Guatemala’s huge mining royalty hike makes Tahoe unhappy

The Escobal mine is immediately east of the town of San Rafael, Guatemala.

Tahoe Resources’ (TSX:THO), (NYSE: TAHO) Escobal silver mine in Guatemala may become a more expensive operation as the country’s Congress passed Friday legislation to increase mining royalties from 5% to 10%.

While it still needs to be signed by the President before it becomes law, the proposed hike presents additional challenges for embattled precious metals miners, already affected by an ongoing slump in prices

Tahoe Resources warned Monday the planned tax increase would require Escobal, which experts say could soon become one of the world’s largest producers of the precious metal, to pay double what it does now at a time when the industry is struggling and facing the lowest metals prices in four years.

However, the firm said that while it may not like the royalty increase it would deal with it if need be.

In a note to investors, Haywood Securities analyst Georgie Mark said the country’s revised fiscal regime (if enacted into law) would lead to lower operating cash from El Escobal. However, he said it shouldn’t be a surprising move. It only “highlights fiscal risks faced by the mining industry in less developed nations,” he wrote, particularly from those with “fledging” natural resources.

Tainted reputation

Tahoe’s mine has been at the centre of a nationwide debate in Guatemala over the role of mining in the country’s economy and broader environmental issues. Human rights organizations claim that both Tahoe and Goldcorp’s practices have led increased conflict and violence.

Opposition to the mine has been fierce and Tahoe had to overcome a string of challenges before the mine reached commercial production in January. Those included a Guatemalan appeals court probe and a complaint filed with the Ontario Securities Commission related shootings in the project vicinity.