Tahoe, Radius on working in Guatemala

VANCOUVER — When listing stable mining jurisdictions Guatemala would have a hard time making the grade. The small Central American country emerged from civil war in 1996, and remains in its infancy as far as development and regulatory...

VANCOUVER — When listing stable mining jurisdictions Guatemala would have a hard time making the grade. The small Central American country emerged from civil war in 1996, and remains in its infancy as far as development and regulatory structure are concerned. For developer Tahoe Resources the country has provided rich rewards, while for junior explorer Radius Gold the experience has proven much more frustrating.

Tahoe is in the midst of constructing its US$405-million Escobal silver-gold project located 40 km southeast of Guatemala City. Based on 27 million indicated tonnes grading 422 g/t Ag and 0.43 g/t Au, Escobal is expected to produce 20 million silver equivalent ounces over its first 10 years of production — including lead and zinc credits — and employ roughly 650 workers at peak capacity.

Tahoe remains closely tied to Goldcorp. (the major producer owns 40% of 145 million outstanding shares) which has operated the Marlin underground gold mine in northern Guatemala since 2005. During a September presentation at the Denver Gold Forum, Tahoe president and CEO Kevin McArthur cited Goldcorp's work in building relations in the country as a major benefit on the path to development.

“They have told me that they do not intend to sell their shares until the exploration program develops and they can see that value generated,” McArthur said.

Operational experience in Guatemala has not completely shielded Tahoe from the country’s growing pains; however, as the company felt the impact of a June proposal by the Guatemalan government to increase domestic ownership in resource companies. Though the proposal has since been shelved, Tahoe ran into civil unrest at Escobal in mid-September.

According to company statements, 300 people threatened a Guatemalan work crew with violence at a power line installation site on Sept. 17. Though the protest was declared unlawful by regional government representatives, the protestors held the work crew — as well as a judge reviewing the situation — hostage before 100 national police arrived. On Sept. 18 an armed group amassed outside Escobal's mine gate before breaking through and vandalizing Tahoe's cement batch plant and temporary core shed.

“There were arrests made, and we're pursuing legal actions though we aren't sure if there is any civil action as laws in Guatemala are a bit different,” explained VP investor relations Ira Gostin during a phone interview. “I will say our security people are all very well trained and disciplined, and used non-lethal measures at all times during the incident.”

Tahoe states the protestors were “not from the local area”, and were funded and organized by local and international non-governmental organizations (NGOs) opposed to development in the country.

Gostin identified two groups as being responsible for the unrest. The first is the Center of Environmental and Social Legal Action of Guatemala (CALAS), which is led by Dr. Yuri Melini and has a history of running afoul of Guatemalan authorities. The second organization is the MadreSelva Environmental Collective, a local Guatemalan group opposed to mining in the region.

“They have sort of all teamed up, but there are a few local opponents, and we've had some protests from them,” Gostin commented. “Most of that is relegated specifically to 'sour grapes'. You know, they weren't included or we didn't buy their land necessarily. That said most of this has been about the outside influences.”

Gostin explained that a group of local mayors in the municipality of San Rafael, where Escobal is located, have held press conferences requesting the NGOs stop interfering in regional matters and stay out of the area.

“They are supporting the mine, the community has jobs, and they do not want these outsiders coming,” Gostin concluded.

McArthur notes an important distinction between Escobal and Marlin is that Tahoe’s project lies on land identified by the Guatemalan government as “non-indigenous.” Goldcorp's Marlin has experienced difficulties in a region sensitive to indigenous politics.

“This mine will eventually be the largest tax payer in Guatemala. It's very important to the country, and they want the resource industry to grow. The president is committed to doing that, it was a big plank in his election platform,” McArthur said, pointing out that 96% of Tahoe’s work force is Guatemalan. “Our surrounding communities are very pro-mining. We're seeing a lot of support.”

Escobal is fully permitted through its construction phase, but Tahoe will require an exploitation permit before hitting commercial production in mid-2013. The company expects to receive its final permit by the end of the year.

Though civic instability has proven manageable for a mid-tier company like Tahoe, the story has been different for junior explorers, which becomes apparent when speaking with Radius Gold president Ralph Rushton.

A member of Simon Ridgway’s Gold Group, Radius is heavy on cash with roughly US$20 million in the bank, but has run into permitting and security issues in Guatemala that has led the company to rethink its presence in Central America. Radius is currently searching for advanced-stage exploration projects in more stable jurisdictions.

“There are many causes of instability in the region. Violent crime rates through Central America are high — some of the highest in the world which can impact day to day operations,” Rushton explained via email. “We see political polarisation down to the local municipality level, with adjacent municipalities often having completely opposite political allegiances which can cause all sorts of problems if you are working with more than one on the same project.”

Rushton explained that civil unrest experienced by developers like Tahoe can further complicate politics in a region by drawing attention from international NGOs and local opposition, which can make life more difficult for junior field crews and geologists.

Following a shooting of an activist near its Tambo gold joint venture in Guatemala on June 13, Radius divested its interest in the project, calling it a "problematic asset." Radius sold off its Tebol and Pavon gold properties in nearby Nicaragua to mid-tier outfit B2Gold earlier this year.

“We’re looking for fairly advanced exploration projects where we believe we can move to resource definition drilling fairly rapidly, or larger regional scale exploration plays with potential for multiple targets,” Rushton commented. “The primary filter is geology and potential project economics, and we’ll look at politics on the second pass.”

Radius has held onto one project in Guatemala, however – its Holly-Banderas gold-silver property located 100 km east of Guatemala City. Rushton said the geological potential at Holly-Banderas in light of the Escobal discovery has kept the company involved, though the “current investment climate” in Guatemala has prevented Radius from pursuing a multi-million dollar drill program necessary to advance the project.

“We would consider joint venture proposals and we are continuing with low key, regional target generation and reconnaissance work,” he concluded.

Radius is looking at tight equity markets as an opportunity to acquire projects from cash strapped junior companies that are finding it tough to finance exploration projects with existing upside. Rushton said that Radius has looked at roughly 500 micro-cap companies so far in its search, and he speculated that “at least half have no cash.”

Taken in context Guatemala has a way to go before it can be labelled a “friendly” jurisdiction for Canadian exploration outfits. Developers like Tahoe, with opera tional experience and political contacts, have luxuries that allow them to navigate rough waters in developing countries. For juniors a little instability can go a long way.

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