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The Escobal project is a high-grade silver deposit discovered in 2007 located in Southeast Guatemala. In May 2012, Tahoe released a Preliminary Economic Assessment (PEA) of the project completed by M3 Engineering. Escobal hosts an Indicated silver resource of 367.5 million ounces at 422 g/t average grade, and an Inferred silver resource of 36.7 million ounces at 254 g/t average grade. (See disclosure below.) The PEA presents a base case at 3,500 tonne per day (tpd) and expansion cases for 4,500 tpd and 5,500 tpd. Capital cost for the 3,500 tpd underground mine and milling operation amounts to $326.6 million and remains on-track and on-schedule for mill commissioning in the second half of 2013 with commercial production expected in 1Q 2014. The 4,500 tpd scenario includes an additional capital cost of $46.2 million and presents an NPV(5) of $2.94 billion at a silver price per ounce of $25.00, a 20-year mine life and an IRR of 68%.
Over the first 10 years of operations in the PEA expansion scenarios, Escobal is expected to produce 20 million silver equivalent ounces per year at a total cash cost of less than $5.00 per ounce (net of by-products). Ongoing exploration drilling programs continue to expand known mineralization. Meanwhile, development of two declines to access the resource is underway. On October 21, 2011, the project EIS was approved and construction commenced in November. Full operating permits were received in April 2013.
Investors are cautioned that the PEA is considered preliminary in nature and includes mineral resources, including inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources that are not mineral reserves have not yet demonstrated economic viability. Due to the uncertainty that may be attached to mineral resources, it cannot be assumed that all or any part of a mineral resource will be upgraded to mineral reserves. Therefore, there is no certainty that the results concluded in the PEA will be realized.
The Company has not based its production decision on a feasibility study of mineral reserves, demonstrating economic and technical viability, and, as a result, there may be an increased uncertainty of achieving any particular level of recovery of minerals or the cost of such recovery, including increased risks associated with developing a commercially mineable deposit. Historically, such projects have a much higher risk of economic and technical failure. There is no guarantee that production will begin as anticipated or at all or that anticipated production costs will be achieved. Failure to commence production would have a material adverse impact on the Company’s ability to generate revenue and cash flow to fund operations. Failure to achieve the anticipated production costs would have a material adverse impact on the Company’s cash flow and future profitability.
The updated resource estimate is the basis for Tahoe’s recently issued Preliminary Assessment for the Escobal project, which was authored by M3 Engineering and Technology. The Preliminary Assessment envisions a 3500 tonne per day underground mine producing lead and zinc concentrates over a production life of 18 years, with the vast majority of precious metals reporting to the lead concentrate. The Preliminary Assessment forecasts 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, using metal prices of $18.00 per ounce silver, $1100 per ounce gold, $0.95 per pound lead, and $0.90 per pound zinc. After tax net present value at a 5% discount rate is $1.729 billion, with an after tax internal rate of return of 51% on initial capital costs of $326.6 million. The contemplated operation would provide direct employment of approximately 500 employees in Guatemala.For additional information regarding the updated resource estimate and Preliminary Assessment, refer to SEDAR.
Work to advance the Escobal Project to commercial production is proceeding, with underground development and surface mill construction nearing completion. underway. Underground exploration is also proceeding, hoping to further grow the resource.
Escobal PA (.ZIP – 10.5M)
About the Region
Escobal is approximately 3 km from San Rafael las Flores, a town of approximately 3,000 people and approximately 70 km southeast of Guatemala City by paved road. Access to the area also is possible from the northeast on a paved highway via the town of Mataquescuintla. The local climate consists of two major seasons; a rainy season between May and November and a dry season between November and May. Mining activities are expected to be conducted year-round.
The project area lies within mountainous terrain interspersed with rolling hills and valleys. Elevations range from 1,300 m in the valley on the west end of the Escobal Vein to 1,800 m in the drilled east extension. The high mountain range of Montaña Soledad Grande north and east of Escobal rises to an elevation of 2,600 m.
Vegetation is characterized by natural mountain forest species that consist of oak, pine and cypress varieties and lower strata scrub brush species. Agricultural products in the area include corn and beans for local consumption and commercial production of onions, tomatoes and coffee.