Mr. Ron Clayton reports
TAHOE RESOURCES REPORTS THIRD QUARTER RESULTS
Tahoe Resources Inc. has released strong financial and operating results for the third quarter and first nine months of 2016, and had record nine-month silver and gold production, as well as cash flow per share. Based on results to the end of September, the company is well positioned to achieve its full year 2016 production and cost guidance.
(Amounts are in U.S. dollars.)
Highlights of the third quarter and nine-month 2016 results include:
- Cash flow provided by operating activities before changes in working capital of $126.0-million and $311.3-million for third quarter 2016 and third quarter year-to-date 2016, respectively, representing 40 cents per share in third quarter 2016 and a record $1.10 per share in third quarter year-to-date 2016;
- Record quarter and nine-month revenue of $234.7-million in third quarter 2016 and $595.1-million in third quarter year-to-date 2016;
- Net earnings of $63.0-million or 20 cents per share (basic and diluted) in third quarter 2016 and $117.6-million or 42 cents per share (basic and diluted) in third quarter year-to-date 2016;
- Adjusted earnings (1) of $65.7-million or 21 cents per share (basic and diluted) in third quarter 2016 and a record $162.0-million or 57 cents per share (basic and diluted) in third quarter year-to-date 2016;
- Record nine-month production of 16.4 million ounces silver and 265,146 ounces gold;
- Third quarter 2016 production totalling 5.0 million ounces silver and 98,419 ounces gold;
- Total cash costs per ounce (1) (2) of silver and gold of $6.50 and $625, respectively, in third quarter 2016 and $5.66 and $632, respectively, in third quarter year-to-date 2016;
- All-in sustaining costs per ounce (1) (2) (AISC) of silver and gold of $8.68 and $974, respectively, in third quarter 2016 and $7.55 and $979, respectively, in third quarter year-to-date 2016;
- Dividends of $18.7-million and $50.7-million paid to shareholders in third quarter 2016 and third quarter year-to-date 2016, respectively;
- Dividend reinvestment plan implemented, effective October, 2016;
- Total cash and cash equivalents at Sept. 30, 2016, of $142.4-million.
(1) Example of a non-generally accepted accounting principle measure.
(2) Reported net of byproduct credits.
Ron Clayton, Tahoe's president and chief executive officer, commented: "We are well on the way to a record year in 2016, including achieving our key production and cost guidance. Escobal is having an outstanding year with both production and unit costs running at or better than expected levels. Driven by our strong results at Escobal, we are on track to pay over $35-million in royalties and taxes in Guatemala in 2016, in addition to paying approximately $20-million in wages and benefits and making significant direct investments in support of nutritional programs, education, skills training, agriculture and infrastructure development in the communities surrounding the mine. We have over 1,000 employees at Escobal, 97 per cent of whom are Guatemalan. We very much appreciate the efforts of our employees and the strong support we receive from the surrounding community.
"Turning to gold, our Bell Creek shaft project is off to an excellent start, having commenced the first vertical raise near the end of the third quarter. The shaft project is a key component of our growth program, which will add about 40,000 ounces of new production annually starting in 2018. Looking at third quarter 2016 gold production, we were adversely affected by drought conditions at Shahuindo during the quarter and delayed development at the Timmins mines. These issues have been resolved, and we expect to return to planned production levels in the fourth quarter. Full-year gold production is estimated to be within our guidance range of 370,000 to 430,000 ounces.
"Looking at our financial position, our record cash flow per share and strong balance sheet position us to fund our near-term growth internally, while also sustaining one of the industry's most attractive dividends."
Guidance for 2016
At Sept. 30, 2016, the company was well positioned to achieve its full year production, cost and expenditure guidance for 2016. The company's guidance and related third quarter year-to-date 2016 performance are summarized in the attached guidance and performance table.
GUIDANCE AND PERFORMANCE
($ millions unless otherwise indicated)
Guidance for 2016 Q3 YTD actual
Silver production in 2016 (Moz) 18-21 16.4
Gold production in 2016 (Koz) 370-430 265
Total cash cost per silver oz produced ($) $5.50-$6.50 $5.66
AISC per silver oz produced ($) $8.00-$9.00 $7.55
Total cash cost per gold oz ($) $675-$725 $632
AISC per gold oz produced ($) $950-$1,000 $979
Sustaining capital (incl. capitalized exploration) $115-$135 $79.9
Project capital $80-$105 $72.0
Exploration expense $15-$20 $7.5
Corporate G&A $45-$50 $38.0
1. Assumes the following metal prices: $1,300 per ounce gold, $1,984 per tonne
lead and $1,984 per tonne zinc.
2. Assumes payable byproduct metal production: 10,154 ounces gold, 8,870
tonnes lead and 11,844 tonnes zinc.
3. Byproduct credits per ounce of silver: gold 63 cents, lead 84 cents, zinc
$1.13 and total $2.60.
4. All per-ounce costs are based on silver ounces contained in concentrates
(silver) and gold ounces in dore (gold).
5. Two thousand sixteen guidance figures presented for the Escobal, La Arena
and Shahuindo mines are based on a full year of production, while figures
for the Timmins mines include nine months of production based on the April 1,
2016, date of acquisition of Lake Shore Gold.
6. Corporate general and administrative include non-cash, stock-based
compensation.
7. Numbers may not add due to rounding.
Review of operations
Silver operations
Escobal
Average mill throughput at the Escobal mine during third quarter 2016 was 4,472 tonnes per day at an average silver head grade of 444 grams per tonne compared with average mill throughput of 4,446 tpd at an average silver head grade of 508 gpt in the third quarter of 2015. The mine produced metal concentrates containing 5.0 million ounces of silver, 2,314 ounces of gold, 2,017 tonnes of lead and 2,974 tonnes of zinc during third quarter 2016 compared with 5.8 million ounces of silver, 3,744 ounces of gold, 2,862 tonnes of lead and 4,033 tonnes of zinc for the same period in 2015. The average silver recovery to concentrates was 84.8 per cent versus 87.1 per cent in third quarter 2015, with the reduction reflecting lower grades and the introduction of ore from the East zone to the process plant.
During third quarter 2016, 5,072 dry metric tonnes (dmt) of lead concentrate and 5,845 dry metric tonnes of zinc concentrate containing approximately 4.8 million payable ounces of silver were shipped and sold to third party smelters compared with 6,687 dmt of lead concentrate and 6,113 dmt of zinc concentrate containing approximately 5.5 million payable ounces of silver shipped and sold during third quarter 2015. Concentrate sales during the quarter generated $103.5-million in revenues at mine operating costs of $47.7-million resulting in mine operating earnings of $55.8-million. Concentrate sales for third quarter 2015 generated $82.6-million in revenues at operating costs of $60.0-million resulting in a mine operating earnings of $22.6-million. Cost and productivity improvements in the mine and mill, coupled with favourable diesel fuel prices, continue to drive low production costs. Every 10-per-cent change in the price of diesel fuel impacts Escobal's total cash costs and AISC by approximately 10 cents per ounce. The average price of diesel fuel used in power generation in third quarter year-to-date 2016 was approximately $2 per gallon compared with an assumed price of $2.60 per gallon used for the company's original 2016 cost guidance.
Total cash costs for third quarter 2016 were $6.50 per silver ounce, an improvement of 25 cents per ounce or 4 per cent compared with third quarter 2015. The reduction reflected lower enacted statutory royalty rates and cost-efficiencies and operating efficiencies achieved in the mine, offset by the impact of lower planned grades. AISC was $8.68 per ounce in third quarter 2016, an improvement of $1.04 per ounce or 11 per cent, with lower cash costs and the timing of capital expenditures largely accounting for the reduction.
A total of 2,222 metres of development were completed during third quarter 2016, with the majority of production coming from primary and secondary transverse long-hole stopes in the Central zone. Production continued in the East zone with approximately 70,000 tonnes of ore brought to surface during the quarter.
Gold operations
La Arena
A total of 3.4 million tonnes of ore at an average grade of 0.53 gpt were placed on the leach pad during third quarter 2016 compared with 3.3 million tonnes at an average gold grade of 0.63 gpt during third quarter 2015. Ore tonnes mined totalled 3.8 million tonnes at a strip ratio of 2.22 compared with 3.2 million tonnes of ore mined at a strip ratio of 1.83 in third quarter 2015.
There were 48,516 gold ounces produced in dore and 56,579 gold ounces sold during third quarter 2016 compared with 57,415 gold ounces produced in dore and 57,053 gold ounces sold in third quarter 2015. Production during third quarter 2016 and third quarter year-to-date 2016 benefited from positive grade reconciliations. Gold sales during third quarter 2016 generated $64.0-million in revenue at mine operating costs of $32.8-million resulting in mine operating earnings of $31.2-million. Third quarter 2015 gold sales generated $63.2-million in revenues at mine operating costs of $45.6-million resulting in mine operating earnings of $17.6-million.
Total cash costs per ounce of gold produced, net of byproduct credits, averaged $593 in third quarter 2016, an increase of $45 per ounce or 8 per cent compared with third quarter 2015. The increase resulted from planned lower grades based on the current mine plan. AISC for third quarter 2016 averaged $864 per ounce, an increase of $135 per ounce or 19 per cent compared with the same period in 2015, reflecting lower grades and increased capital expenditures.
Sustaining capital projects during third quarter 2016 included planned extensions to the leach pad phase 4A3 and the waste dump phases 3B and 4B.
Shahuindo
Commercial production commenced at Shahuindo, effective May 1, 2016. The mine's third quarter 2016 production, unit costs and profitability were affected by severe drought conditions experienced in north-central Peru beginning in the second quarter of 2016. As a result, the irrigation area on the leach pad was temporarily reduced during second quarter 2016 due to a decrease in the availability of process water. Successful efforts to increase the permanent water supply during third quarter 2016 have allowed the area under irrigation to return to planned levels. Run-of-mine ore continued to be placed on the leach pads at planned rates during the third quarter, which increased gold inventories in the heap to levels higher than anticipated. The company expects to lower heap inventory and increase gold production over the next several quarters as a result of increased water availability and operating improvements.
Gold produced in dore during third quarter 2016 totalled 10,099 gold ounces. A total of 700,000 tonnes were placed on pads during third quarter 2016 at an average grade of 0.80 gpt gold. A total of 1.5 million tonnes of ore were mined during third quarter 2016 at a strip ratio of 0.64.
Gold sales during third quarter 2016 totalled 7,040 ounces, which generated revenue of $9.6-million at mine operating costs of $8.1-million, resulting in mine operating earnings of $1.5-million.
Total cash costs, net of byproduct credits, for third quarter 2016, were $742 per ounce, while AISC was $990 per ounce. Costs were impacted by lower-than-anticipated recoveries, as well as lower tonnage available for leaching due to the drought conditions.
Capital projects during third quarter 2016 included construction of the second leach pad, which advanced to 86-per-cent completion with 10.7 hectares of liner placed by the end of the quarter. The solution canal, connecting pad 2A to the existing pad, was completed in third quarter 2016. Construction of the life-of-mine waste dump facility and leach-pad platform was in progress at quarter-end.
Engineering for the 12,000 tpd crushing and agglomeration circuit has been completed, and equipment fabrication and procurement are in progress, with initial equipment delivery scheduled for fourth quarter 2016. Site layout definition, earthworks and civil works engineering are nearing completion. Commissioning of the circuit, originally scheduled for March, 2017, is now expected in third quarter 2017 primarily due to permitting delays. The company expects to complete the permitting process during first quarter 2017 and is actively pursuing options to accelerate this timeline. Based on improved run-of-mine leaching results to date, management is now reassessing the need to construct an additional 24,000 tpd crushing and agglomeration circuit to achieve total production of 36,000 tpd.
Timmins mines
The company's Timmins mines (includes the Timmins West and Bell Creek mining operations) processed a total of 302,579 tonnes during third quarter 2016 at an average grade of 3.99 gpt and an average recovery rate of 96.6 per cent for a total of 37,490 recovered gold ounces. A total of 35,473 ounces of gold were produced in dore in third quarter 2016 while 43,421 ounces were sold. Sales during the quarter generated $57.8-million in revenues at mine operating costs of $34.6-million for mine operating earnings of $23.2-million.
Total cash costs for third quarter 2016 averaged $635 per ounce, with the increase from the previous quarter resulting from slightly lower grades as scheduled in the mine plan. AISC for third quarter 2016 was $1,112 per ounce reflecting continuing capitalized ramp and sublevel development advancements.
Underground ramp and sublevel development at both Timmins West and Bell Creek continued in support of the life-of-mine production schedules, with 5,149 metres of total development completed during third quarter 2016. At Timmins West, infrastructure development at the 144 Gap deposit advanced, including ramp, raise and lateral development to access the resource.
The Bell Creek shaft project achieved significant progress in third quarter 2016. Mobile equipment was received, and lateral development on the first two of five horizons was completed. Vertical development commenced from the 535-metre level toward the 300-metre level through a mechanized raise-climbing method. The existing, dormant hoisting plant was audited, yielding only minor deficiencies. Repairs to the plant have been completed, and the hoist is ready to support rehabilitation of the existing shaft. Engineering and procurement are progressing on schedule. Site infrastructure work has also commenced in preparation for the civil works around the new hoisting plant and electrical substation footprint.
Construction of the phase 4 North tailings facility expansion at the Bell Creek mill was completed at the end of third quarter 2016.
Subsequent to the end of the third quarter, the company signed an impact benefits agreement (IBA) relating to the company's Bell Creek mine and surrounding properties with the Mattagami, Wahgoshig, Matachewan and Flying Post first nation communities in the Timmins area of Northern Ontario. The IBA establishes a framework for continued consultation relating to the company's existing and future operations in and around Timmins and provides long-term financial benefits to the four first nation communities, as well as opportunities in such areas as new business ventures, employment, training and education.
Conference call
Tahoe's senior management will host a conference call to discuss the third quarter and first-nine-month 2016 results on Nov. 4, 2016, at
10 a.m. ET (7 a.m. PT). To join the call, please dial 1-800-319-4610 (toll-free from Canada and the United States) or 1-604-638-5340 (from outside Canada and the U.S.). A recording of the call will be available later in the day on the company's website.
Complete financial results, as well as the company's management's discussion and analysis and other filings, will be filed on SEDAR and the company's website.
Qualified person statement
Technical information in this press release has been approved by Charlie Muerhoff, vice-president, technical services, Tahoe Resources, a qualified person as defined by NI 43-101.
SELECTED CONSOLIDATED FINANCIAL RESULTS
Q3 2016 Q3 2015 (1) Q3 YTD 2016 (2) Q3 YTD 2015 (1)
Metal sold
Silver (000s ounces) 4,800 5,492 14,573 13,975
Gold (ounces) (8) 108,791 59,814 257,483 123,721
Lead (t) 1,917 2,557 6,705 6,369
Zinc (t) 2,656 2,753 9,505 8,756
Realized price
Silver in concentrate (per ounce) $20.64 $14.33 $18.54 $15.54
Gold in concentrate (per ounce) 1,374 1,104 1,366 1,134
Gold in dore (per ounce) 1,321 1,106 1,264 1,151
Lead (per t) 2,204 1,764 1,829 1,918
Zinc (per t) 2,513 1,653 2,160 1,940
LBMA/LME price (3)
Silver (per ounce) 19.61 14.91 17.12 16.01
Gold (per ounce) 1,335 1,124 1,260 1,179
Lead (per t) 1,873 1,712 1,780 1,822
Zinc (per t) 2,255 1,844 1,955 2,040
Revenues 234,721 145,736 595,105 364,830
Earnings from operations 99,425 26,118 210,802 67,421
Earnings attributable to common shareholders 63,011 13,255 117,561 35,806
Earnings per common share
Basic 0.20 0.06 0.42 0.18
Diluted 0.20 0.06 0.42 0.18
Adjusted earnings (4) 65,657 18,410 161,970 48,010
Adjusted earnings per common share (4)
Basic 0.21 0.08 0.57 0.24
Diluted 0.21 0.08 0.57 0.24
Dividends paid 18,654 13,627 50,730 36,077
Costs per silver ounce produced
Total cash costs net of byproduct credits (4) (5) 6.50 6.75 5.66 7.61
All-in sustaining costs per silver ounce
net of byproduct credits (4) (7) 8.68 9.72 7.55 10.69
Costs per gold ounce produced
Total cash costs net of byproduct credits (4) 625 548 632 544
All-in sustaining costs per gold ounce
net of byproduct credits (4) (6) 974 729 979 696
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(1) Comparative third quarter 2015 and third quarter year-to-date 2015 numbers exclude operational
and financial information from Lake Shore Gold.
(2) Third quarter year-to-date 2016 numbers include operational and financial information from the
Timmins mines, beginning April 1, 2016, the date of acquisition, and operational and financial
information from Shahuindo, beginning May 1, 2016, the commencement of commercial production.
(3) London Bullion Market Association (LBMA)/London Metal Exchange (LME) average closing prices
for each quarter presented.
(4) Refer to the non-generally accepted accounting principle financial measures section of the
company's third quarter and third quarter year-to-date 2016 management's discussion and analysis.
(5) Total cash costs net of byproduct credits per silver ounce produced for third quarter
year-to-date 2015 include $7.2-million in royalty expense from 2014 sales that settled in 2015
at the increased royalty rate of 10 per cent. This resulted in a per-ounce impact of 48 cents
for third quarter year-to-date 2015. This impact was offset during fourth quarter 2015 as a
result of a $16.2-million reversal of the increased 10-per-cent royalty regime resulting in a
positive impact of $2.94 per ounce.
(6) All-in sustaining costs net of byproduct credits per gold ounce produced for third quarter 2016
and third quarter year-to-date 2016 exclude the impact of nil and $11.0-million, respectively, in
non-recurring transaction costs related to the acquisition of Lake Shore Gold.
(7) All-in sustaining costs net of byproduct credits per silver ounce produced for third quarter
2015 and third quarter year-to-date 2015 exclude the impact of $200,000 and $5.7-million,
respectively, in non-recurring transaction costs related to the acquisition of Rio Alto.
(8) Commercial production at Shahuindo was declared on May 1, 2016. Revenues presented are generated
from the sale of gold ounces in dore beginning May 1, 2016. Precommercial production revenues at
Shahuindo are considered preoperating revenues and are credited against construction capital through
April 30, 2016. Included in the 257,483 gold ounces sold for third quarter year-to-date 2016 are
31,464 gold ounces sold at Shahuindo, which include four months of precommercial production ounces
sold (7,583 ounces of gold in dore sold in the period January through April, 2016, respectively).
We seek Safe Harbor.
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