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Edited Transcript of THO.TO earnings conference call or presentation 10-Mar-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Tahoe Resources Inc Earnings Call

Vancouver Mar 11, 2017 (Thomson StreetEvents) -- Edited Transcript of Tahoe Resources Inc earnings conference call or presentation Friday, March 10, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Utting

Tahoe Resources Inc. - VP of IR

* Ron Clayton

Tahoe Resources Inc. - President and CEO

* Elizabeth McGregor

Tahoe Resources Inc. - VP and CFO

* Brian Brodsky

Tahoe Resources Inc. - VP of Exploration

* Charlie Muerhoff

Tahoe Resources Inc. - VP of Technical Services

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Conference Call Participants

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* Cosmos Chiu

CIBC World Markets - Analyst

* Michael Gray

Macquarie Capital Securities - Analyst

* Mike Parkin

Desjardins Securities - Analyst

* Steve Butler

GMP Securities - Analyst

* Chris Thompson

Raymond James & Associates, Inc. - Analyst

* Geordie Mark

Haywood Securities Inc. - Analyst

* Matthew O'Keefe

Echelon Wealth Partners - Analyst

* Howard Flinker

sdaf - Analyst

* John Tumazos

John Tumazos Very Independent Research, LLC - Analyst

* Stephen Walker

RBC Capital Markets - Analyst

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Tahoe Resources Q4 2016 and year-end financial results conference call.

(Operator Instructions)

I would now like to turn the conference over to Mark Utting, Vice President, Investor Relations of Tahoe Resources. Please go ahead.

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Mark Utting, Tahoe Resources Inc. - VP of IR [2]

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Thanks very much, operator, and good morning, everyone. Welcome to Tahoe Resources fourth-quarter and year-end 2016 earnings call.

Management on the call today includes Ron Clayton, our President and CEO; Elizabeth McGregor, our Vice President and CFO; Tom Fudge, our VP of Operations; Edie Hofmeister, our Vice President, Corporate Affairs; Charlie Muerhoff, our VP, Technical Services; and Brian Brodsky, our VP, Exploration. There are also several other members of management in the room as well.

During the call, we will be making forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause 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 forward-looking statements.

Our forward-looking statement disclosure and cautionary note, and technical disclosures are on SEDAR, as well as on our website at www.TahoeResources.com. The financials and MD&A for the fourth quarter and full year 2016 are also available on our website, and on SEDAR. Please feel free to contact us with any questions after the call.

For the first time, our investor call today is being webcast, and is available on the homepage of our website. Slides synchronized to the remarks will be centrally advanced, and are available on the webcast. For those who prefer to advance and control the slides themselves, a PDF version of the slides is also available on our website as well. With that, I'd like to turn the call over to Ron Clayton, our President and Chief Executive Officer of Tahoe Resources.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [3]

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Thanks, Mark, and I'd like to thank all of you for joining us this morning. Tahoe Resources had a record year in 2016, with the highest cash flow per share in our Company's history. We also achieved all of our 2016 guidance. And looking at our operations, we had record production for both silver and gold, and our lowest ever per ounce cost at Escobal.

We strongly believe that improving financial performance on a per share basis is the key to creating long-term value. In 2016, we achieved strong growth in both cash flow and adjusted earnings per share, at the same time that we integrated and acquired assets and developed projects. And our stock price, I'm sorry, our stock price underperformed in 2016, but with strong near-term growth and low cost production and one of the world's greatest silver mines, we're well positioned to significantly improve our share price performance going forward.

2016 was a transitional year for Tahoe, when we took a number of very important steps towards growing annual production to our goal of 550,000 ounces by 2020. On April 1, 2016, we acquired Lake Shore Gold. Through that deal, we added 170,000 to 180,000 ounces of annual production in Canada, with a very attractive growth opportunities. We are well advanced on our first major project in Timmins, the sinking of the Bell Creek shaft. This project is expected to add 40,000 ounces of annual production at Bell Creek, and at least double the mine life. It's going very well, and we're on track for completion by the middle of next year as scheduled.

On May 1, 2016, we achieved commercial production at Shahuindo at a production rate of 10,000 tonnes per day. Shahuindo's well on its way to becoming a very productive low cost heap leach mine. By the second half of next year, we expect to be producing at the rate of 36,000 tonnes per day, with gold recoveries of at least 80% for our crush and agglomerated ore. In 2019, we're targeting production of 200,000 ounces of gold for Shahuindo.

Looking at 2016 gold production, we produced 385,000 ounces which achieved our guidance. Total cash costs and all-on sustaining costs beat our target ranges, and our strong cost performance was particularly satisfying, when you consider that we had major capital projects underway at two of our operating mines.

In our silver business, Escobal had a record year, with silver production of just over 21 million ounces. We also had our best cost performance ever, with all-in sustaining costs of just over $8 per ounce.

Turning to the fourth quarter. We had a very strong operating performance, particularly on the gold side of our business, driven by our best quarter ever in Timmins, and best quarter since the Lake Shore deal. Gold production of 120,000 ounces was a quarterly record. We also achieved total cash costs below $600 an ounce, and all-in sustaining costs below $950.

Q4 financial results were affected by a declining metals price environment. We also had non-cash non-recurring items and higher expenses in a few areas that negatively impacted the fourth quarter earnings, but we're not satisfied with the less than expected earnings. I'm pleased that we were able to continue to generate cash from our operations, in spite of the low prices we saw in the fourth quarter.

Just before turning the call over to Liz McGregor, our CFO, I want to talk a little more about guidance. We recently finalized our plans for crushing and agglomeration at Shahuindo, and with that we're in a position to lay out our capital expenditure plans for the next few years. As a result, yesterday we released three year guidance for capital expenditures, as well as production costs and expected levels of exploration spending and corporate G&A.

Following the financial review, I'll go over the guidance in some detail, and provide a sense of how each of our key assets contributes to our future plans. What I'll say now, is that our new guidance clearly highlights the fact that our growth plans are on track.

By late next year, Tahoe is expected to be a 0.5 million ounce gold producer, with low capital requirements and cash and all-in sustaining costs, and positioned to generate substantial free cash flow. With that, I'll turn the call over to Elizabeth McGregor, our CFO.

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [4]

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Thank, Ron, and good morning, everyone. As Ron mentioned, Tahoe reported record cash flow in 2016. Our cash flow from operating activities before changes in working capital totaled $386 million or $1.33 per share. $1.33 per share represents an increase of 22% over 2015.

Earnings for 2016 were $118 million or $0.41 per share, which compares to a loss of $72 million or $0.35 per share in 2015. And that included a non-cash after-tax impairment charge of $153 million. Adjusted earnings for 2016 were $180 million or $0.62 per share, which were up 82% and 29%, respectively, from the prior year.

I want to mention that there's a lot of noise in the earnings numbers, and I will go through some of the details in a moment. First though, I would like to make a general comment about the impact of our acquisition of operating assets on our earnings.

When we completed our acquisitions in both 2015 and 2016, we were confident that with existing gold prices, the acquired operating assets would quickly begin to contribute to our cash flow per share, and we did have record cash flow performance in 2016. We also understood that the accounting treatments required to fair value operating assets would result in higher depreciation, and have an impact on earnings.

In our view that trade-off was and still is worth it, given the attractive growth in gold production we now have before us, the significant exposure we have to higher metal prices, as well as the current cash flows being generated from the operations.

So turning now to the earnings, we had solid growth in adjusted earnings in 2016, mainly due to strong revenue compared to the previous year. Gold and dore sales more than doubled to 351,000 [ounces] in 2016 as a result of the acquisition of Lake Shore on April 1, including a full year of production from La Arena, and eight months of commercial production at Shahuindo.

As a result, revenue of $785 million in 2016 was 51% higher than the $520 million reported in 2015. We also had a slightly positive impact from metal prices during the year, with our realized gold price averaging $1,245 per ounce in 2016, compared to $1,126 per ounce the year before.

In silver, despite having record production in 2016, the timing of shipments and related revenue recognition resulted in a 6% decline in total sales of silver and concentrate to 19 million ounces. More than offsetting the lower volumes was a 16% increase in the average realized silver price to $17.57 per ounce.

The Company's concentrate revenue and trade receivables include provisionally priced metal sales, which are marked-to-market each period. Provisionally priced metal at the end of 2016 included 3.3 million silver ounces, 1,800 gold ounces at $15.95 and $1,151 per ounce, respectively.

It also included 2,100 tonnes of lead and 2,500 tonnes of zinc priced at $1,983 and $2,619 per tonne, respectively. Given the rise in prices we've already seen this quarter, we anticipate seeing a positive adjustment in our Q1 results, as we close the quotational period on those sales, and lock in prices within Q1.

Turning to the cost side of the P&L. With higher gold production and sales volumes, both production costs and depreciation expenses increased from 2015. The depreciation expense also included a few adjustments related to the finalization of the purchase price allocation for the acquisitions, valuation, and useful lives of the underlying assets. You can see this impact in the increase of our cost per ounce sold metrics which increased from $753 in 2015 for La Arena only, to $816 for the gold division in 2016, which includes all the operations.

On a per ounce cost basis as you've heard, we had strong performance from our operations. Total cash costs and all-in sustaining costs for silver were $5.84 and $8.06 per ounce, respectively. These are our best-ever and were at the low end of our guidance.

Contributing to the improvement in these costs was ongoing optimization efforts at Escobal, as well as the low metal prices in Q1 that resulted in sales that finalized below the $16 an ounce threshold for the payment of the voluntary royalty in Guatemala.

Gold per ounce costs were well below guidance. Total cash costs per ounce of gold averaged $620 versus our guidance of $675 to $725 per ounce.

These low costs also reflect the efforts of the operations in cost containment. All-in sustaining costs were $943 per ounce versus guidance of $950 to $1,000 per ounce.

Total cash costs and all-in sustaining costs were higher than in 2015, when our only gold producing mine was the open pit at La Arena. Exploration expenses in 2016 of $14 million were double the 2015 level, and reflect our efforts to grow production in our newest jurisdiction. As you can see from the guidance, this trend is continuing in 2017.

Corporate G&A costs were $48 million compared to $39 million in 2015, with the increase primarily due to transaction costs related to the acquisition of Lake Shore, a full year of operations in Peru, and nine months in Canada.

Now turning to the fourth quarter, I'm going to talk about results in relation to the previous quarter, given that both periods include Lake Shore Gold assets and the Shahuindo in commercial production. Cash flow from operating activities before changes in working capital for Q4 totaled $75 million or $0.24 per share, which compared to $126 million or $0.40 per share for the prior quarter. Adjusted earnings were $18 million or $0.06 per share, compared to $66 million or $0.21 per share in Q3.

We reported earnings of just over $300,000 or just under a $0.01 per share in Q4, compared to earnings of $63 million or $0.20 per share in Q3. The difference between the adjusted earnings and the earnings in Q4 2016 was primarily the result of a non-cash non-recurring deferred tax charge resulting from a change in tax rates in Peru.

The revised corporate income tax rate has moved from a declining rate, which was expected to culminate in 26% in 2019, to a flat rate of 29.5% effective January 1, 2017. The declining rate regime was used in the valuation of Rio Alto in April 2015. As a result of the rate change, the deferred tax liability associated with the acquisition was revalued using the 29.5% rate, and the difference was taken through the deferred tax expense line.

However, the largest single factor contributing to lower cash flow and adjusted earnings in Q4 was $45.3 million or a 19% reduction in revenues to $189 million. Both gold and silver sales declined from the prior quarter, however, the greatest impact on revenue was from declining metal prices.

Our average realized price for silver and concentrate declined by over $6 per ounce [versus] 30% from the previous quarter to $14.45. The average realized gold price in dore was 9% lower at $1,197 per ounce.

Looking at the silver price in more detail, the average realized price of $14.45 per ounce in Q4 was $2.74 or 16% lower than the average spot price. This discount to spot was the result of negative mark-to-market adjustments on both provisionally priced silver ounces, as well as finalized sales during the quarter.

The LME spot price per ounce of silver fell from $19.18 at the beginning of the quarter, to $16.24 on the last day of the year. As we've indicated, there has been a more favorable trend in metal prices so far in 2017.

Production costs were largely unchanged from Q3, while higher depreciation expense reflected the impact of adjustments made, as we finalized the purchase price, and adjusted our depreciation models. We also had small increases in exploration and G&A spending in Q4 2016.

On a per ounce cost basis, our total silver cash costs were $6.48, while all-in sustaining costs averaged $9.76 per ounce in the quarter. In Q3 2016 these costs were $6.50 and $8.68 per ounce, respectively. The increase in all-in sustaining costs reflected the timing of ongoing mine development at Escobal.

We had a strong per ounce cost performance on the gold side of our business in Q4. Total cash costs averaged $594 per ounce, the lowest quarterly average of the year. All-in sustaining costs were $945 per ounce of gold produced, and these costs compared to $625 and $974 per ounce, respectively, in the third quarter.

Finally, Tahoe ended 2016 in a very strong financial position. Our cash and cash equivalents at December 31 was $163 million. We had debt and leases of approximately $50 million, which left us with over $110 million of net cash at year-end. We also remain undrawn on our $150 million credit facility, and unhedged on all our metals, so we can take advantage of the rising price environment.

As outlined in our guidance, 2017 is the peak year for capital expenditures as we work towards achieving our growth objectives. With our strong financial position, we are confident in our ability to finance our growth, while maintaining our industry-leading dividend. With that I'll now turn the call back to Ron.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [5]

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Thanks, Liz. As I mentioned earlier, we released the new three year guidance with our results yesterday, and we also provided a more detailed break-out of our 2017 costs. Our guidance anticipates that over the next three years, production will ramp up to at least a 0.5 million ounces in 2019, with heading to our target of 550,000 by 2020, with low capital requirements and low operating costs.

It also shows that the increase in production is expected to begin in the second half of next year. Our two key projects, expanding Shahuindo to 36,000 tonnes per day and deepening the Bell Creek shaft are both scheduled to be completed by the middle of the year in 2018, with commissioning to take place in the second half of the year.

Our gold production is targeted at between 375,000 and 425,000 ounces this year, and production is estimated to increase to between 425,000 and 500,000 ounces in 2018. We're targeting between 0.5 million and 550,000 in 2019.

With the completion of our two key projects, we're forecasting lower capital expenditures. Capital is expected to peak this year with sustaining capital between $160 million and $175 million, and project capital is $150 million to $175 million.

By 2019, sustaining capital expenditures are projected to be down to $100 million to $125 million, which is essentially what we did in 2016, while project capital expenditures should be below $10 million. Of course, that assumes we're not building any new projects, which I hope we are, with our exploration success.

At the same time that capital expenditures are declining, we expect to see a coincident sharp improvement in our cost performance. In particular, all-in sustaining costs for gold production are forecast to improve from our guidance of $1,150 to $1,250 this year, to a range of $900 to a $1,000 per ounce in 2019, again basically back in line with our 2016 levels.

Before I delve into the gold assets in more detail, I'd like to touch on Escobal. Over the next three years, production is forecast to be between 18 and 21 million ounces, essentially our 20 million ounces a year that we've been doing since we opened the mine three years ago, with cash costs between $7 and $8.50, and all-in sustaining costs between $9.50 and $11. It's virtually the same guidance we've had over the last three years, and we anticipate it at least through 2021.

Turning to gold, as outlined in the technical report at La Arena. La Arena production is scheduled to come down to around 150,000 ounces in 2017. In fact, we expect to be in that range for the next four years, with total cash costs averaging between $750 and $800 per ounce and all-in sustaining costs of $1,000 to $1,100 per ounce.

The remaining mine life at La Arena is four years, with there being a couple of years of residual leaching after that. Sustaining capital expenditures are targeted at $26 million to $28 million this year, and should decline a to a few million dollars in 2019.

Having said that, we now believe there may be a whole new chapter to the life at La Arena. We just finished an internal scoping study of the La Arena Phase II Copper-Gold project. While the study is not 43-101 compliant, I can tell you that based on our conclusions we are now very excited about this project.

The numbers are -- we are getting are much larger and much better than those published in the 2014 technical report. We've now hired M3 Engineering to do a 43-101 PEA for this project. We expect it to be done in September, in time for an Analyst Investor Day that we are planning on for September 14. Stay tuned.

Turning to Shahuindo. I'm happy to say that we've now received the construction permit for our first crushing and agglomeration circuit. We already have the environmental permits for the full 36,000-tonne per day operation. So we're under way with the construction now.

We have large -- also largely completed an optimization review at Shahuindo. Results to date support the achievement of throughput and recovery rates for the agglomerated ores contained in the January 2016 technical report.

The review has also identified opportunities to slightly reduce capital and operating costs at the mine through revisions to the crushing and agglomeration circuit. Essentially, we're going to go to single stage crushing. Our work shows that the ultimate recovery could actually exceed the 80% envisioned in the study, the technical study. And that conclusion is based on multiple sets of test work performed over several years.

In 2017, production at Shahuindo is targeted at 65,000 to 85,000 ounces. We expect to have the first crushing and agglomeration circuit online early in the fall, so the production expected to be somewhat weighted to the second half of the year.

We often get asked why our all-in sustaining costs for gold are going up in 2017. The answer is, that low cost ounces from La Arena are being replaced with high cost ounces from Shahuindo, which remains very much a ramp up development story, with higher than what we expect over the average of the mine life, for sustaining capital with the accelerated leach pads and waste dumps.

We're estimating all-in sustaining costs at Shahuindo in 2017 of $1,600 to $1,700 per ounce. When the mine reaches 36,000 tonnes per day in the second half of next year, all-in sustaining costs should be well below the $1,000 per ounce level.

Sustaining capital at Shahuindo is targeted to be between $50 million and $55 million in 2017, which brings total sustaining capital in Peru to around $80 million for the year. By the time we reach 2019, we expect sustaining capital for all of Peru, Shahuindo and La Arena together, to total around $35 million annually. Project capital expenditures at Shahuindo in 2017 are estimated to be between $75 million and $85 million, largely related to the crushing and agglomeration circuit. By late next year, project capital should be almost nothing.

Turning to Timmins, we're targeting 165,000 to 185,000 ounces of production in 2017, at cash costs between $650 and $700 an ounce, and all-in sustaining costs between $1,000 and $1100 per ounce. Sustaining capital expenditures are estimated at $50 million to $55 million, which we regard as the normal run rate for our Canadian operations.

Project capital this year is targeted around $75 million, largely for the Bell Creek shaft project. With completion of that project in the middle of next year, our project capital will go to near zero, assuming no new initiatives are undertaken, and our all-in sustaining costs are expected to be between $900 and $1,000 per ounce.

Finally, as part of our year-end results, we released our annual update to mineral reserves and resources. For the most part, we saw results consistent with the prior estimates, less 2016 depletion. We did lower the assumed price at Escobal to $20 per ounce, which increased the average grade, and took some ounces out. In Timmins, the reserve at Timmins West came down, however, we expect a very substantial increase in reserves at Timmins West mine, when we release the initial reserve for 144 Gap.

One of the things I want to remind everybody is, that our typical procedure is to do our major reserve resource update in the second quarter, and release that information in the third quarter. We do this because it gives us a better base for our long-term budgeting and life-of-mine planning, which takes place in the third quarter of the year.

Most importantly, we're very excited about the potential to grow resources and reserves, both at Shahuindo and in Canada based on the results of our 2016 exploration program. As we announced in January, our drilling last year identified a number of near pit oxide zones at Shahuindo in support of future pit expansion. We also identified a number of large district targets through trenching and channel sampling that we could, that could represent a whole new [complement] to the Shahuindo operation. We'll be drilling at these targets this year, as permits are received. They could add both mine life and substantial new production.

In Canada, we succeeded in extending the mineralization virtually every where we drilled. Particularly encouraging, was the depth extension we achieved at the Timmins West mine, and the extensions of the NA and NA2 zones along strike at Bell Creek. We also had some very encouraging results at Vogel to the east of Bell Creek, along the trend toward Goldcorp's Hoyle Pond mine. We plan to drill in all these areas in 2017, with the goal of bringing extensions at Timmins West and Bell Creek into resources, and ultimately into reserves.

Our guidance for exploration in 2017 is $30 million to $35 million. It's a very extensive and aggressive program, and we'll plan to update the market on our progress throughout the year. With that, operator, I think we're ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question is from Cosmos Chui with CIBC.

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Cosmos Chiu, CIBC World Markets - Analyst [2]

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Thanks, Ron and team. Just a few questions for me, maybe first off, on Shahuindo in Peru. I'm still a bit unclear here, in terms of what's happening with the crusher and the agglomerator, but Ron if you can confirm for me. So now are you fully committed to the 36,000-ton per day crusher and agglomerator?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [3]

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Yes, Cosmos, you should expect us to achieve all of the things that are outlined in that feasibility -- or that technical report that we put out in early 2016. Yes, we're 100% committed to crushing and agglomeration, it's virtually 100% of the ore. We're going to scalp off a very small percentage of larger material, that [we can't] agglomerate. But it's fairly insignificant for your purposes.

It does some nice things for us in terms of geotechnical stability on the pad. But yes, we're going to do 36,000 tonnes a day. We're going to see at least 80% recovery from that. We're very satisfied that we're on the right track. So there should be no doubt in anybody's mind that we're not going to be able to achieve -- we will achieve the KPIs basically that are in the technical report.

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Cosmos Chiu, CIBC World Markets - Analyst [4]

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Great, and Ron on that, in terms of timing, you mentioned that the first crusher agglomerator is going to be completed later on in 2017 to 12,000 tonnes per day. So when should we expect the, quote/unquote expansion to 36,000 tonnes per day? When is the additional 24,000 tonnes per day going to get built?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [5]

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It's exactly like the schedule in that feasibility study. It will be up and running by the middle of 2018 next year, and we'll have that. The second half of the year will be the commissioning period, and you'll see a ramp up in production and recoveries, and the whole nine yards in the second half of 2018. You should expect Shahuindo to produce about 200,000 ounces, give or take in 2019.

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Cosmos Chiu, CIBC World Markets - Analyst [6]

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Okay. And then, in terms of the permit then, I know in terms of construction permit, Ron, you mentioned that right now, you have the construction permit for the first phase or the first plant. Do you need an additional permit, a construction permit for the second part, and when would you expect that to come in?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [7]

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Yes, we do and we need to have it roughly by the end of the year, or very early next year. Let me explain something about permitting in Peru.

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Cosmos Chiu, CIBC World Markets - Analyst [8]

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Okay.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [9]

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Particularly, once you get the environmental license, which is the big one that we've got for Shahuindo, it's kind of like building a house. You do your design work, and then you get a permit to construct, and then you do the construction, and then you have an inspection. And then you get your license to operate the thing, which is like getting an occupancy license to move into your house, okay?

So there's always, when you're in a construction phase, there's always little permitting things that have to happen. But the big one is getting the EIA done or the EIF done, and getting that environmental permit. And then these others come pretty naturally, okay?

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Cosmos Chiu, CIBC World Markets - Analyst [10]

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So you foresee no issues in terms of construction permits?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [11]

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No, and the only issue that we run into at all in Peru, is things seem to take a little bit longer than they should, and it's not complications. It's probably not enough resources in the agencies.

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Cosmos Chiu, CIBC World Markets - Analyst [12]

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Yes. And then, on that then, as you mentioned, the 24,000 tonnes per day expansion as per the feasibility study will get built some time in 2018. Looking at your 2018 CapEx budget of $50 million to $70 million for the whole Company, so is it safe to assume that a big portion of that is going to be allocated to Shahuindo and Peru, that's the development CapEx?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [13]

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Yes, a fair amount. Liz, do you want to add some color, Liz?

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [14]

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Yes, I'm just taking a look.

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Cosmos Chiu, CIBC World Markets - Analyst [15]

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Hi, Liz.

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [16]

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Hi. Yes, that's a fair assumption. The shaft project is pretty much complete by 2018, and our project capital in 2018 is really just finishing up those two projects. So the majority will be Peru.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [17]

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Yes, and to put a little cap on that, Cosmos, most of that equipment will get purchased this year. We'll put some purchase orders out for that Phase II gear here, here fairly soon, probably in the next quarter or so.

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Cosmos Chiu, CIBC World Markets - Analyst [18]

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Great. And I may be switching gears a little bit, in terms of Timmins West. Ron, you mentioned about the reserve, the resource update. What caught my eye was the decrease in grade at Timmins West. I believe reserve grades went from 4.2 gram per tonne to 3.69.

You did mention that, and I expect the reserve to eventually increase once again, as you get 144 Gap into it, but I believe 144 Gap is also not higher grade. So how should we think about grade at Timmins West, and how should we model the head grade at Timmins West on a go forward basis?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [19]

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Yes, I'm a little bit disappointed in that grade decrease, and I think there's some things that we can do, as we look at our mine plans and modeling. I'm expecting the Timmins West operations, like the whole Timmins side of that, that whole side of the operation to be roughly a 4 gram to a 4.2 gram kind of deposit, like it's always been.

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Cosmos Chiu, CIBC World Markets - Analyst [20]

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Okay. Great. That's all I have, thank you.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [21]

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Great. Thank you, Cosmos.

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Operator [22]

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The next question is from Michael Gray with Macquarie.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [23]

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Good morning, Michael.

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Michael Gray, Macquarie Capital Securities - Analyst [24]

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Hey, good morning Ron. Can you hear me fine?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [25]

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Yes, we can.

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Michael Gray, Macquarie Capital Securities - Analyst [26]

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Okay. Yes, in terms of the 2019 gold production guidance, and the indication of 550,000-plus ounces in 2020, does this include the mill expansion at the Bell Creek mill?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [27]

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We do not need a mill expansion to achieve those numbers. So no, it doesn't.

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Michael Gray, Macquarie Capital Securities - Analyst [28]

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Okay, thank you. And on the $30 million to $40 million of exploration planned in each of 2018 and 2019, are you able to give us a bit of a split of where that will go?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [29]

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Yes, I'll give you some rough numbers here. It's roughly $18 million in Peru, about $17 million in Canada, and a couple in --

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [30]

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In 2018?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [31]

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Well, this is for 2017, Michael. For 2018, well, Brian, go ahead. Brian?

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Brian Brodsky, Tahoe Resources Inc. - VP of Exploration [32]

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Yes, hi, Mike. For this year, what we've got budgeted is about $24 million in Canada, $15 million in Peru, and about $1 million in Guatemala.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [33]

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And 2018, probably won't look much different than that.

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Michael Gray, Macquarie Capital Securities - Analyst [34]

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Okay. No, that's helpful. And final question, on the block model reinterpretation at Timmins West and Bell Creek, could we get anymore color on what the major changes were, in terms of the resource estimation method?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [35]

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Charlie, why don't you field that?

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Charlie Muerhoff, Tahoe Resources Inc. - VP of Technical Services [36]

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Sure. Yes, it's really -- the change in the resource was just due to drilling, some in-field drilling in some areas along the margins of the deposits, that basically show that the prior model is just extended, extended the ore grade mineralization a little bit too far. So it's really just some refinement of the model in those areas.

--------------------------------------------------------------------------------

Michael Gray, Macquarie Capital Securities - Analyst [37]

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Okay. So refinement on the shapes, more though, so than the actual -- (multiple speakers)

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Charlie Muerhoff, Tahoe Resources Inc. - VP of Technical Services [38]

--------------------------------------------------------------------------------

It's not an estimation modeling thing. It's just more of refinement of the boundaries. (multiple speakers)

--------------------------------------------------------------------------------

Michael Gray, Macquarie Capital Securities - Analyst [39]

--------------------------------------------------------------------------------

Great.

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [40]

--------------------------------------------------------------------------------

And Michael, I'm not sure we're going to have enough drilling down deep at Timmins West by September to upgrade the reserve and resource. Certainly, if we have enough done we will, but you're going to see a nice increase at below the mine, at good grade.

--------------------------------------------------------------------------------

Michael Gray, Macquarie Capital Securities - Analyst [41]

--------------------------------------------------------------------------------

Okay. Thank you very much.

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Operator [42]

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The next question is from Mike Parkin with Desjardins.

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Mike Parkin, Desjardins Securities - Analyst [43]

--------------------------------------------------------------------------------

Hi, guys. Thanks for taking my questions. Could you just speak to -- the realized silver price that you have in the report of $14.45, that's below the spot price over the last kind of -- most of the year. Can you, what's -- how is that reported, is that net of like TCRCs or how do you do the --?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [44]

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Well, no it isn't. And I'm going to let Liz give you a little more detail here. But to start with, the basic calculation is, you take the revenue from the sales, and you subtract -- and basically we subtract the change in the mark-to-market, and divide it by the sales ounces. So you're spreading that mark-to-market decline over the ounces in the quarter.

Can you add any detail, Liz?

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [45]

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No, I can't really add a whole lot more. Basically the adjustments all go through revenue line. And like Ron said, they're then taken over the -- the total revenue net of those mark-to-market adjustments is taken over the new sales that originated in the quarter. So we're not adjusting the denominator in that calculation to reflect the previous quarter provisionally price, so it is a realized price on those sales ounces, but it's taking into account the adjustments. Had the price gone up, you would have seen it, go in the other direction, because the calculation works just the same.

--------------------------------------------------------------------------------

Mike Parkin, Desjardins Securities - Analyst [46]

--------------------------------------------------------------------------------

Okay.

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [47]

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At the end of the day, the only real value in that number is to help you guys track your way through our revenue, but to help you get through the mark-to-market calculation. Okay? Other than that, it doesn't have much value.

--------------------------------------------------------------------------------

Mike Parkin, Desjardins Securities - Analyst [48]

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Okay. And then, on G&A, do we should we expect it to kind of be weighted similar to 2016 for 2017 in terms of the costs -- ?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [49]

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No.

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [50]

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No, G&A is generally relatively evenly spread out quarter-over-quarter unless there is a unusual transaction. So for 2017, we would expect our G&A to be relatively [straight] over each quarter.

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Mike Parkin, Desjardins Securities - Analyst [51]

--------------------------------------------------------------------------------

Okay. And then, in terms of depreciation, if we look at the depreciation per ounce, per asset, and if we use that going forward, should that be fairly fair?

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [52]

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Yes, it's actually, it's going to go up with the new resource adjustments, and then some finalizations that were made at the end of the year. On the silver, it's very steady. There's going to be no change there. And then on the gold, we were about $200 an ounce on the gold this year, and I'd expect that to go up to about $300 for 2017.

--------------------------------------------------------------------------------

Mike Parkin, Desjardins Securities - Analyst [53]

--------------------------------------------------------------------------------

Okay. Do you have a number for silver?

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [54]

--------------------------------------------------------------------------------

I do, on a per tonne basis, it's about $30, on a per ounce basis, it's about $3.

--------------------------------------------------------------------------------

Mike Parkin, Desjardins Securities - Analyst [55]

--------------------------------------------------------------------------------

Okay, thanks. Just -- your comments there about the drop in grade at Timmins West, and you're expecting it to -- are you expecting that the whole aggregate camp to come out at 4.2 grams? And what's going to -- how do you feel, is it a function of the exploration upside, do you see at depth, bringing that into reserves?

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [56]

--------------------------------------------------------------------------------

Yes, I think the Timmins West mine itself, I think the at-depth stuff will offset what we saw along the margins, with this drilling this year. In general, as we look forward, and of course, I'm not the reserve resource guy, but my anticipation is, is that these mines are going to run a pretty similar grade to what they have in the recent history.

So the Timmins West part of the complex, so Timmins West, [Under Creek], 144 is generally run between 4 to 4.2 grams. And I don't see any reason for that to change over the next 10 years of production that we know about, and Bell Creek tends to run a little bit higher than that, and I wouldn't expect it to change much.

--------------------------------------------------------------------------------

Mike Parkin, Desjardins Securities - Analyst [57]

--------------------------------------------------------------------------------

Okay, that's it for me. Thanks, guys.

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [58]

--------------------------------------------------------------------------------

Thanks.

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Operator [59]

--------------------------------------------------------------------------------

The next question is from Steven Butler with GMP Securities.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [60]

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Good morning, Steve.

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Steve Butler, GMP Securities - Analyst [61]

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Good morning, Ron. So a question for you guys on the Escobal -- excuse me, [PDAC] voice. Liz, did you guys make any voluntary royalty payments at Escobal in the fourth quarter, given the realized price was $[14.45], or was there some portion of voluntary payments made in the quarter?

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [62]

--------------------------------------------------------------------------------

So we actually are -- the pricing on those new sales was $[15.95] at the end of the quarter, and we actually made a determination to accrue that royalty, given where prices were going in Q1. So we did book the royalty in the fourth quarter.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [63]

--------------------------------------------------------------------------------

And Steve, I want to make sure you understand something. That realized price has nothing to do with anything other than the mark-to-market calculation and the sales in this quarter. But it doesn't get used for royalty. It doesn't get used for anything. It's the spot price or the forward curve that determines the royalty or the financials or that kind of thing. Okay?

--------------------------------------------------------------------------------

Steve Butler, GMP Securities - Analyst [64]

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Okay, that's good. But you did accrue some, as you said, Liz, that's good. Escobal, what fuel price assumption is included in your 2017 guidance? Where are spot prices today for diesel or for Brent or crude or maybe or diesel would you quote us? And what is the sensitivity to your operating costs for a 10% change in fuel price, so maybe you can get back to me?

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [65]

--------------------------------------------------------------------------------

In the guidance, right?

--------------------------------------------------------------------------------

Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [66]

--------------------------------------------------------------------------------

Yes, so --

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [67]

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It's in the guidance notes in the release, the sensitivity is.

--------------------------------------------------------------------------------

Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [68]

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Yes, so we averaged about $2 and a 10% change in diesel prices, $0.10 on silver, and it's $7 on gold.

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [69]

--------------------------------------------------------------------------------

And our guidance is a little higher than that. Our guidance, in going forward, we tend to look at a little bit higher diesel prices, and a little bit higher labor costs than we've experienced, just because those tend to be our two bigger inputs. And so, it makes the guidance a bit conservative if you don't see changes in those things.

--------------------------------------------------------------------------------

Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [70]

--------------------------------------------------------------------------------

We did include a sensitivity table, Steve, in the MD&A and I believe in the press release on commodity prices, as well as currency. So you could see the impact of those.

--------------------------------------------------------------------------------

Steve Butler, GMP Securities - Analyst [71]

--------------------------------------------------------------------------------

Sorry, so your actual -- or there you go, 2017 guidance, $2 a gallon. Now, and what is the spot price, is it materially lower than that, or is it not far from that level?

--------------------------------------------------------------------------------

Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [72]

--------------------------------------------------------------------------------

I don't think it's too much farther than that. (multiple speakers)

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [73]

--------------------------------------------------------------------------------

Yes, it's a little (multiple speakers) but not a lot.

--------------------------------------------------------------------------------

Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [74]

--------------------------------------------------------------------------------

But you do also have to remember, that in each of these jurisdictions there's going to be different transport assumptions that have been built in there, and different tax assumptions in the different regions. So on average, we're at about $2 a gallon across the Company.

--------------------------------------------------------------------------------

Steve Butler, GMP Securities - Analyst [75]

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Ron and Charlie, it's a long way to get to 4 grams or 4.1 or 4.2 grams at Timmins West grade, based on your current reserve number. And your inferred or indicated resource grade is at [1.44]. So that's -- I think the market's concern today. And that's just more of a comment, I guess for you. But I'm not sure whether or not, there was additional dilution announced that you factored into your reserve recalculation, maybe you could elaborate a bit more, Charlie?

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [76]

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Yes, I think that's part of it, Steve, but most of it was as Charlie said, that it's drilling on the margins, the lower grade.

--------------------------------------------------------------------------------

Charlie Muerhoff, Tahoe Resources Inc. - VP of Technical Services [77]

--------------------------------------------------------------------------------

Yes. There was some calculations (inaudible) in the mining plan is just constructed on the resource model. That really hasn't -- those procedures really haven't changed from last year.

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [78]

--------------------------------------------------------------------------------

And Steve, my previous comments about that was, if that really is real when we get there to mine it, what's going to happen is, we're going to replace that with higher grade production down deeper in the mine.

--------------------------------------------------------------------------------

Steve Butler, GMP Securities - Analyst [79]

--------------------------------------------------------------------------------

Okay, okay. All right. Thanks, guys.

--------------------------------------------------------------------------------

Operator [80]

--------------------------------------------------------------------------------

The next question is from Chris Thompson with Raymond James.

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Chris Thompson, Raymond James & Associates, Inc. - Analyst [81]

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Good morning, guys. Thanks for taking my questions. Most of them have actually been answered, but I just want to hone in on a couple of things. I did notice obviously, that you sold less gold ounces and produced in the fourth quarter, do we expect a reversal of this first quarter?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [82]

--------------------------------------------------------------------------------

Yes. Yes, that was just timing of sales.

--------------------------------------------------------------------------------

Chris Thompson, Raymond James & Associates, Inc. - Analyst [83]

--------------------------------------------------------------------------------

All right, or would you classify that as a little abnormal on a quarterly basis, because it was --?

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [84]

--------------------------------------------------------------------------------

That's probably a little bit on the gold side, and silver too. One of the things that happens is, we had a lot of silver that was on the water, but not sold yet. And some of that was related to where it was going, and some of it was related to a little more production at the back end of the quarter, than the front end of the quarter.

Some of our, particularly our concentrate, is the bigger impactor on the difference between sales and production. And some of our concentrate settlements occur at their port, rather than at our port. So if we're happening to go to those two customers, then we've got some time on the water, where we've got production that hasn't been sold yet.

--------------------------------------------------------------------------------

Chris Thompson, Raymond James & Associates, Inc. - Analyst [85]

--------------------------------------------------------------------------------

Okay, great. Thanks for that, Ron. Just finally also, you mentioned Shahuindo, I guess, we'd be looking at about maybe 200,000 ounces production 2019. Do you see that sort of steady state, is that your plan, I guess?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [86]

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The average over the 10-plus year mine life is going to be 170,000 ounces. So that's typical of a new ore body, and what we've done with Shahuindo. We kind of started the mine on the higher grade section of the mine, and then we'll get into more average grades, as it goes out.

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Chris Thompson, Raymond James & Associates, Inc. - Analyst [87]

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Okay. And then, just can you give us a sense -- obviously, you present the growth as far as on the gold as far as the total, I guess, for the operations, but what are we looking for Timmins and La Arena for the next couple of years?

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [88]

--------------------------------------------------------------------------------

Well to get to that 550,000, the target roughly is 300,000 ounces a year out of Peru and 250,000 out of Timmins. But that mix is going to kind of change around a little bit, depending on what we're seeing going forward. So for example, if our exploration success turns out to something fairly sizeable at Shahuindo, you could actually see Peru come up a little bit above that. I'm thinking a couple years out.

So I'm not sure I answered your question, but roughly, we're looking for 180,000 ounces, jumping up to around 200,000 to 220,000 out of Timmins, once Bell Creek is up and running. And we're looking for 300,000 ounces out of Peru, between Shahuindo and La Arena over the next four years. And then, we'll bring in, probably the Whitney Pit, to jump us up to that 550,000. And we don't need that, because Shahuindo is going to go up to the 200,000 for awhile.

--------------------------------------------------------------------------------

Chris Thompson, Raymond James & Associates, Inc. - Analyst [89]

--------------------------------------------------------------------------------

I guess, so that introduces my final question, you just mentioned the Whitney Pit there. Could you give us a sense, of where we stand as far as consolidated net ownership?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [90]

--------------------------------------------------------------------------------

I missed the last part of your question, Chris.

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Chris Thompson, Raymond James & Associates, Inc. - Analyst [91]

--------------------------------------------------------------------------------

Sorry. I'm questioning, what will it take, I guess, by way of ownership on the Whitney Pit for Tahoe to obviously --

--------------------------------------------------------------------------------

Ron Clayton, Tahoe Resources Inc. - President and CEO [92]

--------------------------------------------------------------------------------

Yes, that JV is roughly at a 70/30 split. Goldcorp has indicated that they aren't going to participate -- okay, it's about 80% now. Liz was just flashing me a number here. So it's 80/20 right now. Goldcorp's basically indicated that they don't plan to participate. So I think over time, if we don't do something different, they'll dilute out, by the time we get into production with that.

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Chris Thompson, Raymond James & Associates, Inc. - Analyst [93]

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Okay, great. Thank you. Thanks, guys.

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Operator [94]

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Next question is from Geordie Mark with Haywood Securities.

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Geordie Mark, Haywood Securities Inc. - Analyst [95]

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Yes, good morning. Just to follow on, from a range of questions, and just to add to those. Maybe on the Shahuindo and rollout with La Arena.

If you could take me through [water] management and plan, I guess, going forward for Shahuindo, as you ramp up for 10,000 tonnes a day to 12,000 and then, up through the ramp up on next year's 36,000 tonnes per day? Just where you're maybe, and what the plan is to build up your required [water] balance?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [96]

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Fill in more wells, it's that simple. We're in progress.

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Geordie Mark, Haywood Securities Inc. - Analyst [97]

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Okay. And on the La Arena, ultimately if you could help us out with maybe some modeling there. On the reserves, are you expecting further conversion of other resources, of bringing other resources into the reserves to bring out the life of mine past 2020, 2021, what are you looking at there?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [98]

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No, no. We've got four years of production in the La Arena oxide at roughly 150,000 ounces a year, and there will be residual leaching and that's it.

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Geordie Mark, Haywood Securities Inc. - Analyst [99]

--------------------------------------------------------------------------------

Okay. And we should just assume -- ?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [100]

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And then we're going to have La Arena sulfide project coming up.

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Geordie Mark, Haywood Securities Inc. - Analyst [101]

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Great, oh, that's good. And we should assume -- just use the average head grade, and the existing recovery balance at the moment, going forward? (multiple speakers)

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Ron Clayton, Tahoe Resources Inc. - President and CEO [102]

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I don't see much changing at La Arena.

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Geordie Mark, Haywood Securities Inc. - Analyst [103]

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Okay, thank you. Thank you very much.

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Operator [104]

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The next question is from Matthew O'Keefe with Echelon Wealth Partners.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [105]

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Good morning, Matt.

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Matthew O'Keefe, Echelon Wealth Partners - Analyst [106]

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Good morning. How you doing Ron?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [107]

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Good.

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Matthew O'Keefe, Echelon Wealth Partners - Analyst [108]

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Good. So just a couple questions back on Escobal. Well, first up, costs are -- you have them in your forecast -- thank you for the three year forecast by the way. But you have them creeping up a bit here to $[7.50] to $[8.50], just curious what are the main drivers of that increase? And then, any of the -- what are the major swing factors that you might we might want to watch out for?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [109]

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I'm going to let Liz talk about that, but before that I'm just going to hit a couple of things. One is, the guidance isn't much different. It's actually almost identical to what we've put out for 2016. And the big difference in 2016 was that silver price was below $16 in the first quarter, and we didn't pay voluntary royalties, right?

So you've saw across the year, as the royalties came up, our price came back more in line with that original guidance. Just as a general statement, Matt, with our guidance we try to tend to under promise and over deliver a little bit. So I would generally tell you across the board our guidance is a little conservative. And I'll let Liz jump in, and give you details.

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [110]

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No. And I agree, that the two biggest factors that we have in the Escobal costs are really that royalty that is dependent on the silver price, and that dependence is based on where the sales finally settle. So the mark-to-market while it doesn't impact it kind of month over month, the adjustment -- if a sale settles below $16, regardless of the price it originated at, we're going to see movements in the royalty there. And that can get a little -- messy is not the right word, but it can get a little bit difficult to model, if you have swings in your silver price that are going up and down above $16.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [111]

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Right around that line.

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [112]

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Right around that line, it gets a little bit complicated. And on the other large impact is the diesel, which is why we put the sensitivity in there. We have made the assumption that we run on diesel-generated power, because that's what we are using right now. And if the diesel prices move significantly in one direction or the other, we do see a swing in our cash costs.

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Matthew O'Keefe, Echelon Wealth Partners - Analyst [113]

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Okay. Got you. And that provisional pricing that we're talking about -- so maybe just to help us a bit, I mean, for a sense of this. So if you -- like a tonne of concentrate, what's the difference in timing between the pricing of the concentrate, and when you actually recognize that adjustment? I mean, is it like a month or three months that could pass before we -- between those two numbers?

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [114]

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So for accounting purposes, it's actually marked to market every month. And then what happens is, the quotational period is generally three months out. And so when you initiate the sale, like let's say you initiated in August, the [goal is] -- you're going to have the quotational period locked down by the end of the year.

But you may not actually settle that final sale until January of the following year, just due to asset exchanges and settlements. So you can actually have the sale that runs through your numbers from a revenue perspective, and a royalty perspective, that's hitting you across three quarters. But generally the period is, three to four months, we want to see sales originate, and get locked down in that period.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [115]

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Matt most of our quotational periods in our concentrate contracts are what's called, two [mama], and that's two months after the month of arrival. Generally, you should assume from the time we produce it, until the time it gets through that quotational period, is going to be three or slightly more months.

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Matthew O'Keefe, Echelon Wealth Partners - Analyst [116]

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Right, okay. Okay. No, that's great. And I, guess one final thing. Maybe you could just talk a little bit about -- I get this question a lot -- is on the dividend stability.

Obviously, we can -- I mean, we've talked about having Escobal as a great underpinning of your -- the cash flow from Escobal great way to underpin that dividend. But I mean, given your balance sheet now, it looks pretty good, and with your current cash flow, all is there to support your current growth plan.

But what kind of sensitivity have you looked at as far as a rapid change in the silver price, or something as far as protecting the dividend? Is it sacrosanct, or is it on the table, should things turn against us?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [117]

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Well, let me just broadly make some statements about philosophical conversation, and obviously, this is a Board decision, in terms of the dividend. But when you look at the dividend for example, if the silver price dropped to $15 and gold was under a $1,000 for significant periods of time, we would start looking at what is discretionary in our budgets, okay?

We know that, and we know what those things are. And so, I'd tell you in 2017, there's somewhere between $20 million and $40 million of exploration and capital discretionary projects that would not hurt our ramp up in growth to delay. And I think we would see those as more discretionary than the dividend, okay?

But if we got to the point, where we're looking at long-term substantially lower prices, certainly at some point, the dividend becomes a conversation. But I'm also going to tell you on the other side of the coin -- and we've always said this -- this is not a change in philosophy at all.

If we found something that we could do, and we may have these internal projects that might fit this bill at some point, if we could take $1 of shareholder value, and turn it into $5 with say, the sulfide project, okay? Then we're going to do that, and you would rather we did that, and use the dividend to do that for a period of time. So it swings both ways, Matt.

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Matthew O'Keefe, Echelon Wealth Partners - Analyst [118]

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Okay, that's great. Thanks very much.

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Operator [119]

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The next question is from Howard Flinker with Flinker & Company.

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Howard Flinker, sdaf - Analyst [120]

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Hello.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [121]

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Good morning, Howie.

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Howard Flinker, sdaf - Analyst [122]

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Hello Liz, hello, Kevin if you're listening. I have two minor questions. One, if I want to adjust informally your earnings for the cost of converting the bond and the FX, should the tax rate be at 29% or something different?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [123]

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I'm going to pass that one to Liz. She's thinking.

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Elizabeth McGregor, Tahoe Resources Inc. - VP and CFO [124]

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I'm thinking. Can I get back to you on that one?

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Howard Flinker, sdaf - Analyst [125]

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Yes, just send me an e-mail. I'm just trying to do this informally. Second --

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Ron Clayton, Tahoe Resources Inc. - President and CEO [126]

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We'll do that.

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Howard Flinker, sdaf - Analyst [127]

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Okay. Second, you mentioned mark-to-market in adjusting revenue per ounce. Mark-to-market, what are you marking to market?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [128]

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Okay. So every month, when we ship concentrate out the door, we get -- depending on the contract, we get it provisionally priced. So we get a provisional payment from the smelter either shortly after it goes on the ship, or it may be out, when it arrives at the other place. But we get a price that -- a settlement or provisional settlement that's based on the average month price for that month. Okay? (multiple speakers)

Yes, but the final settlement doesn't happen until the quotational period is over. So every month, everything that hasn't been finally settled, but has been provisionally priced, we mark it to the market price.

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Howard Flinker, sdaf - Analyst [129]

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Sure. You're shipping on January, on Monday, and then you deliver 21 days later, and there's a difference. So you mark that to market, is that what I'm understanding?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [130]

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Correct. Yes. All the way up until the final settlement, and we book the final settlement. So you're just booking the differences.

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Howard Flinker, sdaf - Analyst [131]

--------------------------------------------------------------------------------

So that's what you're marking?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [132]

--------------------------------------------------------------------------------

Yes.

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Howard Flinker, sdaf - Analyst [133]

--------------------------------------------------------------------------------

And this probably won't apply to me, but just out of curiosity, will your analytical day be in Nevada or Colorado, because it's right around the time of those two conferences?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [134]

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Actually it's going to be in Toronto between the two, but we'll webcast it, so you can see it from wherever you are.

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Howard Flinker, sdaf - Analyst [135]

--------------------------------------------------------------------------------

Okay. I'm going to stay in Colorado between the two of them, if that's okay? (laughter)

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Ron Clayton, Tahoe Resources Inc. - President and CEO [136]

--------------------------------------------------------------------------------

Okay.

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Howard Flinker, sdaf - Analyst [137]

--------------------------------------------------------------------------------

All right. Thanks, guys.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [138]

--------------------------------------------------------------------------------

Yes.

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Operator [139]

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The next question is from John Tumazos with John Tumazos Very Independent Research.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [140]

--------------------------------------------------------------------------------

Good morning, John.

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John Tumazos, John Tumazos Very Independent Research, LLC - Analyst [141]

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Good morning. Thank you for your net cash position, and your generous dividends, and all your hard work for seven years.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [142]

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Hopefully, we're going to continue to do that. I think we've got the plan in place to make that happen, and maybe even make it better.

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John Tumazos, John Tumazos Very Independent Research, LLC - Analyst [143]

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First question, the market isn't recognizing your hard work. Would you sell one of your three divisions or a project and buyback stock, since the market seems to be -- (multiple speakers)

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Ron Clayton, Tahoe Resources Inc. - President and CEO [144]

--------------------------------------------------------------------------------

Yes, I don't think that's in the cards, John, because I think we believe very strongly, we can create a whole lot more value by developing those projects. So I don't -- I don't see that.

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John Tumazos, John Tumazos Very Independent Research, LLC - Analyst [145]

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Could you please quantify the rate of return at different gold and silver prices of some of your larger projects? The market seems to be mistreating you, as though some of your projects are a money pit, and doesn't understand the rate of returns.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [146]

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Yes, I can't do that on this phone call. That's an enormous thing that you just asked me to do. But we can do it, and get it back to you. And I'll take that under advisement, maybe we need to put that information out.

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John Tumazos, John Tumazos Very Independent Research, LLC - Analyst [147]

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I'm rooting for you and I'm -- (multiple speakers)

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Ron Clayton, Tahoe Resources Inc. - President and CEO [148]

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We think it's tremendous, John.

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John Tumazos, John Tumazos Very Independent Research, LLC - Analyst [149]

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Thank you.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [150]

--------------------------------------------------------------------------------

Yes.

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Operator [151]

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The next question is from Stephen Walker with RBC.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [152]

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Good morning, Stephen.

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Stephen Walker, RBC Capital Markets - Analyst [153]

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Good morning, Ron. Just an you help me get a better sense on your preparedness for the expansion at Shahuindo? Can you give us a percentage of the detailed technical drawings that you have in hand for the 12,000 tonne and the 36,000 tonne rate and --

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Ron Clayton, Tahoe Resources Inc. - President and CEO [154]

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For Phase I, we have -- I'm sorry, finish. I'm sorry, Steve.

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Stephen Walker, RBC Capital Markets - Analyst [155]

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I'm sorry. And any contracts for the 36,000 tonne, and where do you stand on that?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [156]

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Yes, so the 12,000 tonne a day, we're building it. The drawings are done, and we actually started building some of the stuff before we got the construction permit, because we could assemble things like grasshoppers and things like that. And we pre-cast a lot of the concrete, so we could just move it in, once we got the permit.

So we're well along -- I mean, that I don't know that I've had a project that, by the time we started construction was so far along, and they're fairly simple projects. In terms of the Phase II, we've got a little bit of engineering yet to do, but it's not a lot. And it's primarily, it's taking out the second stage of crushing out of those drawings, and we'll have that work all done, and be ordering equipment here fairly quickly. And on the Phase I stuff, 75% of that equipment is in the country.

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Stephen Walker, RBC Capital Markets - Analyst [157]

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Perfect.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [158]

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In terms of contracts, we're doing most of that stuff with our [OHL], which is the vendor, and our dirt works is getting done by [Stracon]. So there's not any big contracts there. Roughly we've spent $[50] million out of the $80 million total there, and we've got $30 million more committed.

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Stephen Walker, RBC Capital Markets - Analyst [159]

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Perfect. And just one final thing on Shahuindo. The exploration success you've been having, I believe it's to the north, is that under the existing permitting footprint, do you have to acquire all lands up through there and is everything -- (multiple speakers)

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Ron Clayton, Tahoe Resources Inc. - President and CEO [160]

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Nine months ago, we put in a major [DIA], it's like an environmental semi-detailed environmental -- it's an EIA basically, and we're expecting to get that permit any day now, and that will allow us to drill a lot of holes.

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Stephen Walker, RBC Capital Markets - Analyst [161]

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And then, the development or the mining of that, and moving materials, is again another matter to deal with?

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Ron Clayton, Tahoe Resources Inc. - President and CEO [162]

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Oh, yes. It would be like permitting a new mine, with the exception of, we probably use the existing plan to try to expand the existing plant. So you'd have to do that part -- or that part of it, would be a little bit easier.

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Stephen Walker, RBC Capital Markets - Analyst [163]

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Right, okay. Thank you for that Ron.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [164]

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Thank you.

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Operator [165]

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This concludes time allocated for questions on today's call. I will now hand the call back over to Ron Clayton for closing remarks.

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Ron Clayton, Tahoe Resources Inc. - President and CEO [166]

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Hey, thanks for joining us today, and I really appreciate all of the great questions. Just to conclude, Tahoe is a Company that in 2016 achieved production and cost guidance for the third consecutive year. By the way, we've been in production for three years, so every year that we've been in production, we've achieved our guidance.

We have the pleasure of owning and operating one of the world's truly great silver mines in Escobal. And we're also a Company that's well on its way to becoming at least a 0.5 million ounce gold producer over the next three years. And at that production level, we expect to have very low costs on a per share basis, on a per ounce basis, low capital requirements, and we think we're going to be well-positioned to generate a lot of free cash flow.

So with the investment to achieve our growth plans, at the same time we also continue to pay the industry -- one of the industry's most attractive dividends. We've got a lot of near-term catalysts on the way to support our valuation, and we're looking forward to updating you on our progress. Thanks for attending the call.

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Operator [167]

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