Tahoe’s Low Cash Costs a Continued Draw

Tahoe Resources (TSX:THO,NYSE:TAHO) last made headlines a week ago with the announcement that it plans to acquire Rio Alto Mining (TSX:RIO,NYSE:RIOM), but already the company is back with more news. 

This time it’s released select preliminary unaudited financial and operational results for Q4 2014, as well as 2014 as a whole. The company has just finished the first year of commercial production at its Guatemala-based Escobal mine.

In a note on the report, Dundee Capital Markets states that Tahoe’s Q4 earnings and operating cash flow were lower than it expected, at $10 million and $17.8 million, respectively; it had been calling for earnings of $15.8 million and operating cash flow of $29 million.

Meanwhile, Tahoe’s fourth-quarter revenue of $65.4 million was also below what Dundee expected, “largely driven by lower than expected realized pricing of $14.99/oz vs. quarter average of $16.51,” while the company’s end-of-year cash position came in at $80.4 million compared to the $96.5 million the firm expected.

That said, the company surprised to the upside in terms of cash costs, with the Q4 number coming in at $4.91 per ounce, fairly far below Dundee’s estimate of $6.12. For the entirety of 2014 cash costs were $6.16. According to the firm, that “continues to highlights Escobal’s position as a low cost producer.”

Ron Clayton, president and CEO of Tahoe, also commented positively on the company’s low cash costs, noting, “[i]n our first year of commercial production, Tahoe was profitable and generated strong cash flow despite a 20 percent decline in the silver price. Our team was able to quickly commission the mine and mill, overcoming the challenges that are typically associated with startup. We have clearly demonstrated ourselves as a low cash-cost silver producer.”

In terms of production, Tahoe put out 5.2 million ounces of silver in concentrate during Q4 and a total of 20.3 million ounces for the year as a whole. Mill throughput for Q4 came in at 319,632 tonnes for an average of 3,474 tonnes per day, while the totals for 2014 as a whole were 1.25 million tonnes for an average of 3,413 tonnes per day.

Overall, despite the fact that Tahoe didn’t meet its expectations in some ways, Dundee has left its price target for the company unchanged at C$21 and continues to rate the stock a “buy.” At close of day Tuesday shares of Tahoe were sitting at $16.30 on the TSX, down 2.57 percent, and at $13.16 on the NYSE, down 1.82 percent.

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

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Consolidation Continues as Tahoe Buys Rio Alto Mining