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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.

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