Escobal shows robust economic potential (November 29, 2010)

Designed to improve confidence in the established inferred resource, infill drilling by Tahoe Resources (tho-t) on the high-grade Escobal silver deposit in Guatemala succeeded in expanding the indicated resource to 245 million contained silver ounces. This represents a 144% increase, with significant credits of gold, lead and zinc.

Along with the updated resource estimate, which includes an addition 72 million oz. of inferred, an independent preliminary assessment shows robust economic potential for a proposed 3,500-tonne-per-day underground mine and milling operation.

Based on an initial capital cost estimate of US$327 million, the Escobal project throws off an after-tax internal rate of return of 51%, with a payback of just 1.5 years. A proposed 18-year mine life is expected to average 14.6 million oz. silver annually at a total cash cost of US$3.05 per oz. silver, net of gold and base metal by-products.

The base case scenario suggests the project has an after-tax net present value of US$1.73 billion, based on metal prices of US$18 per oz. silver, US$1,100 per oz. gold, $0.95 per lb. lead and $0.90 per lb. zinc.

“We are extremely pleased with the preliminary assessment, which projects Escobal to be one of the world’s premier silver mines in terms of size, cost and economics,” stated Kevin McArthur, president and chief executive officer of Tahoe.

“One feature of the world’s best mines is the ability to repay capital investment in a short period of time,” said McArthur. “At today’s spot metals prices, expected Escobal payback occurs approximately one year after the start of commercial production, and the low total cash costs should allow the mine to remain profitable through any conceivable market price fluctuations.”

The Escobal deposit is now estimated to contain 245 million oz. silver in an indicated resource, based on 15.3 million tonnes grading 500 grams silver per tonne, 0.51 gram gold, 0.8% lead and 1.34% zinc. Inferred resources hold an additional 72 million oz. silver in 8.3 million tonnes grading 271 grams silver, 0.4 gram gold, 0.58% lead and 1.04% zinc.

The overall silver resource is up 14.8% over the previous estimate. The resource update was prepared by Mine Development Associates, based on the results of 220 core holes totaling almost 61,500 metres.

Escobal is a major, high-grade silver polymetallic deposit that was discovered in mid-2007. It is described as an intermediate-sulphidation, epithermal vein deposit. The main Escobal vein is defined by drilling over a strike length of 1,700 metres and a vertical extent of 800 metres.
Exploration drilling continues to expand the known limits of the Escobal vein down-dip and laterally under post-mineral cover. Drilling in these areas is testing targets indicated by recently completed structural analysis and clay alteration interpretations of the Escobal vein and surrounding satellite veins.

“Escobal is a new discovery with very little regional exploration to date,” stated McArthur. We expect to see resource growth over time and have incorporated future expansion possibilities into the design concept.”

The preliminary economic assessment of Escobal was conducted by M3 Engineering and Technology Corp. of Tucson, Arizona. It is based on an underground mine operation, mine backfill plant, tailings filtration, processing and concentrate production facility designed to operate at 3,500 tonnes per day.

The mine will be developed and accessed via two declines, which will be used as platforms for exploration and definition drilling during the feasibility phase of the project. Additional primary development will include two ventilation shafts and a network of drifts connecting the declines. The ore shoots will be mined using longhole stoping methods, with paste backfill.

A total of 13,000 metres of underground development is contemplated during the 18-year mine life. Additional sustaining capital costs of US$102 million over the life of mine are primarily attributed to underground development and equipment replacement costs.

Mineral processing will use differential flotation to produce lead and zinc concentrates that will be sold to a third-party smelter. Feasibility-level metallurgical testwork completed to date indicates recoveries of 87% silver, 75% gold, 83% lead and 83% zinc.

The lead concentrates are expected to contain high levels of silver, ranging from 15,000 to 30,000 grams per concentrate tonne, with little in the way of penalty elements.

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, is just 3 km from Escobal. The proposed Escobal mine is expected to create 500 permanent positions.

Tahoe reports that a feasibility study is underway and is expected to be completed in 2011. Baseline studies and environmental documentation have been ongoing for nearly two years. The company expects to be able to bring the project to permitted status by the time a construction decision is ready by May 2012.

There is currently a country-wide moratorium on new mining concessions pending a revision by the Guatemalan government to its 1997 mining law. The changes concern a 1% national royalty, which is expected to be raised somewhere in the range of 3-7%. The revision to the mining law is critical for Escobal being permitted in a timely manner.

Construction of the underground exploration declines into the East and Central zones are expected to begin in 2011. An application to amend the current exploration permit has been filed with regulatory authorities and Tahoe expects permits will be in hand early in 2011.

Future drilling in 2011 will continue to test the main Escobal vein system through wider and deeper extensional stepouts. This program will be initially carried out from surface until underground drill stations are in place along the planned exploration decline later in the year.

The exploration budget for 2011 is set at US$3.5 million, not including the underground decline project. As Escobal moves into development mode, the company is starting to shift its exploration efforts regionally, with a more concentrated effort to evaluate and establish viable drill targets on the 12 other veins that have been discovered on the company’s concessions.