Can Tahoe Resources Inc. Ever Bounce Back?

Tahoe Resources Inc.’s (TSX:THO)(NYSE:TAHO) recovery could be a long way off and much further away than originally believed.

Last year was a shocker for precious metals miner Tahoe Resources Inc. (TSX:THO)(NYSE:TAHO). Operations at its flagship Escobal silver mine in Guatemala ceased because the licence was suspended on July 5, 2017, by the Latin American nation’s Supreme Court. This caused Tahoe’s silver production to fall sharply, hitting earnings hard. Despite claims that the licence would be reinstated before the end of last year, the Guatemalan Constitutional Court has yet to issue a ruling. That leaves Tahoe in an extremely difficult position. Its stock is languishing at newfound lows, as investors stampede for the exits because of the high degree of uncertainty surrounding the miner. 

Now what?

Some pundits in July 2017 predicted it would take some time for the licence and the issues surrounding its revocation to be resolved. In a September 2017 article, I argued that Tahoe may be incapable of re-initiating operations as quickly as claimed because of an array of difficulties including allegations that Tahoe failed to adequately consult local communities.

While Tahoe was initially optimistic that the licence would be reinstated within three months, the dispute continues to drag on. This is despite the Guatemalan Constitutional Court having heard appeals to reinstate the licence on October 25, 2017 and being required to issue a ruling within five days.

Now the miner has been forced to start reducing the mine’s workforce because it is incapable of recommencing operations. This will likely provoke further negative responses in Guatemala because of the mine’s importance to the local economy and its polemic nature.

While the miner keeps painting a positive picture, including the likelihood of the licence being reinstated and its ability to recently achieve record annual gold production of 445,000 ounces in 2017, the reality is very different. If Tahoe can’t recommence operations at Escobal, it is going to continue to harshly impact its finances because the mine is responsible for almost all of its silver production which is the core driver of earnings.

Furthermore, even if the licence is reinstated, the conflict with local communities will continue, including a local roadblock and further protests over the mine.

In fact, the mine’s existence has become highly polemical, primarily because of claims of a failure to consult local communities along with allegations of violence as well as intimidation being used against protesters by Tahoe. That in conjunction with political sensitivities in Guatemala to the expropriation of domestic resources by foreign companies means that it will be a long and difficult to road to successfully recommence operations. 

So what?

Tahoe’s current situation highlights the risks facing miners operating in developing nations, notably Latin America, where there has been a long resistance to foreign companies profiting from local resources. There is also a long history of expropriation of the assets of foreign companies by regional governments to meet domestic political objectives.

For these reasons, there is very little that is appealing about Tahoe at this time for investors with the risks far surmounting any upside that could be available. That said, if the licence is reinstated, investors can expect Tahoe’s stock to surge, potentially doubling in value if it can successfully convince investors that there will be no further disruptions and if the level of political risk dissipates to manageable levels.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Metals and Mining Stocks

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »