter of guarantee and increased the amount
guaranteed to $10.8 million, which guarantee is valid until January 27, 2023.
On August 19, 2021, the Peruvian Government approved Law N° 31347 which modifies the Mine Closing Law. This
new law includes, among other things, new criteria for the calculation of guarantee required to be in place for the
closing of a mine. As a result, a guarantee will be required to be put in place for the full mine closure plan, to include
progressive closure costs, final closure activities and post closure-activities. The effective date for the new Mine
Closing Law has not yet been confirmed by the Peruvian Government, but it is expected to be in effect in 2023.
(b) San Jose Letter of Guarantee
The Company has established three letters of guarantee in the aggregate amount of $1.2 million to fulfill its
environmental obligations under the terms and conditions of the Environmental Impact Statements issued by the
Secretaria de Medio Ambiente y Recursos Naturales (“SEMARNAT”) in 2009 in respect of the construction of the San
Jose mine, and in 2017 and 2020 with respect to the expansion of the dry stack tailings facility at the San Jose mine.
The letters of guarantee expire on December 31, 2023, June 15, 2022, and September 17, 2022, respectively.
(c) Other Commitments
As at December 31, 2021, the Company had capital commitments of $1.3 million and $5.2 million for civil work,
equipment purchases and other services at the Lindero and San Jose Mines, respectively, which are expected to be
expended within one year.
As of December 31, 2021, the Company had capital commitments of $71.8 million for the construction of the Séguéla
Mine, with $66.4 million expected to be expended within one year.
The Company entered into an agreement with a service provider wherein the Company would be required to make
an early termination payment, which is reduced monthly over 30 months, if the Company terminates the agreement,
and in certain circumstances, could be required to make other payments that will be negotiated between the
Company and the service provider. If the Company had terminated the agreement at December 31, 2021 it would
have been subject to an early termination payment of $7.8 million.
(d) Tax Contingencies
The Company is, from time to time, involved in various tax assessments arising in the ordinary course of business.
The Company cannot reasonably predict the likelihood or outcome of these actions. The Company has recognised
tax provisions with respect to current assessments received from the tax authorities in the various jurisdictions in
which the Company operates, and from any uncertain tax positions identified. For those amounts recognised related
to current tax assessments received, the provision is based on management's best estimate of the outcome of those
assessments, based on the validity of the issues in the assessment, management's support for their position, and
the expectation with respect to any negotiations to settle the assessment. Management re-evaluates the
outstanding tax assessments regularly to update their estimates related to the outcome for those assessments
taking into account the criteria above.
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Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
Peru
The Company was assessed $1.2 million (4.3 million Peruvian soles), including interest and penalties of $0.6 million
(2.4 million Peruvian soles), for the 2010 tax year by SUNAT, the Peruvian tax authority, with respect to the deduction
of certain losses arising from derivative instruments. The Company has applied to the Peruvian tax court to appeal
the assessment.
On January 22, 2019, the Peruvian tax court reaffirmed SUNAT’s position and denied the deduction. The Company
believes the assessment is inconsistent with Peruvian tax law and that it is probable the Company will succeed on
appeal through the Peruvian legal system. The Company has paid the disputed amount in full and has initiated
proceedings through the Peruvian legal system to appeal the decision of the Peruvian tax court.
As at December 31, 2021, the Company has recorded the amount paid of $1.1 million (4.3 million Peruvian soles) in
other long-term assets, as the Company believes it is probable that the appeal will be successful (Note 11).
(e) SGM Royalty
In January 2020, the Company received notice from the Dirección General de Minas (“DGM”) seeking to cancel one
of the Company’s mining concessions at the San Jose Mine in Oaxaca, Mexico if a disputed royalty, in the Mexican
peso equivalent of $30 million plus VAT (being the amount of the claimed royalty from 2011 to 2019), was not paid
before March 15, 2020. In early February 2020, the Company began legal proceedings (the “Amparo Proceedings”)
to contest the initiation of the cancellation procedure taken by the DGM on the Company’s mining concession, if the
royalty claimed by the Mexican Geological Service (the “SGM”) was not paid. Effective May 27, 2021, the DGM
provided notice to the Company of the termination of the cancellation procedure, as it had determined that the
required cause for the cancellation of the concession was not established. As a result the Company discontinued the
Amparo Proceedings in the Collegiate Court in Mexico. Further, on advice received from Mexican counsel, the
Company withdrew the administrative and legal proceedings that it had initiated in the Mexican Federal
Administrative Court to remove reference to the royalty on the title register.
On October 7, 2021, the Company and the SGM entered into a settlement agreement, pursuant to which the
Company paid to the SGM the amount of $9.6 million, plus value added tax (which is included in Other Expenses) to
end any prior dispute, and agreed to pay to the SGM a three percent royalty on the billing value of minerals obtained
from the concession from May 1, 2021 on an ongoing basis. The terms of the royalty are set out in a royalty
agreement between the parties dated March 18, 2022. The remaining terms of the settlement are confidential and
the Company has not admitted any liability.
(f) Other Contingencies
The Company is subject to various investigations and other claims, legal, labor, and tax proceedings covering matters
that arise in the ordinary course of business activities. Each of these matters is subject to various uncertainties, and
it is possible that some of these matters may be resolved unfavorably for the Company. Certain conditions may exist
as of the date these financial statements are issued that may result in a loss to the Company. None of these matters
is expected to have a material effect on the results of operations or financial conditions of the Company.
33. SUBSEQUENT EVENTS
On January 28, 2022, the Company received a notice (the “Notice”) from the Secretaría de Medio Ambiente y
Recursos Naturales (“SEMARNAT”) which advised that SEMARNAT has made a typographical error in the extension
to the term of the environmental impact authorization (“EIA”) for the San Jose Mine, located in Oaxaca, Mexico.
Page | 56
Fortuna Silver Mines Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Tabular amounts presented in thousands of US dollars, except share and per share amounts)
On December 17, 2021, SEMARNAT granted the Company a 12 year extension to the EIA for the San Jose Mine which
expires in October 2033. However, the Notice states that SEMARNAT has made a typographical error in the EIA
Extension and that the correct term is two years. The Company is of the view that the Notice was issued by the local
office of SEMARNAT in error.
Fortuna’s Mexican subsidiary, Cuzcatlan is working with authorities to resolve this matter. In addition, Minera
Cuzcatlan has initiated legal proceedings to challenge and revoke said typographical error and to reconfirm the 12
year extension period granted by SEMARNAT in December 2021.
Page | 57
EXHIBIT 99.3
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2021
As of March 23, 2022
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
This Management’s Discussion and Analysis (“MD&A”) of the financial position and results of operations for Fortuna Silver
Mines Inc. (the “Company” or “Fortuna”) (TSX: FVI and NYSE: FSM) should be read in conjunction with the audited
consolidated financial statements of the Company for the years ended December 31, 2021 and 2020 (the “2021 Financial
Statements”) and the related notes thereto. The 2021 Financial Statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. For further
information on the Company, reference should be made to its public filings on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov/edgar.
This MD&A is prepared by management and approved by the Board of Directors as of March 23, 2022. The information
and discussion provided in this MD&A covers the year ended December 31, 2021, and where applicable, the subsequent
period up to the date of issuance of this MD&A. Unless otherwise noted, all dollar amounts in this MD&A are expressed in
United States (“US”) dollars. References to "$" or "US$" in this MD&A are to US dollars and references to C$ are Canadian
dollars.
Fortuna Silver Mines Inc. has a number of direct and indirect subsidiaries which own and operate assets and conduct
activities in different jurisdictions. The terms "Fortuna" or the "Company" are used in this MD&A for simplicity of the
discussion provided herein and may include references to subsidiaries that have an affiliation with Fortuna Silver Mines
Inc., without necessarily identifying the specific nature of such affiliation.
This MD&A contains forward-looking statements. Readers are cautioned as to the risks and uncertainties related to the
forward-looking statements, the risks and uncertainties associated with investing in the Company’s securities and the
technical and scientific information under National Instrument 43-101 – Standards for Disclosure of Mineral Projects (“NI
43-101”) concerning the Company’s material properties, including information about mineral reserves and resources,
which classifications differ significantly from the requirements required by the SEC as set out in the cautionary note on
page 60 of this MD&A. All forward-looking statements are qualified by cautionary notes in this MD&A as well as risks and
uncertainties discussed in the Company’s Annual Information Form for fiscal 2020 dated March 29, 2021 and its
Management Information Circular dated May 26, 2021, which are filed on SEDAR and EDGAR.
This MD&A uses certain Non-IFRS financial measures and ratios that are not defined under IFRS, including but not limited
to: production cash cost per tonne; cash cost per payable ounce; all-in sustaining cash cost per payable ounce sold; all-in
cash cost per payable ounce sold; free cash flow and free cash flow from ongoing operations; net cash provided by
operating activities, adjusted net income; adjusted EBITDA and working capital which are used by the Company to manage
and evaluate operating performance at each of the Company’s mines and are widely reported in the mining industry as
benchmarks for performance. Non-IFRS financial measures and non-IFRS ratios do not have a standard meaning under
IFRS, and and may not be comparable to similar financial measures disclosed by other issuers. Non-IFRS measures are
further discussed in the “Non-IFRS Measures” section on page 34 of this MD&A.
Throughout this MD&A, the operational and financial results of the assets acquired in the acquisition of Roxgold Inc. are
included from July 2, 2021 onward.
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
CONTENTS
(in US Dollars, tabular amounts in millions, except where noted)
Business Overview
Corporate Developments
Highlights
Financial Results
2022 Guidance and Outlook
Results of Operations
Projects & Exploration
Quarterly Information
Liquidity and Capital Resources
Financial Instruments
Share Position & Outstanding Options & Equity Based Share Units
Related Party Transactions
Non-IFRS Financial Measures
Amendments to Accounting Standards That Have Been Issued
Risks and Uncertainties
Critical Accounting Estimates, Assumptions, and Judgements
Controls and Procedures
Cautionary Statement on Forward-Looking Statements
Cautionary Note to United States Investors Concerning Estimates of Reserves and Resources
4
4
5
10
15
19
24
27
29
32
32
33
34
44
44
55
59
60
64
Fortuna | 3
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
BUSINESS OVERVIEW
(in US Dollars, tabular amounts in millions, except where noted)
Fortuna is a growth focused Canadian precious metals mining company with operations and projects in Argentina, Burkina
Faso, Mexico, Peru, and Côte d’Ivoire. The Company produces silver, gold and base metals and generates shared value
over the long-term through efficient production, environmental protection, and social responsibility.
The Company operates the open pit Lindero gold mine (“Lindero” or the “Lindero Mine”) located in northern Argentina,
the underground Yaramoko gold mine (“Yaramoko” or the “Yaramoko Mine”) located in south western Burkina Faso, the
underground San Jose silver and gold mine (“San Jose” or the “San Jose Mine”) located in southern Mexico, the
underground Caylloma silver, lead, and zinc mine (“Caylloma” or the “Caylloma Mine”) located in southern Peru, and is
developing and constructing the open pit Séguéla gold mine (“Séguéla” or the "Séguéla Project") located in south western
Côte d’Ivoire. Each of the Company's producing mines is generally considered to be a separate reportable segment, along
with the Company's corporate stewardship segment.
Fortuna is a publicly traded company incorporated and domiciled in British Columbia, Canada. Its common shares are
listed on the New York Stock Exchange under the trading symbol FSM and on the Toronto Stock Exchange under the
trading symbol FVI.
CORPORATE DEVELOPMENTS
Roxgold Acquisition
On July 2, 2021, Fortuna completed its acquisition (the "Roxgold Acquisition") of all of the issued and outstanding common
shares ("Roxgold Shares") of Roxgold Inc. (“Roxgold”). Under the terms of the Roxgold Acquisition, holders of Roxgold
Shares received 0.283 of a common share of Fortuna and C$0.001 in cash for each Roxgold Share held. Upon completion
of the Roxgold Acquisition, Fortuna issued an aggregate of 106,106,225 common shares of Fortuna and CAD$374,934 in
cash and Roxgold became a wholly-owned subsidiary of Fortuna. As a result of the Roxgold Acquisition, the Company
acquired the producing Yaramoko Mine in Burkina Faso, the Séguéla Project in Côte d’Ivoire, and the Boussoura
exploration property in Burkina Faso. All production, operating and financial results in respect of the Yaramoko Mine
included in this MD&A reflect only those results from July 2, 2021 to December 31, 2021, unless indicated otherwise. For
additional details regarding the Roxgold Acquisition, see Note 6 to the 2021 Financial Statements.
As part of the Roxgold Transaction, Kate Harcourt was appointed a director of the Company and a member of the
Sustainability Committee on July 2, 2021, and various changes in the executive officers were made during the second half
of 2021 to reflect the expansion of the Company’s operations in West Africa.
Séguéla Construction Decision
On September 29, 2021, Fortuna announced the decision to proceed with the construction of the open pit gold mine at
the Séguéla project in Côte d’Ivoire. The updated total initial capital investment for the mine is estimated to be $173.5
million, the anticipated construction schedule is approximately 20 months, with ramp-up to name plate capacity expected
in the third quarter of 2023.
SGM Royalty
On October 7, 2021, the Company and the Mexican Geological Service (the “SGM”) entered into a settlement agreement,
pursuant to which the Company paid to the SGM the amount of $9.6 million, plus value added tax (which is included in
Other Expenses) to end any prior dispute, and agreed to pay to the SGM a three percent royalty on the billing value of
minerals obtained from the concession from May 1, 2021 on an ongoing basis. The terms of the royalty are set out in a
Fortuna | 4
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
royalty agreement between the parties dated March 18, 2022. The remaining terms of the settlement are confidential and
the Company has not admitted any liability.
Amended Credit Facility
On November 4, 2021, the Company entered into a fourth amended and restated credit agreement (the “Amended Credit
Facility”) effective November 5, 2021, with a syndicate of banks led by BNP Paribas, and including The Bank of Nova Scotia,
Bank of Montreal and Société Générale, which converted the Company’s existing non-revolving and revolving facility into
a revolving term credit facility and increased the amount of the facility from $120.0 million to $200.0 million, subject to
certain terms and conditions. See “Capital Resources” for further information. The Amended Credit Facility has a term of
four years and steps down to $150.0 million after three years. Interest accrues on LIBOR loans under the Amended Credit
Facility at LIBOR plus the applicable margin of between two and three percent, which varies according to the consolidated
leverage levels of the Company. The Company repaid the outstanding Roxgold credit facility on November 5, 2021.
On December 20, 2021 the Company resolved an outstanding permit issue at the San Jose mine and received approval for
the extension of its Environmental Impact Authorization (“EIA”). The extension of the EIA provided the Company with
access to the full $200.0 million of the Amended Credit Facility.
HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 2021
Financial
•
Sales were $599.9 million, an increase of 115% from the $279.0 million reported in the year ended December 31,
2020 (“2020”).
• Mine operating income was $205.5 million, an increase of 86% from the $110.2 million reported in 2020.
• Operating income was $136.9 million, an increase of 139% from the $57.2 million reported in 2020.
• Net income was $59.4 million or $0.24 per share, a 100% increase from the $21.6 million or $0.12 per share reported
in 2020.
• Adjusted net income (refer to Non-IFRS Financial Measures) was $100.6 million compared to $31.8 million in 2020,
representing a 216% year-over-year increase. 1
• Adjusted EBITDA1 (refer to Non-IFRS Financial Measures) was $280.7 million compared to $112.6 million reported in
2020, representing a 149% year-over-year increase.1
•
Free cash flow from ongoing operations (refer to Non-IFRS Financial Measures) was $97.0 million compared to $78.9
million reported in 2020, representing a 23% year-over-year increase. 1
• Net cash provided by operating activities was $147.1 million, an increase of 57% from the $93.4 million reported in
2020.
Operating
• Gold production of 207,192 ounces, an increase of 274% from 2020
•
•
•
Silver production of 7,498,701 ounces, an increase of 5% from 2020
Lead production of 32,989,973 pounds, an increase of 11% from 2020
Zinc production of 47,549,301 pounds, an increase of 4% from 2020
1 Refer to "Non-IFRS Measures" section.
Fortuna | 5
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
COVID-19
(in US Dollars, tabular amounts in millions, except where noted)
In March 2020, the World Health Organization declared COVID-19 as a pandemic. In response to the pandemic,
Governments implemented measures to curb the spread of COVID-19. Government mandated measures in Argentina,
Mexico, and Peru included among others, the closure of international borders, the temporary suspension of all non-
essential business, including mining and the declaration of mandatory quarantine periods. These measures resulted in the
temporary suspension of operations at our operations in Argentina, Mexico and Peru, which impacted our production and
costs in 2020.
During 2021, there were no Government mandated suspensions of operations at any of our operations in Latin America.
However, operations in Latin America were affected by waves of COVID-19 during the year, which resulted in reduced
workforces and quarantine periods for those affected. The pandemic continued to cause difficulties and hardship in the
communities where we operate. The Company has, however, been able to continue operations in West Africa largely
unaffected since the outbreak of COVID-19.
Health protocols are in place at each mine site for control, isolation and quarantine, as necessary, and these continue to
be reviewed and adjusted accordingly based on the circumstances at each location. The Company’s focus is the health and
safety of the workforce and on measures to prevent and manage the transmission of COVID-19 amongst the workforce
and the communities in which the Company operates.
The Company’s operations and financial performance are dependent on it being able to operate at each of its mines and
projects. Given the fast-changing situation with respect to the COVID-19 pandemic, including further waves of the virus
and the emergence of variant forms of the virus, it is difficult to predict the exact nature and extent of the impact the
pandemic may have on the Company’s operations and its business. Outbreaks of COVID-19 in areas where the Company
operates or restrictive directives of government and public health authorities could cause delays or disruptions in the
Company’s supply chain, restrict access to its mine sites, restrict its ability to transport and ship gold doré and/or metal
concentrates, restrict access to processing and refinery facilities, or impediments to market logistics. Suspensions of
operations or curtailment of commissioning activities at the Company’s mines remains a significant risk to its business and
operations.
Health & Safety
In the fourth quarter of 2021, the Company recorded no fatal accidents, no lost-time injuries (“LTI”) and six medical
treatment injuries (“MTI”), in over 2.7 million hours worked at its four mining operations and corporate offices. For the 12-
months of 2021, the LTI frequency rate (“LTIFR”) was 1.57 lost time injuries per million hours worked, which is lower than
the performance targeted for 2021 at 1.50. The total recordable injury frequency rate (“TRIFR”), which includes the LTIs
and MTIs in 2021 was 3.36 total recordable injuries per million hours worked which is an important improvement from
2020 (TRIFR at 5.99). The Company is working to improve its prevention programs to reduce the injuries in all mine sites.
The Company is in the process of implementing a Critical Controls Management Program based on the ICMM Health and
Safety Critical Control Management good practice guidance, which involves training for safety leaders, identifying critical
controls for incident’s scenarios, creating verification tools, and preparing implementation plans on site. The Company
began a bowtie analysis and developed inspections tools of the critical controls identified. The next step will be to identify
additional critical controls. The Company also implemented the Risk Factor program by “Dupont” in its Latin American
operations, targeting employees and contractors, with an emphasis on persuasive leadership and preventive field
activities by supervisors and operators.
The ongoing COVID-19 pandemic has continued to present additional health and safety challenges. The Company took
early precautionary measures at all of its operations to manage issues related to the COVID-19 pandemic with the primary
goal of protecting the health, safety, and economic wellbeing of the Company’s workforce and local communities. The
Company continues with routine COVID-19 testing at all of its mine sites with the objective of identifying carriers early so
Fortuna | 6
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
they can self-isolate before inadvertently spreading the virus to others. The Company carried out awareness campaigns to
promote vaccination among the Company’s employees and facilitated access to vaccines in partnership with the national
health authorities. In Latin America, 97% of the total workforce has received at least one dose of a COVID-19 vaccine.
100% of the workers in Caylloma, 85% of San Jose and 88% of Lindero were fully vaccinated. In Yaramoko, at least 90% of
the workers are fully vaccinated.
Environment
No environmental incidents with a significant impact or fines were recorded during the last quarter of 2021, as for the
whole of 2021. However, a total of 13 minor environmental incidents have been reported internally during the three
months ended December 31, 2021, for which remediative measures have been implemented as needed. Site controls by
local authorities and participatory monitoring were conducted in accordance with health protocols. The energy use per
tonne of processed ore intensity for the quarter was 0.19 GJ/t and the GHG Greenhouse gas (“GHG”) emissions intensity
per thousands of tonne of processed ore 16.29 tCO2eq/kt, using Fortuna Carbon Footprint methodology. The volume of
freshwater consumed per tonne of processed ore intensity was 0.23 m3/t for the reporting period.
On December 20, 2021, the Company announced that the Secretaría de Medio Ambiente y Recursos Naturales
(“SEMARNAT”) had granted a 12 year extension to the Environmental Impact Authorization (the “EIA”) for the San Jose
Mine. Subsequently on January 28, 2022, the Company announced that it had received a notice from SEMARNAT which
advised that SEMARNAT had made a typographical error in the extension to the term of the EIA for the San Jose Mine and
that the correct term is two years. CMC has initiated legal proceedings to challenge and revoke said typographical error
and to reconfirm the 12 year extension granted by SEMARNAT in December 2021. There can be no assurance that the
Company will be successful in its legal proceedings to challenge and revoke the notice from SEAMRANT and be able to
reconfirm the 12 year extension of the EIA.
During the third quarter ended September 30, 2021, the San Jose mine began to generate clean energy through the
installation of 72 solar panels with a system capacity of 30 kWh, to supply electricity to the administrative facilities for use
in office equipment, lighting, and systems. This initiative contributed to the reduction of 121 tonnes of CO2e during the
fourth quarter.
At the Yaramoko mine, the annual reforestation program, part of the biodiversity management plan, included the planting
of over twelve thousand trees locally, leading to a total of more than 146 thousand trees planted since 2014 in the villages
near the mine site.
Community Engagement
The Company seeks to maintain good constructive relations with the communities where it operates, based on dialogue,
transparency, and respect, and to be a catalyst for social development. At each of the Company’s operations, it maintains
open and ongoing channels of communication with the people in the communities within its direct and indirect areas of
influence. The Company has established mechanisms at each operation for addressing complaints or grievances with local
and other stakeholders. The Company also takes part in consultations and participatory meetings to identify and prioritize
community development needs.
Since the COVID-19 pandemic, the Company has adapted its community engagement and investment programs at all of its
operations. It has developed strategies to share health and safety protocols adopted by its sites with local authorities and
communities. The Company has modified some of its social investment programs to take into account the “new normal”
way of working with COVID-19 restrictions in place, and has collaborated to identify new ways to support both the health
and economic wellbeing of the local communities.
Fortuna | 7
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
In Peru, the Company signed an inter-institutional cooperation agreement with the Arequipa-Caylloma Health Network to
support the comprehensive vaccination plan in the district of Caylloma, committing to provide the logistics and human
resources necessary to immunize the entire population over 18. In order to reach this goal, the vaccination process was
complemented with three communication campaigns. On October 16, 2021, the Company signed a community support
agreement with the Municipality of Caylloma, which includes a voluntary financial contribution by the Company of 2.2
million Peruvian soles per year over the four-year term of agreement, with the first payment being made in the fourth
quarter of 2021. The funds will be administered by a joint committee, comprised of a representative from the community
of Caylloma, a representative of the Municipality of Caylloma and a representative of the Company. The funds are to be
invested in education, infrastructure and health projects within the Caylloma district. The Agreement also promotes:
employment from the local workforce, increased procurement from local goods and services, and the creation of a joint
participatory environmental surveillance committee.
The San Jose mine contributed funding toward medical services (doctors and paramedics), maintenance of ambulances,
donated food, cleaning, and medical supplies to local health centers, and has provided access to COVID-19 testing.
In Argentina, the Company has signed a support agreement with the municipality of Tolar Grande to expand and remodel
its health center, and to provide the center with oxygen, masks, medical equipment, disinfectant, food, COVID-19 tests,
and an ultrasound scanner. During the third quarter of 2021, the Company purchased medicine for Tolar Grande people
hospitalized in the city of Salta, and sanitizers were provided to the communities of San Antonio de los Cobres and Salar
de Pocitos.
As part of the West Africa community investment program at the Yaramoko mine, the COVID-19 PCR testing equipment
previously donated to Boromo Medical Centre has been accredited and commissioned. This will improve the capacity of
local health services to confirm COVID-19 cases and will also allow the diagnosis of other diseases that would otherwise
have required patients to travel to urban centers.
Climate Change
In alignment with the Task Force on Climate-related Financial Disclosures (“TCFD”) approach and following a materiality
assessment of climate-related risks and opportunities related to its operations, the Company finalized a climate strategy
focusing on analyzing the risks and opportunities of climate change on the Company’s business activities, integrating
climate change factors into the Company’s long-term strategic planning and developing short-term tactical climate change
action plans.
The implementation of comprehensive and credible climate change targets and actions is an ongoing journey. The
Company developed a multi-year climate change roadmap, which focuses on addressing gaps between existing practices
and climate change best practices. Climate change specific actions have been planned for 2022.
Environmental, Social & Governance Reporting
The Company has conducted a detailed assessment of climate-related risks and opportunities related to its operations and
is finalizing a climate strategy plan to focus on the areas that represent the greatest value to our stakeholders and
business. The Company plans to develop action plans to mitigate risks and capture opportunities, enhance the integration
of climate-related topics into risk management processes, set climate-related targets, and increase transparency through
disclosure aligned with the Task Force on Climate-related Financial Disclosures.
The Company released its 2020 Sustainability Report on April 12, 2021 which is available on its website. The report
discloses the Company’s sustainability performance, and includes an assessment of its climate change risks, using the
guidelines provided by the Global Reporting Initiative Standards: Core option and the Sustainability Accounting Standards
Fortuna | 8
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Board Metals and Mining Standard. In addition, for the first time, the report includes disclosure to align its climate change
performance with the Task Force on Climate-related Financial Disclosures.
Also, the Company reported through the Carbon Disclosure Project’s Climate Change and Water Security questionnaires.
The objective is to identify and tackle growing risks, and finding new opportunities for action.
After the completion of the business combination with Roxgold, the Company began consolidating sustainability measures
and is developing a work plan to redefine the Company’s sustainability commitments and targets.
Operating and Financial Highlights
A summary of the Company’s consolidated financial and operating results for the three and twelve months ended
December 31, 2021 are presented below:
Consolidated Metrics
Selected highlights
Silver
Metal produced (oz)
Metal sold (oz)
Realized price ($/oz)
Gold
Metal produced (oz)
Metal sold (oz)
Realized price ($/oz)
Lead
Metal produced (000's lbs)
Metal sold (000's lbs)
Zinc
Metal produced (000's lbs)
Metal sold (000's lbs)
Adjusted net income1
Adjusted EBITDA1
Net cash provided by operating activities
Free cash flow from ongoing operations1
Capital Expenditures2
Sustaining
Non-sustaining3
Lindero construction
Séguéla construction
Brownfields
1 Refer to Non-IFRS financial measures
2 Capital expenditures are presented on a cash basis
3 Non-sustaining expenditures include greenfields exploration
Figures may not add due to rounding
Three months ended December 31,
2020
% Change
2021
Years ended December 31,
2020
% Change
2021
1,980,243
1,976,380
23.39
1,912,737
1,985,783
24.43
4%
(0)%
(4)%
7,498,701
7,518,857
25.16
7,133,717
7,194,362
21.18
76,162
76,746
1,801
8,419
7,945
25,357
23,297
1,864
8,426
8,386
11,380
11,053
12,434
12,154
29.1
89.6
57.1
30.9
31.6
2.6
—
19.8
8.2
23.0
44.8
31.3
34.5
7.4
0.6
20.4
—
1.8
200%
229%
(3)%
207,192
202,293
1,789
(0)%
(5)%
(8)%
(9)%
27%
100%
82%
(10)%
328%
354%
(100)%
100%
351%
32,990
33,299
47,549
47,828
100.6
280.7
147.1
97.0
77.2
9.5
12.8
34.2
18.9
55,349
53,375
1,805
29,628
29,582
45,545
45,154
31.8
112.6
93.4
78.9
18.1
1.1
68.9
—
4.9
5%
5%
19%
274%
279%
(1)%
11%
13%
4%
6%
216%
149%
57%
23%
326%
734%
(81)%
100%
284%
Fortuna | 9
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Selected Financial Information
(in US Dollars, tabular amounts in millions, except where noted)
(Expressed in $ millions except per share information)
Three months ended December 31,
% Change
2020
2021
Years ended December 31,
2020
2019
2021
Selected Financial Information
Sales
Mine operating income
Operating income
Net income
Earnings per share - basic
As at
Cash and cash equivalents
Total assets
Debt
Shareholder's equity attributable to Fortuna
shareholders
Figures may not add due to rounding
198.9
58.3
38.9
16.6
0.05
103.5
46.9
28.2
18.6
0.10
92%
24%
38%
(11)%
(48)%
599.9
205.5
136.9
59.4
0.24
279.0
110.2
57.2
21.6
0.12
257.2
84.6
34.2
23.8
0.15
December
31, 2021
107.1
2,021.9
157.5
December
31, 2020
131.9
1,055.3
158.6
December
31, 2019
83.4
936.1
146.5
1,375.1
725.8
635.4
Mine operating income for the three months ended December 31, 2021 was $58.3 million, an increase of $11.4 million
over the same period in 2020. The increase was primarily due to:
Higher sales at Lindero from a full quarter of operations. The Lindero mine was under construction in the fourth
quarter of 2020 and poured first gold in October 2020.
Contributions from the Yaramoko mine which was acquired in the Roxgold transaction.
Partially offset by lower mine operating income at San Jose related to lower sales and the recognition of a $2.1
million accrual related to a new agreement with the local communities a Caylloma.
Mine operating income for the year ended December 31, 2021 was $205.5 million, an increase of $95.3 million compared
to the same period in 2020. The increase was primarily due to:
The contribution of a full year of operations from the Lindero mine which was under construction during 2020.
Contributions from a half year of production at the Yaramoko mine.
Higher operating income at Caylloma as a result of higher volumes of metal sold and higher realized metal prices.
Higher sales at San Jose from higher volumes of metal sold and higher silver prices.
Net income for the three months ended December 31, 2021 was $16.6 million, a decrease of $2.0 million over the same
period in 2020. The decrease was primarily due to:
$1.4 million in realized and $3.0 million in unrealized losses on financial derivatives.
An increase in costs of $2.8 million related to higher interest expenses and costs associated with the
extinguishment of the previous Fortuna and Roxgold credit facilities.
An increase in income taxes of $4.5 million primarily related to withholding taxes paid on an intercompany
dividend in Q4 2021.
Partially offset by a full quarter of operations at Lindero and contributions from the Yaramoko mine.
Net income for the year ended December 31, 2021 was $59.4 million, an increase of $37.8 million compared to the same
period in 2020. The increase was primarily due to:
Contributions from the Yaramoko mine wich was acquired in the Roxgold transaction.
A full year of operations at the Lindero mine which was under construction in 2020.
Higher net income at Caylloma due to higher volumes of metal sold and higher realized prices.
Partially offset by $14.1 million in transaction costs related to the acquisition of Roxgold and $9.6 million in costs
related to settling the SGM royalty at San Jose.
Fortuna | 10
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Net income for the year ended December 31, 2020 was $21.6 million, a $2.2 million decrease from the $23.8 million
reported in 2019. The decrease was due primarily to lower investment gains and lower deferred tax recoveries of $7.8
million and $11.0 million, respectively.
A discussion on sales and operating income is presented below.
FINANCIAL RESULTS
Sales
Provisional sales $
Lindero
Yaramoko4
San Jose
Caylloma
Adjustments1
Total Sales $
Silver
Metal produced (oz)
Provisional sales (oz)
Provisional sales $
Realized price ($/oz)2
Net realized price ($/oz)3
Gold
Metal produced (oz)
Provisional sales (oz)
Provisional sales $
Realized price ($/oz)2
Earnings per share - basic
Lead
Metal produced (000's lbs)
Provisional sales (000's lbs)
Provisional sales $
Realized price ($/lb)2
Net realized price ($/lb)3
Zinc
Metal produced (000's lbs)
Provisional sales (000's lbs)
Provisional sales $
Realized price ($/lb)2
Net realized price ($/lb)3
Three months ended December 31,
2020
2021
% Change
Years ended December 31,
2020
% Change
2021
65.9
52.2
54.9
24.5
1.4
198.9
20.3
-
58.0
22.2
3.0
103.5
225%
100%
(5)%
10%
(53)%
92%
177.5
101.2
219.9
104.3
(3.0)
599.9
20.30
-
188.3
67.0
3.4
279.0
1,980,243
1,976,380
43.1
23.39
23.29
1,912,737
1,985,783
45.0
24.43
22.65
4%
(0)%
(4)%
(4)%
3%
7,498,701
7,518,857
176.4
25.16
22.24
7,133,717
7,194,362
140.9
21.18
19.58
76,162
76,746
136.9
1,801
1,776
8,419
7,945
6.8
1.06
0.85
11,380
11,053
10.7
1.51
0.97
25,357
23,297
41.7
1,864
1,791
8,426
8,386
6.0
0.86
0.72
12,434
12,154
7.7
1.18
0.64
200%
229%
228%
(3)%
(1)%
(0)%
(5)%
13%
23%
18%
(8)%
(9)%
39%
28%
52%
207,192
202,293
355.6
1,789
1,758
32,990
33,299
27.8
1.00
0.83
47,549
47,828
43.1
1.36
0.90
55,349
53,375
91.1
1,805
1,707
29,628
29,582
19.7
0.83
0.67
45,545
45,154
24.0
1.03
0.53
774%
100%
17%
56%
(188)%
115%
5%
5%
25%
19%
14%
274%
279%
290%
(1)%
3%
11%
13%
41%
20%
24%
4%
6%
80%
32%
70%
1 Adjustments consists of mark to market, final price and assay adjustments
2 Based on provisional sales before final price adjustments. Net after payable metal deductions, treatment, and refining charges
3 Treatment charges are allocated to base metals at Caylloma and to gold at San Jose
4 The Yaramoko Mine was acquired as part of the Transaction with Roxgold. As such comparative figures for previous quarters and years are not
presented. Operating and financial results for the year ended December 31, 2021 are for the period from July 2, 2021 to December 31, 2021.
Consolidated Sales for the three months ended December 31, 2021 were $198.9 million, a 92% increase from the $103.5
million reported in the same period in 2020. Sales by reportable segment in the three months ended December 2021 were
as follows:
Lindero recognized adjusted sales of $65.6 million from the sale of 36,389 ounces of gold sold. The Lindero Mine
was under construction in in 2020, with first gold poured in October 2020. See "Results of Operations – Lindero
Mine, Argentina" for additional information.
Fortuna | 11
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Yaramoko recognized adjusted sales of $52.2 million from the sale of 29,077 ounces of gold sold. See "Results of
Operations – Yaramoko Mine, Burkina Faso" for additional information.
San Jose recognized adjusted sales of $56.7 million, a 6% decrease from the $60.5 million reported in the same
period in 2020. Lower sales were driven by a 6% decrease in the volume of gold ounces sold and lower realized
metal prices. See "Results of Operations – San Jose Mine, Mexico" for additional information.
Caylloma recognized adjusted sales of $24.4 million, a 7% increase from the $22.7 million reported in the same
period in 2020. The increased sales were driven by higher lead and zinc prices offsetting lower volumes of metal
sold. See "Results of Operations – Caylloma Mine, Peru" for additional information.
Consolidated sales for the twelve months ended December 31, 2021 increased 115% to $599.9 million compared to
$279.0 million for the same period in 2020. Sales by reportable segment in the twelve months ended December 2021
were as follows:
Lindero recognized $179.0 million of gold doré sales from the sale of 100,177 ounces of gold as operating output
improved as the mind continued it’s ramp up through 2021.
As a result of acquiring the Yaramoko Mine on July 2, 2021, Yaramoko recognized $101.3 million of gold doré
sales from the sale of 56,571 ounces of gold sold sold during the period from the completion of the Roxgold
Acquisition, from July 2, 2021 to December 31, 2021.
Sales at San Jose increased 13% to $216.1 million as silver and gold prices increased 18% and 1%, respectively,
along with a 3% increase in the volume of silver and gold ounces sold.
Sales at Caylloma increased 53% to $103.5 million due primarily to an increase in the volume of metals sold and
increases in the prices of lead and zinc of 20% and 32%, respectively.
Subsequent to the completion of the acquisition of Roxgold on July 2, 2021, the Company provided updated full-year
consolidated silver and gold guidance of 6.8 to 7.6 million ounces and 194 to 223 thousand ounces respectively (see
Fortuna news release dated July 19, 2021 “Fortuna reports production of 55,953 gold equivalent ounces for the second
quarter and issued updated guidance for 2021). The Yaramoko Mine production, costs and capital expenditures during the
first and second quarters of 2021 were under Roxgold prior to the closing of the Transaction on July 2, 2021.
Operating Income (Loss) and Adjusted EBITDA
Three months ended December 31, 2021
%1
2020
2021
%1
Years ended December 31,
2021
%1
2020
%1
Operating income (loss)
Lindero
Yaramoko
San Jose
Caylloma
Corporate
Total
Adjusted EBITDA2
Lindero
Yaramoko
San Jose
Caylloma
Corporate
Total
1 As a Percentage of Sales
2 Refer to Non-IFRS Financial Measures
Figures may not add due to rounding
16.1
6.9
20.1
5.1
(9.3)
38.9
36.1
24.9
28.6
8.9
(8.9)
89.6
25%
13%
35%
21%
20%
55%
48%
50%
36%
45%
6.2
-
24.4
5.9
(8.3)
28.2
11.3
-
33.3
8.4
(8.2)
44.8
30%
0%
40%
26%
27%
56%
0%
55%
37%
43%
45.2
17.0
67.5
32.1
(24.9)
136.9
93.6
50.7
114.0
45.5
(23.1)
280.7
25%
17%
31%
31%
23%
52%
50%
53%
44%
47%
(2.8)
-
74.9
8.2
(23.1)
57.2
11.1
-
105.7
19.2
(23.4)
112.6
(14)%
0%
39%
12%
21%
54%
0%
55%
28%
40%
Fortuna | 12
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Operating income for the three months ended December 31, 2021 was $38.9 million, an increase of $10.7 million over the
same period in 2020. The increase was primarily the result of:
Higher sales at Lindero from a full quarter of operations. The Lindero mine was under construction in the fourth
quarter of 2020 and poured first gold in October 2020.
Contributions from the Yaramoko mine which was acquired in the Roxgold transaction.
Operating income at Caylloma in the fourth quarter of 2021 remained consistent with the previous year due to
the recognition of an accrual of $2.1 million related to a new agreement signed with the local communities and
higher mining costs which offset higher metal prices for the quarter.
Lower operating income at San Jose related to lower sales.
Operating income for the year ended December 31, 2021 was $136.9 million, an increase of $79.7 million over 2020. The
increase was primarily the result of:
The contribution of a full year of operations from the Lindero mine which was under construction during 2020.
Higher operating income at Caylloma as a result of higher volumes of metal sold and higher realized metal prices.
Contributions from a half year of production at the Yaramoko mine.
Lower operating income at San Jose primarily related to the settlement of the SGM royalty for $9.6 million.
Adjusted EBITDA (refer to Non-IFRS Financial Measures) was $89.6 million for the three months ended December 31,
2021, an increase of $44.8 million over the same period in 2020. As explained above this was primarily due a full quarter
of operations at Lindero and contributions from the Yaramoko mine acquired in the Roxgold transaction.
Adjusted EBITDA (refer to Non-IFRS Financial Measures) for the year ended December 31, 2021 was $280.7 million, an
increase of $168.1 million over the same period in 2020. As explained above this was primarily due to a full year of
operations at Lindero, contributions from the Yaramoko mine acquired in the Roxgold transaction and high income at
Caylloma from high voulmes of metal sold and realized prices.
The most comparable IFRS measure to the Non-IFRS measure adjusted EBITDA is net income. Net income for the three
months ended December 31, 2021 was $17.0 million and $59.8 million for the year ended December 31, 2021. Refer to
the discussion above.
General and Administrative (“G&A”) Expenses
Mine G&A
Corporate G&A
Share-based payments
Workers' participation
Total
Three months ended December 31,
2021
6.4
6.6
3.0
0.4
16.4
2020
3.4
3.7
4.6
0.5
12.2
% Change
88%
78%
(35)%
(20)%
34%
Years ended December 31,
2021
19.1
20.3
4.2
1.8
45.4
2020 % Change
89%
10.1
88%
10.8
(66)%
12.4
0%
1.8
29%
35.1
General and administrative expenses for the three months ended December 31, 2021 increased 34% to $16.4 million
compared to $12.2 million reported in the same period in 2020, which was due primarily to an increase in Corporate G&A
of $2.9 million and an increase of $3.0 million in Mine G&A partially offset by a decrease of $1.9 million from lower share-
based payments. The increase in Mine G&A was the result of Lindero’s costs which was undergoing construction in 2020,
higher San Jose costs related to the extension of the EIA, and the inclusion of Yaramoko costs from the acquisition of
Roxgold. The increase in Corporate G&A in the fourth quarter of 2021 was due to the acquisition of Roxgold and
associated personnel, and increased travel costs.
Fortuna | 13
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
General and administrative expenses for the year ended December 31, 2021 increased 29% to $45.4 million compared to
$35.1 million reported in 2020. The increase was due primarily to an increase of $9.0 million in Mine G&A related to
Lindero’s first full year of operations, higher San Jose mine G&A related to the resolution of the litigation related to the
Progresso disputed royalty, costs related to the extension of the EIA, and the inclusion of Yaramoko G&A in the second
half of the year. The $9.5 million increase in Corporate G&A is related to the acquisition of Roxgold and associated
personnel, and increased travel costs. Share-based payments decreased by $8.2 million.
Foreign Exchange Loss
Foreign exchange loss for the three months ended December 31, 2021 decreased $3.6 million to $1.1 million compared to
$4.7 million reported in the same period in 2020. The decrease was primarily due to the collection of outstanding value
added tax receivables over 2021 at Lindero which decreased the Company’s exposure to the devaluation of the Argentine
Peso.
Foreign exchange loss for the twelve months ended December 31, 2021 decreased $6.1 million to $6.1 million compared
to $12.2 million reported in the same period in 2020. The main driver was the reduction in the valued added tax
receivables at Lindero to $13.3 million as of December 31, 2021 compared $37.2 million at the end of 2020 which
decreased the Company’s exposure to the devaluation of the Argentine Peso.
Income Tax Expense
Income tax expense for the three months ended December 31, 2021 was $13.5 million or $4.4 million higher than the $9.1
million reported in the same period in 2020. The increase of $4.4 million was primarily related to the payment of $4.3
million in withholding taxes related to an intercompany dividend in Q4.
The effective tax rate (“ETR”) for the three months ended December 31, 2021 was 45.0% compared to 32.9% for the same
period in 2020. The increase of 12.1% is primarily related to the withholding tax item described above.
Income tax expense for the year ended December 31, 2021 was $47.8 million or $10.4 million higher than the $37.4
million reported in the same period in 2020. The increase of $10.4 million was primarily the result of:
Mining royalty tax increased by $3.0 million related to higher revenue in Peru and Argentina
Payment of the withholding taxes described above
Payment of taxes in Burkina Faso related to the operations acquired in the Roxgold transaction on July 2, 2021
The effective tax rate was 44.6% compared to 63.4% for the same period in 2020. The decrease of 18.9% in the ETR was
primarily due to the impact of foreign exchange fluctuations (11.7%) on the translation of local currency denominated
non-monetary assets and the impact of inflation adjustments for Mexico and Argentina (5.2%)
The Company is subject to tax in various jurisdictions, including Peru, Mexico, Argentina, Côte d’Ivoire, Burkina Faso,
Australia and Canada. There are a number of factors that can significantly impact the Company’s effective tax rate
including the geographic distribution of income, variations in our income before income taxes, varying rates in different
jurisdictions, the non-recognition of tax assets, local inflation rates, fluctuation in the value of the United States dollar and
foreign currencies, changes in tax laws and the impact of specific transactions and assessments. As a result of the number
of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, the
effective tax rate will fluctuate, sometimes significantly. This trend is expected to continue in future periods.
Fortuna | 14
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
2022 GUIDANCE AND OUTLOOK
Production and Cost Guidance
(in US Dollars, tabular amounts in millions, except where noted)
The Company's production and cost guidance set out below for 2022 assumes that operations will continue during the
year without any major interruptions related to COVID-19. Health protocols for control, isolation and quarantine are in
place at each of our mine sites, and these are revised and modified based on the circumstances at each location.
Mine
Silver
(Moz)
Gold
(koz)
Lead
(Mlbs)
Zinc
(Mlbs)
Cash Cost1,2
AISC1,3,4,5
5.2 - 5.8
1.0 - 1.1
SILVER
San Jose, Mexico
Caylloma, Peru
GOLD
Lindero, Argentina
Yaramoko, Burkina Faso7
CONSOLIDATED TOTAL
Notes:
1. Cash Cost and all-in sustaining cost (AISC) are non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section.
2. The most comparable financial measure to cash costs is cost of sales. Please see the consolidated financial statements of the Company for the year
(US$/t)
67.5 - 74.6
86.6 - 95.7
(US$/oz Au)
567 - 714
760 - 1,006
(US$/oz Ag Eq)
13.7 - 16.1
17.8 - 21.1
(US$/oz Au)
900 - 1,100
1,300 - 1,650
115 - 127
95 - 115
244 - 280
-
-
6.2 - 6.9
-
-
41 - 45
-
-
29 - 32
32 - 36
1.8 - 2.0
-
41 - 45
-
29 - 32
ended December 31, 2021 and the "Non-IFRS Financial Measures" section of this MD&A for a reconciliation.
3. AISC includes production cash cost, commercial and government royalties, mining tax, export duties (as applicable), worker's participation (as
applicable), subsidiary G&A, sustaining capital expenditures, and Brownfields exploration and is estimated at metal prices of US$1,700/oz Au,
US$22/oz Ag, US$2,100/t Pb, and US$2,700/t Zn. AISC excludes government mining royalty recognized as income tax within the scope of IAS-12.
4. The most comparable financial measure to AISC is cost of sales. Please see the consolidated financial statements of the Company for the year ended
December 31, 2021 and the "Non-IFRS Financial Measures" section of this MD&A for a reconciliation.
5. Totals may not add due to rounding.
6. The following table provides the cash costs and AISC for the four operating mines for the year ended December 31, 2021 as follows:
Mine
Cash Cost(a)
AISC(a)(b)(c)
SILVER
San Jose, Mexico
Caylloma, Peru
GOLD
Lindero, Argentina
Yaramoko, Burkina Faso
CONSOLIDATED TOTAL
(US$/t)
75.80
88.41
(US$/oz Ag Eq)
14.38
18.94
(US$/oz Au)
(US$/oz Au)
617
739
1,116
1,317
(a) Cash Cost and AISC are non-IFRS financial measures. Refer to "Non-IFRS Financial Measures" section.
(b) Presented on a cash basis
(c) Silver equivalent was calculated using the realized prices for gold (US$1,783 per ounce), silver (US$25.80 per ounce), lead (US$0.98 per pound) and
zinc (US$1.31 per pound) for the year ended December 31, 2021
(d) Further details on the cash costs and AISC for the year ended December 31, 2021 are disclosed in the "Non-IFRS Financial Measures" section
(e) The estimated increase in all in sustaining costs at Yaramoko for 2022 is due to decreased estimated gold ounce production coupled with increased
operating and capital costs as mining moves to the deeper regions of the underground mine
7. The Yaramoko Mine was acquired as part of the Transaction with Roxgold. Operating and financial results for the year ended December 31, 2021 are
for the period from July 2, 2021 to December 31, 2021.
Lindero Mine, Argentina
The Lindero Mine is expected to place 6.2 million tonnes of ore on the leach pad averaging 0.80 g/t Au, containing an
estimated 160,000 ounces of gold. Capital investments are estimated at $26.3 million, including $17.7 million for
sustaining capital, $7.3 million of capitalized stripping, and $1.3 million for Brownfields exploration programs.
Fortuna | 15
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Major sustaining capital investment projects include:
• Engineering and procurement for the leach pad expansion (phase 2): $4.4 million
• Mine fleet maintenance and acquisition: $6.4 million
• Maintenance of crushing, SART, and ADR plants: $1.8 million
Yaramoko Mine, Burkina Faso
At the Yaramoko Mine, the operation plans to process 516,000 tonnes of ore averaging 6.52 g/t Au. Capital investments
are estimated at US$48.4 million, including $45.9 million for sustaining capital expenditures and $2.5 million for
Brownfields exploration programs.
Major sustaining capital investment projects include:
• Mine development extending depth at the 55 Zone: $32.6 million
• Ventilation and refrigeration plant upgrade: $3.8 million
• Underground pumping station: $0.9 million
San Jose Mine, Mexico
At the San Jose Mine, the operation plans to process 1.06 million tonnes of ore averaging 176 g/t Ag and 1.09 g/t Au. Silver
production and costs reflect the declining grade profile of Mineral Reserves. Capital investment is estimated at $20.8
million, including $13.4 million for sustaining capital expenditures and $7.4 million for Brownfields exploration programs.
Major sustaining capital investment projects include:
• Underground fleet equipment acquisition: $3.7 million
• Underground mine development: $5.7 million
•
Infill drilling: $1.3 million
Caylloma Mine, Peru
At the Caylloma Mine, the operation plans to process 532,000 tonnes of ore averaging 73 g/t Ag, 2.95% Pb, and 4.23% Zn.
Capital investments are estimated at $17.7 million, including $16.3 million for sustaining capital expenditures and $1.4
million for Brownfields exploration programs.
Major sustaining capital investment projects include:
• Mine underground developments: $5.7 million
• Mine backfill system: $4.3 million
• Maintenance and energy projects: $3.5 million
Séguéla Gold Project, Côte d’Ivoire
At the end of 2021, the Séguéla Project was 29% complete with critical path items on-track, targeting first gold pour in
mid-2023 with ramp up to nameplate capacity in the third quarter of 2023. Critical path activities of "SAG Mill
Procurement and Processing Plant EPC" contracts were 30% complete at year end and are advancing in line with cost and
schedule. Connection to the national electrical grid is on-track for completion in the fourth quarter of 2022, ahead of
commissioning activities. Likewise, the tailings storage facility and water storage dam are expected to be completed
before plant commissioning and the upcoming wet season, respectively.
In 2022, the key scopes for advancement to protect the project schedule are the processing plant EPC contract and the
Mining Contract. The EPC contractor, Lycopodium, mobilized to site in the first quarter of 2022. Similarly, in the second
quarter of 2022, the Mining Services Contract is scheduled to be awarded and mobilization is anticipated to commence
Fortuna | 16
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
ahead of mining operations which is scheduled to start in the first quarter of 2023. See the section of this MD&A entitled
“Projects & Exploration - Séguéla Gold Project Update”.
2022 Exploration Outlook
Fortuna continues to advance its robust pipeline of Brownfield and Greenfield exploration projects in West Africa and the
Americas, building on the success of the exploration programs carried out in 2021.
Brownfields Exploration
Fortuna´s consolidated Brownfields exploration budget for 2022 for its four mines totals $20.0 million, which includes
113,000 meters of exploration drilling across all types (reverse circulation, diamond core, and air core), and 1,120 meters
of underground development.
San Jose Mine, Mexico
The Brownfields exploration program budget for 2022 at the San Jose Mine is $7.4 million, which includes 26,200 meters
of diamond drilling and 1,120 meters of underground development for drilling access, platforms, and services.
Séguéla Project, Côte d'Ivoire
The Brownfields exploration program budget for 2022 at the Séguéla Project is $7.2 million, which includes 48,000 meters
of exploration drilling to grow the emerging Sunbird prospect (refer to Fortuna news release dated December 9, 2021),
test for further depth extensions at Koula, Ancien and Antenna, and continued generation and testing of near-mine
targets.
Yaramoko Mine, Burkina Faso
The Brownfields exploration program budget for 2022 at the Yaramoko Mine is $2.7 million, which includes 34,000 meters
of exploration drilling, testing several surface geochemistry anomalies generated in 2021, in addition to expanding the 109
Zone and testing strike and depth projections of the 55 Zone.
Caylloma Mine, Peru
The Brownfields exploration program budget for 2022 at the Caylloma Mine is $1.4 million, with the exploration focus
turning to further understanding the region-wide controls on vein development and geometry, and the relationship to the
formation of high-grade shoots at Animas, San Cristobal and other mineralized zones.
Lindero Mine, Argentina
The Brownfields exploration program budget for 2022 at the Lindero Mine is $1.3 million, which includes 4,650 meters of
drilling on the Arizaro target located 3.5 kilometers to the southeast of the mine where encouraging results were
intersected in the 2021 programs (refer to Fortuna news release dated December 9, 2021).
Greenfields Exploration
Reconnaissance exploration and evaluation of potential new projects will continue to be actively pursued during 2022
across select jurisdictions including Mexico, West Africa, Argentina and select other jurisdictions with a budget of $8.8
million.
Fortuna | 17
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
2022 COVID-19 Outlook
(in US Dollars, tabular amounts in millions, except where noted)
In March 2020, the World Health Organization declared COVID-19 as a pandemic. In response to the pandemic,
Governments implemented measures to curb the spread of COVID-19. Government mandated measures in Argentina,
Mexico, and Peru included among others, the closure of international borders, the temporary suspension of all non-
essential business, including mining and the declaration of mandatory quarantine periods. These measures resulted in the
temporary suspension of operations at our operations in Argentina, Mexico and Peru, which impacted our production and
costs in 2020.
During 2021, there were no Government mandated suspensions of operations at any of our operations in Latin America.
However, operations in Latin America were affected by waves of COVID-19 during the year, which resulted in reduced
workforces and quarantine periods for those affected. The pandemic continued to cause difficulties and hardship in the
communities where we operate. The Company has been able to continue operations in West Africa largely unaffected
since the outbreak of COVID-19.
Health protocols are in place at each mine site for control, isolation and quarantine, as necessary, and these continue to
be reviewed and adjusted accordingly based on the circumstances at each location. The Company’s focus is the health and
safety of the workforce and on measures to prevent and manage the transmission of COVID-19 amongst the workforce
and the communities in which the Company operates.
The Company’s operations and financial performance are dependent on it being able to operate at each of its mines and
projects. Given the fast-changing situation with respect to the COVID-19 pandemic, including further waves of the virus
and the emergence of variant forms of the virus, it is difficult to predict the exact nature and extent of the impact the
pandemic may have on the Company’s operations and its business. Outbreaks of COVID-19 in areas where the Company
operates or restrictive directives of government and public health authorities could cause delays or disruptions in the
Company’s supply chain, restrict access to its mine sites, restrict its ability to transport and ship gold doré and/or metal
concentrates, restrict access to processing and refinery facilities, or impediments to market logistics. Suspensions of
operations or curtailment of commissioning activities at the Company’s mines remains a significant risk to its business and
operations.
The impacts of the COVID-19 crisis that may have an effect on the Company include: a further decrease in short-term
and/or long-term demand and/or pricing for the metals that we produce; reductions in production levels; further
increased costs resulting from our efforts to mitigate the impact of COVID-19; deterioration of worldwide credit and
financial markets that could limit our ability to obtain external financing to fund our operations and capital expenditures
and result in losses on our holdings of cash and investments due to failures of financial institutions and other parties and a
higher rate of losses on our accounts receivable due to credit defaults; restrictions may impact access to our mine sites
and affect our ability to transport and ship gold doré and or metal concentrates, restrict access to processing and refinery
facilities; cause disruptions to our supply chain; impairments and/or write-downs of assets; and adverse impacts on our
information technology systems and our internal control systems as a result of the need to increase remote work
arrangements. A material adverse effect on our employees, customers, suppliers and/or logistics providers could have a
material adverse effect on the Company.
The overall severity and duration of COVID-19-related adverse impacts on the Company’s business will depend on future
developments which cannot be predicted. Even after the COVID-19 outbreak has subsided, the Company may continue to
experience material adverse impacts to its business as a result of the global economic impact, including any related
recession, as well as lingering impacts on demand for our products.
Fortuna | 18
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
RESULTS OF OPERATIONS
Lindero Mine, Argentina
(in US Dollars, tabular amounts in millions, except where noted)
The Lindero Mine is an open pit gold mine located in Salta Province in northern Argentina. Its commercial product is gold
doré. The table below shows the key metrics used to measure the operating performance of the mine: tonnes placed on
the leach pad, grade, production and unit costs:
Three months ended December 31,
2021
2020
Years ended December 31,
2020
2021
Mine Production
Tonnes placed on the leach pad
Gold
Grade (g/t)
Production (oz)
Metal sold (oz)
Realized price ($/oz)
Unit Costs2
Cash cost ($/oz Au)1
All-in sustaining cash cost ($/oz Au)1
Capital expenditures ($000's)
Sustaining
Non-sustaining
Brownfields
1,459,513
950,000
6,453,647
1,610,000
1.04
36,072
36,389
1,802
585
994
7,214
233
389
1.13
13,435
10,935
1,853
0.96
104,161
100,177
1,785
657
-
617
1,116
1,410
-
-
27,522
323
875
1.00
13,435
10,935
1,853
657
-
1,410
-
-
1 Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures.
2 First gold was poured at Lindero in October 2020.
Quarterly and Annual Operating and Financial Highlights
During the fourth quarter of 2021 the onsite impact of COVID-19 continued to be minimal at the Lindero Mine as the site
reported 60 positive cases with no disruptions to operations. Travel restrictions were also lifted in November which led to
an improvement in lead times and onsite technical assistance from foreign vendors.
In the fourth quarter of 2021, a total of 1,459,513 tonnes of ore were placed on the heap leach pad averaging 1.04 g/t
gold, containing an estimated 48,900 ounces of gold. Total gold production was 36,072 ounces of gold. Gold production
for 2021 totaled 104,161 ounces, comprised of 99,313 ounces in doré, 730 ounces of gold contained in precipitate/sludge
and 4,118 ounces of gold-in-carbon (GIC) inventory, in the upper range of the production guidance issued on July 19, 2021.
All processing areas performed according to plan:
1,444,260 tonnes of ore crushed and placed on the leach pad via conveyor stacking during the fourth quarter, a
17% increase over the previous quarter.
Conveyor stacking averaged 16,228 tonnes per day during the fourth quarter, an increase of 21% over the
previous quarter; including 31 days of conveyor stacking throughput over 18,750 tonnes per day
The SART plant reached full design capacity of 393 cubic meters per hour in December of 2021, in line with plan
The expansion of the carbon columns at the ADR plant was successfully commissioned in the fourth quarter of
2021 and is performing according to plan
Cash cost per ounce of gold for the three and twelve months ended December 31, 2021 was $585 and $617 per ounce,
respectively.
Fortuna | 19
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
All-in sustaining cash costs per gold ounce sold was $994 during Q4 2021 and $1,116 in 2021 in line with the Company’s
updated guidance.
Total sustaining capital expenditures of $7.2 million during the quarter were primarily related to the completion of the
ADR plant expansion ($4.2 million) and capitalized striping ($2.0 million).
Yaramoko Mine, Burkina Faso
Fortuna acquired the Yaramoko Mine on July 2, 2021 as part of the Transaction with Roxgold. The Yaramoko Mine is
located in south western Burkina Faso, and began commercial production in 2016. The operation consists of two
underground mines feeding ore to a traditional gold processing facility where the ore is crushed, milled and subject to
carbon-in-leach extraction processes, prior to electrowinning and refining where gold is poured to doré bars.
Three months ended December 31,
2021
2020
Years ended December 31,
2020
2021
Mine Production
Tonnes milled
Gold
Grade (g/t)
Production (oz)
Metal sold (oz)
Realized price ($/oz)
Unit Costs
Cash cost ($/oz Au)1
All-in sustaining cash cost ($/oz Au)1
Capital expenditures ($000's)
Sustaining
Non-sustaining
Brownfields
132,188
-
258,866
6.99
28,787
29,077
1,796
754
1,436
13,520
–
47
-
-
-
-
-
-
7.13
57,538
56,571
1,789
739
1,317
-
–
-
21,387
—
138
-
-
-
-
-
-
-
-
-
-
1 Cash cost and AISC are non-IFRS financial measures. Refer to Non-IFRS Financial Measures.
2 The Yaramoko Mine was acquired as part of the Transaction with Roxgold. As such comparative figures for previous quarters and years are not
presented. Operating and financial results for the year ended December 31, 2021 are for the period from July 2, 2021 to December 31, 2021.
Quarterly and Annual Operating and Financial Highlights
The Yaramoko Mine produced 28,787 ounces of gold in the fourth quarter of 2021 with an average gold head grade of
6.99g/t; below the plan for the quarter. Total gold production for the second semester of 2021 totaled 57,538 ounces of
gold which was below guidance for the period. The production shortfall was the result of lower than planned mill feed
grade in the fourth quarter of 2021, caused by the delay in mining of several high-grade stopes and some localized grade
variability in the 55 Zone. The unmined stopes has been resequenced into the mine plan in the first quarter of 2022.
Cash cost per gold ounce sold was $754, which was above plan, primarily due to lower production during Q4 2021 and
$739 for the second semester of 2021 due to mine sequencing issues noted above.
All-in sustaining cash cost per gold ounce sold was $1,436 for Q4 2021 and $1,317 for the second semester of 2021, which
were above the Company’s updated guidance. Higher all-in sustaining cash costs were the result of lower ounces sold due
to the mine sequencing issue described.
Fortuna | 20
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Sustaining capital expenditures of $21.5 million during the second half of the year was related primarily to underground
mine development costs and construction of a ventilation raise.
San Jose Mine, Mexico
The San Jose Mine is an underground silver-gold mine located in the state of Oaxaca in southern Mexico. The following
table shows the key metrics used to measure the operating performance of the mine: throughput, head grade, recovery,
gold and silver production and unit costs:
Three months ended December 31,
2021
2020
Years ended December 31,
2020
2021
Mine Production
Tonnes milled
Average tonnes milled per day
Silver
Grade (g/t)
Recovery (%)
Production (oz)
Metal sold (oz)
Realized price ($/oz)
Gold
Grade (g/t)
Recovery (%)
Production (oz)
Metal sold (oz)
Realized price ($/oz)
Unit Costs
Production cash cost ($/t)2
Production cash cost ($/oz Ag Eq)1,2
Net smelter return ($/t)
All-in sustaining cash cost ($/oz Ag Eq)1,2
Capital expenditures ($000's)
Sustaining
Non-sustaining
Brownfields
262,802
2,920
272,179
3,024
1,041,154
2,964
934,381
2,647
219
93
1,717,533
1,729,152
23.39
206
91
1,648,816
1,721,697
24.45
209
92
6,425,029
6,433,808
25.15
224
92
6,165,606
6,225,433
21.26
1.27
92
9,929
9,983
1,797
79.66
9.35
207.57
14.92
5,137
518
2,176
1.26
91
10,095
10,594
1,875
71.48
8.75
203.80
13.33
1.29
91
39,406
39,404
1,798
75.80
9.30
210.99
14.38
1.38
91
37,805
38,391
1,786
68.79
7.63
199.22
11.56
4,022
568
1,643
14,492
2,294
8,784
10,787
942
4,406
1 Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period
respectively
2 Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to
Non-IFRS Financial Measures
Quarterly and Annual Operating and Financial Highlights
The San Jose Mine produced 1,717,533 ounces of silver and 9,929 ounces of gold during the three months ended
December 31, 2021, which represents an 4% increase and 2% decrease over the same period in 2020. The decrease in gold
production was due to lower tonnes milled.
Annual production of silver and gold totaled 6,425,029 ounces and 39,406 ounces, an increase of 4% and 4% respectively
from 2020 which was in line with the updated guidance.
Fortuna | 21
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The cash cost per tonne for the three months ended December 31, 2021 was $79.66 per tonne compared to $71.48 per
tonne in the same period in 2020 primarily due to higher indirect costs. Cash cost per tonne for the full year 2021
increased to $75.80 per tonne compared to $68.79 per tonne for 2020 due to higher mine preparation and support and
higher indirect costs.
The all-in sustaining cash cost of payable silver equivalent for the full year 2021 increased 24% to $14.38 per ounce
compared to $11.56 for the same period in 2020. The increase was primarily as a result of additional sustaining capital
expenditures and brownfields exploration costs incurred in fiscal year 2021, as production and exploration activities which
were limited in 2020 due to COVID-19. All-in sustaining cash costs for the year was in line with guidance.
Fortuna | 22
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Caylloma Mine, Peru
(in US Dollars, tabular amounts in millions, except where noted)
Caylloma is an underground silver, lead and zinc mine located in the Arequipa Department in southern Peru. Its
commercial products are silver-lead and zinc concentrates. The table below shows the key metrics used to measure the
operating performance of the mine: throughput, head grade, recovery, silver, lead and zinc production and unit costs:
Three months ended December 31,
Years ended December 31,
2020
2021
2020
Mine Production
Tonnes milled
Average tonnes milled per day
Silver
Grade (g/t)
Recovery (%)
Production (oz)
Metal sold (oz)
Realized price ($/oz)
Gold
Grade (g/t)
Recovery (%)
Production (oz)
Metal sold (oz)
Realized price ($/oz)
Lead
Grade (%)
Recovery (%)
Production (000's lbs)
Metal sold (000's lbs)
Realized price ($/lb)
Zinc
Grade (%)
Recovery (%)
Production (000's lbs)
Metal sold (000's lbs)
Realized price ($/lb)
Unit Costs
Production cash cost ($/t)2
Production cash cost ($/oz Ag Eq)1,2
Net smelter return ($/t)
All-in sustaining cash cost ($/oz Ag Eq)1,2
Capital expenditures ($000's)
Sustaining
Brownfields
2021
137,838
1,549
73
81
262,710
243,869
23.39
0.44
70
1,374
1,297
1,798
3.20
87
8,419
7,945
1.06
4.25
87
11,380
11,053
1.51
97.87
13.83
186.71
20.71
5,755
1,027
136,132
1,530
539,779
1,525
510,047
1,433
73
82
263,921
262,356
24.30
76
82
1,073,672
1,074,364
25.25
72
82
968,111
967,199
20.63
0.60
69
1,827
1,768
1,865
3.16
89
8,426
8,386
0.86
4.69
88
12,434
12,154
1.18
81.65
14.61
163.57
18.69
0.49
71
6,086
6,140
1,792
3.16
88
32,990
33,299
1.00
4.56
88
47,549
47,828
1.36
88.41
13.46
192.02
18.94
0.41
61
4,109
4,049
1,861
3.00
88
29,628
29,582
0.83
4.61
88
45,545
45,154
1.03
77.19
14.06
131.40
17.37
1,950
170
13,758
3,731
5,909
514
1 Production cash cost silver equivalent and All-in sustaining cash cost silver equivalent are calculated using realized metal prices for each period
respectively
2 Production cash cost, Production cash cost silver equivalent, and All-in sustaining cash cost silver equivalent are Non-IFRS Financial Measures, refer to
Non-IFRS Financial Measures
Fortuna | 23
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Quarterly and Annual Operating and Financial Highlights
(in US Dollars, tabular amounts in millions, except where noted)
The Caylloma Mine produced 262,710 ounces of silver, 8.4 million pounds of lead and 11.4 million pounds of zinc during
the three months ended December 31, 2021, which was inline with the same period in 2020 except for zinc which was
lower by 8% due to a lower head grade. Gold production totaled 1,374 ounces with an average head grade of 0.44 g/t.
Annual production of silver, lead and zinc for the fiscal year 2021 totaled 1,073,672 ounces, 33.0 million pounds of lead,
and 47.5 million pounds of zinc, which represent an 11% increase in silver, 11% increase in lead, and a 4% increase in zinc
production compared to 2020. Gold production for the full year 2021 totaled 6,086 ounces, which was an increase of 48%
over 2020, with an average head grade of 0.49 g/t. Production for the year was in line with guidance.
The cash cost per tonne of processed ore for the three months ended December 31, 2021 increased 20% to $97.87
compared to $81.65 in the same period in 2020. The increase was the result of higher mining costs related to shotcrete
and transportation and higher energy costs at the plant. Cash cost per tonne for the full year 2021 increased to $88.41 per
tonne compared to $76.59 per tonne for 2020 due to higher mine preparation and support and higher indirect costs
related to administration and energy.
The all-in sustaining cash cost for the three months ended December 31, 2021 increased 11% to $20.71 per ounce
compared to $18.69 per ounce for the same period in 2020. The increase was driven by higher sustaining capital
expenditures and brownfields exploration.
The all-in sustaining cash cost for the full year 2021 increased 9% to $18.94 per ounce compared to $17.37 per ounce in
2020 due to higher sustaining capital expenditures and brownfields exploration. The increase was primarily due to the
significantly decreased capital expenditures in 2020 due to COVID-19. The Caylloma Mine finished 2021 slightly below cost
guidance as a result of higher silver equivalent metal sales.
PROJECTS & EXPLORATION
Séguéla Gold Project Update
On September 29, 2021, Fortuna announced the decision to proceed with the construction of the open pit mine at the
Séguéla Gold Project in Côte d’Ivoire. The updated total initial capital investment for the project is estimated to be $173.5
million, including $11.5 million previously approved by the Board for early works items, an anticipated construction
schedule of approximately 20 months, with ramp up to name plate capacity expected in the third quarter of 2023. The
development of the Séguéla Gold Project, including the milestones noted below is based on the technical report filed
under NI 43-101 entitled “NI 43-101 Technical Report Séguéla Project, Feasibility Study, Worodougou Region, Cote
d’Ivoire”, dated May 26, 2021 with an effective April 19, 2021.
At the end of February 28, 2022, the overall project was 42% complete. The following provides an update on project
activities for the fourth quarter of 2021.
Construction Highlights
The overall project is 42% complete as of February 28, 2022
•
• Approximately $66.5 million of the $173.5 million initial capital budget accrued as of February 28, 2022
• Approximately $129.2 million committed consisting of $66.5 million accrued and $62.7 million in construction
and G&A commitments as of February 28, 2022
• Major equipment packages secured
• Major construction contracts executed
•
Tender process and selection of the preferred mining contractor completed and contract negotiations are
ongoing
Fortuna | 24
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
•
First gold pour remains on target for mid-2023
(in US Dollars, tabular amounts in millions, except where noted)
Accommodation camp
A 156-person accommodation camp is complete and ready for occupancy. Initially, this camp will support the project’s
development and house the owner’s and contractors’ construction personnel with surplus personnel residing in the
nearby town of Séguéla. The camp is approximately two kilometers from the processing plant area and is complete with
kitchen and mess, recreational facilities, water and sewage treatment plants, laundry services and high-speed internet.
The camp management contract has been tendered and awarded to Allterrain Services.
Processing plant
De Simone was awarded the process plant bulk earthworks contract and activities are ongoing with excavation for ground
improvement in the mill/carbon-in-leach circuit, thickener and crusher areas complete. Rock backfill in these areas was
completed prior to the mobilization of the engineering procurement and construction contractor on February 28, 2022.
Lycopodium was awarded the guaranteed maximum price contract for the engineering, procurement and construction of
the gold processing facility. As of December 31, 2021, engineering activities were 55% complete, procurement activities
44% complete and construction activities are on-track to commence early in the second quarter of 2022. Of note, the SAG
mill purchase order has been placed and remains on-track to be delivered to site in the third quarter of 2022. Detailed
engineering for the SAG mill is complete and manufacturing of core components such as shell, heads and trunnions and
gear and pinion has commenced.
Site Bulk Earthworks
Contracts have been awarded for the site bulk earthworks contract for the construction of the tailings storage facility
(TSF), water storage dam (WSD) and sediment control structure (SCS). Bush clearing and topsoil stripping of the TSF
footprint has been completed. Bush clearing of the WSD commenced in early January and is on-track to be completed by
the middle of the second quarter of 2022, ahead of the upcoming wet season and will be capable of storing raw water for
the commissioning, ramp-up and operation of the processing plant. Procurement of materials required for the TSF, WSD
and SCS construction is underway with the TSF high density polyethylene liner already secured and expected to be
delivered to site by the end of the first quarter of 2022.
Grid Connection
Contracts for the supply and installation of the 90 kV grid connection transmission line and 33 kV transmission line
diversion have been awarded. Likewise, contracts for the supply and construction of the substation have been awarded.
Delivery of the transmission lines tower steel started in March. Similarly, civil works for the substation also started in
March. Transformers were ready to be shipped to site in March 2022. Work is on-track to provide power to the site by the
end of the fourth quarter of 2022 ahead of commissioning activities at the processing plant.
Mining
Contract negotiations with a preferred bidder are ongoing, targeting contract execution and the placement of orders for
long lead equipment in early April 2022.
Fortuna | 25
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Cost
For the fourth quarter of 2021 the Company incurred and expended of $31.5 million and $10.9 million respectively and
$48.8 million and $26.0 million since the project early works began in the third quarter of 2021. Capital expenditures are
summarized in the table below.
(Expressed in millions)
Expended Capital Costs1
Working Capital Adjustment2
Incurred Capital Costs3
Q4 2021
19.8
11.7
31.5
2021
34.2
14.6
48.8
1 Cash basis. Excludes exploration costs.
2 Primarily consists of work performed not yet invoiced and increases in the accounts payable balance offset by increases in the VAT receivable balance.
3 Accrual basis.
As of December 31, 2021, $124.5 million of the total approved budget of $173.5 million, including $8.9 million
contingency, has been committed. Approximately $108.0 million of total commitments to date include contracts for a
guaranteed maximum price for $87.0 million, fixed price contract for $7.5 million and earthworks bill of quantity/schedule
of rates for $13.5 million, mitigating risk to volatile market conditions and price escalations. Remaining commitments
include the onboarding of key operational personnel, pre-production mining, equipment first fills and spare parts, mobile
equipment and the implementation of livelihood restoration programs.
Upcoming Milestones and Schedule
Selected upcoming milestones of the current construction schedule include:
2022 Q1
Commence construction of the processing plant
Commence construction of the power grid
2022 Q2
Award mining contract
Agree upon terms and sign Mining Convention with the State of Cote d’Ivoire
Completion of the construction of the water storage dam
Power on high voltage substation
2022 Q4
Mining contractor mobilizes to size
Completion of the construction of the tailings storage facility
Commence pre-strip of the Antenna deposit
2023 Q1
Processing plant practical completion
Mid 2023
First gold pour
Sunbird Discovery at Séguéla (refer to Company News Release dated March 15, 2022)
On March 15th, 2022 the Company announced a maiden Inferred Mineral Resource estimate for the Sunbird
discovery located at its Séguéla gold Project in Côte d´Ivoire. Fortuna estimates the Sunbird deposit contains an Inferred
Mineral Resource of 3.4 million tonnes at an average grade of 3.16 g/t Au containing 350,000 gold ounces. The Inferred
Fortuna | 26
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Mineral Resource will not materially change the existing Mineral Resource estimate at the Séguéla gold Project or impact
its current construction plan.
Séguéla Exploration Update (refer to Company News Releases dated December 9, 2021 and January 26, 2022)
Exploration drilling at the Séguéla Gold Project continued to advance the Sunbird Prospect with a 13 hole, 3,059 meter
program completed testing the continuity and tenor of mineralization at depth and along grade to the south. A follow-up
7-hole, 1,887 meter program was also completed along strike to the south to provide greater resolution of the extent of
the high grade core previously identified. With the receipt of these results, work has commenced on the preparation of a
maiden Mineral Inferred Resource for the Sunbird Prospect which is expected to be completed in the first quarter of 2022.
Boussoura Exploration Update (refer to Company News Release dated September 7, 2021)
At the Boussoura exploration project a 47-hole, 5,958-meter program has continued to advance Fofora Main infill and
extension drilling has increased the confidence in the structural controls of mineralization, with several additional high-
grade intervals returned. Scout drilling at the adjacent vein corridors to the west continues to highlight the regional
potential, with drilling on vein corridors VC4 and VC5 intersecting extensive zones of alteration and associated quartz
veining and mineralization.
Further south at Galgouli, a 12-hole, 3,419-meter program depth extension drilling on the central zone testing the
structural controls and concluded in July was successful in identifying extensions to the high-grade shoots at depth. A 32-
hole, 4,022-meter scout drilling program was also successful in identifying high-grade mineralization approximately 1
kilometer to the south and south-east of the central Galgouli zone, testing interpreted parallel structures and a possible
regional scale cross-structure.
QUARTERLY INFORMATION
The following table provides information for the last eight fiscal quarters up to December 31, 2021:
Sales
Mine operating income
Operating income (loss)
Net income (loss)
Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
47.5
7.5
1.8
(4.5)
117.8
51.3
40.4
26.4
162.6
47.3
21.8
0.2
103.5
46.7
28.2
18.6
120.5
48.5
35.9
16.2
198.9
58.3
38.9
16.6
83.4
42.1
28.5
13.1
44.5
13.8
(1.3)
(5.7)
Basic earnings (loss) per share
Diluted earnings (loss) per share
0.05
0.05
—
—
0.09
0.09
0.14
0.14
0.10
0.09
0.07
0.07
(0.03)
(0.03)
(0.03)
(0.03)
Total assets
Debt
Figures may not add due to rounding
2,021.9 2,002.1
187.7
157.5
1,083.2
159.5
1,069.1
159.0
1,055.3
158.6
987.8
133.1
959.4
132.6
957.7
187.1
Sales increased 22% in the fourth quarter of 2021 to $198.9 million compared to $162.6 million in the third quarter of
2021 due primarily to higher sales at Lindero and San Jose. Sales at Lindero increased to $65.6 million from $41.6 million,
and sales from San Jose increased to $56.7 million from $48.0 million. Operating income was 78% higher in the fourth
quarter of 2021 due primarily to an increase in gold ounces sold at Lindero and higher metal prices and the impact of the
SGM royalty settlement in the third quarter of 2021.
Sales increased 35% in the third quarter of 2021 to $162.6 million compared to $120.5 million in the second quarter of
2021 due primarily to the $49.0 million of sales from Yaramoko, higher sales at Lindero, which increased to $41.6 million
from $34.0 million, higher sales at Caylloma, which increased to $28.1 million from $26.0 million, offset partly by lower
Fortuna | 27
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
sales at San Jose, which decreased to $48.0 million from $59.0 million. Mine operating income decreased 2% in the third
quarter of 2021 due primarily to the contributions from Yaramoko, partly offset by the payment of the settlement related
to the disputed SGM royalty claim.
Sales increased 2% in the second quarter of 2021 to $120.5 million compared to $117.8 million in the first quarter of 2021
due to favorable price and assay adjustments of $1.5 million compared to unfavorable adjustments of $2.5 million during
the first quarter, higher sales at San Jose, which increased to $59.0 million from $58.0 million, higher sales at Caylloma,
which increased to $26.0 million from $25.4 million, offset partly by lower sales at Lindero, which decreased to $34.0
million from $36.9 million. Mine operating income decreased 6% in the second quarter of 2021 due primarily to San Jose,
where operating income increased to $29.0 million from $26.6 million in the first quarter of 2021.
Sales increased 14% in the first quarter of 2021 to $117.8 million compared to $103.5 million in the fourth quarter of 2020
due primarily to higher sales at Lindero, which increased to $36.9 million from $20.3 million, and sales at Caylloma, which
increased to $25.4 million from $22.2 million, offset partly by provisional pricing adjustments. Mine operating income
increased 10% in the first quarter of 2021 due primarily to Lindero, which increased to $15.2 million from $10.2 million in
the fourth quarter of 2020.
Sales increased 24% in the fourth quarter of 2020 to $103.5 million compared to $83.4 million in the third quarter of 2020
due primarily to the recognition of $20.3 million of gold sales and $10.1 million of cost of sales from commissioning
activities at Lindero Mine as the Company elected to early adopt the amendments to IAS 16, Property, Plant and
Equipment – Proceeds before Intended Use. Sales at San Jose decreased $4.2 million to $60.5 million quarter-over-quarter
due to lower volume of silver and gold sold while sales at Caylloma increased $3.9 million. Share-based payments
increased 24% to $4.5 million as the result of a 23% increase in the Company’s share price which impacts the cash-settled
share units. With construction of the Lindero Mine substantially complete, the Company ceased capitalization of interest
at the end of November 2020 and expensed $0.7 million of borrowing costs. Net income increased $5.5 million to $18.6
million over the prior quarter.
Sales increased 87% in the third quarter of 2020 to $83.4 million compared to $44.5 million in the second quarter of 2020
due to increases in the prices of silver and gold and the resumption of operations at the San Jose Mine after a 54-day
temporary suspension of the mine in the second quarter. Mine operating income more than tripled to $42.1 million
despite a 21-day temporary suspension of the Caylloma mine in July. The costs incurred during the suspension of
operations totaled $0.9 million and are reported as care and maintenance costs. Income tax expense also increased $8.8
million over the second quarter to $15.0 million due primarily to higher pre-tax profit from the San Jose Mine, which
impacted net income for the period.
Sales decreased 6% in the second quarter of 2020 to $44.5 million compared to $47.5 million in the first quarter of 2020.
The primary reason for the decrease was the 54-day government mandated temporary suspension of the San Jose Mine as
part of the Mexican Government’s response to curb the spread of COVID-19 which severely curtailed silver and gold
production by 34% and 31% despite higher silver and gold prices. The net loss included $2.0 million of care and
maintenance costs incurred during the 54-day suspension of the San Jose Mine and higher share-based payment expense,
which were partially offset by $2.2 million of investment gains from cross-border bond trades.
Fortuna | 28
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Precious Metal Prices Trends
(in US Dollars, tabular amounts in millions, except where noted)
Precious Metal Prices
2,200
2,000
1,800
1,600
1,400
1,200
1,000
35.0
30.0
25.0
20.0
15.0
10.0
LBMA Gold Price PM ($/ozt)
LBMA Silver Price ($/ozt)
For the year ended December 31, 2021, the sale of silver and gold ounces represents approximately 88% of the Company’s
sales revenue while lead and zinc make up the remaining 12%. Therefore, the prices of silver and gold are the most
dominant factors in determining the Company’s profitability and cash flow from operations. The prices of gold and silver
are subject to volatile fluctuations over short periods of time and can be affected by numerous macroeconomic
conditions, including supply and demand factors, value of the U.S. dollar, interest rates and global economic and political
issues. The Company’s financial performance is expected to continue to be closely linked to the prices of silver and gold.
The metal price environment for silver and gold has evolved during the COVID-19 pandemic. Since the start of 2021, the
gold price has decreased from a high of $1,943 per ounce in January, to a low of $1,684 in March. Following the start of
vaccinations against COVID-19 by many of the major industrialized countries in December of 2020 and continuing into
2021, the price of gold has retreated from the previous high of $2,067 per ounce reached in August 2020.
Since the start of 2021, the silver price has remained relatively stable, opening the year at $26.50 per ounce, and trading
within a range of $29.60 - $21.50 per ounce during the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
The Company had cash and cash equivalents of $107.1 million as at December 31, 2021, a decrease of $24.8 million since
the beginning of the year. The decrease was due primarily to $147.1 million of net cash generated from operations, offset
by $118.5 million of net cash used in investing activities, primarily expenditures on mineral properties, plant and
equipment offset by collections of long term VAT, and $51.4 million in financing activities related to payments of lease
obligations, repayment of debt, and the dividend payment to the Burkina Faso government from Yaramoko.
Fortuna | 29
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The Company’s investment objectives for its cash balances, in order of priority, are to preserve capital, to ensure liquidity,
and to maximize returns. The Company’s strategy to achieve these objectives is to invest its excess cash balance in a
portfolio of primarily fixed income instruments with specified credit rating targets established by the Board of Directors of
the Company. The Company does not own any asset-based commercial paper or other similar at-risk investments in its
investment portfolios.
Working Capital
Working capital at December 31, 2021 decreased $37.3 million during the year to $114.3 million, due primarily to a $24.8
million decrease in cash and cash equivalents, a $68.5 million increase in trade and other payables, a $3.5 million increase
in current lease obligations, and $1.5 million increase in current reclamation provisions, offset by a $50.5 million increase
in inventories, a $7.3 million increase in other current assets and a $3.2 million decrease in current income taxes payable.
Capital Resources
On November 4, 2021, the Company entered into a fourth amended and restated credit agreement (the “Amended Credit
Facility”) effective November 5, 2021, with a syndicate of Banks led by BNP Paribas, and including The Bank of Nova Scotia,
Bank of Montreal and Société Générale, which converted the Company’s prior non-revolving and revolving facilities with
the Bank of Nova Scotia and BNP Paribas (the “Scotiabank Facility”) into a revolving term credit facility and increased the
amount of the facility from $120.0 million to $200.0 million, subject to the conditions described below. The facility has a
term of four years and steps down to $150.0 million after three years. Interest accrues on LIBOR loans under the facility at
LIBOR plus an applicable margin of between two and three percent which varies according to the consolidated leverage
levels of the Company.
On closing of the Amended Credit Facility, $120.0 million was available for drawdown and was drawn down in full. The
total Amended Credit Facility of up to $200.0 million became available to the Company upon its receipt of the extension of
the San Jose EIA on December 20, 2021.
The Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso, and their respective direct
and indirect holding companies, have guaranteed the obligations of the Company contemplated by the Amended Credit
Facility. The Company has pledged all of its assets to secure the payment of its obligations contemplated by the Amended
Credit Facility and the Company’s principal operating subsidiaries in Mexico and Peru, as well as the direct and indirect
holding companies of the Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso,
have pledged all of their respective assets to secure their respective guarantees of such payment, including the shares of
the Company’s principal operating subsidiaries in Mexico, Peru, Côte d’Ivoire and Burkina Faso. The Company’s principal
operating subsidiary in Burkina Faso has pledged its bank accounts to secure the obligations under its guarantee.
Fortuna | 30
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The Amended Credit Facility includes covenants customary for a facility of this nature including, among other matters,
reporting requirements, and positive, negative, and financial covenants set out in therein. As at December 31, 2021, the
Company was in compliance with all of the covenants under the Amended Credit Facility.
Following the acquisition of Roxgold, the Company also assumed its credit facility, with an interest rate of LIBOR plus 4%
maturing on December 30, 2022. The Company repaid the outstanding Roxgold credit facility in the amount of $28.4
million on November 5, 2021.
As at
Cash and cash equivalents
Credit facility
Total liquidity available
Amount drawn on credit facility
Net liquidity position
Figures may not add due to rounding
December 31, 2021 December 31, 2020
131.9
120.0
251.9
(120.0)
131.9
107.1
200.0
307.1
(120.0)
187.1
Change
(24.8)
80.0
55.2
-
55.2
Given the ever evolving nature of the COVID-19 pandemic, it is difficult to predict the extent of the impact of the COVID-
19 pandemic (or any other disease, epidemic or pandemic) on the Company and its business, which will depend on future
developments, including: the duration, severity and geographic spread of the COVID-19 virus (or other communicable
disease); further actions that may be taken by governmental authorities, which could include travel restrictions and the
suspension of business activities, including mining; the effectiveness and timing of actions taken to contain and treat the
COVID-19 virus and variants or mutations thereof, including the effectiveness and uptake of vaccines; and how quickly and
to what extent normal economic conditions and operating conditions can resume. In the event of additional waves of the
virus for an unexpectedly prolonged duration, or in the event that more rigorous capital controls are implemented in
Argentina, the Company may be required to raise additional debt or equity. There is no assurance that the lenders will
agree to such a request or that financing will be available to the Company on terms acceptable to it.
The Company does not have unlimited financial resources and there is no assurance that sufficient additional funding or
financing will be available when needed by the Company or its direct and indirect subsidiaries on acceptable terms, or at
all, to further explore or develop its properties or to fulfill its obligations under any applicable agreements. Fortuna is a
multinational company and relies on financial institutions worldwide to fund corporate and project needs. Instability of
large financial institutions may impact the ability of the Company to obtain equity or debt financings in the future and, if
obtained, on terms that may not be favorable to the Company. Disruptions in the capital and credit markets as a result of
uncertainty, geo-political events, changing or increased regulations of financial institutions, reduced alternatives or
failures of significant financial institutions could adversely affect the Company’s access to the liquidity needed for the
business in the longer term.
The Company may incur substantial debt from time to time to finance working capital, capital expenditures, investments
or acquisitions or for other purposes. If the Company does so, the risks related to the Company’s indebtedness could
intensify, including: (i) increased difficulty in satisfying existing debt obligations (ii) limitations on the ability to obtain
additional financings, or imposed requirements to make non-strategic divestures (iii) impose hedging requirements (iv)
imposed restrictions on the Company’s cash flows, for debt repayments or capital expenditures (v) increased vulnerability
to general adverse economic and industry conditions (vi) interest rate risk exposure as borrowings may be at variable rates
of interest (vii) decreased flexibility in planning for and reacting to changes in the mining industry (viii) reduced
competitiveness versus less leveraged competitors, and (ix) increased cost of borrowings.
Subject to the various risks and uncertainties, as explained in the Risks and Uncertainties section, management believes
the Company’s mining operations will generate sufficient cash flows and the Company has sufficient available credit lines
and cash on hand to fund planned capital and exploration programs.
Fortuna | 31
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The Company has contingencies and capital commitments as described in Note 32 “Contingencies and Capital
Commitments” in the Company’s 2021 Financial Statements. From time to time, the Company may also be involved in
legal proceedings that arise in the ordinary course of its business.
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.
FINANCIAL INSTRUMENTS
The Company does not utilize complex financial instruments in hedging foreign exchange or interest exposure. Any
hedging activity requires approval of the Company’s Board of Directors. The Company will not hold or issue derivative
instruments for speculative or trading purposes.
Provisional priced trade receivables of $23.3 million, an interest rate swap (notional amount of $40.0 million), forward
sales, and forward foreign exchange contracts liability totaling $3.1 million, and a forward fuel contract asset of $1.6
million are the Company’s only level 2 fair valued instruments and no level 3 instruments are held.
Provisionally priced trade receivables are valued using forward London Metal Exchange prices until final prices are settled
at a future date. The interest rate swap, forward sales, and forward foreign exchange contracts liabilities are valued based
on the present value of the estimated contractual cash flows. Estimates of future cash flows are based on quoted swap
rates, futures prices and interbank borrowing rates. These are discounted using a yield curve, and adjusted for credit risk
of the Company or the counterparty.
Refer to the Risks and Uncertainties section of this MD&A for a discussion on credit risk, metal price risk, currency risk, and
interest rate risk related to these financial instruments. See note 4 (section r) and Note 30 of the 2021 Financial
Statements for a discussion of the Company’s use of financial instruments, including a description of liquidity risks
associated with such instruments.
SHARE POSITION & OUTSTANDING OPTIONS & EQUITY BASED SHARE UNITS
The Company has 291,879,557 common shares outstanding as at March 23, 2022. In addition, there were 4,012,306
outstanding equity-settled share-based awards as follows:
Incentive stock options
Restricted share units
Performance share units
Total
1,141,293
1,368,692
1,502,321
4,012,306
936,911 share-settled performance units issued by the Company in 2021 are subject to a multiplier ranging from 50% to
200% depending on the achievement level of certain performance targets.
As at December 31, 2021 the Company has $46.0 million of Debentures that are convertible at the holder’s option into
common shares in the capital of the Company at a conversion price of $5.00 per share, representing a conversion rate of
200 Common Shares per $1,000 principal amount of Debentures, subject to adjustment in certain circumstances. Subject
to certain exceptions in connection with a change of control of the Company, the Debentures cannot be redeemed by the
Company prior to October 31, 2022. Between November 1, 2022 and prior to October 31, 2023, the Debentures may be
redeemed in whole or in part from time to time at the Company’s option at a price equal to their principal amount plus
Fortuna | 32
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
accrued and unpaid interest, provided that the volume weighted average trading price of the Common Shares on the NYSE
for the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of the
redemption is given is at least 125% of the Conversion Price. On and after October 31, 2023, the Debentures may be
redeemed in whole or in part from time to time at the Company’s option at a price equal to their principal amount plus
accrued and unpaid interest regardless of the trading price of the Common Shares. The Debentures mature on October 31,
2024 and bear interest at a rate of 4.65% per annum, payable semi-annually in arrears on the last business day of April and
October, commencing on April 30, 2020. During October 2021, 12,000 Common Shares were issued for a debenture in the
aggregate principal amount of $60 thousand (sixty thousand dollars).
Subject to applicable securities laws and regulatory approval and provided that no event of default has occurred and is
continuing, the Company may, at its option, elect to satisfy its obligation to pay the principal amount of the Debentures
and accrued and unpaid interest on the redemption date and the maturity date, in whole or in part, through the issuance
of Common Shares, by issuing and delivering that number of Common Shares, obtained by dividing the principal amount
of the Debentures and all accrued and unpaid interest thereon by 95% of the current market price (as defined in the
Debenture Indenture) on such redemption date or maturity date, as applicable.
RELATED PARTY TRANSACTIONS
The Company has entered into the following related party transactions during the years ended December 31, 2021 and
2020:
(a) Purchase of Goods and Services
During the years ended December 31, 2021, and 2020, the Company was charged $5 thousand (2020: $157 thousand) for
general and administrative services pursuant to a shared services agreement with Gold Group Management Inc., a
company of which Simon Ridgway, the Company’s former Chairman, is a director. Effective February 2, 2021, Mr. Ridgway
resigned as director and Chairman of the Board, and costs associated with the shared services agreement with Gold Group
Management Inc. are no longer reported as related party transactions.
As at December 31, 2021, the Company had $nil outstanding balances payable to Gold Group Management Inc.
(December 31, 2020 - $9 thousand). Amounts due to related parties are due on demand and are unsecured.
(b) Key Management Personnel
During the year ended December 31, 2021 and 2020, the Company was charged for consulting services by Mario
Szotlender, a director of the Company and by Mill Street Services Ltd., a company of which Simon Ridgway, the Company’s
former Chairman, is a director. Effective February 2, 2021, Mr. Ridgway resigned as director and Chairman of the Board,
and costs associated incurred with Mill Street Services Ltd. are no longer reported as related party transactions. Such
amounts, along with other amounts paid to key management personnel were as follows:
(Expressed in $ thousands)
Salaries and benefits
Directors fees
Consulting fees
Share-based payments
Three months ended December 31,
2020
1,869
176
34
3,944
6,023
2021
1,609
222
24
2,052
3,907
Years ended December 31,
2021
7,639
658
78
2,565
10,940
2020
4,266
707
134
11,115
16,222
Fortuna | 33
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
NON-IFRS FINANCIAL MEASURES
(in US Dollars, tabular amounts in millions, except where noted)
The Company has disclosed certain financial measures and ratios in this MD&A which are not defined under IFRS and are
not disclosed in the 2021 Financial Statements, including but not limited to: cash cost per ounce of gold; all-in sustaining
cash cost per ounce of gold sold; all-in cash cost per ounce of gold sold; total production cash cost per tonne; cash cost per
payable ounce of silver equivalent; all-in sustaining cash cost per payable ounce of silver equivalent sold; all-in cash cost
per payable ounce of silver equivalent sold; free cash flow and free cashflow from ongoing operations; adjusted net
income; adjusted EBITDA and working capital.
These non-IFRS financial measures and non-IFRS ratios are widely reported in the mining industry as benchmarks for
performance and are used by Management to monitor and evaluate the Company's operating performance and ability to
generate cash. The Company believes that, in addition to financial measures and ratios prepared in accordance with IFRS,
certain investors use these non-IFRS financial measures and ratios to evaluate the Company’s performance. However, the
measures do not have a standardized meaning under IFRS and may not be comparable to similar financial measures
disclosed by other companies. Accordingly, non-IFRS financial measures and non-IFRS ratios should not be considered in
isolation or as a substitute for measures and ratios of the Company’s performance prepared in accordance with IFRS. The
Company has calculated these measures consistently for all periods presented.
Equivalent Ounces Sold
At our San Jose and Caylloma mines, production and sales of other metals are treated as a silver equivalent in determining
a combined precious metal production or sales unit, commonly referred to as silver equivalent ounces. Silver equivalent
ounces are calculated by converting other metal production to its silver equivalent using relative metal/silver metal prices
at realized prices and adding the converted metal production expressed in silver ounces to the ounces of silver production.
The Lindero and Yaramoko mines do not make use of an equivalent ounce sold measure as all material production is gold.
Cash Cost, All-in Sustaining Cost and All-in Cash Cost
In this MD&A, the Company has disclosed certain cash cost, AISC and all-in cash cost figures on a per unit basis, each of
which constitutes a non-IFRS measure.
Cash cost is a non-IFRS measure that is an industry-standard method of comparing certain costs on a per unit basis. Cash
costs include all direct and indirect operating cash costs related directly to the physical activities of producing metals,
including mining and processing costs, third-party refining and treatment charges, on-site general and administrative
expenses, applicable production taxes and royalties which are not based on sales or taxable income calculations , net of
by-product credits, but are exclusive of the impact of non-cash items that are included as part of the cost of sales that is
calculated in the consolidated Income Statement including depreciation and depletion, reclamation, capital, development
and exploration costs.
The most directly comparable financial measure to cash cost that is defined in IFRS and disclosed in the Company's 2021
Financial Statements is cost of sales. Unit based cash cost ratios contained in this MD&A include:
cash cost per ounce of gold sold;
total production cash cost per tonne; and
cash cost per payable ounce of silver equivalent.
All-in sustaining cost is a non-IFRS measure that includes total production cash costs incurred at the applicable mining
operation but excludes mining royalty recognized as income tax within the scope of IAS-12, as well as non-sustaining
capital expenditures. Sustaining capital expenditures, corporate selling, general and administrative expenses, and
brownfield exploration expenditures are added to the cash cost. AISC is estimated at realized metal prices. The most
Fortuna | 34
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
directly comparable financial measure to AISC that is defined in IFRS and disclosed in the Company's 2021 Financial
Statements is cost of sales. Unit based AISC ratios contained in this MD&A include:
All-in sustaining cash cost per ounce of gold sold; and
All-in sustaining cash cost per ounce of payable silver equivalent sold.
In 2020 the Company reported silver AISC on a payable silver equivalent ounce produced basis. In 2021 the Company
changed the reporting of this measure to a silver equivalent ounce sold basis.
All-in cash cost is a non-IFRS measures that is calculated consistently with AISC but is inclusive of non-sustaining capital
expenditures. The most directly comparable financial measure to AISC that is defined in IFRS and disclosed in the
Company's 2021 Financial Statements is cost of sales. Unit based AISC ratios contained in this MD&A include:
all-in cash cost per ounce of gold sold; and
all-in cash cost per payable ounce of silver equivalent sold.
In 2020 the Company reported silver AISC on a payable silver equivalent ounce produced basis. In 2021 the Company
changed the reporting of this measure to a silver equivalent ounce sold basis. The change was to better align with the
World Gold Council standard on all-in sustaining costs.
The Company, in conjunction with an initiative undertaken within the gold mining industry, has adopted AISC and all-in
sustaining cost measures based on guidance published by World Gold Council ("WGC"). The Company conforms its AISC
and all-in cash cost definitions to that set out in the guidance and the Company has presented the cash cost figures on a
sold ounce basis for all periods presented and excluded royalties that are under the scope of IAS 12 – Income Taxes, with
the change from the previously presented figures being applied retrospectively to prior periods.
Management believes that cash cost and AISC measures provide useful information regarding the Company's ability to
generate operating earnings and cash flows from its mining operations, and uses such measures to monitor the
performance of the Company's mining operations. In addition, the Company believes that each measure provides useful
information to investors in comparing, on a mine-by-mine basis, our operations relative performance on a period-by-
period basis, against our competitors operations.
To facilitate a better understanding of these measures as calculated by the Company, descriptions and reconciliations are
provided here.
Fortuna | 35
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Cash Cost per Ounce of Gold Sold
(in US Dollars, tabular amounts in millions, except where noted)
The following tables presents a reconciliation of cash cost per ounce of gold sold to the cost of sales in the 2021 Financial
Statements for the three and twelve months ended December 31, 2021 and 2020:
Lindero Mine
(Expressed in $'000's, except unit costs)
Cost of sales
Changes in doré inventory
Inventory adjustment
Export duties
Depletion and depreciation
By product credits
Production cash cost
Changes in doré inventory
Realized gain in diesel hedge
Cash cost applicable per gold ounce sold
Ounces of gold sold
Cash cost per ounce of gold sold ($/oz)
Yaramoko Mine
(Expressed in $'000's, except unit costs)
Cost of sales
Changes in doré inventory
Inventory adjustment
Export duties
Depletion and depreciation
By product credits
Production cash cost
Changes in doré inventory
Refining charges
Cash cost applicable per gold ounce sold
Ounces of gold sold
Cash cost per ounce of gold sold ($/oz)
A
B
=A/B
A
B
=A/B
2020
Three months ended
December 31,
2021
46,915
353
(1,072)
(4,891)
(19,154)
(77)
22,074
(353)
(438)
21,283
36,375
585
2020
Three months ended
December 31,
2021
42,381
719
(4,153)
(3,018)
(13,235)
(195)
22,499
(719)
133
21,913
29,077
754
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Years ended
December 31,
2021
122,889
2,066
(2,815)
(13,410)
(43,665)
(260)
64,805
(2,066)
(963)
61,776
100,137
617
2020
-
-
-
-
-
-
-
-
-
-
-
-
Years ended
December 31,
2021
80,812
1,542
(4,153)
(5,993)
(28,974)
(134)
43,100
(1,542)
271
41,829
56,571
739
2020
-
-
-
-
-
-
-
-
-
-
-
-
Fortuna | 36
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
All-in Sustaining Cash Cost and All-in Cash Cost per Ounce of Gold Sold
The following tables shows a breakdown of the all-in sustaining cash cost per ounce of gold sold and all-in cash cost per
ounce of gold sold for the three and twelve months ended December 31, 2021:
Lindero Mine
(Expressed in $'000's, except unit costs)
Cash cost applicable
Export duties and mining taxes
General and administrative expenses (operations)
Adjusted operating cash cost
Sustaining leases
Sustaining capital expenditures1
Brownfields exploration expenditures1
All-in sustaining cash cost
Non-sustaining capital expenditures1
All-in cash cost
Ounces of gold sold
All-in sustaining cash cost per ounce of gold sold
All-in cash cost per ounce of gold sold
1 Presented on a cash basis
Yaramoko Mine
(Expressed in $'000's, except unit costs)
Cash cost applicable
Inventory net realizable value adjustment
Export duties and mining taxes
General and administrative expenses (operations)
Adjusted operating cash cost
Sustaining leases
Sustaining capital expenditures1
Brownfields exploration expenditures1
All-in sustaining cash cost
All-in cash cost
Ounces of gold sold
All-in sustaining cash cost per ounce of gold sold
All-in cash cost per ounce of gold sold
1 Presented on a cash basis
2 Adjustment related to current stockpile
2020
Three months ended
December 31,
2021
21,283
4,891
1,640
27,814
752
7,214
389
36,169
233
36,402
36,375
994
1,001
-
-
-
-
-
-
-
-
-
-
-
-
-
2020
Three months ended
December 31,
2021
21,913
1,285
3,018
514
26,730
1,467
13,520
47
41,764
41,764
29,077
1,436
1,436
-
-
-
-
-
-
-
-
-
-
-
-
-
Years ended
December 31,
2021
61,776
13,410
5,643
80,829
2,548
27,522
875
111,774
323
112,097
100,137
1,116
1,119
2020
-
-
-
-
-
-
-
-
-
-
-
-
-
Years ended
December 31,
2021
41,829
1,285
5,993
953
50,060
2,934
21,387
138
74,519
74,519
56,571
1,317
1,317
2020
-
-
-
-
-
-
-
-
-
-
-
-
-
Fortuna | 37
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Production Cash Cost per Tonne and Cash Cost per Payable Ounce of Silver Equivalent Sold for the Three and Twelve
Months Ended December 31, 2021 and 2020
The following tables present a reconciliation of production cash cost per tonne and cash cost per payable ounce of silver
equivalent sold to the cost of sales in the 2021 Financial Statements for the three and twelve months ended December 31,
2021 and 2020:
Three months ended
December 31,
2021
32,705
(118)
11
(52)
(1,587)
(1,236)
(8,789)
20,934
262,802
79.66
20,934
118
(11)
52
190
1,157
22,440
San Jose Mine
2020
(Expressed in $'000's, except unit costs)
104,315
Cost of sales
(1,200)
Changes in concentrate inventory
380
Depletion and depreciation in concentrate inventory
18
Inventory adjustment
(4,289)
Royalties and mining taxes
(6,560)
Workers participation
(28,387)
Depletion and depreciation
64,277
Cash cost
934,382
Total processed ore (tonnes)
68.79
Production cash cost per tonne ($/t)
64,277
Cash cost
1,200
Changes in concentrate inventory
(380)
Depletion and depreciation in concentrate inventory
(18)
Inventory adjustment
406
Treatment charges
3,530
Refining charges
69,015
Cash cost applicable per payable ounce sold
Payable ounces of silver equivalent sold1
8,902,680 9,044,605
Cash cost per ounce of payable silver equivalent sold2 ($/oz)
7.63
35.43
Mining cost per tonne
16.31
Milling cost per tonne
9.69
Indirect cost per tonne
0.97
Community relations cost per tonne
6.39
Distribution cost per tonne
Production cash cost per tonne ($/t)
68.79
1 Silver equivalent sold for Q4 2021 is calculated using a silver to gold ratio of 76.8:1 (Q4 2020: 76.7:1) and for Year 2021 is calculated using a silver to gold ratio of
71.5:1 (Year 2020: 84.0:1)
2 Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results – Sales and Realized Prices
2020
31,027
(1,477)
967
16
(1,411)
(1,501)
(8,165)
19,456
272,179
71.48
19,456
1,477
(967)
(16)
303
976
21,229
2,400,989 2,425,395
8.75
36.67
16.02
11.56
0.87
6.36
71.48
Years ended
December 31,
2021
122,756
163
32
(6)
(5,955)
(5,809)
(32,257)
78,924
1,041,154
75.80
78,924
(163)
(32)
6
(251)
4,318
82,802
9.30
38.74
16.68
13.72
4.79
1.88
75.80
9.35
37.90
16.56
16.84
5.15
3.20
79.66
A
B
=A/B
A
C
D
=C/D
Fortuna | 38
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Three months ended
December 31,
2021
18,585
939
165
(61)
(188)
(2,125)
(214)
(3,607)
13,494
137,838
97.89
13,494
(939)
(165)
61
4,629
378
17,458
Caylloma Mine
(Expressed in $'000's, except unit costs)
Cost of sales
Changes in concentrate inventory
Depletion and depreciation in concentrate inventory
Inventory adjustment
Royalties and mining taxes
Provision for community support
Workers participation
Depletion and depreciation
Cash cost
Total processed ore (tonnes)
Production cash cost per tonne ($/t)
Cash cost
Changes in concentrate inventory
Depletion and depreciation in concentrate inventory
Inventory adjustment
Treatment charges
Refining charges
Cash cost applicable per payable ounce sold
Payable ounces of silver equivalent sold1
Cash cost per ounce of payable silver equivalent sold2 ($/oz)
Mining cost per tonne
Milling cost per tonne
Indirect cost per tonne
Community relations cost per tonne
Distribution cost per tonne
Production cash cost per tonne ($/t)
1 Silver equivalent sold for Q4 2021 is calculated using a silver to gold ratio of 76.9:1 (Q4 2020: 76.8:1), silver to lead ratio of 1:22.2 pounds (Q4 2020: 1:28.2), and
silver to zinc ratio of 1:15.4 pounds (Q4 2020: 1:20.6). Year 2021 is calculated using a silver to gold ratio of 70.9:1 (Year 2020: 90.2:1), silver to lead ratio of 1:25.3
pounds (Year 2020: 1:24.9), and silver to zinc ratio of 1:18.6 pounds (Year 2020: 1:20.0)
2 Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results - Sales and Realized Prices
2020
15,475
318
(229)
(13)
(133)
-
(488)
(3,815)
11,115
136,132
81.65
11,115
(318)
229
13
5,357
410
16,806
1,261,967 1,150,047
14.61
34.89
15.62
23.21
1.57
6.36
81.65
2020
54,357
345
(2)
(13)
(523)
101
(899)
(13,994)
39,372
510,048
77.19
39,372
(345)
2
13
19,334
1,493
59,869
4,819,365 4,258,979
14.06
33.85
14.39
21.62
0.78
6.55
77.19
Years ended
December 31,
2021
67,917
297
61
(61)
(345)
(2,125)
(1,838)
(16,182)
47,724
539,779
88.41
47,724
(297)
(61)
61
15,754
1,670
64,851
13.83
42.02
16.27
29.45
7.96
2.18
97.87
13.46
34.71
15.34
29.49
7.77
1.10
88.41
A
B
=A/B
A
C
D
=C/D
Fortuna | 39
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
All-in Sustaining Cash Cost and All-in Cash Cost per Payable Ounce of Silver Equivalent Sold
The following tables show a breakdown of the all-in sustaining cash cost per silver equivalent ounce payable for the three
and twelve months ended December 31, 2021 and 2020:
San Jose Mine
2020
(Expressed in $'000's, except unit costs)
Cash cost applicable
69,015
Royalties and mining taxes
4,289
Workers' participation
8,200
General and administrative expenses (operations)
6,027
Adjusted operating cash cost
87,531
Care and maintenance costs (impact of COVID-19)
1,568
Sustaining leases
251
Sustaining capital expenditures3
10,787
Brownfields exploration expenditures3
4,406
All-in sustaining cash cost
104,543
Non-sustaining capital expenditures3
942
All-in cash cost
105,485
Payable ounces of silver equivalent sold1
9,044,605
All-in sustaining cash cost per ounce of payable silver equivalent sold2
11.56
All-in cash cost per ounce of payable silver equivalent sold2
11.66
1 Silver equivalent sold for Q4 2021 is calculated using a silver to gold ratio of 76.8:1 (Q4 2020: 76.7:1) and for Year 2021 is calculated using a silver to gold ratio of
71.5:1 (Year 2020: 84.0:1)
2 Silver equivalent is calculated using the realized prices for gold and silver. Refer to Financial Results - Sales and Realized Prices
3 Presented on a cash basis
Three months ended
December 31,
2021
22,440
1,587
1,545
2,779
28,351
-
161
5,137
2,176
35,825
518
36,343
2,400,989
14.92
15.14
Years ended
December 31,
2021
82,802
5,955
7,261
8,111
104,129
-
608
14,492
8,784
128,013
2,294
130,307
8,902,680
14.38
14.64
2020
21,229
1,411
1,876
2,086
26,602
-
63
4,022
1,643
32,330
568
32,898
2,425,395
13.33
13.56
Caylloma Mine
2020
(Expressed in $'000's, except unit costs)
59,869
Cash cost applicable
523
Royalties and mining taxes
1,036
Workers' participation
3,520
General and administrative expenses (operations)
64,948
Adjusted operating cash cost
2,626
Sustaining leases
Sustaining capital expenditures3
5,909
Brownfields exploration expenditures3
514
73,997
All-in sustaining cash cost
73,997
All-in cash cost
Payable ounces of silver equivalent sold1
4,258,979
All-in sustaining cash cost per ounce of payable silver equivalent sold2
17.37
All-in cash cost per ounce of payable silver equivalent sold2
17.37
1 Silver equivalent sold for Q4 2021 is calculated using a silver to gold ratio of 76.9:1 (Q4 2020: 76.8:1) , silver to lead ratio of 1:22.2 pounds (Q4 2020: 1:28.2), and
silver to zinc ratio of 1:15.4 pounds (Q4 2020: 1:20.6). Year 2021 is calculated using a silver to gold ratio of 70.9:1 (Year 2020: 90.2:1), silver to lead ratio of 1:25.3
pounds (Year 2020: 1:24.9), and silver to zinc ratio of 1:18.6 pounds (Year 2020: 1:20.0)
2 Silver equivalent is calculated using the realized prices for gold, silver, lead, and zinc. Refer to Financial Results - Sales and Realized Prices
3 Presented on a cash basis
Three months ended
December 31,
2021
17,458
188
244
786
18,676
681
5,755
1,027
26,139
26,139
1,261,967
20.71
20.71
Years ended
December 31,
2021
64,851
345
2,129
3,625
70,950
2,851
13,758
3,731
91,290
91,290
4,819,365
18.94
18.94
2020
16,806
133
559
1,182
18,680
696
1,950
170
21,496
21,496
1,150,047
18.69
18.69
Free Cash Flow from Ongoing Operations
The Company uses the non-IFRS financial measure of “free cash flow from ongoing operations” to supplement information
in its consolidated financial statements.
Fortuna | 40
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Free cash flow from ongoing operations is defined as net cash provided by operating activities, including Lindero
commissioning, less sustaining capital expenditures and current income tax expense and adding back income taxes paid,
changes in long-term receivable sustaining capital expenditures, one time transaction costs, payments of lease liabilities
and other non-recurring items.
This non-IFRS measure is used by the Company and investors to measure the cash flow available to fund the Company’s
growth through investments and capital expenditures. These performance measures are intended to provide additional
information only and do not have standardized definitions under IFRS and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with IFRS. These non-IFRS measures are not necessarily
indicative of operating profits or cash flow from operations as determined under IFRS.
The following table presents a reconciliation of free cash flow from ongoing operations to net cash provided by operating
activities, the most directly comparable IFRS measure, for the three and twelve months ended December 31, 2021 and
2020:
Net cash provided by operating activities
Adjustments
Roxgold transaction costs
Change in long term receivables and assets
Additions to mineral properties, plant and equipment
Impact of adoption in IAS 16 and Production costs
Current income tax expense
Income taxes paid
Other adjustments
Free cash flow from ongoing operations
Figures may not add due to rounding
Adjusted Net Income
Three months ended December 31,
2020
31.3
2021
57.1
Years ended December 31,
2020
93.4
2021
147.1
-
0.0
(35.3)
-
(16.5)
19.1
6.4
30.9
-
0.9
(9.2)
21.9
(13.3)
5.6
(2.7)
34.5
27.9
0.0
(90.7)
-
(51.7)
62.7
1.6
97.0
-
(0.1)
(23.0)
21.9
(38.8)
28.2
(2.7)
78.9
The Company uses the non-IFRS measure of “adjusted net income” to supplement information in its consolidated financial
statements.
Adjusted net income excludes the after-tax impact of specific items that are significant, which the Company believes are
not reflective of the Company’s underlying performance for the reporting period, such as foreign exchange gains (losses)
related to the construction of the Lindero Mine, gains and losses and other one-time costs related to acquisitions,
impairment charges (reversals), and certain non-recurring items. Although some of the items are recurring, such as; loss
on disposal of assets and non-hedge derivative gains and losses, the Company believes that they are not reflective of the
underlying operating performance of its current business and are not necessarily indicative of future operating results.
Management believes that in addition to conventional measures prepared in accordance with IFRS, the Company and
certain investors and analysts use this information and information obtained from conventional IFRS measures to evaluate
the Company’s performance. However, adjusted net income does not have any standardized meaning under IFRS and may
not be comparable to similar measures presented by other companies.
Fortuna | 41
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The following table presents a reconciliation of the adjusted net income from net income, the most directly comparable
IFRS measure, for the three and twelve months ended December 31, 2021 and 2020:
Net income
Adjustments, net of tax:
Community support provision and accruals1
Foreign exchange loss, Lindero Mine2
Share of loss from associates
Investment income
Roxgold transaction costs
SGM Royalty settlement
Inventory adjustment
Accretion on right of use assets
Other non-cash/non-recurring items
Adjusted net income
1 Amounts are recorded in Cost of sales
2 Amounts are recorded in General and Administration
Figures may not add due to rounding
Three months ended December 31,
Years ended December 31,
2021
16.6
1.3
0.3
-
-
-
1.0
4.6
1.0
4.3
29.1
2020
18.6
0.2
3.2
-
-
-
-
-
-
1.0
23.0
2021
59.4
1.4
4.1
-
-
14.1
9.8
6.3
2.2
3.3
100.6
2020
21.6
0.2
11.8
0.1
(3.3)
-
-
-
-
1.4
31.8
Fortuna | 42
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Adjusted EBITDA
(in US Dollars, tabular amounts in millions, except where noted)
Adjusted EBITDA is a non-IFRS measure which is calculated as net income before interest, taxes, depreciation, and
amortization, adjusted to exclude specific items that are significant, but not reflective of the Company's underlying
operations, such as foreign exchange gains (losses) related to the construction of the Lindero Mine, gains and losses and
other one-time costs related to acquisitions, impairment charges (reversals), unrealized gains (losses) on derivatives and
certain non-recurring items, included in “Other expenses” on the Consolidated Income Statement. Other companies may
calculate Adjusted EBITDA differently.
Management believes that adjusted EBITDA provides valuable information as an indicator of the Company’s ability to
generate operating cash flow to fund working capital needs, service debt obligations and fund capital expenditures.
Adjusted EBITDA is also a common metric that provides additional information used by investors and analysts for
valuation purposes based on an observed or inferred relationship between adjusted EBITDA and market value. Adjusted
EBITDA is not meant to be a substitute for other subtotals or totals presented in accordance with IFRS measures, but that
rather should be evaluated in conjunction with IFRS measures.
The following table presents a reconciliation of Adjusted EBITDA from net income, the most directly comparable IFRS
measure, for the three and twelve months ended December 31, 2021 and 2020:
Net income
Adjustments:
Community support provision and accruals
Inventory adjustment
Foreign exchange loss, Lindero Mine
Foreign exchange loss, Séguéla Project
Net finance items
Depreciation, depletion, and amortization
Income taxes
Share of loss from associates
Investment income
Roxgold transaction costs
SGM Royalty settlement
Other non-cash/non-recurring items
Adjusted EBITDA
Figures may not add due to rounding
Qualified Person
Three months ended December 31,
2020
18.6
2021
16.6
2.1
5.3
0.3
0.2
3.7
44.8
13.5
-
-
-
-
3.1
89.6
(0.4)
-
3.2
-
0.2
13.9
9.1
-
-
-
-
0.2
44.8
Years ended December 31,
2021
59.4
1.9
7.0
4.1
0.2
12.3
122.3
47.7
-
-
14.1
9.6
2.1
280.7
2020
21.6
(0.4)
-
11.8
-
1.2
45.7
37.4
0.1
(3.3)
-
-
(1.5)
112.6
Eric Chapman, P.Geo (APEGBC #36328) is the Senior Vice-President of Technical Services for the Company and is the
Company’s Qualified Person (as defined by National Instrument 43-101–Standards of Disclosure for Mineral Projects). Mr.
Chapman has reviewed and approved the scientific and technical information contained in this MD&A and has verified the
underlying data except as noted below.
Paul Criddle, FAusIMM, Chief Operating Officer - West Africa for the Company is a Qualified Person as defined by National
Instrument 43-101-Standards of Disclosure for Mineral Projects, has reviewed and approved the scientific and technical
information pertaining to the Séguéla Project contained in this MD&A and has verified the underlying data.
Paul Weedon, Senior Vice President of Exploration for the Company, is a Qualified Person as defined by National
Instruments 43-101-Standards of Disclosure for Mineral Projects, being a member of the Australian Institute for
Fortuna | 43
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Geoscientists (Membership #6001). Mr. Weedon has reviewed and approved the scientific and technical information
pertaining to exploration results contained in this MD&A. Mr. Weedon has verified the data disclosed, and the sampling,
analytical, and test data underlying the information or opinions contained herein by reviewing geochemical and geological
databases and reviewing diamond drill core. There were no limitations to the verification process.
Other Information, 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 Company’s most recent Annual Information Form that is available at www.sedar.com and
www.sec.gov/edgar.shtml.
AMENDMENTS TO ACCOUNTING STANDARDS THAT HAVE BEEN ISSUED
In 2020, the IASB published Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and
IFRS 16) (“Phase 2 amendments”) to address the financial reporting impacts of replacing one benchmark interest rate with
an alternative rate and became effective January 1, 2021. The adoption of these amounts did not have a significant effect
on the Company’s 2021 Financial Statements.
RISKS AND UNCERTAINTIES
The Company is exposed to many risks in conducting its business, including but not limited to metal price risk as the
Company derives its revenue from the sale of silver, gold, lead and zinc; credit risk in the normal course of business;
foreign exchange risk as the Company reports its financial statements in U.S. dollars whereas the Company operates in
jurisdictions that conducts its business in other currencies; the inherent risks of uncertainties in estimating mineral
reserves and mineral resources; the risks related to the construction of an open pit gold mine at the Séguéla Gold Project
and the anticipated timing of production at the mine; operational risks related to the spread of the COVID-19 pandemic;
political risks, exchange rate and capital controls risk, environmental risks; risks related to the ability of the Company to
obtain permits for its operations, including the reconfirmation of the 12 year extension of the EIA at the San Jose mine;
and risks related to its relations with employees. These and other risks are described below and in the Company’s audited
consolidated financial statements for 2021, its Annual Information Form which is available on SEDAR at www.sedar.com,
and its Form 40-F filed with the SEC. Readers are encouraged to refer to these documents for a more detailed description
of some of the risks and uncertainties inherent to the Company’s business. Subsequent to the filing of the Annual
Information Form, the Company completed the business combination of Roxgold on July 2, 2021. While many of the risks
and uncertainties in the Company’s Annual Information Form also apply to Roxgold’s business, additional material risks
and uncertainties specific to Roxgold’s business are set out below under the sub-heading “Risks Associated with the
Roxgold Transaction”.
Foreign Jurisdiction Risk
As at the date of the MD&A, the Company currently conducts its operations in Argentina, Burkina Faso, Côte d'Ivoire,
Mexico, and Peru. All these jurisdictions are potentially subject to a number of political and economic risks, including
those described in the following section. The Company is unable to determine the impact of these risks or its future
financial position or results of operations and the Company’s exploration, development, and production activities may be
substantially affected by factors outside of the Company’s control. These potential factors include but are not limited to
royalty and tax increases or claims by governmental bodies, expropriation or nationalization, lack of an independent
judiciary, foreign exchange controls, capital and currency controls, import and export regulations, cancellation or
renegotiation of contracts, and environmental and permitting regulations. The Company has no political risk insurance
coverage against these risks
Fortuna | 44
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The majority of the Company’s production and revenue to December 31, 2021 was derived from its operations in
Argentina, Mexico, Burkina Faso and Peru. As the Company’s business is carried on in a number of developing countries, it
is exposed to a number of risks and uncertainties, including the following: expropriation or nationalization without
adequate compensation especially in Argentina which has a history of expropriation where the Company operates the
Lindero Mine; changing political and fiscal regime, including the military coup in Burkina Faso in January 2022, and
economic and regulatory instability; unanticipated changes to royalty and tax regulations; unreliable and undeveloped
infrastructure, labour unrest, and labour scarcity; difficulty procuring key equipment and components for equipment;
import and export regulation and restrictions; the imposition of capital controls which may affect the repatriation of
funds; high rates of inflation; extreme fluctuations in foreign exchange rates and the imposition of currency controls;
inability to obtain fair dispute resolution or judicial determination because of bias, corruption or abuse of power;
difficulties enforcing judgments; difficulties understanding and complying with regulatory and legal framework with
respect to ownership and maintenance of mineral properties, mines and mining operations, local opposition to mine
development projects, which include the potential for violence, property damage and frivolous or vexatious claims;
terrorism and hostage taking; military repression and increased likelihood of international conflicts or aggression;
increased public health concerns. Certain of these risks and uncertainties are prevalent in the jurisdictions where the
Company operates.
There can be no assurance that these measures will not be extended or that more restrictive measures will be put in place
in the countries in which the Company operates, which may result in the suspension of operations or construction at the
Company’s mines on a short or long-term basis.
Peru has recently undergone a period of heightened political instability. A general presidential election was held on April
11, 2021 which resulted in a run-off election on June 6, 2021 between the top two candidates. Pedro Castillo was declared
President elect on July 19, 2021 and took office on July 28, 2021. The risk exists that the new government could make
changes to the constitution or government policies that alter laws regulating the mining industry. A change in government
policy or the modification of existing laws and regulations that affect the Company’s operations could have a material
adverse impact on the Caylloma mine.
Following instability in recent years in several West African countries, the prevailing security environment in these
countries has deteriorated due to the presence of various militant secessionist and Islamist paramilitary groups, as well as
a result of the January 2022 military coup in Burkina Faso. While the Company has implemented additional measures in
response to ensure the security of its various assets, personnel and contractors, and continues to cooperate with regional
governments, their security forces and applicable third parties, there can be no assurance that these measures will be
successful.
Estimating Mineral Resources and Mineral Reserves
There is a degree of uncertainty attributable to the estimation of Mineral Resources, Mineral Reserves, and expected
mineral grades. Until mineral deposits are actually mined and processed, Mineral Resources and Mineral Reserves must
be considered as estimates only. Any such estimates are expressions of judgment based on knowledge, mining experience,
analysis of drilling results and industry practices.
Mineral Resources and Mineral Reserves may require revision based on actual production experience. Market fluctuations
in the price of metals, as well as increased production costs and reduced metallurgical recovery rates, may render certain
Mineral Reserves uneconomic and may ultimately result in a restatement of Mineral Resources and/or Mineral Reserves.
Short-term operating factors relating to the Mineral Resources and Mineral Reserves, such as the need for sequential
development of ore bodies, may adversely affect the Company’s profitability in any accounting period. Estimates of
operating costs are based on assumptions including those relating to inflation and currency exchange, which may prove
incorrect. Estimates of mineralization can be imprecise and depend upon geological interpretation and statistical
inferences drawn from drilling and sampling analysis, which may prove to be unreliable. In addition, the grade and/or
Fortuna | 45
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
quantity of precious metals ultimately recovered may differ from that indicated by drilling results. There can be no
assurance that precious metals recovered in small scale tests will be duplicated in large scale tests under onsite conditions
or in production scale. Amendments to mine plans and production profiles may be required as the amount of Mineral
Resources changes or upon receipt of further information during the implementation phase of the project. Extended
declines in market prices for gold, silver and other metals may render portions of the Company’s mineralization
uneconomic and result in reduced reported mineralization. Any material reduction in estimates of mineralization, or in the
Company’s ability to develop its properties and extract and sell such minerals, could have a material adverse effect on the
Company's results of operations or financial condition.
Mining Operations
The capital costs required by the Company’s projects may be significantly higher than anticipated. Capital and operating
costs, production and economic returns, and other estimates contained in the Company’s current technical reports, may
differ significantly from those provided for in future studies and estimates and from management guidance, and there can
be no assurance that the Company’s actual capital and operating costs will not be higher than currently anticipated. In
addition, delays to construction and exploration schedules may negatively impact the net present value and internal rates
of return of the Company’s mineral properties as set forth in the applicable technical report. Similarly, there can be no
assurance that historical rates of production, grades of ore processed, rates of recoveries or mining cash costs will not
experience fluctuations or differ significantly from current levels over the course of the mining operations. In addition,
there can be no assurance that the Company will be able to continue to extend the production from its current operations
through exploration and drilling programs.
Uncertainties related to new mining operations
Without limiting the generality of the foregoing, Fortuna is in the process of the development and construction of an open
pit mine at the Séguéla Project. Any such development or expansion project which is progressed to commercial operations
will face a number of risks inherent in new mining operations.
The successful completion of the Company’s development and expansion projects requires the construction and operation
of mines, processing plants and related infrastructure. As a result, the Company is and will continue to be subject to all of
the risks associated with establishing new mining operations, including:
•
•
•
•
•
•
•
the timing and cost, which can be considerable, of the construction of mining and processing facilities;
the availability and cost of skilled labour, mining equipment and principal supplies needed for operations;
the availability and cost of appropriate smelting and refining arrangements;
the need to maintain necessary environmental and other governmental approvals and permits;
the availability of funds to finance construction and development activities;
potential opposition from governments, non-governmental organizations, environmental groups, local groups or
other stakeholders, which may delay or prevent development activities; and
potential increases in construction and operating costs due to changes in the cost of labour, fuel, power,
materials and supplies.
It is not unusual in the mining industry for new mining operations to experience unexpected difficulties during the start-up
phase or the initial production phase, resulting in production suspensions, delays and requiring more capital than
anticipated. It is also common in new mining operations to experience unexpected problems, delays and costs during
mine development and ramp-up to full production capacity. Such factors can add to the costs of the mine development,
production and operations and/or impair production and mining activities, thereby affecting the Company’s cashflows and
profitability. Any unexpected complications and delays in the completion and successful functioning of these operational
elements may result in additional costs being incurred by the Company beyond those already incurred and budgeted.
Fortuna | 46
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
There can be no assurance that current or future development and expansion plans in respect of the Yaramoko Mine and
the Séguéla Project will be successful or completed on time or on budget.
Environmental Uncertainties
All phases of the Company’s operations are subject to environmental regulation in the various jurisdictions in which it
operates. These laws address emissions into the air, discharges into water, management of waste, management of
hazardous substances, protection of natural resources, antiquities and endangered species, and reclamation of lands
disturbed by mining operations. The Company’s operations generate chemical and metals depositions in the form of
tailings. The Company’s ability to obtain, maintain and renew permits and approvals, and to successfully develop and
operate mines may be adversely affected by real or perceived impacts associated with the Company’s activities or of other
mining companies that affect the environment, human health and safety. Environmental hazards may exist on the
Company’s properties which are unknown to the Company at present and were caused by previous or existing owners or
operators of the properties, for which the Company could be held liable.
Environmental legislation is evolving in a manner which is imposing stricter standards and enforcement, increased fines
and penalties for non-compliance, in addition to more stringent environmental assessments of proposed projects and a
heightened degree of responsibility for companies and their officers, directors and employees. Compliance with
environmental laws and regulations may require significant capital outlays on behalf of the Company and may cause
material changes or delays in the Company’s intended activities. Failure to comply with applicable environmental laws,
regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by
regulatory or judicial authorities, causing operations to cease or be curtailed. Such enforcement actions may include the
imposition of corrective measures requiring capital expenditure, installation of new equipment or remedial action. There
is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s
operations.
The activities of the Company require licences and permits from various governmental authorities. The Company currently
has been granted the requisite licences and permits to enable it to carry on its existing business and operations. On
December 20, 2021, the Company announced that SEMARNAT had granted a 12 year extension to the EIA for the San Jose
Mine. Subsequently on January 28, 2022, the Company announced that it had received a notice from SEMARNAT which
advised that SEMARNAT had made a typographical error in the extension to the term of the EIA for the San Jose Mine and
that the correct term is two years. CMC is working with authorities to resolve this matter and has initiated legal
proceedings to challenge the asserted typographical error and reconfirm the 12-year extension period for the San Jose EIA
granted by SEMARNAT. The results of the legal challenge cannot be predicted with certainty due to the uncertainty
inherent in litigation, including the difficulty of predicting decisions and the timing required to render decisions. The
process of challenging the asserted typographical error could, as a result, take away from the time and effort of the
Company’s management and could force the Company to pay substantial legal fees or penalties. Further, there can be no
assurances that the resolutions of any such matters will not have a material adverse effect on the Company’s business,
financial condition and results of operations.
In addition, there can be no assurance that the Company will be able to obtain all the necessary licences and permits
which may be required to carry out exploration, development and mining operations for its projects in the future. The
Company might find itself in situations where the state of compliance with regulation and permits can be subject to
interpretation and challenge from authorities that could carry risk of fines or temporary stoppage.
Diseases, epidemics and pandemics (including the COVID-19 pandemic) may adversely impact the Company’s
operations, financial condition and share price.
The outbreak of the COVID-19 virus was declared a global pandemic by the World Health Organization in March 2020 and
resulted in a widespread global health crisis. The international response to the spread of the COVID-19 virus has led to
Fortuna | 47
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
significant restrictions on travel, temporary business closures, mandatory quarantines, global stock market volatility,
operating and supply chain delays and disruptions, and a general reduction in consumer activity. Although a number of
restrictions are in the process of being removed, the possibility of a resurgence of the COVID-19 virus, spread of new
variants or mutations thereof, or outbreak of other communicable disease in areas in which Fortuna operates may result
in the re-imposition of certain of the foregoing restrictions and/or may result in further restrictions.
The Company’s business and operations have been and may continue to be materially affected by the COVID-19 pandemic
(or any other disease, epidemic or pandemic), including ongoing uncertainty as to the extent and duration of the
pandemic. During the year ended December 31, 2021, our operations in Latin America were impacted by the spread of the
COVID-19 virus, including variants and mutations thereof which resulted in a reduced workforce at times and quarantine
periods for those affected.
Even though the Company has and continues to implement business continuity measures to mitigate and reduce any
potential impacts of the COVID-19 pandemic, future outbreaks of the COVID-19 virus (or any other disease, epidemic or
pandemic) in the countries in which the Company operates could materially and adversely affect the domestic labour
supply, the Company’s ability to maintain a skilled workforce and the operations of the Company’s suppliers, any of which
would have an effect on the Company’s financial condition. In particular, the materialization of one or more such risks
could have a material adverse impact on the Company's producing mines or construction and development activities at
the Séguéla Project, the continued operation of the Company’s mines and exploration projects, and the Company’s ability
to transport and sell concentrates and doré.
Given the ever evolving nature of the COVID-19 pandemic, it is difficult to predict the extent of the impact of the COVID-
19 pandemic (or any other disease, epidemic or pandemic) on the Company and its business, which will depend on future
developments, including: the duration, severity and geographic spread of the COVID-19 virus (or other communicable
disease); further actions that may be taken by governmental authorities, which could include travel restrictions and the
suspension of business activities, including mining; the effectiveness and timing of actions taken to contain and treat the
COVID-19 virus and variants or mutations thereof, including the effectiveness and uptake of vaccines; and how quickly and
to what extent normal economic conditions and operating conditions can resume.
In addition, the COVID-19 pandemic has and may continue to heighten many of the other risks described in this AIF,
including: volatility in commodity prices (including gold, silver, lead and zinc); volatility in the stock markets on which the
Company’s Common Shares and Debentures are listed; and in the price of the Company’s securities, any of which could
impact the Company’s ability to raise capital or refinance the Company’s debt obligations in the future, which may have a
material adverse effect on the business, operations and financial condition of Company. Additionally, inflationary
pressures relating to global financial support measures taken in response to the COVID-19 pandemic, as well as the impact
of current supply chain challenges related to the COVID-19 pandemic, are and may continue to have both direct and
indirect impacts on the Company’s operating costs, which could have a material impact on the Company’s financial
condition and results of operations.
The Company remains focused on ensuring the health and safety of the workforce and in continuing measures to prevent
and manage transmission of COVID-19 amongst the workforce and the wider community, however there can be no
assurance that such measures will continue to be successful.
Risks Associated with the Integration of the Company and Roxgold
The completion of the business combination of Roxgold is expected to result in among other benefits, a combination of
quality assets resulting in increased gold production; a complementary and diversified portfolio of assets in West Africa
and the Americas; multiple brownfields and greenfields options across the Americas and West Africa, and a low-cost
platform of precious metals production and growth. The ability of the Company to realize the benefits of the acquisition
will depend in part on successfully consolidating functions and integrating operations, procedures and personnel in a
Fortuna | 48
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
timely and efficient manner, as well as the Company’s ability to realize the anticipated growth opportunities and synergies
from integrating Roxgold's business. This integration will require the dedication of management effort, time and resources
which may divert management's focus and resources from other strategic opportunities available to the Company, and
from operational matters during this process.
In addition, the integration process could result in the disruption of existing relationships with suppliers, employees,
customers and other constituencies of Fortuna and Roxgold. There can be no assurance that management will be able to
integrate the operations of each of the businesses successfully or achieve any of the synergies or other benefits that are
anticipated to result from the acquisition. It is possible that the integration process could result in the loss of key
employees, the disruption of the respective ongoing businesses or inconsistencies in standards, controls, procedures and
policies that adversely affect the ability of management to maintain relationships with customers, suppliers, employees or
to achieve the anticipated benefits of the acquisition. Any inability of management to successfully integrate the operations
could have a material adverse effect on the Company’s business, financial condition and results of operations.
Risks of Operating in West Africa
Certain of our operations are currently conducted in West Africa, with the Yaramoko Mine in Burkina Faso and the Séguéla
Project in Côte d’Ivoire, and as such as is common in other mining jurisdictions, the Company’s operations are exposed to
various political, economic, and other risks and uncertainties. The Company is subject to risks associated with operating in
West Africa with its Yaramoko Mine in Burkina Faso and the Séguéla Project in Côte d’Ivoire. These risks and uncertainties
include but are not limited to: civil and ethnic unrest, war (including in neighbouring countries), terrorist actions, hostage
taking or detainment of personnel, military repression, criminal activity, nationalization, invalidation of governmental
orders, failure to enforce existing laws, labour disputes, corruption, sovereign risk, political instability, the failure of
foreign parties, courts or governments to honour or enforce contractual relations or uphold property rights, changing
government regulations with respect to mining (including royalties, environmental requirements, labour, taxation, land
tenure, foreign investments, income repatriation and capital recovery), fluctuations in currency exchange and inflation
rates, import and export restrictions, the expropriation of property interests, as well as by laws and policies of Canada
affecting foreign trade, investment and taxation.
Following instability in recent years in several West African countries, the prevailing security environment in these
countries has deteriorated due to the presence of various militant secessionist and Islamist paramilitary groups, as well as
a result of the January 2022 military coupe in Burkina Faso. While the Company has implemented additional measures in
response to ensure the security of its various assets, personnel and contractors, and continues to cooperate with regional
governments, their security forces and applicable third parties, there can be no assurance that these measures will be
successful. Any failure to maintain the security of its assets, personnel and contractors may have a material adverse effect
on Company’s business, prospects, financial condition and results of operations. To date, neither our employees nor our
operations have been impacted by the security situation in Burkina Faso.
As African governments continue to struggle with deficits and depressed economies, the strength of commodity prices has
resulted in the gold mining sector being targeted as a source of revenue. Governments are continually assessing the terms
for a mining company to exploit resources in their country.
Operations may also be impacted to varying degrees by the lack of certainty with respect to foreign legal systems, which
may not be immune from the influence of political pressure, corruption, or other factors that are inconsistent with the
rule of law. Businesses can become involved in lengthy court cases over simple issues when rulings are not clearly defined,
and the poor drafting of laws and excessive delays in the legal process for resolving issues or disputes compound such
problems.
Any of the above events could delay or prevent the Company from operating, developing, or exploring its properties even
if economic quantities of minerals are found and could have a material adverse impact upon the Company’s operations.
Fortuna | 49
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Safety and Security
(in US Dollars, tabular amounts in millions, except where noted)
The Company’s Yaramoko Mine is located in Burkina Faso and the advanced exploration Séguéla Gold Project is located in
in Côte d’Ivoire. Following instability in recent years in several West African countries, the prevailing security environment
in these countries has deteriorated due to the presence of various militant secessionist and Islamist paramilitary groups.
While additional measures have been implemented in response to ensure the security of its various assets, personnel and
contractors, and the Company continues to cooperate with regional governments, their security forces and third parties,
there can be no assurance that these measures will be successful. Any failure to maintain the security of its assets,
personnel and contractors may have a material adverse effect on the Company’s business, prospects, financial condition,
and results of operations. To date, neither employees nor operations have been impacted by the security situation in
Burkina Faso.
While there is no reason to believe that the Company’s employees or operations will be targeted by criminal and/or
terrorist activities in the countries in which we operate, risks associated with conducting business in the region, along with
the increased perception that such incidents are likely to occur, may disrupt the Company’s operations, limit its ability to
hire and keep qualified personnel, and impair its access to sources of capital or insurance on terms and at rates that are
commercially viable. Furthermore, although the Company has developed procedures regarding the mitigation of such
risks, due to the unpredictable nature of criminal and/or terrorist activities, there is no assurance that its efforts will be
able to effectively mitigate such risks and safeguard the Company’s personnel and assets.
Political Risk in Burkina Faso
Following instability in recent years in several West African countries, the prevailing security environment in these
countries has deteriorated due to the presence of various militant secessionist and Islamist paramilitary groups, as well as
a result of the January 2022 military coupe in Burkina Faso. While the Company has implemented additional measures in
response to ensure the security of its various assets, personnel and contractors, and continues to cooperate with regional
governments, their security forces and applicable third parties, there can be no assurance that these measures will be
successful. Any failure to maintain the security of its assets, personnel and contractors may have a material adverse effect
on Company’s business, prospects, financial condition and results of operations. To date, neither our employees nor our
operations have been impacted by the security situation in Burkina Faso.
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. All of our trade receivables from concentrate sales are held with large international metals
trading companies.
The Company’s cash and cash equivalents and short-term investments are held through large financial institutions. These
investments mature at various dates within one year.
The Company’s maximum exposure to credit risk as at December 31, 2021 and 2020 is as follows
As at
Cash and cash equivalents
Derivative assets
Trade and other receivables
Income tax receivable
Other non-current receivables
Figures may not add due to rounding
December 31, 2021 December 31, 2020
131.9
-
76.6
-
6.4
214.9
107.1
1.6
76.5
1.7
5.9
192.8
Fortuna | 50
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The carrying amount of financial assets recorded in the financial statements represents the Company’s maximum
exposure to credit risk. We limit our exposure to counterparty credit risk on cash and term deposits by only dealing with
financial institutions with high credit ratings and through our investment policy of purchasing only instruments with a high
credit rating. Almost all of our concentrate is sold to large well-known concentrate buyers.
Metal Price Risk
The Company derives its revenue from the sale of silver, gold, lead, and zinc. The Company’s sales are directly dependent
on metal prices, and metal prices have historically shown significant volatility that is beyond the Company’s control.
The following table illustrates the sensitivity to a +/-10% change in metal prices on the Company’s outstanding trade
receivables as at December 31, 2021:
Metal
Silver
Gold
Lead
Zinc
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
Effect on Sales
1.2
0.6
0.3
0.3
From time to time, the Company mitigates the price risk associated with its base metal production by entering into
forward sale and collar contracts for some of its forecasted base metal production and non-metal commodities.
During December 2020, the Company entered into the following contracts:
•
•
•
•
•
zero-cost collars for 12,300 tonnes of zinc with a floor price of $2,600 per tonne and a cap of $2,900 per tonne,
maturing monthly from January 1, 2021 to December 31, 2021;
zero-cost collars for 720,000 gallons of heating oil with a floor price of $1.40 per gallon and a cap of $1.6150 per
gallon, maturing monthly from January 1, 2021 to December 31, 2021;
zero-cost collars for 1,680,000 gallons of jet fuel with a floor price of $1.30 per gallon and a cap of $1.4775 per
gallon, maturing monthly from January 1, 2021 to December 31, 2021;
forward swaps for 720,000 gallons of heating oil with a price of $1.52 per gallon, maturing monthly from January
1, 2022 to December 31, 2022; and
forward swaps for 1,680,000 gallons of jet fuel with a price of $1.438 per gallon, maturing monthly from January
1, 2022 to December 31, 2022.
On February 11, 2021, the Company entered into a zero-cost collars for 6,237 tonnes of lead with a floor price of $2,000
per tonne and a cap of $2,125 per tonne, maturing monthly beginning on February 1, 2021 to December 31, 2022.
During October 2021, the Company entered into the following contracts:
•
•
•
•
•
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,200 per tonne and a cap of $3,500 per tonne,
maturing from January 1, 2022 to March 31, 2022;
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,200 per tonne and a cap of $3,400 per tonne,
maturing from April 1, 2022 to June 30, 2022;
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,200 per tonne and a cap of $3,290 per tonne,
maturing from July 1, 2022 to September 30, 2022;
zero-cost collar for 1,200 tonnes of zinc with a floor price of $3,100 per tonne and a cap of $3,225 per tonne,
maturing from October 1, 2022 to December 31, 2022;
forward-swap for 1,200 tonnes of zinc with a price of $3,300 per tonne, maturing quarterly from January 1, 2022
to March 31, 2022;
Fortuna | 51
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
•
•
•
forward-swap for 1,200 tonnes of zinc with a price of $3,256 per tonne, maturing quarterly from April 1, 2022 to
June 30, 2022;
forward-swap for 1,200 tonnes of zinc with a price of $3,256 per tonne, maturing quarterly from July 1, 2022 to
September 30, 2022; and
forward-swap for 1,200 tonnes of zinc with a price of $3,175 per tonne, maturing quarterly from October 1, 2022
to December 31, 2022.
The zinc, lead, and fuel contracts are derivative financial instruments and are not accounted for as designated hedges.
They were initially recognized at fair value on the date on which the related derivative contracts were entered into and
are subsequently re-measured to estimated fair value. Any gains or losses arising from changes in the fair value of the
derivatives are credited or charged to profit or loss.
Currency Risk
The Company is exposed to fluctuations in foreign exchange rates as a portion of our expenses are incurred in Canadian
dollars, Peruvian soles, Argentine pesos, Mexican pesos, Euro, Australian dollar, and West African CFA francs. A significant
change in the foreign exchange rates between the United States dollar relative to the other currencies could have a
material effect on the Company’s profit or loss, financial position, or cash flows.
During October 2021, the Company entered into a forward contract for $18.5 million Euros with a fixed rate of 1.173
maturing monthly from January 31, 2022 to April 28, 2023, related to the construction of Séguéla.
The following table summarizes the sensitivity to a +/-10% change in foreign currency exchange rates on the Company’s
foreign currency exposure as at December 31, 2021:
Currency of foreign denominated items
Mexican pesos
Peruvian soles
Argentine pesos
Canadian dollars
West African CFA franc
Australian Dollar
Euro
Change
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 10%
+/- 10%
Effect
1.5
0.2
0.2
0.1
2.6
0.1
0.1
Due to the volatility of the exchange rate for Argentine peso, the Company is applying additional measures in cash
management to minimize potential losses arising from the conversion of funds. As discussed below in the capital
management section, the Company is required to convert the equivalent value into Argentine peso from the export sale of
all gold doré from the Lindero Mine. In addition, the Company would be required to obtain the prior consent of the
Argentine Central Bank for the payment of cash dividends and distributions of profits out of Argentina.
Fortuna | 52
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The following tables summarizes the Company’s exposure to currency risk through the following assets and liabilities
denominated in foreign currencies:
As at December 31, 2021 (In millions of local currency)
Cash and cash equivalents
Marketable securities
Restricted cash
Trade and VAT receivables
Income tax receivable
VAT - long term receivable
Trade and other payables
Provisions, current
Income tax payable
Other liabilities
Provisions, non current
Total foreign currency exposure
US$ equivalent of foreign currency exposure
Figures may not add due to rounding
Canadian
dollars
1.7
0.5
-
0.7
-
-
(3.8)
-
-
-
-
(0.9)
(0.8)
Peruvian
soles
5.5
-
-
2.1
20.7
-
(17.5)
(4.4)
-
-
-
6.4
1.7
As at December 31, 2020 (In millions of local currency)
Cash and cash equivalents
Marketable securities
Trade and VAT receivables
Income tax receivable
VAT - long term receivable
Trade and other payables
Provisions, current
Income tax payable
Other liabilities
Provisions, non current
Total foreign currency exposure
US$ equivalent of foreign currency exposure
Figures may not add due to rounding
Canadian
dollars
1.4
1.3
0.1
-
-
(17.8)
(0.1)
-
(0.2)
-
(15.3)
(12.0)
Peruvian
soles
9.7
-
3.6
6.9
-
(28.0)
0.1
(0.3)
-
(0.8)
(8.8)
(2.4)
Liquidity Risk
-
-
pesos
Argentine
Mexican
pesos
18.1
-
-
174.2
-
70.5
West
African
CFA Franc
4.3 11,494.9
-
1,167.0
1,526.5 13,433.4
-
-
(400.7) (1,174.0) (10,094.2)
-
(95.4)
-
-
-
-
-
-
261.4 16,001.1
28.5
(13.5)
(87.9)
(6.2)
(87.3)
(332.8)
(16.8)
-
-
2.7
Australian
Dollars
-
-
-
-
-
-
(0.9)
-
-
-
-
(0.9)
(0.8)
Mexican
pesos
3.1
-
108.6
-
67.5
(311.7)
(4.9)
(297.1)
(5.2)
(67.1)
(506.8)
(25.4)
Argentine
pesos
2.3
-
3,281.8
-
-
(764.3)
(77.5)
-
-
-
2,442.3
29.1
West
African
CFA
Franc
-
-
-
-
-
-
-
-
-
-
-
-
Australian
Dollars
-
-
-
-
-
-
-
-
-
-
-
-
Euro
-
-
-
-
-
-
(1.4)
-
-
-
-
(1.4)
(1.2)
Euro
-
-
-
-
-
-
-
-
-
-
-
-
Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due. We manage our
liquidity risk by continually monitoring forecasted and actual cash flows. We have in place a planning and budgeting
process to help determine the funds required to support our normal operating requirements and our development plans.
We aim to maintain sufficient liquidity to meet our short term business requirements, taking into account our anticipated
cash flows from operations, our holdings of cash and cash equivalents, and our committed and anticipated liabilities.
The Company manages its liquidity risk by continuously monitoring forecasted and actual cashflows. A rigorous reporting,
planning, and budgeting process are in place to help facilitate forecasting funding requirements, to support operations on
an ongoing basis and with expansion plans, if any. See also Liquidity and Capital Resources.
Fortuna | 53
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
As at December 31, 2021, the Company expects the following maturities of its financial liabilities, lease obligations, and
other contractual commitments, excluding payments relating to interest:
Expected payments due by year as at December 31, 2021
Less than
1 year
1 - 3 years
4 - 5 years
After
5 years
Total
133.8
-
20.6
12.3
-
66.5
1.9
235.1
-
46.0
-
11.3
3.3
5.2
5.6
71.4
-
120.0
-
2.1
-
-
24.0
146.1
-
-
-
16.0
-
-
24.7
40.7
133.8
166.0
20.6
41.7
3.3
71.7
56.2
493.3
Trade and other payables
Debt
Income taxes payable
Lease obligations
Other liabilities
Capital commitments, Séguéla
Closure and reclamation provisions
Total
Figures may not add due to rounding
Capital Management
The Company’s objective when managing its capital is to maintain its ability to continue as a going concern while at the
same time maximizing the growth of its business and providing returns to its shareholders. The Company manages its
capital structure and makes adjustments based on changes to its economic environment and the risk characteristics of the
Company’s assets.
Effective December 23, 2019, changes to Argentina’s tax laws proposed by the new Argentine Government were
implemented. The changes ratified and extended legislation which was to expire on December 31, 2019 and allow the
Argentine Central Bank to regulate funds coming into and flowing out of Argentina in order to maintain stability and
support the economic recovery of the country. The Argentine Government has not set an expiry date for these
restrictions, and they currently remain in place. These capital controls together with additional temporary controls
enacted on May 29, 2020, have the effect of: requiring exporters to convert the equivalent value of foreign currency
received from the export into Argentine Pesos; requiring the prior consent of the Argentine Central Bank to the payment
of cash dividends and distributions of currency out of Argentina; requiring Argentine companies to convert foreign
currency loans received from abroad into Argentine Pesos; and restricting the sale of Argentine Pesos for foreign currency.
The Argentine Central Bank has also issued a temporary measure in effect until June 30, 2022, which requires the consent
of the Central Bank to the repayment of certain types of intercompany loans. There can be no assurance that the
temporary measure will not be extended.
The Company’s capital requirement is effectively managed based on the Company having a thorough reporting, planning,
and forecasting process to help identify the funds required to ensure the Company is able to meet its operating and
growth objectives.
Fortuna | 54
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
The Company’s capital structure consists of equity comprising of share capital, reserves, and retained earnings as well as
debt consisting of credit facilities and convertible debentures, lease obligations less cash and cash equivalents.
As at
Equity
Debt
Lease obligations
Less: cash and cash equivalents
Figures may not add due to rounding
December 31, 2021 December 31, 2020
725.8
158.6
19.5
(131.9)
772.0
1,375.1
157.5
29.4
(107.1)
1,454.9
As discussed above, the Company operates in Argentina where the new Argentine government has ratified and extended
legislation to allow the Argentine Central Bank to regulate funds coming into and flowing out of Argentina. Other than the
restrictions related to these capital controls and complying with the debt covenants under the credit facilities, the
Company is not subject to any externally imposed capital requirements. As at December 31, 2021, the Company was in
compliance with its debt covenants. See also Liquidity and Capital Resources.
Interest Rate Risk
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. Currently, our interest rate exposure mainly relates to interest earned on our cash and
cash equivalents balances, interest paid on its LIBOR-based debt, and the mark-to-market value of derivative instruments
which depend on interest rates.
Key Personnel
The Company is dependent on a number of key management and employee personnel. The Company’s ability to manage
its exploration, development, construction, and operating activities, and hence its success, will depend in large part on the
ability to retain current personnel and attract and retain new personnel, including management, technical, and unskilled
employees. The loss of the services of one or more key management personnel, as well as a prolonged labor disruption,
could have a material adverse effect on the Company’s ability to successfully manage and expand its affairs.
Claims and Legal Proceedings
The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the normal
course of business. The Company may be subject to claims by local communities, indigenous groups, or private land
owners relating to land and mineral rights and such claimants may seek sizable monetary damages or seek the return of
surface or mineral rights that may be valuable to the Company which may significantly impact operations and profitability,
if lost. These matters are subject to various uncertainties and it is possible that some of these matters may be resolved
with an unfavorable outcome to the Company. The Company does carry liability insurance coverage, but such coverage
does not cover all risks to which the Company may be exposed to.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Many of the amounts included in the consolidated financial statements require management to make estimates,
assumptions, and judgements. These estimates, assumptions, and judgements are continuously evaluated and are based
on management’s experience and knowledge of the relevant facts and circumstances. Areas where critical accounting
estimates and assumptions have the most significant effect on the amounts recognized in the consolidated financial
statements include:
Fortuna | 55
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
Mineral Reserves and Resources and the Life of Mine Plan
The Company estimates its mineral reserves and mineral resources in accordance with the requirements of National
Instrument 43-101 Standards of Disclosure for Mineral Projects published by the Canadian Securities Administrators.
Estimates of the quantities of the mineral reserves and mineral resources form the basis for the Company’s life of mine
plans, which are used for the calculation of depletion expense under the units of production method, impairment tests,
and forecasting the timing of the payments related to the environmental rehabilitation provision.
Significant estimation is involved in determining the reserves and resources included within the Company’s life of mine
plans. Changes in forecast prices of commodities, exchange rates, production costs, or metallurgical recovery rates may
result in the Company’s life of mine plan being revised and such changes could impact depletion rates, asset carrying
values and our environmental rehabilitation provision. As at December 31, 2021, the Company used the following long-
term prices for our reserve and resource estimations: gold $1,600/oz for all mines except Séguéla which used $1,500/oz,
silver $21/oz, lead $2,000/t and zinc $2,500/t.
In addition to the estimates above, estimation is involved in determining the percentage of mineral resources ultimately
expected to be converted to mineral reserves and hence included in the Company’s life of mine plans. The Company’s life
of mine plans include a portion of inferred mineral resources as the Company believes this provides a better estimate of
the expected life of mine for certain types of deposits, in particular for vein type structures. The percentage of inferred
resources of the total tonnage included in the life of mine plans is based on site specific geological, technical, and
economic considerations. Estimation of future conversion of resources is inherently uncertain and involves judgment and
actual outcomes may vary from these judgments and estimates and such changes could have a material impact on the
financial results. Some of the key judgments of the estimation process include geological continuity, stationarity in the
grades within defined domains, reasonable geotechnical and metallurgical conditions, treatment of outlier (extreme)
values, cut-off grade determination and the establishment of geostatistical and search parameters. Revisions to these
estimates are accounted for prospectively in the period in which the change in estimate arises.
Valuation of Mineral Properties and Exploration Properties
The Company carries its mineral properties at cost less accumulated depletion and any accumulated provision for
impairment. The costs of each property and related capitalized expenditures are depleted over the economic life of the
property on a units-of-production basis. Costs are charged to the consolidated statement of income (loss) when a property
is abandoned or when there is an impairment.
The Company undertakes a review of the carrying values of mining properties and related expenditures whenever events
or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts
determined by reference to estimated future operating results and discounted net cash flows. Where previous
impairment has been recorded the Company analyzes any impairment reversal indicators. An impairment loss is
recognized when the carrying value of those assets is not recoverable. In undertaking this review, management of the
Company is required to make significant estimates of, amongst other things, future production and sales volumes, metal
prices, foreign exchange rates, mineral resource and reserve quantities, future operating and capital costs to the end of
the mine’s life, and reclamation costs. These estimates are subject to various risks and uncertainties which may ultimately
have an effect on the expected recoverability of the carrying values of the mining properties and related expenditures.
The Company, from time to time, acquires exploration and development properties. When properties are acquired, the
Company must determine the fair value attributable to each of the properties. When the Company conducts exploration
on a mineral property and the results from the exploration do not support the carrying value, the property is written down
to its new fair value which could have a material effect on the consolidated statement of financial position and the
consolidated income statement.
Fortuna | 56
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Deferred stripping costs
(in US Dollars, tabular amounts in millions, except where noted)
In determining whether stripping costs incurred during the production phase of a mining property relate to mineral
reserves that will be mined in a future period and therefore should be capitalized, the Company makes estimates of the
proportion of stripping activity which relates to extracting ore in the current period versus the proportion which relates to
obtaining access to ore reserves which will be mined in the future.
Inventory
Finished goods, work-in-process, heap leach ore, and stockpile ore are valued at the lower of the average production costs
or net realizable value. The assumptions used in the valuation of work-in process inventories include estimates of gold
contained in the ore stacked on leach pads, assumptions of the amount of gold stacked that is expected to be recovered
from the leach pads, the amount of gold in the mill circuits and assumption of the gold price expected to be realized when
the gold is recovered. If these estimates or assumptions prove to be inaccurate, the Company could be required to write-
down the recorded value of its work-in-process inventories, which would reduce the Company’s earnings and working
capital.
Reclamation and Other Closure Provisions
The Company has obligations for reclamation and other closure activities related to its mining properties. The future
obligations for mine closure activities are estimated by the Company using mine closure plans or other similar studies
which outline the requirements that will be carried out to meet the obligations. Because the obligations are dependent on
the laws and regulations of the countries in which the mines operate, the requirements could change as a result of
amendments in the laws and regulations relating to environmental protection and other legislation affecting resource
companies. As the estimate of the obligations is based on future expectations, a number of estimates and assumptions are
made by management in the determination of closure provisions.
Revenue Recognition
Revenue from the sale of concentrate to customer is recognized when the customer obtains control of the concentrate. A
provisional invoice is issued to the customer based on the monthly average metal prices on the expected date of final
settlement at which time the final sale prices will be fixed. Variations between the prices at initial recognition and final
settlement may occur due to changes in the market metal prices and result in an embedded derivative in the accounts
receivable. The embedded derivative is recorded at fair value each period until final settlement occurs with changes in the
fair value classified as revenue. For changes in metal quantities upon receipt of new information and assays, the
provisional sale quantities are adjusted.
Contingencies
Contingencies can be either possible assets or possible liabilities arising from past events which, by their nature, will only
be resolved when one or more future events not within our control occur or fail to occur. The assessment of such
contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. In
assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that
may result in such proceedings or regulatory or government actions that may negatively impact our business or
operations, the Company with assistance from its legal counsel evaluates the perceived merits of any legal proceedings or
unasserted claims or actions.
A liability is recognized in the consolidated financial statements when the outcome of the legal proceedings is probable,
and the estimated settlement amount can be estimated reliably. Contingent assets are not recognized in the consolidated
financial statements until virtually certain.
Fortuna | 57
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Fair Value Estimates in the Acquisition of Roxgold
(in US Dollars, tabular amounts in millions, except where noted)
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete.
These provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognized,
to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known,
would have affected the measurement of the amounts recognized as of that date. The measurement period ends as soon
as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition
date or learns that more information is not obtainable and shall not exceed one year from the acquisition date.
CRITICAL ACCOUNTING JUDGEMENTS IN APPLYING THE ENTITY’S ACCOUNTING POLICIES
Judgements that have the most significant effect on the amounts recognized in the Company’s consolidated financial
statements are as follows:
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial statement carrying values of
assets and liabilities and their respective income tax bases (“temporary differences”) and losses carried forward. The
determination of the ability of the Company to utilize tax loss carry-forwards to offset deferred tax liabilities requires
management to exercise judgment and make certain assumptions about the future performance of the Company.
Management is required to assess whether it is “probable” that the Company will benefit from these prior losses and
other deferred tax assets. Changes in economic conditions, metal prices and other factors could result in revisions to the
estimates of the benefits to be realized or the timing of utilization of the losses.
Assessment of Impairment and Reversal of Impairment Indicators
Management applies significant judgment in assessing whether indicators of impairment or reversal of impairment exist
for an asset or a group of assets which could result in a testing for impairment. Internal and external factors such as
significant changes in the use of the asset, commodity prices, life of mines, tax laws or regulations in the countries that our
mines operate in and interest rates are used by management in determining whether there are any indicators of
impairment or reversal of previous impairments.
As of December 31, 2021, the company determined there were indicators of impairment at the Lindero Mine due to a
decrease in operating performance relative to management’s expectations. In determining the recoverable amounts of
the Company’s mining interests, the Company makes estimates of the discounted future after-tax cash flows expected to
be derived from the Company’s mining properties, costs to sell the mining properties and the appropriate discount rate.
The projected cash flows are significantly affected by changes in assumptions related to metal selling prices, changes in
the amount of recoverable reserves, resources, and exploration potential, production cost estimates, future capital
expenditures, discount rates and exchange rates. The Company performed a test of impairment using a discount rate of
6.25% and long-term gold and copper prices of $1,650/oz and $9,356/tonne. As a result, management estimated the
recoverable amount of the Lindero Mine as at December 31, 2021, determined on a fair value less cost of disposal basis,
and concluded no impairment charge was required. However, adverse changes in any of these assumptions in future
periods may result in an impairment.
Functional Currency
The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in
which each operates. The determination of functional currency may require certain judgments to determine the primary
Fortuna | 58
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
economic environment. The Company reconsiders the functional currency used when there is a change in the events and
conditions which determined the primary economic environment.
Leases
Significant judgments made by management in the accounting for leases primarily included whether the lease conveys the
right to use a specific asset, whether the Company obtains substantially all of the economic benefits from the use of the
asset, whether the Company has the right to direct the use of the asset, evaluating the appropriate discount rate to use to
discount the lease liability for each lease or groups of assets, and to determine the lease term where a contract includes
renewal options. Significant judgments over these factors would affect the present value of the lease liabilities, as well as
the associated amount of the right-of-use (“ROU”) asset.
Value-added tax (“VAT”) receivable
Timing of collection of VAT receivables is uncertain as VAT refund procedures require a significant amount of information
and follow-up. The Company assesses the recoverability of the amounts receivable at each reporting date and the
expected timing of the recovery, which are impacted by several factors, including the status of discussions with the tax
authorities, and current interpretation of relevant VAT legislation and regulation. Changes in these judgements can
materially affect the amount recognized as VAT receivable and could result in an increase in other expenses recognized in
profit or loss and the presentation of current and non-current VAT receivable.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures have been designed to provide reasonable assurance that all material information
related to the Company is identified and communicated to management on a timely basis. Management of the Company,
under the supervision of the President and Chief Executive Officer and the Chief Financial Officer, is responsible for the
design and operation of disclosure controls and procedures in accordance with the requirements of National Instrument
52-109 of the Canadian Securities Administrators (“National Instrument 52-109”) and as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the U.S. Exchange Act).
Management’s Report on Internal Control over Financial Reporting
The Company’s internal control over financial reporting (“ICFR”) is designed to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial statements for external reporting purposes in accordance with
IFRS as issued by the International Accounting Standards Board. However, due to its inherent limitations, internal control
over financial reporting may not prevent or detect all misstatements and fraud.
Management assesses the effectiveness of the Company’s internal control over financial reporting using the Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission
(“COSO”). Management conducted an evaluation of the effectiveness of ICFR and concluded that it was effective as at
December 31, 2021.
Except for the controls over purchase price adjustments related to the acquisition, the company has limited the scope of
its ICFR and disclosure controls and procedures to exclude the controls and policies and procedures of Roxgold as allowed
by the United States Securities and Exchange Commission and Canadian Securities Administrators. The assets and
revenues of Roxgold represent 50% (inclusive of the purchase price adjustments) and 17%, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2021.
Fortuna | 59
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
Changes in Internal Control over Financial Reporting
(in US Dollars, tabular amounts in millions, except where noted)
During the year ended December 31, 2021, the Company implemented internal controls over financial reporting in
relation to the accounting for and fair value of the business combination with Roxgold.
There have been no other changes in the Company’s internal control over financial reporting during the year ended
December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
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;
production rates and forecasted production for 2022 at the Company’s properties;
cash cost estimates;
forecasted cash costs and all-in sustaining costs estimates at the Company’s mines;
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 Greenfields exploration programs including related activities and the costs and timing
thereof;
the Company’s planned capital expenditures and brownfields exploration at each of the Company’s mines;
the Company’s construction of the open pit gold mine and processing plant at the Séguéla Project (as defined
herein), and the estimated initial capital investment for the construction of the mine, the duration of the
construction schedule and the timing for the ramp up to name plate capacity;
the ability to successfully integrate the acquisition of Roxgold into the operations of the Company, and risks that
the anticipated benefits of the Roxgold acquisition will not be realized or fully realized;
undisclosed risks and liabilities relating to the acquisition of Roxgold and the loss of key employees related to
same;
the Company’s ability to manage challenges presented by COVID-19 and the impact of COVID-19 on the
Company’s business and operations, and financial condition, including the Company’s ability to operate or to
continue operating at its sites;
the effectiveness of the preventative measures and safety protocols put in place by the Company to curb the
spread of COVID-19;
•
•
•
•
• maturities of the Company’s financial liabilities, finance leases and other contractual commitments;
•
•
expiry dates of bank letters of guarantee;
the effectiveness and impact of, and Fortuna’s commitment to, the Sustainability Framework and related
disclosure, ESG policies and targets and other operational and governance policies;
complying with anti-corruption laws and internal controls;
litigation matters;
•
•
Fortuna | 60
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
•
•
estimated mine closure costs and timing; and
the Company's plans and expectations for its material properties and future exploration, development and
operating activities including, without limitation, capital expenditure and production estimates, exploration
activities and budgets, forecasts and schedule estimates, as well as their impact on the results of operations or
financial condition of the Company.
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.
The forward-looking statements in this MD&A also include financial outlooks and other forward-looking metrics relating to
Fortuna and its business, including references to financial and business prospects and future results of operations,
including production, and cost guidance and anticipated future financial performance. Such information, which may be
considered future oriented financial information or financial outlooks within the meaning of applicable Canadian securities
legislation (collectively, “FOFI”), has been approved by management of the Company and is based on assumptions which
management believes were reasonable on the date such FOFI was prepared, having regard to the industry, business,
financial conditions, plans and prospects of Fortuna and its business and properties. These projections are provided to
describe the prospective performance of the Company's business. Nevertheless, readers are cautioned that such
information is highly subjective and should not be relied on as necessarily indicative of future results and that actual
results may differ significantly from such projections. FOFI constitutes forward-looking statements and is subject to the
same assumptions, uncertainties, risk factors and qualifications as set forth below.
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:
• operational risks relating to mining and mineral processing;
•
•
•
uncertainty relating to Mineral Resource and Mineral Reserve estimates;
uncertainty relating to capital and operating costs, production schedules and economic returns;
uncertainty relating to new mining operations and development projects such as the Lindero Mine and the
Séguéla Gold Project, including the possibility that actual capital and operating costs and economic returns will
differ significantly from those estimated for such projects prior to production;
uncertainty relating to the costs of the construction, the financing of construction and timing for the completion
of the Séguéla Project;
risks relating to the Company’s ability to replace its Mineral Reserves;
risks associated with mineral exploration and project development;
uncertainty relating to the repatriation of funds as a result of currency controls;
environmental matters including maintaining, obtaining or renewing environmental permits and potential liability
claims;
uncertainty relating to nature and climate conditions;
risks associated with political instability and changes to the regulations governing the Company’s business
operations;
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;
risks associated with war, hostilities or other conflicts, such as the Ukrainian – Russian conflict, and the impact it
may have on global economic activity;
•
•
•
•
•
•
•
•
•
Fortuna | 61
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
•
•
•
•
•
•
•
•
•
•
•
•
•
•
risks relating to the termination of the Company’s mining concessions in certain circumstances;
risks related to International Labor Organization (“ILO”) Convention 169 compliance;
developing and maintaining good relationships with local communities and stakeholders;
risks associated with losing control of public perception as a result of social media and other web-based
applications;
potential opposition to the Company’s exploration, development and operational activities;
risks related to the Company’s ability to obtain adequate financing for planned exploration and development
activities;
substantial reliance on the Lindero Mine, the Yaramoko Mine and the San Jose Mine for revenues;
property title matters;
risks relating to the integration of businesses and assets acquired by the Company;
impairments;
risks associated with climate change legislation;
reliance on key personnel;
uncertainty relating to potential conflicts of interest involving the Company’s directors and officers;
risks associated with the Company’s reliance on local counsel and advisors and the experience of its management
and board of directors in foreign jurisdictions;
•
adequacy of insurance coverage;
• operational safety and security risks;
•
•
•
•
•
risks related to the Company’s compliance with the United States Sarbanes-Oxley Act;
risks related to the foreign corrupt practices regulations and anti-bribery laws;
legal proceedings and potential legal proceedings;
uncertainties relating to general economic conditions;
risks relating to a global pandemic, which until contained could continue to cause a slowdown in global economic
growth and impact the Company’s business, operations, financial condition and share price;
the duration of the COVID-19 pandemic and the impact of COVID-19 on the Company’s business, operations and
financial condition, including the Company’s ability operate or continue to operate at its sites in light of
government restrictions, and possible future suspensions of operations at the mine sites related to COVID-19;
the Company’s ability to manage the various challenges (both anticipated and not) presented by COVID-19 to its
business, operations and financial condition;
competition;
fluctuations in metal prices;
risks associated with entering into commodity forward and option contracts for base metals production;
fluctuations in currency exchange rates;
failure to meet covenants under its Credit Facilities, or an event of default which may reduce the Company’s
liquidity and adversely affect its business;
tax audits and reassessments;
risks relating to hedging;
uncertainty relating to concentrate treatment charges and transportation costs;
sufficiency of monies allotted by the Company for land reclamation;
risks associated with dependence upon information technology systems, which are subject to disruption,
damage, failure and risks with implementation and integration;
risks associated with climate change legislation;
•
• our ability to manage physical and transition risks related to climate change and successfully adapt our business
•
•
•
•
•
•
•
•
•
•
•
•
strategy to a low carbon global economy;
Fortuna | 62
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
• our plan to release climate-related goals in 2022 and the anticipated nature and effect of climate related risks;
•
risks related to the volatility of the trading price of the Company’s common shares and the Company’s
Debentures (as defined herein);
dilution from further equity or convertible debenture financings; and
risks related to future insufficient liquidity resulting from a decline in the price of the Common Shares or
Debentures;
uncertainty relating to the Company’s ability to pay dividends in the future;
risks relating to the market for the Company’s securities;
risks relating to the Debentures of the Company; and
uncertainty relating to the enforcement of U.S. judgments against the Company.
•
•
•
•
•
•
as well as those factors referred to in the “Risks and Uncertainties” section in this MD&A and in the “Risk Factors” section
in our Annual Information Form filed with the Canadian Securities Administrators and available at www.sedar.com and
filed with the U.S. Securities and Exchange Commission as part of the Company’s Form 40-F and available at
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 not to be as 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 and maintained for the
•
•
•
•
exploration, development, construction and production of its properties;
the ability to successfully integrate the operations of Roxgold into the operations of the Company;
there being no significant disruptions affecting operations, whether relating to labour, supply, power, damage to
equipment or other matter;
the world-wide economic and social impact of COVID-19 is managed, and the duration and extent of the
coronavirus pandemic is minimized or not long-term;
there being no material and negative impact to the various contractors, suppliers and subcontractors at the
Company’s mine sites as a result of the Ukrainian – Russian conflict, COVID-19 or otherwise that would impair their
ability to provide goods and services;
• permitting, construction, development, expansion, and production continuing 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;
• 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
the accuracy of the Company’s current mineral resource and reserve estimates.
•
These Forward-looking Statements are made as of the date of this MD&A. 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 are cautioned not to place undue reliance on Forward-looking
Statements. Except as required by law, the Company does not assume the obligation to revise or update these forward
looking-statements after the date of this document or to revise them to reflect the occurrence of future unanticipated
events.
Fortuna | 63
Fortuna Silver Mines Inc.
Management’s Discussion and Analysis
For the year ended December 31, 2021
(in US Dollars, tabular amounts in millions, except where noted)
CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATES OF RESERVES AND RESOURCES
The Company is a Canadian “foreign private issuer” as defined in Rule 3b-4 under the United States Securities Exchange
Act of 1934, as amended, and is permitted to prepare the technical information contained herein in accordance with the
requirements of the securities laws in effect in Canada, which differ from the requirements of the securities laws currently
in effect in the United States.
Technical disclosure regarding the Company’s properties included herein was prepared in accordance with National
Instrument 43-101 — Standards of Disclosure for Mineral Projects (“NI 43-101”). NI 43-101 is a rule developed by the
Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and
technical information concerning mineral projects. NI 43-101 differs significantly from the disclosure requirements of the
Securities and Exchange Commission (the “SEC”) generally applicable to U.S. companies. Accordingly, information
contained herein is not comparable to similar information made public by U.S. companies reporting pursuant to SEC
disclosure requirements.
Fortuna | 64
EXHIBIT 99.4
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone
Telephone
Fax
Fax
Internet
Internet
(604) 691-3000
(604) 691-3000
(604) 691-3031
(604) 691-3031
www.kpmg.ca
www.kpmg.ca
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Fortuna Silver Mines Inc.
We consent to the use of:
• our report dated March 23, 2022 on the consolidated financial statements of Fortuna Silver Mines Inc. (the
“Entity”) which comprise the consolidated statements of financial position as at December 31, 2021 and
December 31, 2020, the related consolidated statements of income, comprehensive income, cash flows, and
changes in equity for each of the years then ended, and the related notes (collectively the “consolidated
financial statements”), and
• our report dated March 23, 2022 on the effectiveness of the Entity’s internal control over financial reporting as
of December 31, 2021
each of which is included in the Annual Report on Form 40-F of the Entity for the fiscal year ended December 31,
2021.
We also consent to the incorporation by reference of such reports in the Registration Statement (No. 333-237897)
on Form F-10 of the Entity.
/s/ KPMG LLP
Chartered Professional Accountants
March 31, 2022
Vancouver, Canada
EXHIBIT 99.5
CONSENT OF ERIC CHAPMAN
CONSENT OF AUTHOR / EXPERT
I hereby consent to:
1.
the use of my name, Eric Chapman, and reference to my name, the technical report entitled “Fortuna Silver
Mines Inc.: Caylloma Mine, Caylloma District, Peru” dated effective March 8, 2019 (the “Caylloma Report”),
evaluating the Caylloma Mine of Fortuna Silver Mines Inc. (the “Company”), the technical report entitled
“Fortuna Silver Mines Inc.: San Jose Mine, Oaxaca, Mexico” dated effective February 22, 2019 (the “San
Jose Report”), evaluating the San Jose Mine of the Company, and the technical report entitled “Fortuna
Silver Mines Inc.: Lindero Property, Salta Province, Argentina” dated effective October 31, 2017, evaluating
the Lindero Property of the Company (together with the Caylloma Report and the San Jose Report, the
“Reports”), and the information contained in the Reports described or incorporated by reference in the
Company’s Annual Report on Form 40-F for the year ended December 31, 2021 filed with the United States
Securities and Exchange Commission;
2.
the use of my name, Eric Chapman, and reference to my name, and the technical information relating to
the updated Mineral Reserve and Mineral Resource estimates for the Caylloma Mine, the San Jose Mine
and the Lindero Mine contained under the heading “General Development of the Business – Three-Year
History and Recent Developments” in the Annual Information Form of the Company for the year ended
December 31, 2021 included in the Company’s Annual Report on Form 40-F for the year ended December
31, 2021 filed with the United States Securities and Exchange Commission; and
3.
the use of my name, Eric Chapman, and reference to my name, and the technical information contained in
the Annual Information Form of the Company for the year ended December 31, 2021 included in the
Company’s Annual Report on Form 40-F for the year ended December 31, 2021 filed with the United States
Securities and Exchange Commission.
Dated: March 31, 2022
“Eric Chapman”
Eric Chapman, P.Geo.
EXHIBIT 99.6
CONSENT OF AMRI SINUHAJI
CONSENT OF AUTHOR / EXPERT
I hereby consent to:
1.
the use of my name, Amri Sinuhaji, and reference to my name, the technical report entitled “Fortuna Silver
Mines Inc.: Caylloma Mine, Caylloma District, Peru” dated effective March 8, 2019 (the “Caylloma Report”),
evaluating the Caylloma Mine of Fortuna Silver Mines Inc. (the “Company”), and the technical report
entitled “Fortuna Silver Mines Inc.: San Jose Mine, Oaxaca, Mexico” dated effective February 22, 2019,
evaluating the San Jose Mine of the Company (together with the Caylloma Report, the “Reports”), and the
information contained in the Reports described or incorporated by reference in the Company’s Annual
Report on Form 40-F for the year ended December 31, 2021 filed with the United States Securities and
Exchange Commission; and
2.
the use of my name, Amri Sinuhaji, and reference to my name, and the technical information relating to
the updated Mineral Reserve and Mineral Resource estimates for the Caylloma Mine, the San Jose Mine
and the Lindero Mine contained under the heading “General Development of the Business – Three-Year
History and Recent Developments” in the Annual Information Form of the Company for the year ended
December 31, 2021 included in the Company’s Annual Report on Form 40-F for the year ended December
31, 2021 filed with the United States Securities and Exchange Commission.
Dated: March 31, 2022
“Amri Sinuhaji”
Amri Sinuhaji, P.Eng.
EXHIBIT 99.7
CONSENT OF MATTHEW COBB
CONSENT OF AUTHOR / EXPERT
I hereby consent to:
1.
the use of my name, Matthew Cobb, and reference to my name and the technical report entitled “Fortuna
Silver Mines Inc: Yaramoko Gold Mine, Burkina Faso Technical Report” dated effective December 31, 2021,
evaluating the Yaramoko Mine of the Company (the “Yaramoko Report”), and the information contained
in the Yaramoko Report described or incorporated by reference in the Company’s Annual Report on
Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission;
2.
the use of my name, Matthew Cobb, and reference to my name, and the technical information relating to
the updated Mineral Resource estimate for the Yaramoko Mine and the Séguéla Project contained under
the heading “General Development of the Business – Three-Year History and Recent Developments” in the
Annual Information Form of the Company for the year ended December 31, 2021 included in the Company’s
Annual Report on Form 40-F for the year ended December 31, 2021 filed with the United States Securities
and Exchange Commission; and
3.
the use of my name, Matthew Cobb, and reference to my name, and the technical information relating to
a maiden Mineral Resource estimate for the Sunbird discovery at the Séguéla Project contained under the
heading “Material Properties – Séguéla Project, Côte d’Ivoire” in the Annual Information Form of the
Company for the year ended December 31, 2021 included in the Company’s Annual Report on Form 40-F
for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission.
Dated: March 31, 2022
“Matthew Cobb”
Matthew Cobb, MAIG
EXHIBIT 99.8
CONSENT OF PAUL CRIDDLE
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, Paul Criddle, and reference to my name and the technical report entitled
“Fortuna Silver Mines Inc: Yaramoko Gold Mine, Burkina Faso Technical Report” dated effective December 31, 2021,
evaluating the Yaramoko Mine of the Company (the “Yaramoko Report”), and the technical report entitled “Séguéla
Project, Feasibility Study, Worodougou Region, Cote d’Ivoire”, dated effective May 26, 2021, which details the results
of a feasibility study on the Company’s Séguéla gold Project (together with the Yaramoko Report, the “Reports”) and
the information contained in the Reports described or incorporated by reference in the Company’s Annual Report
on Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission.
Dated: March 31, 2022
“Paul Criddle”
Paul Criddle, FAusIMM
EXHIBIT 99.9
CONSENT OF PAUL WEEDON
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, Paul Weedon, and reference to my name and the technical report entitled
“Fortuna Silver Mines Inc: Yaramoko Gold Mine, Burkina Faso Technical Report” dated effective December 31, 2021,
evaluating the Yaramoko Mine of the Company (the “Yaramoko Report”), and the technical report entitled “Séguéla
Project, Feasibility Study, Worodougou Region, Cote d’Ivoire”, dated effective May 26, 2021, which details the results
of a feasibility study on the Company’s Séguéla gold Project (together with the Yaramoko Report, the “Reports”) and
the information contained in the Reports described or incorporated by reference in the Company’s Annual Report
on Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission.
Dated: March 31, 2022
“Paul Weedon”
Paul Weedon, MAIG
EXHIBIT 99.10
CONSENT OF CRAIG RICHARDS
CONSENT OF AUTHOR / EXPERT
I hereby consent to:
1.
the use of my name, Craig Richards, and reference to my name and the technical report entitled “Fortuna
Silver Mines Inc: Yaramoko Gold Mine, Burkina Faso Technical Report” dated effective December 31, 2021,
evaluating the Yaramoko Mine of the Company (the “Yaramoko Report”), and the information contained
in the Yaramoko Report described or incorporated by reference in the Company’s Annual Report on
Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission; and
2.
the use of my name, Craig Richards, and reference to my name, and the technical information relating to
the updated Mineral Reserve estimate for the Yaramoko Mine contained under the heading “General
Development of the Business – Three-Year History and Recent Developments” in the Annual Information
Form of the Company for the year ended December 31, 2021 included in the Company’s Annual Report on
Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission.
Dated: March 31, 2022
“Craig Richards”
Craig Richards, P.Eng.
EXHIBIT 99.11
CONSENT OF HANS ANDERSEN
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, Hans Andersen, and reference to my name and the technical report entitled
“Séguéla Project, Feasibility Study, Worodougou Region, Cote d’Ivoire”, dated effective May 26, 2021, which details
the results of a feasibility study on the Company’s Séguéla gold Project (the “Séguéla Report”), and the information
contained in the Séguéla Report described or incorporated by reference in the Company’s Annual Report on
Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission.
Dated: March 31, 2022
“Hans Andersen”
Hans Andersen, MAIG (#5746)
EXHIBIT 99.12
CONSENT OF GEOFF BAILEY
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, Geoff Bailey, and reference to my name and the technical report entitled
“Séguéla Project, Feasibility Study, Worodougou Region, Cote d’Ivoire”, dated effective May 26, 2021, which details
the results of a feasibility study on the Company’s Séguéla gold Project (the “Séguéla Report”), and the information
contained in the Séguéla Report described or incorporated by reference in the Company’s Annual Report on
Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission.
Dated: March 31, 2022
“Geoff Bailey”
Geoff Bailey
FIEAust, CPEng, NPER-3, REPQ
EXHIBIT 99.13
CONSENT OF SHANE MCLEAY
CONSENT OF AUTHOR / EXPERT
I hereby consent to:
1.
the use of my name, Shane McLeay, and reference to my name and the technical report entitled “Séguéla
Project, Feasibility Study, Worodougou Region, Cote d’Ivoire”, dated effective May 26, 2021, which details
the results of a feasibility study on the Company’s Séguéla gold Project (the “Séguéla Report”), and the
information contained in the Séguéla Report described or incorporated by reference in the Company’s
Annual Report on Form 40-F for the year ended December 31, 2021 filed with the United States Securities
and Exchange Commission; and
2.
the use of my name, Shane McLeay, and reference to my name, and the technical information relating to
the updated Mineral Reserve estimate for the Séguéla gold Project contained under the heading “General
Development of the Business – Three-Year History and Recent Developments” in the Annual Information
Form of the Company for the year ended December 31, 2021 included in the Company’s Annual Report on
Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission.
Dated: March 31, 2022
“Shane McLeay”
Shane McLeay, FAusIMM (#222752)
EXHIBIT 99.14
CONSENT OF DAVID J.T. MORGAN
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, David J.T. Morgan, and reference to my name and the technical report
entitled “Séguéla Project, Feasibility Study, Worodougou Region, Cote d’Ivoire”, dated effective May 26, 2021, which
details the results of a feasibility study on the Company’s Séguéla gold Project (the “Séguéla Report”), and the
information contained in the Séguéla Report described or incorporated by reference in the Company’s Annual Report
on Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission.
Dated: March 31, 2022
“David J.T. Morgan”
David J.T. Morgan, MSC, MIEAust, CPEng (#974219)
EXHIBIT 99.15
CONSENT OF LYCOPODIUM MINERALS CANADA LTD.
CONSENT OF AUTHOR / EXPERT
I, Sohail Samdani, an authorized signatory of Lycopodium Minerals Canada Ltd. (the “Firm”) and a Qualified Person
as defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects, hereby consent to the use
of the Firm’s name in connection with references to the Firm’s involvement in the preparation of the technical report
entitled “Séguéla Project, Feasibility Study, Worodougou Region, Cote d’Ivoire”, dated effective May 26, 2021, which
details the results of a feasibility study on the Company’s Séguéla gold Project (the “Séguéla Report”), and the
information contained in the Séguéla Report described or incorporated by reference in the Company’s Annual Report
on Form 40-F for the year ended December 31, 2021 filed with the United States Securities and Exchange
Commission.
Dated: March 31, 2022
Lycopodium Minerals Canada Ltd.
Per: “Sohail Samdani”
Sohail Samdani, PEng
EXHIBIT 99.16
CONSENT OF GEOFF ALLARD
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, Geoff Allard, and reference to my name and the technical report entitled
“Fortuna Silver Mines Inc.: Lindero Property, Salta Province, Argentina” dated effective October 31, 2017, evaluating
the Lindero Property of the Company (the “Lindero Report”), and the information contained in the Lindero Report
described or incorporated by reference in the Company’s Annual Report on Form 40-F for the year ended December
31, 2021 filed with the United States Securities and Exchange Commission.
Dated: March 31, 2022
“Geoff Allard”
Geoff Allard, PE
EXHIBIT 99.17
CONSENT OF EDWIN GUTIERREZ
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, Edwin Gutierrez, and reference to my name, the technical report entitled
“Fortuna Silver Mines Inc.: Lindero Property, Salta Province, Argentina” dated effective October 31, 2017, evaluating
the Lindero Property of the Company (the “Lindero Report”), and the information contained in the Lindero Report
described or incorporated by reference in the Company’s Annual Report on Form 40-F for the year ended December
31, 2021 filed with the United States Securities and Exchange Commission.
Dated: March 31, 2022
“Edwin Gutierrez”
Edwin Gutierrez,
Registered Member of the Society for Mining, Metallurgy and Exploration, Inc.
EXHIBIT 99.18
CONSENT OF DENYS PARRA MURRUGARRA
CONSENT OF AUTHOR / EXPERT
I hereby consent to the use of my name, Denys Parra Murrugarra, and reference to my name and the technical report
entitled “Fortuna Silver Mines Inc.: Lindero Property, Salta Province, Argentina” dated effective October 31, 2017,
evaluating the Lindero Property of the Company (the “Lindero Report”), and the information contained in the
Lindero Report described or incorporated by reference in the Company’s Annual Report on Form 40-F for the year
ended December 31, 2021 filed with the United States Securities and Exchange Commission.
Dated: March 31, 2022
“Denys Parra Murrugarra”
Denys Parra Murrugarra,
Registered Member of the Society for Mining, Metallurgy and Exploration, Inc.
EXHIBIT 99.19
CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jorge Ganoza Durant, certify that:
1. I have reviewed this annual report on Form 40-F of Fortuna Silver Mines Inc. (the “issuer”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in this report;
4. The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the issuer’s internal control over financial reporting; and
5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the issuer’s internal control over financial reporting.
Dated: March 31, 2022
“Jorge Ganoza Durant”
Name: Jorge Ganoza Durant
Title:
President, Chief Executive Officer & Director
(principal executive officer)
EXHIBIT 99.20
CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Luis Ganoza Durant, certify that:
1. I have reviewed this annual report on Form 40-F of Fortuna Silver Mines Inc. (the “issuer”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in this report;
4. The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the issuer’s internal control over financial reporting; and
5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the issuer’s internal control over financial reporting.
Dated: March 31, 2022
“Luis Ganoza Durant”
Luis Ganoza Durant
Name:
Chief Financial Officer
Title:
(principal financial officer)
EXHIBIT 99.21
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Fortuna Silver Mines Inc. (the “Company”) on Form 40-F for the fiscal year
ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Jorge Ganoza Durant, President, Chief Executive Officer & Director of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 31, 2022
“Jorge Ganoza Durant”
Name: Jorge Ganoza Durant
Title: President, Chief Executive Officer & Director
(principal executive officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not,
except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 99.22
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Fortuna Silver Mines Inc. (the “Company”) on Form 40-F for the fiscal year
ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Luis Ganoza Durant, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 31, 2022
“Luis Ganoza Durant”
Name: Luis Ganoza Durant
Title:
Chief Financial Officer
(principal financial officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not,
except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.