Tahoe says Guatemala ban on new licenses won’t affect silver project

Aerial view of Escobal silver project

Guatemala President Otto Perez Molina announced during his weekly television address Tuesday evening that he will ask congress to approve a two-year moratorium on the granting of new mining and exploration licenses in the central American nation.

A top investor in the country, Tahoe Resources (TSE: THO, NYSE: TAHO) on Wednesday reacted by saying that based on discussions with government officials, the Vancouver-based company believes the pause in permitting will allow the Energy and Mines Ministry and congress to focus on revisions to the mining law that were proposed earlier this year:

“President Perez Molina and mining minister Erick Archila have assured Tahoe that this action will in no way affect the exploitation license that the government granted earlier this year for the Escobal project.

“The president’s weekly television show was taped at the Tahoe’s Escobal project during the president’s visit on Monday, July 8, 2013. In a very positive atmosphere, he met with mine employees and their families following a tour of the project.”

Tahoe holds licenses on 158 square kilometres, including 20 square kilometres of which are held on the $326 million Escobal project.

Tahoe President and CEO Kevin McArthur said: “Mine construction is going extremely well and preliminary commissioning activities are underway. While we are disappointed with the potential effects to our regional exploration programs, Tahoe will continue to work with the Guatemalan government to amend the mining law, ensuring a profitable mining industry and continued economic prosperity in the country.

Tahoe was trading little changed on the Toronto stock exchange on Wednesday and the $2 billion company also provided an update on its flagship project:

Project Update

Surface plant construction and underground development of the Escobal project is continuing on-schedule. As of June 30, 2013, engineering, procurement and construction management was 85 percent complete and the Company reached the underground development necessary for commencement of production. The Company completed 4,075 metres of underground development during the first half of the year for a project total of 8,831 metres. Numerous vein cross-cuts on the 1290 and 1265 levels have been established, and drilling of the slot raises and stope blastholes is well advanced to support ramp-up and full production.

Commissioning of the crusher began in June and will continue to advance throughout the process plant circuits as construction is completed over the second half of 2013.

All major components are in place, and construction focus has turned to piping and electrical systems in the mill, conveyor installation to the tailings facility and paste plant, mechanical installations in the flotation and tailings filtration areas, programming and employee training. Phase one construction of the dry tailings facility is complete.

Production is expected to gradually ramp up through the fourth quarter as commissioning of the plant is completed and issues commonly associated with start-up of a metallurgical plant and underground mine are resolved. Commercial production at 3500 tonnes per day is expected in early 2014.

Project completion is estimated to be on budget at the original capital forecast of $326.6 million. The company is fully funded to bring the project to commercial production by early 2014.

Community Update

The Escobal project has provided over 600 full-time, high-paying local jobs. The trickle-down effect from both the mine and construction activities has created very positive impacts in the local and regional communities including the start-up of over 100 new businesses.

President Perez Molina lifted the regional state of emergency in the departments of Santa Rosa and Jalapa in June and established a much needed permanent police force in San Rafael Las Flores, the community closest to Escobal. The residents of the San Rafael communities have seen significantly decreased tension since that time, as outside interference has diminished.

Since receiving the final permit for the Escobal project in April, the Company has committed to enhance and strengthen its corporate social responsibility (CSR) programs. A new voluntary royalty (now totaling 5% NSR) was implemented in April 2013, so that outlying communities seeing socioeconomic impacts from the operation will receive funds in order to manage local issues. Multiple community projects are underway or in planning, and the Company has designated a 100 million quetzal (approximately USD$12.5 million) fund to be initiated this year and to be distributed over the next three years to a specific charitable project. In addition, the Company has engaged the non-profit organization BSR to help guide Tahoe’s CSR and human rights programs in Guatemala and at the corporate level.

Security Update

On April 17, 2013, non-lethal force was used at the mine gate against protestors armed with large sticks, clubs and machetes who were engaged in impeding traffic to and from the mine. Seven individuals were injured by rubber bullets and were treated and released at local hospitals. The security management contractor, who is no longer engaged with the Company, was later charged with causing injuries and obstruction of justice. The Company continues to cooperate with Guatemala authorities and will comment further when appropriate.

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