Consolidated Zinc (ASX: CZL) gets taken to Mexican Court by ex-contractor

• Consolidated Zinc’s (CZL) subsidiary, Minera Latin American Zinc (MLAZ), has been taken to Mexican Court by previous mining contractor, Ganti
• Last month, the company had terminated the contract as Ganti was underperforming and overcharging
• Ganti has submitted legal proceedings in the Federal District Court of Mexico and believes the final cost is approximately $1.8 million
• However, Minera says this is not the case and the price is a substantially lower sum than this
• Consolidated Zinc is down 11.11 per cent on the market this morning and is selling shares for 0.8¢ each

Consolidated Zinc’s (CZL) subsidiary is being taken to Court by a Mexican contractor.

In early December the company announced it terminated the mining contractor, Caminos y Construcciones Ganti (Ganti), at its Plomosas Project.

Plomosas is owned by the company’s Mexican subsidiary, Minera Latin American Zinc (MLAZ).

The company decided to terminate the contract with Ganti, as it reviewed the annual report of the contractor’s performance and productivity. It saw significant overcharging and underperformance at the mine.

MLAZ has disputed the cost claims submitted by Ganti, which in MLAZ’s opinion are not in accordance with the mining contract.

Ganti has submitted legal proceedings in the Federal District Court of Mexico against MLAZ. The submission claims the final costs is approximately $1.8 million (Mexican Peso 23.6 million).

However, MLAZ says this is not the case and the price is a substantially lower sum than this.

The legal proceeding allows Ganti to appoint a financial professional, who will be able to conduct a monthly review of the MLAZ financial reports.

The financial professional will identify a surplus cashflow to be paid and held by the Court to guarantee payment of the disputed amounts.

“This was authorised by the Court, in as much as Ganti was required to place a bond with the Court to guarantee any eventual damages that could be caused to MLAZ as a result of the legal claim and bond requirement,” the company said.

Under Mexican law, MLAZ has the right to place a bond with the Court for the claimed amount.

This payment can be paid in cash to the Court, or by guarantee, in order to prevent Ganti from appointing a finance professional to conduct a monthly review of the MLAZ financial reports.

MLAZ has been told by Mexican lawyers there is no deadline determined to place the bond with the Court.

The company has the right to appeal the right of Ganti to appoint a finance professional and the review of MLAZ’s monthly report.

“MLAZ believes this claim to be frivolous and unsubstantiated and intend to vigorously defend this position,” the company told the market.

Currently, MLAZ is in discussions with Mexican based entity, MGX Meouchi, a bond agent who provides guarantee facilities of this nature for legal disputes.

The legal proceedings came to a surprise for the company as it said the companies were working to finalise all outstanding matters in the contract.

The Mexican legal system is different from English based legal systems, as it is based on the French Napoleonic.

“Legal disputes, like this one, can take more than one year to resolve and there can be no reliable timeframe for resolution of the bond or the disputed final amounts due under the mining contract unless an agreement is reached sooner,” the company added.

MLAZ said it will continue to negotiate in good faith with Ganti, however, it will strongly defend the Ganti claim.

This Court hearing will not impact mining operations at Plomosas and the mine will continue to operate.

Consolidated Zinc is down 11.11 per cent on the market this morning and is selling shares for 0.8¢ each at 10:40 am AEDT.