Fortuna discovers new vein at San Jose in Mexico after labour dispute raises costs

Fortuna Silver Mines (TSX: FVI; NYSE: FSM) says it has discovered a new vein at its San Jose mine in Mexico that indicates a different type of mineralization for the site that endured a labour strike this year.

Drill hole SJOM-1387 cut 1,299 silver equivalent grams per tonne over 9.9 metres from a depth of 301 metres, the Vancouver-based company said in a release on Tuesday. Drill hole SJOM-1391 returned 621 grams silver equivalent over 5 metres from 337 metres down hole.

The new vein, named Yessi, has a geochemical signature indicating a potentially different phase of mineralization containing a higher gold to silver ratio and low levels of base metals compared with others at the mine, Fortuna said. The mine, which shut in April during a two-week blockade for higher wages, last year produced 5.8 million oz. of silver and 34,124 oz. of gold.

“Drilling by the mine geology team recognized a new blind zone of alteration and brecciation,” Paul Weedon, senior vice president of exploration, said in the release. “Extension drilling intersected the Yessi vein approximately 200 metres further east of the Victoria mineralized zone, highlighting the potential size and strength of San Jose’s mineralized system.”

The company is continuing to drill along strike to the north and south to further define the extent of Yessi’s mineralization, Weedon said. The vein marks the easternmost limit of mineralization intersected at San Jose to date and doesn’t show at the surface.

Fortuna, which operates four other mines in Argentina, Burkina Faso, Cote d’Ivoire and Peru, reopened San Jose on May 10 after a 15-day blockade that was illegal and impacted revenue, the company said last month in second-quarter earnings. A new labour deal with the union added US$2.8 million in second-quarter expenses while stand-by charges also raised costs, Fortuna said.

Income was also hit by the closure of the underground mine at Yaramoko in Burkina Faso for 27 days in April because the tunnel near the portal failed, Fortuna said. The company paid a US$1 million penalty to local authorities. Stand-by charges at San Jose and Yaramoko amounted to US$3.5 million.

Adjusted net income for the three months to June 30 rose to US$2.9 million compared with US$2.1 million in the same period last year because of lower taxes. The increase compensated for a reduction in operating income of US$5.4 million compared with the year-ago quarter mainly because of lower output at San Jose and the Lindero mine in Argentina due to production phases there.

On the brighter side, Fortuna poured first gold at its Séguéla mine in Côte d’Ivoire in May, and last month identified high-grade mineralization at least 130 metres west of the current resource envelope at Yaramoko’s Zone 55, while drilling at the Baborigame project in Mexico intersected mineralized zones in several veins.

Shares in Fortuna Silver Mines initially rose before declining 3% to $3.97 apiece as the wider market dropped on Tuesday morning, valuing the company at $1.2 billion.