Greetings and welcome to the Fortuna Silver Mines second quarter 2012 earnings call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. (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 Fortuna Silver Mines and to our second quarter financial and operation results call. We apologize for the late dissemination of our press release yesterday. Today we are hosting the call from Lima in Vancouver. Thank you again everyone for joining us. I would now like to turn the call over the President and CEO of the company, Mr. Jorge Ganoza.

Good morning. I am joined on the call today by Luis Ganoza, our CFO. We initiate a conference and with assistance of Luis, I will be giving a summary and analysis of our operations and financial results for the quarter. Once concluded, we will address your questions. During the second quarter, Fortuna achieved net income of 3.85 million or $0.03 per share. Net income is down 38% in the comparable period. This is accounting for a one-time write-off of 3.86 million of exploration capital related to termination of the Mario Property option agreement. Adjusted net income was 6.9 million, up 37% compared to 5 million for Q2, 2011. Cash generated by operating activities changes in working capital totaled 15.7 million. It is up 76% over the prior year period. For things at the mine delivered consistent production results for the quarter of 996,000 ounces of silver and 5,845,000 ounces of gold. This represents increments of 110% for silver and 816% for gold, with respect to the second quarter of 2011. The production growth is attributable to a contribution of our San Jose mine of 486,000 ounces of silver and 5,000 ounces of gold. Silver production at Caylloma was 7% above the comparable period. The company sold silver at an average market price of $29.42 versus $38.17 for the comparable period. For the quarter, silver comprised 64% of revenue. Price growth of gold accounted for 21% of revenues for a combined 85% issued met of contribution. Consolidated cash cost per ounce of payable silver, net of by upgrade, remains well below the medium facility uses, at $3.75. Cost at the San Jose mine are slightly below budget at $66.50 per tonne or negative $1.36 per silver ounce net of by-product credits. We do not expect material variations in cost at the…

Thank you Jorge. For the second quarter of 2012 we have recorded sales of $38.69 million, that's 58% over the prior year period. The increase is related to the contribution from the San Jose mine for which we recorded $20.94 million. Sales of Caylloma actually decreased 28% mainly as a result of lower middle prices and lower base metal production and accumulation of $1.6 million worth of silver inventory. Our mine operating income increased 15% over the prior year period to $17.08 million. Our gross margins however came down from 61% to 44% weighing negatively on our margins with a reduction in silver prices of 23% compared to a previous quarter. The increase of unit cost in Caylloma compared as well to the same quarter in the previous years and the inventory buildup of Caylloma high value copper silver concentrate obtaining approximately 12% of the silver produced in the period. Unit costs at Caylloma compared to the second quarter of 2011 have increased by 35%. However, most of this increase materialized throughout 2011 and in particular towards the end of the year. As Jorge mentioned, cost performance at Caylloma year to date is on average in line with our budget. Operating income for the period was $8.39 million. It's down 21% over the prior year period due to the ride-up of the Mario project for $3.89 million and a gain in commodity contracts in the prior year of $1.44 million. Our selling D&A was 14% below the prior year period of $4.61 million. The decrease is explained by a credit on stock based compensation compared to a charge in 2011. The credit is related to the mark to market of share based payment instruments. Outside of this effects we would have seen an added $0.7 million to D&A. Now below in the income statement. We also had an added effect coming from income tax expense as our effective tax rate increased from 42% in the previous year to 54% in the current quarter. This increase is related to our deferred tax expense recorded in our Mexican subsidiary under IFRA, as you know a regulation of income tax established to the swings in the foreign exchange. This impact of evaluation of the Mexican peso against the US dollar on our income tax circulation represents an added $1.89 of income tax provision for the quarter. Moving on to the cash flow statement. Cash generated by operating activities before changes in working capital and after tax has stayed, totaled $15.32 million for the quarter. That's an increase of 76% over the same period in 2011. Cash used in investing activities was $9.35 million. This is expected to pick up in the second half of the year as our larger projects go into construction. And finally, our cash position at the end of the period was $50.65 million, an increase over the end of 2011 of $4.90 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 short.

(Operator Instructions). Our first question comes from Trevor Turnbull with Scotia Capital. Please proceed with your question. Trevor Turnbull – Scotia Capital: I had a question with respect to your cash cost on a per-tonne basis. You were saying that Caylloma, the production cash cost were running $85.59 per tonne and I couldn’t recall if that includes the TCRCs or if that TCRCs are over and above the $85.

Those are over and above. Those are not accounted in our cost per tonne. Trevor Turnbull – Scotia Capital: You mentioned the write-down with respect to the Mario project. It looked like from the MD&A you only had to pay out about $1 million of the agreement, obviously as the 0.5 million when you signed and another 0.5 million or so, so it looks like you were only into it for about 0.5 million. I didn’t think that the Dore programs you had conducted were that expensive and I was just surprised that the project resulted in a write-down of over $3.5 million and I just wondered if you had what I am missing, from what it looked like you spent to the amount of the write-off.

Well these are drilling in a short period of time and because of the location they were some infrastructure and community relations commitment that we engaged in. I do not have the breakdown of that right now, Trevor. We can certainly provide that detail. But we did hurry, in regard to the option agreement and we had to (inaudible) account on our mobilization to support our activities for a period of time. And social licensing of the project so-so accounted. So those were the main license and some physically. We did hurry prior to the efficiency of the drilling. Trevor Turnbull – Scotia Capital: Yes, it wasn’t obvious just from looking at the meters drilled and the option agreement but it makes sense if you had, like you said, if there was a camp established in pre-drilling exploration so far.

Our next question comes from Heiko Ihle with Euro Pacific Capital. Please proceed with your question. Heiko Ihle – Euro Pacific Capital: Can you provide some more color on your cash cost estimates for Caylloma through the rest of the year? And you obviously were faced by quite significant cost inflation during Q2, but at what point of time do you see that subsiding or maybe even to certain extent reversing.

Yes, I would like to clarify that we have not seen cost increments in quarter on quarter or Q1 costs has been in line with budget or Q2, 2012 cost is in line with budget. The inflation that we have seen compared to Q2 2011 or cash cost for Q2 2011 was $53.50. Now a year later we're looking at $85.55. But again, that inflation is what we saw materialize through the end of 2011. So today our cash cost at Caylloma is on line with budget. We are monitoring cost inflation closely and through the first half of the year, we will not see cost pressures not showing up or cost in line as we have expressed already. Moving to the second half of the year, we are starting to see cost pressures (inaudible) mainly because of the nature of the operation in some cases, for example 30% of production is coming from the level six of the Animas vein. This level six is close to surface. So the quality of the rock mass is poor compared to the rest of the mine. So that means that we are requiring more back and news report on development work and stoves. So we are starting to see that and put some pressure on our cost and tariffs for transport, concentrate transport and for transport within the mine, we're seeing tariffs starting to move some indication of pressures on the part of our contractors. We are also seeing potential pressure from energy, the new tailings facility will require pumping and we will have to meet the energy requirements of this pumping which is have to 0.5 megawatt of power requirement for the pump station. We'll have to at least in the short term, supply that energy through this to generate power. We are addressing that this year with expansion power from the green but that is something that will likely take still a few months. Now all in all, when we come (inaudible) is this cost pressures, without any containment measures amounting to 6 to 8% increase to our cash cost per tonne of $85. So again, we expect some of our containment measures to help mitigate this pressures but that is what we are seeing today and the initiative we are taking. Heiko Ihle – Euro Pacific Capital: Can you break down your exploration budget a little bit between Q3 and Q4?

Exploration budget, well we have an $8 million budget for Caylloma and really the sequencing of the program, most of the targets we're drilling all of the targets we're drilling this year are within those properties where we have surface rights secured. We will execute the program. So the situation of that really this year, we are budgeting for roughly 1.5 to $5 million in this second half of the year. Now at San Jose, our program is subject to terminating in coming instances. So, we have roughly $3 million to $4 million in the second half budget but again as we are in the process of securing and surface permits to carry some of this work that year is subject to more variation. Heiko Ihle – Euro Pacific Capital: Fair enough and then lastly can you just go over your future M&A activity that you guys had planned a little bit more, I mean obviously with Mario off the books, when we think that you guys are very actively out there looking for stuff, should see something meaningful by the end of the year and also are you still looking outside of Mexico?

We announced the addition of first implementation of a new post in the company to that of Vice President of Regional development and as I mentioned Robert Brown joined the company in August 1st, so is clearly signaling where the company plans to go with respect to its M&A initiatives. We have a strong treasury, we have an organization that has doing ability to develop and operate in both Peru and Mexico. So from our platform in these two countries, we planned to aggressively launch initiatives to bring new business to the company. Certainly Peru and Mexico are two priority countries for us, these are not only two largest silver producing countries in the world and well established (inaudible). Yes as we all know we have strong basis of operations in these two countries but we will look for opportunities in other parts of the region mainly Chile, depending on the opportunities we will look at places in Central America and even North America.

(Operator Instructions). Our next question comes from George Shea with Cicada Investments. Please proceed with your question. George Shea – Cicada Investments: I wonder if you would comment on the demand for silver and gold, we certainly slowdown in many of the industrial areas which reduces the demand for silver and apparently the drought in India has cut back on there, people there demand for both silver and gold and just a general world slowdown is difficult. So what do you look for in that area?

Well we continue to subscribe a year that the fundamentals of taking prices to cooling level remain, clearly financial demand is the driver for prices and we believe it will continue to be economic certainty, the political risk, the lure of inflation due to the monetary expansion measures taken in North America and other parts are supportive in the long term for continued higher net operating. So we continue to subscribe through those ideas and but what we can do about this is focus on the low cost production and focus on advancing the development of projects and new business that can be depend on price retreat and we can really reap the benefits with drive expansions. So that is all we can do and that is all we have been doing and we plan to continue doing. George Shea – Cicada Investments: And just to clarify is the Mario project now completely shut down and you have withdrawn from that or is there anything there or nearby that you might continue to look at?

No we have jumped on the area with. George Shea – Cicada Investments: And at San Jose you had several, you classified them as interesting anomalies near the current mine, are those still potential developments?

Well we have been advancing with our work; we have provided an update over the last month with the news release on exploration resource in Mexico. We are currently getting ready to drill the large one target and we are working on our permit the drilling at (inaudible) with the community. So again we have a 58,000 hectare land package around our mine in Mexico. It's a fully and under explored high potential area and where I think we have years’ of work ahead.

Our next question comes from the line of Chris Lerch with Canaccord. Nick Campbell – Canaccord Genuity: This is actually Nick Campbell from Canaccord Genuity. Your CapEx number for the quarter was a little lower than what I was looking for, I am just wondering if you can give some guidance as to what to expect over the remainder of the year.

We expect capital price to pick up in the second half of the year. To give some more detail, we restructured our project development and technical service group so as we end of to 2011. So in the first half of the year we have been restructuring the entire team and reassigning to corporate functions, some of it for the mine. So especially key figure employees, so that’s been part of our restructuring of our organization in order to be more effective with the handling of certain project and we are in a position now where we are seeing the development of this story, the advancement of this story feed up. So you should expect to see pick up of capital expenditures in the second half especially we already started breaking ground with the expansion of the tailings facility in Mexico. We started, we are in the early procurement of (inaudible) for expansion in San Jose (ph). We are in the process right now in the final days of the grant process for the little engineering of that expansion. In Peru, the upgrades to the camp facility which is our key project for us in Peru as well had been already engineering the EPC and has been granted and we expect that product to be completed in it's one phase in the end of the year, so you will start to see capital expenditures on key project speak up this year. Nick Campbell – Canaccord Genuity: So as I am like 20 million bucks a quarter is that a reasonable number to expect in Q4?

I mean our budget for 2012 some of the drilling (ph) business you will find in the MD&A including our round sales programs for both mines and sort of for the company was around $70 million. Our expenditure of year-to-date is in the range of $17 million to $18 million. So we would expect the balance to take place over the next six months and I would say still a portion of that spin over into a first quarter of 2013. Nick Campbell – Canaccord Genuity: Okay so a little more than 20 million?

I think around 20 million Nick is first few (ph) I think $20 million for quarter is what didn’t expect to see in that range.

Our next question comes from (inaudible).

I would like to focus my question on the area of by-product credits. This was an area of concern I had in the summer when I saw the 10K and we had the discussion about the trends for the upcoming year and I am wondering whether you can give us any guidance on whether the current $7.10 per ounce decrease in by-product credits that we have seen over last year, will get materially worse in the balance of the current year or the quarters ahead of whether we are reaching kind of a plateau area now. I realize there are several things that can impact the calculation but can you give us any guidance on this area of by-product credits?

In regards to the by-product contribution first just to drive by as a whole, on a consolidated basis it roughly amounts to 15% of contribution to revenue. In the Caylloma mine when we look at that asset alone.

Yes Caylloma is what I am referring to.

Yes of course, it amounts to roughly a 30% – 35% of contribution. We expect in terms of what we have seen is a decrease in rates compared to previous years, as the mine is migrating through its normal sequencing of reserve consumption. We are planning for this level of head grades or let them think steady for the rest of the year and into next year. Perhaps with slight decreases that no material decreases 5% decrease in rate. Now what has also taken a bit toll in our by-product income is the deterioration of commercial terms which we saw those materialize also in the later part of 2011. A treatment charges increased significantly for lead concentrate current high silver but in terms of what been our control which is head grade and nickel content, we are expecting let me give you numbers, we are expecting lead tonnes steady at around 6000 tonnes a year off late production and zinc will stabilize at around 7000 tonnes to 7500 tonnes per year.

Can you comment at all about the trend of the cash cost for payable ounce of silver in the third and fourth quarter in terms of an expectation if it was 862 at Caylloma for the June quarter, is there any expectation that it will rise materially further in the balance of this calendar year or whether or not it might start to plateau in this general area, again realizing if there are several factors in this calculation.

Yes and thanks for making that last note because when we look at cash cost per ounce, net of by-product especially at a mine drill (ph) by-products account for 30% and are subject to treatment charges, refining and price for two commodity, the valuation can be significant. As I mentioned on the cost side what we are seeing today is potentially increases of 6% to 8% of costs of equal content measures, without any content measures significantly been affected. So in the price environment we are today, we have secured for the year treatment charges, we in the current price environment for lead and zinc we do not expect any significant moves there. So the only potential move could come from the 6% to 8% increase in cost

Our next question comes from Marco LoCascio with Equinox Partners. Please proceed with your question. Marco LoCascio – Equinox Partners: I wanted to ask about the offsite Dore facility that you have located this site for, I am wondering what permits you need between now and putting that facility into production next year?

In Mexico there are two key permits, you need to gain any industrial facility more. First is environmental impact statement approved and second one related you have to apply for a change of land use which in Spanish ETJ (ph), as to technical (inaudible). It explains the permit to change this purpose of the land fill and call to whether to industry (ph). By being located in industrial park we gained several advantages first we have confirmed and we do not require the ETJ (ph), the change of language is not required and second the industrial part has already probably approved first environmental impact statement. Now that the facilities are there -- advance by being located in an established industrial part and I have to say that this part is managed by the state of (inaudible) industrial park is. So we will likely to have to add to this already big scope environmental repurchase (ph) study that if approved for the park I am clearly asserting what additions we have to make to the study, that is for sure is not a full blown study which can take anywhere between six months to a year. You believe what we have been consented by the managers of the park and again these are the state of quality in that there is a fast track approach to environmental infrastructure as a main measurements and all of those things are already done here.

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.

If there are no further questions, I would like to thank you everyone for listening in to today’s earnings call. We look forward to you joining us next quarter. Thank you very much.

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.