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

Thank you, Dagma [ph]. 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 third 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 Q3 2019, click on the earnings call webcast link. Jorge Alberto Ganoza, President, CEO and Director; and Luis Dario, CFO, will be hosting the call from Lima, Peru and Vancouver, Canada respectively. 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 our 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. Along with Luis our CFO, I'll be presenting our review of our Q3 financial results and main development across our products and operations in Mexico, Peru and Argentina. If we go to Slide 6, there are highlights in the presentation. On financials this quarter is marked by a net loss of $7.7 million mainly driven by an unrealized FX loss of $8.3 million related to VAT construction receivables in Argentina and exploration right downs in Mexico. Here we want to stress that on the strength of our two operating mines and improvement of prices, we generated adjusted EBITDA of $19 million with strong free cash flow from ongoing operations of $10.6 million. This financial metrics are in spite of a challenging quarter from an operating prospective as our mine sequencing at San Jose yielded lower grades and we experience a peak in our quarterly cost for the year. Both our production and cost are expected to be in line with our plan in Q4 and we confirm for full year production and cost guidance. As of the close of the quarter we reported liquidity of $112 million, which has been enhancing by the successful closing one early October of our convertible divesture for a total amount of $46 million. Management believes the company has a required financial flexibility to meet its capital commitments under various scenarios in particular as we prepare for to launch our Lindero projects into operations early next year. All these while maintaining a modest level of that once drawn according to our funding plan or debt to EBITDA ratio will stay below 2%. As of the end of October, we report construction at Lindero is 81% complete, with construction spending at 85% as of the end of Q3.…

Thank you, Jorge. So on Slide 25; sales for the third quarter were $61.3 million slightly above from 2018 as a result of higher silver and gold prices, which were partially offset by the lower production in the quarter as Jorge explained. We reported a net loss of $7.7 million compared to net income of $6.9 million in Q3 of 2018, and the loss was driven by an $8.3 million foreign exchange loss on our VAT construction receivable in Argentina in the context of a strong devaluation of the Argentinian peso, following the result of a primary election in the month of August. Adjusted net income was $1.9 million compared to $9.6 million in Q3 of 2018. The lower adjusted net income was a result of a combination of factors, namely higher share base payments of $1.9 million as we recorded a charge of $1.5 million in Q3 of this year, compared to a credit of $0.4 million in Q3 of 2018, higher cash cost of around $1.8 million, higher spending in exploration and evaluation activities of $1.3 million and a high effective tax rate in the current quarter of 77%. Adjusted EBITDA was $9.2 million compared to $24.2 million in 2018, and free cash flow from ongoing operations was $10.6 million compared to $13.6 million in the prior year. On the following slide, Slide 26; when breaking down our sales performance for the quarter, we can see the lower metal production had the highest impact when compared to Q3 of 2018. This was true in particular for silver. This effect of lower production was more than offset by the higher realized silver and gold prices, which increased 17% and 23% year-over-year. Also, we have mentioned in previous earnings calls treatment and refining charges in 2019 have deteriorated compared to…

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

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Chris Thompson with PI Financial. Please state your question.

Hi. Good morning, guys. Thanks for taking my questions. Apologies. This is just a general -- I guess a general question, but I wonder if you could just talk to the -- I guess the Argentinian investment climate moving forward, especially as we've seen a new change in government, with maybe a focus on export taxes.

Yes. Morning, Chris. We are in a period of, undoubtedly, of certain level of uncertainty as the new government takes office on December 10. No? We are currently modeling the export taxes that the Macri government implemented towards the end of their mandate, which is today fixed at around $4 pesos to the dollar. No? We been looking at what does this mean from the perspective of total tax burden compared to the other jurisdictions where we operate, Peru and Mexico. And in Peru, our overall tax burden hovers around 42%; in Mexico, hovers around 43%; and in Argentina, around 32%. This of course takes into consideration workers' participation, provincial royalties, the retentions in Argentina that were brought into effect by Macri over the last year. That is our view today. We are cautiously optimistic. We are monitoring closely two things: one is what is the new president elect saying, what messages is he telegraphing; and second, who is he working with, who are the people he's closely associating himself with to lead this phase of transition as he takes office. The messages that he's sending, and those are readily accessible in the media, give us room to be cautiously optimistic that he recognizes the importance of the oil, gas, mining and agricultural sector as drivers for growth. Second, that he understands that the restrictions and further deepening of capital controls will pose a challenge for him to attract much needed dollars into the country. And third, the people he's working with we understand are regarded as pragmatic on the economic front. So those are things that we view positively. Again, we are cautiously optimistic, as a way to put it. The country is in a difficult situation. They will have to sit and negotiate in what will be a difficult negotiation with their international lenders. And we believe Argentina will go through a phase of adjustment and we will need to wait until December 10 to see some of these new measures and actions take place. But today, what we view is what we have in place, and when we compare it to the other jurisdictions where we operate, it still rates favorably. So that is our view, Chris.

Okay. Thanks for the comprehensive answer there, Jorge. Just one more question on I guess where we sit right now with Lindero. When are you going to be starting to place ore -- maybe I missed this -- ore on the pad and when will you start irrigating?

We are working towards launching of the entire crushing circuit before the end of the year. No? We are today in the pre-commissioning phase, starting the pre-commissioning phase. We're commissioning and pre-commissioning with Hatch Engineering. We have the entire commissioning team onsite working with our people. We commissioned two weeks ago the power generation, power distribution to crushing agglomeration, substations, electrical rooms. We're engaged with that. I am concerned right now of the holidays. And as our ability to retain at a critical junction vendor representatives and vendor technicians onsite. If we are pushed into those past December 21, even though we're working on a plan, I am concerned that there is a risk to launching the circuits with load around those dates. There are operational risks and also safety risks associated with that. So we are working still to be able to do that before we come into the holiday season, but we're very tight. And if we go into -- if there's a minor slippage and we go into those holiday dates, we need to assess the risks of launching the circuits through the holidays, or we just might have to wait after. But if it's not mid-December, which we are still working for, it will be in early January. But everything that needs to be in place is basically in place. We already initiated pre-commissioning activities. We are working on electrical connections, placing belts from the conveyor frames and doing just minor fixes on the crushing. We are stockpiling ore as the mine is operating every day. So that is where we are today, Chris.

Great. Again, thanks for the comprehensive answer. Thanks, guys.

Okay. Our next question comes from Garrett Goggin with Gold Stock. Please state your question.

Your break down of your VAT asset over the previous quarter; how come you didn't hedge the peso exposure to that?

Yes. This is Luis. So hedging our exposure to our VAT receivable is complicated and I think risky on its own, given that we don't know -- we can't forecast with sufficient precision the timing of the recovery of that VAT. That's probably the main issue, I would say the main complexity, around any attempt to hedge exposure to the peso. On the VAT receivable, I should say that -- I mean this is an unrealized loss in terms of U.S. dollars. We do have the option of course to use those pesos that we eventually recover to fund the business locally. That of course is limited to an extent. That option, compared to just re-patriating the recovery of the [indiscernible] in terms of U.S. dollars eventually. It's also impacted by the fact that we are still currently experiencing relatively high inflation rates. So it's not a perfect solution to leave the pesos locally and use them to fund the business, but devaluation has certainly advanced faster than inflation, and it's an option that we have at hand, of course, to reduce the impact of that loss in terms of purchasing power.

Okay. And then, I'm curious -- it just seems like an ongoing devaluation that occurred in 2015, happened in '18, happened again in '19. You guys are going to have -- how are you going to manage your peso risk going forward?

I mean, going forward -- the devaluation has worked against us in this context, given the large VAT receivable. But going forward, around 40% of our costs will be incurred in local currency. The devaluation in that context, if anything, will be helpful in terms of our overall cost expressed in U.S. dollars.

Right. Okay. What about the costs associated with re-patriating your funds back to dollars?

I mean, today what we know is that any proceeds in U.S. dollars from exporting out of the country will have to be converted into pesos in the very short term. If that is the case, that poses a challenge that needs to be assessed, and we don't have at this stage a well laid out plan to manage the effect exposure. But it's not clear at this stage either that that's going to continue. So as Jorge has expressed, we're currently waiting, as everyone else, to understand and see what's the environment we're going to be facing moving forward. So I think it's a bit too early to start discussing in detail what should be the plan to address effect exposure.

You think it's too early with production beginning in less than a month and the final decision occurring December 10? Seems like you might want to have a plan in place with only a few weeks to go.

It is our expectation, it is -- the emphasis here is that we need to understand what's the environment and what are the rules that we will be facing. And anything that we -- the rules that we see today are to the best of our understanding, temporary, and we are expecting to have more information in the beginning of the new year, yes.

It is clear that we are in a period of uncertainty here, as the new government will likely either maintain or modify economic measures and regimes. So we have planned for us to lay out a plan today, will mean potentially very little in December 10, or December 15 or January 1. So we are monitoring closely all of these developments, but we know -- today -- we know what the picture is today. But today, as I expressed before, the tax burden what does it represent; the total tax vendor, still at least Argentina, competitive today. And we need to access dollars to meet the demands of the business for importation of consumables, capital goods. We have access to that market today if we need to repatriate the capital, if that were to be the case or service debt, we have access to the official dollars in the market. But again, we believe that there is a potential for all of those things to change, and we just need to be a bit patient here and see what are the rules that the new government is going to set for us. We are not just sitting back. We're monitoring all of this closely, listening to what they are saying, meeting with them in Argentina through the mining chamber, lobbying through the mining chamber, through the Canadian, Argentinian business chamber. So we are very active. But in terms of a specific plan, Garrett, we need to wait a bit more.

Okay. That sounds good. I appreciate it. Thanks for the answer.

[Operator Instructions] Okay. Our next question comes from George Froley with Pacific Income. Please state your question.

Hi, gentlemen. Congratulations on what you've done so far, and especially doing that convertible. That was a good move. Nobody called me to say thank you for the idea. But anyway, tell me how important the ADR plant is to producing gold. What does it do and why does it start in February? Won't that put production gold out until February?

Yes. Thank you for the question. And the ADR is mission critical. It is the plant that will manage the extraction of gold from the pregnant solutions. So it is mission critical for first of all, production. It is aimed to be -- currently planned or scheduled to be commissioned and operational in February. And by then, we'll have enough pregnant solution to start running it through the circuit. So ADR plants are very standard in this type of heap leach operations, and are a critical part of the process.

So, there won't really be first gold until February or March?

What we will have is a solution where we are building an inventory of gold and pregnant solution. No? But we need the ADR plant and gold room to extract the gold from impregnant [ph] solutions through the use of carbon columns and others, and produce first; and that is planned for February.

Okay, good. That's all I got. Thank you very much.

Thank you.

Okay. Our next question comes from Michael Bill with Davenport. Please state your question.

Good morning. Could you just remind us as we sit here today what the estimated life of San Jose is at roughly the current production rate, and maybe comment on exploration efforts, both successful or unsuccessful, to extend the life of the mine?

Okay. Thank you. Currently, based on research, we are operating about five years of life of mine with some additional resources for another year or two that could potentially be converted to reserves. On terms of exploration, I have to say that San Jose mine enjoyed tremendous exploration success some three, four years ago, which led us to make a significant expansion into what today ranks among the 12 largest primary silver producers in the world. Since then, our exploration success has been very limited. We've been able to achieve success locally and marginally in areas within production zones where we've been able to help deal with depletion by bringing new resources through expansion of known areas. But in terms of -- we have also discovered two new mineralized structures where we have been able to add over the last couple of years some additional resources. But in terms of something as large and meaningful like this mine had us accustomed to, no, we haven't had that kind of success. So, San Jose today is a big mine. It consumes about a million tons of ore every year. And what I -- our expiration programs today are mainly geared towards -- or have been over the last year geared mainly towards exploring the immediate extensions of known mineralization. And San Jose is not a simple vein either, a one-structure mineralized feature. It's a series of stockwork zones and coalescing mineralized structures, hanging wall, the stockwork zone, Paloma vein, all of them in one general area. So a lot of work has been focused on further exploring the inter-connection and expansions of these related mineralized zones where we have had some marginal success that has helped us deal marginally with depletion. We have 60,000 hectares of exploration ground around our San…

Thank you.

No problem.

[Operator Instructions] Okay. And it doesn't look like we have any further questions. I would like to turn the call back over to Carlos.

Thank you, Dagma [ph]. If there are no additional 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 great end of the year.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time.