Carlos Baca - Manager-Investor Relations Jorge A. Ganoza Durant - President, Chief Executive Officer & Director Luis Dario Ganoza Durant - Chief Financial Officer

Rahul Paul - Canaccord Genuity Chris Thompson - Raymond James Howie Flinker - Flinker & Company Matthew O'Keefe - Dundee Capital Markets

Greetings and welcome to the Fortuna Silver Mines' Second Quarter 2015, Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Carlos Baca, Investor Relations Manager. Thank you, Mr. Baca. You may begin.

Thank you,, operator. Good morning, ladies and gentlemen. I would like to welcome you all to Fortuna Silver Mines and to our second quarter 2015 financial and operations results call. Jorge Alberto Ganoza, President and CEO; 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 our conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing our 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, which is publicly available on SEDAR. I would now like to turn the call over to Jorge Ganoza, President, CEO and Co-Founder of Fortuna. Jorge A. Ganoza Durant: Thank you, Carlos and good morning to all. We’ll be giving you some highlights and walking you through our financial and production results here with Louis. In the first quarter the company produced 1.67 million ounces of silver and 9,000 ounces of gold, up 3% and 6% respectively, when compared against Q1, 2014. We expect the large plus minus 35% jump in silver and gold production, once our San Jose expansion is completed in mid 2016. We’re well within guidance to meet our consolidated forecast for the year of 6.5 million ounces of silver and 35,000 ounces of gold. Caylloma silver production at 443,000 ounces is in line 25% with respect to our annual guidance due to 24% lower silver grade. This is explain by challenges and countered on level six of the Animas vein related to higher mining dilution and reduced capacity to meet tonnage from this level due to unexpected adverse mechanical conditions, some of these near surface area. We’re analyzing options in the plant to mitigate a drop in silver grade coming from the challenges and encountered in level six but now expect to see a shortfall of silver in Caylloma of approximately 25 to 30% for the year with respect to guidance. Our positive side to this is that that we have shifted production to levels 10 and 12 of Animas which hold higher base metal content, seeing production is up 25% in the quarter against guidance. As a result the economic impact on our margins at Callyoma is marginal. The net smelter return value per ton of ore on the polymetallic ore of level 12 versus the silver ore from level six is approximately 5% today. From a consolidated production perspective, the guidance shortfall in silver production from Callyoma is being covered by San Jose which is delivering 10% higher silver grade and 3% to 5% higher mill throughput against guidance. San Jose produced 1.2 million ounces of silver and 8,700 ounces of gold, 11% and 9% respectively above production in Q1 2014. The San Jose mine operating comfortably within its annual plan and had the added flexibility as we advance with preparations to serve 3,000 tons per day next year. We reported lower operating costs at both our mines in San Jose. We achieved $58 per ton down from $64 in Q1 2014 and at Callyoma we achieve $88.55 per ton from $91.70 per ton in the comparative quarter. Measured against you Callyoma is inline and San Jose 8% blow guidance. At San Jose lower cost per ton against guidance are explained by 17% devaluation of the Mexican peso with respect through budget partially being offset by higher mining costs related to breakup preparation and haulage. For the quarter, our consolidated all-in sustaining cash cost net of by-products decreased to $13 per ounce from $15.77 in Q1 2014. Our guidance for 2015 is for $16.60. We expect to be within guidance for the year due to the scheduled capital investments in the coming quarters related to our filter tailings and dry stack projects at San Jose. We continue to work to bring cost down from an all-in perspective closure to the $10 mark once we materialize expansion of San Jose 3,000 tons per day. Looking at our capital projects, our CapEx guidance fee for 2015 is $70 million. The location is 56 million to San Jose mine and $40 million to Caylloma. Our San Jose project are advancing according to schedule on the tailings filtering facility and that dry stack we have advanced to-date, to the end of July of 78%, which is in line with schedule. And for the 3000 ton per day expansion we have an advance of 11% which is also within schedule. All purchase orders for key equipment have been already placed and we’re starting to see some of that equipment starting to arrive this month and in the coming month. Looking at exploration, our largest exploration project today is at San Jose. We are concluding with our drilling on the North extend of Trinidad North and we are preferring to initiate drilling at the second half of the year, on a what we are calling a mirror system to the Trinidad north south vein which is called La Noria. La Noria is located some 1.5 km to 1 km is to due west from Trinidad. We have already land agreements in place and we are working for the environmental approval to start drilling. We expect the environmental approval to be granted any way. So we have done surface work. There is good surface exposure and we are optimistic with a view of being able to identify new new ore shoots in the system at La Noria. That will be all the operational aspect. Luis, if you want to take us through the financials.

Sure. So for Q2 2015 we recorded sales of $38.9 million, down 12% from Q2 of 2014, a net income of $0.2 million down from 2.4 million in the same period last year. The mina driver for loan income and sales was a lower realized silver price which fell 17% to $16.30 per ounce. This negative price effect was partially compensated by higher base metal sold of 40% and 22% for zinc and lead and slightly higher silver and gold sold of 2% and 3%. Silver sold for the quarter was 1.64 million ounces and gold sold was 8,672 ounces. Our mine operating earnings was $10.4 million, 36% below Q2 of 2014, mainly as a result of the lower sales and to a lesser degree to higher depletion charges. Gross margin came down from 37% to 27% reflecting the impact of lower metal prices. This negative effect however, was partially offset by lower unit costs year-over-year at both of our operating mines, 10% lower at San Jose and 3% lower at Caylloma. Mine operating earnings were further affected by an accumulation of $1 million worth of metal inventory net of costs. We recorded selling, general and administrative expenses of $5.5 million. A decrease of $3.1 million compared to the prior year period. The decrease is explained by lower stock-based compensation charges of $2.1 million, a reduction in corporate expenses of $7.6 million and a foreign exchange loss in the comparative period of $0.3 million. Operating income was $4.8 million, 37% below Q2 of 2014. We recorded $4.1 million of income tax for the quarter. Our effective tax rate was 95% for Q2 and 67% year-to-date. We need to bear in mind that income tax expenses sensitive to the volatility of exchange rate through impact the latter half of the deferred income tax variability. So outside of a foreign exchange effect, the effective tax rate would be 71% for the quarter and 53% for the year. Finally, net income was $0.2 million or nil cents per share compared to $0.02 per share in Q2 of 2014. Cash flow from operations before changes in working capital and after tax of state for the quarter was $6.8 million compared to $15.1 million in Q2 of 2014; that is a reduction of 55%. A significant portion of this decrease is related to timing issues in the payment of income taxes. In the quarter we paid tax installments of $4.7 million, whereas in 2014 we paid only $0.5 million. Adjusting for this, the reduction in cash flow year-over-year is in the range of 25%, similar to the change in EBITDA which was $12.4 million in the quarter compared to $16.5 million in 2014, a reduction of 25% as well. Expenditures in mineral properties plant and equipment was $16.8 million for the year. This is around 24% of our planned and annual capital expenditures. W we expect to see this figure right over Q3 and Q4 as the dry stack tailings projects at San Jose is commissioned and the planned expansion at San Jose as well gains momentum. Moving on to our balance sheet. Our total cash position including short-term investments as of the end of the quarter was $110 million, an increase of $32.7 million over year-end, reflecting the drawdown of the $40 million term loan with Scotiabank. On our payrolls we closed 2014 with $9.7 million of income tax payable related mostly to our Mexican operation and closed June of this year with 1.4 million. No tax installments were paid in 2014 in Mexico, so the full income tax incurred in fiscal period of 2014 were actually dating March of this year. Moving forward we should expect more of a balance between taxes incurred and taxes paid throughout the year. And finally as I already mentioned and as we discussed in the previous quarter on April 1, we drew down the $40 million in the term loan trench of our expanded bank credit facility. The $40 million are structured us a bullet loan with a four year term. We have also proceeded to fix the interest rates in the loan to an interest rates swap. This will allow us to add additional financial flexibility to our balance sheet during expansion phase of San Jose mine as well as secured. We regard it as a very attractive interest rates. Thank you, back to you, Carlos.

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

Thank you. We would now be conducting a question and answer session. [Operator Instructions] Our first question is from Rahul Paul of Canaccord Genuity. Please go ahead.

You set out a budget for CapEx in the beginning of the years, particularly with the San Jose projects. I understand most of the spending is to be weighted to the second half for the year. Now is that the only reason for the low spending in the first half for the year? Are you also seeing any savings related to local currency weakness?

No, with respect to a capital project, we attribute the impact to a lot of purchase orders that have been placed and we will start to see that impact in the second quarter when we start to receive our equipment on San Jose, the major project start advancing which will have been in the this second half of a year. In terms of capital projects, the exchange rate, and well most of it is dollar -- Jorge A. Ganoza Durant: Yes, and there of course our contract size, the dollars within the timing issue.

Can you give us a rough breakdown there of how much you plan to spend on CapEx in Q3 versus Q4?

Q3 and Q4, we should pick up and we are forecasting around $25 million to $30 million for both quarters, that's what we would actually expect to see.

And most of that be related to Q4 or you are going to start -- is it going to be evenly spread out?

We anticipate that bulk of what's still pending from a dry stack project, which is a $28 million project, we will see come down in Q3. We’ve already recorded around 7 million for that project, so bulk of it we will see in Q3 and that gives you around $25 million to $30 million in Q3 and in Q4 we should see the balance of a $7 million. That's in our rate $25 million. Jorge A. Ganoza Durant: And for the expansion to 3000 per tons per day which is $12 million - $13 million each year, we should start to see a pick more into Q4.

Okay. Perfect that's really helpful. And then, just last question from me. It looks like you purchased approximately 35 million worth of short term investments this quarter, I’m just wondering if you could provide us a little more color as to what these investments were?

It's a just basically a bank term deposits, which are between 3 and 12 months, so nothing fancy here.

Okay. So this is basically something that we could plus for this cash?

Yes.

And just another question, do you hold your cash? In what currency do you hold most of your cash? Is it mostly U.S. or is it a mix of U.S. versus --

Yes. The most of it is in U.S.

Okay. So you see how the full benefit to whatever the pricing U.S. dollar.

Thank you. The next question is from Chris Thompson of Raymond James. Please go ahead.

A couple of quick questions, let's start off with Caylloma first of all, Jorge, we have spoken before about optimization work at Caylloma. Is anything happening on that basis at the moment, any advancements? Jorge A. Ganoza Durant: Well, we are seeing the benefit, we have been seeing gradually over the last year, the benefits of some of the initiatives that we have undertaken at Caylloma. As I mentioned, looking at our cost per ton which is a strong measure of cost operations, our cost per ton came in at $88.55 which is down from $91 a year. And this is basically in line with our budget. So we expect to continue to see cost on a per ton basis, stabilizing around these levels on $88 to $90. We will see always cost on a per ton basis bounce month to month, but what we are seeing today we believe is we are operating very lean on the initiative side. We are still fighting for some productivity gains, but is now fighting for sense on the bigger cost per ton basis. We had some positive gains this year for example, instead of trucking our zinc concentrate all the way to the Caylloma facility, which is a 1,000 kilometers away, we are delivering our zinc at Matarani which is only 300 km to 400 kilometers. So things like that. But as appreciation we believe the $88 we are seeing today is something that we will be looking to stay.

So obviously you discussed what's happening with the silver grades [indiscernible] size, so I guess the question is should we be modeling to the back half of this year, what you guys delivered I guess in the Q2 as far as grades on the zinc and silver? Jorge A. Ganoza Durant: Yes. We are taking a hit on our silver production on the back of the loss of our ability to source the tonnages we originally scheduled at the beginning of the year for that area. Level six is the uppermost level of the Animas Vein. It's close to surface. And we did in our planning account for challenging geo-mechanical conditions, because of the near-surface location of this. But it's been worse than what we planned for. So mining is being painfully slow and we are also dealing with broad sounds with lots of internal barring the ore shoots. So we are dealing with internal dilution as well as bad rock and internal dilution. So that is impacting us and we are moving away from level six. So we break on that for the year our silver products and is going to be impacted around 25% to 30% in terms of metal outage.

Okay. No that's perfect. I mean it's great to have some flexibility that you have at Caylloma. Jorge A. Ganoza Durant: Yes. And I would like to highlight that when we look at our or margins or net smelter return and cost, not in that margin. Again that every mine tons, and not necessarily ounces, we’re seeing a minimal, or very marginal impact on the value of the rock that we’re mining when we shift from Level 6 of Animas to Level 12, because of a higher zinc content. And going back to your previous question, there is one optimization project at Callyoma that is ongoing. I it has $4.5 million budget attached to it this year, which is improving the classification where we're migrating from cyclones to high frequency screens and in changing and increasing the flotation self capacity. We expect that it will allow us to increase as much as 2 to 4 percentage points on silver recovery, which will be even more important as we see potentially lower silver grades.

Right, that's an excellent answer. I guess, asking earlier on. Thanks for that. I guess just moving on to San Jose, obviously we were talking about the dry stack timing, I mean do you see any operational adjustments being incurred, as you transition over to the dry stack towards the end of this year, beginning next year? Jorge A. Ganoza Durant: No - no. Everything is going according to plan. We’re not seeing any changes in the design. We were very careful and reached with experience, we've reach design with the experience of others and the challenges that others have faced with implementation; other operators in Mexico and in the neighborhood in general. So we a expect a smooth transition, I mean so far in the construction phase, in the selection of equipment; we feel -- today I can't say that we feel comfortable, but we still have to see that thing operating, right; but so far so good.

Great, just quickly on the exploration there, Jorge, obviously you’ve indicated that, I guess you sort of concluded the north bound where expansion site drilling for the moment at Trinidad north, how far outside the results and below by you, with your drilling there? Jorge A. Ganoza Durant: As much as 200 meters, I believe we are right now, so I will have to confirm that to you, but we’ve been stepping out I believe as much as 200 meters due north from the north bound of the shell of the referred research shell. We’ve been drilling basically from the same drill chambers. And we’ve been testing these new areas at that wide spacing of at least 100 meters or more. We expect now that we are concluding to republishing results for that drilling this month.

Okay. Great thank you. And then finally very quickly, just a quick comment if you would on labor relationships, contract union contracts for instance for both operations, where do you sit right now? Jorge A. Ganoza Durant: We have closed our union negotiation in Peru. We are within budget basically, with respect to commitments to agreed to with union, which are modest increases in compensation and some other benefit related to operating [indiscernible] to night shifts and we're not not but everything is within budget. I think the team has done and actually everybody in Caylloma and across the company and across the industry to make it broader, I think the reality of the environment where we are operating had thinking with everybody. And that was not necessarily the case for example two years ago, when there was still the hangover from the good old days from 2010, 2011. But I believe that today everybody is quite conscious of the situation where we are and that everybody has to pull in the same direction, right?

Thank you. Our next question is from Howie Flinker of Flinker & Company..

I have a broader question. How could you say in business with those tax rates? Jorge A. Ganoza Durant: Well, you got to look at the -- to get a real sense of the actual of the tax rates, you got to look at the tax rates at our brilliant subsidiaries. There is a segmented section of our financial statements notes there is disclosure on the actual income tax rate of the operating subsidiary. So the operating subsidiary level, again outside of the distortion from the foreign exchange and the deferred tax portion of the income tax expense, Mexico is in the 36% range on year-to-date, but Peru is similarly somewhat higher. So, on the consolidated level, whenever we have a same operating income due to low prices as in the current environment given that we have no operations in Canada. And large portion of our corporate expenses are not deductible, well, the thing of course is that the consolidated effective tax rate spikes, right. So that's a bit of the reality today.

Corporate expenses aren’t that big. Jorge A. Ganoza Durant: No-no, so again our typical effective tax rate on an ongoing basis in a normal situation will hover between anywhere from 48% and then 52%. We are somewhat above that outside of the foreign exchange effect and that's what you should typically expect.

Alright, so let's take 50%. How can you justify investing the next dollar in the next expansion with a guess that the price will be favorable because if it is unfavorable you don’t want to do it anyhow? And still be left with 50%, and say we have a reasonable rate of return; how could you justify that or do you have to find other places to find gold and silver where you can explore? Jorge A. Ganoza Durant: Well, in the case of our expansion in Mexico, which is our main project; our numbers in spite of that are quite robust, we will be able to not only reduce unit cost, but we will be through the expansion achieving improved higher grades. And expanding a profitable mine even in the current price environment is the best location of any available investment surplus. That is --

I mean the financial returns we are seeing on the expansion project are above 15%.

1 - 5? And that's pretax? Jorge A. Ganoza Durant: That's after tax return?

Yes.

And how you do calculate that? What are your numerator and denominator?

Well, I don’t have the financial analysis right in front of me, but if you want to go in detail we will be happy to have our call with dealer and go through the average.

Yes. I am curious because when people calculate returns, they frequently leave out some numbers conveniently and the returns are not anywhere near where people saying. I have gone through this.

We will be very happy to hold our call and have the -- expansion.

Yes, by all means, thank you.

Basically bigger scale, lower effective tax rate, bigger production, lower effective tax rate. Jorge A. Ganoza Durant: Howie, please send an email to info@fortunasilver.com and I'll reply to you and we'll arrange a call with Dario, our CFO.

What's the first part, info? Info -- Jorge A. Ganoza Durant: info@fortunasilver.com.

Ok, I'll do that later. Thank you.

Thank you, ladies and gentlemen. The next question is from Matthew O'Keefe of Dundee Capital Markets. Please go ahead. Matthew O'Keefe: So, I just wanted to follow on the exploration track a little bit. Obviously, you addressed some of the Trinidad North questions. I was wondering, what your total budget is, if that's changed this year and you also mentioned this mirrors on La Noria, I think that's what it was. Could you explain that a little bit? Is there some more compelling reason to be drilling there and is there lot of budget allocated to that?

Well, with respect to our annual exploration budget, we have a modest budget this year of 4.5 million or 4.1 million; but we are increasing that budget. We are going to be allocating roughly an additional million to initiatives in Caylloma. So that represents the budget increase. Of $4 million in the budget, 3.5 were ticketed for San Jose and only 700,000 for Caylloma. So, we are now allocating another $1 million; it does not sound like a lot, but it is going to help us do very targeted work on some high grade things that we have identified on the North portion of the Caylloma system, aiming to open up, some of that can help us with grade issues we just discussed. These areas that are close operational infrastructure and would be easier to incorporate into our plan. But Caylloma is not about massive or large programs. I think the work has to be very targeted as there is no shortage of veins, but you can go wrong filling all the veins at Caylloma. You have to do a very targeted work. And that is what we intend to do. And, with respect to San Jose, we had in the budget an allocation to drill test La Noria. We're moving forward to that. Again, it's just a parallel north-south running system that was drill tested by a previous explorer in the Northern most portion of the outcropping area with 4 or 5 very closely spaced holes and they didn't counter the vein with variable grades; I'd say mixed results, nothing really exciting. But, in our experience, at Trinidad, in general for us who have explored these epidermal systems, I mean you hit the structure, you find mixed results, you have to aim for the ore shoots. It is the same at Trinidad. You are out of the shoot, you are in a tighter zone and you're seeing a 100 grams upper ground gold and 100 grams silver, 50 grams silver, so we have plenty of structure at Le Noria, or surface sampling has allowed us to identify areas with higher metal content. And, we're going to refer a drill testing in some of those areas.

Thank you. We have no further questions at this time. I'd like to turn the conference back to management for any closing remarks. Jorge A. Ganoza Durant: Ok, before I let you go, I would like to announce that we've published our final report in the Web site. You can find it in the investors tab under annual reports. Thank you very much for joining us in today's earnings call. We look forward to speaking with you next quarter. Stay well.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time.