Slight Gain for Tahoe Resources on Results of La Arena II PEA

Tahoe Resources’ (TSX:THO,NYSE:TAHO) share price rose over 2 percent on Wednesday following the release of a preliminary economic assessment (PEA) for its La Arena II copper-gold project in Peru.

The company already produces gold from its open-pit heap leach La Arena mine, which exceeded guidance in 2017 and helped the firm reach a production record for the year.

However, La Arena is only expected to produce for about another two years, and that spurred Tahoe to focus on additional exploration in the area. The PEA for La Arena II builds on a 2015 feasibility study, and takes new exploration drilling results into consideration, Tahoe says. 

The PEA pegs La Arena II’s total measured and indicated resource at 5.6 million ounces of gold and 5.8 billion pounds of copper, with its inferred mineral resource totaling 683,000 ounces of gold and 349 million pounds of copper.

La Arena II is estimated to have a 21-year mine life based on average annual production of 149,000 ounces of gold and 201 million pounds of copper. The project is estimated to generate an additional 226,000 ounces of gold and 115 million pounds of copper over a two-year preproduction period.

Tahoe says an estimated 3.4 million ounces of gold and 4.5 billion pounds of copper in total gold and copper dore and concentrate will be produced over the mine’s life. The PEA envisions an open-pit mine producing 80,000 tonnes of mill feed per day. La Arena II will require about $1.36 billion for initial project capital and $1.09 billion for sustaining capital over the life of the mine.

La Arena II is expected to generate average annual after-tax cashflow of $273 million based on total operating costs of $12.87 per tonne of processed material; it has an after-tax NPV of $824 million using an 8-percent discount rate, and an after-tax IRR of 14.7 percent. The payback period is 4.6 years, assuming metal prices of $3.30 per pound for copper and $1,300 per ounce for gold.

The firm also recently announced that it has entered into an amended revolving credit facility with a bank syndicate. Tahoe has access to $200 million in capital, and has said the facility is structured on the strength of its gold business and is unrelated to its Escobal silver mine. The firm has cut jobs at Escobal, which is located in Guatemala, as mining operations remained stalled due to an ongoing court battle.

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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.