Tahoe comments on Escobal violence [Updated with state of emergency and higher royalty]

Tahoe Resources (THO-T, TAHO-N) is voluntarily hiking its net smelter return royalty to 5% from the state-mandated 1%, as escalating protests and violence involving its Escobal silver project culminated in Guatemalan authorities imposing a state of emergency in the municipalities closest to the deposit.

“The state of seige is not quite martial law as we know it in North America but it does prohibit groups from congregating and weapons and things being brandished about and what it really does is instill some safety and security to residents in the area so you’re not going to see four buses of armed criminals coming into the area up to no good,” Ira Gostin, Tahoe’s vice president of investor relations, told The Northern Miner.

“Some of these activities are from environmental terrorists and they’re against mining and that doesn’t give them the right to terrorize the citizens of San Rafael. The NGOs [non-governmental organizations] say mining causes violence but they’re the ones committing the violence.”

Tahoe’s decision to boost its net smelter return royalty on Wednesday means that the company will be the largest taxpayer in Guatemala once the mine starts production in 2014, Gostin says.

Under the original royalty structure, half of the net smelter return royalty would have been paid to the federal government and the other half to the local government, he explains. But under the new royalty scheme, 40% will go to the federal government, 40% to the local government, and 20% will go—for the first time—to the regional government.

“We agree that the 1% royalty under the law is too low and we wanted to be a good contributor to Guatemala and so we worked with the Ministry of Mines and came up with a plan that is much more beneficial to the region as well as to the country,” Gostin explains.

Tahoe received its final mining licence for Escobal in April but the project has been plagued by protestors who say they are worried about the local water supply.   

A protest involving about 20 people armed with machetes turned hostile during the evening shift change on April 27 and the Escobal security force used tear gas and rubber bullets to disperse protestors at the mine gate. The protestors then left the area, the company said, and some were treated at hospitals and later released. Government officials are investigating the incident.

“Our investigation has shown that only non-lethal measures were taken by our security,” Kevin McArthur, Tahoe’s president and chief executive, said in a prepared statement after the incident. “We regret any injuries caused by rubber bullets, but we take the protection of our employees and the mine seriously.”

The company has also reported an increase of outsiders being bused into the area to protest and cause public disturbances. On Apr. 29, four busloads brought protestors to the area, and in an ambush of local police, one officer was shot and killed.

Gostin says the fracas and subsequent shooting of the police officer was out of sight and down the highway from the mine and that Tahoe staff were not present at the scene.

“They say they were anti-mining protestors but protesters protest, these people were marching through the city of San Rafael and breaking windows and smashing houses and causing damage. They blocked the road and when the police arrived they shot one of them,” Gostin says. “They weren’t protesting—they didn’t have signs or anything—they had baseball bats, machetes, and shotguns so I don’t have any way of classifying them other than as criminals.”

In a press release Tahoe said it sends it condolences to the family of the slain officer and that it continues to “strive to engage with and to peacefully coexist with all stakeholders in this area of Guatemala.” It also said the project is being built “to the highest environmental and social standards” and that it brings not only jobs to the country but millions of dollars in annual royalties and taxes.

On Apr. 30 officials detained Tahoe’s Guatemala security manager “due to the highly charged atmosphere and inaccurate press reports about Saturday’s events,” the company noted in a press release. “He has not been charged with any crimes, and the company expects him to be released when the government investigation is complete.”

In a separate incident earlier this week, an angry mob captured 25 police officers in the department of Jalapa—about 30 km away from where the Escobal project is located in the department of Santa Rosa.

“Apparently these villagers in the streets thought that these policemen were going to the mine, but again, it was in a different department, and they weren’t,” Gostin says.

Gostin concedes the situation is complicated and notes that “there is a lot of bad information out there and there are a lot of people who are against mining but don’t know why they are against mining.”

One of the false accusations against the company he says that he has heard is that there are only two Guatemalan nationals employed at the mine site, when in fact 98% of the 1,500 contractors there and 96% of the 650 employees are Guatemalans.

As for worries about the safety of the local water supply, he says, the protesters are misguided and have not taken Tahoe up on its invitation to sit down with them and go through the facts. 

“There are streams nearby [but] we monitor the water tables, we monitor the quality, all of the output,” Gostin says. “It’s a flotation system so there’s no cyanidation. All of our discharge is filtered and treated and monitored very, very carefully. We’ve invited the people that have made these claims to sit down and look at the material, look at how we operate, meet our hydrologist and our people, and they have not done that.”

Gostin says Tahoe is currently back to work at the mine site and is optimistic that commissioning will go ahead by mid-2013.

“We wouldn’t have made the investment if we didn’t think we could move forward,” Gostin says of its purchase of Goldcorp.’s (G-T, GG-N) stake in the project in June 2010, for which it paid about $505 million in cash and shares. “Capex is $326 million and we are very confident we will be able to move into production and be a major contributor to the economy of Guatemala.”

Earlier this year Tahoe reported that a security patrol at the Escobal project was ambushed by armed criminals shortly after midnight on Jan. 12 and two contract security guards were killed. The company reported that the attackers “left behind numerous automatic weapons and incendiary devices” and that according to Guatemalan news reports, it “was not a local protest but an organized, nighttime incursion by a well-armed group from outside the area.”