Glamis Gold, Ltd. Business Information, Profile, and History

Company Perspectives:

Glamis' Vision: Solid cash flow and earnings from low-cost operations. Environmentally sound and safe mines. Operations foundation in southwest U.S. Growth into Latin America. Continued growth through exploration and sensible acquisitions. Return shareholder value.

History of Glamis Gold, Ltd.

Glamis Gold, Ltd. is an intermediate-size gold mining company, producing more than 250,000 ounces of gold per year. The company's gold producing projects include the Rand mine in California, the Marigold mine in Nevada (a 66.7 percent interest), and the San Martin mine in Honduras. Glamis owns the promising El Sauzal project in Mexico and the Marlin project in Guatemala. Glamis employs open pit mining and the heap leach method of extracting low grade gold from ore. Gold is processed to 99.99 percent purity for sale on the London Bullion Market or at Comex in New York.

Glamis is a pioneer in the heap leach method of gold extraction. The process involves taking a pile of coarse, gold-containing material from an open pit and carrying it to a leach pad. The ore is soaked with a cyanide solution, which separates gold from dirt. The cyanide and the gold drain to the bottom of the pile as a gold-oxygen-cyanide compound. The gold is filtered through activated carbon; then electrolysis and smelting recover the metal from the carbon. When exploring mineral deposits, Glamis looks for certain soil characteristics and metallurgical capacities amenable to heap leach extraction. These include natural fractures, so the material will not require crushing, and alkalinity, which offers a stable chemical environment for the cyanide solution and requires less "reagent" application to alkalinize the ore. Porosity is essential as clays prevent the movement of the cyanide solution and affect the capacity of cyanide to release the gold from ore. Oxidized gold separates more easily from the contents of the soil. Glamis prefers soil free of chemicals that can absorb the cyanide, thus weakening its effectiveness. The heap leach method is a closed system, with liners to prevent leakage of cyanide into the ground, and involves water reclamation for reuse.

Among First to Employ Heap Leach Method of Gold Extraction

Glamis was first incorporated in 1972 as Rennick Resources Ltd., a mineral exploration company based in Vancouver, British Columbia. After several reorganizations the company took the name Glamis Gold in 1977 with the intention of becoming a gold mining operation. Under the leadership of Chester Millar, a pioneer in the heap leach method, Glamis's first major project involved the Picacho Mine in Imperial County in southern California. After Chemgold obtained a 20-year lease on the Picacho property in 1979, Glamis acquired a 65 percent stake in Chemgold from Millar in a stock and cash transaction. The company constructed a leach pad and a gold recovery plant and open pit mining began in 1981. Glamis acquired the remaining interest in Chemgold in 1983. During the early 1980s Glamis expanded the scope of mining incrementally while it also reduced costs. In 1985 Glamis produced 24,776 ounces of gold at a production cost of $125 per ounce.

Profitability at Picacho provided a foundation for other mining opportunities. In August 1984 Glamis acquired an option to purchase gold claims in Kern County, northeast of Los Angeles. Glamis paid $6.45 million, with the first payment of $450,000 to be followed by continuing payments over six and a half years. Funds came from the Picacho mine until the Randsburg operations became self-supporting. The Randsburg mining district included the Yellow Aster mine, where Glamis performed its first bulk test of 1,000-ton samples in July 1985. Geologists discovered high concentrations of gold ore at the Initial Lamont Deposit, however, and open pit mining began at that location, as well as at Descarga, in January 1987. Glamis formed the Rand Mining Company to manage the site.

Glamis frequently invested in properties for exploratory purposes, only to sell its interests if the opportunity did not meet its criteria. In 1987 the company acquired Gold Field Mining, selling the Lava Creek property in Idaho, but retaining the Imperial County, California, claims included with the acquisition. Adjacent to the Picacho property, the Imperial property held 2,400 unpatented claims over 75 square miles, with six areas known to contain low-grade gold ore. A lease purchase agreement involved a two-year exploratory period, for $100,000 per year; the claim could be purchased for $1 million during the time of the lease. Glamis formed a joint venture with Amir Mines, holding a 65 percent interest. In April 1988 an important gold discovery was made at the Indian Rose Deposit; research showed an oxidized reserve of five million tons of ore graded at 0.025 to 0.03 ounces per ton.

After nearly three years in existence the Rand operations changed and expanded. Mining ceased at Descarga in 1989 and the Lamont pit was "mined out" by the end of June 1990. In May Glamis began pit mining on the Yellow Aster ore body, holding an estimated 11 million tons of ore containing gold at 0.022 ounces per ton. The size of the operation required the addition of another leach pad and another gold recovery plant. Glamis purchased an option on 30,000 acres known as the Baltic Lands, located adjacent to the Yellow Aster pit. Glamis decided to exercise the option in July 1991 and purchased or leased a number of claims during the 1990s, paying net smelter royalties to owners and leaseholders. Baltic Mine production commenced in August 1993.

With its conservative approach to management and development, Glamis operated profitably for 11 of the 12 years between 1982 and 1994. Already on the Toronto Stock Exchange since 1984, the company listed on the New York Stock Exchange in 1993. Glamis provided shareholders with dividends, something unusual for a gold mining company. At the end of fiscal 1994, Glamis had produced 104,467 ounces of gold and revenues reached $39 million on a market price of $375 per ounce of gold. With cost of production at $192 per ounce, the company reported net earnings of $3.6 million.

Mining Projects Shifting in Mid-1990s

In 1994 Glamis acquired the remaining 35 percent interest in the Imperial mine from Amir Mines. Because Imperial was located near the Fort Yuma Indian reservation, the U.S. Department of the Interior denied Glamis a mining permit due to destruction of cultural resources. Glamis continued with a pre-feasibility report in 1995, which showed proven and probable gold reserves of 1.5 million ounces of gold. Glamis expected a production rate of 84,000 ounces per year, with estimated operating costs at $227 per ounce. Despite the quandary in the permit process, the company scheduled a final feasibility study for April 1996, with hopes that a permit might be forthcoming so construction could commence in early 1997, followed by production later that year.

Glamis initiated exploratory activities in Mexico in late 1994, seeking opportunities in previously unexplored areas. Glamis formed a joint venture with Aquiline Resources to acquire the La Jojoba mine near Magdalena de Kino in Sonora, and the La Cieneguita project in Chihuahua, both in Mexico. Production began on the La Cieneguita mine in November 1995, with Glamis holding 60 percent interest. At La Jojoba the major deposits of gold had been mined already, but preliminary testing showed that low-grade ore deposits would respond to the heap leach method of gold extraction. Glamis earned a 75 percent interest in the project through payment of $2.35 million and by paying the cost of an in-depth feasibility study, through the production decision. By early 1996, Glamis halted its research in Mexico since no potential projects were found.

Projects in California progressed. In June 1995 Glamis received final permits for expansion at the Rand site. The company added a 60 million ton leach pad and processing facilities. In 1996 the capacity of the heap leach pad at Yellow Aster reached its limit and Glamis transferred ore deposits to other facilities. Production restarted at another area of the Lamont pit in September 1995. Mining at Picacho ceased in December 1997 as the last known ore body was completely mined. Leaching and gold recovery continued with existing raw material. In the meantime, Glamis began reclamation and revegetation, as required by environmental regulations. During the life of the mine, Picacho produced 363,105 ounces of gold, with some residual recovery expected from the remains on the heap leach pad.

Glamis consolidated its interest in Mexico at the La Cieneguita mine in May 1998. The company signed an agreement to acquire Aquiline's 40 percent interest for $500,000 plus a royalty fee on gold mined from existing production at 1 percent of net smelter output. The agreement allocated mineral rights to Aquiline for mining claims purchased within one kilometer of the production site. Glamis issued a quit claim on the La Jojoba Project in a cash and stock transaction with Aquiline, receiving a 1 percent net smelter royalty from Aquiline.

Low gold prices at this time prompted the company to review its capital projects and financial activities. The average price realized declined from $384 per ounce in 1995 to $328 in 1997. Certain ore reserves at the Rand mine were deemed no longer cost effective and Glamis removed them from its accounting of proven and probable reserves in 1998. The company altered its policy against hedging activities and placed put options for 24,000 ounces of gold at $325 per ounce, expiring April 1998.

Acquisitions Leading to New Level of Gold Production: Late 1990s

As the Picacho mine came to a close, Glamis sought new opportunities through the acquisition of companies with promising projects. In October 1998 Glamis acquired Mar-West Resources in a cash and stock transaction. The acquisition included the San Martin project in Honduras and the Cerro Blanco project in Guatemala. Glamis began a feasibility study at the San Martin site in 1999, expanding proven and available reserves through exploratory research. Exploration at Cerro Blanco revealed a significant deposit of high-grade gold, indicating 1.2 million ounces of gold. The high-grade ore required milling, so more resources would be required to go into a full-scale feasibility study. Preliminary estimates showed a $70 million capital investment and a modest 10.4 percent rate of return.

With the March 1999 acquisition of Rayrock Resources from BlackRock Ventures, Glamis became an intermediate size gold mining company. The acquisition included three active mining areas in Nevada, the Daisy, Dee, and Marigold mines, the last a 66.7 percent joint venture with Homestake Mining Company. Glamis reviewed operations and expenses, leading to modifications and cost reductions. The Daisy property included four mining zones and heap leach and gold recovery facilities. Glamis concluded operations at three mining zones, while activity at the Reward project was suspended as low gold prices made operation costs prohibitive. The Dee mine utilized open pit mining and an oxide mill for gold recovery. Milling involves crushing ore into coarse gravel and grinding it into a slurry paste; cyanide leaching occurs inside an agitation tank. Glamis continued development for underground drilling, started by Rayrock, and modified the mill to accommodate the higher grade. The Marigold mine employed both heap leach and mill processing, the former accounting for two thirds of gold produced. Glamis closed the mill due to lack of adequate raw material. To improve costs of existing operations, the company increased production at the Marigold mine.

Glamis restructured as integration of the Rayrock acquisition continued and gold prices remained low. In addition to employee reductions with changes in mine operations, the company eliminated ten positions at corporate headquarters, closing its Toronto office and relocating headquarters from Vancouver to Reno, Nevada. In November Glamis sold the Ivan copper mine in Peru and other exploration properties acquired with Rayrock; the divestiture garnered $21 million in cash. Glamis reduced exploration expenses from $6 million in 1999 to $3 million in 2000. The company hedged on gold prices, at 26 percent of projected 2000 production and 24 percent of projected 2001 production. The average forward price for 2000 was $288 and the average call option was $275 for 2000 and $295 for 2001.

Another impediment to the Imperial project occurred at this time, when the Advisory Council on Historic Preservation recommended that the Bureau of Land Management deny Glamis a permit as mining would "impair" cultural resources. The Rand Mine operated below budget expectations, with higher mining rates and a short ore haul. Rand completed the second phase of strip mining. Glamis decided to discontinue operations at La Cieneguita as the project produced only 834 ounces of gold in 1999 and a study disproved the feasibility of the project.

Glamis ended fiscal year 1999 with a record 175,894 ounces of gold produced. The company recovered 28,302 ounces of gold from the Daisy mine, 31,154 ounces from Dee, and 37,942 ounces from Marigold. The Picacho mine produced 6,684 ounces from remains on the heap leach pad, compared to 16,275 ounces in 1998. The Rand mine produced 70,978 ounces of gold, compared to 87,015 in 1998.

On the basis of new acquisitions, Glamis reported an increase in revenues to $57.5 million in 1999, compared to $32.9 million in 1998. The average market price of gold paid to the company continued to decline, at $282 per ounce compared to $310 per ounce in 1998. The change represented a $3.3 million decrease in revenues for 1999. Glamis reduced costs to offset the lower gold valuation and the average cash cost of production declined from $252 per ounce in the first quarter of 1999 to $196 per ounce in the fourth quarter. Glamis incurred a net loss of $21.3 million in 1999, including a $5.1 million loss on the Ivan copper mine, a $6.8 million write-down for Rand mine development, and $1 million for closing the La Cieneguita project.

Profitability Returning in Early 2000s

The San Martin project in Honduras played an important role in Glamis's return to profitability as the low cost of production offset the low market value of gold. Research showed gold reserves of 1.1 million ounces, at a grade of 0.025 ounces per ton of ore. The company began construction of facilities at the mining site in late 1999, receiving final permits in March 2000; production began in October. Capital expenditures for both 1999 and 2000 totaled approximately $20 million, however, the feasibility study proved accurate in its assessment of the ore's amenability to heap leach extraction. The low cost of production at the site prompted Glamis to increase its rate of production from 85,000 ounces annually to 110,000 ounces annually.

A new discovery at the Marigold mine, dubbed the Millennium Project, revealed a resource of highly oxidized gold responsive to run-of-mine cyanide leaching. An initial feasibility study indicated a total potential reserve of one and a half million ounces of gold at a grade of 0.028, but a final study indicated 2.4 million ounces of gold. Glamis financed expansion of operations through an equity offering. With capital expenditures of $55 million, total production cost of $216 per ounce, and a recovery rate of 70 to 75 percent, Glamis expected a 20 percent rate of return on the project.

In 2001 Glamis reported $64.3 million in revenues. Gold production increased to 230,065 ounces. Glamis closed the Dee mine in 2000, due to the high cost of production there, and began to phase out the Yellow Aster pit. Glamis reported an average production cost $216 per ounce companywide. After a loss of $48.7 million in 2000, Glamis reported net earnings of $4.5 million in 2001; the company was debt-free, without hedges, and holding $45.9 million in cash.

After 20 years in operation, the Picacho Mine closed in April 2002. The mine met the company's original projections for the life of the mine. It is a rare situation for a single company to retain ownership of a mining project from start to finish. With the process of reclamation complete, Imperial County released Glamis from its bond. While Glamis had envisioned transferring the workers and equipment from Picacho to the adjacent Imperial project, the Native American Sacred Lands Protection Act prevented the company from gaining permits, even after the Bush Administration had rescinded the previous record of decision.

After two years of discussion and collaborative research, in the summer of 2002 Glamis completed a merger with Francisco Gold in a $120 million stock transaction. Francisco Gold owned the El Sauzal property in Chihuahua, Mexico, and the Marlin property in Guatemala. El Sauzal involved an undeveloped oxide gold deposit expected to provide 190,000 ounces of gold per year for 11 years. At a cash cost of less than $120 per ounce and capital expenditure of $91 million, the rate of return was estimated at 20 percent. A $111.6 million equity offering in November financed the capital costs of development and research at both properties. A major discovery in late 2002 at the Marlin site increased the predicted gold deposit there to four million ounces of gold. After obtaining permits and constructing facilities, Glamis projected that mining at El Sauzal would commence in early 2005.

Glamis aimed to increase companywide production to 500,000 ounces of gold per year. The company produced 251,919 ounces of gold in 2002. San Martin contributed 129,435 ounces, while Rand contributed 66,934 ounces. Expansion at the Marigold property was expected to increase output from 55,000 ounces per year in 2002, to 120,000 ounces per year, based on Glamis's 66.7 percent ownership interest. Also, Glamis continued to explore for new gold deposits on its properties.

While Glamis received an average of $310 per ounce in 2002, the price reached a six-year high in February 2003, at approximately $380 per ounce, and was expected to increase further. The higher price made the Cerro Blanco project feasible, as the company estimated the project would require a market price of at least $300 per ounce.

Principal Subsidiaries: Glamis Exploration, Inc.; Glamis Rand Mining Company; Glamis Imperial Corporation; Minera Glamis S.A. de C.V. (Mexico).

Principal Competitors: AngloGold Ltd.; Barrick Gold Corporation; Newmont Mining Corporation.

Chronology

• Key Dates:
• 1972: Company is incorporated as Rennick Resources Ltd.
• 1977: After a series of reorganizations, company is incorporated as Glamis Gold, Ltd.
• 1981: Open pit mining and heap leach gold extraction begin at Picacho mine.
• 1985: Operations at Picacho expand, producing nearly 25,000 ounces of gold.
• 1987: Production begins at Randsburg mining district, Kern County, California.
• 1988: Important gold discovery is made at Imperial County, California, property.
• 1997: Low gold prices prompt company to hedge future production for the first time.
• 1998: Mar-West acquisition includes two promising mining opportunities.
• 1999: Completion of Rayrock Resources acquisition brings company to intermediate size.
• 2000: San Martin project begins production in Honduras.
• 2001: Significant gold deposit is discovered at Marigold mine in Nevada.
• 2002: Glamis obtains two important mining properties through merger with Francisco Gold.