Glamis’ growth hinges on San Martin, Marigold mines

Debt-free and totally unhedged, Glamis Gold (GLG-T) returned to profitability in 2001, as demonstrated by a 140% appreciation of its share price on the Toronto Stock Exchange, better than any other North American gold producer.

On the back of a strong operating performance from its three producing mines, Glamis turned a profit of US$4.8 million (or 7 per share) on sales of US$64.3 million, compared with a year-earlier loss of US$48.7 million (70 per share) on US$61.6 million in sales.

The company realized an average price of US$272 per oz. in 2001, down from US$280 in the prior year. Operations provided a cash flow of 25 per share. Glamis ended the year with US$45.9 million in the bank.

A strong fourth quarter helped Glamis achieve record production of 230,065 oz. gold in 2001, up 5% over 2000. Total cash costs averaged US$172 per oz., representing a 23% improvement from a year ago. During the fourth quarter, Glamis produced 72,312 oz. at a total cash cost of US$159 per oz., compared with 57,957 oz. at US$194 in the corresponding period of 2000. Fourth-quarter earnings were US$2.8 million (4 per share).

Following the replacement of tonnage mined for the year, proven and probable reserves grew 22% to 3.3 million oz., based on a gold price of US$275 per oz.

Glamis’ foray into Latin America has paid off handsomely. In its first full year of commercial production, the wholly owned San Martin mine in Honduras produced 114,216 oz. in 2001 at a total cash cost of US$120 per oz. San Martin is an open-pit, heap-leach operation.

Glamis acquired the San Martin project through the takeover of Mar-West Resources in the fall of 1998 in a deal worth $48 million. Glamis spent a further US$28 million putting the project into production.

“Once again, Glamis has proved its ability as a smart mine builder, expanding our expertise into Latin America,” says President Kevin McArthur.

At year-end, newly calculated proven and probable reserves stood at 34.9 million tonnes grading 0.86 gram gold per tonne, equivalent to 963,000 oz. A further 355,000 oz. are contained in a measured and indicated resource of 17 million tonnes grading 0.65 gram. McArthur says it has increased the resource at San Martin, primarily in the Palo Alto pit area. The Palo Alto deposit remains open to the south and to the west, where further drilling is planned in 2002. This year, San Martin is expected to produce more than 120,000 oz. at US$120 per oz. The goal at San Martin is to find enough reserves to sustain a 100,000-oz.-per-year operation over a mine life of at least 10 years.

Glamis’ share of production from its 66.7%-owned Marigold mine in Nevada’s Battle Mountain trend amounted to 56,525 oz. at US$179 per oz., compared with 43,655 oz. at US$240 in 2000. Barrick Gold (ABZ-T), through the takeover of Homestake Mining, owns the remaining 33.3% interest in Marigold. A major expansion program has begun at Marigold, which is designed to take the mine from 80,000 oz. to 180,000 oz. per year by 2008, with a total cash cost of less than US$150 per oz. In 2002, Marigold is targeted to produce 55,000 oz. to Glamis’ account at around US$180.

New 190-ton trucks have arrived, replacing the old fleet of 85-ton vehicles. “Big shovels and big trucks are just the start,” says McArthur. “Our focus is on an even bigger story for Marigold’s future. Drilling over this next year will be the key.”

Marigold contains proven and probable reserves of 68.5 million tonnes grading 0.93 gram gold per tonne, equivalent to 2 million contained ounces. Additional measured and indicated resources are pegged at 99.7 million tonnes grading 0.48 gram, or 1.5 million oz.

The wholly owned Rand mine, 100 km northeast of Los Angeles, has been a major contributor to Glamis since the mid-1990s, with 59,324 oz. produced in 2001 at a total cash cost of US$233 per oz. However, based on the current gold price environment, mining is scheduled to end within the next 12 months. Rand’s production in 2002 is expected to increase to 77,000 oz. at US$238 per oz.

“The San Martin and Marigold mines are the foundation [of Glamis], providing long-term, low-cost production of plus 200,000 ounces per year,” says McArthur. “Our quality pipeline of projects and exploration programs is expected to provide for growth. We also continue the search for acquisitions where Glamis can add value.”

The exploration budget for 2002 is US$3 million.

Mine site exploration in the coming year will be divided equally between San Martin and Marigold. “Both properties contain exceptional targets that remain untested,” McArthur says. At San Martin, Glamis has staked a new concession, Minitas, which is only a few kilometres from the mine. The concession covers a new gold-in-soil anomaly. Mapping and sampling are under way, in preparation for drilling later in the year.

Meanwhile, at Marigold, the company will continue to convert resources to reserves and explore other areas on the property. “We have developed three entirely new targets at Marigold,” says the president, “and drilling is expected to start in late March.”

Last year, Glamis invested US$1.8 million in early-stage construction at the 50%-owned Cerro San Pedro project in Mexico’s San Luis Potosi state. The company acquired an interest in this project as part of the US$7.2-million purchase of Cambior’s Mexican assets in May 2000. “The project is ready to advance, and we are discussing, with our joint-venture partners, the best way to move forward,” McArthur says.

Cerro San Pedro contains a measured and indicated resource of 25.8 million tonnes grading 0.58 gram, equivalent to 478,300 oz. A proposed run-of-mine, heap-leach operation would produce 110,000 oz. gold-equivalent over an mine life of eight years.

In Guatemala, the company’s geologists have discovered a second mineralized system at the Cerro Blanco property, based on a new exploration model that has evolved over the past year. Geological fieldwork will continue in preparation for drilling later this year. An in-house scoping study, prepared in November 2000 and based on a minable resource of 1.6 million oz. gold and 11 million oz. silver, concluded that Cerro Blanco needed either a US$300-per-oz. gold price or more reserves to justify the US$85 million in capital expenditure.

“We feel that the new mineral zone and the new exploration model at Cerro Blanco hold much promise,” says McArthur. “As higher gold prices firm up, we’re preparing to for the possibility of advancing Cerro Blanco into feasibility later this year.”

Cerro Blanco hosts a measured and indicated resource of just under 1.3 million oz. gold contained in 15.5 million tonnes grading 2.5 grams.

Glamis expects to produce 255,000 oz. in 2002 at a total cash cost of US$172 per oz.