Escobal is Tahoe’s ‘solid foundation,’ CEO says

Tahoe Resources (TSX: THO; NYSE: TAHO) has made a recent foray into the gold industry with a pair of acquisitions, but the asset that has fuelled its rise, and continues to lay the financial foundation for growth, is the world-class Escobal silver mine, 40 km southeast of Guatemala City. The company ramped up the operation’s mill circuit in 2015, and Escobal remains a major contributor to its strong cash flow.

Tahoe released its audited financial statements on March 9, and reported another great year, headlined by cash flow from operating activities before changes in working capital of US$226.3 million, or $1.09 per share. The company paid out nearly US$50 million to shareholders through its monthly dividend, which is a jump from the US$3 million in 2014.

Silver produced in concentrate at Escobal was 5.5 million oz. during the fourth quarter and 20.4 million oz. for the year, with total cash costs, net of by-product credits, pegged at US$6.16 per oz. Average mill throughput was 4,133 tonnes per day, while annual silver head grades averaged 487 grams per tonne.

Tahoe completed an expansion to boost Escobal’s throughput by 1,000 tonnes to 4,500 tonnes per day in 2015. The US$52-million investment was straightforward and low risk because Tahoe had factored the larger mill footprint into its initial mine development. As a result, no upgrades were required for major equipment.

Escobal is an intermediate-sulphidation silver-gold-lead-zinc vein deposit hosted in Tertiary andesite and volcaniclastic sedimentary rocks. Continuous precious and base-metal mineralization extends over wide zones defined over 2,400 metres laterally and 1,200 metres vertically.

“[Our] accomplishments at Escobal would be a great headline on its own, but combined with our other business units, it should tell you we had one heck of a good year,” CEO Kevin McArthur said during the conference call.

“We received numerous awards during the year reflecting our high standards of governance and our focus on corporate social responsibility programs in the field and improved communities. We would always welcome stakeholders to visit and see the zones of prosperity in Guatemala that we’ve helped to develop,” he added.

Tahoe entered the gold business a year ago when it orchestrated a US$1-billion merger with Rio Alto Mining, which operated the La Arena heap-leach gold mine, 480 km northwest of Lima, Peru. The operation hit a record for Tahoe in 2015 when it produced 200,000 oz. gold doré at all-in sustaining costs of US$733 per oz.

The second asset Tahoe picked up in the Rio Alto deal is the Shahuindo heap-leach operation, 30 km north of La Arena. The deposit is an intermediate-sulphidation epithermal sediment-hosted gold deposit centered on a large amplitude fold intruded by felsic stocks.

Shahuindo poured first gold in December, and could hit commercial production in the second quarter. The mine plan is based on reserves of 112 million tonnes grading 0.53 gram gold per tonne for 1.9 million contained oz.

Tahoe expects Escobal will crank out between 18 million oz. and 21 million oz. silver this year at all-in sustaining costs ranging from US$10 to US$11 per oz. Meanwhile, annual gold production is estimated between 200,000 and 250,000 oz. at all-in sustaining costs of between US$950 and US$1,050 per oz.

In early February Tahoe announced a US$945-million friendly deal for Lake Shore Gold (TSX: LSG; NYSE-MKT: LSG) and its Timmins gold complex in Ontario. The deal is expected to close in April.

Tahoe has traded within a 52-week range of $9.45 to $18.65, and closed at $12.95 per share at press time. The company has 227.5 million shares outstanding for a $2.8-billion market capitalization.

Scotiabank Mining noted that Tahoe beat its earnings estimate during the fourth quarter owing to “better-than-expected operating costs and US$16.2 million received due to the reversal of royalties previously accrued, as a result for the repeal of the increased royalty regime in Guatemala.”