After reaching commercial production on Jan. 14, the Escobal silver mine in Guatemala enjoyed a profitable first quarter, Tahoe Resources (TSX: THO; NYSE: TAHO) reports.
The high-grade silver mine 70 km southeast of Guatemala City produced 4.1 million oz. silver in the first quarter at a total cash cost of US$6.68 per oz. and an all-in sustaining cost of US$10.25 per oz., net of by-product credits.
Net earnings reached US$24.8 million, or US17¢ per share, with operating cash flow before changes in working capital of US$44.7 million, or US31¢ per share.
The ramp-up to 3,500 tonnes per day — a rate the company thought might take it the entire first half of the year — was accomplished sustainably before May.
“We really feel great about the first quarter, as well as the ramp up and optimization of the mill,” Ira Gostin, the company’s vice-president of investor relations, told The Northern Miner. “Now we will just continue to move forward to grow the company.”
In the first quarter Escobal produced lead and zinc concentrates containing 4.1 million oz. silver, 2,687 oz. gold, 2,342 tonnes lead and 2,645 tonnes zinc. Sales consisted of 4.2 million oz. silver, 2,412 oz. gold, 2,386 tonnes lead and 2,253 tonnes zinc.
Andrew Kaip of BMO Capital Markets commented in a research note that the company generated US$3.2 million of free cash flow over the quarter.
“The Escobal ramp-up continues to progress above expectations, with throughput, concentrate quality and metal recoveries meeting design and the company now generating free cash flow,” he wrote.
Tahoe says its 2014 production guidance remains on track for between 18 and 21 million oz. silver in concentrate at a total cash cost of between US$5.65 and US$6.25 per oz., and an all-in sustaining cost of less than US$10 per oz., both net of by-product credits.
In the third quarter, the company plans to complete a feasibility study on an expansion to 4,500 tonnes per day, and also intends to publish proven and probable reserves. The study will verify estimates, but the company expects capital spending will increase by US$10 million to a range of US$40 million to $45 million in 2014.
Gostin notes that the company’s other goals for 2014 include reconfiguring or paying off part of its US$75 million in short-term debt, and developing a dividend policy.
The company ended the first quarter with cash and equivalents of US$39.9 million.
While management has its hands full with definition drilling at the mine in the Escobal vein, it intends to come up with a regional exploration plan later on, Gostin says.
“We’ve got a large [2,200 sq. km] land package, so there are other opportunities around Escobal,” he says. “There are certainly things to look at, and I’m pretty sure our property will keep us busy.”
At press time Tahoe traded at $23.83 per share within a 52-week range of $12.43 to $27.16.
Kaip of BMO Capital Markets has a $28.50-per-share target price.
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