Escobal – A major silver discovery in Guatemala

Led by Kevin McArthur, a former CEO of Goldcorp and Glamis Gold, Tahoe Resources (tho-t) hopes to position itself as a new leader in the silver business on the back of the recently acquired and newly discovered Escobal project in Guatemala.

Fresh off an initial public offering (IPO) on the Toronto Stock Exchange in June that raised $383 million, Tahoe is a brand new company. It used a good chunk of the IPO proceeds to purchase the Escobal silver project from Goldcorp (g-t, gg-n) for US$253 million cash and 43.7 million Tahoe shares, representing a 40% stake of the company on a fully diluted basis.

“The IPO went very well thanks to the shareholders that I have known for many years,” said Kevin McArthur during a presentation at the Denver Gold Forum in September.

Tahoe has attracted an experienced and entrepreneurial management team, with a proven track record. “It’s a team that we have put together of first-class mine builders; people who know how to build mines in Latin America, especially, in particular, in Guatemala,” said McArthur.

“We’ve got 85 employees, 75 of whom are on the project site now,” he said. “This is not your typical junior start-up, with 10 people in the headquarters and nobody in the field. This is a team permitting and getting ready to build a mine.”

“We are in Guatemala, and Guatemala and Central American countries have issues,” cautioned McArthur. “There are successful operating mines in Guatemala and mining is recognized as a valuable employer.”

“The Escobal project is in a region that is receptive to the mining industry,” he stressed. “We are not in the Guatemalan Mayan highlands; we are down in the southeast portion of the country. We will not have the indigenous issues that Marlin and some of the other mines in the country have had.”

Escobal is a major, high-grade silver polymetallic deposit that was discovered in mid-2007. “Based on only three years of drilling, it is already among the largest high-grade silver deposits known,” Tahoe reports. Escobal is an underground mine target.

The project contains an indicated mineral resource of 100 million oz. silver, plus credits of gold, lead and zinc, based on 4.6 million tonnes grading 684 grams silver per tonne, 0.54 gram gold, 1.17% lead and 1.97% zinc. Inferred resources hold an additional 176 million oz. silver, based on 12.8 million tonnes averaging 427 grams silver, 0.51 gram gold, 0.89% lead and 1.49% zinc.
“Rarely do you see large high-grade primary silver deposits and Escobar is one of them,” said McArthur.

The mineral resources were calculated by AMEC, based on the results of 175 holes totalling 46,300 metres that were completed to the end of 2009. Tahoe has since received assay results for 52 new holes totalling 17,700 metres. The majority of the new holes were designed as infilling to provide a higher confidence in the resource estimate and bring most of the inferred into an indicated category. A new resource estimate is expected by the end of this year, along with a preliminary economic assessment.

“We have accelerated our exploration with the addition of two drill rigs in August, and we are making plans to go underground next year,” explained McArthur. The company is in the process of seeking permitting approval to begin underground ramp development early next year so that deposit can be drilled off from underground.

“We are drilling on the first vein on the deposit where we initially made the discovery. There are 13 other veins on the property that have seen very little in the way of exploration,” stressed McArthur.

A regional exploration team has begun work to develop drill targets on the other veins, with the expectation that Tahoe will start regional drilling by about mid-2011. “We believe we are onto a district play here that will be very important,” McArthur said. “This will be our focus in the coming years.”

The Escobal project is 70 km by paved road southeast from Guatemala City in the eastern part of the country. San Rafael las Flores, a town of about 3,000 people, lies 3 km from Escobal. The project area is in mountainous terrain interspersed with rolling hills and valleys. Elevations range from 1,300 to 1,800 metres.

“We’ve got power, we’ve got water and we’ve got local availability of labour,” said McArthur. “This is a town of ranchers, farmers and business people; people who know how to work. We’ve got a very good start with this infrastructure.”

Escobal is described as an intermediate-sulphidation, epithermal, silver-rich polymetallic deposit hosted by Tertiary-age andesite and volcaniclastic sedimentary rocks. The main Escobal vein is defined by drilling over a strike length of 1,600 metres, with a vertical extent of at least 700 metres. It remains open at depth and along strike to the west under pediment cover and to the east under post-mineral volcanic ash flows.

Drilling in the second half of this year has targeted the gap between the East and Central zones, as well as down-dip and down-plunge on the Central zone. “We have seen some very nice results to date and we are very pleased with the drilling that has been completed since April of this year,” said McArthur.

The Escobal vein is quite wide by any underground mining standards, averaging 10 metres in width for the East zone and more than 20 metres in the Central zone.

A cross-section of the East zone, covering a 400-metre-long vertical section of the vein, is highlighted by true-width intercepts, including: 7.2 metres of 107 grams silver and 6.58 grams gold; 10 metres of 693 grams silver and 1.11 grams gold; 2.5 metres of 320 grams silver, with negligible gold; 22 metres of 1,102 grams silver and 0.14 gram gold; 15 metres of 2,580 grams silver and 0.64 gram gold; and 3.5 metres of 3,212 grams silver and 0.67 gram gold.

“It is a very strong and robust vein, very continuous,” McArthur enthused. “These are phenomenal silver veins.”

A cross-section of the Central zone reveals a mineralized zone that widens with depth and contains increasingly stronger gold and base metal values. Selected results from drilling that tested a 400-metre down-dip section, starting from near-surface includes: 6.8 metres of 201 grams silver and 0.17 gram gold; 32 metres of 611 grams silver and 0.3 gram gold; 20 metres of 902 grams silver and 0.47 gram gold; 40 metres of 331 grams silver and 0.28 gram gold; and 27 metres of 402 grams silver and 1.03 grams gold.

“The Central zone is muck thicker, wider and this will provide for very low unit costs and for high productivity,” said McArthur.

As it stands today, Tahoe envisions a 3,500-tonne-per-day underground mining operation at Escobal. The company is pleased so far with the metallurgical testwork that is being done. “We are seeing extremely good results,” noted McArthur.

At the end of the second quarter, Tahoe had US$117 million in cash. “We’ve got the people, the deposit and the money to bring this to feasibility and permitted status,” said McArthur. “Our goal is to get a construction decision by May 2012, with production by late 2013 and commercial production sometime in 2014.”

“This is a mine,” McArthur confidently stated, “The only thing holding us back from building a mine right now is permits and financing.”

The Guatemalan government is currently working on a revision to its 1997 mining law. A 1% national royalty is expected to move up to somewhere in the range of 3-7%. The revision to the mining law is critical for Escobal being permitted. “That’s why we have taken such a long time frame to achieve permits, our goal being May of 2012,” explained McArthur.

Tahoe has 115 million shares outstanding, or 122 million fully diluted. It’s currently trading around $10.30, compared to its IPO that was priced at $6 per share.