The Escobal silver project in Guatemala produced its first metals concentrate on Sept. 30, shipped its first concentrate to smelters on Oct. 15 and is on track to hit full production at the 3,500-tonne-per-day level by the first quarter of 2014, Tahoe Resources (TSX: THO; NYSE: TAHO) says.
In a research note to clients, Leon Esterhuizen of CIBC Capital Markets commented that Tahoe’s “flawless delivery continues,” and that its guidance for 2014 of 18 million to 21 million oz. silver “is well ahead of both our previously conservative 12.2 million oz. forecast and preliminary economic assessment 2014 forecast of 16 million oz.”
Esterhuizen also noted that Escobal “will be one of the lowest-cost silver assets in the world, a function of the high grades, extended vein widths and low sustaining capital-expenditure requirements,” adding that the company is one of the most defensive silver stocks he covers.
“Underground development continues apace and October 2013 production is estimated to be 346,000 oz., putting Tahoe on track to reach our 800,000 oz. 2013 forecast,” he said.
Andrew Kaip of BMO Capital Markets noted that Escobal “continues to impress” and demonstrates “strong progress on the path to commercial production,” and has made inroads “with underground infrastructure and tailings facility construction.”
The Toronto-based mining analyst has an “outperform rating” on the stock and a $25-per-share price target. At press time Tahoe was trading at $19.97 per share within a 52-week range of $12.44 and $20.65.
In its Escobal project update on Nov. 12 — with a reported third-quarter loss of $15.5 million, or 11¢ per share — Tahoe noted that it had completed 2,102 metres of underground development during the quarter and 10,934 metres so far.
At the end of the quarter 10 stopes in underground mining areas were available for production, and another 10 stopes were in final development. Stockpiled mill feed totalled 97,250 tonnes at an estimated grade of 487 grams per tonne silver, 0.4 gram gold per tonne, 0.7% lead and 1.3% zinc. (The 487-gram-per-tonne silver grade in the stockpile surpasses the 460 grams per tonne that was forecast in the preliminary economic assessment.)
The company also reported that all major components of the operation — except for the paste-backfill plant — have been fully commissioned, and the paste plant will be commissioned during the fourth quarter, when the first mined-out stope is available for cemented backfill placement.
At the end of September Tahoe held cash and equivalents of $39.2 million, including net proceeds drawn in June for a $50-million credit facility. Management says it has enough funds to bring the project to full production by early next year.
“The company expects to spend $30–35 million in sustaining and expansion capital in 2014, with another $25–35 million in corporate G&A and $5–10 million in exploration,” Kaip notes.
The company has already spent $317.9 million of the $326.6-million budget earmarked to bring its 100%-owned flagship to 3,500 tonnes per day, and has spent another $35.8 million towards its planned expansion to 4,500 tonnes per day.
Tahoe expects it will produce 18–21 million silver oz. contained in concentrates in 2014 at a cash cost before by-product credits of $8.30 to $9.20 per oz., and cash costs per ounce net of by-product credits of $5.65 to $6.25 per oz.
Tahoe expects to complete a new resource estimate and feasibility study in the third quarter of 2014. It has earmarked $9.6 million for corporate social-responsibility programs, including infrastructure building, charitable donations and community projects. The project has been criticized by a number of non-governmental organizations.
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