Mr. Ron Clayton reports
TAHOE ACHIEVES RECORD PRODUCTION AND CASH FLOW PER SHARE IN 2016
Tahoe Resources Inc. has rleased financial and operating results for the fourth quarter and full year 2016. Full-year 2016 results include strong operating performances from both the silver and gold businesses, record cash flow per share and improved balance sheet strength, with cash and cash equivalents of $163.4 million at year end. Q4 2016 earnings declined from the prior quarter largely reflecting lower revenue, the impact of a non-cash, non-recurring deferred tax charge related to an increase in tax rates in Peru and increased expenses. Key performance areas are reviewed below.
Q4 2016
Record gold production highlights strong operating results in Q4 2016 {A –} The Company achieved record quarterly gold production of 119.9 thousand ounces in Q4 2016, with silver production totaling 4.8 million ounces. Total cash costs and AISC averaged $594 and $945, respectively, per gold ounce, and $6.48 and $9.76, respectively per ounce of silver in Q4 2016.
Q4 2016 earnings include non-cash, non-recurring tax charge {A –} Earnings in Q4 2016 were $0.3 million or $0.00 per share, while adjusted earnings for the quarter were $18.4 million or $0.06 per share. The $0.06 per share difference between earnings and adjusted earnings was due to a $19.3 million or $0.06 per share non-cash, non-recurring deferred tax expense related to an increase in the statutory tax rate in Peru to 29.5% as of January 1, 2017.
Q4 2016 adjusted earnings and cash flows impacted by weaker realized metal prices and higher expenses
Cash flow provided by operating activities before changes in working capital in Q4 2016 totaled $74.7 million or $0.24 per share, a reduction of 40% from the previous quarter ("Q3 2016") on a per-share basis. The $18.4 million or $0.06 per share of adjusted earnings in Q4 2016 were $47.3 million or $0.15 per share lower than the prior quarter. Of the after-tax $0.15 reduction in adjusted earnings, approximately two-thirds or $0.10 per share relates to a $45.3 million or 19% decrease in revenue resulting from lower metal prices and sales. Approximately 70% of the reduction in revenue is due to lower prices, with the largest impact being a $6.19 per ounce or 30% decrease in the average realized silver price in Q4 2016 to $14.45 per ounce. The average realized price was 16% below the average spot price of $17.19 per ounce, reflecting negative pricing adjustments on provisionally priced silver ounces and final settlements. Contributing approximately 30% of the reduction in revenue were lower gold and silver sales, reflecting timing differences between production, final settlements and the shipment of inventories. Higher depreciation, royalty, exploration and general and administrative expenses accounted for the remainder of the reduction from the prior quarter.(See Endote)
2016
Record silver production and per ounce costs {A –} Total silver production in 2016 was a record 21.3 million ounces, which beat the Company's guidance for the year. Total cash costs and AISC per ounce of silver produced, net of byproduct credits, were also a record and included total cash costs of $5.84 and AISC of $8.06. Both total cash costs and AISC achieved the Company's improved guidance that was announced in August 2016.
Strong growth in gold production {A –} Record gold production of 385.1 thousand ounces in 2016 achieved guidance and more than doubled from 2015. The strong production growth reflected the acquisition of Lake Shore Gold on April 1, 2016, the achievement of commercial production at the Shahuindo mine in Peru (at 10,000 tonnes per day) on May 1, 2016 and a full year of results at the La Arena mine in 2016, after it was acquired with Shahuindo in April 2015. Total cash costs and AISC per ounce of gold produced in 2016 of $620 and $943, respectively, were below their respective target ranges for the year.
Record cash flow per share highlights strong 2016 financial results
Cash flow provided by operating activities before changes in working capital totaled a record $385.9 million or $1.33 per share in 2016, an increase of 22% from 2015 on a per-share basis. Adjusted earnings were $180.4 million or $0.62 per share versus $98.9 million or $0.48 per share the prior year. Strong growth in cash flow and adjusted earnings in 2016 largely resulted from a 51% increase in revenue, to a record $784.5 million, and lower per ounce operating costs at Escobal. Earnings of $117.9 million or $0.41 per share were lower than adjusted earnings largely due to non-cash, non-recurring deferred tax expense related to an increase in tax rates in Peru, a non-cash, non-recurring loss on redemption of debentures and acquisition costs related to the Lake Shore Gold transaction.
Industry-leading dividend $69.4 million was paid to shareholders in dividends in 2016.
Positive results from 2016 exploration programs in Peru and Canada
{A –} Exploration results in 2016 succeeded in identifying new near-pit, sandstone-hosted oxide zones as well as three large mineralized district targets at Shahuindo and extended mineralization at and around the Timmins West and Bell Creek mines in Canada. The exploration results highlight the potential to extend mine life and grow production in both countries. (See press release entitled, "Tahoe Resources Reports 2016 Exploration Results," dated January 9, 2017.)
New guidance highlights strong near-term growth in low-cost gold production {A –} New three-year guidance includes growth to over 500,000 ounces of gold production in 2019, with capital requirements and AISC to peak in 2017 before declining over the next two years. Both of the Company's two key growth projects, expanding Shahuindo to 36,000 tonnes per day and the deepening of the Bell Creek shaft, are on track for completion in mid-2018. With their completion, annual sustaining capital expenditures are expected to decline to between $100 and $125 million, with project capital being reduced to $10 million or less (assuming no new projects) and AISC per ounce of gold improving to below $1,000.
Ron Clayton, President and CEO of Tahoe, commented: "For the third consecutive year, our team met, and in some cases exceeded, our annual production and cost guidance. Escobal achieved record silver production, total cash costs and AISC, and once again demonstrated why it is one of the world's finest and most responsible silver producers. In our gold business, our operating cost performance was outstanding, which is very satisfying when you consider there are major capital projects ongoing at two of our mines. In Q4 2016, our Canadian operations had their best quarter since being acquired in April 2016. Financial results for the quarter were impacted by declining metal prices and non-cash, non-recurring items. I am pleased to say that we have seen an improvement in metal prices since the beginning of 2017.
"Looking ahead, we recently received the construction permit for the first crushing and agglomeration circuit at Shahuindo and, through an optimization review, have confirmed that recovery rates of at least 80% can be achieved at the mine through crushing and agglomeration to a capacity of 36,000 tonnes per day. Through the review, we have also identified opportunities to achieve slight reductions in capital and operating cost. With our plans at Shahuindo in place, we are in a position to release multi-year guidance for capital expenditures, as well as production and costs. Our new three-year guidance provides a clear road map for growing to over a half million ounces of gold production in 2019 with low capital requirements and operating costs. At that point, we will be well positioned to generate substantial amounts of free cash flow at anything close to current spot prices and to achieve our stated goal of 550,000 ounces of gold production by 2020."
Performance Against 2016 Guidance
In 2016, the Company achieved all of its full-year production, cost and expenditure guidance. Performance exceeded target levels in such areas as silver production as well as total cash costs and AISC per ounce of gold produced.
$ millions unless otherwise indicated 2016 Guidance2016 Performance
2016 Silver Production (moz) 18 - 21 21.3
2016 Gold Production (koz) 370 - 430 385.1
Total cash cost per silver oz produced ($/oz)(2)(3)(4)(5)(6)$5.50 - $6.50 $5.84
AISC per silver oz produced ($/oz)(2)(3)(4)(5) $8.00 - $9.00 $8.06
Total cash cost per gold oz produced ($/oz) $675 - $725 $620
AISC per gold oz produced ($/oz) $950 - $1000 $943
Sustaining capital (incl. capitalized drilling) $115 - $135 $118
Project capital $80 - $105 $93
Exploration expense $15 - $20 $14.4
Corporate G&A $45 - $50 $47.5
(1)See "Forward-Looking Statements" and "Cautionary Note on Non-GAAP Financial Measures"
at the end of this press release.
(2)Assumes the following metals prices: $1,300/oz gold; $1,984/tonne lead; $1,984/tonne zinc.
(3)Total cash costs and AISC are presented net of by-product credits.
(4)Assumes payable by-product metal production:
10,154 oz gold; 8,870 tonnes lead; 11,844 tonnes zinc.
(5)By-product credits per ounce of silver: gold $0.63; lead $0.84; zinc $1.13; total $2.60.
(6)All per ounce costs are based on silver ounces
contained in concentrates (silver) and gold ounces in dore (gold).
(7)2016 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.
(8)Corporate G&A includes non-cash, stock-based compensation.
(9)Numbers may not add due to rounding.
Expanded 2017 Guidance
Capital expenditures in 2017 are expected to increase from 2016, mainly reflecting peak investment levels for the expansion of Shahuindo and the Bell Creek shaft project. Higher total cash costs and AISC for gold largely result from higher production from Shahuindo, where expansion work will continue throughout 2017, with expenditures related to further development of leach pads, waste dumps and other infrastructure being included in sustaining rather than growth capital and therefore AISC. Production at Shahuindo in 2017 is expected to be weighted to the second half of the year, with the commissioning of the first crushing and agglomeration circuit expected during the third quarter. Production, total cash costs and AISC for silver are similar to the guidance initially released for 2016 in January of last year.
Three-Year Guidance
As outlined below, the Company is on track to achieve over a half million ounces of annual gold production in 2019. At that time, sustaining capital expenditures are targeted at between $100 and $125 million per year, growth expenditures at $10 million or less (assuming no new projects are undertaken) and AISC per ounce of gold produced at between $900 and $1,000.
$ millions unless otherwise indicated 2017 2018 2019
Silver production (mozs) 18-21 18-21 18-21
Gold production (kozs) 375-425 425-500 500-550
Total cash costs per silver oz produced(2)(3)(8) $7.00-$8.00 $7.50-$8.50 $7.50-$8.50
AISC per silver oz produced(2)(3)(8) $9.50-$10.50$10.00-$11.00$10.00-$11.00
Total cash costs per gold oz produced $700-$750 $650-$750 $650-$750
AISC per gold oz produced $1,150-$1,250$1,050-$1,150 $900-$1,000
Sustaining capital $160-$175 $140-$160 $100-$125
Project capital $150-$175 $50-$70 $0-$10
Exploration expenses $35-$45 $30-$40 $30-$40
Corporate G&A expenses $45-$55 $45-$55 $45-$55
1) See "Cautionary Statement on Forward-Looking Information" in the Company's MD&A
dated March 9, 2017 and "Non-GAAP Financial Measures" in the press release dated
January 5, 2017 available at www.sedar.com.
(2) Assumes the following metals prices: $1,250/oz gold; $0.90/lb lead; $0.90/lb zinc.
(3) Assumes payable by-product metal production for 2018 of 9,610 ozs gold; 14,011
thousand lbs lead; 19,900 thousand lbs zinc and for 2019 of 11,810 ozs gold; 17,280
thousand lbs lead; 23,900 thousand lbs zinc.
(4) All per ounce costs are based on silver ounces contained in concentrates (silver)
and gold ounces in dore (gold) and are net of byproduct credits.
(5) Guidance does not include inflation adjustments.
(6) The following foreign exchange rates were used: CAD/USD - $1.25; Peruvian Nuevo Sol -- 3.40;
Guatemalan Quetzal {A –} 7.65.
(7) Gold production includes gold produced at Escobal.
(8) Silver cost guidance assumes a 1% statutory royalty
and a 4.5% voluntary and private royalty on all silver sales above $16.00/oz.
Mineral Reserves and Mineral Resources
Updated mineral reserves and resources effective January 1, 2017 were issued today for all of the Company's operating units in Guatemala, Peru and Canada. A summary of mineral reserves and mineral resources is provided later in this press release.
At Escobal, Proven and Probable silver reserves at January 1, 2017 total 268 million ounces at an average grade of 351 grams per tonne ("gpt") as compared to 310 million ounces at an average grade of 332 gpt at January 1, 2016. The change reflects 2016 production of 21.2 million ounces and the removal of 21.7 million ounces from the Mineral Reserves as a result of a lowering the silver price used in calculating reserves to $20.00 per ounce from $22.50 in the previous estimate.
Proven and Probable Mineral Reserves for the La Arena oxide mine now stand at 54.1 million tonnes at an average gold grade of 0.41 gpt containing 715 thousand ounces of gold as compared to January 1, 2016 reserves of 80.3 million tonnes at an average gold grade of 0.36 g/t containing 919 thousand ounces of gold. The change in gold reserves represents 2016 mining depletion of 244 thousand ounces of gold plus an addition of 40 thousand ounces of gold that resulted from upgrading inferred resources.
Proven and Probable Mineral Reserves for the Shahuindo oxide mine total 110.3 million tonnes at an average gold grade of 0.52 gpt containing 1.9 million ounces of gold as compared to the January 1, 2016 reserves of 111.9 million tonnes at an average gold grade of 0.53 gpt containing 1.9 million ounces of gold. The change in gold reserves represents 2016 mining depletion of 88 thousand ounces of gold plus the addition of 41 thousand ounces of gold that were previously categorized as inferred resources.
At the Timmins West Mine, Indicated Mineral Resources increased from 903 thousand ounces of gold at January 1, 2016 to 1.0 million ounces at January 1, 2017, primarily due to the conversion of inferred resources at the 144 Gap deposit to indicated resources. Probable Mineral Reserves at Timmins West declined from 392 thousand ounces of gold at an average grade of 4.2 gpt at January 1, 2016 to 233 thousand ounces of gold at an average grade of 3.7 gpt at January 1, 2017 due to mining depletion of 120 thousand ounces of gold and the loss of 38 thousand ounces of gold that resulted from resource model reinterpretation. The Company expects a significant growth in reserves with the expected the release of the initial mineral reserve for the 144 Gap scheduled for the third quarter of 2017.
Proven and Probable Mineral Reserves for the Bell Creek mine at January 1, 2017 total 245 thousand ounces of gold at an average grade of 4.4 gpt as compared to 309 thousand ounces of gold at and average grade of 4.5 gpt at January 1, 2016. The change in gold reserves is attributable to 2016 production of 44 thousand ounces of gold and the loss of 21 thousand ounces of gold due to resource model reinterpretation.
In addition, the Company's 2016 exploration program identified new zones and/or extensions to mineralization at Shahuindo, the Timmins West mine and Bell Creek mine. Drilling programs are planned for 2017 in support of establishing mineral resources at these new areas of mineralization.
La Arena Phase II Sulfide Project moves to Preliminary Economic Assessment ("PEA")
Based on positive results from an internal scoping study, the Company has commissioned M3 Engineering & Technology to complete a NI 43-101 PEA on the La Arena Phase II Sulfide Project, a large-tonnage copper-gold porphyry deposit at the La Arena mine in Peru. The PEA is targeted for completion in Q3 2017. The Company plans to host and webcast an investor day for analysts and fund managers on September 14, 2017 to coincide with the completion of the PEA.
Tahoe to Appeal Court Ruling
On January 26, 2017, the Court of Appeal for British Columbia ruled that a legal action filed by claimants from Guatemala against the Company in June 2014 can be heard in the British Columbia court system. The ruling overturned an earlier decision by the Supreme Court of British Columbia declining jurisdiction on the grounds that Guatemala was the more appropriate forum to adjudicate the claims. While the ultimate result of the action is not expected to have a material financial impact on the Company, it believes that it could have negative industry-wide implications. As such, Tahoe intends to seek leave to appeal the decision to the Supreme Court of Canada.
Conference Call
Tahoe's senior management will host a conference call and webcast to discuss the fourth quarter and full-year 2016 results on Friday, March 10, 2017
10:00 a.m. ET (7:00 a.m. PT). To join the call please dial 1-800-319-4610 (toll free from Canada and the U.S.) or +1-604-638-5340 (from outside Canada and the U.S.). The webcast will be available on the Company's website at www.tahoeresources.com, as will a recording of the call later in the day.
Complete financial results as well as the Company's management discussion and analysis and other filings will be filed on SEDAR (www.sedar.com) and on the Company's website.
About Tahoe Resources Inc.
Tahoe's strategy is to responsibly operate mines to world standards, to pay significant shareholder dividends and to develop high quality precious metals assets in the Americas. Tahoe is a member of the S&P/TSX Composite and TSX Global Mining indices and the Russell 3000 on the NYSE. The Company is listed on the TSX as THO and on the NYSE as TAHO.
Qualified Person Statement
Technical information in this press release has been approved by Charlie Muerhoff, Vice President Technical Services, Tahoe Resources Inc., a Qualified Person as defined by NI 43-101.
Additional Operating and Financial Information
A detailed review of operating and financial results for each of the Company's mines for the fourth quarter and full-year 2016 is provided in the management's discussion & analysis starting on page 23.
SELECTED CONSOLIDATED FINANCIAL RESULTS 2016(1)(2) 2015(1) 2014(1)
Metal Sold
Silver (000's ozs) 19,065 20,210 18,160
Gold (000's ozs)(8) 358.2 183.7 8.4
Lead (000's t) 9.0 9.8 9.1
Zinc (000's t) 12.3 13.3 10.7
Realized Price
Silver in concentrate (per oz) $ 17.57$ 15.15$ 18.13
Gold in dore (per oz) $ 1,245$ 1,126$ -
Lead (per t) $ 1,886$ 1,854$ 2,053
Zinc (per t) $ 2,268$ 1,800$ 2,220
LBMA/LME Price (3)
Silver (per oz) $ 17.14$ 15.68$ 19.08
Gold (per oz) $ 1,250$ 1,160$ 1,266
Lead (per t) $ 1,872$ 1,784$ 2,096
Zinc (per t) $ 2,095$ 1,928$ 2,164
Revenues $ 784,503$ 519,721$350,265
Earnings (loss) from operations $ 242,268$ (79,552)$123,272
Earnings (loss) attributable to common shareholders (9) $ 117,876$ (71,911)$ 90,790
Earnings (loss) per common share
Basic $ 0.41$ (0.35)$ 0.62
Diluted $ 0.41$ (0.35)$ 0.61
Adjusted earnings (4) $ 180,385$ 98,910$ 91,696
Adjusted earnings per common share (4)
Basic $ 0.62$ 0.48$ 0.62
Diluted $ 0.62$ 0.48$ 0.62
Dividends paid $ 69,402$ 49,717$ 2,953
Cash flow provided by operating activities before changes in working capital$ 385,926$ 226,332$173,230
Cash flow provided by operating activities $ 249,454$ 166,744$119,322
Cash and cash equivalents $ 163,368$ 108,667$ 80,356
Total assets $ 3,071,253$2,002,461$975,628
Total long-term liabilities $ 348,663$ 187,550$ 5,693
Costs per silver ounce produced
Total cash costs net of by-product credits(4)(5) $ 5.84$ 6.16$ 6.37
All-in sustaining costs per silver ounce net of by-product credits(4)(7) $ 8.06$ 9.11$ 9.15
Costs per gold ounce produced
Total cash costs net of by-product credits(4) $ 620$ 551$ -
All-in sustaining costs per gold ounce net of by-product credits(4)(6) $ 943$ 733$ -
(1) Comparative 2015 numbers exclude operational and financial information from the Timmins mines.
Comparative numbers for 2014 exclude operational and financial information from the Timmins mines,
La Arena and Shahuindo.
(2) 2016 numbers include operational/financial information from the Timmins mines beginning April 1,
2016, the date of acquisition of Lake Shore Gold and operational/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-GAAP Financial Measures" section of the Company's MD&A dated March 9, 2017.
(5) Total cash costs net of by-product credits per silver ounce produced for 2015 include $7.2 million
in royalty expense from 2014 sales that settled in 2015 at the increased royalty rate of 10%.
This resulted in a per ounce impact of $0.36 for 2015. This impact was offset during Q4 2015 due
to a $16.2 million reversal of the increased 10% royalty regime resulting in a positive impact of
$0.80 per ounce for 2015.
(6) AISC per gold ounce produced for 2016 exclude $11.1 million in non-recurring transaction costs
related to the acquisition of Lake Shore Gold.
(7) AISC per silver ounce produced for 2015 exclude $7.2 million 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. Pre-commercial production revenues at
Shahuindo are considered pre-operating revenues and are credited against construction capital
through April 30, 2016. Included in the 358.2 thousand gold ounces sold for 2016 are 44.3 thousand
gold ounces sold at Shahuindo which include four months of pre-commercial production ounces sold
(7.6 thousand ounces of gold in dore sold in the period January through April 2016).
(9) Earnings of $112.8 million for 2016 were impacted by the result of a change in enacted tax
rates in Peru for $19.3 million, a non-cash loss on the redemption of debentures of $32.3 million
and non-recurring transaction costs of $11.1 million related to the acquisition of Lake Shore Gold.
Refer to the Company's adjusted earnings described and calculated in the "Non-GAAP Financial Measures"
section of the Company's MD&A.
(10)Numbers may not calculate due to rounding.
We seek Safe Harbor.
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