Tahoe Resources Forced to Suspend Production at Escobal Mine

Tahoe Resources (TSX:THO,NYSE:TAHO) has had the mining license for its flagship Escobal silver mine temporarily suspended following a provisional decision issued by the Supreme Court of Guatemala.
The court’s decision is in respect to a request from Centro de Acción Legal Ambiental y Social de Guatemala (CALAS). CALAS, a non-governmental organization, had asked that the mining license be temporarily suspended until the action it brought against Tahoe is heard.
CALAS alleges that Guatemala’s Ministry of Energy and Mines violated the Xinca indigenous people’s right of consultation before it granted the mining license to Tahoe’s Guatemalan subsidiary, Minera San Rafael. CALAS’ action is being reviewed by the court, and Tahoe has said believes it met indigenous consultation obligations before the mining license was granted.

“We are extremely disappointed in the court’s ruling suspending the license because we believe that there are no Indigenous communities affected by Escobal’s operations,” company President and CEO Ron Clayton said. Clayton added that the company is “acutely aware that an adverse ruling could have a significant adverse impact on our shareholders.”
Tahoe also said it will take “all legal steps possible to have the ruling reversed and the license reinstated as soon as possible, including immediately appealing the decision to the Constitutional Court.”

Impact of Escobal suspension

The company estimates that the appeal process could take between two and four months, and said that a three-month mining suspension would have the following impacts:

• 2017 silver production would be deferred to future periods by 5.1 million ounces;
• Sales and operating costs associated with deferred production would be incurred in future periods;
• Sustaining capital expenditures of $12 million would be deferred;
• Fixed costs of approximately $10 million would be incurred;
• Exploration efforts in Guatemala of $0.5 million would not be incurred; and
• Estimated royalties of $4 million and taxes of $5 million related to deferred production would not be accrued; payments would resume upon recommencement of production and sales.

Tahoe’s preliminary Q2 results show that it produced over 4 million ounces of silver and 110,000 ounces of gold during the period. 
The court-ordered Escobal mining license suspension follows a week-long blockade of the mine’s access road by protesters; it was resolved by government-sanctioned police action.
“Escobal is our flagship mine which has been designed and operated to meet the highest environmental standards and we will make every effort to remove any suspension and bring Escobal back into operation as soon as possible,” Clayton said.  
Tahoe’s share price fell 1.65 percent on the TSX on Wednesday (July 5) to close at $10.76. News of the mining license suspension was released after market close.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.