The proposed merger between
Under the binding offer, which has been endorsed by the boards of both companies, Glamis will acquire the main assets of Francisco, including its wholly owned El Sauzal gold project in Mexico’s Chihuahua state and the Marlin gold-silver project in Guatemala. In return for each share held, Francisco shareholders will receive 1.55 Glamis shares, plus one share in a new exploration company focused on grassroots exploration in Nicaragua. Francisco will transfer some 3,000 sq. km of newly staked Nicaraguan properties to the new exploration company, tentatively called ExploreCo, together with $25 million in cash. Francisco’s Randy Reifel will manage ExploreCo.
The completion of the merger, originally scheduled to close in mid-May, has been pushed back by a month. “We had slippage of a week here, a week there,” says Glamis President Kevin McArthur, “but we’re pretty much set on June 14 [as the completion date].”
In the meantime, Glamis’s development team has been engaged in a bankable feasibility study for the El Sauzal project. Results of the study will be released soon after the closing of the merger. Glamis says El Sauzal contains a proven and probable, open-pit oxide reserve of 1.8 million oz. grading 3.3 grams gold per tonne at a stripping ratio of 1.7-to-1. The project requires a capital investment of US$100 million, including sustaining capital, for construction of a 5,000-tonne-per-day conventional mill capable of producing 170,000 oz. annually at a cash cost of under US$120 per oz. Glamis is confident it can put El Sauzal into production by late 2005.
Glamis is also active at the Marlin gold-silver project in western Guatemala, where it is about to launch a 12-month US$3-million drilling campaign once the Francisco merger closes. The Marlin project lies 250 km northwest of Guatemala City and contains a near-surface, partially defined resource in excess of 1 million oz. The deposit is open in several directions.
These projects will boost Glamis’s overall proven and probable reserves to more than 5 million oz. and total resources to nearly 11 million oz. This year, Glamis expects to produce 255,000 oz. at a cash cost of US$172 per oz. “We’re well on the way to being a 500,000-oz.-per-year producer at a total cash cost of less than US$150 per oz,” says McArthur.
Glamis is off to a good start this year. For the first three months of 2002, the company earned US$3.2 million, or 4 per share, compared with a profit US$400,000 (1 per share) in the corresponding period of last year. First-quarter revenue of US$18.2 million was 26% higher than a year ago.
Glamis produced a total of 61,726 oz. gold from its three operations during the 3-month period at a cash cost of US$150 per oz. and a total cost of US$219 per oz. This represents a 26% increase over first-quarter production of last year, accompanied by a 14% reduction in cash costs. Operations generated a cash flow of US$7.7 million before working capital adjustments. Glamis ended the quarter with US$57.6 million in working capital, including US$47.1 million in cash and equivalents.
San Martin
The wholly owned San Martin open-pit, heap-leach mine in Honduras accounted for half of the company’s total production, spitting out 31,361 oz. at an impressive cash cost of US$86 per oz. San Martin is budgeted to turn out 125,000 oz. in 2002 at a “conservatively” estimated cash cost of US$125 per oz.
“San Martin has performed as well as we had hoped for, and then some,” says McArthur.
At year-end, proven and probable reserves were estimated at 34.9 million tonnes grading 0.86 gram gold per tonne, equivalent to 963,000 oz. at a gold price of US$275 per oz. A further 355,000 oz. are contained in a measured and indicated resource of 17 million tonnes grading 0.65 gram. Glamis is currently conducting infill drilling on the west Palo Alto zone and awaiting tree-cutting permits before drilling starts in the north Palo Alto area. “We expect to replace this year’s mined ounces,” says McArthur. Last season, a single hole drilled west of the Palo Alto pit returned 27 metres of greater than 1 gram under 9 metres of cover. Regional exploration programs are under way on two nearby properties, Minitas and Rio Rico, in preparation for drilling later in the year.
Glamis says San Martin is part of its overall plan to increase production from Central America to more than 200,000 oz. per year.
Closer to home, at the wholly owned Rand mine in California, 100 km northeast of Los Angeles, production in the first quarter totalled 18,750 oz. at a cash cost of US$233 per oz. With mining operations scheduled to end this year, Rand is forecast to produce 77,000 oz. in 2002. Final heap-rinsing and drain-down are expected to generate cash flow over the next couple of years.
Glamis’s share of production from its 66.7%-owned Marigold mine in Nevada, 40 miles southeast of Winnemucca, amounted to 11,615 oz. at a cash cost of US$190 per oz. The mine remains on target to produce nearly 55,000 oz. to Glamis’s account for the year.
Glamis and its 33.3% partner,
A new fleet consisting of a 40-cubic-yard hydraulic shovel and 190-ton haul trucks is now on site, and permits are awaited for a plan of operations.
Glamis acquired its interest in the Marigold mine in early 1999 through the acquisition of Rayrock Resources. Since that time, aggressive exploration drilling has resulted in the discovery of the Millennium deposits in the southern portion of the property holdings, more than tripling reserves to 2 million oz. At the end of 2001, proven and probable reserves totalled 68.5 million tonnes grading 0.93 gram.
The Marigold expansion was approved last November, based on a positive feasibility study that combined the existing operations with the new Millennium deposits, including the Terry zone plus the Section 30 and 31 deposits. The expanded mine will utilize run-of-mine heap-leaching to produce an average of 180,000 oz. over a 10-year life at a projected cash cost of US$143 per oz. and a total cost of US$216 per oz.
“These deposits are above the water table,” says McArthur. “They are all oxide and non-acid generating.”
Good recoveries
Metallurgical testwork indicates recoveries similar to ongoing operations, with a recovery rate of 75% predicted for the Terry zone and 70% for the two Section deposits.
Glamis is carrying out infill drilling on Sections 30 and 31 within the pit shells. Several prospective exploration targets will be tested later this summer.
Meanwhile, the advanced-stage Cerro San Pedro gold-silver heap-leach project in Mexico’s San Luis Potosi state is ready for a quick startup should a production decision be issued. The project is a 50-50 joint venture between Glamis and
Cerro San Pedro contains proven and probable reserves of 49.4 million tonnes grading 0.57 gram gold and 23 grams silver per tonne, equivalent to 900,000 oz. gold and 36 million oz. silver. A proposed run-of-mine, heap-leach operation would produce 110,000 oz. gold-equivalent annually over an 8-year mine life at a cash cost of US$129 per oz. Capital costs are pegged at US$45 million.
“We’re still working with our joint-venture partner, trying to find the best time to put the project into production,” says McArthur.
Glamis is debt-free and entirely unhedged.
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