Glencairn announces change in direction

A day after Glencairn Gold (GGG-T, GLE-X) announced it was selling its Cerro Quema gold project in Panama in order to focus on its Nicaraguan gold assets, the Canadian junior unveiled a $25-million financing, a new head of exploration, and three new directors.

The equity financing will allow Glencairn to complete the conversion of its La Libertad mine in Nicaragua from a heap-leaching operation to a conventional mill circuit, as well as improve efficiencies at its Limon mine and sink $7 million over the next year and a half into an exploration program to expand mineral reserves and resources.

“We’re going to refocus our efforts on Nicaragua,” Peter Tagliamonte, Glencairn’s president and CEO, said during a conference call with analysts and investors. “We’ll have a fully funded exploration program on the Nicaraguan gold belt.”

“I don’t think anyone questions that La Libertad is a world-class asset,” added Stan Bharti, executive chairman of Aberdeen International (AAB-V, AABVF-O), which has subscribed for $7 million of the financing for a 12% stake in Glencairn.

“We’re planning to have a new name, focus on production with a huge amount of blue sky that we’re really going to turn into resources,” Bharti said. “I’m also investing a significant portion of my own money into this deal.”

Bharti said he subscribed for $1 million.

Under the restructuring, Bharti will be appointed chairman of Glencairn’s board. George Faught, president and CEO of Aberdeen, and Joe Milbourne, a metallurgical engineer and formerly the technical director at AMEC Americas Inc., will also join Glencairn as directors.

Glencairn’s La Libertad gold deposit, 110 km east of the Nicaraguan capital of Managua, holds an indicated resource of 16.3 million tonnes grading 1.5 grams gold, with total contained gold at 794,000 oz. When that project is completed, it will produce about 85,000 to 95,000 oz. gold at a cash cost of roughly US$350 per oz., Tagliamonte said.

A few hours away from La Libertad is Glencairn’s 95%-owned Limon mine, in northwestern Nicaragua. Limon reported gold sales last year of 33,067 oz. The underground mine holds proven and probable reserves of about 1.2 million tonnes at 5.3 grams gold. It produces about 43,000 oz. gold a year and “has got tremendous exploration upside,” Tagliamonte said.

Glencairn also holds a 100% interest in the Mestiza gold property, which is within trucking distance of the Limon mine and has an inferred resource of 689,700 tonnes grading 10.3 grams gold per tonne.

“There’s a lot of gold in Nicaragua,” said Bharti, who noted that Aberdeen’s mission is to identify undervalued companies and then invest in them to bring them to their full potential. “Glencairn has got almost 100,000 ounces of gold. There aren’t too many companies in Central America with that kind of production profile, with that kind of resource base, with this kind of value.”

Tagliamonte also sang the praises of his new executive vice-president of exploration, Bill Pearson, a former head of exploration at Desert Sun Mining. Tagliamonte worked with Pearson and Bharti at Desert Sun. Yamana Gold (yri-t, auy-n) bought Desert Sun — whose main asset was the Jacobina gold mine in northeastern Brazil — last year for about $575 million.

For his part, Pearson is bullish on Glencairn’s Nicaragua properties.

“I don’t think people appreciate how strong these epithermal gold systems are in Central America,” he said during the conference call from Nicaragua. “Most of what we’re talking about right now in terms of resources and future reserves is in a relatively small portion of the total site. It’s a very extensive system and a lot of it really hasn’t been looked at in any sense.”

As far as political risk is concerned, Tagliamonte said Nicaragua is not a challenging place to work.

“We’ve had nothing but good co-operation with the Sandinista government,” he said. “We view Nicaragua as an excellent place to do business.”

Glencairn plans to use the proceeds of its $6-million sale of Cerro Quema to Bellhaven Copper & Gold (BHV-V, BHVCF-O) to help finance its work in Nicaragua. The sale is expected to close by Oct. 31.

“Cerro Quema was a non-core asset,” Tagliamonte noted. “It is a good property and I’m sure it will be a very good asset, but we’re trying to focus on our core assets located in Nicaragua and Cerro Quema was a bit too small and would distract us.”

Bellhaven already owns 40% of Cerro Quema, 190 km southwest of Panama City, and holds several other exploration projects in Panama.

Cerro Quema has 15 million tonnes in measured and indicated resources grading 0.93 gram gold per tonne.

Glencairn has had a hell of a year. In August, second-quarter results revealed that the Toronto-based company’s income had plummeted to US$1.5 million, down from US$3.8 million for the same period last year.

A month earlier, operations at its 100%-owned Bellavista mine in Costa Rica were suspended following ground movements of about 1 cm per day in sections of the leach pad and waste pile at the open-pit gold operation.

Tagliamonte said the company must complete engineering work at Bellavista “to determine the best way forward.”

“We’re not confident that it will reopen as a heap-leach mining operation,” he said. “There is a possibility that this mine could be reopened as a conventional milling operation.”

For now, Glencairn has successfully rinsed and removed all the cyanide from the site and will record an impairment charge of about US$40-US$50 million in its financial results for the nine months ending Sept. 30.

“A few months ago, Glencairn was in a serious and difficult position,” Tagliamonte said. “We had a stock position of about fifteen cents. We didn’t have the funding to continue on the path we needed to go. One of the options was to sell the company at a fire-sale price. The other option, and the one we chose, was to make some difficult decisions.”

Under the new capital structure, Glencairn will have about 55 million shares outstanding, about $33 million in cash, and no debt, Tagliamonte told analysts.

Glencairn will issue 40 million units and 127 million subscription receipts at 15 apiece, with each unit comprised of one common share and half a share-purchase warrant. Under the planned restructuring, Glencairn will consolidate its stock on a seven-for-one basis and change its name.

On the Toronto Stock Exchange, news of the equity financing sent Glencairn’s shares down 3 to close at 17 on a trading volume of 9.1 million shares. Shares of Aberdeen International remained unchanged at 72 apiece.