Tahoe gets licence back, blockade remains at Escobal

Guatemala’s Supreme Court may have reinstated the Escobal mining licence of Tahoe Resources’ (TSX: THO; NYSE: THO) subsidiary, but the company can’t restart operations at the silver mine until a road blockade is resolved, and to complicate matters even further, its annual export credential to ship metals concentrate has expired.

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.”

On Sept. 10, 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 International Labour Organization (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 decision 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.

Tahoe has asked the Supreme Court for clarification on which geographic areas must be included in the consultation process.

While the company says it believes its Guatemalan subsidiary complied with ILO Convention 169 before the mining licence was issued, it also confirmed 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.”

But Tahoe noted 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 said “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. The road block is at Casillas, 16 km from the company’s operations in San Rafael las Flores.

In the latest news about Guatemala released on Sept. 21, the company reported that its annual export credential for the export of metals concentrate expired during the time its mining licence was temporarily suspended. Tahoe says it filed its request to renew the export credential with the Ministry of Energy and Mines “in the ordinary course” in June 2017.

“The renewal of the export credential became contingent on the Court’s reinstatement of the Escobal mining licence,” Tahoe said in the news release. “In addition to the clarification motion, therefore, the company has petitioned the Supreme Court to order MEM to provide the routine administrative annual renewal of Escobal’s export credential.”

In the same news release, Tahoe updated its 2017 gold production guidance to between 400,000 and 500,000 oz. gold, up from its previous estimate in May of between 375,000 and 425,000 oz. gold.

It also reported a decline in grade at its Timmins West mine. While the company said it had increased its proven and probable reserves at Timmins West from 233,000 oz. to 738,000 oz., the grade declined from 3.7 grams gold per tonne to 3.2 grams gold. (Total resources remain unchanged at 1.02 million oz. gold at 4.03 grams gold.)

Cosmos Chiu of CIBC has lowered West Timmins’ modelled head grade after incorporating the lower reserve grade.

“With that change, we lower our net asset value (NAV) for the Timmins West-Bell Creek asset by $85 million to $286 million, equating to a 23% decrease to the NAV of the asset, or a 4% decrease to the NAV of the company,” he said in a research note.  “With the new reserve grade, we conclude that this operation is one of the lower-grade, higher-cost underground producers in Canada, with average annual production of 139,000 oz. at all-in sustaining costs of $874 per ounce.”

At press time, Tahoe’s shares were trading at $7.10.

Over the last year, Tahoe has traded in a range of $5.31 (August 2017) to $18.99 (September 2016).