Mr. Ron Clayton reports
TAHOE REPORTS SOLID SECOND QUARTER 2017 RESULTS; CEASES DIVIDEND AND SUSPENDS COMPANY-WIDE GUIDANCE DUE TO UNCERTAINTY IN GUATEMALA
Tahoe Resources Inc. has released 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 licence, the company has ceased dividend payments, and has suspended companywide multiyear guidance. The company's balance sheet remains strong, with cash and cash equivalents of $190.6-million at June 30, 2017.
KEY FINANCIAL AND OPERATING RESULTS
($ millions unless otherwise indicated)
Q2 2017 Q2 2016 Q2 YTD 2017 Q2 YTD 2016
Revenue $ 209.6 $ 228.3 $ 460.6 $ 360.4
Earnings and total comprehensive income 33.5 16.7 108.2 54.6
Earnings per share 0.11 0.05 0.35 0.20
Adjusted earnings (1) 33.8 57.9 108.9 93.4
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Cash provided by operating activities 115.5 53.9 212.7 96.3
Cash provided by operating activities before changes
in working capital 99.4 116.0 232.3 185.3
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Silver production (Moz) 4.1 5.7 9.8 11.4
Gold production (koz) 112 110 231 167
Total cash cost per silver oz produced ($/oz) (1) (2) 6.73 6.07 6.15 5.29
AISC per silver oz produced ($/oz) (1) (2) 10.01 8.16 8.91 7.06
Total cash cost per gold oz produced ($/oz) (1) (2) 601 647 587 645
AISC per gold oz produced ($/oz) (1) (2) 925 973 892 930
Sustaining capital (incl. capitalized drilling) 32.3 31.5 65.3 40.8
Project capital 31.3 33.5 46.8 34.6
Exploration expense 5.9 2.3 10.1 2.7
Corporate G&A (3) 11.4 22.6 23.1 30.5
(1) A non-generally accepted accounting principle financial measure.
(2) Total cash costs and all-in sustaining costs are presented
net of byproduct credits.
(3) Corporate general and administrative costs include non-cash,
stock-based compensation.
Ron Clayton, president and chief executive officer 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 licence suspension and ongoing roadblock 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 second quarter 2017
Another solid quarter at Escobal: Tahoe reported total silver production in second quarter 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: Second quarter 2017 gold production totalled 112,400 ounces, including 21,000 ounces from Shahuindo. Production and costs in second quarter 2017 reflected strong results at all of the company's mines, with total cash costs and AISC averaging $601 and $925 per ounce in second quarter 2017.
Earnings per share and cash flow driven by strong revenue and low costs: Earnings and adjusted earnings in second quarter 2017 were $33.5-million and $33.8-million, respectively, and were both 11 cents on a per-share basis. Second quarter 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 second quarter 2017 totalled $63.4-million, of which $26.2-million was related to continuing growth projects. The company continues to focus on the expansion at Shahuindo and the Bell Creek shaft project. Exploration expenditures in second quarter 2017 totalled $5.9-million and remain focused on those targets which can have near-term impact on mineral reserves or resources.
Update on Escobal mining licence: 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 licence to Tahoe's Guatemalan subsidiary, Minera San Rafael. The provisional decision follows a request by Calas to temporarily suspend the licence to operate the Escobal mine until the action is fully heard. The provisional decision suspends the Escobal mining licence 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 licence 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. The company is seeking to have the licence 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 roadblock: 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 kilometres 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 the company 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 licence is reinstated, the company expects to resume production within a week.
Cessation of dividend: The company announced the cessation of the dividend, beginning Aug. 8, 2017, due to the ruling of the Guatemalan court to provisionally suspend the Escobal mining licence. 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) enrolment 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 in cash and $800,000 in shares) in July.
Suspension of 2017 and multiyear guidance: The company has suspended previously issued 2017 and multiyear companywide guidance given the uncertainty of timing of various court decisions related to the Escobal licence. 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
at operations in Canada and Peru in 2017. The company will issue updated guidance when it has clarity on the status of the Escobal licence in Guatemala.
Amended and restated credit facility: On July 18, 2017, the company entered into an amended and restated credit 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 licence 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 licence 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 Ltd., Minera San Rafael SA, Tahoe Resources ULC, Lake Shore Gold Corp., Mexican Silver Mines Ltd., La Arena SA, 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 U.S. Securities Exchange Act of 1934, as amended, 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 companywide multiyear guidance and continuing review of capital and exploration programs, the La Arena II preliminary economic assessment has been deferred, and the investor day originally planned for Sept. 14, 2017, has been cancelled.
Mr. Clayton continued: "We are not able to reconfirm previously issued companywide 2017 and multiyear 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 licence, 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 [general and administrative expenses], 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 Sept. 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 and 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."
Conference call
Tahoe's senior management will host a conference call and webcast to discuss the second quarter 2017 results on Aug. 9, 2017, 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.). The webcast will be available on the company's website as will a recording of the call later in the day.
Complete financial results for second quarter 2017, including the company's management's discussion and analysis and other filings, will be filed on SEDAR and on the company's website. Hard copies may be requested, free of charge, by calling 775-448-5800 or by e-mailing investors@tahoeresources.com.
About Tahoe Resources Inc.
Tahoe's strategy is to responsibly operate mines to world standards and to develop high-quality precious metal 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 New York Stock Exchange.
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 National Instrument 43-101.
Selected quarterly and year-to-date consolidated financial information from continuing operations is found in the attached selected quarterly consolidated financial results
table.
SELECTED QUARTERLY CONSOLIDATED FINANCIAL RESULTS
Q2 2017 Q2 2016 (1) Q2 YTD 2017 Q2 YTD 2016 (1)
Metal sold
Silver (000s oz) 4,289 5,212 9,855 9,780
Gold (000s oz) (5) 110.3 106.5 231.4 157.1
Lead (000s t) 2.0 2.4 4.2 4.8
Zinc (000s t) 2.8 3.5 6.1 6.8
Realized price
Silver in concentrate (per oz) $15.72 $18.95 $17.7 $17.53
Gold in dore (per oz) $1,248 $1,255 $1,281 $1,228
Lead (per t) $2,138 $1,779 $2,359 $1,685
Zinc (per t) $2,601 $2,237 $2,778 $2,057
LBMA/LME price (2)
Silver (per oz) $17.21 $16.78 $17.32 $15.82
Gold (per oz) $12.57 $1,259 $1,238 $1,221
Lead (per t) $2,161 $1,719 $2,221 $1,731
Zinc (per t) $2,596 $1,918 $2,690 $1,799
Revenues $209,576 $228,251 $460,622 $360,384
Total operating costs $135,291 $138,220 $282,168 $215,742
Earnings from operations $74,285 $65,022 $178,454 $111,377
Earnings $33,487 $16,742 $108,183 $54,550
Earnings per common share
Basic $0.11 $0.05 $0.35 $0.20
Diluted $0.11 $0.05 $0.35 $0.20
Adjusted earnings $33,846 $57,873 $108,915 $93,362
Adjusted earnings per common share
Basic $0.11 $0.19 $0.35 $0.35
Diluted $0.11 $0.19 $0.35 $0.35
Dividends paid $18.74 $18,419 $37.435 $32,076
Cash flow provided by operating activities $96,068 $37,678 $174,646 $62,971
Cash flow provided by operating activities
before changes in working capital $99,446 $115,951 $232,296 $185,270
Cash and cash equivalents $190,636 $151,707 $190,636 $151,707
Total assets $3,129,228 $2,981,740 $3,129,228 $2,981,740
Total long-term liabilities $316,510 $269,984 $316,510 $269,984
Costs per silver ounce produced
Total cash costs net of byproduct credits (3) $6.73 $6.07 $6.15 $5.29
All-in sustaining costs per silver ounce net
of byproduct credits (3) $10.01 $8.16 $8.91 $7.06
Costs per gold ounce produced
Total cash costs net of byproduct credits (3) $601 $647 $587 $645
All-in sustaining costs per gold ounce net of
byproduct credits (3) (4) $925 $973 $892 $930
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(1) Second 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.
(2) London Bullion Market Association (LBMA)/London Metal Exchange (LME) average closing prices for
each quarter presented.
(3) This is a non-generally accepted accounting principle measure.
(4) All-in sustaining costs net of byproduct credits per gold ounce produced exclude the impact of
$10.3-million and $11.0-million in non-recurring transaction costs related to the acquisition of
Lake Shore Gold during second quarter 2016 and second quarter year-to-date 2016, respectively.
(5) 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 106,500 and 157,100 gold ounces sold for second quarter 2016 and
second quarter year-to-date 2016 are 22,100 and 24,400 gold ounces sold at Shahuindo, which include
one and four months of precommercial production ounces sold (5,300 and 7,600 ounces of gold in dore
sold in the month of April, 2016, and the period from January through April, 2016, respectively).
We seek Safe Harbor.
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