Tahoe’s woes deepen in Guatemala as road blockade, permit suspension drag on

VANCOUVER (miningweekly.com) – Precious metals producer Tahoe Resources has suspended its quarterly dividend of $0.02 a share and deferred its full-year production guidance on the back of the Guatemala Supreme Court provisionally suspending the mining licence on its Escobal operation, the third-largest silver mine in the world.

The court issued a temporary licence suspension after nongovernmental and anti-mining organisation Calas filed a claim in May against Guatemala’s Ministry of Energy and Mines (MEM). Calas alleged that the ministry had violated the Xinca indigenous people’s right of consultation in advance of granting the Escobal mining licence to Tahoe’s Guatemalan subsidiary, Minera San Rafael.

The licence will remain suspended while the action is being reviewed in court.

Tahoe had subsequently appealed the decision to the Constitutional Court and asked the Supreme Court to reconsider its provisional ruling.

Tahoe president and CEO Ron Clayton said Wednesday in a conference call with analysts that,on July 28, the company learned that the Supreme Court denied the company's motion for reconsideration. The Constitutional Court appeal is still pending and is expected sometime in the next three months.

“The Supreme Court must still resolve Calas’s definitive constitutional claim, which could take between 12 and 18 months, during which the company must suspend operations absent a reversal of provisional decision. The company understands that, to the extent that there were any consultation obligations, MEM met those before issuing the exploitation licence to Minera San Rafael,” he said.

Meanwhile, Clayton advised that, early in July, the company learned that three class action lawsuits under US Securities Exchange Act rules were allegedly filed against it and certain of the company’s current and former officers and directors. The lawsuit alleges that the company made untrue statements of material facts, or omitted to state material facts, or engaged in acts that operated to deprive the purchasers of the company's stock. The lawsuits were filed following the issuance of the provisional decision by the Guatemala Supreme Court.

“The suits alleged compensatory damages, interest fees and costs. The company disputes the allegations raised and will vigorously defend the lawsuits,” Clayton affirmed.

Escobal operations were reduced between June 8 and June 19 and were further curtailed on June 19 to conserve fuel. The company said it is working with the government, community leaders and others to resolve the situation peacefully and expeditiously.

However, Clayton noted that there were no signs that the road blockage would be cleared up soon, adding that Tahoe could not predict when the transportation of materials in and out of the mine would be possible.

The blockade started on June 7, when a group of protesters near the town of Casillas blocked the primary road that connects Guatemala City to the Escobal mine, near San Rafael las Flores. Tahoe said the protest, which will continue today, appears to have initially been related to a variety of issues, including some unfounded claims that mining at Escobal is causing seismic activity about 20 km away.

SOLID RESULTS
Aside from the trouble in Guatemala, Tahoe reported “solid” results for the second quarter ended June 30, with its two gold mines in Peru, and two underground mines in Ontario, Canada, reporting production and costs coming in at, or better than, expected levels.

Before operations were halted at Escobal in June, the mine produced 4.1-million ounces of silver, compared with 5.7-million during the same period a year earlier. Gold output rose slightly to 112 000 oz, from 110 000 oz a year earlier.

The company reported adjusted earnings of $33.8-million, or $0.11 a share, down from $57.9-million, or $0.19 a share.

Revenue fell 8% year-on-year to $209.6-million.

Tahoe also reported that on July 18, it had entered into an amended and restated credit agreement with a syndicate of lenders to increase its revolving credit facility from $150-million to $300-million, with a $50-million accordion feature, and to extend the term to July 19, 2021.