Glamis drops Cerro San Pedro stake

Glamis Gold (GLG-T) has agreed to sell its half of the Cerro San Pedro gold-silver project in San Luis Potosi state, Mexico, to equal partner Metallica Resources (MR-T) for US$18 million.

Under the deal, Metallica will pay US$2 million on closing, with the rest coming in stages as certain milestones, such as commercial production, are met. Metallica has the option of covering up to US$6 million worth of payments by issuing shares.

Glamis retains a sliding net smelter return royalty on all mineral production from the property. The royalty ranges from 0.5-2%, based on the price of gold.

Should Metallica fail to pay Glamis US$5 million within six months of the deal’s closing, it would return Glamis’ half-interest plus an additional 1%. Metallica would also surrender the US$2 million already paid at closing. Then, the two companies would form a new joint venture at Cerro San Pedro, with Glamis acting as operator.

The pair expect the deal to wrap up on Feb. 12, subject to due diligence and approval of both companies’ boards.

Glamis’ CEO, Kevin McArthur, said in a prepared statement, “Given the size of our share of the project and its priority relative to Glamis’ other development projects, Cerro San Pedro does not fit well in our intermediate-term planning and this agreement will allow us to focus our human and financial resources on the exciting El Sauzal and Marlin development projects.”

Glamis originally acquired its half-interest in the project via the US$7.2-million purchase of Cambior‘s (CBJ-T) Mexican assets in May 2000.

Cerro San Pedro is home to proven and probable reserves of 49.4 million tonnes grading 0.57 gram gold and 23 grams silver, equivalent to 900,000 oz. gold and 36 million oz. silver. A proposed run-of-mine, heap-leach operation would produce 110,000 oz. gold-equivalent annually over an eight-year mine life at a projected cash cost of US$129 per oz. Capital costs are estimated at US$45 million.