Tahoe stock slides as Guatemalan court yanks silver permit
Tahoe Resources Inc. shares plunged Thursday amid widespread stock downgrades after a Guatemalan court suspended the licence for its flagship Escobal mine, the world’s third-largest silver project.
Guatemala’s Supreme Court issued a provisional decision to temporarily revoke Tahoe’s licence in response to a lawsuit filed by human rights organization CALAS against the country’s Ministry of Energy and Mines. The group alleges the government violated indigenous rights to consultation when it granted Tahoe’s permit.
The suspension is a temporary measure until the suit brought against its subsidiary Minera San Rafael on behalf of the Xinca community can be fully heard.
The company said it will immediately appeal to the country’s constitutional court. It believes its operating licence should remain in effect while the case is being reviewed based on a prior consultation ruling by the constitutional court and said it will also ask the court to reconsider its ruling.
Shares in the Vancouver-based miner fell 33 per cent, or $3.57, to $7.19 Thursday as analysts following the stock downgraded its performance rating and price targets.
Haywood Securities changed its rating from “hold” to “sell” as a result of the uncertainty over Escobal’s future, saying it expected the mine to be shuttered for the rest of the year. “While the company is clearly taking all steps to have Escobal venture back online as soon as possible (potentially within the consultation period), the definition of an absolute time frame for resolution of such actions is outside the company’s control and as such represents a risk to the operation’s near-term output potential.”
Tahoe said it will take “all legal steps possible” to have the ruling overturned, adding it believes the ministry held a consultation process that complied with legal requirements even though the nearby community of San Rafael is 98.6 per cent non-indigenous.
“We are extremely disappointed in the court’s ruling suspending the license because we believe that there are no indigenous communities affected by Escobal’s operations,” said Ron Clayton, CEO of Tahoe Resources.
The company’s preliminary second quarter results suggest the mine produced over four million ounces of silver, 110,000 ounces of gold and revenue of more than $200 million.
But given the uncertainty over the mine’s future, the company said it could no longer confirm its 2017 outlook. Tahoe updated certain measures for an expected three-month suspension of activity, calling the deferral of some five million ounces of silver and also of $12 million in capital spending.
“We are acutely aware that an adverse ruling could have a significant adverse impact on our shareholders, partners, employees, vendors and community populations, as tax and royalty payments, along with purchases of operating supplies will be suspended during any period that the mine is not operating,” Tahoe said.
However, BMO analysts have assumed a longer six-month delay in production and downgraded it to “market perform” with a target price of $11.50, down from $14 per share. Raymond James analysts anticipated an even longer 12-month suspension in their downgrade note issued Thursday.
Escobal drove Tahoe’s record first quarter 2017 cash flows but has also been the source of controversy for the miner. Last month, a group of protesters blocked access to the mine, delaying shipments.