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Here's Why Tahoe Resources Dropped as Much as 25.9% Today

By Maxx Chatsko – Updated Sep 4, 2018 at 12:56PM

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Guatemala suspended the license for the company's Escobal mine. Again.

What happened

Shares of Tahoe Resources (NYSE: TAHO) fell nearly 26% today after the company announced that the Constitutional Court of Guatemala upheld a previous decision from the Ministry of Energy and Mines (MEM) that suspended the operating license of the Escobal silver mine. The news is especially painful because the decision from the mining authority had been overturned by the country's Supreme Court, but now the Supreme Court has been overruled by the Constitutional Court. 

That said, while the outcome is not ideal, Tahoe Resources actually has a little more certainty regarding the Escobal mine now than when the mine was originally suspended due to a dispute between the company and an anti-mining, non-governmental organization (NGO) from Canada, which is stoking angst in the local community.

As of 12:19 p.m. EDT, the stock had settled to a 18.6% loss.

A declining graph drawn on a chalkboard.

Image source: Getty Images.

So what

The decision from the Constitutional Court means Escobal will not be able to operate until after the MEM completes a consultation with the local Xinka community. At that point, Tahoe Resources will be able to initiate proceedings to begin a review process, pending the result of the consultation process.

The company said it doesn't have a timeline for how long it may take the consultation process to wrap up, but it said a similar case took approximately six months to complete. That means the Escobal mine will be offline for at least two more quarters -- and likely longer. Tahoe Resources expects to issue an update once the Constitutional Court issues a formal ruling in writing in the next several days. 

Now what

The fiasco in Guatemala could be overcome eventually, but investors now know that the silver mine may not resume operations until late 2019, if not later. Meanwhile, the company's remaining mines boast relatively high operating costs, which makes the 21 million ounces of annual silver production from Escobal all the more difficult to cope with. Simply put, the uncertainty hanging over Escobal and the blemishes elsewhere in the company's portfolio of mines make the gold stock an easy one to avoid.

Maxx Chatsko has no position in any of the 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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