Guatemala

[Ed Monton]

Glamis contemplates second Guatemala mine

By: Dorothy Kosich

Posted: '06-MAY-05 05:00' GMT © Mineweb 1997-2004

http://www.mineweb.net/sections/gold_silver/438126.htm

RENO--(Mineweb.com) Despite the opposition of some social and environmental NGOs to Guatemala's first modern gold mine, Glamis Gold says it is on track with the Marlin gold project, and is seriously considering making Cerro Blanco its second Guatemalan mine.

Nevertheless, Glamis's unsuccessful battle to acquire Goldcorp cost the Reno-based gold company dearly as net income dropped 76% for the first quarter of this year.

In a presentation to shareholders and analysts at Glamis's annual general meeting Thursday, Marlin Project Manager Tim Miller said the mine is right on schedule to begin production in the fourth quarter of this year. It is expected to produce 250,000 ounces of gold and 4 million ounces of silver annually.

The initial capex for the 5,000 tpd mine is $140 million to $150 million with an estimated total cash cost of less than $90 per ounce. Mine officials estimate that the operation will pump more than $60 million into the country before it ceases operations in 2014.

SOCIAL LICENSE TO OPERATE


Indigenous groups in the El Estor area, with the support of other local community groups and international non-governmental organizations, have mobilized opposition to the resumption of mining activity. Mayan Indian activists and the Catholic Church in Guatemala insist that the Marlin mine approval is illegal. Numerous protests have occasionally erupted into violence, resulting in at least one death. The El Estor Association for Integral Development (AEPDI), is an Oxfam partner which has been working in the Izabal region in northeastern Guatemala since 1999. The Guatemalan government has said it will impose a moratorium on new mining contracts. Glamis did not mention during the AGM if that moratorium would impact its plans for the Cerro Blanco project in eastern Guatemala.

In an interview with Bloomberg this week, analyst Tony Lesiak of UBS AG in Toronto said that a big part of Glamis's valuation is Marlin. Opponents of the Marlin mine argue that the country's past experience with international nickel mining, including Inco, was an ecological and political disaster. However, a number of government official contend that mining is an engine of development in a nation plagued by poverty and illiteracy.

In his presentation at the AGM, Miller argued that the "Marlin mine will be a jump-start for this part of western Guatemala, helping to break the cycle of poverty while protecting the environment and planting the seeds that will lead to better environmental stewardship and health."

"We making every attempt to engage in honest dialog" with local groups, Miller asserted, in an area that is nearly entirely populated by indigenous peoples. Glamis's subsidiary Montana Explorada de Guatemala published its environmental and social Annual Monitoring Report (AMR) this week. Montana and Glamis voluntarily released the document "in a further effort to provide factual information and transparency with its activities in Guatemala," said a news release.

"Glamis recognizes that project opponents point to what they believe was a flawed process of consultation," said the company. However, the AMR assets that Glamis held nearly 200 meetings attended by 11,000 local residents, hosted 200 visits to the project site by more than 3,000 people, and conducted 14 tours of the San Martin mine in Honduras attended by 126 Guatemalan officials and local leaders.

Glamis and the Sierra Madre Foundation have funded salaries for teachers at nine schools in the Marlin project area, made infrastructure improvements at eight schools, and provided construction materials for four more schools in 2004. The Sierra Madre Foundation and a local health NGO APROSAMI renovated twelve health care centers and community medical aid stations in villages near Marlin. Basic health services and training were provided to more than 10,000 people in 14 surrounding communities, according to the report.

Chlorination systems have been installed for municipal water supplies for two communities. Classes have been sponsored on pre-natal care, the prevention of childhood diseases and nutrition.


CERRO BLANCO


Glamis may finally be getting serious about the Cerro Blanco project after flip-flopping on whether to develop a mine since it was acquired by the company during a 1998 merger. Glamis President and CEO Kevin McArthur told analysts that a resource model designed this year estimated that the project may contain 900,000 ounces of gold.

If a mine is developed at Cerro Blanco, McArthur said the ore could be shipped to the Marlin operation. A feasibility study is underway and is expected to be completed by the end of 2006. Miller said environmental baseline studies and permitting have begun. Cerro Blanco, which was originally thought to be an open-pit operation, has been redesigned as an underground mine.

McArthur said Glamis "made an excellent start to 2005 with record gold production in the first quarter and a substantial decline in total cash costs despite continued increases in the cost of fuel and other mines. Much of our success is attributable to our new El Sauzal mine in Mexico, which has made a remarkable trouble-free transition from start-up to full production." El Sauzal began commercial production in December 2004. It is expected to produce 170,000 ounces of gold this year and will produce190,000 ounces of gold annually at a total cash cost of $110 per ounce during its 10-year mine life.

McArthur said Glamis will have no trouble meeting its projected production of 400,000 ounces of gold this year at an estimated total cash cost of $185 per ounce.

FINANCIALS


Glamis reported a net income of $2.2 million or 2-cents per share during the first quarter of 2005, down substantially from the net income of $9.1 million or 7-cents per share for the first quarter of 2004. Results for the prior quarter also included a $7 million tax gain from the sale of properties in Mexico.

Glamis said the decrease in net income for the first quarter of this year was primarily due to $4 million in expenses as a result of the company's "business development activities," which included a hostile takeover attempt of Goldcorp, which subsequently merged with Wheaton River. In an interview with Bloomberg, analyst Mark Smith of Dundee Securities in Toronto called loss "an unfortunate cost of a failed business strategy, but I don't think the street will focus on that."

Gold production during the first quarter of 2005 was a record 93,721 ounces or an 84% increase due to El Sauzal and expansion of the Marigold mine in Nevada.

Capital expenditures for this year are projected to be $99.1 million, but will drop substantially next year to $26.6 million. The company reported working capital of $27.9 million as of March 31, 2005, and long-term debt of $45 million. Glamis hopes to produce 700,000 ounces of gold annually by 2007.

In a research note published earlier this week, Canaccord Capital maintained its "buy" rating on Glamis while reducing its 12-month target price from $24.50 to $23.50. The EPS estimate for 2005 has been reduced from 29-cents to 27-cents.