Tahoe secures US$50 million credit facility

Chief executive Kevin McArthur of Tahoe Resources (THO-T, TAHO-N) says the company expects to start commissioning the mill at its Escobal silver project in Guatemala in the second half of this year and has received a US$50 million secured credit facility with which to further advance the project.

McArthur also told The Northern Miner that everything is calm and back to normal after protests last month and that the government has not only lifted a state of emergency but has also set up a local office for national police officers in the nearby town of San Rafael.

The state of emergency was imposed after a protest on Apr. 27 involving about 20 people armed with machetes turned hostile during the evening shift change. (Escobal security officers used tear gas and rubber bullets to disperse protestors at the mine gate.) Then, two days later in a separate incident away from the mine, four busloads of protestors arrived in San Rafael, and in an ambush of local police, one officer was shot and killed.

“The local mayor and the people in the town of San Rafael have been calling for law and order for some time,” McArthur explains. “There are no local police in Guatemala, just national police, that’s it, so they now have an office in San Rafael and the locals think that is a very good thing.”

“There have been a handful of problems with outsiders being bused in and creating issues centered around the mine, and to quote a local: ‘We know there is trouble coming when we see the buses arriving,’” McArthur continues.

The chief executive points out that the project employs more than 600 workers—over 90% of whom are Guatemalan— and that they come from within a 30 km radius of San Rafael. About half of them are from the town of San Rafael itself, he says. 

“There are huge benefits that the mine has provided,” he adds. “On balance this is seen as a very, very positive development for the town and now that the national police are there…people are very happy with the outcome.”

But the project continues to cause headaches for Tahoe and on June 3, a Toronto-based group called the Justice and Corporate Accountability Project (JCAP), submitted a complaint to the Ontario Securities Commission alleging that wiretap evidence gathered under orders of the Guatemalan public prosecutor’s office implicated Tahoe employees in the incident on Apr. 27, when security forces at the mine shot rubber bullets at protestors, wounding six people.

JCAP contends that according to the wiretap evidence, Tahoe’s security manager, Alberto Rotundo, “ordered the mine security to attack the protestors. Mr. Rotundo has been charged with causing serious and minor injuries and obstructing justice, which included tampering with evidence at the site of the crime.”

McArthur acknowledges Rotundo is under investigation and has charges against him but says “it’s not really for us to comment on an investigation of a former contract employee.”

In the meantime Tahoe is busy preparing for the start of commercial production in early 2014. Initially the mill will operate at a rate of 3,500 tonnes per day, and if all goes according to plan, that number will rise to 4,500 tonnes per day in 2017. The mill has been built with a capacity of 4,500 tonnes per day but enough underground development must be completed in order to sustain that level of operations over the long term. As of Mar. 31, McArthur notes, about 79% of Escobal was complete.

Currently Tahoe has outlined an 18-year mine life at Escobal, but McArthur points out that the company continues to drill and that the Escobal zone is open to the east and west. “We’re continuing to see mineralization beyond the envelopes of our resource figures that we put out last year,” he says. “We are convinced that we’ll be able to grow the mine life beyond what we have already.”

As for the US$50 mineral credit facility, Andrew Kaip of BMO Capital Markets says it  “places Tahoe in a financially strong position as it moves into the commissioning stage of the Escobal project through the second half of 2013. The additional funding also provides Tahoe with the flexibility to expedite the expansion from 3,500 tonnes per day to 4,500 tonnes per day.”

The mining analyst has a 12-month target price on Tahoe of $25.00 per share. At presstime in Toronto the company’s shares were trading at $15.30 apiece within a 52-week trading range of $9.74-21.81.