Glamis benefits from Latin American expansion (August 14, 2001)

A decade ago, Glamis Gold (GLG-T) was the quintessential American gold miner, operating mostly in eastern California, where environmental standards were, and remain, among the highest in the world. The company has since spread its wings to Mexico and Central America, partly because anti-mining groups have challenged some of its proposed mines and expansions at home.

Glamis’s foreign foray has paid off most handsomely in Honduras, where the company’s key foreign asset, the San Martin gold mine, is situated. Built at a cost of US$28 million, the mine turned out 19,911 oz. gold in its second quarter of commercial production at a cash cost of US$150 per oz.

Local residents have benefited from the mine. In addition to providing seed funds to establish a local charitable foundation, the company built a medical clinic, provided a doctor and a dentist, and constructed a school and a small village to house the few people displaced by the mine. Locals make up 96% of the workforce.

San Martin reached its expanded annual production rate of more than 110,000 oz. in June of this year, slightly later than anticipated, owing to now-resolved startup snags. During July, throughput averaged more than 22,000 tons per day.

At last report, San Martin hosted reserves of 41.9 million tons of 0.025 oz. gold, plus resources of 3.8 million tons averaging 0.07 oz. gold. These calculations are based on a gold price of US$275 per oz.

San Martin boosted Glamis’s total production to 51,369 oz. gold in the latest quarter ended June 30. Cash costs averaged US$171 per oz., 24% lower than a year ago. The 66.2%-owned Marigold mine in mine-friendly Nevada contributed a record 17,879 oz. gold to the company’s account in the second quarter. Cash costs were a mere US$147 per oz. The Rand mine in California produced 13,579 oz. gold, down from 25,860 oz. in the second quarter of 2000.

On the financial front, Glamis posted earnings of US$1 million (or 1 per share) for the second quarter, compared to a loss of US$1.8 million a year ago.

With San Martin now meeting expectations, Glamis intends to forge ahead with its planned expansion at Marigold. It is expected that the new, 1-million-oz. Millenium discovery, once developed, will boost output to more than 150,000 oz. annually by 2004, up from its current 75,000-oz. production level.

Capital costs for the expansion are estimated at US$45 million, and cash costs are expected to come in below US$150 per oz. Exploration is ongoing at the mine site, and once results from infill and stepout drilling are in hand, Glamis will examine the possibility of an even larger expansion at Marigold.