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Fortuna Silver Mines (NYSE:FSM)
Q4 2020 Earnings Call
Mar 12, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen, and welcome to the Fortuna Silver Mines fourth-quarter and full-year 2020 financial and operational results. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the call over to your host, Carlos Baca. Sir, the floor is yours.

Carlos Baca -- Investor Relations Manager

Thank you, Matthew. Good morning, ladies and gentlemen. I would like to welcome you to Fortuna Silver Mines and to our financial and operations results call for the fourth quarter and full year 2020. Today, we will be using a webcast presentation which will be controlled by us.

To download the presentation, please go to our website at fortunasilver.com. Click on the Investors tab, then on the Financials sub-tab, and under Q4 2020, click on the Earnings Call Presentation link. Jorge Alberto Ganoza, president, CEO, and director; and Luis Dario Ganoza, CFO will be hosting the call. Before I turn over the call to Jorge, I would like to indicate that this earnings call contains forward-looking information that is based on the company's current expectations, estimates, and beliefs.

This forward-looking information is subject to a number of risks, uncertainties, and other factors. Actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the company's Annual Information Form and MD&A, which are publicly available on SEDAR.

The company assumes no obligation to update such forward-looking information in the future, except as required by law. I would now like to turn the call over to Jorge Alberto Ganoza, co-founder of Fortuna.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Thank you, Carlos, and good morning to all. We will take you through our results for the quarter and year-end with the aid of the slide presentation Carlos mentioned before. So, we can go on, Carlos, to Slide 5 presentation. Through our work over the last three years, we have come to place ourselves in the most exciting position to be as we are delivering significant growth in gold production in our rising precious metals mark.

This year, our production guidance from our three mines is in the range of 260,000 to 300,000 gold equivalent ounces an increase of 80% to 100% over 2020. Next slide, please. And their highlights for the quarter, we have reported record-breaking free cash flow of $34.5 million and our business operates with a robust adjusted EBITDA margin of 43%. We have strong liquidity of $132 million with net debt of $34 million and a debt to EBITDA ratio of point 0.4%.

We expect to be net cash positive again this year. Lindero production first -- Lindero produced first gold in October 2020 and delivered 13,435 ounces in the fourth quarter as part of commissioning in a ramp-up activity. During this ramp-up quarter, Lindero was cash positive generating approximately $5 million in free cash with an all-in sustaining cost under $1,100. Ramp up to the same capacity continues during Q1 of this year.

During this precedent year, our operations suffered temporary suspensions of production. For San Jose mine in Mexico was down for 54 days, the Caylloma mine in Peru was down for 21 days, and Lindero construction activities were suspended for almost three months considering remortgaging. The company was quick to implement containment measures for COVID across all sites mitigating risks to our people, neighbors while complying with rapidly changing government regulations and guidelines and ensuring business continuity. where direct costs attributable to managing the COVID risks across all sites amounted to $4 million in the year.

Moving on to Slide 7. We're listening to our shareholders and stakeholders in general. We're not only improving or reporting on ESG but undergoing a cultural change in the way we incorporate sustainability in our strategy and business planning. Through a rigorous materiality assessment, we are prioritizing our efforts.

This is a journey of continuous improvement. We have strength in governance evidenced by the rating agency and areas of improvement in taking longer-term views on the environment and society. We're committed to showing Fortuna as a strong ESG perform. Next slide, please.

On Slide 8 of the presentation, we share key safety performance indicators. We present KPI as a 12-month rolling average to better represent trends or trends of improvement over the last years was truncated by the challenges imposed by COVID, particularly in the second half of 2020. In the last months of the year, we experienced a spike in total recordable incidents and lost time injuries. COVID restrictions, particularly at the San Jose mine and start-up of operations at Lindero, explained the poor performance.

High rotation of personnel due to the COVID contact tracing and incidence of suspect cases, and inability to mobilize experienced operators and supervisors for Argentina due to the closing of the borders before and foreigners weighted heavily on -- on these results. I can assure you that for the start of 2021 we're seeing materially improvements in performance in the Lindero mine while some challenges remain at San Jose. With respect to production for the quarter, silver production, again a comparable quarter as a result of lower grades in the San Jose mine, 17% lower grades. And gold was up 100% due to the contribution of the first gold production from Lindero.

Next slide, please. For the year, silver production was down 19%, mainly driven by the 54 days of suspension production at San Jose and the impact of lower grades. Gold was up 10% on the back of the Lindero contribution to production as I mentioned in the fourth quarter. Next slide, please.

Sales in the fourth quarter. Sil -- silver and gold had an almost equal contribution to sales of 40% to 45% and we capture in our sales and margins the benefit of increased prices for both silver and gold. We sold silver in the quarter at a price of $24.40 per ounce and gold at a price of $1,864. Sales in the quarter jumped 50% to $103 million.

Our EBITDA jumped 48% to $45 million, and our adjusted net income jumped 111% to $23 million, or $0.12 per share. Next slide, please. For the year, we reported sales of $280 million and a very healthy EBITDA of $112 million with a margin of 40%. Cash costs were impacted from the all-in-sustaining perspective from the lower production of silver and the San Jose mine, again as a result of the shutdown and -- and lower grades.

At Caylloma mine, our cuts -- cash costs were impacted also by the equivalency ratios with the base metal. Next slide, please. We have concluded in 2020 the capital intensive phase that we had embarked on for the last three years. The construction of Lindero is over and we are in the commissioning and ramp-up phase and our capex budgets are expect -- are trending now in -- in -- or -- or within the balance of the -- or sustainability investment at all three sites.

We are reenergizing also exploration and looking forward and we provided this -- and we shared this in our guidance. We are reenergizing our budgets on -- on exploration. We have traditionally been investing up until 2017 approximately 4% of sales on -- on exploration and -- and having budget drilling meterage of always in excess of 30,000 meters. In 2020, our -- our exploration budget was a low $8 million.

We drilled 8,000, sorry, our treating in drilling meters was a low 8,000 meters. And as a percent -- as a percentage of sales or investment and exploration was under 2% of sales. For 2021, we are taking our exploration budget back again to our level of around 4% to 4.5% of sales, and drilling meterage is being expanded in next -- to -- in excess of 40,000 meters a year. That is the kind of meterage and -- and exploration investment we need to not only replenish reserves resources but also expand them.

So in 2021, exploration is a topical issue for us, and -- and you are going to see expanded investment in exploration now that the capital intensive phase of Lindero construction is behind. Next slide, please. With respect to our activities in Lindero, ass -- by way of update, as -- at the end of February, our mining unit operations at Lindero are -- are operating and delivering according to design capacity. Our ADR plant has been now for several months operating at design capacity, taking the full 400 cubic meters per hour of pregnant solution and achieving cold extraction in the range of 90%.

Primary and secondary crushing circuits as of the end of February are operating at 67% of designed capacity. In this month of March, we're already seeing solid days at -- within 85% -- within 85% of design capacity. At the HPGR Agglomeration and Stacking, we are at 23% of design capacity. Here, the limiting factor has been the stacking system and we have been dealing with operating and -- and tearing issues at the stacking system.

But I can advance that already in -- in -- in these early days of March, we're seeing the performance, you know, improving and closer solid days closer to 30% to 40% of design capacity. So, all in all, we're seeing a strong trend in -- in the right direction and we are expect -- continue to -- to expect material advances on the ramp-up this month of March as we implement several measures and corrective measurement -- measures on a lot of the components of the process. But most importantly, all of these things are issues we can address and -- and correct. But our -- our models or reserve models are conciliating extremely well against production and our leaching kinetics, gold leaching kinetics, are performing according to our design parameters and expectations.

So those are two things we want to highlight. And also the fact that, as I mentioned before, we're trending in the right direction with respect to our expectations on ramp-up. We're still slightly behind -- somewhat behind on -- on -- on the stacking, but we're seeing solid improvement in March. Next slide, please.

I think this is the -- the end of my public -- on the presentation. Now, I'll pass it on to Luis who will give you the highlights of the financial results. Luis.

Luis Dario Ganoza -- Chief Financial Officer

Yes, thank you, Jorge. So on Slide 18, yeah, as been discussed by Jorge, we had a strong fourth quarter driven by higher sales of 50% over Q4 2019. Our margins were significantly up, reflected in our adjusted EBITDA and adjusted net income increases of 78% and 100% respectively. Net income, however, was slightly below Q4 2019 due to certain items, below the operating income line, contributing to a higher net income in the comparative period of 2019.

Specifically, in 2019, we recorded $11 million of investment gains and the large deferred tax credit related to foreign currency fluctuations. Slide 19, please. So in the -- in the quarter, the highest impact on our sales came from those higher metal prices, silver in particular, which was up 41%. And as Jorge mentioned, their contribution from Lindero was $20.3 million for a total -- for a total increase in sales of $34.5 million.

The company elected to early adopt certain amendments to IAS 16, which deal with the proceeds before intended use of assets. Under this amendment standard, the company is required to recognize sales, proceeds, and related costs of items produced in the income statement while the company is preparing the asset for its intended use. Next slide, please, Slide 20. So reinforcing a little of what Jorge discussed, when looking at our comparative segmented results, EBITDA is up significantly quarter over quarter for both at San Jose and Caylloma Mine, reflecting the positive impacts of higher mineral prices as previously discussed.

Our production cash cost at both operations in Q4 remains at similar levels as their comparative quarter and is, overall, within the ranges we expect for 2021 based on our guidance. All-in sustaining cost at San Jose was $14.50 per equivalent ounce of silver for the quarter and $12 for the year. Again, based on guidance provided for 2021, we expect all-in sustaining cost to remain within -- within a similar range of $12 and $14.50 per equivalent ounce of silver in 2021. Slide 21, please.

Yes, on Slide 21, we provide some additional detail on -- on the reported Lindero results as it's -- as disclosed, $20.3 million of sales contribution and cash cost of sales shown in the table correspond to the full operating cost in the quarter. The only item of in-country costs and expenses that is not yet reflected in the income statement in Q4 is the offsite G&A of $1.1 million. Total Lindero contribution to our consolidated EBITDA was $11.3 million in the quarter. Also relevant to note, we have incurred export duties of 8% nominal rate over sales, which we expect to continue into 2021.

Next slide, please, Slide 22. Here, we -- we show the -- the breakdown of our general and administration line item out of financial statements for the quarter and the year. For the full year, our corporate and in-country G&A expenses are below 2019. The increase in total G&A both for the quarter and the year is related to higher share-based payments related mainly to the performance of our share price.

As shown on the slide as well, we recorded an -- a foreign exchange loss for the quarter of $4.7 million and $12.2 million for the year. Driver of these losses, as has been discussed in the past, is a construction VAT receivable in Argentina. In 2019, we incurred a loss of similar -- or similar magnitude, which cumulatively in the two-year period adds up to approximately $24 million. This, however, has been partially mitigated by investment gains of $3.3 million in 2020 and around $10 million in 2019.

So cumulatively, the net loss is more in the range of $10 million. It is worth noting that we have already started recovering VAT with the first month, some amount of $10 million collected in January 2021. And the next slide, please, Slide 23. Yes, here, we provide a summary of our balance sheet and liquidity position.

On the bar graph on the left at the end of Q4 2020, our total liquidity came down slightly with respect to Q3. And so our $150 million bank facility was scaled down to $120 million as was contractually scheduled. Worth noting, our net debt position shown at the bottom improved from $56 million in Q3 to $34 million in Q4. With that, I will hand it back to you, Carlos.

Thank you.

Carlos Baca -- Investor Relations Manager

Thank you -- thank you, Luis. We would now like to turn the call over to any questions that you may have.

Questions & Answers:


Operator

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator instructions] Please hold while we poll for questions. Your first question is coming from Don DeMarco.

Your line is live.

Don DeMarco -- National Bank -- Analyst

Thanks so much for taking my call. Jorge, so you mentioned the stacking system. I read that about 23% in February, performance increasing to 30% to 40% in March. Well, what kind of level would you be comfortable with in order to meet the guidance in 2021?

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Thank you for the question. It is important to -- to stress something that we tried to describe well in the MD&A, which is we are bypassing whatever tonnage or -- or extract ounces we are not placing with the stacking system, we are making up with the placing more on the leach pad with trucks.

Don DeMarco -- National Bank -- Analyst

OK.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

So what we are tracking is the amount of extractable ounces that we place on the leach pad every month, right? So we are meeting the extractable ounces on the leach at -- as per our guidance. And the -- the -- the issue is that the ounces that we place on the -- with the stacking system, we expect gold extraction to be in the range of 75%, 78% over 90 days with the ounces that we place with trucks as they are a bypass that comes from the -- where we draw ore from the secondary crusher stockpile. It needs a 34-millimeter crush. And -- and for that kind of crushed material, that pad at 34 millimeters, gold extraction is more in the range of 50% over 90 days.

Over time, we will achieve a higher extraction rate, not this 75, but certainly higher than 50 over time. So we're having to place more ounces to meet the -- the guidance, more ounces in the leach pad to meet the guidance. So that's how we're managing it. This is a temporary solution while we -- we get the stacking system up to -- to design, right? What I said during the call is that in these early days of March, we are already seeing the stacking system performing at, you know, between 30% and -- and 40%.

We had -- yesterday, a good day with 9,000 tons per day, which is more like 50% of -- of capacity. We are dealing with -- with some -- some, here in my notes, issues with the stacking is mainly the -- the overland conveyor braking system malfunctions. That generate massive spillage. This is basically the automation system of the stacking system is not communicating properly at all times.

And maybe, you know, more -- more testing what's happening and -- and we get it working, and then we have a miscommunication. And -- and when the working people then work and think, sometimes we get massive spillages from one of these large conveyor belts, right? That takes up to five hours to clean up and get it up running again. So nothing that we -- and -- and just to complement here. I believe that, for example, this is a good example of how COVID is impacting us.

I believe this issue could be resolved in a matter of days or -- or -- or weeks, even hours. The issue is that we do not have the benefit of having the vendor technicians on site working with our operators and -- and maintenance team, right? We're making good use of technology but it's not the same. So a lot of these issues we, you know, we're improving, getting the -- the mechanical availability up and up and up. But I didn't think that I believe could take hours or days to resolve and not taking days or weeks because we just don't have the -- the -- something that you would see on a normal day, which is the -- the -- or -- or -- or ramp-up the vendor technicians on-site with you, right? In this case, superior and then the -- the Argentinian borders are -- remain largely closed to foreigners so we can not get the -- the technicians in country, right?

Don DeMarco -- National Bank -- Analyst

OK. OK. Well, thanks for that. Also on stacking, but maybe shifting over to grade.

I recall around mid-October, the initial grades that you had stacked were a little bit below like maybe 0.83 grams per tonne or something. You had been previously maybe been targeting one, above one. But now I see that if the grades -- stack grades for the end -- for the full year are one gram per tonne, which implies there's been an increase in the stack grade. Are you comfortable with the grade that you're stacking right now and -- and is it in line with your -- your expectations and plan?

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Yeah, grade is in line with our plan. Absolutely.

Don DeMarco -- National Bank -- Analyst

OK. OK. And then finally, on capital allocation priorities, we have you generating a lot of free cash flow in 2021. You mentioned you -- you have expanded investment on exploration.

I -- is a dividend something that you're thinking about at this point or repaying the debt? What -- what are your capital allocation priorities beyond investment and ex -- exploration?

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Yes. And then thanks for the question because it allows me to point something here. We have three priorities. Number one is, first, we believe at times like these, companies -- many companies need to -- to strengthen the balance sheet, right? These are the opportunities we have in these -- in cycles like these, legs of the cycles like we're in now to -- to strengthen the balance sheet.

So we -- we view having -- putting together a fortress balance sheet as a -- as a priority for us, right? So that's number -- even though our debt to EBITDA is low and whatnot. We -- we -- you will be seeing us ensuring that we come out of this leg of the cycle with a very strong balance sheet. Second is exploration investment. As I noted in the -- my intervention before, moving short changing our investments on exploration for three years as we were prioritizing capital allocation to Lindero construction.

We have been drilling, you know, 2020 only 8,000 meters, not enough to replenish deal with depletion at ore mines and expand the reserves. So, we got those drilling meters up north of 40,000, 50,000 meters. We're drilling on -- at all sites. We have new initiatives outside of brownfields.

We're going to be drill testing this year as well in Mexico and one in Argentina. And unless it is returning to shareholders no, yes, that's something that we will consider the best way to return to shareholders. And we will evaluate those options against other opportunities for growth that we might identify and -- but certainly, returning capital to shareholders is in the way of dividends or a special dividend or -- or other means is something that the board is considering right now.

Don DeMarco -- National Bank -- Analyst

OK. That answers my question. Thank you for that.

Operator

Thank you. Your next question is coming from James Huntington. Your line is live.

James Huntington -- Unknown affiliation -- Analyst

Yeah. Hi, guys. Thanks for taking my questions. Just further following up from sort of the previous questions on the stacking and the -- what sort of timeline, like, adjusted your current rates you think you could be ramped up on this stacking system? It's unfortunate, yeah, COVID is obviously restricting you a fair bit there.

But you think this would be like a two-month process or sort of you -- you'll be like 90% of the way by the end of March? Just a bit more color there. Thanks.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Yes. And, you know, that's a tricky question to answer. We have a -- our problems are with the stacking are isolated right now to the braking system -- to the communications on the braking system. It's an ultimatum issue.

We've been trying a lot of things on solving problems and improving, and now we're left with this one. And if you know how these works, you know, you -- you all of a sudden, you know, get it right and you get a bump on -- on -- on -- on performance, and we're already starting to see better days. And all of a sudden, we can see significant jumping in performance. You know, we're almost at mid-March.

So, you know, it's still our expectation to get within 85% in -- of performance in March. But if not, we'll see a spillage into April, right. But it's difficult for me to gauge. I believe the issues are issues that are solved in a matters of days or weeks, what we have in front of us with the stacking is something that this should be solved in a matter of days or weeks, not months.

All right, because of the nature of the problem and where we are with the solution. So, so my best assessment would be days or weeks to get this program. And it's just this one program right now we're battling with and we have been battling with for -- for -- for a few weeks now, right. So, I believe we're on the -- on the last leg of a solution for this.

James Huntington -- Unknown affiliation -- Analyst

OK. Thank you very much for that. And then, just if you could give us some color on the ramp-up or the status of the SART plant and sort of what are the ramp-ups going there as well.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Yes, the SART plant is not critical path for us. This is important. We need the SART plant, but we don't need it to produce gold and -- and we don't need it in day one, right. So, the copper content in the pregnant solution to now is -- is manageable.

We have a movie -- the SART pant in February was at 37% of design capacity, but we have reallocated resources from the maintenance team and operations team to the areas that are key or are on critical path for gold production, right. Basically, they're stacking in the crushing system. So, we have the prioritized efforts around the SART. We will come back to it once we get that stacking system running where we need it.

The SART plant, we've been running it at around 37% up to 40% of the same capacity. It's been operating efficiently at those rates. We've been able to precipitate, you know, 80%, 90% of the copper in solution. So, the chemistry of the SART plant is performing, I will say, in exceeding our expectations with just a matter of increasing flow.

Right now, we have an issue with the copper filter. We're waiting for some -- for some repair on the copper circuit -- on the copper filter. A minor issue and -- but again, we have prioritized resources to critical path which is basically the stacking and primary and secondary crushing.

James Huntington -- Unknown affiliation -- Analyst

OK. Thank you very much for that. And then, just one last modeling question for -- from me. For depreciation at Lindero, could you guide us what you're sort of expecting this year, and like $1 per ounce for Lindero? And if possible, a more longer-term value.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Luis, you want to give a point to this one?

Luis Dario Ganoza -- Chief Financial Officer

Yes. I heard you're asking for depreciation dollars per ounce, I -- we're using the units of production method based on ounces produced. I don't have, unfortunately, a number in my head that I can share with you but what we should expect, as we're depreciating based on ounces -- on a per ounce basis, it of course is the depreciation tracking, of course, the production output, as well as the life of mine, right. So that will be in sync which with the evolution of -- of income to all the life of mine.

Yeah, I'm sorry I can't give you a number, right now because I don't -- I don't have it in front of me.

James Huntington -- Unknown affiliation -- Analyst

OK. Thank you very much. Yeah, that's all from me then. Thank you.

Operator

Thank you. Your next question is coming from Adrian Day. Your line is live.

Adrian Day -- Unknown affiliation -- Analyst

Yeah. Hi. Thank you. My question has partly been answered already in one of your previous answers but I wanted to ask you about the exploration a little bit more.

In the foreseeable future, is it all exploration at or close to mine site or are there any, you know, new -- new areas you're looking at?

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Yes, kind of bit of everything, Adrian. So, at the San Jose mine in Mexico, we have an aggressive program or drilling program in the immediate vicinity of the mine and both on the north boundary of existing resources on the deep extensions and to the south. We have identified also four kilometers -- sorry, 400 meters due east from the main ore shoot, two parallel structures, one that today host resources is the Victoria vein where we have done no mining up to now. And then, with further east from Victoria and we have also a couple of interesting drill intercepts of another blind structure.

We grades in the range of 135 grams over a couple of meters. So, we have a lot of drilling allocated to that. In addition, at the San Jose mine, we are exploring other areas and other veins within the system. But I would consider all of these in the -- within the reach of brownfields.

So, opportunity to do that where we -- if we are successful we could have the opportunity to track all to -- or in San Jose mill. We signed this year 2020 an agreement with Minaurum. We have option, the Higo Blanco property, it's some 15 kilometers, 20 kilometers due East from San Jose. It's an exciting exploration project with some exciting drill results that need follow-up.

That information is public and you can look at it. So, you know, all of this is within our plans for 2021. In the case of the Caylloma mine, we have also a similar scenario of drilling within the extensions of known mineralization and also stepping out into new areas, testing new ideas in the vein system that has been so provocative for over 500 years later. So, in the case of Lindero, we are not doing near-mine near-resource drilling.

We are stepping out to the -- a desirable periphery. We're going to be drilling there in these first half of the year. periphery is gold for free. It's the second gold for free center in our property.

Lindero is the one that we're bringing -- we have brought into production and that he said it's located three and a half kilometers from Lindero. So, well within tracking distance. There is -- we'll identify that gold for free system there that has received drilling throughout the years. We believe there is potential as evidenced by past drilling for new surface, high-grade satellite.

And perhaps not too big, but as we have infrastructure at so close, we don't need a stand-alone. So, these satellites could contribute, what, 5 million, 10 million, 20 million tons at grades in excess of 0.4, 0.5 grams gold we believe as high as 0.7m, some drilling would suggest. So, we are going to be testing those potential satellites at periphery. So, apart from that, we have drilling, you know, in new project in Mexico and Argentina.

Exploration, we have option properties and we're -- we're advancing work and work advances and we affirm our commitments on those projects will be discussing in public, right.

Adrian Day -- Unknown affiliation -- Analyst

OK. Super thank you, guys.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Thank you.

Operator

Thank you. Your next question is coming from Justin Stephens. Your line is live.

Justin Stephens -- Unknown affiliation -- Analyst

Thanks, guys. Um, yeah, most of what I wanted to get is a little bit covered off. What I was just mostly wondering, how much copper are you guys seeing so far? I went there. And on the flip side of that would be a house I'd had consumption relative to what you're looking for.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Sorry I didn't hear you all that well. You're asking about the copper content in India --

Justin Stephens -- Unknown affiliation -- Analyst

Yeah. Or places that are far off Lindero and the cyanide consumption as well.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Yes, you know, copper is -- copper grades are trending along with what we see in our resource reserve model, around 0.1% copper is what we're seeing. And in the case of Lindero, what makes Lindero viable -- technically viable is the fact that 95% of that copper, that 0.1% copper that we see in the Lindero porphyry is in the form of chalcopyrite. So, only 5% of copper in chalcopyrite leaches under a cyanide solution. So, it doesn't eat cyanide like gold or copper mineral forms like chalcocine, you know, 70% of copper will leach in the mineral form of chalco gold -- chalcocine, chalcocite, chalcocine, covelline, or bornite.

Those are the cyanide eaters. And in the case of Lindero, you know, we have chalcopyrite and the grade of copper is within our expectations at point 1. Our cyanide consumption right now is slightly below half a -- 0.5 kilos per ton. So, you know, it's tracking well within what we expect.

And the copper that we're seeing in the pregnant solution, it's also within what we would expect with these leaching kinetics. So, we're seeing copper in the range of 400 to 500 PPM in the pregnant solution. So, we're managing that with cyanide. And, you know, the SART plant that although is running at 30%, 40% of the designed capacity is doing the work.

All right?

Justin Stephens -- Unknown affiliation -- Analyst

Yeah. No, that's great. And then, the only big question I had was I guess the timing your planned annual reserve resource update.

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Yes, we'll be releasing reserves resources in the coming weeks.

Justin Stephens -- Unknown affiliation -- Analyst

Great. All right. That's it for me. Thanks.

Operator

Thank you. There are no further questions in the queue at this time.

Carlos Baca -- Investor Relations Manager

Thank you, Matthew. There are no further questions. I would like to thank everyone for listening to today's earnings call and we look forward to you joining us next quarter. Have a good day.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Carlos Baca -- Investor Relations Manager

Jorge Alberto Ganoza -- President, Chief Executive Officer, and Director

Luis Dario Ganoza -- Chief Financial Officer

Don DeMarco -- National Bank -- Analyst

James Huntington -- Unknown affiliation -- Analyst

Adrian Day -- Unknown affiliation -- Analyst

Justin Stephens -- Unknown affiliation -- Analyst

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