Halfway through a US$3-million drilling campaign,
Marlin was acquired by Glamis, along with the advanced-stage El Sauzal gold project in Mexico’s Chihuahua state, earlier this year through a US$121-million friendly takeover of Francisco Gold.
“A major gold discovery is under way at Marlin,” says Glamis President Kevin McArthur, who stresses the “the hidden value of the Francisco merger was always the Marlin project.”
The Marlin property is 250 km northwest of Guatemala City in the Department of Huehuetenango. It is accessible by a series of dirt roads, originating off the Pan American Highway, near the town of Huehuetenango, 30 km to the east.
The project sits 20 km south of the regional, east-west-striking Cuilco-Polochic fault and west along the projected strike of the Motagua, another deep-seated regional fault, in a geological province that contains mainly Tertiary volcanic rocks. The project is perched at an elevation of 1,800-2,200 metres in a moderately populated area.
Marlin was discovered in late 1998 through regional grassroots exploration by local geologists working for a private Vancouver-based exploration company with which Francisco’s then-president, Randy Reifel, was affiliated. The field crew uncovered precious metal mineralization in a roadcut along the crest of a 1.5-km-long ridge.
Initial follow-up work identified gold-silver values in quartz veins, stockwork and zones of brecciation exposed in windows through the overlying post-mineral cover. Surface sampling and hand trenching in late 1999 confirmed the widespread presence of near-surface, high-grade gold-silver mineralization.
Francisco acquired the privately held company in 2000, having previously carried out extensive trenching, geochemical sampling, mapping and geophysical surveys on the Marlin property, while sinking a total of 72 drill holes. Francisco outlined a near-surface, gently plunging system of mineralization associated with multiple south-dipping thrust faults and a sub-vertical feeder fault partially bounding it to the south. The mineralized body was drilled over an east-west distance of 500 metres and up to 225 metres in width, for an average thickness of 65 metres. The main zone was open along strike and to depth.
The main zone of mineralization shows several contrasting styles. In upper parts of the system, high gold and silver values occur in two settings: thick, quartz-vein, fragment-rich tectonic breccias forming moderately to shallowly dipping tabular bodies; and stockwork vein systems in Marlin complex rocks, lying between the breccia bodies.
In lower parts of the system, mineralization occurs in more steeply dipping stockwork zones in the volcaniclastic sequence. At both levels, a central core of strong silicification grades outward into a broad zone of argillic alteration. Oxidation typically extends 50-100 metres below surface.
Based on results from 69 of Francisco’s holes, Glamis estimated that the Main zone contained a geological resource of 1.1 million oz. gold and 15.3 million oz. silver, or 1.4 million oz. gold-equivalent.
Glamis began an aggressive US$3-million program of infill and stepout drilling in June, using two reverse-circulation rigs and one core rig. With more than 200 holes in 26,000 metres of drilling completed to date, Glamis has more than doubled the resource to 3.3 million oz. gold-equivalent, while the drilling continues.
Selected highlights from the current program include the following:
q 33 metres of 11.9 grams gold and 134 grams silver per tonne at 144 metres of depth in hole 49;
q 30 metres of 11.2 grams gold and 139 grams silver at 193 metres of depth in hole 50;
q 18 metres of 13.1 grams gold and 309 grams silver at a depth of 172 metres in hole 64;
q 33 metres of 10.3 grams gold and 213 grams silver at a down-hole depth of 84 metres in hole 76;
q 34.5 metres of 11.2 grams gold and 160 grams silver at 46.5 metres of depth in hole 77;
q 18 metres of 16.4 grams gold and 73 grams silver at a depth of 177 metres in hole 97.
“The deposit remains open along strike and at depth, and there are substantial opportunities for further expansion,” says McArthur. “Exploration continues to expand the resource to the west, and southeast of the Main zone, and we remain excited about the exploration potential over the entire land package.”
Based on a cutoff of 0.3 gram gold per tonne, the deposit is estimated to contain:
q a measured resource of 21.1 million tonnes grading 1.74 grams gold and 28.1 grams silver;
q an indicated resource of 12.5 million tonnes grading 1.67 grams gold and 29.8 grams silver; and
q an inferred 17.5 million tonnes grading 1.21 grams gold and 22.7 grams silver.
“The entire deposit is showing excellent metallurgical characteristics for conventional processing technology,” McArthur says.
Unveven recoveries
estwork has yielded recoveries above 90% for gold and 85% for silver on a 200-mesh grind for both oxide and sulphide material. Metallurgical studies indicate a heap-leach scenario would work on the oxide material, with column-leach testwork showing recoveries of 78% for gold. However recoveries in the sulphide or non-oxide material were clearly not satisfactory, with recoveries in the 40% range.
“With the grades we’re seeing, we need to go with a milling scenario, especially when you are looking at the silver grades, which are a fair component.” says McArthur. “The silver has poor recoveries in the column testwork, even in the oxides.”
Roughly 60% of the resource consists of non-oxide material.
Glamis has begun an internal prefeasibility scoping study, which will be completed in early 2003. “I expect to see, by early next year, a fairly aggressive plan to build a significant new low-cost mine for Glamis,” says McArthur.
Elsewhere in Guatemala, Glamis has begun a second phase of drilling at the Cerro Blanco gold project in the southeast. The program consists of eight core holes to verify and extend a deeper, high-grade component of the project.
An updated feasibility study “significantly improved project economics” of the El Sauzal gold project in Mexico’s Chihuahua state. A 10% increase in throughput to 5,500 tonnes per day leads to higher annual production of 190,000 oz. over a mine life of 10 years and at a cash operating cost of US$110 per oz. El Sauzal will be developed using open-pit mining methods and a conventional carbon-in-pulp (CIP) circuit.
Proven and probable oxide reserves are pegged at 18.5 million tonnes grading 3.37 grams gold, equivalent to 2 million oz., based on a gold price of US$300 per oz. and a cutoff grade 0.8 gram per tonne.
Construction in ’03
With an estimated capital cost of US$101 million, including a contingency of US$10 million, the project’s rate of return is 25% based on a gold price of US$300 per oz. The company’s board of directors formally approved the project in early November. Construction is to begin in the second half of 2003, as soon as permits are secured. Commercial production at El Sauzal is to begin in the first quarter of 2005.
For the nine months ended Sept. 30, Glamis earned US$9 million (or 10 per share) on revenue of US$58.4 million, versus US$2 million (3 per share) on sales of US$44.8 million in the corresponding period of 2001. Gold production from its three operations totalled 184,642 oz. for the nine months at a cash cost of US$159 per oz. and a total cost of US$233 per oz., compared with year-earlier output of 157,753 oz. at a cash cost of US$178 per oz. and a total cost of US$223 per oz.
Cash flow from operations increased to US$7.6 million and US$24.3 million, respectively, for the third quarter and 9-month period, compared with US$2.9 million and US$10.9 million for the corresponding periods in 2001. At Sept. 30, 2002, Glamis had US$47.3 million in cash and US$55.5 million in working capital.
In order to finance the initial capital costs of El Sauzal, Glamis has arranged a $128-million “bought-deal” financing with an underwriting syndicate led by BMO Nesbitt Burns, National Bank Financial and Yorkton Securities. Under terms of the deal, Glamis will issue 9.7 million shares priced at $13.15 per share. The underwriters will have the option to acquire an additional 2.4 million shares at the offering price, generating an additional $31.6 million in proceeds. Glamis has almost 105 million shares currently outstanding.
Q3 highlights
For the 3-month period ended Sept. 30, Glamis produced 58,987 oz. gold, compared with 57,295 oz. in the corresponding quarter of 2001, as higher output at both the San Martin and Rand mines more than offset the planned lower production at the Marigold mine.
“We anticipate easily achieving this year’s target of more than 250,000 oz.,” says McArthur.
Cash costs declined 11% from the third quarter of 2001 to US$167 per oz.
At the San Martin mine in Honduras, gold production in the recent quarter increased to 34,895 oz. at a cash cost of US$103 per oz., compared with 32,246 oz. at US$123 per oz. a year earlier. Ore grades have been consistently higher than projected in the mine model, leading to lower-than-budgeted costs.
“The mine continues to operate nicely and, for the year, we don’t expect any problems in meeting our forecast of 125,000 oz.,” says McArthur.
A key to the mine’s long-term success will be future exploration, as this year’s reserves have dipped below 1 million oz. The company is in the process of securing exploration permits for the nearby Minitas property where targets similar to San Martin are ready to drill.
In Nevada, Glamis’ share of production from the 66.7% owned Marigold mine declined to 10,089 oz., compared to 10,968 oz. in the previous quarter and 14,249 oz. in the third quarter of 2001. The expected decline was due to mining of lower-grade ore as part of the planned mining sequence, and an on-going pre-stripping program on the Terry zone. As a direct result, cash costs for the quarter temporarily increased to US$247 per oz., versus US$167 in the comparable period of last year.
McArthur says operations at Marigold improved in September and he expects a much stronger fourth quarter. Glamis remains confident it will achieve its targeted two-third production share of 55,000 oz. for the year.
Expansion
Glamis and partner
“We have made good progress on the Marigold expansion project so far this year and are right on schedule,” says McArthur.
The expansion combines the existing open-pit, heap-leach operations with the new Millenium deposits, including the Terry zone plus the Section 30 and 31 deposits. The joint venture is taking advantage of economies-of-scale by upgrading to a larger-tonnage mining fleet. The shift to 190-tonne trucks from 85-tonne trucks has gone well, says McArthur, and crews have been trained for the larger fleet.
Much of the prestripping of the Terry zone has been completed, and Glamis has now reached the first significant ore zones in the expansion area. A major program of infill drilling was completed this year on Sections 30 and 31. More drilling is planned for 2003. In addition, McArthur says there has been some early encouraging exploration results from the Section 7 area, which will require follow-up drilling.
The soon-to-be-depleted Rand mine in California produced 14,003 oz. of gold for the quarter at cash cost of US$267 per oz., versus 10,800 oz. at a cash cost of US$418 per oz. a year ago. Mining at Rand is scheduled to continue into the first quarter of 2003, at which point, the 190-tonne truck fleet will be transferred to Marigold. The Rand mine is expected to produce 70,000 oz. this year and will continue leaching over the next two years.
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