Greetings, and welcome to the Fortuna Silver Mines First Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carlos Baca, Investor Relations Manager. Thank you, Mr. Baca. You may begin.

Good morning, ladies and gentlemen. I would like to welcome you all to our Fortuna Silver Mines -- to Fortuna Silver Mines and to our first quarter 2012 financial and operations results call. We're hosting the call from Lima, Peru. I would now thank you, all, again for joining us today. I would now like to turn the call over to the President of the company, Mr. Jorge Ganoza.

Thank you, and good morning. I'm joined on the call today by Luis Ganoza, our CFO. I will initiate the conference, and with the assistance of Luis, we'll be giving a summary and analysis of our operations and financial results for the first quarter of the year. Once concluded, we will address your questions. During the quarter, Fortuna achieved record net income of $11.1 million or $0.09 per share. This is up 132% compared to Q1 of 2011. We also achieved record operating cash flow, before changes in working capital, of $14.7 million or $0.12 per share in the period. After adjusting operating cash flow for 2011 income taxes paid in the quarter, the figure increases to $0.15 per share, which is up 81% to a comparable figure in Q1 2011. This record financial performance was delivered on the back of record silver and gold production for the quarter of 953,000 ounces of silver and 5,137 ounces of gold. This represents an increment of 118% for silver and 754% for gold, with respect to the first quarter 2011 figures. Silver comprised 66% of revenue, and the net realized silver price was $28 per ounce. By-product gold accounted for 18% of revenue for a combined 84% precious metals contribution to sales. For consolidated cash cost per ounce of payable silver, net of by-product credits, remains well below the median for silver producers at $3.18. At this point, we're not foreseeing factors that can lead to significant variations on our cost predictions for this year. Since the start of commercial operations back in September of 2011 for San Jose mine, it's driving our growth and will continue to do so as we expand it to its optimum throughput design capacity of 1,500 tonnes per day planned for mid-2013. At that rate, San Jose is scheduled to deliver annually approximately 3 million to 3.5 million ounces of silver and some 25,000 ounces of gold. This will take our consolidated annual production rate to approximately 5 million ounces of silver and 27,000 ounces of gold, plus base metal grades by mid-2013. The company has budget capital projects amounting to $56 million this year. This project will have a direct impact on our growth and efficiency gains, cost reductions and long-term sustainability of our operations. At the San Jose mine, our main projects include investments for plant expansion to 1,500 tonnes per day. And the north side the [indiscernible] production plant that will help us materialize significant reduction costs on treatment and refining charges. At the Caylloma mine, main projects include tailings facility #3, de-bottlenecking of energy transmission, underground infrastructure and material upgrades to plant and company infrastructure. The company has executed close to $5 million of this budget in the first quarter, with investments planned to start picking up in the second half of the year. We're turning the corner with the pending tailings permit in Peru. On April 3, our Peruvian subsidiary received official notification requesting additional documentation of surface title for various parcels within the area of influence of the tailings project and minor tailings and observations as well. Our team has replied, complied with all additional information requests and observations, and these responses are being filed this week. The permit process is now moving at a pace that suggests that we could meet our late June, early July deadline for the project. In parallel, our management team has advanced with contingency plan, which includes expansion of the holding capacity of the current tailings facility for an additional 5 months of operations starting in July. Audio technical studies and meter [ph] engineering for this alternative have been concluded. The project has a budget of $0.5 million and is scheduled to be operational in late July. Our 2012 exploration budget is $15 million and includes over 35,000 meters of planned drilling. We have 4 drill rigs working at Caylloma with 6,000 meters of drilling executed in various targets so far this year at the San Jose project. Our drill program is set to start in June with one drill week first and the second one coming soon after that. And since the beginning of the year, we continue advancing with prospecting of the large land package we control in the area. Drilling at the Mario Project is concluded for this phase, and the company is currently assessing the results. Moving forward, the company remains adequately funded to meet its capital projects with approximately $53 million in cash and short-term investments as of March 31. I would now let Luis take you through the financial statements and cost analysis.

Thank you, Jorge. As mentioned, this has been a strong period for the company, reflecting the positive operational performance in the San Jose mine in its second full quarter of operations. Sales were 86% above the prior year period driven by the contribution of the San Jose mine, for which recorded sales were $19.2 million. At San Jose, approximately 90% of silver and gold produced was actually sold during the quarter, where total silver inventory as of the end of March is in the range of 170,000 ounces of silver. Sales at Caylloma remained at similar levels as in the prior year in spite of a higher silver sold of 15%, mainly as a result of lower lead and zinc prices and somewhat lower metal sold. We have reported a net realized silver price of $28.31 for the quarter. This is the average realized market price on metal delivered over our provisional sales after deducting treatment and refining charges and considering the actual percentage of metal paid out of contained metal and concentrates. The reporting of this figure is consistent with the way we report our revenue, which is net of treatment and refining charges. Moving down the income statement, our mine operating income increased 62% over the prior year period to $21.1 million. San Jose contributed strong margins, which helped offset somewhat lower margins at the Caylloma mine. Margins at Caylloma, compared to Q1 2011, were affected by higher cash cost -- higher unit cash cost, which increased 31% over the prior year period. Most of this increase, however, was already reflected in the fourth quarter of 2011. The cost for the quarter is in line with our budget. And today, as Jorge mentioned as well, we do not expect further upward trends or resurgence in cost behavior. As far as San Jose goes in relation to cash cost, the reported figure of cash cost per tonne of processed ore for the period was $65.46, in line with our budget. And again, we are not anticipating any material sources of cost inflation either. Back to the financials and sales, our operating income, that is after deducting selling and G&A and other expenses, was a record $16.53 million, an increment over the prior year period of 106%. Our selling and G&A line item in the financials remain at similar levels quarter-over-quarter in spite of the expenses associated with our new operation in San Jose. This is due to the effect of mark-to-market on share-based payment instruments. We have recorded income taxes of $5.43 million, out of which $1.92 million is current taxes generated exclusively at our Caylloma mine. No current taxes are being recorded yet at our San Jose mine. On net income for the quarter, we recorded $11.11 million, 122% above the prior year period. Earnings per share for the quarter was $0.09 compared to $0.04 in Q1 of 2011. Moving onto the cash flow statement. Cash generated by operating activities before changes in working capital for the quarter totaled $14.69 million, up 144% over the prior year period. When adjusting for 2011 taxes paid out in March of this year, our cash flow from operations is $18.70 million or $0.15 per share. Cash used in investment activities was $7.59 million, and as Jorge mentioned, this is expected to pick up in the second half of the year as our larger projects go into construction phase. And our cash position at the end of the period, including short-time investments, was $53.85 million. And working capital amounted to $76.06 million. Thank you. Thank you very much for listening to us. We would now like to turn the call over to any questions that you may have. Please state your name clearly and try to keep your questions brief.

[Operator Instructions] Our first question is coming from the line of Andy Shopick [ph], a private investor.

I have one question on Caylloma and one on San Jose. First on Caylloma, it was clear to me, upon reviewing the annual 10-K document, that there was going to be a meaningful increase in cost per ounce, reflecting, in part, reduced by-product credits, which we have discussed on the prior call. Can you tell us whether the $7.21, which you've recorded here as your cash cost for Caylloma, is going to, in fact, be the peak this year, or whether you expect any meaningful variation in the quarters ahead for your cash cost to produce silver at Caylloma?

The best way to -- thanks for the question. The best way to analyze cost is -- at the subsidiaries, especially at Caylloma, is cost per tonne. We recorded about $81 cost per tonne, which once accounted for -- converted to cost per ounce using net of by-product credits becomes a $7 figure. At this moment, we see no conditions or changes that could lead us to believe that we will see movements in our cost for the remaining of the year.

At Caylloma.

At Caylloma. At Caylloma, we are not seeing -- the big items that can lead to these changes are material changes, production plant, which we're not seeing, material changes in contractor tariffs, and we just went through those adjustments late in 2011, and we are not seeing any significant changes on tariffs, and we are not seeing either material changes on other services that the mine employs, which are the main drivers for cost variations usually. At this moment, our cost -- our costs actually was a few dollars below our budget and -- in terms of dollars per tonne, and we expect it to remain at around $81 to $85 level.

Do you expect any improvement in the -- condition with respect to refining charges?

Yes. Something we did at the -- when we engaged in our annual contracts for the sale of our commercial products, which are the silver-lead concentrate and the zinc concentrate. If we gave ourselves the flexibility of -- for the lead, only agreeing to a contract for 6 months, with the expectation that we can find better terms by mid-year. So that is something that we are assessing currently. We're looking at several alternatives. First is sending our products somewhere else. Our products are going to China right now, and China is setting the benchmark with respect to terms for lead, which carries silver, which is okay. And another alternative is restarting the copper circuit, having the silver report to the copper circuit and being able to relocate the copper products outside of China. Because base metal concentrates carry precious metals do -- are under the same general conditions in terms of -- if they go to China. China is the carrying exporter of metal. And when they purchase the lead, it's for internal market, but then they sell the silver outside of the country, and then they sell through tariffs and taxes that try to disintegrate re-export of metal.

Okay. One question on San Jose. Have the conditions -- regarding the unfortunate incident that occurred months ago, have the conditions began to improve, or your interaction with the community, has there been any change or progress made at that location?

Something that I would like to stress is that our relationship with the community of San Jose, for a couple of years at least, is one of -- as a generality with authorities and the broad base of members of the community, is one of support and understanding. So there is a -- there are fringe groups, not necessarily members of the community at all times, that have a reactionary -- or oppose development projects, not just mining. So our relationship with the community is strong and is one of support, and we do not see, in the community, any threat to the sustained continuity of our operations. Having said that, Oaxaca is a place of complex and convoluted political scenario. There are a lot of reactionary groups, as we found in Chiapas and Oaxaca, and we interact with those groups. And there was a small manifestation at our gates on Monday. That manifestation gathered around 100 people, 15 of which -- 50 of which, almost 1/2 were women and children from outside the community most of them. They protested peacefully for most of the day. It did not impede the normal operations of our team. And at the end of the day, they left Oaxaca to hold the conversations and discussions with the state authorities. That is part of Oaxaca social dynamic, and it is a reality that we -- as they are part of, it is a reality we're part of. And -- but we do not see a threat to the continuity of our business in any way at this moment.

Our next question is from the line of George [indiscernible] of [indiscernible] Asset Management.

I'd like you to expand a little bit on the Mario Project that you referred to in your brief remarks.

Yes, George. Thanks for the question. Our work at the -- our initial phase of drilling, which started towards the end of last year and carried into the first quarter is done, is concluded. It's, in fact, on -- tomorrow that we have a review meeting with the team and our Vice President of Exploration to assess the results and assess or continue the involvement in the project. We have -- I do not want to advance an opinion right now, unless I see the report. We -- what I can say is that at Mario, our team successfully identified a large -- a potentially favorable environment for a large gold -- disseminated gold, silver deposit in a directional [ph] environment, which is very favorable and a productive environment with significant deposits if the -- and we are going to assess to -- they have prepared a presentation. They're going to present their recommendations to senior management tomorrow, and we'll be making a decision based on that. I have -- we have found some challenges with the metallurgy. That's my understanding so far. But again, I don't want to get ahead of myself until I see the presentation of the team tomorrow. And we'll be reporting accordingly.

And is there any sign that the price of lead and zinc have bottomed out? They had quite a drop in the last, well, period.

There is a lot of expectation in the markets with the short-term outlook for -- short, medium-term outlook for zinc. Zinc and lead have become -- to put this into perspective, our first year of production in 2007, lead and zinc accounted for roughly over -- a little over 50% of our revenue. Today, they account for 15% of revenue combined. So it is a -- really has become, as we expanded our precious metals production, the contribution of lead and zinc have become smaller, and it is really a 15% combined byproduct to us today. I suspect that there is arguments to think of higher zinc prices in the near future. But again, for Fortuna, today, it's a small byproduct.

[Operator Instructions] The next question is from Marco LoCascio of Equinox Partners.

A couple questions for you. Firstly, at Caylloma, I wanted to ask about the silver recoveries. I know you've talked in the past about the impact of the oxide ore coming from level 6 at Animas, dragging down the recoveries. I just want to get a sense of how much of that ore you plan to put through the plant the rest of the year and whether this recovery in the price revenues is what we should expect going forward?

Regarding your question, Marco, you should expect recoveries in this range for the remaining of the year and into the first months of last -- of the coming year. The oxide -- or it's not oxide, but the mixed ore reserves that we have are in our production plants into next year. What we are working on, what our team is working on is: one, on fine tuning the metallurgy of that mixed ore. That's an ongoing effort. Two, adjusting mine plants to reduce the contribution of mixed ore to the production mix; and third is the -- what we're doing right now is trying to -- we were blending the mixed ore with fresh ore, which is a bulk of our reserves. To put it into perspective, out of the 4 million tonnes we reported in reserves at Caylloma, mixed sulfide-oxide ore is roughly no more than 200,000 tonnes. I don't have the exact figure in my head, but it's less than 200,000 tonnes. The problem is that the mine is going to -- as the mine moves, the mine is going through that portion of reserves at this point. So we have some short-term pain that we have to go through in this other part of the mine, and we're trying to mitigate the effect of that mixed ore as much as we can, with several technical initiatives that are being implemented. And we -- you should expect continued lower recoveries. Now there is a trade-off because this mixed ore, which has -- or causes this lower metallurgical recovery or this interference with the floatation of sulfide also is higher grade than the average reserve. So the net -- the higher grade, lower reserves, at the end of the day, the metal produced, still, is the same as in our budget. Even though we're seeing lower reserves than before, it's higher grade ore than we used to run through to the mill before. So it is not ideal, it is not optimal, but we are meeting the metal guidance. And again, it is a short-term effect of the reserves that we are mining today, that will be in the 2012 plan and into 2013. But those are really small finite reserves close to surface where the mine is today.

Okay, sure. Next question is on capital expenditures. You guys put out in the MD&A a pretty precise budget on the projects you have at each of the mines. But I was wondering if you could give a sense of what your budget is for underground development and sustaining capital at each of the mines.

Yes. In terms of mine development for San Jose, ramp -- the deepening of the ramp and mine development related to development of our [indiscernible] levels, our levels in particular, level 1,350 and level 1,300 for 2012 is $7.5 million. Most of that, really, is a ramp, and the outlook into 2013 and 2014 is that, that should reduce by half. So just looking further into 2012, for San Jose, that mine development is going to be a much lower amount, in the range of $3.5 million. And for Caylloma, the mine development budget for 2012 is $4.5 million, and that's going to be pretty stable looking beyond 2012, the range of $4.5 million. And that is the larger portion, really, of our overall budget. The mine development accounts for the most significant portion of our budget relating to sustaining CapEx.

Okay. All right. And then just one question on the balance sheet. You guys talked about the expansion of working capital, and particularly, receivables in the quarter. I'm just wondering if you could comment on what was behind that and sort of how you think about working capital levels as you go forward.

I'm sorry. Your question is, in particular, the behavior of our accounts receivable?

Yes. And the increase in net working capital we've seen on the balance sheet.

Yes. I mean, in particular, our accounts receivable is just reflecting the higher sales from San Jose. For the period, that's -- for the quarter, that's in the range of $4.5 million, and we collect -- we get paid 15 days after actual sales for the period. And in general terms, the larger working capital has to do with the coming to production of San Jose and larger current account items in the balance sheet from inventory to accounts receivable. So I would say that moving forward, you're going to see it consistent with what we're seeing for this quarter. Now as we go through the expansion into 2013, that'll change a bit again. But I don't think anything dramatic.

Okay. And one last question, in terms of the contingency you're looking at, at Caylloma in the case where the permits don't come through in time, would there be any approvals necessary for that, or that's within the existing permits you have for the tailings facility?

That is within the existing permits comprised within the mine, the tailings closure plant. We can make some adjustments in tailings, closure plant for that tailings facility, and we're making use of that opportunity to add a few more meters and just to increase its capacity to 4 to 5 months. We have the flexibility to go to 4 to 5 months, and we're going to be doing it in stages. Pretty much, a meter gives us a month. A meter of height increase. So we have that flexibility, and we're going to make use of it.

Our next question is from Anthony Hammond [ph], a private investor.

My question is with respect to the progress of the expansion of the plant at San Jose, do you think that you're going to meet the schedule in the coming year?

Yes. Thanks for the question. Really, the long-lead item for the expansion of the San Jose mine is in the plant and it's in the equipment of the plant, and the key equipment here is a second ball mill that will have to be purchased, procured and installed. It is not a large ball mill. We currently are scouting the market for alternatives in the second-hand market. We have already identified a couple of ball mills that could be of use to us. We are assessing them. We are -- our engineering team is advancing with the granting of the EPCM or the detail engineering, starting -- getting started with the detail engineering for the project. But when the plant was designed and conceived, we already made the adjustments and left the necessary room and accommodations for this expansion to 1,500 tonnes per day. So there are no dramatic engineering projects, not anything for this expansion. The main equipments are, as I've said, the ball mill and a couple of benches for additional floatation capacity. But the thickeners and all the equipment is really sized for 1,500 tonnes per day. With regards to the mine, as we already mentioned, the key here is the continued advance of the ramp, and the ramp is already at level 1,300, and as we develop level 1,300, we are already advancing with getting the mine ready to source 1,500 tonnes per day as early as first quarter 2013. So I mean, the mine is on track, and we are basically saying that within a year, and that is on the back of the potential long-lead delivery of a ball mill, we should be delivering the expansion towards the second quarter of next year.

Our next question is from the line of Lila Murphy of Federated Investors.

This is Lila. A couple of questions for you. First, can you talk a little bit about what you're seeing on the labor turnover front at Caylloma?

Yes. We measure worker rotation, contractor rotation very, very closely, and that became an issue last year, and it is one of the reasons for the increases in wages and contractor targets. This year, we are not seeing -- at the start of the year, we're not seeing any anomalous figures in worker rotation. We have changed one mine contractor. So that, I think, has also had an effect. We brought a second contracting company with a bit more administrative capabilities. So we have not -- I cannot report that we are seeing anything anomalous with regard to worker rotation at this moment. With regard to key engineering personnel and staff, we did see, towards the end of the year as well, a few key positions leave the company. But by now, we've been able to replace those positions.

Okay, very good. And then the second question I had was related to the procurement of the second ball mill and what you're seeing on the cost side there, whether that is going to be close to what you were projecting during the feasibility of -- or whether or not you've seen any cost creep there.

We're working on our figures on -- we budgeted for the expansion back when we did the original engineering for the startup at 1,000 tonnes per day. When we did the budget for the launch at 1,000 tonnes per day with the engineering term, at that moment, we budgeted expansion to 1,500 tonnes per day at the plant, and again, here, I'm just talking about the plant, at about $3 million. We believe that today, with the information we have today, although we do not have detail engineering yet, but at the level where we are today, we believe that figure will double to roughly $6 million. With regard to the mine, we're not seeing any material changes. I mean, it's part of our ongoing -- if anything, we're only accelerating development, and that is in our budgets, and our budgets are in line with projections, what we're seeing. And with regard to the expansion of the tailings facility, we're not seeing any changes. So the main driver for change is in the plant where we can see as much as a double from the original estimated $3 million, which was estimated back in 2010, late 2010. And again, $6 million dollars, putting it into the big picture, for a 500 tonne per day expansion, which is doubling, incrementing capacity by 50% with respect to 1,000 tonnes, it is still what we consider a very modest figure.

Thank you. Are there are no further questions this time. I will now turn the floor back over to management for closing comments.

Well, I'd like to thank everyone for listening in to today's earnings call. We look forward to you joining us next quarter. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.