Mr. Ron Clayton reports
GUATEMALAN LOWER COURT ISSUES RULING ON TAHOE'S MINING LICENSE
Tahoe Resources Inc. has received a provisional decision from the supreme court of Guatemala 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 is in respect of a request by CALAS for an order to temporarily suspend the licence to operate the Escobal mine until the action is fully heard. The company understands that no Xinca representative or community is currently participating in the CALAS lawsuit against MEM.
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 and did not previously have standing to make submissions to the court in respect of the provisional application. This decision confers legal standing on the company which will now take all legal steps possible to have the ruling reversed and the licence reinstated as soon as possible, including immediately appealing the decision to the constitutional court.
The Guatemala supreme court is the initial trial court in Guatemala for constitutional actions filed against MEM. Appeals from these decisions are heard by Guatemala's constitutional court. Based on a prior ruling by the constitutional court involving consultation obligations with respect to a large natural resource project, the company believes that its operating licence should remain in effect while any additional consultation is completed. Accordingly, the company intends to both appeal the decision to the constitutional court and ask for the supreme court to reconsider its provisional ruling.
The company believes that all consultation obligations relating to the permitting of the Escobal licence were met. The last official census shows the San Rafael community to be 98.6 per cent non-indigenous and with no Xinca community presence. Despite the fact that the Escobal mine is not located in or impacting any indigenous communities of Guatemala, the company understands that MEM held a consultation process that complied with the requirements set forth in ILO Convention 169.
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 two to four months. Tahoe will be seeking to have the licence reinstated during this period.
The company also plans to file a motion for reconsideration with the supreme court, which is the lower court that issued the provisional decision. Based on prior cases, the company cannot predict when the supreme court would rule on the motion for reconsideration.
In addition, the company will also be requesting the supreme court to resolve CALAS's definitive constitutional claim. The definitive constitutional claim and appeal process could take between 12 and 18 months.
While the company cannot determine at this time when or if the suspension will be rescinded and the licence will be reinstated, including for purposes of conducting a consultation process, Tahoe believes ILO 169 does not apply here, and if it did apply, was already met. Tahoe understands that the effect of ruling in favour of CALAS could mean that consultation must occur before the suspension is revoked. It could also mean, as happened in similar cases in Guatemala, that the court could allow operations to resume while a consultation process is conducted. Tahoe believes that the time frame to undertake the consultation processes, and for a reconsideration of its application for the issue of the licence, could be in the range of six to 12 months.
Upon formal receipt of the order temporarily suspending the licence for Escobal, the mine will be placed on standby and is planned to be maintained in a manner such that full production can be expeditiously resumed on a reversal of the suspension. During this time, the company will continue to maintain its high standard of security and environmental protection.
Ron Clayton, president and chief executive officer of Tahoe Resources, commented: "We are extremely disappointed in the court's ruling suspending the licence because we believe that there are no indigenous communities affected by Escobal's operations. While the lack of indigenous communities in our area makes ILO 169 inapplicable, there is nevertheless extensive documentation evidencing that an ILO 169 consultation process was in fact conducted in the area of the mine. 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. Escobal is our flagship mine which has been designed and operated to meet the highest environmental standards and we will make every effort to remove any suspension and bring Escobal back into operation as soon as possible. We remain committed to protecting our employees' livelihoods, as well as those livelihoods of the company's suppliers and the thousands of Guatemalan families that benefit from the responsible operation of the Escobal mine."
The company's preliminary second-quarter results include production of over four million ounces of silver, more than 110 thousand ounces of gold, revenue of greater than $200-million and an estimated cash balance of over $165-million. There are no significant inventories of concentrate on hand.
Depending upon the success of the company's appeal and the timing of court rulings, the company anticipates, assuming a three-month suspension period resulting in a deferral of production to a future period, the following impacts could be expected:
- 2017 silver production would be deferred to future periods by 5.1 million ounces.
- Sales and operating costs associated with deferred production would be incurred in future periods.
- Sustaining capital expenditures of $12-million would be deferred.
- Fixed costs of approximately $10-million would be incurred.
- Exploration efforts in Guatemala of $500,000 would not be incurred.
- Estimated royalties of $4-million and taxes of $5-million related to deferred production would not be accrued; payments would resume upon recommencement of production and sales.
Given the possible material impact of suspending operations at the Escobal mine, the company will be re-evaluating previous multiyear guidance and can also no longer confirm previously issued 2017 guidance at this time. Long-term care and maintenance plans are under consideration by management and further updates will be provided when that evaluation is complete.
The company plans to host a conference call to answer questions regarding the suspension of the Escobal licence on Thursday, July 6, 2017, at 5 a.m. PT (8 a.m. ET). Those wishing to join the call can do so using the telephone numbers listed below.
Participant call-in numbers:
1-800-319-4610 (toll-free from Canada and the United States)
1-604-638-5340 (from outside Canada and the U.S.)
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.
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