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Tahoe Resources Inc Is Getting Clobbered After Guatemala Suspends Its License

By Matthew DiLallo – Jul 6, 2017 at 12:29PM

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The company will lose its ability to produce from the world's third-largest silver mine.

What happened

Shares of Tahoe Resources (NYSE: TAHO) are getting pulverized -- down more than 32% at 10:45 a.m. EDT on Thursday -- after Guatemala's Supreme Court suspended the license on the company's flagship Escobal mine.

So what

In late May, an anti-mining group filed a claim against Guatemala's Ministry of Energy and Mines, alleging that the Ministry didn't consult local groups before awarding Tahoe Resources the license for the Escobal silver mine. Today, the Supreme Court of Guatemala issued a provisional decision by ordering the temporary suspension of the license to operate the Escobal mine while the court reviews the claims. Tahoe Resources plans to immediately appeal the decision to the Constitutional Court, which could rule on the appeal within two to four months. However, the entire process could take 12 to 18 months, and there are no guarantees that the court will reinstate Tahoe's license.

A miner holding up silver.

Image source: Getty Images.

That said, the company is assuming a three-month suspension period in its guidance. As a result, Tahoe estimates that it will need to defer 5.1 million ounces of silver production that it expected to produce this year to future periods. However, if the license remains suspended, it will have an even greater impact on the company's future production and financial results, which could ultimately lead the company to cut its lucrative dividend. Still, Tahoe confirmed its July dividend today and has $165 million in cash to provide it with a cushion while it works to get its license reinstated.

This news led several analysts to downgrade the stock. TD Securities, for example, cut its rating from buy to hold, while BMO Capital changed its outlook from outperform to market perform. Driving those downgrades is the increased uncertainty due to the length of time it could take before Tahoe can resume production at Escobal.  

Now what

While Tahoe Resources remains confident that it will be able to resume production at Escobal shortly, investors are running for the exits due to the potential that the company's suspension could be permanent. That's because Escobal is the company's flagship mine, so the loss of this license would have a meaningful impact on Tahoe's future financial results and could weigh on its stock for years.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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