Fortuna Silver Mines Inc. announced on Tuesday an update on the status of legal proceedings related to a disputed royalty over one of its extraction mining concessions at the San José gold and silver mine, located in Oaxaca, Mexico.
The company started production at the San José mining unit in September 2011 and at the end of 2018 had produced 35.9 million ounces of silver and 269,000 ounces of gold. The mining method applied in the exploitation of the veins is cutting and filling with a mechanized extraction methodology.
In 2017, the Mexican Geological Service (SGM) informed Fortuna Silver Mines that a previous owner of one of the Company’s mining concessions at the San José mine, had granted SGM a royalty of 3% of the mineral turnover value. obtained from the concession.
As of the date of acquisition of the concession by Fortuna Silver Mines, the royalty was not disclosed to the Company and did not appear in the electronic title registry of the Mining Registry, although it appears in the official registry books of the Registry’s concessions. Miner.
According to its own version, the Company obtained the advice of an external legal advisor who confirmed that there was no legal basis for the creation of the royalty and that it was created in an invalid manner. The Company initiated legal proceedings to maintain its position that royalties are not paid.
Fortuna Silver Mines
In 2018, the Company initiated administrative proceedings in the Federal Administrative Court of Mexico against the General Directorate of Mines (DGM) to eliminate the reference to the royalty because there was no legal basis for the creation of the royalty and that it was created in an invalid manner.
Administrative Procedures proceed in accordance with Court procedures. A decision is expected within the next three to four months.
In January 2020, Fortuna Silver Mines received notification from the DGM requesting to cancel the mining concession if the royalty, in Mexican pesos equivalent to 30 million 000,000 pesos plus VAT (which is the amount of the claimed royalty from 2011 to 2019), does not was paid before March 15, 2020.
In February 2020, the Company initiated a judicial process of Amparo against the DGM in the Seventh District Court of Mexico City to challenge and extinguish the cancellation procedure for considering that the royalty is not valid and also to stop the process of cancellation.
The District Court of Mexico City admitted the Company’s legal processes on March 2, 2020 and granted a permanent stay of execution, which protects the Company from cancellation of the concession until a final resolution is reached. appealable of the legality of the procedure of cancellation of DGM.
On November 27, 2020, the District Court of First Instance determined that the Company did not suffer damages due to the notification of the annulment procedure and dismissed the process (the Procedural Ruling) without ruling on the merits of the Amparo Process and on the validity of the royalty.
The Procedural Ruling does not affect the permanent stay of enforcement, which remains in place.
The Company’s Mexican legal advisers are of the opinion that the District Court’s decision is flawed due to the notice of the cancellation procedure related to the payment of a disputed royalty, which is detrimental to the Company as the royalty is invalid.
Fortuna Silver Mines’ legal position regarding the disputed royalty remains unchanged. The Company intends to vigorously defend its position and appeal the Procedural Judgment and file an appeal with the Collegiate Court of Mexico before the deadline of December 14, 2020.
A decision from the Collegiate Court is expected in mid-2021.
As indicated above, the suspension of execution obtained previously protects the Company from the cancellation of the concession and remains in effect until all avenues of appeal have been exhausted. In the event that the Company does not prevail on the appeal, it may be required to pay the disputed royalty to preserve the mining concession.
Fortuna Silver Mines is a Canadian precious metals mining company with operations in Peru, Mexico and Argentina. Produces silver and gold.