Tahoe looks to next milestones at Escobal

Vancouver – Controlling one of the world’s richest silver deposits, Tahoe Resources (THO-T) is looking towards another year of milestones as it works to put its Escobal project in Guatemala into production.

The company is targeting 2014 to achieve commercial production, at which point it will start producing more than 20 million oz. silver a year for the first five years with a 3,500-tonne-per-day, high-grade underground mine.

Early last year the company secured environmental approval for an underground exploration program that included two declines, a new access road, and a power line into the property, and then in late 2011 Guatemala’s Ministry of Environment approved the company’s environmental impact statement. The EIS approval then allowed Tahoe to apply for its exploitation permit that will open the door to full-fledged development, a permit it expects to receive in the first half of this year.  

But with the early permits already in hand the company managed 750 metres of decline development and extensive surface development in 2011, and expects to have underground development completed in time for mill commissioning in the second half of 2013.

So far the company has spent or committed US$141.1 million towards the project, and expects the full cost of the mine to be US$326.6 million. Thanks to a $348-million IPO and a $352-million equity raise in early 2011, the company is already fully funded for the project with $350 million in cash and equivalents at the end of 2011.

Based on a 2010 preliminary economic assessment, over the 18 year mine life Tahoe expects to mine 22.7 million tonnes grading 415 grams silver per tonne, 0.47 gram gold per tonne, 0.71% lead and 1.22% zinc, for 298.4 million contained silver equivalent oz. Base case financials for the mine, based on US$18 per oz. silver and US$1,100 per oz. gold, came in at an after-tax net present value of US$1.73 billion with a 5% discount and an after-tax internal rate of return of 51.4%.

In January the Guatemala Government and the Chamber of Industry agreed to voluntary increase royalty rates, with gold and silver royalties increasing from 1% to 4% net smelter return, and base metal royalties going from 1% to 3% NSR. Goldcorp (G-T, GG-N), with its controversial Marlin mine in the country, agreed to a slightly higher 5% NSR on precious metals. The voluntary increase allowed recently elected president Otto Perez Molina to boost royalty payments much faster than going through a planned reform of the mining code.

For Tahoe the royalty change shaves about US$100-million off the base case NPV of the project, which still comes in at a healthy US$1.63 billion NPV in the base case at an IRR of 49.4%. Factor in a US$35 per oz. silver price, however, and the NPV jumps to US$4.08 billion and the IRR to 89.2%.

The company is looking to potentially improve the financials this year with both an upgraded resource and a new scoping study based on a 5,000-tonne-per-day mine, with both studies expected out in the second quarter. Controlling roughly 2,000 sq. km of land in Guatemala, Tahoe is also busy with regional exploration on numerous targets. Last year the company spent roughly $10 million on exploration work both at Escobal and regionally.

Tahoe’s share price climbed $1.02 or 4.6% to $23.11 on its project update with 400,000 shares traded. The company share price has climbed from a 52-week low of $13.78 in early October and is now trading at its highest level since a brief spike to $25 last April.

The company was created as something of a spin-out of Goldcorp in 2010, whereby the newly created company, led by former Goldcorp CEO Kevin McArthur, bought Escobal from Goldcorp for $505 million of which 40% was Tahoe shares. Goldcorp still controls 41% of Tahoe’s 143.1 million outstanding shares.