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Fortuna Silver Mines (NYSE:FSM)
Q1 2021 Earnings Call
May 11, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day ladies and gentlemen and welcome to the Fortuna Silver Mines first-quarter 2021 financial and operational results. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Carlos Baca, investor relations manager. Sir, the floor is yours.

Carlos Baca -- Investor Relations Manager

Thank you, Kate. 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 first quarter of 2021. Hosting the call today on behalf of Fortuna will be Jorge Alberto Ganoza, president and chief executive officer; and Luis Dario Ganoza, chief financial officer.

Today's webcast presentation will be available after this call on the latest presentation box on our homepage at fortunasilver.com. As a reminder, statements made during this call are subject to the reader advisories included in yesterday's news release and the earnings call presentation. Financial figures containing the presentation and discussed in today's call are presented in U.S. dollars unless otherwise stated.

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 our 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 a 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 a 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 like -- I would now like to turn the call over to Jorge Alberto Ganoza, co-founder of Fortuna.

Jorge Alberto Ganoza -- President and Chief Executive Officer

Thank you, Carlos. If we can move to Slide 6 on the presentation. The highlights. In this first quarter of the year, we are executing the soundness of our strategy and strength of our business.

We have been investing in growth since late 2016, taking a countercyclical approach during a period where several of our peers restrained capital investment because of a depressed market for mining equities and low interest in precious metals. And now, with renewed interest in the sector over the last 24 months, we're in a strong position to harvest, as our results show. We have reported record adjusted net income of $27.5 million, or $0.14 per share, ahead of analyst consensus of $0.10 per share; adjusted EBITDA of $61 million, with a peer-leading EBITDA margin of 52%. We maintained a strong balance sheet with $145 million in liquidity and a low debt-to-EBITDA ratio of 0.1%.

Lindero, our third mine, reported its first full quarter of production, delivering 22,300 gold ounces. We have been cash flowing positive at Lindero since Q4 of 2020, and Q1 has also been a quarter of strong free cash flow generation even as we ramp up. Except for the conveyor stacking system in SART plant, all our unit operations are performing within design parameters. The equipment is fit for purpose.

We need our operation team to get their performance and efficiency up during operation and setup of the conveyor system, and I believe we're going to be achieving design parameters at the conveyor operations this quarter, second quarter. This has been a challenge, again, due to the limitations imposed by COVID to get foreign experience technical support in country. Our team is delivering a great job on site in spite of these challenges. On April 26th, we announced the definitive agreement to acquire Roxgold.

This combination will create a low-cost intermediate global precious metals producer with a significant silver credit. John and his team at Roxgold have successfully built a robust business platform in West Africa. And we believe that together with a strong balance sheet and diversified sizable production, we are better positioned to lower the risks of the business and unlock the value of the assets for the benefit of shareholders. Something I am particularly excited about is the opportunity to bring together two teams of high-performance in their respective jurisdictions.

Any investors seeking to invest in the intermediate precious metals producer space will have to give consideration to the pro forma company. We called equivalent production of 450,000 ounces of gold to half a million ounces of gold and EBITDA margins in the 40% to 50% range with a robust pipeline of development and exploration projects. Next slide, please. In Slide 7, we share our 12-month rolling average performance for safety KPIs.

We continue to show a trend of continued improvement for total recordable lost time and severity. Three years ago, we embarked on a process of cultural change with respect to health and safety. We still have plenty of areas for improvement in our effort to achieve an accident-free work environment, but I'm pleased and continue to be pleased to see all key metrics trending in the right direction. Slide 8 please.

We pre-released production for the quarter on April 12. Our gold equivalent production in the quarter was 60,000 ounces. All metals were basically in line with Q1 of last year, with a notable exception of gold, with an increase of 240% as a result of Lindero contribution. Next slide, please.

In Slide 10, as I stressed at the beginning of the call, financial performance has been record-breaking for the company. Sorry. Slide 9. In Slide 9, our silver contribution to revenue in the period was 39%, and precious metals accounted for 86% of revenue.

We are able to capture not only the benefit of higher silver and gold prices, but this is amplified by our significant increase in annual gold production derived from Lindero. Next slide, please. The financial performance has been record-breaking for the company in Q1, as I stressed at the beginning of the call. Sales jumped 148% to $117 million, adjusted EBITDA jumped 280% to $60.8 million, and adjusted net income was a record 27.5 million or $0.14 per share.

Moving on to Slide 11. With respect to all-in sustaining costs at San Jose at $13.40, all-in sustaining as well within our guidance, a range guidance of $12.20 to $40.50. Getting more granular on the all-in sustaining cost analysis for this mine compared to Q1 of last year, on a per ton basis, costs are basically aligned at $70 per ton. Capex is largely aligned as well.

The driver for the 26% increase with respect to last year results in the silver to gold ratios of 68 used now and 98 back in -- used back in Q1 of last year. Our Caylloma mine came in aligned with all-in sustaining guidance that is in the range of $19 to $23. And for Lindero, we expect all-in sustaining costs to trend lower throughout the year as we complete the ramp-up phase and achieve a more stable operation toward mid-year. For Q1, Lindero all-in sustaining cost came in at $1,055, below mid-year guidance, provided of 1,130, 1,335.

The lower cost compared to guidance has to do with the timing of sustaining capital investments. Slide 12, please. Our total capital budget guidance for 2021 is $71 million. In Q1, we have executed 13 million.

We expect capital investments to pick up throughout the year. Next slide, please. Slide 13. Just a brief update on the ramp-up activities at Lindero.

As we note here in the slide, all systems are operating within a range of design parameters with the exception of the stacking system and SART plant. The HPGR conglomeration and stacking system, which works in sync as of the end of the quarter was operating at around 41% of design capacity. Today, early days of May, more closer to 50%, 60%. So we're trending in the right direction.

Remember that ore stacking with trucks continues to supplement conveyor stacking deficit. And the SART plant was placed on standby to focus all of our resources on critical path for gold production. And in the -- in early May, the SART plant has been restarted. Something important to highlight with respect to the Lindero is that we continue to see our reserve model reconciliating well according to our expectations with less than 55 -- sorry, 5% deviations in terms of ounces, tonnages and grades when we conciliate model to production.

And same with leaching kinetics, gold leaching kinetics continue to perform according to our expectations and design parameters. Next slide, please. Our exploration budget for 2021 is $20 million, comprising approximately 50,000 meters of drilling across our mines and projects. The largest allocation of capital is to our San Jose mine, where we reported initial drilling success on March 29th.

We currently have nine drill rigs turning, including drilling at the Santa Fe silver gold prospect in the state of Sonora, Mexico. With that, I can turn it to Luis so he can run you through the highlights of our financials.

Luis Dario Ganoza -- Chief Financial Officer

Sure. Thank you, Jorge. On Slide 16, as Jorge has mentioned, we had record sales, earnings per share and EBITDA. Overall, very strong financial performance across all our financial metrics.

The record in sales is not only driven by Lindero's first full quarter contribution, but San Jose and Caylloma also had record sales on the back of strong operating performance and favorable metal prices. Net cash provided by operating activities of $21.1 million increased 470%, as we have restated the comparative period upon adoption of is IF 16 deals with proceeds before intended use. This is in relation to the commencement of sales at Lindero. The restatement is restricted to the cash flow statement, and details are provided on Note 3 of our financial statements.

Without this effect, our net cash provided by operating activities would have increased 60%. As a reference, and although not shown here, cash provided by operating activities, before changes in working capital, increased 270%, which is in line with the rate of increase shown for EBITDA on the slide. Free cash flow from ongoing operations of 17.4 million was impacted by timing of trade receivables in the order of $14 million. On the next slide, Slide 17, sales increased by $70.3 million over Q1 2020, or 128%, as shown in the prior slide.

Even excluding Lindero's contribution to sales in the quarter of 36.9 million, sales increased 70%, driven by higher prices and higher metals sold at both San Jose and Caylloma. The largest single impact on our sales in the quarter, excluding Lindero, was the price of silver, with an impact of $18 million, as shown in the slide. The next slide, Slide 18. This slide highlights the strong financial and cost performance across all our operations.

For San Jose and Caylloma, we recorded material increases in EBITDA, with both mines operating within our cash cost guidance. As Jorge mentioned, the higher all-in sustaining cost for San Jose of 26% compared to the prior year is mainly related to changes in the gold-silver ratio. And the impact this has on silver equivalent production. On the underlying cash cost per ton at San Jose, we do expect a trend toward mid-70s level, still within our guided range for the year.

At Lindero, we recorded cash cost per gold ounce of $639, which is around 5% above our expected cash cost for the quarter, based on our annual guidance. As the mine continues to ramp up, we see our main KPIs tracking our budgeted figures. We have placed 76% higher ore on the leach pad and processed less ore through the full crushing circuit compared to our plan. As Jorge has explained, these changes are allowing us to accommodate the impact of COVID-19 restrictions under ramp up as we maintain our gold production target for the year.

In terms of cost effects, these changes have mostly netted each other out in the quarter. And our all-in sustaining cost is below our guided range for the first half of the year. Also mentioned before by Jorge, mainly due to a slower pace of execution of investment projects. We expect the expansion of the leach pad and the ADR system to pick up speed in the second quarter.

Next slide, Slide 19. We see our total liquidity already increasing, and our net debt coming down compared to Q4 of 2020 as Lindero started contributing to free cash flow generation since the beginning of the ramp-up. We expect this trend to continue and intensify in the coming quarters. I'd like to provide a comment with respect to cash flow repatriation at Lindero in 2021, our intercompany funding structure in Argentina allows us to repatriate around 130 to $140 million without any adverse effects from foreign exchange controls, and we have started repatriating funds since early in the year.

With that, I'll pass it back to you, Carlos. Thank you.

Carlos Baca -- Investor Relations Manager

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

Questions & Answers:


Operator

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator instructions] Our first question today is coming from Cosmos Chiu at CIBC. Your line is live.

Cosmos Chiu -- CIBC World Markets -- Analyst

Hi. Thanks, Jorge, Luis and Carlos. I guess my questions are around Lindero here. As you talked about in your MD&A, you stacked about 56,000 ounces of gold and produced about 22,300 ounces.

That works out to a ratio of below 39%. I know the tertiary crushing circuit isn't at full capacity yet and whatnot. But based on what you stacked in Q1, can you remind us what kind of "recovery level" are you expecting? And how long is the lead curve at this point in time?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Yes. We have, Cosmos. We are stacking different types of materials. For the material that we stack via the stacking system that's a material advanced through the HPGR.

So a conveyor stacking, we're placing about right now though between 9-millimeter and 12-millimeter crushed material that comes with gold extractions in the range of 70%, 74%. Then we have a coarser crush material, which is stacked via trucks, expected recoveries for that 35-millimeter crush is in the range of 50%. Right? And we're talking about those expected extraction rates in a 90-day period. Right?

Cosmos Chiu -- CIBC World Markets -- Analyst

OK.

Jorge Alberto Ganoza -- President and Chief Executive Officer

So I don't have the balance on my head right now, but it is the balance of those expected recoveries that yields the extraction, the planned extraction, and recovery considering inventory in the path.

Cosmos Chiu -- CIBC World Markets -- Analyst

OK, sure. Thanks. That's really helpful. And then that kind of leads into my second question here, Jorge, and I'm just trying to reconcile all these different numbers.

So if I take your 2.13 million ounce or – 2.13 million tonnes stacked in Q1 that works out to about 23,000 tonnes, 24,000 tonnes per day. As you talked about the secondary – primary-secondary capacity is right now, I might be quoting the numbers not perfectly here, but I think it's about 16,000 tonnes per day. And then your tertiary crusher, which is your HPGR agglomerator stacking system is about 7,000 tonnes per day. So could you like help me reconcile those numbers? Are you putting any kind of run of mine material onto the leach pad right now? And as you ramp up, the tertiary crushing circuit throughout 2021, how much of the material stacked in the second half are you expecting to come from the different parts? Either it'd be the HPGR versus secondary versus if there's a run of mine.

Jorge Alberto Ganoza -- President and Chief Executive Officer

Short stacking is a short-term solution to meeting extractable ounces on the leach pad, right? So when we plan for is how many extractable ounces we need to place on the leach pad to meet our annual guidance. That's how this is working, right? So we balanced those figure out – those figures, and that's what you're trying to better understand. So our primary and secondary crushing system is currently operating, exceeding design capacities. The design capacity of primary-secondary crushing is 18,750 tonnes per day.

Unless you noted, we're achieving 20,000 tonnes a day. So part of that material about 9,000 tonnes per day are running through the HPGR agglomeration and conveyor stacking. And the balance is placed from the heap, sorry, from the secondary stockpile directly truck to the leach pad. And on top of that, we can place materials from stockpiles as well.

Right? So we were getting one at is very granular on this, and then we can have a session on this is we can have different times even the three different sources of materials being placed on the leach pad to meet extractable allowances. Right? So we'll be happy to have a efficient review and give you the breakdown, but we are placing more ounces on the leach pad than the original design calls for because the coarser material comes at a lower extraction on a 90-day period. Right? That's why we're placing more ounces with the trucks and those ounces come from the secondary crushing and in some instances from the coarser ore stockpile. So and that is what we use to meet the 140,000 to 160,000 ounce guidance for 2021.

Right?

Cosmos Chiu -- CIBC World Markets -- Analyst

Yes, yes. That's perfect. And that's for sure the current situation right now, and but would you expect the majority of your stocking to be from the tertiary crushing circuit toward the end of 2021, if that's possible.

Jorge Alberto Ganoza -- President and Chief Executive Officer

And we expect to be placing 100% of the material through the stocking during the second quarter, no.

Cosmos Chiu -- CIBC World Markets -- Analyst

OK.

Jorge Alberto Ganoza -- President and Chief Executive Officer

We're not there yet, but we're seeing a good increase. We already achieved days of 17,000 tonnes stacked via conveyor stacking. No, the issue is for us right now is being able to achieve efficiency in the actual operation movement of the conveyor stocking. I want to stress the fact that ramping up commissioning and ramping up in the COVID pandemic – during the COVID pandemic has been a tremendous challenge for the team, because we have been working without the benefit of foreign vendor technicians and a trained personnel with the use of certain equipment like the conveyor stacking.

We have -- we are, in a way, learning as we go because of using a lot of Zoom hours and this remote virtual reality goggles and tools, technological tools like that. We will not have the benefit of having the CSUN operators that you could bring from other sites that we don't train in Argentina. Right? They will have to come from abroad to help our operators, and so, we're going at it alone. And I believe that's why the delay.

Right? I mean, we have no mechanical issues at this time of any significance nor automation. We did better at the beginning of a couple of months ago with some issues regarding setting the system on the automation and some mechanical issues, nothing big, but issues that need to be overcome. Those have been addressed. It's now really getting the team experienced enough moving the system or conveyor stocking has to be like a pit stop in a car race.

Right? And we're not where we need to be yet, but we're getting there.

Cosmos Chiu -- CIBC World Markets -- Analyst

Of course. Thanks. And then maybe one last question on the financial statements here. On the MD&A, you mentioned that the 120 million credit facilities fully drawn right now expires on January 26, 2022.

However, you're trying to get it renewed for sure in Q2 2021. Maybe more a question for Luis, but can you remind us what interest rate are you paying right now on that credit facility? Can you give us some kind of outlook in terms of how the credit market looks at this point in time? And would you be expecting more favorable terms on this renewal? And then on top of that, with the pending merger with Roxgold, has that changed your potential repayment of this credit facility vis-a-vis how you're potentially financing say the construction of Seguela.

Luis Dario Ganoza -- Chief Financial Officer

Yes. So I mean first of all, we're cost of that fully 20 drawn is 3.5%. On top of the reference rate, we do expect to be able to maintain similar terms. And in the context of transaction and the performer company, I mean, our view is and that's really the reason to push back somewhat to the renewal.

So as to gain more visibility on what makes the most sense. So it is in that context that we expect to conclude a renewal in Q2 with an expanded facility that reflects the additional credit capacity of the performer entity. And based on the terms that we see and that we believe, what we believe we're able to achieve, I mean, we – considering that capacity of a pro forma entity, I think we would be right to reconsider any plans to repay that early. Right? It does make sense to think of that in the medium-term, as more of a structural nature in terms of how we manage the balance sheet.

Right? That's our view today.

Cosmos Chiu -- CIBC World Markets -- Analyst

Great. Thanks. Thanks again, Jorge and Luis. Those are all the questions I have.

Operator

Thank you. Our next question today is coming from Trevor Turnbull at Scotiabank. Your line is live.

Trevor Turnbull -- Scotiabank -- Analyst

Thank you. Jorge, I just wanted to get a little more color on Lindero and the tertiary crushing and circuit related to that. I think when you put out your original Q1 production figures, back in April. You had mentioned that you'd had some very strong weeks in terms of the availability of that tertiary crushing system.

And I think you referenced it on this call as I want to say, 50 to 60% of capacity. And I just wondered what it kind of needs to do to get back to those levels that you were experiencing at the early part of April, where I think you were up closer to 87% on that system.

Jorge Alberto Ganoza -- President and Chief Executive Officer

In the – you see the HPGR agglomeration and stacking work in sync. So the bottleneck in the system has been mainly faced at the stacking system. As I explained before, we've had issues relating automation and getting all the train of conveyors is speaking to each other. And that was overcome.

And today, we are achieving steady race in the entire system of around the 9,000 to 11,000 tons per the day stack. And we had, as I mentioned, the peak days of 17,000 tons, 14,000 tons stack. All the mechanical and automation issues that we battled with at the beginning of the process in early in the start of the year have been overcome. And there were never significant in the sense that I believe that a lot of these issues could have been resolved in a matter of hours or even days, having the right vendor representatives from superior on site, but how the luxury because of the COVID pandemic.

Right? So, sometimes, those problems instead of being resolved in hours or days end up taking days or weeks. Right? But I think, all of those are behind and we just need the team to get more seasoned and experience and be able to sustain the throughput, like, be get more effective with the movement of the conveyors, with the setup, the planning for the setup. Right? I think the team has been more immersed in solving the automation and mechanical issues, I explained before for this past month, rather than getting more seasoned and planning ahead for the movement of equipment and sequencing of the movements of the conveyor stacking system. So, I think -- I don't think we're talking about rocket science here.

It's just getting the team more and more into now that all of these mechanical automation issues are all behind getting the team to get the performance in the equipment. The equipment is fit for purpose. It's just operational expertise right now. Right? And HPGR is performing according to whether we ask permit.

And agglomeration also, I mean, we had some minor mechanical setup issues, but really the equipment is fit for purpose and the biggest, but the bottleneck is the stacking. Right?

Trevor Turnbull -- Scotiabank -- Analyst

OK. Yes. And then maybe I just wanted to change gears and follow-up on something that Luis mentioned about getting money repatriated from Lindero. Perhaps I misunderstood a bit, I did think that when you had exports sales that you tended to have to go through the conversion to the peso, and then if you wanted to distribute that money out of the country, obviously you would want to reconvert it back into another currency.

But it sounds like you don't have to go through that process. And I was just curious, why it is -- or how you've structured it such that those kind of mandatory conversions of exchange rates don't apply?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Yes. Trevor. So, it has to do -- generally speaking, it is accurate, you description is accurate, but it is possible within the 15 structures in or restrictions in effect --

Luis Dario Ganoza -- Chief Financial Officer

Regulatory framework.

Jorge Alberto Ganoza -- President and Chief Executive Officer

Yes. To set up intercompany bet by way of three expert finance, which for all practical purposes allows to use the proceeds of sales who pay directly to the parent company. So that means that those proceeds are not coming back into pesos into Argentina. There is a limited pool for this, which is in the range that that we've been mentioning.

Right? Once the pool is exhausted, we will shift to Virginia describing. Right? Where the restrictions are being analyzed and rolled by the government almost on a monthly basis, right, monthly by-month basis, yes.

Trevor Turnbull -- Scotiabank -- Analyst

And maybe it is a moving target, which is what it sounds like, but if you were operating under those constraints, can you give us a sense of what kind of percent you would lose through all that conversion process? Is this something that kind of erodes the amounts by a percent, or 5%, or 10%? Can you give us a sense of if going through that exercise, what you might expect the cost to be?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Yes. So, I mean, any all explorers in Argentina finding themselves in that situation, I have two options. Of course, one is to sit on the pesos and seek to protect those. There is a certain amount of liquidity in the forward -- in the foreign exchange forward markets locally.

That typically I would expect, goes out six to eight months. Right. So that sort of gives you a framework for the type of protection you can achieve. And the alternative is to tap into the parallel FX market.

Right? The, their GAAP will vary widely. I think these days it's a much higher than what you would typically expect to see. Right. It has been converted -- I mean, trending downwards.

And we would expect that in the next few months that that GAAP does close significantly to respect -- with respect to what it is today, I'm sorry. Right? I mean, that's sort of a broad answer.

Luis Dario Ganoza -- Chief Financial Officer

We have to seek a look forward to 2022 and start to see what's going to happen with the FX in that moment. Right? And yes, that's a difficult one.

Trevor Turnbull -- Scotiabank -- Analyst

OK. No, I appreciate the color. Thank you, both.

Operator

Thank you. Our next question today is coming from Don DeMarco at National Bank Financial. Your line is live.

Don DeMarco -- National Bank Financial -- Analyst

Well, thank you, operator. And hi, Jorge and team. Just a couple of questions on San Jose shifting to San Jose, can you elaborate on your exploration program at San Jose? I see that the exploration results that were announced in late March look good yet a few intercepts are over a kilogram per ton, and that's encouraging. But yes, I see reserves are – the updated reserves around 23 million ounces, 2021 guidance in both 6 million ounces silver per year.

So, just curious, how many rigs do you have running? What's changed in your program versus last year? And where are you most optimistic?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Yes. I'll start with your last one. What has changed with respect to last year? First is truly meterage, right? Today are truly meterage for San Jose in excess of 30,000 meters. Last year or drilling at San Jose was around 7,000 meters.

Right? So, we were drilling significantly more. We currently have five drill rigs turning, so three are currently working underground and the two on surface. So, we have different type targets. One is we have multiple targets underground in and around the immediate vicinity of the resource shell, the resource block model.

So, the resource that we reported in March come from one of those initiatives for drilling near-mine underground targets. So, my expectation with respect to those targets and we have several of those in the range of five or six around the resource shell. We will have opportunities, several opportunities, I would expect, like the ones we outlined in March, which is not incremental. Right? Our incremental to reserve life, and resource extensions, probably on their own, not very material in terms of tonnage, but on the aggregate, they all will contribute to replace what we repeat, all right.

And again, we have several of those ongoing. And as you've noted what I want to also do to come across is that San Jose is not just a simple ring, it's an intricate system of anastomosing structures, where we have identified three or four main structures. And within those structures we have a stop work development. So, within these areas, we have a lot of room to create opportunities for potential expansions.

Right? Because they are structural model, once you get to the detail of it, it's intricate. Right? And this one was right in front of us. What we reported in March during – I know it's close to surface. It's close to surface, it's been in front of us for years and it's only now that we decided to pursue the area, exploration in the area, look at the 3D models in more detail, ensuring that we're coming up with some spectacular grade and hopefully some tonnage that's meaningful in the context of dealing with annual depletion.

Right? So we have multiple of those. Then second, we have a parallel vein system 400 meters due East from where we are mining is called the Victoria system. We have recurrent resources in the Victoria vein, and we have discovered a new parallel structure. While drilling Victoria vein, we came across this second structure that is not named yet.

On the hanging wall of Victoria and we're currently drilling Victoria and the parallel structure. For extensions of Victoria, I'm trying to see and export further the parallel structure and the hanging wall Victoria. Apart from that, we have multiple veins, on surface, where we have currently one drill rig pursuing those opportunities that can be located four or five kilometers away from our current infrastructure, so we are within trucking distance. We currently have one drill rig turning in an area called Los Dias.

where we have vein structures and surface diversification. We have discovered something that we have not seen before. It's after the dome or desk. We're in a volcanic pile.

We had never seen more super volcanic type features like a dome. And that was you're logically quite intrigued to the team from the perspective where to focus more exploration ideas. So, we have a multiple of those. We have also optioned the Higo Blanco property, which is within the general area of San Jose within trucking distance of San Jose.

Higo Blanco it's an option from Minaurum, previous explorers drill at Higo Blanco in previous years with some exceptional results of high-grade mineralization for silver over broad width. And we have optioned the property, and we're currently working on developing drill targets there. So, there is no shortage of areas at San Jose, we just need to get the drilling meterage point. Right? And as I've been stating 2021 is a big commitment year on the exploration front.

We have roughly 4.5% of sales allocated to exploration. And we need to let the programs run and see some results hopefully come along.

Don DeMarco -- National Bank Financial -- Analyst

OK. Thanks for that. So in the past, I think you might release like a San Jose drilling update once a year, and that might've been appropriate for the smaller program you had last year. Do you have plans to do more regular exploration updates coming out of San Jose?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Yes. Yes, absolutely. And not only for San Jose, although we all understand that the San Jose program is important for everybody. But for example, we're drilling a new and exciting project that is called Santa Fe in the state of Sonora, is some kilometers south view of the Vizla project.

Vizla, it's a nice discovery there. So we're drilling there. We have one rig and we are quite active on different areas. We have also another project called Baborigame where we're going to be developing drill targets this year.

That's Santa Fe is more silver project with some gold and Baborigame is more gold, silver project. So we are active on several fronts.

Don DeMarco -- National Bank Financial -- Analyst

OK. Thanks a lot. That's all for me.

Operator

Thank you. [Operator instructions] Our next question today is coming from Justin Stevens at PI Financial. Your line is live.

Justin Stevens -- PI Financial -- Analyst

Hi, guys. Most of my questions have already been asked and answered. But just a quick follow on from Don was asking there. I noticed, at San Jose, you guys spent only about 1.7 million of your $10 million brownfield exploration budget at San Jose in Q1.

Should we expect that to be ramping up quite a bit here? And is there any chance that you'll spend through that 10 million you think before the end of the year and then perhaps evaluate further expansion of the exploration budget?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Yes. Yes. Budget will be ramping up given a lot of the drilling has been done through underground. So we will see some spend advanced with the underground development to prepare the drill chambers and whatnot, and then the drilling meterage coming along.

So that budget will ramp up. We have drills on site on turning as I stated. So I see no issues there. Yes.

It's usually start of the year. It tends to be a bit lagging with speed for some of these programs. Right?

Justin Stevens -- PI Financial -- Analyst

Sure. And no particular impacts from COVID that you're seeing either on the exploration side of things?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Particularly in a mine, just COVID does impact, all of our activities are slow down. I think we are not seeing the impact so much on the production side because of the initiative that teams bringing in place but at Caylloma, at Lindero, and at San Jose COVID remains – dealing with COVID and keeping the operations we think the protocols and the stringent protocols that have in place does take a toll sometimes and speed at which we can do things. Right?

Justin Stevens -- PI Financial -- Analyst

Yes.

Jorge Alberto Ganoza -- President and Chief Executive Officer

So yes, I mean, remember that these three countries remain under severe restrictions due to COVID, right, yes.

Justin Stevens -- PI Financial -- Analyst

For sure. And just on, in terms of exploration at Lindero, I know you guys have a small program on on priority that will -- is that expected to be in the first half and second half of the year here?

Jorge Alberto Ganoza -- President and Chief Executive Officer

We're drilling there as we speak.

Justin Stevens -- PI Financial -- Analyst

OK. And so, we can probably expect some results at some point in the next couple of weeks then, probably. Right?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Absolutely. Absolutely. We're drilling at Arizaro.

Justin Stevens -- PI Financial -- Analyst

Perfect. That's it for me. Thanks so much.

Jorge Alberto Ganoza -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question today is coming from Guy Buckley. Your line is live.

Unknown speaker

Thank you. Hey, I want to ask you about that. Mine in Peru, Caylloma, I guess, how you seen it, but it, you stated that continues to contribute significant gold production. In the first-quarter 2021, gold production was 1,922 ounces, an increase of 308% with respect to the comparable period of 2020 increasing gold production is related to higher headed grades encountered in the Animas Northeast vein.

I've been, I graduated in that stuff, so I know what we're talking about. How is that vein expanding? How many years, do you think you have left in that high grade or in that Animas Northeast vein?

Jorge Alberto Ganoza -- President and Chief Executive Officer

Thank you for the question. I have to say that we have neglected for years or understanding of gold occurrences at the Animas Vein. Right?

Unknown speaker

Right.

Jorge Alberto Ganoza -- President and Chief Executive Officer

So it's only now as we have entered into this area, and we start encountering these, higher grade sustained higher gold grades that we have the employed resources to further understand the, how meaningful this is today. We cannot say that we believe the research as we understand it has a main gold component. So we're trying to understand geologically what is controlling the deposition of gold in these areas? No. Because I think especially that the gold reach zones are limited in size, but what we're trying to gauge here is through more science, is if there areas where we can extrapolate what we learn here and use it as an exploration too.

We're getting a nice, significant bump in gold production, and therefore in revenue and margins derived from these small ounces, because this is just incremental to everything. Right? These mines have traditionally produced about 0.3, 0.6 grams gold, well under a gram. And all of a sudden, we're finding areas with, multi-gram gold in addition to silver, lead, I think. But today, these areas are limited in size, so they are not meaningful to our research.

And what we're trying to learn here is if there are things that we can use as exploration tools, or even to reassess other portions of the mined areas for higher grades. So we're, right now, in the learning curve here, Guy, trying to get our knowledge up on, what is controlling the occurrence of this higher grade gold in this portion of the Animas vein. Animas vein stretches for over four kilometers. We have drilled tested it for several hundred meters of depth.

And this is one small area within that bigger package. So I think it speaks about potential as well. Right? I mean, this is complex, and we need to better understand the gold occurrence here.

Unknown speaker

OK. Now, don't you folks, in your company -- I have a lot of friends that I have buy stock in your company, and that was before you made the announcement that you had bought out Roxgold in West Africa, and that blindsided us. So I got to be honest with you. Some of my friends, they dumped their stock.

But I didn't, I held on. But that stock went from 9.71 a share down to $6 bucks. It's now coming back up, because I think long-term, you'll do well. I think that, hopefully, that Roxgold will start contributing something to the earning capacity of the company.

And so I just want you to know that there are many people that are with you, feel like you're doing the right thing, but there's a -- where none of them that felt you did the wrong thing when you acquired that Roxgold in West Africa.

Jorge Alberto Ganoza -- President and Chief Executive Officer

Oh, thank you for your comments. And we believe that there is tremendous value to be unlocked for Roxgold shareholders, for Fortuna shareholders, as we, together, deploy the assets, because the driving principle behind this is putting together a basket of quality assets that can really perform throughout the precious metals price cycle, putting together a team of higher cheerers and performers on the operations on exploration side, each required expertise for success in the respected jurisdictions. So, sometimes, markets and market participants tend to be short-term-oriented. I believe this is for the medium, long-term.

This will be the foundation for a company, as I said at the beginning of the call, if you want to invest in precious metals, you really have to give serious consideration to a pro forma company --

Unknown speaker

I agree. One last question. Don't you believe – don't your company believe that silver will eventually be $35 an ounce end of this year, and gold will be up to $19.50 an ounce.

Jorge Alberto Ganoza -- President and Chief Executive Officer

I personally believe they could be higher.

Unknown speaker

Right. We're in a full market on the silver.

Jorge Alberto Ganoza -- President and Chief Executive Officer

I try to focus on the things we control, which is the assets we get involved with and the costs. We need to operate the ninth in a high-price environment, as well as we do on a low-price environment. So we try to focus on the things we can control, and let investors be more constructive or imaginative with respect to where prices are going to lead. We're mining every day, and with $80 silver, hopefully one day, or $14 silver, as it was some 15 months ago.

Right? So --

Unknown speaker

Yes. $14 an ounce. But let me tell you, the silver hit $28 yesterday, and she is going on up.

Luis Dario Ganoza -- Chief Financial Officer

Yes.

Unknown speaker

So we want to thank -- I want to thank you as a shareholder for what you're doing. We're counting on you. I'm going to get over friends to invest and buy stock in your company, because I think the name is appropriate.

Luis Dario Ganoza -- Chief Financial Officer

Thank you, sir.

Unknown speaker

The name Fortuna, I love it. Thank you.

Jorge Alberto Ganoza -- President and Chief Executive Officer

Thank you for your support.

Operator

Thank you. [Operator Instructions]

Jorge Alberto Ganoza -- President and Chief Executive Officer

If there are no further questions, I'd 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: 61 minutes

Call participants:

Carlos Baca -- Investor Relations Manager

Jorge Alberto Ganoza -- President and Chief Executive Officer

Luis Dario Ganoza -- Chief Financial Officer

Cosmos Chiu -- CIBC World Markets -- Analyst

Trevor Turnbull -- Scotiabank -- Analyst

Don DeMarco -- National Bank Financial -- Analyst

Justin Stevens -- PI Financial -- Analyst

Unknown speaker

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