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Silver and dividends: Tahoe Resources (T.THO) puts pedal to the metal in Q1 2014

Stockhouse Editorial
0 Comments| October 22, 2013

Click to enlargeQ&A interview with Tahoe Resources Inc.’s Executive Vice President and Chief Operation Officer, Ron Clayton

We are here today with Ron Clayton, Vice President and Chief Operation Officer of Tahoe Resources Inc. (TSX:T.THO, Stock Forum), who is charged with bringing one of the world’s highest quality silver projects into production.

There are a lot of eyes on you right now watching the progress as you ramp up production at your Escobal project in Guatemala. Why don’t we start with what stage you are at and what has been recently completed?
Over 10 kilometers of mine development has been completed and this is more than sufficient to support production at 3500 tpd for at least five years.  As of Sept. 30th, 10 stopes, or production areas, were fully developed and ready for production and an additional 10 were in the final stages of development.  Nearly 100k tonnes grading 487g/t Ag has been stockpiled on the surface ready to feed to the mill.  Construction was 99% complete at the end of September and we began commissioning the plant by feeding low grade ore into the process.  This is really the stage where we shake down all of the unit operations in the plant making the appropriate adjustments to operating parameters and reagent additions that will eventually result in the producing the quantity and quality of precious metal concentrates that we predicted in our engineering studies.  The same studies that were the basis or our investment decisions. 

Can you outline your strategy moving forward and say how you differ from others in the field?
We will use the fourth quarter to complete commissioning the plant and will gradually ramp up production to meet the design capacity and production quality we predicted.  We expect to be at this level by the first quarter of next year.  Our goal for Escobal and the company is to product 20 million ounces of silver annually and we expect to meet this goal in 2014, our first full year of production.  The high grade nature of the Escobal deposit coupled with the extraordinary width of the veins, great infrastructure in the area around the mine, the quality employees we have been able to attract and the strong community and government support that we have experienced allows Escobal to be a very low cost producer and generate very large cash flow.  Our intention is to return a significant portion of this cash flow to our shareholders.  We believe Escobal provides a unique opportunity as a platform for growth as well through both exploration upside and cash for tip of the iceberg acquisitions.  Our goal is to be the best dividend payer in the space and at the same time create long-term shareholder value through increased share price.  

Tell us more about your Escobal project and Guatemala’s mining industry?
Escobal is located approximately 1.5 hours East of Guatemala City via paved national highways.  The project is located approximately two kilometers from San Rafael las Flores, a small farming community of approximately 3,500 people.  We do not have a camp, our employees and managers live in San Rafael and are a part of the community. We have approximately 800 employees and 770 of them are Guatemalans, most from the region near the mine.  Only a handful of these people have previous mining experience and their training has gone quite well.

I truly believe our underground miners are as safe and proficient as underground miners anywhere in the world.  We are currently training our process plant employees and I expect to achieve the same results as we have with the underground miners.

The mine is an underground operation utilizing long-hole mining methods and paste backfill to refill the voids left from ore extraction. The process plant uses differential flotation to separate the precious metals, lead, and zinc into two precious metal concentrates.  The remaining material is referred to as tailings.  Approximately 50% will be mixed with cement and used to fill the voids underground.  The remaining 50% will be place on the surface and compacted for stability and to limit rain from infiltrating.  The mining method and concentration process including the placement of the tailings is extremely friendly to the environment and the Escobal ore body chemical makeup is also very environmentally friendly.  This allows us to operate Escobal with a minimum of impacts to the environment and community which we are a part of.

Mining is relatively new to Guatemala.  There is one producing precious metal mine, the Marlin Mine, and several other properties that are in exploration or development.  Escobal will be the second significant producer in the country.  We really are building the mining culture in the country. 

Once you reach commercial production where will this position Tahoe Resources in terms of global sliver producers?
In terms of annual production of silver, Tahoe will be the fifth largest producer in the world.  We would expect that once we meet our goals for dividend and share price appreciation, we would be considered to be a comparable investment opportunity to companies like Silver Wheaton (TSX: T.SLW, Stock Forum) and Fresnillo (OTC Markets: FNLPF, Stock Forum).

Some of your peers in the area have had to change their mine plans by high grading and lowering their CapEx, what are the key challenges you are facing in this current market?
The high grade, highly productive, low cost nature of the Escobal deposit will allow Tahoe to operate profitably in almost any conceivable silver price environment.  This is the real benefit of being one of the lowest cost producers in the industry.  Our biggest challenge is staying focused on achieving our near term goals for cash flow and returns to our shareholders.  After that we can begin to look at the tip of the iceberg opportunities available both currently in our portfolio and outside of Guatemala.   Rest assured however, we are committed to not increasing our share count so growth will come through cash flow from Escobal and reasonable leverage.  Increasing cash flow per share will be a requirement of any growth opportunity.

What kind of experience do you bring to the table?
I am a mining engineer with over 30 years of mine operating experience primarily in underground metal mines. Prior to joining Tahoe, I was the Senior Vice President, Operations, and the General Manager of several underground mines for Hecla Mining Company (NYSE: HL, Stock Forum) and was the Vice President, Operations with Stillwater Mining Company (TSX: T.SWC.U, Stock Forum). I am a graduate of the Colorado School of Mines.

Tahoe is a team of experienced mine builders and operators.  Our CEO, VP Exploration, and CFO all have more than 30 years’ experience each in the mining business.  Our operating team is led by four senior people with over 30 years of experience including underground mine and plant construction and operations in Latin America.  Kevin McArthur, our CEO, is also a mining engineer and led Glamis Gold through its incredible run from a junior mining company to its merger with Goldcorp (TSX:T.G, Stock Forum) building five mines in five years and building excellent shareholder value along the way. 

Why should investors be thinking about investing in Tahoe Resources now?
Over the next few months, Tahoe will transition from a development company to a producing company that will be generating some of the best cash flow per share in the industry.  Tahoe has established a very strong record of meeting our goals and our commitments to our shareholders.  We are committed to continuing that record and as such we expect begin to deliver dividends and long-term shareholder value early in 2014.  This is as important to us as it is to our shareholders because we are shareholders of the company.

What are the key goals for the remainder of 2013 and into 2014?
Our goals are quite simple and quite focused.  We will complete the commissioning and start-up of Escobal during the 4th quarter of 2013 and we will produce 20 million ounces of silver in 2014.  We also expect to put a dividend policy in place in the first half of 2014 and begin to deliver on several other commitments to our stakeholder including paying significant taxes to Guatemala as well as royalties to the national, regional, and local governments in the country. 

Ron Clayton
Mr. Clayton is a seasoned executive with over 30 years of mine operating experience primarily in underground metal mines. Prior to joining Tahoe, Mr. Clayton was Senior Vice President, Operations, and the General Manager of several underground mines for Hecla Mining Company. He was also Vice President, Operations with Stillwater Mining Company. In addition, Mr. Clayton has held a number of engineering and operations management positions with the Climax Molybdenum Company and Homestake Mining Company. Mr. Clayton earned his Bachelor of Science Degree in Mining Engineering from the Colorado School of Mines.
Disclosure: Tahoe Resources Inc. is a Stockhouse client.


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