Fortuna wins stay of execution in Mexico

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Fortuna Silver Mines Inc. [FVI-TSX, Lima; FSM-NYSE; F4S-FSE] has released an update on the status of legal proceedings related to a disputed royalty on one of its extracting mining concessions at the San Jose Mine in Oaxaca, Mexico.

In early February, 2020, the company initiated legal proceedings against the Direccion General de Minas (DGM) to contest the procedure taken by DGM to cancel one of its mining concessions if the disputed royalty (in the Mexican equivalent of US$30 million), plus VAT (being the amount of the claimed royalty from 2011 to 2019) is not paid by March 15, 2020.

Fortuna said the District Court in Mexico City admitted the company’s legal proceedings and on March 2, 2020, and also granted a permanent stay of execution, which protects the company from the cancellation of concessions 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 DGM is uncertain and may take several months, the company said. 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 Silver is a fast-growing precious metals producer, operating two low-cost mines in Peru and Mexico. The San Jose Mine in Mexico is located in Oaxaca, which produced 8.0 million ounces of silver and 53,517 ounces of gold in 2018. In 2019, the company was forecasting consolidated production of up to 9.0 million ounces of silver, up to 54,000 ounces of gold, up to 29 million bounds of lead, and up to 44 million pounds of zinc.

On Friday, the company said the administrative and legal proceedings initiated by the company against the DGM in 2018 to remove reference to the royalty on the title register, are progressing in accordance with the procedures of the Mexican Administrative Court.

The company has previously said 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 the minerals on the concession. Fortuna has steadfastly maintained that no such royalty is payable.

In its recently released 2020 guidance highlights, Fortuna said the San Jose Mine plans call for processing 1.06 million tonnes this year at an average grade of 223 g/t silver and 1.39 g/t gold. Capital investment is estimated at US$17.1 million, including US$12.2 million for sustaining capital expenditures and US$4.9 million for brownfield exploration programs.

This year, the company has said it plans to produce between 7.5 and 8.3 million ounces of silver and between 101,000 and 125,000 ounces of gold.

On Friday, Fortuna shares eased 3.9% or 18 cents to $4.37 on volume of 427,545.  The shares trade in a 52-week range of $3.23 and $6.12.

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