Glamis nails down deal to sharply increase reserves

Here, says Brian Kennedy, is the shorthand version of the deal that Reno's Glamis Gold closed last week to acquire Western Silver Corp.:

Glamis increased its outstanding shares by 25 percent. It increased its reserves of gold by 86 percent.

"It's a very exciting development," said Kennedy, the president and chief executive officer of Glamis, as he met with shareholders and analysts in Toronto last week.

Western Silver, a Canadian company, was in the early stages of developing a mine known as Penasquito in Zacatecas, Mexico.

As drilling data on that project became public, Kennedy said, Glamis executives got fired up about striking a deal to acquire Western Silver for Glamis stock.

A feasibility study completed last year estimates the Penasquito property includes 4.9 million ounces of gold nearly doubling Glamis' current holdings along with 308 ounces of silver, 3.9 billion pounds of zinc and 1.8 billion ounces of lead.

Glamis thinks the reserves may be even larger, and it's conducting an exploration program to get better figures. It expects a revised feasibility study will be complete by August.

Getting those reserves onto the income statement will take at least three years, Kennedy said. The company still needs to win permits from Mexican officials and invest at least $334 million in mining facilities.

Glamis projects the first gold will be poured at Penasquito in 2009, with full-scale production beginning in 2010.

The deposit was discovered by Kennecott geologists looking for copper in 1994. Western Silver purchased a 100 percent in the property four years later.

The feasibility study estimates production from the mine in 2010 or thereabouts will run 193,000 ounces of gold a year Glamis expects its total to be 670,000 ounces from all its mines this year along with nearly 13 million ounces of silver. The mine life is estimated at 17 years.

Kennedy said Western Silver executives scouted carefully before settling on Glamis to acquire their company and its hot mining property.

A key selling point, he said, was Glamis' experience with developing and operating another mine in Mexico, its El Sauzal project. That mine produced 62,311 ounces of gold in the first quarter more than 40 percent of the company's total.

The company reported last week, however, that its new Marlin mine in Guatemala quickly is moving to the forefront. That mine produced 43,269 ounces of gold during the first quarter, and Kennedy said its cash costs of production were about $100 an ounce during March.

For the quarter, Glamis reported income of $16.9 million on revenues of $81.4 million. This compares with income of $2.2 million on revenues of $42.1 million a year earlier.

It sold its gold production at an average price of $554 an ounce during the quarter compared with an average price of $427 a year earlier.

Total production of 147,781 ounces during the quarter compare with 93,721 ounces a year earlier.