Tahoe suffers $18m Q4 loss as Escobal shutdown saga drags on

24th February 2018 By: Henry Lazenby - Creamer Media Deputy Editor: North America

Tahoe suffers $18m Q4 loss as Escobal shutdown saga drags on

Escobal, Guatemala
Photo by: Tahoe Resources

VANCOUVER (miningweekly.com) – Precious metals producer Tahoe Resources has recorded an $18-million loss for the fourth quarter ended December 31, as its flagship Escobal silver mine, in Guatemala, lingers on care and maintenance.

The TSX- and NYSE-listed miner reported an adjusted comparative loss of $17.7-million, or $0.06 a share, for the period, contrasting against headline earnings of $18.4-million, or $0.06 a share, in the same period of 2017. This was well below average analyst estimates, calling for nil cents a share.

The company talked up the rising importance of its gold portfolio, as Escobal – the world's third largest silver producer – remains closed because of a mining licence dispute.

The net loss for the period came to $18-million, or $0.06 a share, compared with profit of $300 000, or nil per share, in the same period of 2016.

For full-year 2017, net earnings came to $81.8-million, or $0.26 a share, down 31% year-on-year from $117.9-million, or $0.41 a share, in 2016. Full-year adjusted earnings fell to $84-million, or $0.27 a share, from $180.4-million, or $0.62 a share, in 2016.

As a result of the legal impasse in Guatemala, Tahoe did not produce any silver in the fourth quarter, resulting in full-year output dropping 54% over 2016 silver production.

Gold output fell 12% year-on-year in the fourth quarter to 105 800 oz, at a total cash cost of $648/oz – down 9% from $594/oz in the same period a year earlier.

For the full year, Tahoe achieved record gold output of 445 900 oz, realising the high end of its gold production guidance range of 400 000 oz to 450 000 oz, as the La Arena mine, in Peru, performed to plan.

Tahoe did not provide 2018 silver production guidance because of the ongoing Escobal shutdown, but expects full-year gold output ranging between 400 000 oz and 475 000 oz, down 25 000 oz from the initial guidance provided in January 2017.

UK-based media outlet, The Daily Mail, reported last week that British national and Tahoe VP and MD of subsidiary Minera San Rafael, David Howe, was held hostage for about three hours by an armed gang, before being rescued by police.

The hostile investment environment in Guatemala has recently prompted a bipartisan letter from US Congress chairperson of the subcommittee on the House Western Hemisphere Committee on Foreign Affairs, Col Paul Cook and ranking member Albio Sires, urging the Guatemalan government and President Jimmy Morales to take immediate action to improve these conditions.

The US is the largest foreign investor in Guatemala – in 2016 alone, American companies invested $14.6-billion in the country. This capital is critical to addressing key challenges facing Guatemala, which include corruption, emigration, drug trafficking and associated violence. Improving these challenges is critical to American, Canadian and Guatemalan interests alike.

In the letter, Morales is urged to do more to improve the country's investment climate, stamp out corruption and render more timeous Ministerial permit approvals and Constitutional Court rulings, in order to attract more foreign investment. It is indeed because of the Guatemala Constitutional Court's delay in rendering a timeous decision on the Escobal case that Tahoe's operations suffer.

The Escobal mine was placed on care and maintenance following a court ordered suspension of its mining permit in July 2017. The Guatemalan Constitutional Court heard appeals of the Supreme Court's decision to reinstate the Escobal mining licence on October 25, 2017. According to Guatemalan law, the Constitutional Court must rule within five calendar days of the public hearing. At this time, however, the Constitutional Court has yet to rule.

"We remain optimistic that, based on legal precedent, the Guatemalan Constitutional Court will issue a favourable ruling, reinstating the Escobal mining licence," Tahoe president and CEO Ron Clayton said in conference call.

Escobal is Guatemala's largest mine and has contributed more than $1.7-billion to the economy, including more than $10-million on social welfare programmes.

Tahoe's NYSE-listed equity fell nearly as much as 6% on Friday, to a low of $3.82 a share, before clawing back value to close down 1.48% at $3.99 apiece.