Fortuna boosts reserves 404% at Caylloma mine

The Caylloma silver-lead-zinc mine in southern Peru has proven and probable reserves of 20.3 million ounces of silver — 404% more than previously estimated, Fortuna Silver Mines (FVI-V) reported today.

This year the mine in the southern highlands of Arequipa is forecast to produce 1.6 million ounces of pure silver. (In the first half of the year it produced 853,162 ounces.)

The news sent Fortuna up 5¢ or 5.6% to 95¢ per share in mid-morning trading. (The company has traded in a 52-week band of 38¢-$1.70 per share.)

Currently Caylloma operates at a production rate of 1,200 tonnes per day but the company is working on permitting to increase that to 1,500 tonnes per day.

According to the new resource figures, proven and probable reserves are estimated at 4.03 million tonnes averaging 156 grams silver per tonne, 0.55 gram gold per tonne, 1.70% lead and 2.58% zinc.

Measured and indicated resources now tally 267,470 tonnes grading 64 grams silver per tonne, 0.31 gram gold per tonne, 1.18% lead and 2.17% zinc.

Inferred mineral resources are estimated at 1.3 million tonnes averaging 187 grams silver per tonne, 0.29 gram gold per tonne, 1.92% lead and 3.25% zinc for contained silver of 7.7 million ounces.

The new resource and reserve estimate was based on all data available through Dec. 31, 2008 for all reported veins with the exception of the Bateas Vein, which includes all data through Mar. 31, 2009.

The reserve figures were calculated from the measured and indicated resource based on factors such as mining methods, mining dilution and historical operating costs.

These included mining at US$23.46 per tonne, processing at US$7.90 per tonne, power at US$3.92 per tonne, maintenance at US$1.04 per tonne, administration 83¢ per tonne, additional costs at US$4.48 per tonne and concentrate shipping costs of US$6.17 per tonne.

Operating costs totalled US$47.80 per tonne and comprise the lower net smelter return value for reserve reporting purposes. Minimum mining width was assumed at 2.1 metres for the Animas Vein and 1.0 to 1.5 metres for the narrower silver veins.

Mining dilution was estimated at 10% with the exception of the Silvia and Soledad veins where mining dilution was included at 15%.

Caylloma is a high grade epithermal vein system.

Fortuna acquired the Caylloma mine and its San Jose silver-gold project in Oaxaca, Mexico in late 2005.

San Jose is a low sulphidation epithermal system within the Taviche mining district in southern Oaxaca. A 33,000 meter in-fill drill program has been completed in the Trinidad area of the project and the company expects to release a new resource estimate by the end of the second quarter and management expects to bring a construction decision to its board by the end of the third quarter, begin construction in 2010 and begin production in 2011.

Fortuna Silver Mines was created in 2004. Its operating philosophy is to acquire advanced silver exploration projects and or producing mines in Latin America.