https://seekingalpha.com/article/4150255-tahoe-resources-taho-ceo-ronald-claytonne-q4-2017-results-earnings-call-transcript?auth_param=pr64p:1d90tcu:445c0a095aea67020abfe7e83f1a762d&uprof=45&dr=1
Tahoe Resources Inc. (NYSE:TAHO) Q4 2017 Earnings Conference Call February 23, 2018 10:00 AM ET
Executives
Alexandra Barrows - Vice President of Investor Relations
Ronald Clayton - President and Chief Executive Officer
Elizabeth McGregor - Vice President and Chief Financial Officer
Thomas Fudge - Vice President of Operations
Edie Hofmeister - Vice President of Corporate Affairs
Charlie Muerhoff - Vice President Technical Services
Brian Brodsky - Vice President Exploration
Analysts
Steven Butler - GMP Securities
John Tumazos - John Tumazos Independent Research
Cosmos Chiu - CIBC
Mike Parkin - National Bank
Operator
Thank you for by. This is the conference operator. Welcome to the Tohoe Resources' Fourth Quarter and 2017 Year-end Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions].
I would now like to turn the conference over to Alexandra Barrows, Vice President of Investor Relations for Tahoe Resources. Please go ahead.
Alexandra Barrows
Thank you, and good morning everyone. Welcome to Tahoe Resources fourth quarter 2017 earnings conference call. Our results were released yesterday evening as most of you saw on the website and the copy of the press release and slides for today's call available there. Our conference call today is being webcast live and is also available on the Investor Relations page.
Before we begin, I would like to remind everyone that we will be making certain forward-looking statements during today's presentation and actual results may differ materially. We would like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our MD&A's and our AIF.
Joining us on today's call we have Ron Claytonne, President and CEO; Liz McGregor, Vice President and CFO; Edie Hofmeister, Executive Vice President of Corporate Affairs and General Counsel; Tom Fudge, Vice President of Operations; Charlie Muerhoff, Vice President Technical Services and Brian Brodsky, Vice President Exploration. As usual after our prepared remarks, we'll open the call for questions.
And with that, I would like to turn it over to Ron.
Ronald Claytonne
Thanks, Alex and good morning to everyone. Before we jump into our earnings, I want to reflect a little bit on the past year. 2017 was a year of two storage for Tahoe. On the one hand, our gold business gold shine with record gold production of 445,900 ounces, achieving the high end of our annual gold production guidance range of 400,000 to 450,000 ounces.
This strong performance was driven primarily by La Arena in Peru which exceeded its guidance due to ongoing positive mine plan reconciliation. In fact, Tahoe’s entire gold business never exceeded gold guidance in all categories in 2017 including lower than guided total cash cost and all-in sustaining cost.
During 2017, we continue to execute on our two near-term gold expansion projects expanding Shahuindo from 10,000 tonne per day run a mine operation to a 36,000 tonne per day operation with crushing and glomeration processing. And the Bell Creek Shaft, which is expected to double gold production and mine life, both of which remain on-track and are schedule to be completed during 2018.
The completion of these projects are expected to position us to achieve our stated goal of 500,000 ounces of gold production by 2019, the outstanding performance from our gold business in 2017 underscores it’s increasingly meaningful contribution to our overall financial performance of Tahoe.
On the other hand, as you all know Escobal faced difficulty in 2017, while Escobal delivered solid performance during the first half of the year producing 9.7 million ounces of silver mining activity was soft in July following the temporary suspension of our mining license by the Supreme Court of Guatemala.
On September 10 of last year the Supreme Court issued a ruling that reinstated the Escobal mining license; however, this ruling was appealed to the Higher Constitutional Court on October 25 of last year. We are still waiting a ruling.
We remain optimistic that based on legal president the Guatemalan Constitutional Court will issue a favorable ruling and stating the Escobal mining license in the near-term and we are very eager to resume operations.
In addition to the court ruling, we are focused on addressing the roadblock at Cassias and we are working at constructively with the local communities and the Guatemalan Government to achieve a positive revolution there.
We are hopeful that with clarity from the legal ruling and the progress with the roadblock, we will be in a position to resume operations at Escobal. The productive Escobal is in the best centers of all of our stakeholders including the Government of Guatemala, the local communities, our employees, our suppliers and Tahoe’s the shareholders.
Despite the interruption of mining operations at Escobal for nearly half of 2017 on the back of our record gold production Tahoe ended the year with cash and cash equivalence of approximately $126 million and limited debt.
We reported positive cash flow from operations before changes in working capital of $287 million for the year and positive earnings of $82 million or $0.26 per share, this performance reinforces that this is a resilient Company that has managed through a very difficult 2017 and still remains well position to accomplish our near-term goals.
With that, I will turn the call over to Liz to provide a brief update on our financial performance for the quarter and full-year and review our 2018 multiyear guidance. Following Liz’s comments, I will provide an update on our project pipeline. Liz.
Elizabeth McGregor
Thank you, Ron. And good morning everyone. As Ron already mentioned, during 2017 our outstanding gold operations net or exceeded our revise guidance in categories, including lower than anticipated total cash cost and all-in sustaining cost.
I’m going to start with the brief summary of our financial results and highlight a few items. Tahoe reported a net loss for the fourth quarter of $18 million or $0.06 per share, reflecting the ongoing suspensions of operations in Escobal during the quarter.
Earnings during the quarter were also negatively impacted by a non-cash adjustments of approximately $7 million or $0.02 per share after-tax to true up the depletion related to the Peruvian mine.
Despite the loss reported during the quarter, we reported positive earnings of $82 million or $0.26 per share for the year, reflecting the outstanding first half performance from the Company in 2017 and the underlying strength of the gold business.
Focusing on the gold business for a moment, we produced a 105,800 ounces during the fourth quarter and sold 93,000 ounces. Our average realized price for gold in Dore during the quarter was $12.72 per ounce, which was slightly higher than Q3. For the full-year 2017 as Ron already mentioned, we achieved record gold production of almost 446,000 ounces and record gold sales of 435,200 ounces of gold.
Production cost at the fourth quarter were almost $70 million and $348 million for the full-year of 2017. Depreciation expense in the quarter and full-year 2017 was $42 million and the $153 million respectively, which included the onetime adjustment related to the Peruvian mine.
G&A remains consistent in the fourth quarter and we continue to incur costs related to the care maintenance for Escobal of just under $25 million for the full-year. This amount includes costs related to maintaining environmental commitments, security, salaries and legal fees among other things.
Our gold cost per ounce trended downwards in the fourth quarter when compared with Q3, and the full-year total cash cost and all-in sustaining cost were $641 per ounce and $973 per ounce respectively, which exceeded our guidance expectations for the year.
Total capital expenditures, in the quarter were $60 million which is split of about 50/50 between sustaining and project capital. As you recall, after we suspended our guidance back in August 2017, we undertook a detailed review of the pace of both capital and exploration expenditures as well as G&A in an effort to conserve cash flow, Escobal remains suspended.
As a result, in 2017, we spent just under $100 million related to our two growth projects. This should end expansion in Bell Creek Shaft and we shifted about $60 million in growth capital related these two project to be spent in 2018. Due to our efforts, I'm happy to say, we ended 2017 with consolidated cash and cash equivalents of just under $126 million, $35 million in debt and about $8 million in capital reserve.
As we announced earlier this week, on February 16, we closed an amended revolving credit facility with our banking expenditures. Tahoe now have access to $175 million with an additional $25 million accordion feature for a total access of $200 million, which matures in July of 2021.
This amended facility replaces the previous facility and is structured on the strength of Tahoe's gold business alone. Very importantly, access to this facility does not rely on nor have any covenants related to the operation at Escobal. So we are no longer subject to the previous borrowing limitations during Escobal expansion and we have full access to borrow on the facility.
I'd like to thank our entire bank syndicate for their ongoing support to Tahoe and for helping us get this amended facility closed well before the end of Q1. On February 20, we also repaid the $35 million in debt that was due in April from our existing cash balance. So as of this call today, Tahoe is now debt-free with only about $8 million in capitalized leases.
I will now turn briefly to discuss our 2018 guidance and then I will turn the call back to Ron to provide an update on our Shahuindo and Bell Creek project as well as our longer-term pipeline opportunities. Tahoe has successfully achieved a steady increase in our annual gold production for the last three years and we are well positioned to meet our goal of 500,000 ounces by 2019.
As part of last night’s earnings release, we also provided gold guidance by mine for 2018 and a three-year outlook for gold. 2018 will be a transition year and we anticipate seeing higher costs than we saw in 2017 at a range of 725 to 775 total cash cost per ounce of gold. This is being driven by the lower grade in the 144 GAAP deposit along with more ounces coming from Shahuindo, both of which have a higher cost profile than La Arena.
As expected, La Arena will make up a small proportion of production in 2018 than in 2017, which also moves the cost needle. We continue to be focused on ways to increase the profitability of all our mines and lower costs; however this is key at our Timmins operations given the lower grade profile.
This year, we are also focused on the completion of our Shahuindo and Bell Creek projects; incidentally, our total capital for the year is slightly higher than some of the anticipated as a result of shifting that $60 million from 2017 entire 2018 spend profile. However, once 2018 is complete, we should be in a strong position heading into 2019 and towards our goal of 500,000 ounces per year.
With that, I will now turn the call back to Ron.
Ronald Clayton
Thanks, Liz. The fact that we consider here today, nearly eight months of suspension of Escobal, debt free was a new credit facility and ready to start 2018 in a healthy financial position speaks to the strength of our gold business. So, I would also like to reiterate my thanks to our banking partners for their support on the revised credit facility.
Let’s turn to our expansion projects for a moment. Looking at Shahuindo, construction of the lead Pad 2B continued on-track and remained schedule to be placed into production in the third quarter of this year. Commissioning in the 12,000 tonne per day crushing and the glomeration circuit was substantially completed earlier this month and construction of the 24,000 tonne per day circuit has started.
We remain on schedule to reach the full 36,000 tonne per day production rate by the end of the year and an expected 80% of ultimate gold recovery in line with feasibility study. Of the estimated $80 million total project capital for the crush and the glomeration circuit, approximately $49 million has been spent through the end of the year, the remaining roughly $31 million left in the total project plan will be spent in 2018 in order to complete the full expansion to the 36,000 tonne per day circuit capacity.
Other key projects included in our 2018 Shahuindo project capital of $80 million to $100 million include the expansion of the AVR plant, completion of the power line and substation and leach pad and waste dumps.
Turning to Bell Creek, our focus on the shaft project continued during the fourth quarter. The excavation of the third and final pilot race from the shaft bottom is complete and slashing of this race to the final dimensions has begun.
Surface construction is focused primarily on the hoist room and headframe. Mechanical installation of the hoists started in the early February and the headframe silver work is progressing with the projected start of steel installation by the end of this quarter.
Of the $80 million, total spend for the BC or Bell Creek Shaft project approximately $52 million has been spend through the end of 2017. The remaining project costs are scheduled to be spent in 2018 in order to finish the projects. Project remains on schedule and within guidance for commissioning in mid year with a ramp up through the end of the year.
On the exploration front, our current spending continues to be carefully managed with a focus on those areas with the highest likelihood of having a positive impact on our near-term production. In Canada, we completed about 14,000 meters of exploration drilling, in an effort to grow gold mineral reserves and our resources in the region. Specifically, we focused our efforts during the quarter on the Thunder Creek deep deposit, gold river, the Bell Creek extension and the Wetmore property near Bell Creek.
In Peru, exploration activity during the quarter concentrated on a number of satellite targets at Shahuindo mine and drilling the deep oxide zone at La Arena. We are calling that Phase 8. We also focused on advancing some early stage exploration at select district targets surrounding both La Arena and Shahuindo.
While our exploration budget is still being carefully managed, I was very pleased to report our updated reserves and resource information last week. In 2017, we added 888,000 ounces of new gold mineral reserves, more than replacing the 489,000 depleted during our record gold production year.
This reflects a 12% increase over the prior year. The increase was primarily attributable to exploration success of the Shahuindo mine, the initial mineral reserve estimate for 144 Gap at Timmins West mine that we reported back in September and the conversion of mineral resources to mineral reserves at Bell Creek.
We also reported an updated resource including an increase in gold resources of 3.4 million ounces from the addition of the La Arena II project. As most of you have seen, we have released the results of our preliminary economic assessment on La Arena II on Tuesday.
Our decision to restart the La Arena II PEA reflects our strong belief that we will receive a positive ruling from the constitutional court on Escobal in the near-term and our desire to continue to advance our gold business and demonstrate the value and opportunity of our existing portfolio.
As you will see with the release of the PEA on Tuesday, the La Arena II is the significant copper-gold porphyry project. The preliminary results indicate a total measured and indicated mineral resource of 5.6 million ounces of gold and 5.8 billion pounds of copper. Now that the project at a discount rate of 8%, is estimated at 824 million with IRR of 14.7%.
Although the initial capital estimate of $1.36 billion is large, we are approaching this project deliberately and we’ll continue our evaluation with the intend of advancing the project to prefeasibility or feasibility at the appropriate time.
The timeline and estimated capital required to progress to the next stage are under review and we have not yet committed any capital towards advancing the project. We intend to be thoughtful about this project in the context of our existing operations in pipeline and our goal is to progress the project responsibly in order to maximize the value for our shareholders.
That being said, we are very excited about the potential of La Arena II and the future of the company. Finally, before we conclude today, I would like to address our renewed CSR efforts. While sustainability has always been integral to Tahoe’s business model, progress is not always linear.
Today, we have recognized the need to respond to changing geopolitical and social dynamics by enhancing the scope of our socio-environmental stewardship programs. It is imperative that we always are mindful of the full range of impacts our business operations have on our employees, our host communities, our stakeholders and the environment.
So as we move forward into 2018, I’m pleased to announce that Tahoe is reaffirming and strengthening its commitment to sustainability across our business. As a first step in January of this year, we announced that we have joined the United Nations Global Compact. And we will participate in the Canada local network.
In addition, during 2018, we will continue to work to strengthen our partnership with governments and stakeholders, and our host communities where we operate. At our core, we remain committed to sustainable development and to providing significant long-term benefits from our operations to our host communities and governments.
2018 is a pivotal year for Tahoe Resources with many near-term catalysts. We expect to resume steady operations at Escobal this year and to complete the construction of our two near-term expansion projects that’s Shahuindo and Bell Creek, positioning us to achieve our stated target of 500,000 ounces of gold production.
During 2018, we will also focus on advancing our internal project pipeline and defining our key exploration opportunities while it’s still early days, we are very optimistic about La Arena II as we believe this could be a significant new phase of growth for the company.
In addition, we are focused on exploration at Shahuindo and at targeted locations in our Timmins operations. We are focused on making the most of these significant opportunities and we’ll continue developing our gold operations and demonstrating the value and upside potential that exists within our pipeline.
Finally, I wanted to remind you that at the foundation of our businesses and extraordinary work force, while those last eight months has been prime time for the company, our team’s dedication, positive spirit and resilience were instrumental in managing our company in 2017.
Our primary focus during 2018 will be to find a resolution to the complicated issues in Guatemala and to resume operations at Escobal to complete construction and commissioning of our expansion projects in Canada and Peru, and to focus on fundamental values that Tahoe was built on sustainable value creation for all stakeholders, employees, communities, suppliers and shareholders. We are collectively focused on building and returning value to our shareholders and we look forward to an exciting 2018 ahead.
And with that, I want to thank you for your time this morning. Operator, we have concluded the formal portion of our prepared remarks and we’ll be happy to take questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Ralph Profiti of Eight Capital.
Ronald Clayton
Good morning, Ralph.
Ralph Profiti
Good morning, Ron. Thanks for taking my questions. Firstly, as you focused on the low grades at Timmins, does the mine plan over the next few years incorporate any flexibility say either through more selective mining? Basically what options are available to you?
Ronald Clayton
Yes. Ralph, I mean I don’t get too specific with you, but there are some options that we have and that we are looking at. And I will just give you one example of about 10 that we are working on. The guys have figured out of a way to do some of the development in the ore, which reduces the waste development and reduces the capacity on haulage and everything else. So, that’s just one example of a lot of things that we are looking at that would be focused on both cost efficiency and/or on grade improvement.
Ralph Profiti
Yes. Okay. Okay. Thanks for that. If I can come back to the 2019 guidance, specifically on the $50 million to $70 million in growth CapEx and there is a lot of shifting capital moving around the few years. I’m wondering and my apologies if I missed it in the MD&A. Where is that money being spent in that particular year?
Ronald Clayton
Liz, why don’t you want to take that?
Elizabeth McGregor
Sure. Good morning Ralph. So that's actually just a little bit of hangover spend. When we did the shift from 2017 and into 2018, there was also some spend that got shifted into 2019. And it's actually out both in Canada and in Peru. So, I don't have the exact percentages with me at the moment, but if you kind of just the same with the 50/50 split. Canada and Peru that's probably right.
Ronald Claytonne
Yes. And Ralph, I think one thing I'd add to that, is just remember we were well under our growth projections for 2017. That doesn't mean that we weren't going to spend that money. It's just got shifted that on time. Part of that has been our capital management program, where we have been working hard to make sure that we move these projects along into speed we wanted to meet our goal, but at the same time were pretty thrifty about how we spent money. But the net result is we have had to push some of that out a little bit.
Ralph Profiti
Yes, yes, agreed. Thanks Ron, very helpful.
Ronald Claytonne
Okay.
Operator
Our next question comes from Steven Butler of GMP Securities.
Ronald Claytonne
Good morning, Steve.
Steven Butler
Good morning, Ron. Thanks for taking my questions. Ron, first question I guess would be state of the union, status of the mine at Shahuindo in light of solution pipeline leak reported in last two weeks.
Ronald Claytonne
Yes. We're back up in running with the crushing and glomeration commissioning. I want to make sure it's very clear that we never shutdown the runner mine portion of the operations. So we were still producing all the way through the short period of time than we were down with the crushing and glomeration.
I will just make a couple of comments about that, Steve. Our internal investigation we found that the valve was left open that shouldn't been left open. And it allowed cyanide solution to get through the overland pipe from the ADR plant. And it initially went into the proper containment for industrial solutions.
Unfortunately in the process, before we actually discovered leak, it actually got out into some of our storm water containment. The good news to that is we contained the solutions on the property and we contained them in places where they could be good, easily managed and not create a problem.
The bad news that I think we're going to end up with some sort of citation or something like that, but I'm not overly concerned about the ongoing impact on the operations. And we have got the problem solved and we'll keep it from happening again.
Steven Butler
Okay. So the Ministry is also on board or signed off on the situation?
Ronald Claytonne
They are still in their investigation. Yes they are still in their investigation, but I don't think we know the end of that.
Steven Butler
Okay. And Ron, stain improved at La Arena II and the initial CapEx strike some of us maybe has been maybe slightly light at $1.36 billion even though it’s a healthy number, it's still maybe stretches slightly light number. But there is a credit for preproduction or pre-commercial production credit from some of the golden up above. So the size and magnitude at least of the credit against the capital cost that can be?
Ronald Claytonne
Yes. look the first off, the first thing I will say Steve, this truly is a PEA this is not an Escobal PEA. So this is plus or minus 25% kind of the estimate here, it's a scoping study. Secondly, that credit is around… Liz?
Elizabeth McGregor
Sure. I mean it's pretty minimal Steve. It kind of just net so the capital there is - the net credit is $2 million in the model, but the revenues that are offsetting the additional capital is closer I think to like $200?
Ronald Claytonne
Yes, that’s about $200 million.
Elizabeth McGregor
Yes.
Steven Butler
Okay. That’s healthy enough it makes some sense, that’s fine. And then Ron, we have to ask, if I don’t ask somebody will about. Maybe just again what the situation is especially understand to be on Escobal and October 25 or October 31, is heck of a long time ago for the Constitutional Court to have potentially made their assessment of the situations. So maybe, if you have any update for us?
Ronald Claytonne
I don’t want to be too specific, but I think you have probably heard a little bit of optimism in my tonne in the last couple of weeks and I would tell you that’s around what we see going on publicly in the country that would indicate that the court is moving forward with this case. And we have also gotten a huge amount of public support in the media both social and mainstream media and from lots of different places.
I would tell you one of the things I’m very, very proud and very excited about right now, is our people have made some tremendous strides with the communities and other groups around Cassias including the indigenous groups which are outside of the IIE boundary, but people we have work with over the years.
And I’m very encourage that there are some new dialogue going on with people that we would have like to have been able to dialogue before and for one reason or another didn’t and those things are all moving in the right direction. I’m not, I can’t get more specific than that with you other than you should gather out of this conversation that I’m very optimistic.
Steven Butler
Okay. Thanks, guys. Thank you very much.
Operator
Our next question comes from John Tumazos of John Tumazos Very Independent Research.
Ronald Claytonne
Good morning, John.
John Tumazos
Good morning. Thank you for all of your efforts to such a tough time. My questions are about the La Arena study, just wondered if you could comment, we calculated that you had 5,289 tonnes of resource per assay and that was the best of any copper study we looked at, Hud Bay, Rose Mont, 14,000 Corado block as 16,000, Northern dynasties are 185,000. So, we agree that the copper and gold exists. Thank you.
Ronald Claytonne
Thanks, John.
John Tumazos
Concerning the cost, some of the language in the PDA was - and maybe didn’t describe everything. The mining cost is 393 per tonne at a three to one strip of $1.33 a tonne. Presumably this is an while a consultant number, because you have mine there. It says that existing mine is 476 a tonne process and I guess including waste. What is the mining cost per tonne of the existing mine is it $1.33?
Ronald Claytonne
Charlie why do you take that one?
Charlie Muerhoff
Sure. Hi, John. Yes, the current cost at La Arena per tonne mines so own waste is for the last year it was $1.78 it average through the year. But you also have to remember, so comparing the throughput rate, the mining rate of 36,000 to our 80,000 tonne for La Arena II, keep that in mind and also La Arena, the current mine is we use 10 cubic meter hydraulic shovels and 90 tonne haul trucks whereas for La Arena II we modeled with the 55 cubic meter electric road shovels and 320 tonne haul trucks. So we are gaining some efficiency on cost just from a scaling up.
Ronald Claytonne
So the other comment I would make John on top of that is if you benchmark that against operations that have the same kind of criteria that Charlie just described that we have modeled this on the cost are right in there with the benchmark cost.
John Tumazos
So among the public companies to disclose rock cost, that $1.44 a tonne is the lowest I’m aware of. They go over $4 a tonne in Argentina. So the $1.33 it's a very good cost, [indiscernible] 3.25 million tonnes a day is over $2. What are the mines you benchmark against to get you $1.33.
Ronald Claytonne
Well we look that at a few of the feasibility studies out like there, like Constantia and Rosemont and that [indiscernible] but when we came up with our cost we actually benchmarked them against the Nevada operations of Barrick. And then adjusted the labor rates to the labor rate that are currently have at La Arena.
John Tumazos
And as far the cost are kind a vanishes some time. So Barrick has real cost in Nevada?
Ronald Claytonne
We benchmarked against real cost John. And then adjusted for specific Peruvian things.
John Tumazos
Now $0.91 a tonne of administration. Do you think that maybe there should be an extra buck around in there for despite this never include community social but now in Guatemala we see that's a big cost?
Ronald Claytonne
Certainly our experience in Peru right now and the amount of the money that we're spending there ramped up for scaled up operation as reflected in that number.
John Tumazos
And the $1.36 billion capital are the 598 directs actual bids for mill equipment for the mill and the 260 equipment actual bids for trucks and shovels?
Charlie Muerhoff
Yes, those were pro forma closed from the manufacturers.
John Tumazos
Thank you very much. I am a shareholder.
Charlie Muerhoff
Thanks, John.
Ronald Claytonne
Thanks, John.
Operator
Our next question comes from Cosmos Chiu of CIBC.
Cosmos Chiu
Hi Liz and team and thanks for the call. Hi, a few questions for me here. Maybe first off on as Liz have mentioned 2019 CapEx included some development CapEx for Bell Creek and also Shahuindo. I just want to confirm. I think it's still on time on budget for completion in 2018, is that correct? I'm just trying to put those two concepts together in terms of…
Ronald Claytonne
Yes. There was two things I think some of it is some of the capital wasn't necessarily directly in the shaft, it was development outside of the shaft. And the other thing is money just flows slower than the project does. You also got to remember that we have got tailings expansion in there as well.
Cosmos Chiu
Okay. So when you say, 2018 substantially complete that's the shaft at Bell Creek some of the peripherals you still need to spend some money on it.
Ronald Claytonne
Yes well the shaft will be fully functional. So I don't want to get any confusion there. It's not like we're talking about bins or anything like. It's more like things like that, it’s more or like things like the pace system and tailings, and additional development to produce more ore and things like that.
Cosmos Chiu
Okay. Great. Maybe moving onto maybe La Arena here, number two maybe it’s still too early Ron as you have mentioned. But you give us some good details on the studies behind or the benchmarking behind it. Have you given any thought in terms of how you might finance this project, Ron?
Ronald Clayton
Yes. Look, Cosmos, certainly we have thought about a lot of different things, but I wouldn’t say that we are anywhere nearer making a decision or the one idea takes person over another idea, that’s what we are going to do going forward here. Certainly giving Escobal back in production is important before we make too many decisions about how we advance this.
Cosmos Chiu
Okay. And then...
Ronald Clayton
But we haven’t made any decisions there.
Cosmos Chiu
Okay, great. And then certainly good to see that you have put in a new line of credit just based on the strength of the gold business here. Based on my model, it looks like you might need to draw on the line of credit some time in 2018. Again, Ron that’s dependent on when Escobal sort of comes back into production. But as is that sort of your baseline assumption as well, in terms of potentially drawn on the line of credit in 2018?
Ronald Clayton
Yes. I think you have answered John question there, yes it depends on how quickly Escobal returns to production and the cash flow. Liz, you want to add something there?
Elizabeth McGregor
Yes. I think with the repayments of the $35 million in Peru out of existing cash and that makes a little bit more likely that we’ll draw on that. So, it’s not just dependent on the Escobal. Historically, we have always thought, we would refinance the $35 million, but with repaying it, it makes drawing on the facility likely.
Cosmos Chiu
Okay. And then maybe one last question for me here on Escobal. Can you remind us again what’s the care and maintenance cost at Escobal either per quarter or anything I’m sure it can work it out?
Ronald Clayton
Yes. I’m going to let Liz answer that one.
Elizabeth McGregor
Sure. It really depends on the quarter, but we spent about a $25 million in 2017 for six months and we would expect to see that rate comes down a little between $2 million and $3 million per month.
Ronald Clayton
Yes. And the big difference there, Cosmos is again depending on how long this goes. We have had a very healthy communications and lobbying budget associated with it, so –depending on what the future holds here and how quickly we get a reaction, we would - that would have an impact on that number. Okay?
Cosmos Chiu
Great. Thanks Ron, thanks Liz. Have a good weekend. That’s all I have.
Ronald Clayton
To you too. Thanks Cosmos.
Elizabeth McGregor
Thank you.
Operator
Our next question comes from Mike Parkin of National Bank.
Ronald Clayton
Good morning, Mike.
Mike Parkin
Good morning. How are you guys doing?
Ronald Clayton
Good, you?
Mike Parkin
Well, pretty good. Just a couple of questions following up on the La Arena II, obviously, you have seen a couple of - one really good example of a peer kind of bringing in a larger well finance guide partner up on a large scale project. Is it something that you might look to kind of further de-risk the project before looking the possibility to do that? Because I remember talking to you in the past, I believe there is still some lien consolidation that you could complete yourselves, are you looking to do that before you entertain your potential partners?
Ronald Clayton
Mike, look, we just haven’t made those kinds of decisions yet. What you are suggesting is one of many options that we are looking at. But again, we are going to take a little bit of time ounce and go through the study. I want to advance this project; but I want to do it in the way that creates more shareholders value. And we are going to think that through over the next short period of time here.
Mike Parkin
Okay. And then just in terms of kind of like priorities with Escobal, I would say the number one is the resolving the suspension. But where in terms of are you at with the roadblock? Are you dialoguing with this group through a group of lawyers or whatever or are you leaving that until the suspension show signs have been resolved first?
Ronald Clayton
Absolutely not. We have been doing this in parallel, and we have been doing it with our CSR people with some folks that we have hired and that have expertise in this arena. Just there has been a huge amount of work going on here. And it’s I think done very successful.
We are anyway, I think it’s been very successful on it, and that’s the part of the reason that my optimism is coming through here is that, I think we have made a lot of headway there and we have made we have built some new relationships so that I think are really important.
Mike Parkin
Okay, that's it for me guys. Thanks so much. Have a good weekend.
Operator
This concludes time allocated for questions on today's call. I will now hand the call back over to Mr. Clayton, for any closing remarks.
Ronald Clayton
Thank you, operator. We appreciate everybody's time this morning on the call. I would like to thank you for your continued support of Tahoe Resources and we look forward to speaking with you again in the next quarter. Thanks.