VANCOUVER, British Columbia – August 8, 2017 – Tahoe Resources Inc. (“Tahoe” or the “Company”) (TSX: THO, NYSE: TAHO) today announced solid financial and operating results for the second quarter and six months ended June 30, 2017. Due to the temporary suspension of the Escobal mining license, the Company has ceased dividend payments, and has suspended company-wide multi-year guidance. The Company’s balance sheet remains strong, with cash and cash equivalents of $190.6 million at June 30, 2017.
Key Financial and Operating Results
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Ron Clayton, President and CEO of Tahoe, commented: “While the turn of events in Guatemala over the last several weeks is disappointing, our team is working very hard to resolve both the Escobal license suspension and on-going road block in Casillas. I am very pleased with our overall Q2 performance, with all of our operations turning in good results. Silver production was 4.1 million ounces for the quarter and when combined with Q1 results, puts us at almost 10 million ounces year-to-date. Per ounce metrics remained strong at Escobal, even with the mill curtailing production during a portion of June due to the road blockages. We also continue to be pleased with the results from all of our gold mines, with each operation’s production and costs coming in at, or better than, expected levels.”
Summary of Q2 2017:
Another solid quarter at Escobal – Tahoe reported total silver production in Q2 2017 of 4.1 million ounces driven by robust results at Escobal despite a curtailment of production in June due to the Casillas road blockages. Total cash costs and all-in sustaining costs (“AISC”) were $6.73 and $10.01 per ounce of silver produced, net of byproduct credits, respectively.
Robust results from all three gold operations – Q2 2017 gold production totaled 112.4 thousand ounces, including 21 thousand ounces from Shahuindo. Production and costs in Q2 2017 reflected strong results at all of the Company’s mines, with total cash costs and AISC averaging $601 and $925 per ounce in Q2 2017.
Earnings per share and cash flow driven by strong revenue and low costs – Earnings and adjusted earnings in Q2 2017 were $33.5 million and $33.8 million, respectively, and were both $0.11 on a per share basis. Q2 2017 cash flow provided by operating activities was $115.5 million, up from the previous quarter.
Bell Creek Shaft and Shahuindo Expansion plans remain on track – Capital expenditures in Q2 2017 totaled $63.4 million, of which $26.2 million was related to on-going growth projects. The Company continues to focus on the expansion at Shahuindo and the Bell Creek shaft project. Exploration expenditures in Q2 2017 totaled $5.9 million and remain focused on those targets which can have near term impact on Mineral Reserves or Resources.
Update on Escobal Mining License – On July 5, 2017, the Company learned that the Supreme Court of Guatemala issued a provisional decision in respect of an action brought by the anti-mining organization, CALAS, against Guatemala’s Ministry of Energy and Mines (“MEM”). The action alleges that MEM violated the Xinca Indigenous people’s right of consultation in advance of granting the Escobal mining license to Tahoe’s Guatemalan subsidiary, Minera San Rafael. The provisional decision follows a request by CALAS to temporarily suspend the license to operate the Escobal mine until the action is fully heard. The provisional decision suspends the Escobal mining license of Minera San Rafael while the action is being reviewed by the court. The Company was not a party to the action commenced by CALAS but this decision confers legal standing on the Company which continues take all legal steps possible to have the ruling reversed and the license reinstated.
The Company immediately appealed the decision to the Constitutional Court. Based on its prior experience with Guatemalan court proceedings and evaluation of similar cases before the courts, the Company estimates the Constitutional Court could rule on the appeal within the next three months. We are seeking to have the license reinstated during this period. The Company also filed a motion for reconsideration with the Supreme Court, which the Court denied on July 28, 2017. Final resolution of the definitive constitutional claim and appeal process could take between 12 and 18 months.
Update on Guatemala Road Block – Beginning on June 7, a group of protesters near the town of Casillas blocked the primary road that connects Guatemala City to the Escobal Mine near San Rafael Las Flores. Protests, which have not dissipated, appear to have initially been related to a variety of issues, including some unfounded claims that mining at Escobal is causing seismic activity approximately 20 kilometers away. Operations were reduced between June 8 and June 19 and were further curtailed on June 19 to conserve fuel. The Company is working with the government, community leaders and others to resolve the situation peacefully and expeditiously, however, the road blockage shows no signs of immediate resolution and we cannot predict at this time when the road will be clear to enable the transport of materials in and out of the mine. Once the roadblock is resolved and the license is reinstated, the Company expects to resume production within a week.
Cessation of dividend – The Company announced the cessation of the dividend, beginning August 8, 2017, due to the ruling of the Guatemalan court to provisionally suspend the Escobal mining license. The dividend cessation is intended to protect the health of the Company’s balance sheet and ensure the Company has the financial flexibility during the temporary suspension of Escobal operations. The cessation of the dividend will conserve approximately $65 million cash annually at current dividend reinvestment program (“DRIP”) enrollment rates. The Board of Directors will continue to reassess the Company’s dividend policy from time to time. The Company has also suspended the active operation of its DRIP effective immediately. The Company may wish to reactivate the DRIP, subject to regulatory approval, at a future date. During the period of suspension of the DRIP, participants may continue to have their existing reinvested common shares held in the DRIP, or they may request a withdrawal by contacting Computershare. Total dividends of $18.7 million were paid to shareholders during the quarter, including $3.2 million in non-cash share-based dividends. A dividend of $6.2 million was declared and paid ($5.4 million cash, $0.8 million shares) in July.
Suspension of 2017 and multi-year guidance – The Company has suspended previously issued 2017 and multi-year company-wide guidance given the uncertainty of timing of various court decisions related to the Escobal license. Gold production and total cash costs are expected to meet targets of 375,000 to 425,000 ounces of gold and total cash costs of $700 to $750(1) at operations in Canada and Peru in 2017. We will issue updated guidance when we have clarity on the status of the Escobal license in Guatemala.
Amended and restated credit facility – On July 18, 2017 the Company entered into an Amended and Restated Credit Agreement (the “Agreement”) with a syndicate of lenders to increase its revolving credit facility from $150 million to $300 million with a $50 million accordion feature and to extend the term to July 19, 2021. The Agreement includes terms that limit borrowing to a maximum of $75 million during the period of suspension of the mining license at Escobal as a result of the CALAS claim in Guatemala, as further described in the Company’s July 5, 2017 press release. In the event the Company’s mining license at Escobal remains suspended as of April 1, 2018, an Event of Default shall occur and the Company will consider alternative financing arrangements to meet strategic needs. Other terms and conditions are substantially similar to those in the previous $150 million credit facility including the discretion to pay dividends under the Company’s existing dividend policy. The credit facility is secured by the assets of the Company and its subsidiaries: Escobal Resources Holding Limited, Minera San Rafael, S.A., Tahoe Resources ULC, Lake Shore Gold Corp., Mexican Silver Mines Limited, La Arena S.A., Shahuindo SAC and Shahuindo Exploraciones. Additionally, the credit facility contains covenants that, among other things, limit the ability of the Company and its subsidiaries to incur additional debt, merge, consolidate, transfer, lease or otherwise dispose of all or substantially all of its assets to any other person.
Class Action Lawsuits – On July 7, 2017, the Company learned that three purported class action lawsuits were filed against Tahoe, and certain of its current and former officers and directors under Section 10(b) and Section 20(a) of the US Securities Exchange Act of 1934, as amended (the “US Exchange Act”), and Rule 10b-5, thereunder. The lawsuits allege that the Company made untrue statements of material facts or omitted to state material facts or engaged in acts that operated as a fraud upon the purchases of the Company’s stock. The lawsuits were filed following the issuance of a provisional decision by the Guatemalan Supreme Court described above. The lawsuits allege compensatory damages, interest, fees and costs. The Company disputes the allegations raised and will vigorously defend the lawsuits.
La Arena II and Investor Day
Due to the suspension of company-wide multi-year guidance and ongoing review of capital and exploration programs, the La Arena II PEA has been deferred and the investor day originally planned for September 14, 2017 has been canceled.
Mr. Clayton continued, “We are not able to reconfirm previously issued Company-wide 2017 and multi-year guidance at this time; however, we remain confident that our gold operations will meet production and cost targets this year. We expect the gold mines in Canada and Peru will continue to produce strong results through the remainder of the year. Following the court decision in Guatemala regarding the Escobal license, the Board made the prudent decision to cease the dividend. Additionally, we are reviewing the pace of both capital and exploration expenditures, along with corporate G&A, to identify opportunities to conserve cash. We are continuing with the expansion plans at Shahuindo and Bell Creek. We are close to completing the initial circuit of our crushing and agglomeration plant at Shahuindo, scheduled for the second half of this year. We also continue to advance work to expand Shahuindo to 36,000 tonnes per day and Bell Creek mine to 80,000 ounces per year by late 2018.”
Addition to Management Team
Alexandra Barrows will join the Company as Vice President, Investor Relations, effective September 5, 2017. She will be responsible for the engagement of the investor community and key stakeholders as well as the development of external communications for the Company. Prior to joining Tahoe, Ms. Barrows was a Senior Vice President at HSBC Securities in New York, focused on Metals & Mining clients across the Americas. She spent 10 years at HSBC in progressively senior roles covering clients within the mining and resources sectors. Mr. Clayton commented, “We are very excited to have Alexandra join our team in the fall. She brings extensive experience in corporate and project finance and capital markets within the mining sector.”