Industry Trend Analysis - Escobal Suspension, Marlin Closure To Weigh On Precious Metal Sector - SEPT 2017

BMI View: Guatemala ' s mining industry will face a steep contraction in coming quarters, following the suspension of the country's key silver mine and the planned closure of the largest gold mine. Moreover, an ongoing political crisis will compound regulatory uncertainty, presenting downside risks to Guatemala's nickel production outlook and general mining investor sentiment.

In August, Guatemala's constitutional court upheld the decision to suspend Canadian miner Tahoe Resources' mining license to operate the Escobal silver mine, over allegedly violating indigenous groups' right to consultation prior to mining. The firm's operations at Escobal have effectively been halted since June due to local protesters blocking the main road. As Escobal is among the largest silver mines in the world - with 2016 production of 21.2moz amounting to nearly all of Guatemala's mined silver output - the suspension will result in plummeting silver production in the country. We have subsequently revised down our silver production growth forecast for Guatemala, to a 30% decline in 2017 and 10% decline in 2018, as strong anti-mining sentiment in the region will lead to ongoing legal uncertainty. Beyond this, we expect the country's silver production to return to growth, as rising silver prices will incentivise the government to reach an agreement with Tahoe or to begin state-run operations at the mine.

Additionally, top gold miner Goldcorp's planned closure of the Marlin gold mine by the end of 2017 will weigh on both gold and silver output. Indeed, over the first half of 2017, Guatemala's silver and gold production fell by 25.7% and 94.8%, respectively. Given Marlin's dominance in Guatemala's gold sector and a lack of new gold projects planned in the country, we do not expect Guatemala's gold production to recover.

Silver Output To Drop
Guatemala - Silver Mine Production (moz) & Growth (% y-o-y)
e/f = BMI estimate/forecast. Source: USGS, BMI

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