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8/28/17

Tahoe Resources (TAHO) (THO.to) in IKN432

This is yesterday's edition of the weekly:



Tahoe Resources (TAHO) (THO.to) and its community problems in two countries
It doesn’t really matter which Tahoe Resources (TAHO) (THO.to) price chart you dial up, they’re all a bit of a disaster so this standard 12 month variety will do nicely. It shows the legs down in July and most recently last week, when the company announced (19) that it had heard the Constitutional Court (CC) in Guatemala had provisionally ruled against rescinding the suspension on its operating license, though the formal hearing doesn’t happen until next week (tomorrow Monday, to be exact). To the problem in Guatemala we can add the problems TAHO has at its La Arena mine in La Libertad region, Peru, as reported on the blog (20) last week. There we noted that the mine was under blockade by locals who are unhappy that the local community liaison officer had been dismissed by the company. In today’s note we examine both aspects of TAHO’s current CSR snafu, including the latest information.

Guatemala
At first I found it strange that TAHO had unilaterally announced that a provisional ruling had gone against the company and in all likelihood, when the CC sits this week the company won’t get its operating license out of suspension and said as much on the blog (21), but it soon became apparent that all Guatemala news agencies were running the same story and TAHO was simply getting in front of news that it would have to address anyway. The stock dropped nastily on the news (down nearly 19% on the day and with heavy volume), so that also rules out any sort of double game being played by the company; unless something surprising happens tomorrow, it’s not getting the suspension lifted while the longer court process goes on.

I find this surprising. In the note “Tahoe Resources (TAHO) (THO.to): A buying opportunity?” in IKN425 dated July 9th, just after the original suspension and lodging of the appeal with the CC by TAHO, I made mention of the CC action and the precedent it could follow in the ruling it made earlier in the year when on May 26th it lifted the operating permit suspension on the Oxec I and Oxec II hydroelectric operation and allowed it to continue while its case proceeded. I thought that precedent would see TAHO get back to work and assuming last week’s news is upheld officially in the days to come, I was wrong on that call.

This leaves TAHO in a sticky situation and the NR last week from the company made no bones about it. It also mentioned that the blockade of the mine at the town of Casillas continues and it went as far as to mention “the D Word”, default on the terms of its financial debt, because even though it has around U$190m in cash at bank it’s going to be tough for the company to maintain the terms of covenant on its debt because they demand a minimum EBIT level from operations. Assuming the unofficial ratification of the suspension becomes official next week, the company is looking at a shuttered mine for the 12 to 18 months that the larger Supreme Court legal action will take to resolve. And on that, there was further bad news for the company last week when the courts decided that it wasn’t just the single locality of the town where TAHO operates its Escobal mine, San Rafael Las Flores, which needs to be heard during the trial. According to this decision (22), the localities of Jalapa and Santa Rosa have the right to be heard as they are also directly affect by the mine’s operations. That’s bad for TAHO because in San Rafael Las Flores the town is reportedly split roughly 50/50 pro/contra the mine (it provides a lot of employment and salaries, as well as royalty payments) but in the outlying areas the public opinion is heavily against the mine.

Peru
Adding to the community relations woes at TAHO (of their own doing I hasten to add, don’t expect any sympathy from me) is the developing situation at TAHO’s La Arena mine in Peru. We noted on Wednesday that the mine was blockaded by locals and gave the reasons why via this translation of a local news report:

Since yesterday, residents in the La Arena area have closed down operations at the mining company in the vicinity due to their opposition to the firing of the mine manager, the engineer Mariano Yupanqui Rada.

The protesters are located at the gates of the La Arena mine with banners, in order that management reverse the decision to make the aforementioned manager redundant. They stated that they were happy with the work of Yupanqui because he had always complied with the agreements made between the company and the community, as well as gaining the respect and affection of locals due to the caring way in which he went about his work, no matter how rich or poor the people concerned.

The president of the local community 'Ronda' group, Eleuterio Baltazar Rodriguez, said that it was unfair because thanks to the work of Señor Yupanqui the mining company had avoided conflicts with the local community. "He is a person who knows how to connect with the people, we are not going to allow him to leave the company because he's a professional from this region and we don't want people from other places to come in and do his job".
Also, the president of the La Arena Urban Expansion Association and also the general secretary of the union of workers at the mine, Ernesto García Armas, voiced his opposition to the decision taken unilaterally by upper management at Tahoe Peru. He said that since Rio Alto was sold to Tahoe Peru they had seen many labour abuses and unjust redundancies.

He said, "If the company ignores us, we will continue with this blockade and then as from August 31st the union workers at the mine will go on indefinite strike in order to defend our rights".

We can now update on the situation there, via the latest reports this weekend (23) that show the relationship between locals and company have deteriorated further. There’s a longer video on that link which is worth watching (if you are equipped with Spanish language and care enough) but the short report that goes with the visual captures the essence and here it is translated:

La Arena Community continue in struggle against mining company
The president of the local ‘Ronda’ community association in the La Arena area, Eleuterio Baltazar, spoke clearly when indicating that all the community were defiant (against the La Arena mine) because it was trying to ignore the agreements made by the mining company when it was controlled by Rio Alto, but unfortunately since the mine was taken over by Tahoe Peru the problems began.

He said that there were specific points that the transnational company must adhere to and they would fight until they reached their objectives because the community would not allow itself to be negatively affected.

He added that the protest was pacific in nature and lamented the fact that the company had brought in personnel from the DINOES police force as if they common criminals.

That last paragraph is significant for several reasons, because it’s no small thing to see the word DINOES there. That’s the elite police force put together in order to fight (as in really fight, war and guns and death) against the cocaine growers, narcotraffickers and far left Sendero remnant operations in the VRAE region of central Peru. Seeing DINOES personnel at a mine gate blockade is a massive case of overkill and implies the following:

  • The mine gates are no longer under blockade. Locals would be stupid to confront DINOES agents, these are the ones who shoot first, ask questions later and get a free pass on questionable methods by the national government. This is probably why TAHO hasn’t made any sort of official announcement about the blockade in the media (it thinks its problems are over; nope sorry, they’ve only just begun).

  • TAHO has no intention in engaging with locals and prefer the stick-no-carrot method of community relations. Bringing in DINOES like this without any attempt to converse and reach agreement is arrogance of the highest order and you can guarantee that local blood is now boiling around the La Arena zone. Yes, this company really is this stupid.

  • The bad blood that’s developed between locals and company since TAHO took over will only increase and that’s evident when you watch the video on that link. Locals are now threatening to make good on the strike action as from September 1st (next week) and are also bringing the unhappy locals around the nearby Shahuindo mine (also TAHO) into the protest. Those locals have been unhappy for many months and have staged their own protests and temporary blockades, so it won’t take much to get them involved.

When DINOES leaves (and they will, they only stay for a limited time) TAHO will find it has created a rod for its own back. The level of their tone-deafness in interacting with locals is astounding and if recent history has taught anything about mining in Peru, it’s that you cannot disrespect local communities and get away with it, particularly organized local defence groups like the Rondas, the same people who have stopped projects like Conga.

Bottom line: Back in IKN425 I suggested that TAHO could be a near-term trade on the rebound that would entail from it getting its Escobal operating licence out of suspension. That now looks like a very risky trade and not a decent opportunity, unless of course the CC surprises us next week and changes its unofficial ruling of last week. Added to the problem is now Peru, TAHO is screwing itself there as well with its painfully poor CSR operations. This company thinks it’s still the 1970’s, it’s not. They’re in a lot of trouble and cheap though it may be, the stock has to be called for what it is; a clear avoid.