Another follower of mine requested that I do a write up on Tahoe Resources. I haven't checked this stock out since I sold it last year during the upswing around $14 dollars per share. The first two things that come to mind when I think of this company is the Escobal Silver mine, which is a great asset, and Lake Shore gold, a company I used to own till Tahoe Resources (NYSE:TAHO) bought it out.
So, I am going to first talk about its flagship asset and that is the Escobal mine. As that project goes, so does this company, that's why I view Tahoe as a speculation and not a core holding. My only problem with the Escobal mine is that its located in Guatemala. This mine is geopolitically risky as this mine isn't too popular with the local population.
In terms of the actual mine, this mine is estimated to produce 18 million to 21 million ounces of silver until 2021. For 2017, it's all in sustaining costs are estimated to be at $7.50-$8.50 per ounce, and then from 2018-19 all in sustaining costs are estimated to be at $10-$11 per ounce of silver. My overall thesis is that this is a world class mine with geopolitical and social risks attached to it.
In terms of gold production, Tahoe's gold production is estimated to increase from roughly 375k-425k ounces to 500k-550k ounces of gold by 2019, while silver production remains flat. In terms of overall projects, their primary resource is silver, but its production growth will come from its gold production. This isn't necessarily a bad thing, because in the beginning of precious metals bull markets gold generally out performs silver; and this 2017-19 period of production growth, is what I consider to be the beginning stages of this next multi-year bull market in precious metals.
In terms of the company's valuation, its trading below its book value per share of $8.26, with a price to book ratio of .93. Its EV/EBITDA ratio is 5.92, so its trading at relatively cheap valuations.
In terms of the financials, its balance sheet is strong with its current ratio being 2.39, and total assets to total liabilities ratio of 6.15. In terms of its cash flow, for 2016 its generated roughly $58.569 million dollars in free cash flow. So financially this company seems healthy.
Lastly, this company pays a monthly dividend of $0.02 cents per month. Which, in my opinion, shows that management is confident about executing future growth, while containing costs.
In conclusion, I think that Tahoe is trading at a nice valuation, its financials are strong, while possessing a world class silver mine. I considered it a speculation and not a core holding though, because this company is a one trick pony with geopolitical risk. There is nothing wrong with only having one great asset unless this company is a senior company, but Tahoe's asset is in a geopolitical risky environment as stated above. I personally think by 2020 Tahoe will have to make another acquisition in the future, but for now the company looks to be doing well, and for those interested this might be a very good entry point.
Also I didn't mention much about Tahoe's dividend, because here is a little word of advice for you, don't buy miners when looking for dividends, it won't end well for you.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.