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Fortuna Silver Mines wins stay of execution over mining concession

Kitco News

(Kitco News) - Fortuna Silver Mines, Inc. (NYSE: FSM; TSX: FVI) reported Thursday that the company has received a stay of execution preventing Mexican authorities from canceling the concession for the San Jose mine until the court makes a decision on the cancellation procedure over a disputed royalty.

In late January, the company said the government had threatened to cancel the concession if Fortuna did not make a payment over the disputed royalty by mid-March. At the time, Fortuna said authorities were seeking $30 million plus the value-added tax.

Fortuna subsequently initiated legal proceedings against the Dirección General de Minas (DGM) to contest the procedure taken by the DGM to cancel the concession if the royalty and VAT were not paid before March 15.

The company said the District Court in Mexico City this week granted a permanent stay of execution, which protects Fortuna from cancellation of the concession until a resolution by the court is reached on the legality of the cancellation procedure.

“The timing of a decision by the court at first instance in this action against the DGM is uncertain and may take several months,” Fortuna said in a prepared statement. “In the event that the company is unsuccessful in these proceedings, it may appeal. If ultimately the company does not prevail, it may be required to pay the disputed royalty in order to preserve the mining concession.”

Fortuna previously reported that in 2017, the Mexican Geological Service (SGM) advised the company that a previous owner of one of its San Jose mineral concessions had granted SGM a royalty of 3% of the billing value of minerals from the concession. Fortuna has argued that no royalty is payable, citing legal opinions from three independent law firms. So in 2018, Fortuna initiated administrative and legal proceedings against DGM to remove reference to the royalty on the title register.

“In our view, this should alleviate fears that FVI would have to make an ~$30M payment (plus VAT) by March 15,” said BMO Capital Markets. “That said, it will be up to the courts to decide on the final outcome of the dispute (unless a negotiated solution is reached first).”

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