Unless otherwise indicated, the Mineral Reserves and Mineral Resources for the Companys mines and mineral projects set forth herein have
been estimated in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum definition standards on Mineral Resources and Mineral Reserves (the
CIM Standards
). The following definitions are summaries from the CIM
Standards:
United States investors are advised that the CIM Standards differ significantly from the requirements of the
Exchange Act, and Mineral Reserve and Mineral Resource information may not be comparable to similar information disclosed by United States companies. See Cautionary Note for United States Investors.
Eric Chapman, P. Geo.,
Vice President of Technical Services is a Qualified Person for Fortuna as defined by NI
43-101.
Mr. Eric Chapman has reviewed and confirmed the technical information on the Lindero Project presented in
the table above.
Minera Bateas capital and
operating cost estimates for the Caylloma Mine (summarized in the following tables) are based on 2015 costs. The analysis includes forward estimates for sustaining capital. Inflation is not included in the cost projections and exchange rates were
estimated at S/3.30 (Peruvian Soles) to US$1. Capital costs include all investments in mine development, equipment and infrastructure necessary to upgrade the mine facilities and sustain the continuity of the operation.
As disclosed in the Caylloma Technical Report, a total of US$9.39 million was budgeted for 2016 to sustain the operation. Capital costs
are split into two areas, 1) mine development and 2) equipment and infrastructure, as set out in the following table:
As disclosed in the Caylloma Technical Report, projected operating costs for 2016 included the
cash costs (US$67.47/t) and mine operating expenses (US$12.16/t) for the operation, as set out in the following table:
Compania Minera Cuzcatlan S.A. de C.V. (
Minera Cuzcatlan
) capital and operating cost estimates for 2016 for the San Jose
Mine were based on predictions of costs for 2016 and the long term. Capital costs include all investments in mine development, equipment and infrastructure necessary to upgrade the mine facilities and sustain the continuity of the operation.
Projected capital costs for 2016, as set out in the San Jose Technical Report, are summarized in the table below.
As disclosed in the San
Jose Technical Report, a total of US$37.40 million was estimated for 2016 in order to improve the mine facilities and sustain the operation. The capital costs beyond 2016 are expected to decrease significantly to ranges between
US$5 million and US$10 million annually. The capital costs are split into three areas: 1) mine development, 2) equipment and infrastructure, and (3) principal projects, as set out in the following table:
Operating costs include the site costs and other operating expenses for the operation. The site costs relate to activities that are performed
on the property including mine, plant, general services and administrative service costs. The other operating expenses include costs associated with distribution, general and administrative services and community support activities. As disclosed in
the San Jose Technical Report, projected operating costs for 2016 are set out in the following table:
Based on a mineable Proven and Probable Mineral Reserve of 3.78 million tonnes, a project life of over
four years is projected. The estimates of metal production, capital costs and operating costs are combined into the discounted cash flow evaluation. The economic evaluation is treated on a project basis using a silver price of US$19 per troy ounce
and a gold price of US$1,140 per troy ounce. Income taxes have been accounted for in the cash flow analysis.
The start date for the
economic analysis was January 1, 2016. The financial results are presented based on future metal production, operating expenses and capital expenditure to completion basis from this date. This represents the total project costs without the
production and expenditures to that date. The economic analysis is based on an annual production plan for the life of mine (
LOM
) and associated operating and capital costs. The results of the cash flow evaluation are summarized in
the following table:
It should be noted that the economic analysis is performed utilizing only Measured and Indicated Mineral Resources,
which have been converted to Proven and Probable Mineral Reserves; however, Inferred Mineral Resources which are not included in the cash flow estimate, can potentially have a positive impact on the project economics and the LOM.
Material Properties
Caylloma Mine
Property Description, Location and
Access
The Caylloma Mine is an operating underground mine located in the Caylloma mining district, 14 kilometers northwest of the
town of Caylloma at the Universal Transverse Mercator (
UTM
) grid location of 8192263E, 8321387N, (WGS84, UTM Zone 19S). The Caylloma Mine consists of mineral rights for 75 mining concessions covering a total of 35,022.24 hectares,
of which six concessions, that contain no known Mineral Resources or Mineral Reserves, are subject to an
earn-in
agreement with Buenaventura. Sixty concessions are subject to a US$60 million lien in
favour of Scotiabank Peru S.A.A. In addition to these mineral rights, the Huayllacho mill-site (processing plant) is a granted concession covering 91.12 hectares.
In Peru, a mining concession does not have an expiration date but an annual fee must be paid to maintain the concession in good standing. All
of the Caylloma Mine concessions are in good standing. Pursuant to the General Mining Law approved by Supreme Decree N°
014-92-EM,
Minera Bateas has six years from
the date of grant of the mining concessions title to reach the minimum annual production (US$100 per hectare, per year). If Minera Bateas does not reach the minimum annual production within the
six-year
period, Minera Bateas is required to make a payment of US$6 per hectare, per year, in addition to the fees required to keep the mineral concessions in good standing in each additional year where the minimum annual production requirement is not
met.
Minera Bateas hold surface rights to the Caylloma Mine via agreements with various landowners. Access to the Caylloma Mine is an
approximate 5 hour drive from Arequipa, Peru over a combination of sealed and gravel roads covering a driving distance of 225 road kilometers.
The Caylloma Mine is subject to the following royalty rights:
(a)
|
Pursuant to a royalty contract signed in May 2005, Minera Bateas granted to Compania Minera Arcata, S.A.
(
CMA
), a wholly owned subsidiary of Hochschild Mining plc, a 2.0% NSR which will apply after not less than a total of 21 million ounces of silver have been recovered from the Huayllacho beneficio (mill site) concession right.
In June 2016, CMA assigned its NSR royalty to Lemuria Royalties Corp. As of June 30, 2016, Minera Bateas has produced a total of 15.6 million troy ounces of silver; therefore, this royalty condition has not yet been met.
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(b)
|
Government royalty payments are set at a base rate of 1% up to US$60 million, 2% on the excess of
US$60 million and up to US$120 million and 3% on the excess of US$120 million. Fortuna is on the scales of 1% and 2% and is current on payment of royalties. Additionally, and in accordance with
Mining Special Royalty Act
approved by Peruvian Law No. 29790 (the
Mining Special Royalty Act
) in 2011, royalties are determined by applying quarterly rates ranging from 4% to 12% (scales provided by the regulations of the
Mining Royalty Act
approved by Peruvian Law No. 28258 (the
Mining Royalty Act
) on operating income. Any royalties due resulting from the application of the
Mining Special Royalty Act
are only paid in excess of royalties already paid
under the original
Mining Royalty Act
.
|
Minera Bateas is in compliance with environmental regulations and
standards set in Peruvian law and has complied with all material laws, regulations, norms and standards at every stage of operation of the mine. To the extent known, all permits that are required by Peruvian law for the mining operation have been
obtained.
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 CMA in 1981. Fortuna acquired the property from CMA in 2005.
21
CMA focused its exploration activities at the Caylloma Mine on identifying high-grade silver vein
structures. Exploration was concentrated in the northern portion of the district and focused on investigating the potential of numerous veins including Bateas, El Toro, Parallel, San Pedro, San Cristobal, San Carlos, Don Luis, La Plata, Apostles and
Trinidad.
Extensive exploration and development were conducted on the Bateas vein due to its high silver content; however, exploration
did not extend to the northeast due to the identification of a fault structure that was thought to truncate the mineralized vein. Animas was one of the first vein structures identified by CMA, however the mineralization style was identified as
polymetallic in nature, rather than the high-grade silver veins CMA were hoping to exploit. Subsequently, no further exploration or development was undertaken of this vein until Fortuna took ownership in 2005.
The most recent Mineral Reserve and Mineral Resource estimate prior to Fortunas purchase of the property was conducted in June 2004.
Since Minera Bateas took ownership of the property, three independent NI
43-101
technical reports have been published reporting Mineral Resources and Mineral Reserves in 2005, 2006 and 2009.
Production at the Caylloma Mine prior to 2005 came primarily from the San Cristobal vein, as well as from the Minera 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. During 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.
The Caylloma Mine was reopened in October 2006 and production under Minera Bateas management focused on the development of polymetallic veins
producing lead and zinc concentrates with silver and gold credits. Production rates increased in 2011 from 1,000 tpd to 1,300 tpd, and again in May 2016 to approximately 1,430 tpd.
Geology
The Caylloma district is
located in the Neogene volcanic arc that forms part of the Cordillera Occidental of southern Peru. The volcanic belt in the Caylloma district contains large, locally superimposed calderas of early Miocene to Pliocene age comprised of calc-alkaline
andesitic to rhyolitic flows, ignimbrites, laharic deposits, and volcanic domes that unconformably overlie a folded marine sequence of quartzite, shale, and limestone of the Jurassic Yura Group.
The mining district of Caylloma is located northwest of the Caylloma caldera complex. The host rock of the mineralized veins is volcanic in
nature, belonging to the Tacaza Group. The volcanics of the Tacaza Group lie unconformably over a sedimentary sequence of orthoquartzites and lutites of the Jurassic Yura Group. Portions of the property are covered by variable thicknesses of
post-mineral Pliocene-Pleistocene volcanics of the Barroso Group and recent glacial and alluvial sediments.
The Caylloma 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.
22
Mineralization
There are two different types of mineralization at the Caylloma Mine; 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.
Mineralization in these
vein systems occurs in steeply dipping ore shoots ranging up to several hundred meters (
m
) long with vertical extents of over 400 m. Veins range in thickness from a few centimeters (
cm
) to 20 m, averaging
approximately 1.5 m for silver veins and 2.5 m for polymetallic veins.
Deposit Types
The Caylloma Mine polymetallic and silver-gold rich veins are characteristic of a typical low sulfidation epithermal deposit having formed in a
relatively low temperature, shallow crustal environment.
The characteristics described above have resulted in the Caylloma Mine veins
being classified as belonging to the low sulfidation epithermal group of precious metals in quartzadularia veins similar to those at Creede, Colorado; Casapalca, Peru; Pachuca, Mexico and other volcanic districts of the late Tertiary period. They
are characterized by Ag sulfosalts and base metal sulfides in a banded gangue of colloform quartz, adularia with carbonates, rhodonite and rhodochrosite. Host rock alteration adjacent to the veins is characterized by illite and widespread propylitic
alteration.
Exploration
In
2007, induced polarization (
IP
) and resistivity studies were conducted over the Nancy and Animas NE veins covering an area of seven square kilometers. The survey was performed using an IRIS ELREC Pro receptor with a symmetrical
configuration poly pole array with spacing of 50 m between electrodes. Results of the geophysical studies identified three coincident zones of low IP potential associated with high chargeability and resistivity. The three geophysical anomalies were
investigated through a targeted drilling campaign.
In 2012, magnetometry, IP and resistivity studies were carried out over Cerro Vilafro
and Vilafro South, covering an area of 17 square kilometers in IP/resistivity studies with a pole-dipole array configuration with spacing of 50 m between electrodes and 31.6 line kilometers in magnetometry studies. The surveys successfully
identified coincident chargeability and resistivity anomalies in the Cerro Vilafro area.
In 2015, Controlled-source Audio-frequency
Magnetotellurics (
CSAMT
) geophysical surveys were completed covering the northeastern projection of the San Pedro and Paralela veins. Similar CSAMT geophysical surveys were completed in 2016 covering the Pisacca exploration target
area. In both areas, the CSAMT surveys were successful in identifying resistivity anomalies spatially associated with the projections of mapped vein structures.
Extensive surface channel samples have been taken along all principal mineralized structures identified in the Caylloma district. Exploration
has focused on the delineation of major vein structures such as the Animas, Bateas, Santa Catalina, Soledad and Silvia veins. Additional exploration has also been conducted to define the mineral potential of other veins on the property such as the
Carolina, Don Luis and Nancy veins. Surface channel samples are not used for Mineral Resource estimation but as a guide for exploration drilling and to identify the vein structure on surface.
Extensive mapping activities have been conducted by Fortuna since 2006 focusing on mapping the surface structures associated with the Animas,
Antimonio, Bateas, Silvia, Soledad, San Cristobal, Nancy, La Plata, Vilafro, Cerro Vilafro, Vilafro Sur and Cailloma 6 veins.
23
Drilling
Exploration and definition drilling has been conducted at the Caylloma Mine by both CMA and Minera Bateas. Diamond drilling has been the
preferred methodology.
Minera Bateas was able to recover and validate information on 43 diamond drill holes totaling 7,159.32 m
drilled by CMA between 1981 and 2003. As of June 30, 2015, Minera Bateas completed 879 drill holes on the Caylloma Mine totaling 141,100.65 m since Fortuna took ownership in 2005. All holes are diamond drill holes and include 424 from the
surface totaling 101,608.55 m, and 455 from underground totaling 39,492.10 m. The extent of drilling varies for each vein with those having the greatest coverage having drill holes extending over 4,000 m of the veins strike length (Animas), to
the least having only a couple of drill holes extending over 50 m (Antimonio).
As of the effective date of the Caylloma Technical Report
an additional 67 infill drill holes totaling 9,792.95 m have been completed after the June 30, 2015
cut-off
date. All of the drill holes were designed for purposes of upgrading of Inferred Mineral
Resources of the Animas and Animas NE veins.
Sample Preparation and Analysis
All samples at the Caylloma Mine are collected by geological staff of Minera Bateas with sample preparation and analysis being conducted either
at the onsite Minera Bateas laboratory (channel samples and underground development drill core) or the ALS Chemex laboratory in Lima (exploration drill core). The Minera Bateas
on-site
laboratory is not a
certified laboratory. Therefore, pulp splits and preparation duplicates, along with reference standards and blanks are routinely sent to the International Organization for Standardization (
ISO
) certified ALS Chemex laboratory in
Lima to monitor the performance of the Minera Bateas laboratory.
Channel Chip Sampling
Since February 2011 the location of each channel has been surveyed using Total Station equipment. Surveyors use an underground survey reference
point to locate the starting coordinates of each channel.
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).
Sample collection is normally performed by two samplers, one using the hammer and pick while the other holds the receptacle (cradle) to
collect rock and ore fragments. A sample mass of between 3 kilograms (
kg
) and 6 kg is generally collected.
Since August 2012, the entire sample is placed in a plastic sample bag with a sampling card and assigned sample ID and taken to the laboratory
for homogenization and splitting.
Core Sampling
A geologist is responsible for determining and marking the intervals to be sampled, selecting them based on geological and structural logging.
The sample length must not exceed 1 m or be less than 10 cm.
Splitting of the core is performed by diamond saw. Once the core has
been split, half the sample is placed in a sample bag. A sampling card with the appropriate information is inserted with the core.
Bulk Density
Determination
Samples for density analysis are collected underground using a hammer and chisel to obtain a single large sample of
approximately 6 kg. The sample is always taken of mineralized material in the same locality as a channel
24
sample. The coordinates of the closest channel sample are assigned to the density sample. The sample is brought to the surface and delivered to the core cutting shed where each side of the sample
is cut using a diamond saw to produce a smooth sided cube. The sample is labeled and bagged prior to being stored in the storage facilities to await transportation with other samples to the ALS Chemex laboratory in Arequipa.
Density tests are performed at the ALS Chemex laboratory in Lima.
Sample Dispatch
Once samples have been
collected they are assigned a batch number and either submitted to the Minera Bateas onsite laboratory, or sent to the mine warehouse to await transportation (three times a week) to the ALS Chemex facility in Arequipa, and then on to the ALS Chemex
laboratory in Lima for analysis.
Sample Preparation
Upon receipt of a sample batch, the laboratory staff immediately verifies that sample bags are sealed and undamaged. Sample numbers and
identifications are checked to ensure they match that as detailed in the submittal form provided by the geology department. If any damaged, missing or extra samples are detected the sample batch is rejected and the geology department is contacted to
investigate the discrepancy. If the sample batch is accepted, the samples are sequentially coded and registered as received.
Accepted
samples are then transferred to individual stainless steel trays with their corresponding sample identifications for drying.
Once samples
have been dried, they are transferred to a separate ventilated room for crushing using a two stage process. Firstly, the sample is fed into a terminator crusher to reduce the original particle size so that approximately 90% passes
1
⁄
2
inch mesh sieve size. The entire sample is then fed to the secondary Rhino crusher so that the particle size is reduced to approximately 85% passing a 10 mesh
sieve size. The percent passing is monitored daily to ensure these specifications are maintained. The crushing equipment is cleaned using compressed air and a barren quartz flush after each sample.
Once the sampling has been crushed it is reduced in size to 150 grams (
g
) ± 20 g using a single tier Jones
riffle splitter. The reduced sample is returned to the sampling tray for pulverizing whereas the coarse reject material is returned to a labeled sample bag and temporarily placed in a separate storage room for transferal to the long term storage
facilities located adjacent to the core logging facilities.
Crushed samples are pulverized using a Rocklab standard ring mill so that 90%
of particles pass a 200 mesh sieve size. The pulp sample is carefully placed in an envelope along with the sample identification label. Envelopes are taken to the balance room where they are checked to ensure the samples registered as having being
received and processed match those provided in the envelopes.
Assaying of Gold, Silver, Lead, Copper and Zinc
Upon receipt of samples in the analytical laboratory, all pulps are
re-checked
to ensure they match the
list in the submittal form.
The elements of gold, silver, copper, lead and zinc are assayed using atomic absorption techniques. An
initial and duplicate reading is taken and an internal standard is inserted every ten samples to monitor and calibrate the equipment.
Sample Security
Core boxes are sealed and carefully transported to the core logging facility constructed in 2012 where there is sufficient room to
layout and examine several holes at a time. The core logging facility is located at the mine site
25
and is locked when not in use. Once logging and sampling have been performed, the remaining core is transferred to the core storage facilities located adjacent to the logging facilities. The
storage facility is managed by the Brownfields Exploration Manager and the Superintendent of Geology and any removal of material must receive their approval.
Quality Control Measures
Minera Bateas
routinely inserts certified standards, blanks and field duplicates to the Minera Bateas laboratory and regularly sends preparation (coarse reject) and pulp duplicates along with standards and blanks to the umpire ALS Chemex laboratory.
Standard Reference Material
Standard reference
material (
SRM
) are samples that are used to measure the accuracy of analytical processes and are composed of material that has been thoroughly analyzed to accurately determine its grade within known error limits. SRMs are inserted
by the geologist into the sample stream, and the expected value is concealed from the laboratory, even though the laboratory will inevitably know that the sample is a SRM of some sort. By comparing the results of a laboratorys analysis of a
SRM to its certified value, the accuracy of the result is monitored.
Minera Bateas Laboratory
This analysis focuses on the submission of 8,093 standards submitted with 183,694 channel samples as of June 30, 2015 to the Minera Bateas
laboratory which represents a submission rate of 1 in 23 samples. As described above, the Minera Bateas laboratory employs a four acid digestion methodology with atomic absorption (
AA
) for assaying silver, lead and zinc, unless
the grade is greater than 1,500 grams per metric tonne (
g/t
) for silver, or 13% for lead or 13% for zinc. If the silver grade was found to be greater than 1,500 g/t, it was
re-assayed
by
fire assay using a gravimetric finish (
FA-GRAV
). If the lead or zinc grades were found to be higher than their upper limits, they were
re-assayed
by
volumetric methods. For gold, the sample is assayed using fire assay with atomic absorption finish (
FA-AA
) unless the gold grade is greater than 5 g/t Au, in which case the sample is
re-assayed
with a
FA-GRAV.
Submitted certified standards
indicate the Minera Bateas laboratory has acceptable levels of accuracy for silver, lead, zinc, and gold with all elements reporting greater than 99% pass rates. The assay results for most standards demonstrate little or no bias.
ALS Chemex Laboratory
Drill core (exploration
and infill) is sent to ALS Chemex for assaying. Silver, zinc and lead are assayed by inductively coupled plasma atomic emission spectroscopy (
ICP-AES
), unless the grade is greater than 100
g/t for silver, or 1% for lead or zinc, in which case the sample is
re-assayed
by aqua regia digestion with an
ICP-AES
or atomic absorption finish up to a maximum of
1,500 g/t silver, 30% lead or 60% zinc. If the silver grade was found to be greater than 1,500 g/t it was
re-assayed
by fire assay using a gravimetric finish. If the lead or zinc grades were found to be higher
than their upper limits, they were
re-assayed
by titration. A total of 1,560 standards have been submitted by Minera Bateas with drill core as of June 30, 2015 to the ALS Chemex facilities representing a
submission rate of 1 in 19 samples.
Results for SRMs submitted to the ALS Chemex laboratory indicate a reasonable level of accuracy is
maintained by the laboratory for the four elements of interest with all reporting a pass rate of greater than 93%.
Blanks
Field blank samples are composed of material that is known to contain grades that are less than the detection limit of the analytical method in
use (or, in the case of Pb and Zn, that are known to be very low) and are inserted
26
by the geologist in the field. Blank sample analysis is a method of determining sample switching and cross-contamination of samples during the sample preparation or analysis processes. Minera
Bateas uses coarse quartz sourced from outside the area and provided by an external supplier as their blank sample material. The blank is tested to ensure the material does not contain elevated values for the elements of interest.
Minera Bateas Laboratory
The analysis focuses
on the submission of 7,045 blanks with channel samples as of June 30, 2015 representing a submission rate of 1 in 26 samples.
The
results of the blanks submitted indicate that cross contamination and mislabeling are not material issues at the Minera Bateas laboratory.
ALS Chemex
Laboratory
A total of 1,521 blanks were submitted with drill core as of June 30, 2015 to the ALS Chemex facilities representing a
submission rate of 1 in 19 samples.
The results of blanks used to monitor the ALS Chemex preparation and analytical facilities are
regarded as acceptable and indicate that contamination and sample switching is not a significant issue at the laboratory.
Duplicates
The precision of sampling and analytical results can be measured by
re-analyzing
the same sample using
the same methodology. The variance between the measured results is a measure of their precision. Precision is affected by mineralogical factors such as grain size and distribution and inconsistencies in the sample preparation and analysis processes.
There are a number of different duplicate sample types which can be used to determine the precision for the entire sampling process.
Numerous plots and graphs, such as absolute relative difference (
ARD
) are used on a monthly basis to monitor precision and
bias levels as part of an extensive quality assurance program with results regarded as demonstrating acceptable levels of precision.
Minera Bateas
Laboratory
Minera Bateas inserts field, preparation and laboratory duplicates as part of a comprehensive quality assurance/quality control
(
QAQC
) program. Reject assays and check assays are sent to the certified laboratory of ALS Chemex to provide an external monitor to the precision of the Minera Bateas laboratory. Standards and blanks are also submitted with the
reject and check assays to monitor the accuracy of the ALS Chemex results.
In general, precision levels are reasonable with the majority
of ARD values being greater than 90%. Field duplicate results are generally slightly lower than the accepted 90% threshold level but have improved over time through closer supervision of the sampling process, increasing the sampling mass and
estimation of the fundamental sampling error. With the implementation of these measures, the ARD values of field duplicates have generally been greater than 90% over the last few years.
It should also be noted that precision levels for gold assays are lower than for the other elements, particularly for the duplicate assays.
This is because gold concentrations are much lower and variability is higher. Gold is not an economic driver in the operation and therefore the cost associated with increasing sample mass to ensure higher precision levels is not justified.
Duplicates sent to the umpire laboratory showed reasonable levels of precision between the two laboratories. Quality control samples included
with the duplicates sent to the umpire laboratory showed acceptable levels of accuracy and no issues with sample switching or contamination.
27
ALS Chemex Laboratory
Prior to 2013, Minera Bateas relied only on the insertion of preparation and laboratory duplicates by ALS Chemex to monitor precision levels of
drill core samples submitted to the ALS Chemex facilities. The QAQC policy was revised in late 2012 and brownfields exploration have since submitted the full array of blind duplicates with drill core since January 2013. The high levels of accuracy,
precision and lack of contamination indicate that grades reported from the Minera Bateas and ALS Chemex laboratories are suitable for Mineral Resource estimation.
Results for duplicates submitted with drill core to the ALS Chemex laboratory that show acceptable levels of precision are maintained at the
laboratory, with the exception of the field duplicates, which are slightly below the acceptance levels and tend to be related to the insertion of low grade or low mass samples.
Data Verification
Data used for
Mineral Resource estimation are stored in three databases. Minera Bateas information is stored in two of these databases, one storing data relating to the mine (including channel samples) and the other for storing drilling results.
The databases are fully validated annually by Fortuna as part of the Mineral Resource estimation process. The database storing CMA information
was not validated in 2015 based on the fact that no new information has been acquired since the previous validation in 2010.
Both
databases were then reviewed and validated by Mr. Eric Chapman, P. Geo. The data verification procedure involved the following:
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Inspection of selected drill core to assess the nature of the mineralization and to confirm geological
descriptions;
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Inspection of geology and mineralization in underground workings of the Animas and Bateas veins;
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|
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Verification that collar coordinates coincide with underground workings or the topographic surface;
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Verification that downhole survey bearing and inclination values display consistency;
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Evaluation of minimum and maximum grade values;
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Investigation of minimum and maximum sample lengths;
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Randomly selecting assay data from the databases and comparing the stored grades to the original assay
certificates;
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Assessing for inconsistencies in spelling or coding (typographic and case sensitivity errors);
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Ensuring full data entry and that a specific data type (collar, survey, lithology, and assay) is not missing;
and
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Assessing for sample gaps or overlaps.
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After correcting all inconsistencies, the databases were accepted as validated on June 30, 2015. Based on the data verification detailed
above, Fortunas Corporate Head of Technical Services Mr. Eric Chapman, P. Geo., considers the Minera Bateas and CMA data to be suitable for the estimation of classified Mineral Resources and Mineral Reserves.
Mineral Processing and Metallurgical Testing
Metallurgical recoveries for 2015 were 83.03%, 93.98% and 90.79% for silver, lead and zinc respectively, an important improvement compared to
those achieved in 2012 (77.33%, 88.12% and 85.77%, respectively). Minera
28
Bateas continues to work on optimizing the mineral processing operation focusing on metallurgical recoveries and processing capacity. The studies or tests developed to achieve these goals
include:
1.
|
Plant test work for oxides
|
Until 2012 ore identified as containing high lead oxide and zinc oxide (
ZnOx
) content was classified as
oxides not amenable for flotation processing.
Different plant and laboratory tests were carried out during 2012. The
maximum metallurgical recoveries achieved during the plant test work were 63.98% for silver, 46.45% for lead and 32.35% for zinc.
More laboratory and plant tests were conducted in 2013 including the metallurgical testing of the different levels of the
Animas vein. The main conclusion was that ZnOx contents greater than 0.20% within the ore were related to the 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 ZnOx ore content.
2.
|
Mineralogical balancing of products for the lead circuit
|
Based on the studies and testing developed between 2013 and 2015 for the different stages of the process some changes or
adjustments have been implemented in the processing plant aimed at improving the metallurgical performance including:
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|
|
Adjustments to the grinding medium and size selection were made in order to achieve 60% passing 75 microns as
the final grinding product;
|
|
|
|
The
Z-11
and
Z-6
collectors in
the lead flotation circuit, which were previously added as a mixed solution, are now added independently ensuring a superior effect and avoiding alteration in their properties;
|
|
|
|
The Sodium cyanide consumption, which is used as a Fe and Zn depressor in the Ag-Pb flotation circuit, is
reduced from 20 to 10 g/t aiming to promote the Ag and Au flotation;
|
|
|
|
The Denver mill critical speed was increased from 69% to 76% increasing the reduction ratio, resulting in an
increase in the treatment capacity of 10 tpd;
|
|
|
|
The Magensa (6 foot by 6 foot) mill steel shell liners were changed to rubber increasing the reduction ratio
from 1.20 to 1.60; and
|
|
|
|
Automatic pH control was installed to stabilize the process, particularly in the Zn circuit, reducing lime
consumption by 200 g/t.
|
3.
|
Processing plant optimization
|
Aiming to reduce the recirculating load within the grinding circuit by improving the size selection, pilot tests to replace
cyclones with high frequency vibrating wet screens were run in November 2014.
Results indicated a circulating load
reduction from 250 to 170% thanks to a more efficient size classification thereby allowing improved grinding, and ultimately, an increase in the plant processing capacity.
To achieve that goal and based on laboratory testing, the flotation time was increased from 14 to 38 minutes by increasing the
Ag-Pb flotation circuit capacity. In March 2015, the processing plant optimization project was initiated. The optimization project was aimed at increasing the processing capacity from 1,300 to a potential maximum of 1,500 tpd by improvements in the
grinding and flotation circuits. The total investment in the project was US$4.6 million with project completion in March 2016.
Mineral
Resources and Mineral Reserve Estimates
See Technical Information Summary of Mineral Reserve and Mineral
Resource Estimates Caylloma Mine.
29
Mining Operations
The mining method applied in the exploitation of the two main veins (Animas and Bateas) at the Caylloma Mine is overhand
cut-and-fill
using either mechanized, semi-mechanized or conventional extraction methods. The
cut-and-fill
method is used in mining steeply dipping orebodies in stable rock masses.
Cut-and-fill
is a bottom up mining method that consists of removing ore in horizontal slices, starting from a bottom undercut and advancing upwards.
Breakeven
cut-off
values were determined for each vein based on actual operating costs incurred in the
period July 2014 to June 2015. These include exploitation and treatment costs, general expenses and administrative and commercialization costs (including concentrate transportation). As operations are not centralized, each vein has a different
operating cost, mainly due to the mining method employed, transportation (mine to plant), support and power consumption. Breakeven
cut-off
values used for Mineral Reserve estimation are detailed in Table 14.
Table 14: Breakeven
Cut-off
Values Applied to each Vein
|
|
|
|
|
Vein
|
|
Breakeven cut-off
value(US$/t)
|
|
Animas
|
|
|
82.40
|
|
Animas NE
|
|
|
82.40
|
|
Bateas, Bateas Piso, Bateas Techo
|
|
|
173.74
|
|
Soledad
|
|
|
173.74
|
|
La Plata, Cimoide La Plata
|
|
|
173.74
|
|
Silvia
|
|
|
173.74
|
|
Santa Catalina
|
|
|
173.74
|
|
Animas
|
|
|
95.63
|
|
Animas NE
|
|
|
97.63
|
|
San Cristóbal
|
|
|
97.07
|
|
NSR values depend on various parameters including metal prices, metallurgical recovery, price deductions,
refining charges and penalties. NSR values used for Mineral Reserve estimation are detailed in Table 15.
Table 15: NSR Values
|
|
|
|
|
Metal
|
|
NSR Value
|
|
Silver (US$/g)
|
|
|
0.45
|
|
Gold (US$/g)
|
|
|
13.53
|
|
Lead (US$/%)
|
|
|
14.85
|
|
Zinc (US$/%)
|
|
|
12.68
|
|
Blocks whose NSR values are higher than the operating cost (breakeven
cut-off
value) after the application of appropriate dilution and recovery factors are reported as Mineral Reserves and are regarded as being amenable to the proposed method of mining. Measured Mineral
Resources are converted to Proven Mineral Reserves and Indicated Mineral Resources to Probable Mineral Reserves.
Processing and Recovery Operations
The Caylloma Mine processing plant is a typical flotation operation and consists of five stages: crushing; milling; flotation;
thickening and filtering and tailings disposal. Each of the main stages is comprised of multiple
sub-stages.
The Caylloma Mine concentrator plant resumed operations in September 2006, treating 600 tpd of polymetallic mineral. Capacity increased
progressively, with the installation of a 1.8 m by 2.4 m ball mill in 2009 the plant
30
reached a treatment capacity of 1,300 tpd, and with the installation of two Derrick Stack Sizer vibrating wet screens the plant achieved a treatment capacity of 1,500 tpd at the end of March
2016, although this has since been reduced to 1,430 tpd for the rest of 2016. The treatment process is differential flotation. Initially, two concentrates were obtained: lead-silver and zinc. From late 2009 to January of 2011, a copper-silver
concentrate was also produced, but due to unfavorable commercial terms the production of copper concentrate was suspended and the copper circuit put on standby.
Infrastructure, Permitting and Compliance Activities
The Caylloma Mine has a well-established infrastructure used to sustain the operation. The infrastructure includes a main access road from the
city of Arequipa, property access roads, tailing storage facilities, mine waste storage facilities, mine ore stockpiles, camp facilities, concentrate transportation, power generation and communications systems.
Minera Bateas is in compliance with environmental regulations and standards set in Peruvian law and has complied with all laws, regulations,
norms and standards at every stage of operation of the mine. Minera Bateas obtained its ISO 14001 Environmental Management Certification in 2008 and continues to maintain this designation. The mine works continually to improve its operational
standards.
The Company has a very strong commitment to the development of neighboring communities of the Caylloma Mine. In this respect,
the Company 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.
Capital and Operating Costs
See
Technical Information Summary of Capital and Operating Costs Caylloma Mine.
Exploration, Development,
and Production
Minera Bateas continues to successfully manage the Caylloma Mine operation, mining 466,286 tonnes of ore from
underground to produce 1.7 Moz of silver, 1.2 koz of gold, 23.8 million pounds (
Mlbs
) of lead and 35.8 Mlbs of zinc in 2015 while continuing to improve the mine infrastructure.
Fortuna believes there is good potential for a significant increase of the Mineral Resources at the Caylloma Mine particularly from the
continuity of the current veins in operation as well as from the discovery of new veins. Minera Bateas continues to investigate cost effective ways to improve productivity and reduce costs. As disclosed in the Caylloma Technical Report, work
programs conducted in 2016 to improve the operation included the following:
1.
|
Brownfields exploration
. Fortuna assigned US$2.9 million in 2016 for Brownfields exploration of
the Caylloma district. This was planned to include 17,000 m of diamond drilling focused on testing new exploration targets in the northern portion of Pisacca prospect area located a short distance to the southwest of the mine plant as well as
further exploring the northeastern extension of the Animas vein.
|
2.
|
Underground development.
The most important recommended project for the Caylloma Mine was the
integration of the different levels of the Animas vein with underground ramps. An important effort in 2012 was made to improve ventilation which has allowed the operation to introduce the use of ammonium nitrate/fuel oil for stoping and drifting.
The mine plan for 2016 proposed 1,053 m of raise boring in order to comply with the ventilation requirements, 1,904 m horizontal and 5,158 m decline drift associated with the development of the mine especially in the case of the Animas vein. The
budgeted cost of this work program in 2016 was US$9.29 million.
|
31
3.
|
Metallurgical studies to improve silver recovery.
Important efforts were made in 2015 in order to
optimize the metallurgical performance and throughput capacity of the plant, especially to increase silver recovery. It was recommended that an expansion to the lead flotation capacity be considered with the objective of increasing silver recovery
by 2% to 4%. The budgeted cost for these metallurgical studies in 2016 was US$1 million.
|
4.
|
Metallurgical studies to improve oxide recovery.
The response of oxide material to the
flotation process required additional testwork. The plant test conducted in 2012 demonstrated this material could be processed through flotation albeit at reduced recoveries. Results could help to adjust plant operating parameters to improve
metallurgical response.
|
5.
|
Metallurgical studies in gold recovery.
Mineral Bateas applies a higher gold metallurgical recovery for
the calculation of the NSR values for the estimate of blocks in the Ramal Piso Carolina vein based on metallurgical testwork conducted in the plant. There are, however, other veins that have elevated gold grades that could benefit from the
application of a higher metallurgical gold recovery including the San Carlos, San Pedro, Don Luis II, La Plata and Cimoide La Plata veins. It was recommended that Minera Bateas conduct metallurgical testwork on mineralized samples from these veins
to ascertain if the gold recoveries could be improved.
|
San Jose Mine
Property Description, Location and Access
The San Jose Mine is located in the central portion of the state of Oaxaca, Mexico (latitude 16°4139.10 N, longitude
96°4206.32 W; UTM coordinates NAD27, UTM Zone 14N: 745100E, 1846925N). The San Jose Mine is 47 km by road from the city of Oaxaca and 12 km from Ocotlan de Morelos, a town of approximately 10,000 people and the nearest commercial
center.
The San Jose Mine consists of mineral rights for mining concessions held by Minera Cuzcatlan, covering a total surface area of
approximately 51,300 hectares with an additional 13,128 hectares under options. The concessions have expiry dates ranging from 2023 to 2061. Minera Cuzcatlan has signed 39 usufruct contracts with land owners to cover the surface area needed for the
operation of the San Jose Mine, with some of these contracts pending registration with the local authority. Minera Cuzcatlan has also applied for additional concessions in the region of the San Jose Mine and has the right to acquire additional
concessions in the region of the San Jose Mine under option agreements with third parties.
The San Jose Mine is subject to the following
royalty rights:
|
(a)
|
Royalty agreement between Minera Cuzcatlan and Beremundo Tomas de Aquino Antonio granting a 1% NSR royalty to
a maximum of US$800,000 in regard to the mining concession El Pochotle. To date, no mineralized material has been extracted from the El Pochotle concession and no Mineral Resources or Mineral Reserves have been identified on the El
Pochotle concession. Minera Cuzcatlan has a buyout provision where it can purchase this royalty right for US$200,000.
|
|
(b)
|
Royalty agreement between Minera Cuzcatlan and Underwood y Calvo Compania, S.N.C granting a 1% NSR royalty to
a maximum of US$2,000,000 in regard to the mining concessions La Voluntad, Bonita Fraccion I and Bonita Fraccion II. To date, no mineralized material has been extracted from these concessions and no Mineral
Resources or Mineral Reserves have been identified on these concessions. Minera Cuzcatlan has a buyout provision where it can purchase this royalty right for US$400,000.
|
|
(c)
|
Royalty agreement between Minera Cuzcatlan and Pan American Silver Corp., which was transferred from Pan
American Silver Corp. to Maverix Minerals Inc. on July 12, 2016, whereby Maverix Minerals Inc. holds a 1.5% NSR royalty; and Mexican Geological Service holds a 1% royalty as a discovery royalty in regard to the mining concession Reduccion
Taviche Oeste.
|
32
Minera Cuzcatlan is in compliance with environmental regulations and standards as set out in
Mexican law and has complied with all material laws, regulations, norms and standards at every stage of operation of the mine.
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, aided by a new mining law enacted in 1892 and with support from foreign
investment capital. 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 Ing. Ricardo Ibarra. The mine was worked intermittingly by Ibarra through his company, Minerales de
Oaxaca S.A. (
MIOXSA
), through the end of 2006 when the property was purchased by Minera Cuzcatlan.
In 1999, the San
Jose Mine was optioned by Pan American Silver Corp., who completed surface and underground mapping and sampling and drilled five diamond drill holes totaling 1,093.5 m in the San Jose Mine vein system. In March 2004, Continuum Resource Ltd
(
Continuum
) signed an option agreement with MIOXSA covering 19 concessions in the San Jose and San Jeronimo Taviche areas. Continuum completed detailed mapping of the surface, extensive chip-channel sampling in the underground
workings of the Trinidad deposit as well as 15 surface diamond drill holes totaling 4,877 m. In November 2005, Fortuna reached an agreement with Continuum to earn a 70% interest in Continuums interests in the properties optioned from MIOXSA,
and assumed management of the project.
During 2006, Fortuna completed the drilling of 38 diamond drill holes totaling 12,182 m in
the San Jose Mine area, with 25 of the drill holes being located in the Trinidad zone and 13 of the drill holes being located in the San Ignacio area. The drilling in the Trinidad area confirmed the results of the prior drilling and expanded the
mineralization along strike and to depth. Drilling in the San Ignacio area by Fortuna identified significant zones of silver-gold mineralization over generally narrow vein widths. In November of 2006, Fortuna and Continuum purchased a 100% interest
in the properties from MIOXSA and simultaneously restructured their joint operating agreement to a 76% interest for Fortuna and a 24% interest for Continuum.
During 2007, Fortuna (operating via Minera Cuzcatlan) drilled 67 diamond drill holes totaling 26,605 m. Drilling in the Trinidad area
continued to confirm the potential of the deposit and further expanded the mineralization along strike to the south and to depth. Drilling continued throughout 2008 and 2009, and in March 2009, Fortuna completed the acquisition of all issued and
outstanding shares of Continuum, thereby acquiring a 100% ownership in the San Jose Mine.
From 1980 through 2004, production by MIOXSA
was intermittent and came primarily from existing stopes and from development of the fourth and fifth levels of the San Jose Mine. In 2005 and 2006, the sixth level was developed and mined with grades reported to range between 350 to 500 g/t Ag and
1.8 to 3.5 g/t Au. The ore was mined primarily from the Bonanza and Trinidad veins, and extracted at rates of approximately 100 tpd through the Trinidad shaft. Reliable estimates of the total production during MIOXSAs tenure are not available.
In March 2006, a technical report prepared in accordance with NI
43-101
was filed summarizing the
results of the exploration completed by Continuum and reporting an initial Mineral Resource estimate. At a 5 g/t gold equivalent
cut-off,
Inferred Mineral Resources were estimated at 527,283 tonnes with an
average grade of 3.50 g/t Au and 396 g/t Ag. In March 2007, an updated Mineral Resource estimate prepared in accordance with NI
43-101
was filed. At a 150 g/t Ag Eq
cut-off,
Indicated Mineral Resources were estimated at 1.47 million metric tonnes (
Mt
) averaging 263 g/t Ag and 2.19 g/t Au and Inferred Mineral Resources were estimated at 3.9 Mt
averaging 261 g/t Ag and 2.57 g/t Au.
33
Following extensive exploration drilling in 2007, 2008 and 2009, Fortuna filed, in December,
2009, an updated technical report prepared in accordance with NI
43-101.
In June 2010, a
Pre-Feasibility
Study was prepared, and updated Mineral Resources and Mineral
Reserves were reported. Subsequently, Fortuna has conducted annual updated Mineral Resource and Mineral Reserve estimations. Commercial production commenced under the management of Minera Cuzcatlan on September 1, 2011. Underground mining has
focused on the Bonanza, Trinidad and Stockwork primary veins.
Geological Setting, Mineralization and Deposit Types
The San Jose Mine is hosted by an andesitic to dacitic effusive volcanic sequence of presumed Paleogene age. Further to the east, these
andesites and dacites are overlain by silicic crystalline and lithic tuffs and ignimbrites corresponding to the Mitla Tuff Formation of Miocene age. The San Jose Mine area is underlain by a thick sequence of presumed Paleogene-age andesitic to
dacitic volcanic and volcaniclastic rocks, which in turn discordantly overlie units ranging from orthogneisses and paragneisses of Mesoproterozoic age, limestones and calcareous sedimentary rocks of Cretaceous age and continental conglomerates of
the Early Tertiary Tamazulapan Formation. 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.
In general, the upper 650 to 700 m of the volcanic sequence is characterized by a series of distinct effusive andesitic to dacitic lava flow
units intercalated with thin but laterally extensive horizons of reddish-brown to grayish-brown volcaniclastic rocks. The lower 250 to 300 m of the volcanic sequence is characterized by a sequence of intercalated pyroclastic deposits, stratified
volcaniclastic sedimentary rocks and local coherent facies lava flows.
Precious metal mineralization at the San Jose Mine is hosted by
hydrothermal breccias, crackle breccias, quartz-carbonate veins and zones of sheeted and stockwork-like quartz-carbonate veins emplaced along steeply dipping north and north-northwest trending fault structures. The mineralized structural corridor
extends for greater than 3 km in a north-south direction and has been divided into two parts: the Trinidad deposit area and the San Ignacio area. The major mineralized structures or vein systems recognized in the Trinidad deposit area are the
Trinidad and Bonanza structures and the Stockwork system. To date, drilling has defined the Trinidad and Bonanza mineralized structures over a strike length of approximately 1,300 m and to depths exceeding 600 m from the surface.
Acanthite and silver-rich electrum are the primary silver and gold-bearing minerals in the Trinidad deposit. These minerals, along with
pyrite, are discontinuously interlayered with distinctively banded crustiform and colloform textured quartz, calcite and locally adularia. Principal gangue minerals are quartz and calcite, locally accompanied by iron or iron/magnesium-bearing
carbonates. Amethyst and chalcedonic quartz are commonly present as late infillings of the veins and hydrothermal breccias. Pale greenish-colored fluorite is present locally as vein and breccia fillings. Hydrothermal alteration at the Trinidad
deposit is characterized by a well-developed alteration zonation with well crystallized kaolinite being present in the mineralized zones grading outwards to kaolinite-illite, illite, and illite-smectite-chlorite assemblages. Locally
Fe-carbonates
and
Fe/Mg-carbonates
are also present as a halo to the mineralized zones. Regionally, the andesitic volcanics and volcanoclastic units are weakly to moderately
propylitically altered to epidote-chlorite-smectite assemblages.
The Trinidad vein system is emplaced in the footwall fault zone of the
extensional system hosting the mineralized vein systems at the San Jose Mine. The Trinidad vein system strikes 355° and dips 70° to 80° to the east-northeast. The vein system ranges from less than 1 m to locally over 15 m in true width,
with higher grade mineralization generally being present in zones with greater widths. Significant portions of the Trinidad structure are characterized by late black matrix silicified fault breccias with only trace to weak mineralization. Higher
grade precious metal zones in the Trinidad vein system range up to approximately 1,300 g/t Ag Eq across the
34
width of the vein. The Trinidad hanging wall splays and the Trinidad footwall veins are considered to be part of the Trinidad mineralized structure.
The Bonanza vein system is emplaced in the hanging wall zone of the structural corridor hosting the mineralized vein systems in the Trinidad
deposit. The Bonanza vein system generally strikes 350° and dips steeply to the east to
sub-vertical.
Mineralization within the Bonanza vein system is present in the form of shoots plunging shallowly to
moderately to the north-northwest, reflecting the dominant
dip-slip
movement of the controlling fault structures. Combined copper, lead and zinc values for the Bonanza vein range from negligible in the upper
portions of the vein system to approximately 0.1% to 0.5% at depth.
The main Stockwork Zone is located between 1846550N to 1847200N and
1,000 meters above sea level (
masl
) to 1,300 masl (the
Stockwork Zone
) and located in an extensional environment between the principal Bonanza and Trinidad structures. The main Stockwork Zone is present over 650
horizontal m and 300 vertical m, being elliptical in shape, with a variable thickness ranging to greater than 50 m. The primary silver bearing mineral in the Stockwork Zone is acanthite, usually in association with traces of pyrite. Secondary
minerals accompanying the acanthite are silver-rich electrum, fine grained galena, sphalerite, chalcopyrite and gangue minerals including hyaline quartz, white quartz and calcite along with minor concentrations of adularia and fluorite.
The mineralization at the San Jose Mine is hosted by structurally controlled hydrothermal breccias, crackle breccias and quartz-carbonate
veins. Epithermal-style alteration and mineralization are widespread within the Middle to Late Tertiary volcanic package exposed throughout the central portion of the state of Oaxaca. Host structures to the mineralization are normal faults and
subsidiary structural features common to extension-related pull-apart basins.
Exploration
For exploration work completed prior to 2007, see Technical Information San Jose Mine History.
Subsequent to 2007, the principal exploration conducted by Fortuna at the San Jose Mine has been surface and underground drilling, both
to extend the deposit to the north and to depth, and for infill purposes to increase the confidence level of the Mineral Resources. The results of a
Pre-Feasibility
Study of the San Jose Mine were filed in
June of 2010 and included an estimate of Probable Mineral Reserves of 3.5 Mt averaging 205 g/t Ag and 1.5 g/t. As of December 31, 2012, Proven Mineral Reserves were estimated at 0.05 Mt averaging 246 g/t Ag and 2.31 g/t Au and Probable Mineral
Reserves were estimated at 3.3 Mt averaging 189 g/t Ag and 1.57 g/t Au at a 96 g/t Ag Eq
cut-off
and Inferred Mineral Resources were estimated at 4.3 Mt averaging 185 g/t Ag and 1.58 g/t Au at a 70 g/t Ag Eq
cut-off.
Subsequent to the
cut-off
date for the
Fortuna
Silver Mines Inc.: San Jose Property, Oaxaca, Mexico
technical report dated November 22, 2013, Fortuna acquired the Taviche Oeste concession from Pan American Silver Corp. The acquisition of the 6,254 hectare Taviche Oeste concession
allowed for the continued brownfields exploration of the northern extension of the Trinidad deposit and the discovery of the Trinidad North zone. As of the date of the San Jose Technical Report, Fortunas current brownfields exploration
continues to explore the northern projections of the Trinidad mineralized system.
Drilling
For drilling completed prior to 2007, see Technical Information San Jose Mine History.
As of June 30, 2015, a total of 510 drill holes totaling 182,294.75 m have been completed in the San Jose Mine area (see Table 16 below)
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
35
Ignacio area along the southern extension of the structurally controlled mineralized corridor and the Trinidad North discovery located north of 1847200N. 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 510 diamond drill holes.
Table 16: Drilling of the Trinidad Deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Period
|
|
|
Trinidad Area
|
|
|
San Ignacio Area
|
|
|
|
Drill Holes
|
|
|
Meters
|
|
|
Drill Holes
|
|
|
Meters
|
|
Pan American Silver Corp.
|
|
|
2001
|
|
|
|
3
|
|
|
|
851.50
|
|
|
|
2
|
|
|
|
242.00
|
|
Continuum
|
|
|
2004/05
|
|
|
|
13
|
|
|
|
4,370.00
|
|
|
|
2
|
|
|
|
506.85
|
|
Fortuna
|
|
|
2006
|
|
|
|
25
|
|
|
|
8,392.10
|
|
|
|
13
|
|
|
|
3,790.30
|
|
Minera Cuzcatlan
|
|
|
2007
|
|
|
|
44
|
|
|
|
17,694.35
|
|
|
|
23
|
|
|
|
8,910.20
|
|
Minera Cuzcatlan
|
|
|
2008/09
|
|
|
|
113
|
|
|
|
32,925.50
|
|
|
|
0
|
|
|
|
0.00
|
|
Minera Cuzcatlan
|
|
|
2011
|
|
|
|
0
|
|
|
|
0.00
|
|
|
|
17
|
|
|
|
8,307.25
|
|
Minera Cuzcatlan
|
|
|
2012
|
|
|
|
15
|
|
|
|
8,574.30
|
|
|
|
9
|
|
|
|
3,970.60
|
|
Minera Cuzcatlan
|
|
|
2013
|
|
|
|
69
|
|
|
|
27,552.65
|
|
|
|
0
|
|
|
|
0.00
|
|
Minera Cuzcatlan
|
|
|
2014
|
|
|
|
96
|
|
|
|
36,650.65
|
|
|
|
0
|
|
|
|
0.00
|
|
Minera Cuzcatlan
|
|
|
2015
|
*
|
|
|
66
|
|
|
|
19,556.50
|
|
|
|
0
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
2001-2015
|
*
|
|
|
444
|
|
|
|
156,567.55
|
|
|
|
66
|
|
|
|
25,727.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of the diamond core holes drilled in the Trinidad deposit area were drilled from the east to the west to
cross-cut
the steeply east-dipping mineralized zone at high angles. Of the 444 holes, 250 have been drilled from the surface while 194 drill holes were drilled from underground. The diamond drilling typically
commences with
HQ-diameter
core 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 is undertaken with a smaller diameter drilling tools with the core diameter being reduced to NQ2 or
NQ-size
to completion of the hole. In five of the drill holes, a
further reduction to
BQ-size
drill core was required in order to complete the drill holes to the target depths.
Based on the combined results of the drilling completed in the Trinidad deposit area through 2007 and on the results of preliminary Mineral
Resource classification studies, an infill drill program was designed and carried out to permit conversion of a majority of the Inferred Mineral Resources above the 1,300 m elevation to Indicated Mineral Resources. The majority of the drilling from
the 2008/2009 campaign was directed towards the upper portions of the Trinidad deposit. The results of the infill drilling confirmed the presence of high-grade silver-gold mineralization in the Trinidad deposit area, and led to the development of a
detailed geologic and mineralization model of the deposit. While some of the 2011 drill holes located in the San Ignacio area encountered significant mineralized intervals, additional drilling is required in this area in order to demonstrate the
continuity of mineralization. 2012 drilling completed in the Trinidad North discovery area was successful in demonstrating the extension of significant silver and gold mineralization to the north and to depth, and resulted in the continuation of the
drill program into 2013. Underground drilling commenced at the end of 2012 with the completion of a single drill hole intersecting the Stockwork Zone.
From January 1, 2013 to the data
cut-off
date of June 30, 2015, Minera Cuzcatlan completed
231 drill holes totaling 83,759.80 m in the Trinidad deposit area. Surface and underground exploration drilling, focused on expanding the Trinidad North discovery, comprised 117 drill holes totaling 54,310.55 m. Underground infill drilling focused
on upgrading Inferred Mineral Resources and refining geologic interpretations in the Central Stockwork Zone and in the Trinidad North area comprised 114 drill holes totaling 29,449.25 m. As of the effective date of the San Jose Technical Report, an
additional 22 exploration drill holes totaling 14,411.25 m have been completed after the June 30, 2015
cut-off
date with two additional drill holes being
in-progress.
All
36
drilling was carried out from underground drill stations. Twelve of the exploration drill holes are located in the Trinidad North Extension area and ten are located in the Trinidad Central Deep
area. All
twenty-two
of the drill holes are located beyond the influence of the resource and reserve estimates.
Sampling, Analysis and Data Verification
Sample Preparation Methods Prior to Dispatch
Channel chip samples are generally collected from the face of newly exposed underground workings. Samples, comprised of fragments, chips and
mineral dust, are extracted using a chisel and hammer along the channels length on a representative basis. Sample collection is normally performed by two samplers, one using the hammer and chisel, and the other holding the receptacle (cradle)
to collect rock and ore fragments. Fragments greater than 6 cm in diameter are not accepted. The obtained sample is deposited into a plastic sample bag with a sampling card and the assigned sample ID. Once all the samples in the channel have been
collected, the sample bags are transported to the surface and sorted with quality control samples being inserted at industry standard insertion rates prior to delivery to the Minera Cuzcatlan laboratory.
A geologist is responsible for determining and marking the drill core intervals to be sampled. The sample length must not exceed 2 m or
be less than 20 cm. Splitting of the core is performed by diamond saw. The core cutting process is performed in a separate building adjacent to the core logging facilities. Once the core has been split, half the sample is placed in a sample bag. A
sampling card with the appropriate information is inserted with the core.
Bulk density samples have been primarily sourced from drill
core, with a limited number being sampled from underground workings. Density tests are performed at the ALS Chemex laboratory in Vancouver.
Following sample collection, samples were placed in polyethylene sample bags with a sample tag detailing a unique sample identifier. The same
sample identifier is marked on the outside of the bag and it is sealed with a cable tie. Secured sample bags are then placed in rice sacks and stored in a secure, dry, clean location. If the samples are from the underground channels they are
delivered each day to the onsite Minera Cuzcatlan laboratory for preparation and analyses. If the samples are drill core, the rice sacks are subsequently transported by authorized company personnel to commercial freight shipment offices in Oaxaca
for air transport to the independent ALS Chemex sample preparation facility in Guadalajara, Jalisco, Mexico.
Analytical Procedures Used at the
Laboratories
Upon receipt of a sample batch at the Minera Cuzcatlan laboratory, the laboratory staff immediately verifies that the
sample bags are sealed and undamaged. If any damaged, missing or extra samples are detected, the sample batch is rejected and the geology department is contacted immediately to investigate and resolve the discrepancy. Accepted samples are then
transferred to individual stainless steel trays for drying.
Once samples have been dried, they are transferred to a separate ventilated
room for crushing. Each sample is fed into a terminator crusher, in turn, to reduce the original particle size so that 75% passes a 10 mesh sieve size (2 millimeters (
mm
)). Once the sample has been crushed, it is homogenized and
reduced in size to approximately 1,000 g using a single tier Jones riffle splitter. The reduced sample is returned to the sampling tray for pulverizing, whereas the coarse reject material is returned to a labeled sample bag. Crushed samples are
pulverized so that 85% of particles pass a 200 mesh sieve size. The pulp sample is carefully placed in envelopes, which are taken to the balance room where they are checked to ensure the samples registered as having being received and processed
match those provided in the envelopes.
Upon receipt of samples in the analytical laboratory, two samples from the pulp envelope are
taken. One sample is analyzed using atomic absorption spectroscopy and the other by fire assay with gravimetric finish. Atomic absorption results are recorded when silver grades are less than 500 g/t or when gold grades are less than 6.5 g/t,
otherwise the gravimetric results are recorded.
37
All exploration core samples are sent to the ALS Chemex sample preparation facility in
Guadalajara, Mexico. Following drying, the samples are weighed and the entire sample is crushed to a minimum of 70%, passing a 10 mesh sieve size. The crushed sample is then reduced in size by passing the entire sample through a riffle splitter
until a 250 g split is obtained. The 250 g split is then pulverized to a minimum of 85%, passing a 200 mesh sieve size. The pulverized samples are subsequently grouped by sample lot and shipped by commercial air freight to ALS Chemexs
analytical facility in Vancouver, British Columbia for analysis.
Analysis at ALS Chemexs analytical facility in Vancouver, British
Columbia includes analysis for silver by ALS-Chemex Methods with Aqua regia digestion and
ICP-AES
finish; fire assay for gold with gravimetric finish and absorption spectroscopy in some cases.
Sample Security
Sample collection and
transportation of drill core and channel samples is the responsibility of brownfields exploration and the Minera Cuzcatlan mine geology departments. Exploration core boxes are sealed and carefully transported to the core logging facilities located
adjacent to the mine offices where there is sufficient room to layout and examine several holes at a time. Once logging and sampling have been performed, the core is transferred to the permanent storage facility at the mine site. The drill core from
the infill drilling program is stored in the same warehouse as the exploration core. Any removal of material must receive the approval of the Minera Cuzcatlan geology department.
Coarse reject material from exploration and infill drill core is presently being stored securely in a separate warehouse. Pulps from the
exploration and infill drill programs are stored in a secure and dry pulp storage facility. Coarse reject material from channel samples are collected from the Minera Cuzcatlan laboratory every day and stored in a storage facility located in a secure
building 0.5 km from the main operation. Pulps of channel samples analyzed by ALS Chemex are also stored in the same storage facility as the coarse reject material. Pulps of channel samples analyzed by the Minera Cuzcatlan laboratory are stored in a
secure storage facility at the operation.
All drill core, coarse rejects and pulps from the drill core are stored for the LOM. Disposal
of coarse rejects from surface samples is performed after 90 days and is controlled by the exploration department. Disposal of coarse rejects from underground channel samples is performed after 90 days and is the responsibility of the Geology
Superintendent.
Quality Control Measures
Standard Reference Material
SRMs
are samples that are used to measure the accuracy of analytical processes and are composed of material that has been thoroughly analyzed to accurately determine its grade within known error limits. SRMs are inserted by the geologist into the sample
stream, and the expected value is concealed from the laboratory, even though the laboratory will inevitably know that the sample is a SRM of some sort. By comparing the results of a laboratorys analysis of a SRM to its certified value, the
accuracy of the result is monitored. SRMs have been used to assess the accuracy of the assay results from both the Minera Cuzcatlan and the independent ALS Chemex laboratories, having been placed into the sample stream by Minera Cuzcatlan geologists
to monitor the accuracy of the analytical process.
The analysis at the Minera Cuzcatlan laboratory involved the submission of 2,231
standards with 34,640 channel samples (submission rate of 1 in 16 samples) between February, 2012 and June 30, 2015 to the Minera Cuzcatlan laboratory, corresponding to the majority of channel samples taken at the operation. Nine of the twelve
different SRMs used since February 2012 have been generated from
in-house
coarse reject material. In addition to statistical analysis, graphical analysis of the results was also conducted to assess for trends
and bias in the data.
38
Pass rates reported for standards submitted with channel samples since mining commenced to the
data
cut-off
date for silver and gold values are 97% and 94% respectively. The accuracy levels for silver and gold can be regarded as acceptable.
A total of 2,306 standards to monitor the accuracy of silver assays were submitted to the ALS Chemex laboratories with 52,966 drill core
samples, representing a submission rate of 1 in 23 samples between 2006 and June 30, 2015, of which 1,163 were submitted for assaying by
ICP-AES.
Of the 2,306 standards, 1,143 were submitted for assaying
by
FA-GRAV.
SRMs inserted to assess silver grades using
ICP-AES
returned a pass rate of 89%, whereas SRMs assessing silver grades using
FA-GRAV
had a pass rate of 95%. It should be noted that many of the failures (83 of the
126) observed in the
ICP-AES
can be attributed to standard
CDN-HC-2,
which was thought to be compromised and insertion ceased. If
this standard is ignored the silver accuracy levels can be regarded as reasonable.
Gold is assayed by fire assay with atomic absorption
finish unless the gold is greater than 10 g/t Au, in which case the sample is
re-assayed
with a
FA-GRAV.
A total of 2,861 standards to monitor the accuracy of gold
assays were submitted with 52,966 drill core samples, representing a submission rate of 1 in 19 samples between 2006 and June 30, 2015, of which 2,784 were submitted for assaying by
FA-AA.
Of the 2,861
standards, 77 were submitted for assaying by
FA-GRAV.
SRMs inserted to assess gold grades using
FA-AA
returned a pass rate of 93%, whereas SRMs assessing gold grades using
FA-GRAV
had a pass rate of 92%. It should be noted that the standards that tended to fail at a
higher rate were those inserted at the beginning of the monitoring program, with results improving as time has progressed. The gold accuracy levels can be regarded as reasonable for estimation purposes.
Blanks
Field blank samples are
composed of material that is known to contain grades that are less than the detection limit of the analytical method in use and are inserted by the geologist in the field. Blank sample analysis is a method of determining sample switching and
cross-contamination of samples during the sample preparation or analysis processes. Minera Cuzcatlan uses coarse marble sourced from a local quarry and provided by an external supplier as their blank sample material.
At the Minera Cuzcatlan laboratory, 2,222 blanks have been submitted since February 2012, representing a submission rate of 1 in 16 samples.
Results of the blanks submitted indicate that cross contamination and mislabeling are not material issues at the Minera Cuzcatlan laboratory. Of the 2,222 blank samples submitted, six exceeded the fail line (set at two times the lower detection
limit) for silver assays and fourteen for gold assays indicating an excellent result with pass rates greater than 99%.
A total of 2,755
blanks were submitted with core samples to the ALS Chemex laboratory by Fortuna and Minera Cuzcatlan covering all core submitted since 2006, representing a submission rate of 1 in 18 samples. Of the 2,755 blank samples submitted, 31 exceeded the
fail line (set at two times the lower detection limit) for silver and 10 exceeded the fail line for gold assays. This represents a pass rate of greater than 99% for both silver and gold blank submissions. If two blanks failed in succession, all
assay results for the batch were automatically reviewed and
re-analyzed
if deemed necessary. Blank results from ALS Chemex are regarded as acceptable indicating no significant sample switching or
contamination.
Duplicates
Duplicates were submitted to both the Minera Cuzcatlan laboratory (with channel samples) and the ALS Chemex laboratory (with drill core). The
ALS Chemex laboratory also acts as the umpire laboratory, analyzing reject assays and check assays (pulps) from the Minera Cuzcatlan laboratory.
39
Minera Cuzcatlan inserts field duplicates with channel samples as part of its QAQC program.
Preparation and laboratory duplicates are inserted by the laboratory, whereas reject assays and duplicate assays are inserted blind by the geology department. Check assays (both coarse rejects and pulps) from the Minera Cuzcatlan laboratory are sent
to the certified laboratory of ALS Chemex to provide an external monitor of precision. Standards and blanks are also submitted with the check assays to ensure the accuracy of the ALS Chemex results.
In general, precision levels are reasonable with the majority of ARD values being greater than 80%. However, field duplicate results are poor
for both silver and gold. The operation has tested numerous practices to improve the sampling procedure, such as including closer supervision of the sampling process, increasing the sampling mass and trying alternative sampling methods, with limited
success. In addition, several adjustments have been made by the laboratory to improve the gold analytical techniques, with improvements seen over the years. Results from the umpire laboratory also indicate reasonable precision levels suggesting the
issue with the field duplicates is not a Minera Cuzcatalan laboratory issue. The poor precision levels for the field duplicates have been attributed to the heterogeneous nature of the mineralization with the presence of a moderate to high nugget
effect. It is worth noting that the results observed for the precision levels for the channel samples is similar to that of the drill core, suggesting that sampling error is not the problem.
Minera Cuzcatlan has primarily relied on the insertion of field duplicates, reject assays (coarse rejects) and duplicate assays (pulps) to
assess the precision of drill core results from the ALS Chemex laboratory. The operation also monitors the results of the
in-house
preparation and laboratory duplicates inserted by ALS Chemex. Minera Cuzcutlan
also regularly sends check assays (both coarse rejects and pulps) to the umpire laboratory of SGS Mineral Services in Oaxaca to provide an external monitor of precision. Standards and blanks are also submitted with the check assays to ensure the
accuracy of the SGS laboratory.
Precision results for exploration core samples evaluated by ALS Chemex demonstrate the highly variable
nature of the mineralization, with poor precision results for the field duplicates, reject assays and duplicate assays. However, it was discovered during an audit of the results that the exploration team had been tending to insert low grade samples
(<60 g/t Ag) and that this has had a detrimental effect on the results. When higher grade values were assessed, the precision levels improved and were seen to be acceptable, which is reflected in the superior results observed for the samples
assayed with a gravimetric finish.
Precision levels of field duplicates for infill and exploration drill core samples submitted to ALS
Chemex are poor. The results are indicative of the highly variable, nuggety nature of the mineralization that reduces precision levels. The operation is attempting to assess and remove the nugget effect by crushing and splitting the core
to obtain a field split prior to submission to ALS Chemex rather than using the other half of the core. Minera Cuzcatlan continues to monitor and attempt to improve the precision of the sampled drill core, however the results indicate
the difficulty the variable grades present for grade estimation, particularly for gold.
Data Verification
Minera 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 manager who is responsible for overseeing data entry, verification and database maintenance.
Both
databases were reviewed and validated by Mr. Eric Chapman, P. Geo. The data verification procedure involved the following:
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Inspection of selected drill core to assess the nature of the mineralization and to confirm geological
descriptions;
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Inspection of geology and mineralization in the underground workings of the Trinidad and Bonanza veins;
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Verification that collar coordinates coincide with underground workings or the topographic surface;
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40
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Verification that downhole survey bearing and inclination values display consistency;
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Evaluation of minimum and maximum grade values;
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Investigation of minimum and maximum sample lengths;
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Randomly selecting assay data from the databases and comparing the stored grades to the original assay
certificates;
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Assessing for inconsistencies in spelling or coding (typographic and case sensitivity errors);
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Ensuring full data entry and that a specific data type (collar, survey, lithology, and assay) is not missing;
and
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Assessing for sample gaps or overlaps.
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Based on the data verification detailed above, Fortunas Vice President of Technical Services, Mr. Eric Chapman, P. Geo., considers
the Minera Cuzcatlan data to be suitable for the estimation of classified Mineral Resources and Mineral Reserves.
Mineral Processing and
Metallurgical Testing
Initial metallurgical test work to assess the optimum processing methodology for treating ore from the
Trinidad deposit was conducted in 2009 and reported in the
Pre-Feasibility
Study. The metallurgical study was conducted on ten composite samples representing a variety of potential ore types. The following
provides a summary of the metallurgical work conducted and includes comments regarding the most recent studies and findings from the processing plant. The test work included the following:
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Whole rock analysis demonstrated that
(SiO
2
) quartz is the main gangue mineral and that the samples are amenable to gold and silver recoveries by the flotation process;
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Bond ball mill work index indicates that the average bond work index (
BWI
)
is lower than the plant design and should result in less power being required than was predicted, and that there are some cases where BWI is equal to the design so that the plant is prepared to treat all material without any losses in the process;
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Rougher flotation test work with three stages of cleaning;
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Locked cycle flotation test work produced average recovery results of 90.6% gold and 91.9%
silver, allowing the technical department to predict estimated recoveries of 89% for both elements of the LOM plan; and
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Rougher kinetics flotation.
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A further difference between the plant design and functionality has been in the amount of flocculent required for the thickening and filtering
process of the tailings and concentrate. The
Pre-Feasibility
Study had recommended the usage of 40 g/t to 60 g/t of the reagent HychemAF304 for thickening of tailings to achieve solid content of 47% to 51%.
Minera Cuzcatlan has performed the thickening of tailings using the reagent Magnafloc 336 at the lower concentrations of 15 g/t to 25 g/t and producing tailings with approximately 55% solid content.
The reagent HychemAF304 (recommended at 25 g/t to 40 g/t concentrations) was also replaced with Magnafloc 336 (5 g/t to 10 g/t concentrations)
for thickening the concentrate with no detrimental effect to the solid content percentage. In this way, the plant has made significant cost savings by reducing the quantity of flocculants used in the plant.
For additional information, see Technical Information San Jose Mine Processing and Recovery
Methods.
41
Mineral Resources and Mineral Reserves
See Technical Information Summary of Mineral Reserve and Mineral Resource Estimates San Jose
Mine.
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 were 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. Primary veins including Bonanza, Trinidad, Fortuna and the Stockwork Zone, were estimated by Sequential Gaussian Simulation. Secondary veins were estimated by inverse power of distance. Estimated grades were validated globally, locally,
visually and through production reconciliation prior to tabulation of the Mineral Resources.
The Mineral Reserve estimation procedure for
the San Jose Mine is defined as follows:
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Review of Mineral Resources in longitudinal sections and grade tonnage curves;
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Evaluate location and dimensions of potential bridges and pillars based on mining methodology;
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Identification of accessible Mineral Resources using current mining practices and based on the mine
architecture;
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Removal of inaccessible areas and material identified as pillars or bridges;
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Removal of Inferred Mineral Resources;
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Dilution of tonnes and grades based on factors estimated by the San Jose Mine planning department and
determined from the six to twelve months of production preceding the Mineral Reserve estimation;
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After obtaining the resources with diluted tonnages and grades, the value per tonne of each SMU is determined
based on metal prices and metallurgical recoveries for each metal;
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A breakeven
cut-off
grade is determined based on operational costs of
production, processing, administration, commercial and general administrative costs (total operating cost in US$/t) and converted into a silver equivalent grade. If the silver equivalent grade of a SMU is higher than the breakeven
cut-off
grade, the SMU is considered as part of the Mineral Reserve; otherwise, the SMU is regarded as part of the Mineral Resource;
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Depletion of Mineral Reserves and Mineral Resources exclusive of reserves relating to operational extraction
between July 1 and December 31, 2015; and
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Reconciliation of the reserve block model against mine production between July 1 and December 31,
2015 to confirm estimation parameters.
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Mining Operations
The method chosen for underground mining at the San Jose Mine is overhand
cut-and-fill
which removes ore in horizontal slices starting from the bottom undercut and advancing upwards. When ore widths are greater than 8 m, a combination of
overhand
cut-and-fill
and
room-and-pillars
has been selected as the best method for the
conditions encountered. Mechanized mining is regarded as the only methodology suitable in all veins based on the geological structure and geotechnical studies, and utilizes a jumbo drill rig to drill blast holes, scoop trams for loading and trucks
for ore haulage. Rock support is provided through rock bolts and shotcrete.
A break-even
cut-off
grade for the deposit was determined as 137 g/t Ag Eq based on existing operating costs (including exploitation and treatment costs, general expenses and administrative and commercialization costs), projected metal prices (gold at US$1,140/oz and
silver at US$19/oz) and metallurgical recoveries (gold and silver recovery at 89%) and expected commercial terms. For the Taviche Oeste concession, an extra royalty was applied resulting in a
cut-off
grade of
140 g/t Ag Eq.
42
Applying the above
cut-off
grades, Datamines
Minable Shape Optimizer (
MSO
) was used to develop indicative mineable envelopes to identify economically viable areas amenable to the proposed mining method. MSO utilizes key inputs to generate stope shape whereby the mined metal
in relation to tonnage is optimized. The optimization is driven by the
cut-off
grade, mining extents, minimum and maximum stope widths, level spacing and minimum and maximum dip angles.
The stope design is optimized through the generation of minable areas, based on the following inputs:
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(a)
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Height of the operational slice; 6 m high has been considered for the optimization;
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(b)
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Width of the operational slice; a minimal operational width of 4 m was applied;
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(c)
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A breakeven
cut-off
equivalent to US$67.10/t;
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(d)
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Dip and strike of the vein; and
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(e)
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The resource block model.
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MSO outputs were imported into Datamines 5D planner to evaluate and remove extraneous satellite stopes that are not conducive to
practical and/or economic extraction. A mineable tonnage at a specific
cut-off
grade and three-dimensional wireframe are obtained which represent the mineable Mineral Reserves to be extracted. The result is
used as an input for production and related development infrastructure planning and sequencing.
Processing and Recovery Operations
Expansion of the concentrate plant was successfully completed in June of 2016, taking the ore throughput capacity from 2,000 dry tpd to 3,000
dry tpd. The principal stages are as follows:
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i
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Crushing Ore extracted from the mine is reduced in size to be fed to the mill. The ore is fed
from the bottom of the hopper via a plate feeder into a jaw crusher that crushes the ore prior to it being transported via conveyors to the primary screen deck. Ore is continually crushed until it is fine ore capable of passing through 12.7 mm mesh,
and is then sent to fine ore storage where it is stockpiled before being fed into the milling circuit.
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ii
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Milling The fine ore is sent to ball mills used to further reduce the ore size. The ore is
then classified using hydro-cyclones, generating fine ore and course ore. Coarse ore is recycled back into the mills for further grinding until it is finely ground.
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iii
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Flotation Fine ore is put through two floatation stages which generate primary concentrate.
Primary concentrate is cleaned in several stages to remove impurities before passing to the thickening stage.
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iv
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Thickening, filtering and shipping Cleaned concentrate is sent to a thickening tank where
particles are agglomerated and sediment is generated. The thickened solid is then pumped into a
two-press
type pressure filter where part of the water is eliminated and
re-circulated
into the process. The remaining concentrate cake is discharged into the concentrate storage for transportation. The underflow of the final bank of the second flotation (exhaustion) is sent to a
thickening tank where a solid-liquid separation is performed through the application of a flocculating reagent that agglomerates fine particles into sediment. The pulp is pumped to a three press-type pressure filter where most of the water is
eliminated and
re-circulated
back into the process. The remaining tailings cake is discharged to the tailings stock for transportation to the dry stack disposal area.
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Project Infrastructure
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, a dining hall, a laboratory and core logging and core storage warehouses. The tailings storage facility is located approximately 1,500 m to the southwest of the
concentration plant.
43
Experienced underground miners live in the nearby towns of Ocotlan and Oaxaca, in addition to
other local towns in the district, and are transported to the property by bus. Water for the process plant and mining operations is sourced from the tailings storage facility and, since 2010, from a waste water treatment plant operated by Minera
Cuzcatlan, located in the town of Ocotlan de Morelos.
Minera Cuzcatlan is in compliance with environmental regulations and standards set
in Mexican law, and has complied with all laws, regulations, norms and standards at every stage of operation of the mine. Minera Cuzcatlan has an environmental commitment related to the remediation of the current mining facilities located on the
Progreso and Reduccion Taviche Oeste concessions. Minera Cuzcatlan is obligated to set aside US$6.7 million over a
10-year
period to cover remediation and closure requirements. These programs are ongoing
with funds assigned to various projects on an annual basis. To the extent known, all permits that are required by Mexican law for the mining operation have been obtained.
Minera Cuzcatlans Community Relations department promotes the sustainable development of the San Jose Mines neighboring
communities. From 2011 to 2015, Minera Cuzcatlan has signed an economic agreement with the community of San Jose del Progreso in which US$3.8 million has been invested in sustainable development, health and nutrition, education, culture,
communication and dialogue.
Capital and Operating Costs
See Technical Information Summary of Capital and Operating Costs San Jose Mine.
Exploration, Development, and Production
Since September 2011, Minera Cuzcatlan has successfully managed the operation of the San Jose Mine, processing over 2.7 Mt of ore from its
underground mining operation and producing 16.8 Moz of silver and 132 koz of gold. During this period considerable investment was made to expand the processing plant and increase the capacity of the tailings dam.
Minera 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.
Short-term mine plans must be developed in accordance with long-term plans to ensure the
mines production results are consistent with its budget. As disclosed in the San Jose Technical Report, recommended work programs for 2016 included:
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1)
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Plant expansion
. This project involved the expansion of the production plant, consisting of equipment
and construction to increase production to 3,000 tpd. The estimated cost of this project was US$21.86 million.
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2)
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Mine Development Program
. This activity was designed to prepare the high-grade mineralized Stockwork
Zone at the 1,100 level in order to sustain production in 2016. Additionally, the development will aim to reach the 1,100 and 1,000 level to complete the access and to commence the required infrastructure in the Trinidad North discovery area at the
1,100 level.
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3)
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Tailings handling facility
. This project was divided into three areas: (i) the paste fill plant,
(ii) the tailing filtration plant and (iii) the dry tailing deposit. The purpose of the paste fill plant is to
re-utilize
part of the tailings (comprising 30% of the fill) in order to backfill the
mine. The tailing filtration plant will mainly serve two purposes: (i) to help recover approximately 86% of the water from the tailings to be
re-used
in the plants flotation cycle and (ii) to create
a better quality of dry tailings which will have
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44
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a lesser impact on the environment. The dry tailings deposit will consist of platforms at different levels, for the stacking, laying and compaction of dry tailings. The project was budgeted to
cost US$4.5 million.
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4)
|
Delineation (infill) drilling
. In 2016, Minera Cuzcatlan planned to continue the delineation drilling
from underground mainly in the Trinidad North area. The goal of the program was to convert a total of 1.6 Mt of Inferred Mineral Resource to the category of Indicated Mineral Resource, representing an estimated 21 Moz Ag Eq. To achieve this, 64
drill holes totaling 11,000 m were planned at a budgeted cost of US$1.7 million.
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5)
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Brownfields exploration
. Fortuna assigned US$8.2 million in 2016 for brownfields exploration of
the San Jose district. This was planned to include 22,000 m of diamond drilling and the development of a 1,500 m underground exploration drift that will allow better access to explore the northern extension of the Trinidad North vein system.
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45