Tahoe Resources' (TAHO) CEO Kevin McArthur on Q2 2016 Results - Earnings Call Transcript

| About: Tahoe Resources (TAHO)

Tahoe Resources Inc. (NYSE:TAHO)

Q2 2016 Results Earnings Conference Call

August 10, 2016, 10:00 AM ET

Executives

Mark Utting - VP, IR

Kevin McArthur - CEO and Executive Chair

Ron Clayton - President and COO

Mark Sadler - VP and CFO

Elizabeth McGregor - VP and Treasurer

Edie Hofmeister - VP, Corporate Affairs

Brian Brodsky -

Analysts

Chris Thompson - Raymond James

Andrew Kaip - BMO Capital Markets

Mike Curran - Beacon Securities

John Tumazos - John Tumazos Very Independent Research

Mandeep Singh - JPMorgan

Operator

Thank you for standing by. This is the conference operator. And welcome to the Tahoe Resources Second Quarter and First Half 2016 Financial Results 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 like to turn the conference over to Mark Utting, Vice President, Investor Relations of Tahoe Resources. Please go ahead.

Mark Utting

Thank you, operator, and good morning everybody. Welcome to Tahoe Resources' second quarter and first half earnings conference call. Management on this call today include Kevin McArthur, CEO and Executive Chair; Ron Clayton, President and Chief Operating Officer; Mark Sadler, our VP and Chief Financial Officer; Elizabeth McGregor, our VP and Treasurer; and Edie Hofmeister, VP of Corporate Affairs. There are other members of the management team joining us today as well.

During the call, we'll be making forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on these statements.

Our forward-looking statement, disclosure and cautionary notes and technical disclosures are filed on SEDAR, as well as on our website at www.tahoeresources.com. In addition the financials and MD&A for the second quarter and first half of the year are also available on SEDAR and on our website. Please feel free to contact us following the call with any follow-up questions. As typical for our calls, there is no webcast or slide deck for this call today.

And with that, I'd now like to turn the call over to Kevin McArthur, our Executive Chair and CEO.

Kevin McArthur

Thanks Mark. And thank you everyone for attending this call. I have a few remarks and then we’ll turn it over to Mark and Ron to provide details of the quarter.

We had a number of record performances in both the first half and second quarter of 2016. Most significantly we achieved record in cash flow of $185 million or $0.69 per share in the first half of the year and $116 million or $0.38 per share in the second quarter.

I want to empathize the per share component of this measure because that to us is the key to value creation building the value accreting to each share and to each shareholders. Our success in generating this cash flow is a key driver of balance sheet strength. At June 30, we had cash and equivalent of $152 million, a very little debt and strong net cash. This positions Tahoe to continue to reward shareholders through a program of production growth and an industry leading dividend. We paid a total of $32 million to shareholders in the form of dividends during the first six months of 2016.

Our ability to generate record cash flow per share and strong overall financial results comes down to a few factors. The first is our Escobal silver mine. Escobal is one of the world's largest silver mines and is truly a great mining operation. We achieved record production at the mine during the first half producing 11.4 million ounces of silver. Our costs are very low with total cash cost averaging 529 per ounce year-to-date and all-in sustaining cost of just over $7 per ounce. Operating earnings at the mine totaled $82 million for the first half of the year.

We have over 1,000 employees at Escobal, more than 95% of which are Guatemalans. Last year we paid about $130 million for goods and services at Escobal with almost three quarters of our suppliers being Guatemala. We've paid close to $40 million in taxes and royalties in Guatemala and Escobal is a great mine operated very responsibly and is a win-win for both Tahoe and for Guatemalan shareholders and stakeholders.

The second factor behind our strong cash flow per share is our success in building a quality of gold business with low cost production and significant growth potential. We've done this through two key acquisitions; Rio Alto last year and Lake Shore Gold on April 1of this year, both of those being done within a 12 months period. We did these deals at the right time when the market was down and when valuations were low.

Looking at costs, our total cash cost for both silver and gold during the first half of the year averaged below the target ranges included in our 2016 guidance. Silver costs were well below our targets and as a result yesterday we lowered cost guidance for the Escobal mine. We're now targeting total cash cost of 550 to 650 per ounce of silver for the year and our all-in sustaining target - AISC target for silver is being revised between $8 and $9 per ounce. Our cost guidance for gold remains unchanged.

Looking at our production guidance, we are now targeting the top end of our guidance for silver production and we are well positioned to meet our current target range for gold production. Now clearly solid production and low cost have been the factors driving our company's performance.

Looking at key developments during the second quarter, I've already mentioned the Lake Shore gold acquisition. Since the deal is closed we have been busy in Timmins. We stared the shaft project at Bell Creek mine. We also acquired the 2% NSR royalty on production at Bell Creek and we've signed a letter of intent to buy our Gold Corp's 30% remaining interest in the Whitney project just the south of Bell Creek.

In Peru, we've achieved commercial production at Shahuindo effective May 1, and made very good progress advancing the Phase 2 development. And Ron will talk more about the work we're doing at Shahuindo in a few minutes.

Both the advancement of projects in Timmins and the development work at Shahuindo our critical components of our strategy to increase our gold production to over 550,000 ounces per year by 2020. We have a lot of growth ahead of us with attractive projects and candidate in Peru. Thus our primary focus has now shifted to organic growth given the extensive pipeline we now have in place.

And finally we have the cash, the cash flow and the untapped credit facility necessary to executing these programs and continuing to pay a purely leading dividend.

This brings me to my final topic. Yesterday, in addition to our results we announced a number of management changes designed to maximize our success as we move to harvesting projects. As a result, we are realigning the talent within Tahoe with most of these changes effective on August 16.

On that date, Ron Clayton will assume the role of President and CEO. As you all know Ron has been instrumental in developing and operating Escobal and in leading two post deal integrations. I will retain my role of Executive Chair and the Board has asked me to continue to work closely with Ron and the executive team in a number of areas.

In addition, as of next week Elizabeth McGregor, our Vice President and Treasurer will become our Chief Financial Officer. Liz started as our Controllers at the line in Guatemala, the role she also played in our prior lives that Penasquito during the start up that's why Liz has a very strong background in operations and understands the business from a ground up.

Mark Sadler currently our CFO will take on a very important new role as VP of Project Development and Mark will continue to direct our Metals Marketing Division and will lead the effort to finance and build our new mines.

And with that, I will introduce Mark Sadler to provide what will be his last quarterly financial review as CFO before moving into this very exciting new role. Over to you Mark.

Mark Sadler

Thanks Kevin, and good morning.

I’d like to start and take the next few minutes and review the financial statements, as well as some key factors that are driving our record cash flow. Starting with income, we had a record revenue of $228 million in the second quarter of 2016 and $360 million year-to-date. These results represent increases of 71% and 64% respectively from the same period the year ago. The improvement reflects strong operating results at Escobal, improved metal prices, as well as the impact of the Rio Alto and Lake Shore Gold acquisitions.

Looking at our sales, the second quarter of 2016 sales included 5.2 million ounces of silver and 106,000 ounces of gold. Year-to-date sales were 9.8 million ounces of silver and 157,000 ounces of gold.

The Company realized prices during the second quarter at $18.95 per ounce of silver and $1,255 per ounce of gold. These prices were 24% and 6% higher than during the same period a year ago. Year-to-date the average realized prices were $17.53 and $1,228 per ounce for gold and silver respectively. Realized prices also include the impact of provisional price adjustments on concentrate sales recognized during the period.

Kevin has already mentioned our cost performance and the improvement in our unit cost guidance for silver, and I want to briefly run through all of these numbers. For silver, total cash cost was $6.7 per ounce for Q2 and $5.29 per ounce year-to-date. These costs were higher in the second quarter compared to the first due to an increase in royalty expenses accrued in Q2.

Royalty expense recognized during this quarter was $9.2 million versus just under $1 million in Q1. As we discussed on our last call, Q1 royalty expense reflected the fact that we not incur a voluntary royalty when the average silver price on finalized sales is below $16 per ounce. Also as mentioned in Q2, the silver price has been well above that level.

All-in sustaining cost for silver was $18.16 per ounce in the second quarter and $7.6 per ounce year-to-date. Turning to gold, during the first half of the year both cash cost and byproduct credits and all-in sustaining costs averaged below our target ranges for the year. These costs were $645 and $930 per ounce respectively. Our costs in Q2 were somewhat higher than in Q1 with cash cost averaging $647 per ounce, and all-in sustaining cost averaging $973 per ounce.

Turning to earnings, adjusted earnings were $58 million or $0.19 per share in Q2 of 2016, and 93 million or $0.35 per share during the first 6 months of the year. There is a significant difference between the adjusted earnings in our earnings of $17 million or $0.05 per share for the quarter, and $55 million or $0.20 per share year-to-date. This was mainly due to two factors. First, we recognized a non-cash $32.3 million loss related to the conversion of Lake Shore Gold convertible debentures into Tahoe shares.

Our share price went up almost CAD $4 per share from the close of the Lake Shore transaction on April 1 to when the debentures were fully redeemed on May 16. The other key factor was transaction cost incurred on the Lake Shore acquisition of $10.3 million during the second quarter and $11 million year-to-date.

Finally, as Kevin mentioned, we achieved record operating cash flow per share before changes in working capital of $116 million or $0.38 per share in the quarter, and $185 million or $0.69 per share for the first half of the year.

As our numbers illustrate with our current production and cost structures, the higher silver and gold prices provide a significant benefit to the company, and we were well protected on the downside and have the potential to generate substantial free cash flow on the per share basis when prices increase, as they have been doing over the past little while.

With that, I'll turn the call over to President and Chief Operating Officer, Ron Clayton.

Ron Clayton

Thanks Mark, and I want to wish everybody my good morning as well.

First I’ll review the operating results. The mine at Escobal produced a concentrated or silver concentrates of 5.7 million ounces, 2,700 ounces of gold, 2,700 tons of lead and 4,000 tons of zinc. The average silver recovery was 87.6% as the highest recovery for silver we’ve had in the quarter so far in the life of the mine. And it’s slightly better than anything we predicted in any of the pre-production studies. So I’m really proud of the team at Escobal for that achievement. We sold 5.2 million ounces of silver and concentrates was generated 104 million in revenue resulting in mine operating earnings of about $50 million.

Underground ramp and sublevel development continued on schedule during the quarter. Mining in the second quarter was concentrated in the Central Zone although we produced from five stopes in the East Zone that’s the most production we’ve had out of the east zone so far in the mine life. And things are going well there. Reconciliation between the mine and the resource model mine production resource model continues to be positive in both the Central and East zones.

The ground conditions in the upper East zone are very good as expected and as a result the orders are harder. This is the main reason that we put the rig and mills in the original plant design. And obviously they're working well with the recoveries that we were achieving.

Moving on to our operations in Peru, La Arena had a strong quarter and achieved the milestone in May when we poured our 1 million ounce first million ounce of gold. Another key milestone is that La Arena continued its outstanding safety performance reaching over 1.2 million hours man hours work without a loss time accident. The total of 3.8 million tons of ore at an average grade of 0.48grams per ton was placed on the leach pad during the quarter.

During the same period we mined 3.9 million tons at a strip ratio of 2.08 to 1.Gold grade and tonnage mine continued to be better than the reserve bench models and this is consistently going to be the case over the life of mine at La Arena. There were 51,000 ounces of gold produced in dore and just over 51,000 ounces sold during the quarter. Production at La Arena has been better than planned over the first half of the year and I would expect that to continue.

Q2, 2016 gold sales generated $64 million in revenue resulting in mine operating earnings of $21 million. Sustaining capital projects in the second quarter of 2016 included planned expansions of the leach pads and the waste dump. At the end of the quarter these projects remained on scheduled to meet the 2016 and future production targets.

Turning to Shahuindo as previously mentioned we achieved commercial production on May 1, a total 16,900 gold ounces were produced at Shahuindo during Q2 with almost 25,000 ounces produced during the first six months of the year. Of this production just over 11,000 ounces was commercial production between May 1 and June 30.During the second quarter 904,000 tons were placed on the pad at an average grade of 0.84 grams per ton a total of 1.4 million tons was mined during the quarter at a strip ratio of 0.81 to 1.

Gold sales during the quarter were 22,000 ounces of which 16,800 ounces were commercial sales. These sales generated revenue of $22 million and mine operating earnings of 13 million. Production was slowed in June due to the impact of the drought in Northern Peru and the impact it had on waters our water supplies. We reduced the amount of area under leach at Shahuindo while we were working to locate and construct additional sources of water.

We’ve since increased our water supply in the area we are leaching. We expect to be back at full capacity before the end of the third quarter and the impact to production in the third quarter to be very modest. We’ve plans to make up some of the production shortfall with the potential gold ounces from La Arena and increased tonnage at Shahuindo later in the year. And we expect to be well within our guidance. As discussed previously we’ve elected to bring forward the inflation of the crushing and agglomeration circuit by a year.

Construction is being done in two stages with first designed to reach the 12,000 ton per day throughput rate and the second expected to bring on additional 24,000 tons a day for a total of 36,000 tons per day by 2018.Engineering equipment selection vendor selection for the first stage has been completed and equipments being built. Also the site layout definition, earthworks and social works and engineering are nearing completion.

Commissioning of the 12,000 ton per day circuit is targeted for March of 2017 with stage two expected to be completed in Q1, 2018. Total cost of the crushing and agglomeration circuit is 75 to 80 million over the 2016, 2017 period.

Looking at exploration in Peru drilling in Q2 was concentrated on step-up targets at Shahuindo and El Alizar target near the La Arena Mines. Drilling at El Alizar included six holes for just over 1,700 meters which started in the southeast portion of the project area.

At Shahuindo, exploration work focused on step-out drilling to define new zone peripheral to the current pit. Total 22 holes for 4,000 meters was completed. Most of this drilling is immediately adjacent to the pit and we're seeing results that we expect will show modest gains in reserve tons and similar grades in the future.

Turning to Canada, we had a very busy quarter in Timmins starting with the completion of the deal on April 1.Operationally our Timmins mine produced just over 39,000 ounces during the second quarter with production prior to that are not included in our year-to-date results. We mined and processed the total of 300,000 tons at an average grade of 4.2 grams better than what we've been achieved in the prior quarter. Total sales for the quarter were just over 31,000 ounces which resulted in revenue of $39 million and mine operating earnings of $6 million.

During Q2 the underground ramp and sublevel development advanced both the Timmins West and Bell Creek in support of the current mine plan. Also during the quarter we began the Bell Creek shaft project which is expected to increase production and length in the mine life of Bell Creek. Work on the project in Q2 focused on filling key positions commencing the underground shaft access development and advancing shaft engineering work. I’m very pleased with the progress on this project so far. Looking at exploration in Canada, total 62,000 meters of drilling was carried out in Timmins and Lake Shore acquisition was completed on 1 of April.

Drilling has been focused on definition resources -- definition of resources of Timmins West and Bell Creek mines and on the extension drilling at Whitney has secondary things at Bell Creek and along the 144 trend.

In terms of results we’ve had some success in extending ore zones at both Timmins West and Bell Creek and an upgrading resources of 144 gap. Drilling on 144 trend is still at an early stage and not a lot of results are available yet. At Whitney recent drilling is confirmed the potential for open pit concept and current and design. I can tell you that we’re currently shifting the focus of the drill program to deeper targets as we want to develop a full understanding of the big picture potential of this asset before we put together the development plan.

That includes the review of operations but just before going to questions I'd like to take this opportunity to provide an update on the legal and political developments in Guatemala. We expect a hearing to be held in the coming weeks by the Ministry of Energy and Mines relating to the constitutional court ruling against MEM in November of 2015.

The hearing has been delayed as matters are being addressed to ensure proper process and its fall-off. At the time of its ruling the court instructed MEM to hear an opposition amendment consented and rejected in advance of issuing Escobal's mining license in 2013.

No hearing has been held at that time. I want to stress the validity of the Escobal license was not a question before the court and is not a question before MEM. In March this year a NGO requested the court to clarify its ruling and issue an explicit statement in validating the Escobal license. This request was rejected.

In June this year MEM began the process of hearing the opposition which involved data claims of perspective environmental harm which after three years of operation we can definitively say has not happened. All involved parties filed briefs and as I've indicated we expect the hearing to be held over the next few weeks. We are confident that process will result in positive ruling.

With that operator I think we’re ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question today comes from Chris Thompson with Raymond James. Please go ahead.

Chris Thompson

Good morning guys. Congratulations on the great quarter. And Ron congratulations on your promotion there.

Ron Clayton

Thanks, Chris.

Chris Thompson

Just a couple of very quick questions, I think you’ve covered off a lot of points in your discussions there. On Escobal, I mean you mentioned good operating performance, good recovery, I noticed good costs as well on a dollar per ton mill basis. Are these sustainable at these levels?

Ron Clayton

Chris, I think they are and a lot of them are due to efficiencies that the team has really been good at bringing to bear but I think you also got to remember that that we're paying about $1.60 a gallon for diesel fuel right now for our energy costs. So, I mean there is a big piece of this that’s fuel related. So we got to - Liz can you throw in a kind of an impact of increase in diesel fuel.

Elizabeth McGregor

So for every 10% increase in diesel that we would see down there on the power generation, we would see about $0.10 per ounce hit us. So if we see the prices go up we will see costs go up that we have in our guidance and our revised guidance we have accounted for a little bit of that but we are realizing cost significantly under on the diesel generation.

Ron Clayton

And I’ll just add Chris that other things that have been really positive is the new [indiscernible] plant has really helped reduce the amount of cement and we've gotten better costing on cement and supplies. So there is lots of things that are clicking quite well that I think are sustainable yes.

Chris Thompson

Great, thanks for that. Thanks Ron. Just moving on to Timmins, can you give us a bit of color on the ramp up from 144 gap there?

Ron Clayton

It’s about a two-year development process to get it up to full production and it really is designed around replacing production from other parts of the mine that are being exhausted like the Timmins deposit and Thunder Creek. So we should see it pretty steady going forward production rate out of the Timmins complex.

Chris Thompson

Okay. perfect. And then on Whitney as far as permitting with a view to development what's your timeline - your sense of timeline there Ron.

Ron Clayton

We’re just starting to put that together. I think we’re thinking two to three years of permitting process and design and that kind of thing but stay tuned. That's pretty early thinking.

Chris Thompson

Okay, that’s perfect. And then finally just on La Arena right now, you did mention that I guess in the paperwork the scoping study for the sulphides in Q4, is that going to be made public that…

Ron Clayton

Right now, Chris I would say that’s probably designed as an internal document but we really haven’t had a lot of discussion on that. The goal, the big goal here is to move that into feasibility study in 2017 and then we’ll see how long that feasibility study takes but we’re talking about a major feasibility study here.

Chris Thompson

Okay, perfect. All right guys. Thanks congratulations again.

Operator

The next question comes from Andrew Kaip with BMO Capital Markets. Please go ahead.

Andrew Kaip

Good morning Ron. My question is just a little more detail on Whitney and the letter of intent that you signed with Gold Corp. Can you give us a bit more insight on what it’s going to take to actualize obtaining the 30% remaining interest on that project?

Ron Clayton

It’s a matter of getting all the legal paperwork of transferring properties and write-aways and things like that done and that’s all it is Andrew. The terms are in place and done and I don’t anticipate any, it’s not a negotiation anymore, it’s getting the paperwork done and it’s fairly substantial paperwork.

Andrew Kaip

How long do you think is that…

Ron Clayton

It could take up the year. We signed an extension to the letter of intent to go out to the end of the year. We’re really just waiting on the lawyers to get the paperwork done.

Andrew Kaip

Okay. And then post cleaning up the legal aspect and consolidating ownership of Whitney, can you give us a sense of what your objectives will be in 2017, it sounds my guess is that you've got a fairly substantial drill up program that you'll have to embark upon.

Ron Clayton

At Whitney we have a pretty good understanding of the open pit piece of it so what we’re really targeting right is a fairly substantial program the rest of this year and probably into next year Brian.

Brian Brodsky

Correct.

Ron Clayton

To get a good handle on what the underground aspects are because we really want to design that around fulsome understanding of what we have there and we think there are some significant underground high grade potential there.

So that’s really going to be the focus first as well as starting to permit the pit.

Andrew Kaip

Okay. And then just heading back into Guatemala, MEM is required to hear - to hold the hearing. What can we expect as the outcome of that hearing, will MEM issue some sort of document indicating that they’ve gone through process and what the results are and that here is no action or how should we expect any further dissemination of information in that regard?

Ron Clayton

I am going to have Edie start that one and we’ll add to it maybe.

Edie Hofmeister

Hi, Andrew. So MEM has started that process you know and what I expect out of it is what happens when they undertook a similar process with [mayo ][ph] nickel recently which is they came out with a decision after the hearing that basically reiterated their stance in the first place before the hearing that the opposition was without merit so that’s what we would expect to happen in the next couple of months.

Andrew Kaip

Okay. So they will come out with language along that line instead that it don’t meet merit and that ends the case?

Edie Hofmeister

They will but that won’t necessarily be made public like a court decision would be made public and that is up to MEM but their decision itself will be made, will be public. In other words they will come out and say we find that the opposition did not have merit.

Andrew Kaip

Okay.

Ron Clayton

And that's what they did just with mayo nickel.

Andrew Kaip

Okay. All right. I have no further questions. Thank you very much and congratulations on a solid quarter.

Operator

The next question is from [Grant Moenting] [ph] with Scotiabank. Please go ahead.

Unidentified Analyst

Hi, good morning Tahoe team and congrats on the tremendous quarter and congrats to you Ron on the new role.

Ron Clayton

Thanks Grant.

Unidentified Analyst

I just had a couple of quick questions. First Escobal strong operations there in the first half, you had 11.4 million ounces half way through. Can you maybe talk to the grade profile in the second half of the year and how come you guys, no raising of guidance there although confident of the high end of the range, any commentary.

Ron Clayton

The forecast for the rest of the year is a slightly lower grade so you can do the math I totally expect to come in right near the top end of the range.

Unidentified Analyst

Okay.

Ron Clayton

…any unforeseen happenings but.

Unidentified Analyst

For sure. Second question just catching some headlines this morning. Jimmy Morales they are saying, talking about the mining royalty going up to 10% again, I don’t know if you guys have seen the same thing, I think it was in some sort of press conference. Have you guys been involved in that process along the way or have been made aware of this, or is all these headlines a bit too premature at this point in-time.

Ron Clayton

Grant, I think what you are referring to is that the government has been under a lot pressure to try to raise revenue and they were flowing, they’ve been flowing a number of ideas and yesterday in response to a question about how might you raise revenues in the government if you are struggling getting the VAT tax increased, his response was there are a number of ways we would do it. He listed 10 or 15 different options and one of the options that he listed is mining.

Certainly we’ve been engaged with MEM and with the executive branch on a fairly lengthy discussion since before the actually took office on potential revisions to the mining lots, no different from what we’ve been engaged in for six years now.

And so yes, I would fully expect to be involved in the process, we are involved in the process. Certainly they have some interest in maintaining an ability to attract foreign investment and that’s part of the conversation. So I think it will be a more rationale conversation than maybe in the past.

Unidentified Analyst

Sure yes, I assume it’ going to be as expected before, a bit more of a long and drawn out of fair, right, there is no snap decisions being made I am sure.

Ron Clayton

That's we would expect and again you got to put what you heard today in the context of he was answering a question in a press conference right.

Unidentified Analyst

Yes, exactly not an official policy or anything like that.

Ron Clayton

Correct absolutely.

Unidentified Analyst

Final question, we spoke I guess, we were speaking with [David Roufler] [ph] recently and he mentioned that sort of talks continue to progress in terms of maybe some synergies that you guys can realize in the Timmins camp. Do you guys think can we expect something maybe on that before the end of the year?

Ron Clayton

I don’t think we should be talking about timing on that. I will tell you that we’re conversing and there is some things that I think everybody is a little bit excited about but I don’t think we can predict a time right now.

Unidentified Analyst

Okay.

Kevin McArthur

Grant this is Kevin. If I could just interject there. Both parties recognize that if we can find a way to make one plus one equals three and we can each get one and half of that, we’re going to work toward that. So these things take time and in the meanwhile we’ve got our growth program in Timmins to grow to 250,000 ounces of gold per year and we’ve got the pieces in place to start executing on that.

The question is really do we need to expand our mill to get that to happen. These are things that high end of the Whiney development plan, the underground drilling program and alike and that’s what we’re focused on. If we can make that other synergy piece work we’ll continue to do that.

Unidentified Analyst

Right, much more icing on the cake than anything else I would assume.

Kevin McArthur

Right, great comment.

Unidentified Analyst

Perfect, all right thanks very much guys. Congrats again, great Q2.

Operator

The next question is from Mike Curran with Beacon Securities. Please go ahead.

Mike Curran

Good morning. Just looking at the recoveries for gold window and obviously I am wondering if they stayed sort of the high 60% till you kind of finish the sort of first stage of the expansion and get the agglomeration up and running sort of first half next year and then maybe track into the low 70s or is it actually improving as we speak?

Kevin McArthur

No, I would expect until we get the crushing and agglomeration circuit up and running that we’ll see that 67% kind of number and then it will ramp up once we get the agglomeration fully operational.

Mike Curran

Great thanks.

Operator

[Operator Instructions] The next question is from [Frank Barcon] with [indiscernible]. Please go ahead.

Unidentified Analyst

Good morning. Thanks, I guess my name is Frank now, sorry it's [Mike Barcon] [ph]. Just a quick question here on Guatemala, is there any with the hearing if they rule that there is no merit on the opposition is that opposition party able to file an appeal or would be like the final end of things.

Elizabeth McGregor

That would be the end of that opposition because it was remanded from the constitutional court down to MEM so that would be final on that opposition. But there is always things going on in Guatemala in terms of NGO anti-mining efforts and a lot we see here and there but in terms of this part that we’ve talking about for years that would be the end of it.

Unidentified Analyst

Okay, thanks. That’s it from me.

Operator

Next question is from John Tumazos with John Tumazos Very Independent Research. Please go ahead.

John Tumazos

Congratulations on everything. Should we expect that you have your hands full between Timmins, Peru and Guatemala or are you still in a open mines available hours sort of framework where if another opportunity arises you can conquer another dragon?

Kevin McArthur

Yes John, this is Kevin. Certainly our focus is shift it into one of harvesting the assets that we acquired at the bottom end of the market which is what our strategy has been all along and the things that we’ve done have now filled up our pipeline and we’ve got the financial resources and the human resources to tackle those things and not much more but you know the way the business is. We’ll always keep our eyes open for opportunities and any opportunities that we’d be looking at going forward would be tip of iceberg style, maybe early stage exploration kind of things.

Yes, we’re always – the problem in this business is we have non-renewable resources that run out and we’ve got to remain active in that arena but once again the large part of our focus is now development projects such as the sulphide project at La Arena and Fenn-Gib in Ontario and others plus a very large effort in exploration in both of those areas and also along the west Timmins and deep at Bell Creek and of course Whitney is as we’ve said and if we can make any kind of progress in exploration that's the quickest way to increase our NAV per share and core value and we’re very focused on that. But you never say never, and so we’ll continue to keep our eye out for other things.

John Tumazos

Kevin I may have been blissfully studying copper or aluminum statistics one day and miss something and I heard some questions about Guatemala earlier on the call. Just in case I was buried in the world view of metal statistics base metals data one day and miss something, could you elaborate a little bit about current events in terms of the Guatemala and regulatory situation?

Kevin McArthur

Which regulatory situation are you referring to?

John Tumazos

Whatever is going on, royalties or taxes or accessing new properties anything that’s restricting your ability to have a good day in Guatemala.

Kevin McArthur

Sure, yes, John, as you know we’ve been in Guatemala for some time, I remember you being on our tour of Marlin years ago and anyone that's followed the progress of Guatemala understands that it’s a fairly new democracy coming out of the civil war, a lot of issues there.

So we have lot of noise all the time in Guatemala and a lot of NGO activities and a press that is let’s just say different than a lot of presses in the free world. And so there is always noise and news gets picked up and spread around not only by the press but then the blogs pick it up and alike. We deal with all of that. We’ve got a very strong constitutional government in Guatemala that's working properly.

What has affected us most is the ongoing unofficial moratorium on any new mining licenses and there is a lot of exploration that we would love to do in Guatemala that we’ve been stymied in doing because we cannot move our concessions into the exploration phase and so that’s fine.

We're very patient and we’re working steadily to improve that situation and to grow our exploration efforts. That’s going to take time but we’ve got an 18-year mine life now and we’re ultimately very patient. So that's the biggest aspect for us is trying to get on with the exploration in some of these areas and that's going to take time.

John Tumazos

Thank you very much.

Kevin McArthur

Anything to add Ron or Liz.

Elizabeth McGregor

Well, I just wanted to add, actually I wanted to respond to something I said earlier which was in reference to Grant's question so what it is my Guatemalan lawyer is fiercely texting me on this call. So just to clarify on that on prior hearing that the constitutional court remanded back MEM that would be end of that process but the opponent, the opposition in this case would be able to go back to the court on the substance because to this point in the couple of years we’ve just been focused on this procedural matter of the hearing.

So there was something they wanted to go back to the court on substance such as the environmental harm that could happen and not end that entire process. But we have a good comfort level with that based on what Ron was indicating earlier which is our three years of operating history there.

Ron Clayton

And the only other thing I would add John is just that the Guatemalan government is working I think very hard to mature and to get the country in a position where people wanting best in the country. I think it’s not an easy process. I think it’s going to take a long time but I think as it goes as we go through that process it can do nothing but benefit our opportunities and we’re here for the long haul. We have 20-year mine life.

John Tumazos

Thank you very much.

Operator

The next question is from Mandeep Singh with JPMorgan. Please go ahead.

Mandeep Singh

Thank you. Congratulations everyone on a solid second quarter and to you Ron on your new role. I have a couple of questions. First is on La Arena, you've mentioned in your opening remarks that, La Arena should continue to operate at above time levels in the second half. Can you just talk about what change there was versus initial beginning of the year impressions.

And also do you have any initial impressions to share about El Alizar. And second question is regarding Lake Shore where sales volumes in the second quarter were below production, do you expect the pickup in the next quarter?

Ron Clayton

Okay, well, lots of questions. First on El Alizar, and it is probably too early to say much about that. You think Brian...

Brian Brodsky

Yes, we, we're able to reach really critical math to put the other end.

Ron Clayton

Yes, in terms of the production at La Arena and the expectation that it will continue to be a little bit better than what we've originally planned for the year, been driven by two things. One is we're seeing a positive grade reconciliation so that by itself is going to have a small positive impact.

And because of the water issue at Shahuindo, we've just asked La Arena to try to gear it up a little bit. And so, I think we'll see about the same kind of performance above our expectations as we saw in the first half of the year.

The last question was on Lake Shore, can you remind me what's your third question was.

Mandeep Singh

Yes, the volumes were below production in the second quarter and I was wondering if you expect the pickup in the next quarter?

Ron Clayton

Yes, we do. I think over the next two quarters we'll pick that backup, there were just a few minor operational issues. But I think the team in Timmins, the Timmins West mine have now got back under control. And I think over the next couple of quarters we'll get back to the expected levels. This is not something that was big surprise to us. We were expecting the first half for the year to be a little bit lower than the second half.

Mandeep Singh

Thank you.

Operator

This concludes a time allocated for questions on today's call. I will now hand the call back over to Kevin McArthur for closing comments.

Kevin McArthur

Okay, and thanks everyone for attending and thanks for the great questions. I mentioned earlier that this call is Mark Sadler's last as CFO. It is also my last as the CEO of Tahoe, where you'll still see me around as Executive Chair.

Turning the CEO, reins over to Ron at a very exciting time for our company. Escobal continues to generate excellent results and I might add following all of these questions that Guatemala is a very good country in which to operate, it's just noisy, and it is what it is.

Our gold production from both Peru and Canada is very strong and that is getting better. We have growth projects and from these growth projects we expect to deliver considerable shareholder value for many years to come. And I'll look forward to sticking around and working closely with Ron and his excellent team.

So, thank you very much for attending this call. Operator we can now disconnect.

Operator

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!