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TABLE OF CONTENTS Oct 15 - 21, 2012 Volume 98 Number 35 - 0 comments

Tahoe, Radius play snakes and ladders in Guatemala

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By: Matthew Keevil
Vancouver 2012-10-15

When making a list of stable mining jurisdictions, you’d have to pause a while before adding Guatemala. The small Central American country emerged from civil war in 1996, but remains in its infancy as far as mining development and regulatory structure are concerned.

For developer Tahoe Resources (THO-T, TAHO-N) the country has provided rich rewards, while for junior explorer Radius Gold (RDU-V), the experience has proven much more frustrating.

Tahoe is in the midst of building its US$405-million Escobal silver-gold mine located 40 km southeast of Guatemala City. Based on 27 million indicated tonnes grading 422 grams silver per tonne and 0.43 gram gold, Escobal is expected to produce 20 million equivalent oz. silver over its first 10 years of production — including lead and zinc credits — and employ 650 workers at peak capacity.

Tahoe remains closely tied to Goldcorp (G-T, GG-N) — the major producer owns 40% of 145 million outstanding shares — which has operated the Marlin underground gold mine in northern Guatemala since 2005. During a September presentation at the Denver Gold Forum, Tahoe president and CEO (and former Goldcorp CEO) Kevin McArthur cited Goldcorp’s work in building relations in the country as a major benefit on the path to development.

"They have told me that they do not intend to sell their shares until the exploration program develops, and they can see that value generated," McArthur said.

But operational experience in Guatemala has not shielded Tahoe from the country’s growing pains, and the company felt the impact of a June proposal by the Guatemalan government to increase domestic ownership in resource companies. Though the proposal has since been shelved, Tahoe ran into civil unrest at Escobal in mid-September.

According to company statements, 300 people threatened a Guatemalan work crew with violence at a power-line installation site on Sept. 17. Though the protest was declared unlawful by regional government representatives, the protestors held the work crew — as well as a judge reviewing the situation — hostage before 100 national police arrived. On Sept. 18 an armed group massed outside Escobal’s mine gate before breaking through and vandalizing Tahoe’s cement batch plant and temporary core shed.

"There were arrests made and we’re pursuing legal actions, though we aren’t sure if there is any civil action, as laws in Guatemala are a bit different," vice-president of investor relations Ira Gostin explains during a phone interview. "I will say our security people are all very well-trained and disciplined, and used non-lethal measures at all times during the incident."

Tahoe states the protestors were "not from the local area," and were funded and organized by local and international non-governmental organizations (NGOs) opposed to mine development in the country.

Gostin identified two groups as being responsible for the unrest. The first is the Center of Environmental, Social and Legal Action of Guatemala, which is led by Yuri Melini, and has a history of running afoul of Guatemalan authorities. The second organization is the MadreSelva Environmental Collective, a local Guatemalan group opposed to mining in the region.

"They have sort of all teamed up, but there are a few local opponents, and we’ve had some protests from them," Gostin comments. "Most of that is relegated specifically to sour grapes . . . they weren’t included, or we didn’t buy their land, necessarily. That said, most of this has been about the outside influences."

Gostin explains that a group of local mayors in the municipality of San Rafael — where Escobal is located — have held press conferences requesting that the NGOs stop interfering in regional matters, and stay out of the area.

"They are supporting the mine, and the community has jobs, and they do not want these outsiders coming," Gostin concludes.

McArthur notes that Tahoe’s project lies on land identified by the Guatemalan government as "non-indigenous," while Goldcorp’s Marlin has experienced difficulties in a region sensitive to indigenous politics.

"This mine will eventually be the largest taxpayer in Guatemala. It’s important to the country, and they want the resource industry to grow. The president is committed to doing that; it was a big plank in his election platform," McArthur says, pointing out that 96% of Tahoe’s workforce is Guatemalan. "Our surrounding communities are pro-mining. We’re seeing a lot of support."

Escobal is fully permitted through its construction phase, but Tahoe will require an exploitation permit before hitting commercial production in mid-2013. The company expects to receive its final permit by year-end.

Though civic instability has proven manageable for a mid-tier company like Tahoe, the story has been different for junior explorers, which becomes apparent when speaking with Radius Gold president Ralph Rushton.

A member of Simon Ridgway’s Gold Group, Radius has a tidy US$20 million sitting in the bank, but has run into permitting and security issues in Guatemala that has led the company to rethink its presence in Central America. Indeed, Radius is searching for advanced-stage exploration projects in more stable jurisdictions.

"There are many causes of instability in the region. Violent crime rates through Central America are high — some of the highest in the world which can impact day-to-day operations," Rushton explains via email. "We see political polarization down to the local municipality level, with adjacent municipalities often having completely opposite political allegiances, which can cause all sorts of problems if you are working with more than one on the same project."

Rushton says that civil unrest experienced by developers like Tahoe can further complicate politics in a region by drawing attention from international NGOs and local opposition, which can make life more difficult for junior field crews and geologists.

Following the shooting of an activist near its Tambo gold joint venture in Guatemala on June 13, Radius divested its interest in the project, calling it a "problematic asset." Radius sold off its Trebol and Pavon gold properties in nearby Nicaragua to emerging gold miner B2Gold (BTO-T) earlier this year.

"We’re looking for fairly advanced exploration projects where we believe we can move to resource definition drilling rapidly, or larger regional-scale exploration plays with potential for multiple targets," Rushton says. "The primary filter is geology and potential project economics, and we’ll look at politics on the second pass."

But Radius has held onto its Holly-Banderas gold-silver property, located 100 km east of Guatemala City. Rushton says the geological potential at Holly-Banderas in light of the Escobal discovery has kept the company involved, though the "current investment climate" in Guatemala has prevented Radius from pursuing a multi-million dollar drill program to advance the project.

"We would consider joint-venture proposals, and we are continuing with low-key, regional target generation and reconnaissance work," he says.

Radius is looking at tight equity markets as an opportunity to acquire projects from cash-strapped juniors that are finding it tough to finance exploration projects. Rushton says that Radius has looked at roughly 500 micro-cap companies so far in its search, and reckons that "at least half have no cash."

Guatemala has a way to go before it can be labelled a "friendly" jurisdiction for Canadian exploration outfits.

Developers like Tahoe, with operational experience and political contacts, have luxuries that allow them to navigate rough waters in developing countries. For juniors, a little instability can go a long way.

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The portal at Tahoe Resources' Escobal silver-gold mine under construction in Guatemala. Photo by Tahoe Resources
The portal at Tahoe Resources' Escobal silver-gold mine...
Construction at Tahoe Resources' Escobal silver-gold mine, 40 km southeast of Guatemala City. Photo by Tahoe Resources
Construction at Tahoe Resources' Escobal silver-gold mi...

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