Can Tahoe Resources Inc. Ever Bounce Back?

Last year was a shocker for precious metals miner Tahoe Resources Inc. (TSX:THO)(NYSE:TAHO). Operations at its flagship Escobal silver mine in Guatemala ceased because the licence was suspended on July 5, 2017, by the Latin American nation’s Supreme Court. This caused Tahoe’s silver production to fall sharply, hitting earnings hard. Despite claims that the licence would be reinstated before the end of last year, the Guatemalan Constitutional Court has yet to issue a ruling. That leaves Tahoe in an extremely difficult position. Its stock is languishing at newfound lows, as investors stampede for the exits because of the high degree of uncertainty surrounding the miner. 

Now what?

Some pundits in July 2017 predicted it would take some time for the licence and the issues surrounding its revocation to be resolved. In a September 2017 article, I argued that Tahoe may be incapable of re-initiating operations as quickly as claimed because of an array of difficulties including allegations that Tahoe failed to adequately consult local communities.

While Tahoe was initially optimistic that the licence would be reinstated within three months, the dispute continues to drag on. This is despite the Guatemalan Constitutional Court having heard appeals to reinstate the licence on October 25, 2017 and being required to issue a ruling within five days.

Now the miner has been forced to start reducing the mine’s workforce because it is incapable of recommencing operations. This will likely provoke further negative responses in Guatemala because of the mine’s importance to the local economy and its polemic nature.

While the miner keeps painting a positive picture, including the likelihood of the licence being reinstated and its ability to recently achieve record annual gold production of 445,000 ounces in 2017, the reality is very different. If Tahoe can’t recommence operations at Escobal, it is going to continue to harshly impact its finances because the mine is responsible for almost all of its silver production which is the core driver of earnings.

Furthermore, even if the licence is reinstated, the conflict with local communities will continue, including a local roadblock and further protests over the mine.

In fact, the mine’s existence has become highly polemical, primarily because of claims of a failure to consult local communities along with allegations of violence as well as intimidation being used against protesters by Tahoe. That in conjunction with political sensitivities in Guatemala to the expropriation of domestic resources by foreign companies means that it will be a long and difficult to road to successfully recommence operations. 

So what?

Tahoe’s current situation highlights the risks facing miners operating in developing nations, notably Latin America, where there has been a long resistance to foreign companies profiting from local resources. There is also a long history of expropriation of the assets of foreign companies by regional governments to meet domestic political objectives.

For these reasons, there is very little that is appealing about Tahoe at this time for investors with the risks far surmounting any upside that could be available. That said, if the licence is reinstated, investors can expect Tahoe’s stock to surge, potentially doubling in value if it can successfully convince investors that there will be no further disruptions and if the level of political risk dissipates to manageable levels.