Fortuna Silver Mines Inc. (NYSE: FSM)
(TSX: FVI) announces an update on the status of the legal
proceedings related to a disputed royalty on one of its extracting
mining concessions at the San Jose Mine, located in Oaxaca, Mexico.
Background
In 2017, the Mexican Geological Service (“SGM”)
advised the Company that a previous owner of one of the Company’s
mineral concessions at the San Jose Mine, had granted to SGM a
royalty of 3% of the billing value of the minerals obtained from
the concession. At the date of the Company’s acquisition of the
concession, the royalty was not disclosed to the Company and it did
not appear on the electronic title register at the Mining Registry
although it is listed in the official record books of the
concessions of the Mining Registry. The Company obtained advice
from external legal counsel which confirmed that there was no legal
basis for the creation of the royalty and that it was invalidly
created. The Company initiated legal proceedings to uphold its
position that no royalty is payable.
Administrative Proceedings
In 2018, the Company initiated administrative
proceedings (the “Administrative Proceedings”) in the Mexican
Federal Administrative Court (“FAC”) against the Dirección General
de Minas (“DGM”) to remove reference to the royalty on the grounds
that there is no legal basis for the creation of the royalty and
that it was invalidly created. The Administrative Proceedings are
progressing in accordance with the procedures of the FAC. A
decision is expected within the next three to four months.
Amparo Proceedings
In January 2020, the Company received notice
from the DGM seeking to cancel the mining concession if the
royalty, in the Mexican peso equivalent of $30,000,000 plus VAT
(being the amount of the claimed royalty from 2011 to 2019), was
not paid before March 15, 2020 (refer to Fortuna news release dated
January 29, 2020). In February 2020, the Company initiated legal
proceedings (the “Amparo Proceedings”) against the DGM in the
Seventh District Court in Mexico City (“District Court”) to contest
and extinguish the cancellation procedure on the grounds that the
royalty is not valid, and also to stay the cancellation process.
The District Court in Mexico City admitted the Company’s legal
proceedings on March 2, 2020 and granted a permanent stay of
execution (akin to an injunction), which protects the Company from
the cancellation of the concession until a final non-appealable
resolution is reached on the legality of DGM’s cancellation
procedure (refer to Fortuna news release dated March 5, 2020).
On November 27, 2020, the District Court at
first instance found that the Company suffered no harm from the
notice of cancellation procedure and dismissed the proceedings (the
“Procedural Finding”) without deciding on the merit of the Amparo
Proceedings and on the validity of the royalty. The Procedural
Finding does not affect the permanent stay of execution, which
remains in place. The Company’s Mexican legal advisors are of the
view that the decision of the District Court is flawed because the
notice of the cancellation procedure related to the payment of a
disputed royalty, which is harmful to the Company as the royalty is
invalid.
The Company’s legal position with respect to the
disputed royalty remains unchanged. The Company intends to
vigorously defend its position and appeal the Procedural Finding
and file an appeal with the Collegiate Court in Mexico by the
deadline of December 14, 2020. A decision of the Collegiate Court
is expected during mid-2021. As set out above, the previously
obtained stay of execution protects the Company from the
cancellation of the concession and remains in place until all
avenues of appeal have been exhausted. In the event that the
Company does not prevail in the appeal, it may be required to pay
the disputed royalty in order to preserve the mining
concession.
About Fortuna Silver Mines
Inc.
Fortuna Silver Mines Inc. is a Canadian precious
metals mining company with operations in Peru, Mexico and
Argentina. Sustainability is integral to all our operations and
relationships. We produce silver and gold and generate shared value
over the long-term for our shareholders and stakeholders through
efficient production, environmental protection, and social
responsibility. For more information, please visit our website at
www.fortunasilver.com.
ON BEHALF OF THE BOARD
Jorge A. GanozaPresident, CEO, and
DirectorFortuna Silver Mines Inc.
Trading symbols: NYSE: FSM | TSX: FVI
Investor Relations: Carlos BacaT (Peru):
+51.1.616.6060, ext. 0E: info@fortunasilver.com
Forward looking Statements
This news release contains forward-looking
statements which constitute “forward-looking information” within
the meaning of applicable Canadian securities legislation and
“forward-looking statements” within the meaning of the “safe
harbor” provisions of the Private Securities Litigation Reform Act
of 1995 (collectively, “Forward-looking Statements”). All
statements included herein, other than statements of historical
fact, are Forward-looking Statements and are subject to a variety
of known and unknown risks and uncertainties which could cause
actual events or results to differ materially from those reflected
in the Forward-looking Statements. The Forward-looking Statements
in this news release may include, without limitation, statements
about the Company’s Amparo Proceedings and administrative
proceedings against the DGM, the outcome of the administrative
proceedings against the DGM; the outcome of the Company’s Amparo
Proceedings against the DGM to contest the cancellation procedure,
the appeal of decisions and judgments made by the Courts, and the
potential for the Company to be required to pay the amount claimed
to preserve its mining concession in the event that the Company’s
Amparo Proceedings to contest the cancellation procedure are
unsuccessful, or how the Company would satisfy such payment and
other matters. Often, but not always, these Forward-looking
Statements can be identified by the use of words such as
“estimated”, “potential”, “open”, “future”, “assumed”, “projected”,
“used”, “detailed”, “has been”, “gain”, “planned”, “reflecting”,
“will”, “containing”, “remaining”, “to be”, or statements that
events, “could” or “should” occur or be achieved and similar
expressions, including negative variations.
Forward-looking Statements involve known and
unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be
materially different from any results, performance or achievements
expressed or implied by the Forward-looking Statements. Such
uncertainties and factors include, among others, that the Company
may be unsuccessful in its Amparo Proceedings and may be required
to pay the amount of the disputed royalty plus VAT; the duration
and effects of COVID-19, and any other pandemics on our operations,
production and workforce, and the effects on global economies,
governments, courts and society, actual results of production and
exploration activities; changes in general economic conditions and
financial markets; changes in prices for gold, silver and other
metals; fluctuation in foreign exchange rates; any extension of the
currency controls in Argentina; technological and operational
hazards in Fortuna’s mining and mine development activities; delays
in commissioning at Lindero; delays in achieving steady production
and commencement of commercial production at Lindero; risks
inherent in mineral exploration; uncertainties inherent in the
estimation of mineral reserves, mineral resources, and metal
recoveries; changes to current estimates of mineral reserves and
resources; changes to production estimates; governmental and other
approvals; changes in government, political unrest or instability
in countries where Fortuna is active; labor relations issues; as
well as those factors discussed under “Risk Factors” in the
Company's Annual Information Form. Although the Company has
attempted to identify important factors that could cause actual
actions, events or results to differ materially from those
described in Forward-looking Statements, there may be other factors
that cause actions, events or results to differ from those
anticipated, estimated or intended.
Forward-looking Statements contained herein are
based on the assumptions, beliefs, expectations and opinions of
management, including but not limited to expectations regarding
success in its legal and administrative proceedings which is based
upon advice from independent law firms, expected trends in mineral
prices and currency exchange rates; the accuracy of the Company’s
current mineral resource and reserve estimates; that the Company’s
activities will be in accordance with the Company’s public
statements and stated goals; that there will be no material adverse
change affecting the Company or its properties; that all required
approvals will be obtained; that there will be no significant
disruptions affecting operations and such other assumptions as set
out herein. Forward-looking Statements are made as of the date
hereof and the Company disclaims any obligation to update any
Forward-looking Statements, whether as a result of new information,
future events or results or otherwise, except as required by law.
There can be no assurance that the Company will be successful in
its legal proceedings or that these Forward-looking Statements will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Accordingly, investors should not place undue reliance on
Forward-looking Statements.
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