Glamis grabs Western Silver

Vancouver — Glamis Gold (GLG-T, GLG-N) has inked an agreement to acquire Western Silver (WTC-T, WTZ-X) in a share deal valued at about $1.2 billion.

Glamis will issue 0.688 of a common share plus one share in a new exploration and development company for each Western Silver share. In turn, Western Silver will transfer $38 million in cash, its Carmacks copper project in the Yukon, and its grassroots exploration project in Chihuahua state, Mexico, to the new company.

Glamis’ eye is on Western Silver’s flagship asset, the large Penasquito silver-gold-lead-zinc deposit in northeastern Zacatecas state, Mexico. A positive feasibility study completed in late 2005 reviewed proven and probable sulphide reserves of 258 million tonnes grading 30.2 grams silver per tonne, 0.5 gram gold per tonne, 0.3% lead and 0.7% zinc. Additional proven and probable reserves of oxide and mixed ore were calculated at 77.3 million tonnes of 23.3 grams silver and 0.28 gram gold.

A measured and indicated resource of 671 million tonnes was also reviewed, encompassing mostly sulphide mineralized material averaging 29 grams silver, 0.4 gram gold, 0.3% lead and 0.7% zinc.

The study models a twin open-pit mine scenario over a 17-year life, with initial heap leaching of near-surface oxides beginning as soon as 2007. Mining of the Penasco deposit is expected first (year one through 13), starting in mid-2008, followed by the Chile Colorado deposit (from year 11 onward). Over its projected mine life, the 50,000-tonne-per-day operation is expected to produce 220 million oz. silver, 3.3 million oz. gold, 3 billion lbs. (1.36 million tonnes) zinc and 1.4 billion lbs. (631,000 tonnes) lead.

Initial capital spending of US$334 million is estimated for the operation with an additional US$126 million in sustaining capital needed.

Western Silver acquired Penasquito from Rio Tinto (RTP-N) subsidiary Kennecott in 1998, with the major retaining a 2% net smelter return (NSR) royalty on production. An additional 3% NSR is owed to Mexican company Grupo Industrial de Coahuila on certain concessions, although it can be repurchased for US$5 million.

The grab by Glamis would boost its gold reserves by over 85% and adds a significant silver component to its asset base, with near-term production potential. Penasquito also contains a number of potential satellite deposits and additional exploration targets as upside. The deal, supported by the boards of both companies, is expected to close by May 2006, assuming Western Silver shareholder and regulatory approvals.

Western Silver’s Carmacks oxide copper project hosts open-pit minable reserves of 15.5 million tonnes grading 1% copper. An engineering study conducted in 1997 projects economic feasibility at copper prices above US$1.05 per lb.

Following the Feb. 24 announcement, shares of Western Silver surged 27%, or $5.28, to close at $24.80 apiece on volume of over 10.5 million. Glamis dropped 3.2%, or $1.11, to close at $33.62 per share on the Toronto Stock Exchange.