Timmins gold holdings

Tahoe makes big moves on several fronts

By Gregory Reynolds

Tahoe Resources Inc. is making several important, and expensive, moves in the Timmins Gold Camp to achieve its ambition of reaching 250,000 ounces of production by 2020. Among the steps taken are decisions to spend $80 million to deepen the shaft at the Bell Creek Mine from 300 to 1080 metres, to work towards putting former producer Hallnor Mine into production as an open pit operation and to study expanding the Bell Creek 3,600 tonne per day mill to 5,500 tonnes per day. It paid $12.5 million in cash to Goldcorp Inc. for its 2% net smelter return royalty (NSR) related to production at Tahoe’s 100%-owned Bell Creek Mine and ordered accelerated exploration at a number of its local projects.

On Aug. 9, Tahoe announced strong financial and operations results for the second quarter and first half of 2016, including record half-year silver and gold production as well as record levels of revenue and cash flow per share for both the quarter and year to date. The company also announced the election of Ron Clayton as president & CEO and Elizabeth McGregor as vice president & chief financial officer effective Aug. 16, 2016. On July 5, Tahoe (which had acquired Lake Shore April 1) bought out Goldcorp’s 30 per cent interest in the Whitney Project. It already owned 70 per cent through its acquisition of Temex Resources Corp on Sept. 18, 2015. Goldcorp’s current interest is being reduced to 2% NSR royalty.

Under the terms of a letter of intent, Tahoe will assume all closure liabilities with respect to the Whitney JV properties, including historic liabilities not previously assumed by the JV.

Highlights of the second quarter (Q2) and first half (Q2 YTD) 2016 include:

  • Record half-year production of 11.4 million ounces silver and 167,168 ounces gold.
  • Q2 2016 production totaling 5.7 million ounces silver and 109,687 ounces gold.
  • Record revenue of $228.3 million in Q2 2016 and $360.4 million in Q2 YTD 2016.
  • Total cash costs and all-in sustaining costs (AISC) for gold and silver average below full-year target ranges.
  • Record cash flow provided by operating activities before changes in working capital of $116.0 million or $0.38 per share in Q2 2016 and $185.3 million or $0.69 per share in Q2 YTD 2016.
  • Adjusted earnings of $57.9 million or $0.19 per share (basic and diluted) in Q2 2016 and $93.4 million or $0.35 per share (basic and diluted) in Q2 YTD 2016.
  • Earnings of $16.7 million or $0.05 per share (basic and diluted) in Q2 2016 and $54.6 million or $0.20 per share (basic and diluted) in Q2 YTD 2016.
  • Total dividends of $18.4 million and $32.1 million paid to shareholders in Q2 2016 and Q2 YTD 2016, respectively.
  • Total cash and cash equivalents at June 30, 2016 of $151.7 million.

These historic liabilities are currently estimated by Tahoe to total approximately $12 million, an amount that Tahoe believes could be reduced through the development and operation of an open-pit mine. The Whitney Project covers approximately 8.9 square km of highly prospective exploration property on which the former producing Hallnor, Broulan Reef, Bonetal and Hugh Pam mines are located. Together, these historic properties have produced a total of 2.4 million ounces of gold. Tahoe is currently engaged in a 70,000 metre surface drilling program aimed at confirming and expanding resources and advancing a model based on a planned open-pit operation that would transition to underground mining.

Kevin McArthur, executive chair and CEO of Tahoe at the time, commented: “Bell Creek and Whitney are two key components of our strategy to grow gold production in Timmins to over 250,000 ounces per year by 2020.

At Bell Creek, we are eliminating the 2% NSR royalty at a time when the new shaft project is expected to double production and to significantly increase mine life. To the south of Bell Creek, Whitney has open pit and underground potential in close proximity to the Bell Creek mill. We are pleased to be advancing Whitney as a wholly owned project. We also look forward to continuing our work with Goldcorp to maximize the value of the Timmins Gold Camp for all stakeholders.”

Tahoe had three producing mines before April 1

A silver operation in Guatemala and two gold mines in Peru. The Lake Shore merger added the producing Timmins West Mine and Bell Creek Complex and three projects, Thunder Creek, 144 Trend and Gold River, all near the Timmins West operation. It also has the Whitney (Hallnor) Project near Bell Creek. The Tahoe board of directors approved additional spending to accelerate exploration and delineation of the 144 Gap area, Gold River, and Whitney projects. On May 3, 2016, the board approved the Bell Creek Shaft Project, an initiative to re-commission and deepen the historic shaft at the Bell Creek Mine. The shaft currently extends to a depth of approximately 300 metres and is used for secondary escape and ventilation. The shaft project, when complete, will extend the shaft to the 1080 metre level elevation and equip the shaft to hoist ore and waste.  The benefit of deepening the shaft is to allow lower-cost production at higher production rates and accelerated delineation of the deep resources as well as exploration at depth.

The project is anticipated to cost approximately $80 million and is expected to be executed over the next 2.5 years. Tahoe looks for gold production of 370,000 to 430,000 ounces at total cash costs of $675 to $725 and all-in sustaining costs of $950 to $1,000 per ounce, both after by-product credits. Silver guidance is 18 million to 21 million ounces at cash costs of $5.50 to $6.50 an ounce and AISC of $8 to $9, both after by-product credits.

The company has set six objectives: achieve commercial production of the 144 Gap Deposit, deepen the shaft at Bell Creek to double production and extend mine life, advance the Whitney Project to become an open pit and underground operation, grow reserves/resources from 2M to 4M ounces by 2020 by exploration at Timmins West, Thunder Creek, 144 Trend and Gold River, complete the Bell Creek and Whitney Projects and in the long term examine the Fenn-Gib, Juby and Casa Berardi properties.