Kevin McArthur grew Glamis Gold's production profile from 100,000 ounces per year to 400,000 ounces per year of gold production(Photo: LAURA LEYSHON/Globe and Mail)

Kevin McArthur grew Glamis Gold’s production profile from 100,000 ounces per year to 400,000 ounces per year of gold (Photo: LAURA LEYSHON/Globe and Mail)

Kevin McArthur’s, Tahoe Resources (THO:TSX), which has endured all of the woes of starting up a precious metals mine in a restless Latin country, announced this morning that it has reach commercial production levels at its Escobal silver mine in Guatemala.  The Escobal mine reached 3,000tpd on its way to the design capacity of 3,500tpd.  The company has embattled reports of extreme violence in social events surrounding the opposition to the Escobal mine.  McArthur’s team was roughly 3 months behind schedule mill start-up activities due to these social issues surrounding the mine.  The mine was completed within their estimated budget of $326.6 million; a feat not easily met in the mining business.

From mid-December through the present, the Escobal plant has consistently achieved strong results. To date, the mill has produced 5,970 tonnes of silver-bearing concentrates with an estimated net value of approximately $54.3-million. The company says, the quality of the concentrate has been outstanding, with minimal penalties associated with either the zinc or lead concentrates.

Tahoe President and CEO Kevin McArthur said: “Our Guatemalan team has done a terrific job in delivering this world-scale silver mine within four years of the company’s initial public offering. While we continue to optimize the mill, tailings filtration and paste backfill operations, this has been a remarkable start-up for a precious metals flotation plant over a very short time period.

Underground stope definition drilling is ongoing to identify Escobal vein structure better (Photo: Tahoe Resources Inc)

Underground stope definition drilling is ongoing to identify Escobal vein structure better (Photo: Tahoe Resources Inc)

Underground, stope development is proceeding on four levels, with many stopes currently in production on the 1265 level.  The Escobal vein’s exact location and thickness is being confirmed with close-space stope definition drilling.  So far, the silver grades being seen in the initial stopes are much higher than those estimated in the resource model.  Also, the average production grade has been slightly higher than are modeled in the resource estimate.

Access to the second mining area located on the 1190 level continues to advance in the two main development ramps.  The development of a third ramp to access the Escobal East zone began in Q4/2013 with the excavation of the primary ventilation exhaust shaft nearing completion.

Tahoe expects to produce 18 – 21 million ounces of silver contained in 2014.  Given the ramp-up profile, the company cautions that in the first half of the year, silver production will be lower and associated operating costs will be higher than during the second half of the year.  In order to beef up the available cash and working capital needs, McArthur has drawn an additional $25 million from its credit facility.  The company now has $75 million drawn and $33 million in cash on hand.

According to a 2012 resource estimate, the Escobal deposit hosts 367.5 million ounces of silver at an average grade of 422g/t silver.  The PEA, highlights an expansion option of up to 4,500tpd from the 3,500tpd base-case, at an additional capital cost of $46.2 million and by adding additional flotation and power. The company is planning to complete this upgrade by 2017.

The PEA shows production to average more than 19 million ounces of silver annually at a total cash cost of less than US$3.00 per ounce of silver (net of by-product credits).  This presents an estimated after-tax NPV(5%) of $1.729 billion, with an after-tax IRR of 51%.

Mr. McArthur stated: “We are very pleased with the rapid progress to date and we are now focused on completing the ramp-up to 3,500 tpd. Our secondary focus is on completing a resource update, optimizing life-of-mine operations with a feasibility study and calculating proven and probable reserves in the third quarter of this year.”