Good day, ladies and gentlemen, and welcome to your Fortuna Silver Mines Second Quarter 2019 Financial and Operational Results Conference Call. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to Carlos Baca, Investor Relations. Sir, the floor is yours.

Thank you, Christy. 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 second quarter of 2019. Today, we will be using a webcast presentation, which will be controlled by us. To download the presentation, please go to our website at www.fortunasilver.com, click on the Investors tab, then click on the Financials sub tab and under Q2 2019, click on the earnings call webcast link. Jorge Alberto Ganoza, President, CEO and Director; and Luis Dario Ganoza, CFO, will be hosting the call from Lima, Peru. 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, President, CEO and Co-Founder of Fortuna.

Thank you, Carlos, and good morning to all. I'll be presenting an introduction to our quarter results and progress on the Lindero gold mine construction in Argentina and then turn the call over to Luis, who will take you through the financial statements. After that, we'll open the call for questions. On Slide 5 of our presentation, at the time of a surge in price of gold, we are months away from being in a position to increase our annual gold output from approximately 50,000 ounces to 180,000 ounces of gold in addition, today, to 9 million ounces of silver we produce every year. I expect to see a validation of our strategy of being countercyclical on growth and expansion of our footprint in Latin America. We're coming into the last mile of construction at the Lindero gold project in Argentina, which will complement our San Jose mine in Mexico and our Caylloma mine in Peru as our third operating asset. Lindero has reserves for 15 years of gold production and is accretive to the strong consolidated EBITDA margins of our business. Slide 6, please. Under highlights for the period, we present another quarter of robust margins and healthy free cash flow from our ongoing mines. Our available liquidity is adequate to meet capital needs. We maintain a reasonable debt level with debt to EBITDA under 2 once the $150 million credit facility is fully drawn. Lindero, of course, is our large capital project. As of the end of June, we show a total operated advance of 57%. Mission-critical areas for production like power, water, mine feed preparation, operational permits, crushing area are either concluded, being commissioned or well advanced. Critical path is on the crushing circuit, and I will give you further detail down on the -- down --…

Thank you, Jorge. On Slide 22, sales for the second quarter were $67.9 million, down 8% from 2019 due to lower metal prices, partially offset by higher silver sold compared to the prior year. We reported net income of $10.3 million compared to $11.2 million in Q2 of 2018 and adjusted net income of $7.2 million compared to $11.1 million in Q2 of 2018. The main items of the adjustment have to do with foreign exchange and deferred tax credits related to Lindero, which we strip out for adjusted net income purposes. The reduction of 35% in adjusted net income was driven by the lower sales and higher operating costs when compared to the prior year. Our costs for the period, however, are within our range of guidance for 2019. Adjusted EBITDA was $27.2 million compared to $35.2 million recorded in 2018, and free cash flow from ongoing operations was $15.4 million compared to $9.1 million in the prior year. Free cash flow in the quarter was positively impacted by favorable changes in working capital and lower capital expenditures. Although not shown in the table, year-to-date free cash flow from ongoing operations was $17.2 million. This yields an average of $8.5 million per quarter for the first half of the year. On Slide 23, when breaking down our sales performance for the quarter, we can see the highest impact came from lower silver and base metal prices as well as higher treatment and refining charges. These effects were partially offset by higher silver sold and positive final sales adjustments. On Slide 24, our comparative segmented results show a similar pattern at both operations, mainly lower margins driven by the lower prices and higher operating costs when compared to the second quarter of 2018. EBITDA at San Jose decreased 11%, mainly…

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

[Operator Instructions]. We'll go to our first question from Chris Thompson with PI Financial.

Just a couple of quick questions, really exploration focused. I wonder if you can just update us on what's happening at your mine sites as well as Lindero as far as exploration?

Okay. At Lindero, Chris, we are, as you can appreciate, focused on the construction right now. So no exploration has been taking place at the Lindero site. We did important work on in-fill drilling last year and we saw the benefits of that, but on some exploration drilling on Arizaro, but that was last year. This year, the focus, camp availability, everything has been -- priority has been given to construction, right? We're active on exploration outside of the brownfields scope of Lindero. We're very active. We've been drilling targets in Salta, early-stage post-discovery, early-stage prospects in the province. We like the province very much. We're very active there. But we have nothing to report in terms of results yet. On Caylloma, we have paced down the exploration due to the fact that we had tremendous success 2 years ago with the extension and expansion of mineralization on the Animas vein. So the focus on Caylloma today is capital spending to bring into -- develop infrastructure to bring into production these areas, which -- these additional tonnes and ounces that came through the successful 2016, 2017 exploration programs at Caylloma. And at San Jose, we have a 20,000-meter drill program this year where we've been focusing mainly on drilling the near boundaries of the mineralized system and resource envelope on the deep end of mineralization, on the north end of mineralization and the south end of mineralization. We have been enjoying success and -- with the drilling. And I think you'd be able to appreciate that once we publish our updated research and see how we are dealing with depletion at that mine. We have not had a standalone discovery or something of that nature that we can report. But our -- I can say that our exploration drilling in the immediate vicinity of this vein system -- and as you know, San Jose is not one vein. It's a system of stockworks and vein zones. Going back and working close with them, we've been identifying zones even in the upper levels with additional mineralization that we're bringing to the resource this year.

And our next question comes from James Huntington with Scotiabank.

Just a couple of questions regarding Lindero. Compared to the Q1 MDA, I see the ADR plant and crushing circuits have been delayed about a quarter. Could you give us some color just as to the cause of the delays?

Yes, yes. I have to say that we have no material source of delay on the ADR or SART. We have had, in the past, particularly at the beginning, at the launch of Lindero, large issues to deal with like camp availability, weather issues at the beginning of this year, issues with the amount of rock excavation for foundation work. Those were large issues that we identified and we've been vocal about at the start of the Lindero construction. But today, what we're seeing is a slight slippage due to resources provided by contractors coming into the project, mainly on the electromechanical contract. Here, to paint a picture, earthworks work is -- the grant of that, the bulk of the earthworks is done, concluded and behind us. In 1.5 months, two, we are done with the leach pad and that, which is a large contract, is over and done. Then is concrete structures and placement of concrete, that's in the hands of a large contractor. All the mission-critical areas on concretes are concluded or more than -- not concluded, 98% concluded to be more precise. Mission-critical areas on concrete are done. We still have flooring for the office area and other ancillary facilities but nothing that is mission-critical. But we will take in our scheduled some 20 to 40 days of delays from the slow ramp-up of that contractor when he came into the project, no? Today, that contractor is working with other resources we require on site, is performing, and concrete is not in the mission-critical path. Right now the big contract and the one that comes in the last mile of the project is electromechanical piping installation. The contractor is on site. We currently have about 120, 130 direct workers from the contractor on site, that is, we…

Okay. Great. And just one more thing. Just for commercial production, what is your parameters you're looking for to clear that?

One, our mechanical. Basically, a big component of this is the crushing circuit and stacking circuit. Let me go back. On the mine, we have no issues with being able to source the mine feed at the rate -- the plant feed at the rate required from the mine, no, so taking care of. On the plant, on the crushing agglomeration site, as long as we are -- or we see ourselves well within 85%, within the design parameters, we are okay with ticking that box. And on the ADR side of things, we need to see gold extraction in also within 85% of design parameters on gold extraction from solution. As you know, a leach pad is a bit of a black box and -- but we can get an early sense for because we have rapid extraction curves in our column tests. Within a reasonable time, I believe we can gauge the performance of gold extraction in the heap as well, no?

And sorry, I should have added to that. Do you have like a sort of period for which you have to mine sort of parameters? Like is it 20 days, 60 days? Do you have any color on that?

We don't have a set period and for example, the crushing, yes, you would like to see the crushing operations steady for a period of time, 20 days, a month. Now the crushing is starting in October, November, no? So by December, we should be ticking the box of the crushing circuit, right? And while we're doing that, you commission the crushing by crushing so that's part of the ramp-up of the stockpiling, right?

[Operator Instructions]. And we'll take our next question from Ryan Thompson with BMO.

Thanks for the sort of detailed update on the construction progress there. Can you just kind of help me out with my modeling and just timing of cash flows? You mentioned that there's still some more VAT that has to go out the door. Could you just remind us how we should be modeling that in terms of recovering it? And then how should we be modeling the $25 million of preproduction expenses that you also mentioned in the press release?

Yes. So in terms of VAT, as of the end of June, we had around $29 million. As we disclosed in the news release, we expect to incur an additional $18 million. So overall, we expect to close the construction phase with around $47 million of VAT to collect our best estimate today that we can do it in a period of 2 years. We don't see any material reason why we -- and after commercial production begins in a 2-year period, we don't see any material reason why that shouldn't be achievable at this stage. And with the tax to preproduction, I mean that's comprised of -- there's around $5 million of inventory supplies and $20 million of strictly preproduction that will allow us to accumulate a stockpile of ore by the end of that preproduction phase of around 1.9 million tonnes. And we will have processed at that time an additional 1.4 million, 1.5 million tonnes. So the preproduction really is related to advance OpEx, right, to -- and it is within the range of our unit costs. Those numbers come around, you do the math, $11 per tonne of ore mined and processed. So that's the nature of those expenses.

Okay. So it sounds like it's probably mostly going to be incurred in the fourth quarter and maybe a bit in the -- and the first quarter of 2020 as well?

Yes. Yes. That's fair enough, yes.

And our next question comes from George Froley with Pacific Income Advisers. [Operator Instructions].

Yes. This is George Froley, Pacific Income Advisers in Santa Monica. Have you considered, instead of going -- expanding the bank line to do a convertible security for this next piece of money you need to complete the mine?

We have a suite of options in front of us, no? Or here, the -- first, the nature of our need is to give flexibility to the start of operations in Argentina, right? So we have ample debt capacity to give ourselves an additional, something in the range of $30 million to provide Lindero with that start-up working capital flexibility. And our convertible is something that we would consider within that suite of possibilities, yes, on sum -- and yes.

Great. Once production is up and stabilized like in the second quarter of last year, what would be the daily tonnes through the plant?

We are expected to be running from early in the -- after commissioning of the crushing circuit in the fourth quarter of this year at a rate of 18,750 metric tonnes per day.

Wow. Okay. Congratulations on a successful build. That's a big project. Incredible.

And with that, there appear to be no further questions, so I will turn this back over to Carlos for any closing remarks.

Thank you, Christy. If 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.

And that does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.