UPDATE:Glamis dealing with production loss

Glamis Gold (GLG-T, GLG-N) took a downward slide last week as falling gold prices and cuts in production conspired to weigh down the Reno, Nevada-based company’s shares.

With assets in Nevada, Guatemala, Mexico and Honduras, Glamis has been one of the more actively traded stocks over the course of gold’s recent bull run. Its shares have traded between $19.56 and $47.40 since last summer.

But some of that attention turned negative on June 6 when the company announced it was lowering its 2006 production guidance to 620,000 oz. of gold from 670,000 oz., and was raising its cash cost guidance to US$190 an oz. from US$160-170 an oz.

Since the news was released, Glamis’ shares have lost almost 20% of their value.

Ron Coll, an analyst with Jennings Capital, says some of that loss can be attributed to a general shift in the markets attitude. With falling gold prices the market took a negative psychological turn last week and investors were looking for news to sell on. The Glamis announcement fit the bill, Coll says.

Both Coll and Blackmont Capital’s Richard Gray, say the fall the in the company’s share price can be seen as a good entry opportunity. Both pointed to the company’s low costs and strong growth as factors that bode well for the future.

Coll maintained his $40 target and Gray maintained his $46 target after the news was released.

The drop in production and rise in cash costs was mainly due to mechanical problems with the leach tank agitators at its Marlin project in Guatemala. While the company says the issues have largely been addressed, the frequency of the failures led to low process plant availability and reduced gold and silver recoveries.

Glamis says it expects permanent improvements to the processing facility will be finished within two months.

And, it says, gold and silver production has not been lost, only delayed, meaning the impact will be limited to 2006 production.

One analyst said until those improvements are made there is a degree of uncertainty around whether Glamis will be able to meet its target of producing 700,000 oz of gold by 2007.

More troubles

If the problems at Marlin weren’t enough, the company was also hit by lower than expected production at its Marigold mine in Nevada.

Slow leach times and a depleted mining fleet were blamed for production losses there.

Despite the bad news the company and analysts say there is still plenty to be optimistic about.

Case in point: it’s El Sauzal Mine in Mexico is exceeding production forecasts even if that surplus is not enough to cover the production losses at the other mines and exploration at its Peasquito project, also in Mexico, looks positive.

A new feasibility study for Peasquito is expected late in the summer.

Glamis describes Peasquito as “one of the world’s largest bulk-mineable silver and gold deposits.” The project has existing infrastructure which includes road and rail transportation, two ocean ports, and two smelters.