When Glamis Gold sold a half-interest in a Mexican mining project last week, it retained a small royalty interest if the mine ever starts production.
Don't hold your breath waiting for big checks to roll into the offices of the Reno-based mining company.
Glamis did pretty well on the deal already.
Glamis sold its half interest in the Cerro San Pedro project to Metallica Resources Inc.
Metallica already owned the remaining 50 percent of the project.
The purchase price was $18 million $2 million at closing, $5 million in six months, $6 million in a year, $2.5 million if production starts and $2.5 million a year after production begins.
That's not a bad return on a property for which Glamis paid $7.2 million in 2000.
Additionally, Glamis will receive royalties pegged to the price of gold.
If gold is selling for $325 an ounce, for instance, Glamis will receive 0.5 percent of the mine's net.
If gold is selling over $400, the royalty increases to 2 percent.
Even Glamis, however, has been lukewarm on the project's potential.
A feasibility study completed by the Reno firm in late 2000 projected only a moderate rate of return if Cerro San Pedro was developed, and the project was put on the back burner.
But that study was completed when gold prices were about $275 an ounce.
Today, prices are running about $350 an ounce.
The study two years ago estimated Glamis' half of the reserves at Cerro San Pedro to total about 239,000 ounces.
"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," said Kevin McArthur, president and chief executive of Glamis.
He said the company prefers to focus its financial resources and staff on its Marlin project in Guatemala and its El Sauzal project in Mexico.
There's a possibility, however, that Glamis could get the Cerro San Pedro project back.
If Metallica doesn't pay the $5 million it owes in six months, Glamis will keep the initial $2 million down payment.
Metallica also will return the 50 percent interest it bought, along with another 1 percent interest to give Glamis control of the project.
Metallica, a publicly-held company based in Toronto, reported a loss of $839,405 in the first nine months of last year.
The transaction is scheduled to close on Thursday if it's approved by both companies' boards.
