Tahoe dials up gold guidance as Escobal impasse drags on

VANCOUVER (miningweekly.com) – Precious metals miner Tahoe Resources has increased its guidance for expected gold output while its flagship Escobal mine, in Guatemala, continues to languish in care and maintenance, despite holding a valid licence to mine.

The Vancouver-headquartered company announced after market close on Thursday that it now expects to produce between 400 000 oz and 450 000 oz of gold in 2017, up from previous estimates of 375 000 oz to 425 000 oz.

Tahoe stated that the increase is mainly owing to the positive mine plan reconciliation experienced at the La Arena mine, in northern Peru, since the start of the year. The positive production reconciliation at La Arena has prompted the company to initiate a drilling programme planned for the fourth quarter, to better define the mineralisation below the Calaorco pit, with the goal of extending the mine life.

Tahoe also revised downwards the total cash costs for gold by $50/oz to $650 to $700 per ounce, reflecting the higher anticipated production levels and better than anticipated cost performance year to date. All-in sustaining costs per ounce of gold producedis also expected to fall by $100/oz, to between $1 050/oz and $1 150/oz, driven by higher output and lower capital and exploration costs. 

The company advised that owing to the ongoing disruption of operations at Escobal, its multi-year guidance remains under review for all operations, and it did not provide guidance for silver production.

Capital expenditure estimates for 2017 have also been revised downward to between $100-million and $115-million, compared with initial 2017 guidance of $150-million to $175-million. The reduction reflects the deferral in timing of certain secondary capital projects at Shahuindo and Timmins, and prudent capital management by the company. Both major projects – the Shahuindo expansion and the Bell Creek shaft project – remain within their total project budgets of $80-million, respectively. 

In part owing to the ongoing uncertainty at Escobal, discretionary exploration spending has been reduced by $20-million to an estimated $14-million to $20-million for 2017, compared with the initial guidance of $35-million to $43-million for the gold operations. The reduction is attributable to longer-term exploration projects. Current exploration efforts are focused on near-term projects with ability to positively impact medium-term production and contribute two-million to four-million ounces of gold reserves and resources by 2020.

No changes are expected on corporate general and administrative expenses of $45-million to $55-million.

Despite the Escobal interruption, the company's balance sheet remains strong with cash and cash equivalents of more than $185-million at the end of August.

Tahoe said its gold operations are performing well and represent an increasingly meaningful contribution to the overall financial performance of the company. Expansion projects at Shahuindo and Bell Creek are expected to increase production to more than 500 000 oz/y, starting in 2019.

ESCOBAL DELAY
Earlier this month, Tahoe received a favourable ruling by the Guatemala Supreme Court reinstating the Escobal production licence. The decision reverses a preliminary July 5 decision to suspend the licence because of action brought by anti-mining organisation CALAS against the Guatemala Ministry of Energy and Mines (MEM).

Tahoe noted that there were still uncertainties surrounding near-term and long-term catalysts at Escobal – the third largest silver mine in the world – with protestors maintaining the roadblock at Casillas to prevent operations from resuming.

Management advised that it continues to negotiate with concerned parties and estimates it will take about a week to get the mine online once the roadblock is cleared.

As part of its decision, the Supreme Court ordered MEM to conduct a consultation under ILO Convention 169 with the Xinca indigenous communities within certain departments, or states, within 12 months. The company is now seeking clarification from the Supreme Court on the specific geographical areas to be included in MEM's consultation process.

Anti-mining Nongovernmental organisation CALAS has appealed the Supreme Court's ruling to the Constitutional Court, partly on the grounds that it discriminates against the Xinca. Tahoe advised that it understands that the Xinca Parliament has not appealed the Supreme Court's decision. The Constitutional Court is expected to rule on all appeals by the end of the year.

Meanwhile, during the period in which the company's mining license was temporarily suspended, the company's annual export credential for the exportation of metals concentrate expired. 

Tahoe advised that it had filed its request to renew the export credential with MEM in the ordinary course in June. The renewal of the export credential became contingent on the court's reinstatement of the Escobal mining licence. In addition to the clarification motion, therefore, Tahoe has petitioned the Supreme Court to order MEM to provide the routine administrative annual renewal of Escobal's export credential.

The company’s TSX-listed stock gained up to 5% on Friday to an intraday high of C$7.24 a share following the news.