Tahoe Resources forced to halt Escobal mine in Guatemala

Tahoe’s Escobal is the world’s third largest silver mine, with 2016 output of 21.2 million ounces of concentrate. (Image courtesy of Tahoe Resources)

Shares in Latin America-focused Tahoe Resources (TSX:THO)(NYSE:TAHO ) were down 28% in Toronto and more than 33% in early trading in New York, after the company disclosed late Wednesday that Guatemala’s Supreme Court had suspended the license for its flagship Escobal operation, the world’s third largest silver mine.

The Canadian miner said the court decision supports a claim brought by an anti-mining group (CALAS) against the country’s Ministry of Energy and Mines, alleging it violated the local indigenous people’s right of consultation in advance of granting the Escobal mining license to Tahoe’s Guatemalan subsidiary.

Tahoe said the mine will be placed on “stand-by” after the formal receipt of the order, adding that it will be maintained in a manner such that “full production can be expeditiously resumed on a reversal of the suspension.”

While Tahoe is preparing for a three-month mine suspension, Haywood analysts project no production from the mine for the remainder of 2017.

The Vancouver-based company added it was “extremely disappointed in the court’s ruling,” adding that it intends to both appeal the decision to the Constitutional Court and ask for the Supreme Court to reconsider the provisional ruling. Tahoe will also request the Supreme Court resolves CALAS’ constitutional claim.

The Constitutional Court could rule on the appeal within two to four months, while the definitive constitutional claim and appeal process could take between 12 and 18 months.

Tahoe, however, is only preparing for a three-month mine suspension. That would mean, said the company, that 5.1 million ounces of silver production would be deferred, fixed costs of $10 million would be incurred and that the firm would not be able to confirm previously issued guidance.

“While the company is clearly taking all steps to have Escobal venture back on-line as soon as possible (…) the definition of an absolute timeframe for resolution of such actions is outside its control and as such represents a risk to the operation’s near-term output potential,” Haywood analysts said in a note to investors Thursday. They added mine production is likely to be halted for the rest of the year.

Escobal, the world’s third largest silver mine, began commercial production in 2014 and recently drove Tahoe’s record cash flow and strong first quarter 2017 results.

The underground operation, located in southeast Guatemala, about 3 km from San Rafael Las Flores, generated last year a record 21.2 million ounces of silver in concentrate.

But it has also been a source of polemic. Last month, protesters blocked access to the mine, delaying shipments and supplies. Tahoe is also facing action in Canada’s court system by a group of Guatemalan for alleged violence at a protest outside Escobal in 2013.

In a separate note, the company declared Thursday its seventh monthly dividend for the year of $0.02 per share. Investors of record at the close of business on Thursday, July 20 will be entitled to receive payment of the divvy on July 27.