Tahoe Resources Inc. (NYSE: TAHO)
New ASP of Arena II adds US $ 418 million in our valuation		 Price: USD 3.98 
VF: USD 9.21 
Buy
 
Tahoe Resources published the PEA for the La Arena II project. The report concluded on the following:
 
  • Sulfide Resources of 693.2 MM of MT of ore with gold grades of 0.23 g / MT and copper of 0.38%. Thus, 5.2 MM of Oz Gold and 5,790 MM of copper Lb are available .
  • Oxides resources of 49.10 TM with a law of 0.28 g / MT. Resulting in 440,000 Oz of gold .
  • 21 years of mine life.
  • Plant with a treatment capacity of 80,000 TPD.
  • Capex Inicial de US$ 1,360 MM.
  • Cash cost co - product of 600 US $ / Oz (below the world average of 750 US $ / Oz) and of 1.55 US $ / Lb (slightly above the world average of 1.37 US $ / Lb).
  •  
  • Present value after taxes of US $ 824 MM using a discount rate of 8.0%. With a rate of 10.0% the NVP is US $ 485 MM. That is, the project will add between US $ 1.50 and US $ 2.60 per share, respectively.
  •  
  • The assumptions used to find the NPV of US $ 824 MM were a gold price of US $ 1,300 / Oz and US $ 3.3 / Lb.
  •  
  • The synergies that will be developed with the current operation of La Arena, will impact the trained workforce, energy line and access routes. A new plant to treat sulphides by means of the floating method was built.
  • The stock of resources has seen an increase of 89.0% in gold resources and 123% in copper resources, compared to the last technical study reported by Rio Alto Mining.
  • The company plans to continue with the pre-feasibility and feasibility studies.
 
Stock of Resources 2018 
 
Stock of Resources (2015) - Rio Alto Mining 
  
Stock of Reserves (2015) - Rio Alto Mining
  
We emphasize that this PEA is the result of new explorations, a new geological model, a new stock of resources, a new processing scheme and tailings disposal. 
 
Valuation
 
The news is positive because we believe that the market had not internalized the value of this project, due to the low level of resources that the old PEA had. This is likely to have a positive impact on the share price.
 
Due to the publication of the PEA, we have changed our method of valuing La Arena II from on-site valuation to discounted cash flows. We have used the same CAPEX assumptions and costs. However, we have assumed long-term prices for gold of 1,300 US $ / Oz and for copper of 3.0 US $ / Lb. Likewise, we use a discount rate of 8.80% (with which we discount the Tahoe operations in Peru). As a result, we obtained a NPV of US $ 586 MM. Applying a discount of 15.0% for the stage in which the project is located we have a NPV of US $ 498 MM (using a long term copper price of US $ 3.30 / Lb, the NPV will be US $ 743 MM).
 
In conclusion, the La Arena II project adds value to the company. The project is now totally different from the one I had in the Rio Alto sketch, because in this the stock of resources is doubled. 
 
The value we estimate for the US $ 498 MM project is above the US $ 80 MM estimated under the on-site methodology. Therefore, we added an additional US $ 418 million to our valuation model. Considering a multiple of 1.50x NAV, we increased our VF of US $ 7.56  to US $ 9.21 , changing our recommendation to keep to buy. We emphasize that in our model we no longer consider the value of Escobal. 
 
Regards,
 
Sebastin Cruz Investment 
Analyst 
and 
 
Central Capital Market : (511) 630-7500 
Direct: (511) 630-7533 
 
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www.kallpasab.com "