Two years of discussions have culminated in the proposed merger of
Under the binding offer, which has been endorsed by the boards of both companies, each Francisco share will be exchanged for 1.55 Glamis shares, plus one share in a new exploration company tentatively known as ExploreCo. Francisco will transfer some 300,000 hectares of recently staked grassroots exploration properties in Nicaragua to ExploreCo, along with $25 million in cash. ExploreCo will also hold a 2% net smelter return royalty on Francisco’s Guatemalan portfolio outside the Marlin project area.
Glamis will retain the right to acquire a 5% stake in ExploreCo through warrants exercisable for three years over prices of $1.50-$2 per share. Upon closing of the merger, Glamis will have 109.3 million shares outstanding.
“Not only have we realized a fair evaluation for Francisco but, after many years of patience and hard work, Francisco shareholders will get to participate in the development of El Sauzal into a world-class mine,” says Francisco President Randy Reifel. “We feel the merger is a fair and equitable transaction, and, as a result, management is recommending the arrangement to our shareholders.”
He adds: “We are anxious at the opportunity to look at Nicaragua and elsewhere for another potential world-class discovery.”
Reifel will keep his exploration team intact at ExploreCo.
Based on the 20-day weighted average share price of Glamis, the transaction values Francisco at $13.33, a 57% premium over its close the day prior to the announcement. Glamis has locked up the support of 14% of the outstanding shares. The deal remains subject to the approval of Francisco shareholders and regulatory authorities.
If Francisco terminates the deal as a result of a superior offer, Glamis is entitled to a break fee of $8.6 million.
Glamis will acquire the main assets of Francisco, including its wholly owned El Sauzal gold project in Mexico’s Chihuahua state and the promising Marlin gold-silver project in western Guatemala, plus cash to cover transaction costs.
“We expect El Sauzal to become Glamis’ next showcase mine, producing 170,000 ounces of gold for ten-plus years at cash costs below US$120 per oz.,” states McArthur.
El Sauzal contains a 1.8-million-oz. proven and probable oxide reserve 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, to construct a 5,000-tonne-per-day conventional mill.
Glamis is confident it can navigate the permitting issues of El Sauzal, as it has already operated a small mine in the area, which has since been reclaimed. “We are taking a conservative, disciplined approach to development of El Sauzal, with the first production planned for 2005,” says McArthur.
At the same time, he is enthusiastic about the potential of the Marlin project in Guatemala and intends to keep the drills turning. “This is a very exciting project with an existing 1-million-oz.-plus resource and a lot of upside,” McArthur says. “We’re anxious to expand resources and move the project into the development pipeline.”
Most of the 72 core holes (7,600 metres) that Francisco has drilled at Marlin since mid-2000 have targeted the Main zone, a near-surface deposit of gold-silver mineralization. The zone measures 700 metres long and up to 225 metres wide, with an average thickness of 65 metres. It remains open to the south-southwest, where a coincident induced-polarization anomaly extends another 400 metres past the most southwesterly hole drilled to date. There are various untested targets at the Marlin project.
Reifel says the Main zone contains between 1 and 1.2 million oz. gold-equivalent averaging a grade of 2.5 grams, with potential for an additional 300,000-500,000 oz. The stripping ratio is about 1-to-1 or less. There is also a high-grade component that will serve as a starter pit and create a lot of value in the project’s early days.
Glamis achieved a record production from its three operations in 2001 for a total of 230,065 oz. at a cash cost of US$172 per oz. The company owns a 100% interest in the San Martin mine in Honduras, a 66.7% interest in the Marigold mine in Nevada, and 100% of the Rand mine in California. The Rand will be depleted a year from now; this year, production is forecast at 255,000 oz. at a similar cash cost.
Says McArthur: “The transaction is an important step in realizing Glamis’s goal of 500,000 ounces of annual gold production in the near term, while maintaining cash costs below US$150 per oz.”
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