Fortuna Silver Mines provides update on disputed royalty at San Jose Mine

Fortuna Silver Mines announced 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. In 2017, the Mexican Geological Service, or 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. In 2018, the company initiated administrative proceedings in the Mexican Federal Administrative Court, or FAC, against the Direccion General de Minas, or 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. In January, 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, was not paid before March 15. In February, the company initiated legal proceedings against the DGM in the Seventh District Court in Mexico City 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 and granted a permanent stay of execution, 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. On November 27, the District Court at first instance found that the company suffered no harm from the notice of cancellation procedure and dismissed the proceedings 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 defend its position and appeal the procedural finding and file an appeal with the Collegiate Court in Mexico by the deadline of December 14. 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.