Tahoe: A Golden Hedge
11/03/2016 7:00 am EST
We’re bullish on gold and silver miners with relatively low debt and the potential to grow gold and/or silver production significantly over the next few years to take advantage of rising prices for precious metals, explains Elliott Gue, editor of Capitalist Times.
We also look for the capacity to finance growth projects without taking on excessive debt or diluting existing shareholders by issuing a flood of new equity.
We look for an experienced management team, especially for small and midsize producers; a plan for returning capital to shareholders via dividends or stock buybacks; and acceptable geographic and political risks.
Tahoe Resources (TAHO) is on course to produce 370,000 to 430,000 ounces of gold in 2016 and 18 million to 21 million ounces of silver from its mines in Canada, Peru and Guatemala.
The company’s Escobal mine in Guatemala, the world’s third-largest silver mine, produced 20.4 million ounces in 2015 at an all-in sustaining cost (AISC) of $9.11 per ounce.
The company’s guidance calls for Escobal to produce about 20 million ounces of silver each year through at least the early 2020s.
The same basic forces driving gold demand apply to silver, even though the latter also has industrial applications.
Tahoe Resources’ La Arena and Shahuindo mines in Peru are expected to produce about 200,000 to 250,000 ounces of gold this year. These mines’ AISCs ranges between $700 and $750 per ounce of gold.
Finally, Tahoe Resources’ Timmins and Bell Creek mines in Canada should produce 170,000 to 180,000 ounces of gold in 2016 and boast an AISC of less than US$650 per ounce.
Tahoe Resources plans to grow its gold output to more than 550,000 ounces by 2020 without increasing its AISC appreciably; the company’s free cash flow could ramp up significantly over the next few years.
Equally important, the midsize gold producer boasts a clean balance sheet with a net cash position and last year generated $244 million in cash flow from operations.
Tahoe Resources rates a buy up to US$15.50 per share as an aggressive bet on gold prices.
By Elliott Gue, Editor of Capitalist Times