Tahoe’s licence for Escobal reinstated, but blockade remains

Guatemala’s Supreme Court may have reinstated the mining licence for Escobal held by Tahoe Resources’ (TSX: THO; NYSE: THO) subsidiary, but the company has been unable to resolve a blockade and can’t restart operations.

Tahoe’s shares surged 34%, or $1.92, to $7.61 on news of the high court’s decision, but have slipped back since then to around $6.75 per share.

Until mining operations resume, Tahoe says, the company cannot access US$75 million of its US$300 million revolving credit facility “and may continue to be subject to events of default.”

The Supreme Court ruled that the mine can resume, but ordered Tahoe’s subsidiary, Minera San Rafael, to consult with the Xinca indigenous communities within a certain geographic area under ILO Convention 169, and then report results of the consultation to the Court’s satisfaction within 12 months. ILO Convention 169, established in 1989, guarantees the rights of indigenous peoples.

The ruling reverses the Supreme Court’s decision in July to suspend Escobal’s mining licence until it could hear an action brought by non-governmental organization CALAS against Guatemala’s Ministry of Energy and Mines (MEM). CALAS filed a claim in May alleging that MEM violated the Xinca Indigenous Peoples’ right of consultation before granting the licence for Tahoe’s flagship silver mine.

In a Sept. 10 press release, Tahoe said it has asked the Supreme Court for clarification on which geographic areas in the region must be included in the consultation process.

Tahoe said that while it believes its Guatemalan subsidiary complied with ILO Convention 169 before the mining licence was issued, management added that it would fully support MEM “in any of its future indigenous engagement and will encourage MEM to involve independent ILO 169 experts to assist in this process.”

A worker operates a jumbo drill underground at Tahoe Resources’ Escobal silver mine in southeastern Guatemala. Credit: Tahoe Resources.

Tahoe also noted, however, that it expects that CALAS, the Xinca Parliament, and other interested parties, may appeal the Supreme Court ruling to the country’s Constitutional Court.

Ron Clayton, the company’s president and CEO, said in prepared remarks that the company is “focused on peacefully resolving the blockade at Casillas” and stated “the illegal blockage” of the public highway by non-locals “has had a devastating economic impact on our employees, contractors and communities.”

Tahoe estimates that once the blockade has been resolved, the company could resume operations within a week.

Following the news, Cosmos Chiu of CIBC increased his target price on the company from $7 per share to $8 per share and said he is now modelling a restart of Escobal in October.

Andrew Kaip of BMO Capital Markets and Chris Thompson of Raymond James maintained their previous targets of $7.00 per share and $10.75 per share, respectively.

Over the last year, Tahoe’s shares have traded in a range of $5.31 (August 2017) and $18.99 (September 2016).