Breaking News — Glamis takes out Francisco

Vancouver — The strong pipeline of advanced projects held by Francisco Gold (FGX-V) has prompted Reno-based Glamis Gold (GLG-T) to take over the junior in an all-share deal valued at $205 million.

“Francisco’s discovery and accomplishments at El Sauzal and Marlin have been recognized,” says Francisco’s President, Randy Reifel, “and we still are able to continue our exploration efforts in Nicaragua and elsewhere in a well-funded new company.”

The friendly merger calls for Glamis to exchange 1.55 shares, plus 1 share in a new exploration company for each Francisco share. In return, Francisco will put $25 million, certain Nicaraguan exploration assets and a 2% net smelter royalty on its Guatemalan projects, excluding the Marlin property area, into the new company. Glamis has the right to acquire 5% of the new company. The agreement pegs the value of each Francisco share at $13.33; a considerable premium over the $8.50 its shares were trading at before the deal was announced

Glamis aims to issue 25.7 million shares under the transaction, at which time the company will have 109.3 million shares outstanding.

“Gold leverage is a key component of Glamis’ strategy,” says the company’s Chief Executive Officer, Kevin McArthur, “and this transaction significantly increases the gold leverage per Glamis share, while retaining Glamis’ financial flexibility.”

Francisco Gold’s main asset is the El Sauzal gold project in Mexico, where a bankable feasibility study is expected later this year.

Situated 13 km west of Batopilas in Chihuahua state, El Sauzal contains an oxide gold reserve of 20.9 million tonnes grading 3 grams gold per tonne, equivalent to 2 million contained ounces. This material has been deemed mineable by open-pit methods.

The feasibility study is being completed by Tucson-based M3 Engineering and Technology and Denver-based Golder Associates. The study envisions a 6,000-tonne-per-day operation and is expected to produce gold at less than US$70 per oz. over the first two years. Based on the recent engineering work, the company believes that the capital costs originally estimated at US$139 million could be 25-30% lower.

Geologically, El Sauzal represents a high-sulphidation, epithermal gold deposit. The host rocks comprise andesite flows, tuffs and breccias, which grade upward into intercalated, highly altered dacitic volcanic rocks. Gold mineralization is associated with quartz-kaolinite-dickite-alunite alteration in the upper dacite. The dacitic host rocks are overlain unconformably by post-mineral rhyolite-dacite breccias and conglomerates that contain no significant gold mineralization.

“We expect El Sauzal to become Glamis’ next showplace mine, producing 170,000 oz. of gold for 10-plus years at a cash cost below US$120 per oz,” says McArthur.

In Guatemala, Francisco has outlined a zone of mineralization covering an area measuring 650 by 225 metres with an average thickness of 65 metres at the Marlin Target.

The latest drill program tested the mineralized extensions of the Main zone with 16 holes, while two holes were collared into the Los Cochis corridor, some 500 metres to the northwest.

Hole 53 and 60 were collared on the northern margin of the main target area returning 17 metres averaging 0.6 gram gold and 21.9 grams silver per tonne from 18 metres down-hole and 6 metres grading 1.71 gram gold and 3.8 grams silver from 35 metres down-hole, respectively.

Three holes tested the south-southwest edge all cutting significant widths of mineralization. Hole 57 returned 83 metres grading 1.48 grams gold and 32.4 grams silver from 17 metres down-hole, hole 62 averaged 1.98 grams gold and 40.2 grams silver from 61 metres down-hole and hole 63 returned 19 metres grading 0.93 gram gold and 12.4 grams silver from 65 metres down-hole.

The Marlin property lies 140 km northwest of Guatemala City and 60 km from the Mexican border. The project is part of a package of properties originally held by Montana Gold, a privately owned Canadian company. Since it began exploration work in Guatemala in 1996, Montana has staked more than 6,000 sq. km of mineral concessions along a major structural trend in the country’s western region. Francisco acquired Montana by issuing an initial 650,000 shares on closing the deal and if 1.5 million oz. gold-equivalent ounces are defined (proven and probable), it will issue up to 1.4 million more.

The Main zone is a low-sulphidation, epithermal system hosted in Tertiary volcanic and volcaniclastic rocks. The main “Marlin complex” comprises a series of massive-to-fragmental pyroclastic rocks, which host a large part of the Main zone’s high-grade mineralization. An underlying volcaniclastic sequence is composed of conglomerate-to-fine sandstone-siltstone rocks that can also host low-grade mineralization.

“We are also very excited about the Marlin project in Guatemala,” adds McArthur, “where we see plus-million oz. potential, and an advancement of our Central America strategy, including development and operational synergies among our San Martin, Cerro Blano and the Marlin project.”

The deal has been unanimously approved by both companies but is still subject to shareholder approval. A $8.6-million, break-up fee is payable to Glamis if Francisco terminates the deal for a better offer.