AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 2002
REGISTRATION STATEMENT NO. 333-101172
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-10/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GLAMIS GOLD LTD.
(Exact name of Registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 1041 NONE
(Province or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of company or organization) Classification Code Number) Identification Number)
5190 NEIL ROAD, SUITE 310, RENO, NEVADA 89502 (775) 827-4600
(Address and telephone number of Registrants principal executive offices)
CHARLES A. JEANNES, ESQ.
SENIOR VICE PRESIDENT ADMINISTRATION, GENERAL COUNSEL AND SECRETARY
GLAMIS GOLD LTD.
5190 NEIL ROAD, SUITE 310, RENO, NEVADA 89502
(781) 229-6600
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
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Copies to:
G. BARRY FINLAYSON JAY KELLERMAN DAVID S. STONE CHRISTOPHER BARRY
LANG MICHENER STIKEMAN ELLIOTT NEAL, GERBER & EISENBERG DORSEY & WHITNEY LLP
1500 ROYAL CENTRE 5300 COMMERCE COURT WEST TWO NORTH LASALLE STREET 1420 FIFTH AVENUE
P.O. BOX 11117 199 BAY STREET SUITE 2200 SUITE 3400
1055 WEST GEORGIA STREET TORONTO, ONTARIO M5L 1B9 CHICAGO, ILLINOIS, 60602 SEATTLE, WASHINGTON, 98101
VANCOUVER, BRITISH COLUMBIA V6E 4N7 (416) 869-5500 (312) 269-8000 (206) 903-8800
(604) 689-9111
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
BRITISH COLUMBIA, CANADA
(Principal jurisdiction regulating this offering)
It is proposed that this filing shall become effective (check appropriate box):
A. [X] upon filing with the Commission, pursuant to Rule 467(a) (if
in connection with an offering being made contemporaneously
in the United States and Canada).
B. [ ] at some future date (check the appropriate box below)
1. [ ] pursuant to Rule 467(b) on at
(designate a time not sooner than 7 calendar days after
filing).
2. [ ] pursuant to Rule 467(b) on at
(designate a time 7 calendar days or sooner after filing)
because the securities regulatory authority in the review
jurisdiction has issued a receipt or notification of
clearance on .
3. [ ] pursuant to Rule 467(b) as soon as practicable after
notification of the Commission by the registrant or the
Canadian securities regulatory authority of the review
jurisdiction that a receipt or notification of
clearance has been issued with respect hereto.
4. [ ] after the filing of the next amendment to this form (if
preliminary material is being filed).
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to the home jurisdictions shelf prospectus
offering procedures, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE(2)
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Common Shares............................ 13,915,000 shares US$8.36 US$116,329,400 US$10,703
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(1) Includes 2,400,000 shares issuable upon exercise of an underwriters' option
and up to 1,815,000 shares issuable upon exercise of the underwriters'
over-allotment option, if any.
(2) Calculated in accordance with Rule 457(o) and based upon the U.S. dollar
equivalent of the agreed maximum offering price designated in a foreign
currency, using the noon buying rate in New York on November 12, 2002, as
certified by the New York Federal Reserve, of 1.5739 Canadian dollars for
each 1.00 U.S. dollar.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE AS PROVIDED IN RULE 467 UNDER THE SECURITIES ACT OF 1933
OR ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A) OF THE ACT,
MAY DETERMINE.
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PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
PROSPECTUS
12,100,000 COMMON SHARES
LOGO
GLAMIS GOLD LTD.
Glamis Gold Ltd. ("Glamis") is offering 9,700,000 common shares (the
"Purchased Shares") in Canada and the United States. In addition, Glamis has
granted to the underwriters an option (the "Offering Option"), which was
exercised on November 19, 2002 (collectively, this "Offering"), to purchase and
sell up to an additional 2,400,000 common shares (the "Additional Shares") in
this Offering (collectively, with the Purchased Shares, the "Offered Shares").
The common shares of Glamis ("Common Shares") are listed on both the Toronto
Stock Exchange and the New York Stock Exchange under the symbol "GLG." The New
York Stock Exchange has conditionally approved for listing the Common Shares,
subject to issuance. The closing price of Glamis' Common Shares on November 19,
2002 on the Toronto Stock Exchange was Cdn$12.97 per share and on the New York
Stock Exchange was US$8.15 per share.
INVESTING IN THE COMMON SHARES INVOLVES RISKS, INCLUDING THOSE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
THIS OFFERING IS MADE BY A FOREIGN ISSUER THAT IS PERMITTED, UNDER A
MULTIJURISDICTIONAL DISCLOSURE SYSTEM ADOPTED BY THE UNITED STATES, TO PREPARE
THIS PROSPECTUS IN ACCORDANCE WITH THE DISCLOSURE REQUIREMENTS OF CANADA.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SUCH REQUIREMENTS ARE DIFFERENT FROM
THOSE OF THE UNITED STATES. THE FINANCIAL STATEMENTS INCLUDED AND INCORPORATED
IN THIS PROSPECTUS HAVE BEEN PREPARED IN ACCORDANCE WITH CANADIAN GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, AND MAY BE SUBJECT TO CANADIAN AUDITING AND
AUDITOR INDEPENDENCE STANDARDS, AND THUS MAY NOT BE COMPARABLE TO FINANCIAL
STATEMENTS OF UNITED STATES COMPANIES.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THE ACQUISITION OF THE
SECURITIES DESCRIBED HEREIN MAY HAVE TAX CONSEQUENCES BOTH IN THE UNITED STATES
AND CANADA. SUCH CONSEQUENCES FOR INVESTORS WHO ARE RESIDENT IN, OR CITIZENS OF,
THE UNITED STATES MAY NOT BE DESCRIBED FULLY HEREIN.
THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL
SECURITIES LAWS MAY BE AFFECTED ADVERSELY BY THE FACT THAT GLAMIS IS
INCORPORATED IN BRITISH COLUMBIA, CANADA, THAT SOME OF GLAMIS' OFFICERS AND
DIRECTORS ARE RESIDENTS OF CANADA, THAT SOME OR ALL OF THE UNDERWRITERS OR
EXPERTS NAMED IN THE REGISTRATION STATEMENT MAY BE RESIDENTS OF CANADA AND THAT
ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF GLAMIS AND SAID PERSONS MAY BE
LOCATED OUTSIDE THE UNITED STATES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PER SHARE TOTAL
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Public offering price....................................... Cdn$ 13.15 Cdn$ 159,115,000
Underwriting commission..................................... Cdn$ 0.526 Cdn$ 6,364,000
Proceeds, before expenses, to Glamis........................ Cdn$ 12.624 Cdn$ 152,750,400
Glamis has also granted to the Underwriters an option (the "Over-Allotment
Option"), exercisable at any time within 30 days after the closing of this
Offering, to purchase up to a number of additional Common Shares equal to 15% of
the Offered Shares purchased in this Offering (the "Over-Allotment Shares") at
the public offering price (the "Offering Price"), solely to cover
over-allotments, if any.
The Offered Shares will be ready for delivery on or about November 26,
2002.
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BMO NESBITT BURNS CORP. NBC INTERNATIONAL (U.S.A.) INC. YORKTON
CAPITAL INC.
CIBC WORLD MARKETS CORP. MERRILL LYNCH & CO.
RESEARCH CAPITAL USA INC. SPROTT SECURITIES (USA) LIMITED
THE DATE OF THIS PROSPECTUS IS NOVEMBER 20, 2002
TABLE OF CONTENTS
PAGE
----
EXCHANGE RATES........................... 3
FINANCIAL INFORMATION AND ACCOUNTING
PRINCIPLES............................. 3
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS............. 3
RISK FACTORS............................. 4
DOCUMENTS INCORPORATED BY REFERENCE...... 11
DOCUMENTS FILED AS PART OF THE
REGISTRATION STATEMENT................. 12
GLAMIS GOLD LTD.......................... 13
RECENT DEVELOPMENTS...................... 15
SIGNIFICANT ACQUISITION.................. 23
DESCRIPTION OF SHARE CAPITAL............. 24
CHANGES IN SHARE CAPITAL................. 24
PAGE
----
USE OF PROCEEDS.......................... 25
UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS......................... 25
CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS......................... 30
PLAN OF DISTRIBUTION..................... 32
TRANSFER AGENT AND REGISTRAR............. 33
LEGAL MATTERS............................ 33
AVAILABLE INFORMATION.................... 33
EXPERTS.................................. 34
ENFORCEABILITY OF CIVIL LIABILITIES...... 34
APPENDIX A -- Unaudited Pro Forma
Combined Financial Statements of
Glamis................................. A-1
APPENDIX B -- Financial Statements of
Francisco Gold Corp.................... B-1
2
EXCHANGE RATES
On November 19, 2002 the noon rate payable in Canadian dollars for each
US$1.00 as reported by the Bank of Canada was Cdn$ 1.5852. The closing, low,
high and noon spot rates for the U.S. dollar in terms of Canadian dollars at the
end of the three years ended December 31, 2001, as reported by the Bank of
Canada, were as follows:
DECEMBER 31,
---------------------------
2001 2000 1999
------- ------ ------
(expressed in Cdn$)
Closing..................................................... $1.5928 $1.499 $1.443
High........................................................ 1.5975 1.503 1.455
Low......................................................... 1.5899 1.498 1.442
Noon........................................................ 1.5926 1.500 1.443
FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES
Unless otherwise indicated, all references to "$" or "dollars" in this
short form prospectus refer to the United States dollar. The financial
statements of Glamis included herein and incorporated by reference are reported
in United States dollars. The financial statements of Francisco Gold Corp.
("Francisco") included in this short form prospectus are reported in Canadian
dollars. All such financial statements have been prepared in accordance with
Canadian generally accepted accounting principles.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This short form prospectus and the documents incorporated by reference
herein contain "forward-looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, but are not limited to, statements with respect to the
future price of gold, the estimation of mineral reserves and resources, the
realization of mineral reserve estimates, the timing and amount of estimated
future production, costs of production, capital expenditures, costs and timing
of the development of new deposits, success of exploration activities, Glamis'
hedging practices, permitting time lines, currency fluctuations, requirements
for additional capital, government regulation of mining operations,
environmental risks, unanticipated reclamation expenses, title disputes or
claims limitations on insurance coverage and the timing and possible outcome of
pending litigation. Often, but not always, forward-looking statements can be
identified by the use of words such as "plans", "expects" or "does not expect",
"is expected", "budget", "scheduled", "estimates", "forecasts", "intends",
"anticipates" or "does not anticipate", or "believes", or variation of such
words and phrases or state that certain actions, events or results "may",
"could", "would", "might" or "will" be taken, occur or be achieved. Forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
Glamis to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such
factors include, among others, the actual results of current exploration
activities; actual results of current reclamation activities; conclusions of
economic evaluations; changes in project parameters as plans continue to be
refined; future prices of gold; possible variations in ore grade or recovery
rates; failure of plant, equipment or processes to operate as anticipated;
accidents, labour disputes and other risks of the mining industry; delays in
obtaining governmental approvals or financing or in the completion of
development or construction activities, as well as those factors discussed in
the section entitled "Risk Factors" in this short form prospectus and in the
documents incorporated by reference herein. Although Glamis has attempted to
identify important factors that could cause actual actions, events or results to
differ materially from those described in forward-looking statements, there may
be other factors that cause actions, events or results not to be as anticipated,
estimated or intended. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly, readers
should not place undue reliance on forward-looking statements.
3
RISK FACTORS
A prospective purchaser of Common Shares in this Offering should be aware
that there are various risks, including those described below, that could have a
material adverse effect on the operating results, earnings, properties, business
and condition (financial or otherwise) of Glamis. These risk factors, together
with all of the other information included in this short form prospectus and in
those documents incorporated by reference into this short form prospectus should
be carefully considered before a decision whether to purchase Common Shares is
made.
GOLD PRICE VOLATILITY MAY AFFECT PROFITABILITY
Gold prices historically have fluctuated widely and are affected by
numerous external factors beyond Glamis' control. Between 1994 and 2001 the
price of gold as quoted on the London Bullion Market ranged between a low of
$253 and a high of $416 per ounce. On November 19, 2002, the p.m. fixing price
of gold sold in the London Bullion Market was $319.70 per ounce.
There are numerous factors outside of Glamis' control that may affect the
price of gold including industrial and retail demand, central bank lending,
sales and purchases of gold, forward sales of gold by producers and speculators,
levels of gold production, short-term changes in supply and demand because of
speculative hedging activities, confidence in the global monetary system,
expectations of the future rate of inflation, the strength of the U.S. dollar
(the currency in which the price of gold is generally quoted), interest rates
and global or regional political or economic events.
The profitability of Glamis' operations are directly related to the market
price of gold. If gold prices decline for a substantial period below the cost of
production of any or all of Glamis' operations, it may not be economically
feasible to continue production at such sites. This would materially and
adversely affect production, profitability and Glamis' financial position. A
decline in the market price of gold may also require Glamis to write-down its
mineral reserves which would have a material and adverse effect on its earnings
and profitability. Should any significant writedown in reserves be required,
material writedowns of Glamis' investment in the affected mining properties and
increased amortization, reclamation and closure charges may be required.
Glamis' current hedging policy, approved by the Board of Directors, gives
management the discretion to commit up to 60% of planned production for up to
five years. Management is authorized to use any combination of spot, forward,
spot deferred and put or call options. Although this is the approved policy,
management's current practice is to not hedge any part of Glamis' gold
production and Glamis currently has no hedging contracts in place. Since Glamis
does not currently engage in gold hedging activities, Glamis' exposure to the
impact of gold price volatility is higher.
Further, if revenue from gold sales declines, Glamis may experience
liquidity difficulties. This may reduce its ability to invest in exploration and
development which would materially and adversely affect future production,
profitability and Glamis' financial position.
GLAMIS' MINERAL RESERVES AND RESOURCE ESTIMATES ARE ONLY ESTIMATES AND MAY NOT
REFLECT THE ACTUAL DEPOSITS OR THE ECONOMIC VIABILITY OF EXTRACTION
The figures presented for both mineral reserves and mineral resources in
this short form prospectus and in the documents incorporated in this short form
prospectus by reference are only estimates. The estimating of mineral reserves
and mineral resources is a subjective process and the accuracy of reserve and
resource estimates is a function of the quantity and quality of available data
and the assumptions used and judgments made in interpreting engineering and
geological information. There is significant uncertainty in any reserve or
resource estimate, and the actual deposits encountered and the economic
viability of mining a deposit may differ materially from Glamis' estimates.
Estimated mineral reserves or mineral resources may have to be recalculated
based on changes in gold prices, further exploration or development activity or
actual production experience. This could materially and adversely affect
estimates of the volume or grade of mineralization, estimated recovery rates or
other important factors that influence reserve or resource estimates. Market
price fluctuations for gold, increased production costs or reduced recovery
rates, or other factors may render the present proven and probable mineral
reserves of Glamis uneconomical or unprofitable to develop at a particular site
or sites. A reduction in estimated reserves could require
4
material writedowns in investment in the affected mining properties and
increased amortization, reclamation and closure charges.
GLAMIS MAY NOT ACHIEVE ITS PRODUCTION ESTIMATES
Glamis prepares estimates of future gold production for its various
operations. Glamis cannot give any assurance that it will achieve its production
estimates. The failure of Glamis to achieve its production estimates could have
a material and adverse effect on any or all of its future cash flows,
profitability, results of operations and financial condition. These production
estimates are dependent on, among other things, the accuracy of mineral reserve
estimates, the accuracy of assumptions regarding ore grades and recovery rates,
ground conditions and physical characteristics of ores, such as hardness and the
presence or absence of particular metallurgical characteristics and the accuracy
of estimated rates and costs of mining and processing.
Glamis' actual production may vary from its estimates for a variety of
reasons, including, actual ore mined varying from estimates of grade, tonnage,
dilution and metallurgical and other characteristics; short-term operating
factors such as the need for sequential development of ore bodies and the
processing of new or different ore grades from those planned; mine failures,
slope failures or equipment failures; industrial accidents; natural phenomena
such as inclement weather conditions, floods, blizzards, droughts, rock slides
and earthquakes; encountering unusual or unexpected geological conditions;
changes in power costs and potential power shortages; shortages of principal
supplies needed for operation, including explosives, fuels, chemical reagents,
water, equipment parts and lubricants; labour shortages or strikes; civil
disobedience and protests; and restrictions or regulations imposed by government
agencies or other changes in the regulatory environments. Such occurrences could
result in damage to mineral properties, interruptions in production, injury or
death to persons, damage to property of Glamis or others, monetary losses and
legal liabilities. These factors may cause a mineral deposit that has been mined
profitably in the past to become unprofitable forcing Glamis to cease
production. Each of these factors also applies to Glamis' sites not yet in
production and to operations that are to be expanded. In these cases, Glamis
does not have the benefit of actual experience in verifying its estimates, and
there is a greater likelihood that actual production results will vary from the
estimates.
It is not unusual in new mining operations to experience unexpected
problems during the start-up phase. Depending on the price of gold or other
minerals, Glamis may determine that it is impractical to commence or, if
commenced, to continue commercial production at a particular site.
GOLD EXPLORATION PROJECTS MAY NOT BE SUCCESSFUL
Gold exploration is highly speculative in nature. Glamis' exploration
projects involve many risks and success in exploration is dependent upon a
number of factors including, but not limited to, quality of management, quality
and availability of geological expertise and availability of exploration
capital. Glamis cannot give any assurance that its future exploration efforts
will result in the discovery of a mineral reserve or resource, or that its
current and future exploration programs will result in the expansion or
replacement of current production with new proven and probable mineral reserves.
Glamis cannot give assurance that its exploration programs will be able to
extend the life of its existing properties or result in the discovery of new
producing mines.
THE SUSTAINING OF PRODUCTION IS DEPENDENT UPON GLAMIS' ABILITY TO SUSTAIN AND
EXPAND MINERAL RESERVES
Glamis' ability to sustain or increase its present levels of gold
production is dependent upon the successful development of new producing mines
and/or identification of additional reserves at existing mining operations. If
Glamis is unable to develop new ore bodies, it will not be able to sustain
present production levels. Reduced production could have a material and adverse
impact on future cash flows, earnings, results of operations and financial
condition. Glamis currently expects that its total gold production from its
current operations will decrease, due in part to the planned cessation of mining
at the Rand Mine in early 2003, until at least the first quarter of 2005, at
which time Glamis currently expects that production from the El Sauzal Project
will commence.
Feasibility studies are used to determine the economic viability of a
deposit. Many factors are involved in the determination of the economic
viability of a deposit including the achievement of satisfactory mineral reserve
estimates, the level of estimated metallurgical recoveries, capital and
operating cost estimates and the estimate of future gold prices. Capital and
operating cost estimates are based upon many factors, including anticipated
tonnage and grades of ore to be mined and processed, the configuration of the
ore body, ground and mining conditions, expected recovery rates of the gold from
the ore and anticipated environmental and regulatory compliance costs.
5
Each of these factors involves uncertainties and as a result Glamis cannot give
any assurance that its development or exploration projects will become operating
mines. If a mine is developed, actual operating results may differ from those
anticipated in a feasibility study.
GLAMIS MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE
As of September 30, 2002, Glamis had cash and cash equivalents of
approximately $47.3 million and working capital of approximately $55.5 million.
Glamis intends to use its working capital together with its future cash flows
and the proceeds of this Offering to finance the initial capital costs of the El
Sauzal Project and the Marigold Millennium Expansion Project, to fund
exploration and development work on the Marlin Project and for general corporate
purposes. Glamis estimates that capital expenditures related to the purchase of
mining and processing equipment, project development and pre-stripping for the
El Sauzal Project will be approximately $101 million, including a $10 million
contingency reserve pending completion of final design. Glamis estimates that
capital expenditures related to the Marigold Millennium Expansion Project during
2003 will be approximately $22 million. Glamis' planned exploration work for the
remainder of 2002 and for 2003 is anticipated to be approximately $10 million.
Glamis may have further capital requirements to the extent it decides to develop
a mine at the Marlin Project or the Cerro San Pedro Project or other properties
or to take advantage of opportunities for acquisitions, joint ventures or other
business opportunities that may be presented to it. In addition, Glamis may
incur major unanticipated liabilities or expenses.
Glamis' ability to continue its planned exploration and development
activities also depends in part on its ability to generate free cash flow from
its Rand, Marigold and San Martin mines. Glamis may be required to obtain
additional financing in the future to fund future exploration and development
activities or acquisitions of additional properties or other interests that may
be appropriate to enhance Glamis' financial or operating interests. Glamis has
historically raised capital through equity financing and in the future may raise
capital through debt financing, joint ventures, production sharing arrangements
or other means. There can be no assurance that Glamis will be able to obtain
necessary financing in a timely manner on acceptable terms, if at all.
GOVERNMENT REGULATIONS SIGNIFICANTLY AFFECT GLAMIS' MINING OPERATIONS
Glamis' domestic and foreign mining operations and exploration and
development activities are subject to extensive laws and regulations governing
health and worker safety, employment standards, waste disposal, protection of
the environment, protection of historic and archeological sites, mine
development and protection of endangered and protected species and other
matters. Each jurisdiction in which Glamis has properties, the United States,
Mexico, Honduras and Guatemala, regulates mining activities. Glamis generally
requires permits from authorities in these jurisdictions to authorize Glamis'
operations. These permits relate to virtually every aspect of Glamis'
exploration, development and production activities. It is possible that future
changes in applicable laws, regulations or changes in their enforcement or
regulatory interpretation could result in changes in legal requirements or in
the terms of existing permits applicable to Glamis or its properties which could
have a significant adverse impact on Glamis' current operations or planned
development projects, including the Marigold Millennium Expansion Project, and
the development of the El Sauzal Project and the Marlin Project. Obtaining
necessary permits can be a complex, time consuming process and Glamis cannot
assure whether necessary permits will be obtainable on acceptable terms, in a
timely manner or at all. The costs and delays associated with obtaining
necessary permits and complying with these permits and applicable laws and
regulations could stop or materially delay or restrict Glamis from proceeding
with the development of a project or the operation or further development of a
mine. Any failure to comply with applicable laws and regulations or permits,
even if inadvertent, could result in interruption or closure of exploration,
development or mining operations or material fines, penalties or other
liabilities.
CURRENCY FLUCTUATIONS MAY AFFECT THE COSTS THAT GLAMIS INCURS AT ITS OPERATIONS
Currency fluctuations may affect the costs that Glamis incurs at its
operations. Gold is sold throughout the world based principally on a U.S. dollar
price, but a portion of Glamis' operating expenses are incurred in non-U.S.
dollar currencies. The appreciation of non-U.S. dollar currencies in those
countries where Glamis has mining operations against the U.S. dollar would
increase the costs of gold production at such mining operations which could
materially and adversely affect Glamis's profitability and financial condition.
6
GLAMIS' PROPERTIES ARE SUBJECT TO ENVIRONMENTAL RISKS
Mining operations have inherent risks and liabilities associated with
pollution of the environment and the disposal of waste products occurring as a
result of mineral exploration and production. Laws and regulations involving the
protection and remediation of the environment and the governmental policies for
implementation of such laws and regulations are constantly changing and are
generally becoming more restrictive. Glamis has made, and expects to make in the
future, significant expenditures to comply with such laws and regulations.
Glamis cannot give any assurance that notwithstanding its precautions and
history of activities, environmental pollution will not materially and adversely
affect its financial condition and its results from operations.
Glamis' current production is from run-of-mine operations using open-pit
mining and heap leach processing. Glamis' standard open-pit mining techniques
have been designed to comply with reclamation requirements imposed by regulatory
authorities. Such authorities generally require a mining company to return sites
to safely-contoured slopes, but usually do not require backfilling of excavated
areas. Glamis generally is required to mitigate long-term environmental impacts
by stabilizing, contouring, reshaping and re-vegetating various portions of a
site once mining and processing are completed. Reclamation efforts generally
must be conducted in accordance with detailed plans, which have been reviewed
and approved by the appropriate regulatory agencies. Heap leaching is done with
a dilute cyanide solution held within a closed circuit, which includes the leach
pads and surface holding ponds. Leakage of heap leaching solutions could cause
environmental damage. The old milling operations at Glamis' Dee and Marigold
mines have tailing impoundments that have known leakage as detected by
monitoring wells. Glamis does not believe that local groundwater resources have
been affected and Glamis has undertaken remediation efforts as approved by the
Nevada Department of Environmental Protection. Glamis has also had small
reportable releases or spills of hydraulic oil and process solutions at its
operations, which were reported to the appropriate authorities and cleaned up.
There can be no assurance that the leakage at the Dee or Marigold mines or other
leakage of heap leach solutions or petroleum spills or waste discharge will not
have significant adverse environmental effects and result in material government
penalties, clean-up costs and liabilities for damages or result in limitations
on or the interruption of mining operations at one or more properties.
GLAMIS MAY INCUR UNANTICIPATED COSTS ASSOCIATED WITH THE RECLAMATION OF MINING
PROPERTIES
Glamis is required to submit, for government approval, a reclamation plan
that establishes Glamis' obligation to reclaim property after the minerals have
been mined from the site. Reclamation by Glamis of its mining sites takes place
during and after the active life of the mine. In accordance with applicable
laws, bonds or other forms of financial assurances have been provided by Glamis
for the reclamation of its mine sites. Glamis may incur costs with these
reclamation activities and for those in other countries where Glamis has mining
operations in excess of such bonds or other financial assurances, which costs
may have a material adverse effect on Glamis' profitability and financial
condition.
Glamis has established a reserve for future site closure and mine
reclamation costs based on Glamis' estimate of the costs necessary to comply
with existing reclamation standards. Site closure and mine reclamation costs for
operating properties are reviewed annually and accrued using the unit of
production method. There can be no assurance that Glamis' reclamation and
closure accruals will be sufficient to cover all reclamation and closure costs.
GLAMIS' FINANCIAL RESULTS ARE AFFECTED BY THE ACCURACY OF ESTIMATES AND
ASSUMPTIONS EMPLOYED IN THE PREPARATION OF ITS FINANCIAL STATEMENTS
The preparation of its consolidated financial statements requires Glamis to
use estimates and assumptions that affect the reported amounts of assets and
liabilities as well as revenues and expenses. Glamis' accounting policies are
described in note 2 to its consolidated financial statement. Glamis' accounting
policies relating to work-in-progress inventory valuation, depreciation and
amortization of property, plant and equipment and mine development costs, and
site reclamation and closure accruals are critical accounting policies that are
subject to estimates and assumptions regarding reserves, recovery, future gold
prices and future mining activities.
Glamis records the cost of mining ore stacked on its leach pads as
work-in-progress inventory, and values work-in-progress inventory at the lower
of cost or estimated net realizable value. These costs are charged to earnings
and included in cost of goods sold on the basis of ounces of gold recovered. The
assumptions used in the valuation of work-in-progress inventories include
estimates of gold contained in the ore stacked on leach pads, assumptions of the
amount of gold stacked that is expected to be recovered from the leach pads and
an assumption of the gold price
7
expected to be realized when the gold is recovered. If these estimates or
assumptions prove to be inaccurate, Glamis could be required to write-down the
recorded value of its work-in-progress inventories, which would reduce Glamis'
earnings and working capital.
Glamis records mineral property acquisition costs and mine development
costs at cost. In accordance with Canadian generally accepted accounting
principles, Glamis capitalizes pre-production expenditures net of revenues
received, until the commencement of commercial production. A significant portion
of Glamis' property, plant and equipment and mine development costs are
depreciated and amortized on a unit-of-production basis. Under the
unit-of-production method, the calculation of depreciation and amortization of
property, plant and equipment and mine development costs is based on the amount
of reserves expected to be recovered from each location. If these estimates of
reserves prove to be inaccurate, or if Glamis revises its mining plan for a
location, due to reductions in the price of gold or otherwise, to reduce the
amount of reserves expected to be recovered, Glamis could be required to
write-down the recorded value of its plant and equipment and mine development
costs, or to increase the amount of future depreciation and amortization
expense, both of which would reduce Glamis' earnings and net assets. In
addition, generally accepted accounting principles require Glamis to consider at
the end of each accounting period whether or not there has been an impairment of
the capitalized property, plant and equipment and mine development costs. For
producing properties, this assessment is based on expected future cash flows to
be generated from the location. For non-producing properties, this assessment is
based on whether factors that may indicate the need for a write-down are
present. If Glamis determines there has been an impairment because its prior
estimates of future cash flows have proven to be inaccurate, due to reductions
in the price of gold, increases in the costs of production, reductions in the
amount of reserves expected to be recovered or otherwise, or because Glamis has
determined that the deferred costs of non-producing properties may not be
recovered based on current economics or permitting considerations, Glamis would
be required to write-down the recorded value of its property, plant and
equipment and mine development costs which would reduce Glamis' earnings and net
assets.
Glamis has an obligation to reclaim its properties after the minerals have
been mined from the site, and has estimated the costs necessary to comply with
existing reclamation standards. These costs are accrued on a unit-of-production
basis as gold is recovered and sold, based on the estimated amount of mineral
reserves expected to be recovered from each location, with the aggregate amount
accrued being reflected as a liability on Glamis' consolidated balance sheet as
a reserve for future site closure and mine reclamation costs. If these estimates
of costs or of recoverable mineral resources prove to be inaccurate, Glamis
could be required to increase the reserve for site closure and reclamation
costs, increase the amount of future reclamation expense per ounce, or both, all
of which would reduce Glamis' earnings and net assets.
THERE ARE NUMEROUS ADDITIONAL RISKS RELATED TO GLAMIS' FOREIGN INVESTMENTS AND
OPERATIONS
Glamis conducts mining, development or exploration activities in countries
other than Canada and the United States, including Mexico, Honduras and
Guatemala. Glamis' foreign mining investments are subject to the risks normally
associated with the conduct of business in foreign countries. The occurrence of
one or more of these risks could have a material and adverse effect on Glamis'
profitability or the viability of its affected foreign operations, which could
have a material and adverse effect on Glamis' future cash flows, earnings,
results of operations and financial condition.
Risks may include, among others, labour disputes, invalidation of
governmental orders and permits, corruption, uncertain political and economic
environments, war, civil disturbances and terrorist actions, arbitrary changes
in laws or policies of particular countries, foreign taxation, delays in
obtaining or the inability to obtain necessary governmental permits, opposition
to mining from environmental or other non-governmental organizations,
limitations on foreign ownership, limitations on the repatriation of earnings,
limitations on gold exports and increased financing costs. These risks may limit
or disrupt Glamis' projects, restrict the movement of funds or result in the
deprivation of contract rights or the taking of property by nationalization or
expropriation without fair compensation.
GLAMIS' INSURANCE COVERAGE MAY NOT COVER ALL OF ITS LOSSES
The mining industry is subject to significant risks that could result in
damage to, or destruction of, mineral properties or producing facilities,
personal injury or death, environmental damage, delays in mining and monetary
losses and possible legal liability.
8
Glamis' policies of insurance may not provide sufficient coverage for
losses related to these or other risks. Glamis' insurance does not cover all
risks that may result in loss or damage and may not be adequate to reimburse
Glamis for all losses sustained. In addition, Glamis does not have coverage for
many environmental losses. The occurrence of losses or damage not covered by
insurance could have a material and adverse effect on Glamis' profitability,
results of operation and financial condition.
GLAMIS' UNPATENTED MINING CLAIMS ARE SUBJECT TO UNCERTAINTY
Portions of Glamis' mineral reserves come from unpatented mining claims in
the United States. There is a risk that any of Glamis' unpatented mining claims
could be determined to be invalid, in which case Glamis could lose the right to
mine mineral reserves contained within those mining claims. Unpatented mining
claims are created and maintained in accordance with the General Mining Law of
1872. Unpatented mining claims are unique U.S. property interests, and are
generally considered to be subject to greater title risk than other real
property interests due to the validity of unpatented mining claims often being
uncertain. This uncertainty arises, in part, out of the complex federal and
state laws and regulations under the General Mining Law of 1872. Unpatented
mining claims are always subject to possible challenges of third parties or
contests by the federal government. The validity of an unpatented mining claim,
in terms of both its location and its maintenance, is dependent on strict
compliance with a complex body of federal and state statutory and decisional
law.
In recent years, the U.S. Congress has considered a number of proposed
amendments to the General Mining Law of 1872. If adopted, such legislation,
among other things, could impose royalties on gold production from unpatented
mining claims located on U.S. federal lands, result in the denial of permits to
mine after the expenditure of significant funds for exploration and development,
reduce estimates of mineral reserves and reduce the amount of future exploration
and development activity on U.S. federal lands all of which could have a
material and adverse affect on Glamis' profitability, results of operations and
financial condition.
GLAMIS IS SUBJECT TO LITIGATION IN HONDURAS, WHICH COULD RESULT IN CESSATION OF
MINING OPERATIONS AT THE SAN MARTIN MINE
Glamis may become party to litigation or other adversary proceedings, with
or without merit, in a number of jurisdictions. The cost of defending such
claims may take away from management time and effort and if determined adversely
to Glamis, may have a material and adverse effect on Glamis' profitability,
results of operations and financial condition.
In August 2001, the General Prosecutor's Office (the "Fiscalia") in
Honduras applied to a Honduran court for arrest warrants for the managers of
Glamis' Honduran subsidiary, Minerales Entre Mares Honduras, S.A. ("MEMH"). The
application was made in connection with a criminal suit originally filed against
MEMH by the Fiscalia in January 2000 in connection with the construction of the
San Martin Mine and is the second application made by the Fiscalia for arrest
warrants. A previous application was made in 2000 and was denied by the court.
The Fiscalia's suit alleges illegal use of water, damage to a local river from
sand and gravel extraction operations, and the removal of trees without
appropriate permits. MEMH has filed its responses denying the Fiscalia's
allegations and has petitioned for final dismissal of the case. If the suit by
the Fiscalia is successful, arrest warrants could be issued in Honduras for the
managers of MEMH at the time the action was brought.
A civil lawsuit has also been filed against the Honduran Ministry of
Natural Resources and the Environment ("SERNA") challenging the issuance by
SERNA of the Environmental License for Glamis' San Martin Mine. The suit was
filed on behalf of certain residents in the vicinity of the mine and alleges
that the government failed to follow its own procedures in the issuance of the
Environmental License. The suit requests that the license be nullified and that
an injunction be issued ceasing operations at the mine until the case is
decided. MEMH has joined the case to properly defend its interests. While the
case has been filed, actions required of the plaintiff to formally commence the
case have not been taken. Cessation of operations of the mine would have a
material adverse effect on Glamis' gold production, revenues, earnings and
financial condition.
A civil lawsuit has also been filed against SERNA by La Caridad, a Honduran
company, requesting recognition of their right to the discovery of a mineral
deposit in the area of the San Martin Mine. If successful, the plaintiff would
be entitled to a 5% profits royalty on a portion of the property comprising the
San Martin Mine. The mining law that was in place at the time the plaintiff
alleges that the plaintiff discovered the deposit excluded gold and other
9
precious minerals from the 5% royalty. Additionally, the subject property
location as described by the plaintiff is in an area which lies outside of the
present or anticipated mining areas at the San Martin Mine. Should the plaintiff
succeed, it would be entitled to a royalty on the profits of MEMH for any mining
that occurred within the boundary of its discovery.
GLAMIS COMPETES WITH OTHERS FOR MINING CLAIMS AND MINING ASSETS
Glamis competes with other mining companies and individuals for mining
claims and leases on exploration properties and the acquisition of gold mining
assets. Some of the companies with which Glamis competes have significantly
greater financial, management and technical resources than Glamis, and may use
these resources to their advantage when competing with Glamis for such
opportunities. Glamis cannot give any assurance that it will continue to be able
to compete successfully with its competitors in acquiring attractive mineral
properties and assets.
GLAMIS RELIES ON ITS MANAGEMENT TEAM
The success of the operations and activities of Glamis is dependent to a
significant extent on the efforts and abilities of its management including C.
Kevin McArthur, President and Chief Executive Officer, Cheryl S. Maher,
Vice-President Finance and Chief Financial Officer, James S. Voorhees,
Vice-President Operations and Chief Operating Officer and Charles A. Jeannes,
Senior Vice-President Administration. Investors must be willing to rely to a
significant extent on management's discretion and judgment. Glamis does not have
in place formal programs for succession of management and training of
management. Glamis does not maintain key employee insurance on any of its
employees. The loss of one or more of these key employees, if not replaced,
could adversely effect Glamis' operations.
GLAMIS CANNOT GIVE ANY ASSURANCE THAT TITLE TO ITS MINERAL PROPERTIES WILL NOT
BE CHALLENGED
Acquisition of title to mineral properties in all jurisdictions where
Glamis operates is a very detailed and time-consuming process. Glamis has
acquired substantially all of its mineral properties through acquisitions,
including its acquisition of the El Sauzal Project and the Marlin Project when
it acquired all of the outstanding shares of Francisco Gold Corp. in July, 2002.
Although Glamis has investigated title to all of its mineral properties, Glamis
cannot give any assurance that title to such properties will not be challenged
or impugned. The properties may have been acquired in error from parties who did
not possess transferable title, may be subject to prior unregistered agreements
or transfers, and title may be affected by undetected defects or aboriginal,
indigenous peoples or native land claims.
Glamis has purchased fifty hectares of surface rights in support of its
current and planned exploration operations at the Marlin Project. Glamis
believes that at least 100 additional hectares of surface rights will need to be
acquired for mining, processing and ancillary activities. There can be no
assurance that Glamis will be able to acquire such lands on reasonable terms or
at all.
10
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the securities commission or similar
regulatory authority in each of the provinces of Canada are specifically
incorporated by reference into, and form an integral part of, this short form
prospectus:
(a) the Annual Information Form of Glamis dated March 22, 2002 for the
fiscal year ended December 31, 2001;
(b) the audited consolidated financial statements of Glamis, including
notes thereto, as at December 31, 2001 and 2000 and for each of the
years in the three-year period ended December 31, 2001, together with
the auditor's report thereon;
(c) management's discussion and analysis of financial condition and
results of operations of Glamis for the fiscal year ended December 31,
2001;
(d) the Management Information Circular (Proxy Statement) of Glamis dated
March 12, 2002 distributed in connection with the annual general
meeting of shareholders held on May 9, 2002;
(e) the unaudited interim consolidated financial statements of Glamis for
the three months and nine months ended September 30, 2002, and notes
thereto and management's discussion and analysis of financial
condition and results of operations for the three months and nine
months ended September 30, 2002;
(f) the material change report of Glamis dated March 13, 2002 relating to
the proposed acquisition of Francisco Gold Corp.;
(g) the material change report of Glamis dated July 16, 2002 relating to
the closing of the acquisition of Francisco Gold Corp.;
(h) the material change report of Glamis dated October 8, 2002 relating to
the economic parameters of the El Sauzal project;
(i) the material change report of Glamis dated November 12, 2002 relating
to the mineral resource estimates for the Marlin Project; and
(j) the material change report of Glamis dated November 14, 2002 relating
to this Offering.
Material change reports (other than confidential reports) and all other
documents of the type referred to above, filed by Glamis with a securities
commission or similar regulatory authority in Canada subsequent to the date of
this prospectus and prior to completion or withdrawal of this Offering, will be
deemed to be incorporated by reference into this short form prospectus.
Glamis has filed with the United States Securities and Exchange Commission
("SEC") under the United States Securities Act of 1933, as amended ("U.S.
Securities Act"), a registration statement on Form F-10 relating to the Offered
Shares, of which this short form prospectus is a part. This short form
prospectus does not contain all of the information set forth in such
registration statement and to which reference is made for further information.
For further information about Glamis and the Offered Shares, reference is made
to the registration statement and to the exhibits filed with it or incorporated
by reference therein. Statements contained in this short form prospectus as to
the contents of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of the document filed as an exhibit to
the registration statement or incorporated by reference therein. Each such
statement is qualified in its entirety by such reference.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED
FOR THE PURPOSES OF THIS SHORT FORM PROSPECTUS TO THE EXTENT THAT A STATEMENT
CONTAINED IN THIS SHORT FORM PROSPECTUS OR IN ANY SUBSEQUENTLY FILED DOCUMENT
THAT ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR
SUPERSEDES SUCH STATEMENT. ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT
CONSTITUTE A PART OF THIS SHORT FORM PROSPECTUS, EXCEPT AS SO MODIFIED OR
SUPERSEDED. THE MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS
MODIFIED OR SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER INFORMATION SET
FORTH IN THE DOCUMENT THAT IT MODIFIES OR SUPERSEDES. THE MAKING OF SUCH A
MODIFYING OR SUPERSEDING STATEMENT SHALL NOT BE DEEMED AN ADMISSION FOR ANY
PURPOSE THAT THE MODIFIED OR SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A
MISREPRESENTATION, AN UNTRUE STATEMENT OF A MATERIAL FACT OR AN OMISSION TO
11
STATE A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR THAT IS NECESSARY TO MAKE
A STATEMENT NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE.
Copies of documents incorporated in this prospectus by reference may be
obtained upon request without charge from the Senior Vice-President,
Administration of Glamis at 310 - 5190 Neil Road, Reno, Nevada, 89502 (telephone
(775) 827-4600).
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been filed with the SEC as part of, or
incorporated by reference in, the registration statement on Form F-10 of which
this short form prospectus forms a part: the documents referred to under the
caption "Documents Incorporated by Reference"; consent of KPMG LLP, Chartered
Accountants; consent of Moen and Company, Chartered Accountants; consent of Mine
Reserves Associates, Inc.; consent of James S. Voorhees, Professional Engineer;
powers of attorney; and form of Underwriting Agreement.
12
GLAMIS GOLD LTD.
HISTORY AND CURRENT OPERATIONS
Glamis was incorporated under the laws of the Province of British Columbia
on September 14, 1972 under the name Renniks Resources Ltd. (N.P.L.). Since
incorporation, Glamis has undergone several capital reorganizations and on
December 12, 1977 its name was changed to its present name.
Glamis' principal and executive offices are located at 5190 Neil Road,
Suite 310, Reno, Nevada, USA 89502. Glamis' registered and records offices are
located at 1500 -- 1055 West Georgia Street, P.O. Box 11117, Vancouver, British
Columbia, Canada V6E 4N7.
Glamis' operations are conducted in the U.S. through its wholly-owned
Nevada subsidiary Glamis Gold, Inc. and Glamis Gold, Inc.'s wholly-owned
subsidiaries: Glamis Rand Mining Company, Glamis Marigold Mining Company, and
Glamis Imperial Corporation, each Nevada corporations. In addition, Glamis holds
all of the issued shares of Francisco, a British Columbia corporation, which
owns all of the issued shares of Montana Gold Corp., a British Columbia
corporation. Glamis' principal offshore operations are conducted through Glamis
de Mexico S.A. de C.V. and Minas de la Alta Pimeria S.A. de C.V., each Mexican
corporations, Minerales Entre Mares Honduras S.A. de C.V., a Honduran
corporation, Montana Exploradora de Guatemala S.A., Entre Mares de Guatemala,
S.A. and Peridot, S.A., each Guatemalan corporations, Glamis Honduras Holdings
Ltd., Glamis Guatemala Holdings Ltd. and Glamis Holdings (Cayman) Ltd., each
Cayman Island corporations and International Mineral Finance Corporation, a
Barbados corporation, all of which are direct or indirect wholly-owned
subsidiaries.
In this short form prospectus, unless the context indicates otherwise, the
term "Glamis" refers to Glamis together with all of its direct and indirect
subsidiaries.
Glamis produced 230,065 ounces of gold in the year ended December 31, 2001.
Glamis estimates that it will produce in excess of 250,000 ounces of gold in
2002. This production will come principally from three mines; the Rand Mine
(100% owned) located in southern California, the San Martin Mine (100% owned)
located in Honduras and the Marigold Mine (66 2/3% owned) located in Nevada.
GOLD RESERVES
As at December 31, 2001, Glamis reported total proven and probable mineral
reserves containing approximately 3.3 million equivalent ounces of gold. With
the addition of the El Sauzal Project through the acquisition of Francisco in
July 2002, Glamis' total proven and probable mineral reserves as at December 31,
2001, together with the proven and probable mineral reserves of the El Sauzal
Project, amount to approximately 5.3 million equivalent ounces of gold. See
"Recent Developments" for a discussion of the El Sauzal Project and "Significant
Acquisition" for a discussion of the acquisition of Francisco.
The mineral reserves and resources described in this short form prospectus
and the documents incorporated by reference herein have been prepared in
compliance with National Instrument 43-101 of the Canadian Securities
Administrators. Prior to 2001, Glamis presented information concerning its
mineral properties in accordance with the SEC Industry Guide 7, but Glamis'
reserves and resources at December 31, 2000 and 1999 set forth in Glamis' Annual
Information Form for the year ended December 31, 2001 have been restated to
comply with National Instrument 43-101.
The definitions of proven and probable reserves used in National Instrument
43-101 differ from the definitions in SEC Industry Guide 7. In addition, the
terms "mineral resource", "measured mineral resource", "indicated mineral
resource" and "inferred mineral resource" are defined in and required to be
disclosed by National Instrument 43-101; however, these terms are not defined
terms under SEC Industry Guide 7 and normally are not permitted to be used in
reports and registration statements filed with the SEC. Accordingly, information
contained in this short form prospectus and the documents incorporated by
reference herein containing descriptions of Glamis' mineral deposits may not be
comparable to similar information made public by U.S. companies subject to the
reporting and disclosure requirements under the United States federal securities
laws and the rules and regulations thereunder.
13
STRATEGY FOR GROWTH
Growth is an integral part of the overall strategy for Glamis. Glamis first
looks to organic growth through expansion of existing mining operations. The
second method of growth is through acquisitions, both of corporations holding
mineral properties and of mineral properties. Three corporate acquisitions since
1998 have added significantly to Glamis' growth. Glamis' interest in the
Marigold Mine came from the acquisition of Rayrock Resources Inc. Through
simplification of operations, the operating costs of the Marigold Mine have been
reduced and the mineral reserves for this mine have been expanded through the
Marigold Millennium Expansion Project. The San Martin Mine came to Glamis
through the acquisition of Mar West Resources Ltd. The proven and probable
mineral reserves at the San Martin Mine have grown from just over 0.5 million
ounces of contained gold to over 1 million contained ounces, and the decision
was made to build the mine. The El Sauzal and Marlin Projects came to Glamis
through the Francisco acquisition. The acquisition of the Cerro San Pedro
Project added an additional project to Glamis's development properties.
Glamis continues to actively seek additional acquisition opportunities,
although it can provide no assurance that attractive acquisition opportunities
will become available on acceptable terms or that any acquisitions will be
completed in the future or, if completed, will result in the development of a
profitable mine.
14
RECENT DEVELOPMENTS
EL SAUZAL PROJECT, MEXICO
Glamis acquired the El Sauzal Project through the acquisition of Francisco
in July of 2002. The information in this section is based upon the "El Sauzal
Project Technical Report" dated June 2002, as amended September 30, 2002,
(collectively the "El Sauzal Report"), each prepared under the direct
supervision of Mr. James S. Voorhees P. Eng., Vice-President Operations and
Chief Operating Officer of Glamis.
PROPERTY AND LOCATION
The El Sauzal Project is comprised of seven exploration concessions which
are owned 100% by Glamis through its subsidiary Minas de la Alta Pimeria, S.A.
de C.V. These concessions cover 10,250 hectares of land. The project lies in the
Batopilas and Urique Mining districts of southwestern Chihuahua State some 450
kilometres south of the United States/Mexico border and 15 kilometres east of
the Sinaloa State line. The project site is approximately 250 kilometres
southwest of the city of Chihuahua and 60 kilometres northeast of the city of
Choix, Mexico.
This part of Mexico is remote, undeveloped and sparsely populated.
Topographic relief in the project area is steep with elevations ranging from 325
metres above mean sea level (amsl) to over 900 metres amsl. Gullies and streams
indent the mountainsides, and vegetation and overburden are minimal.
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
Road access to the El Sauzal Project is via the cities and towns of
Chihuahua, Creel, San Rafael, Bahuichivo, Cerocahui and Mesa de Arturo. The
total road distance between Chihuahua and the project is 447 kilometres.
The climate in the El Sauzal area is classified as temperate sub-humid,
with distinct wet and dry seasons. The rainy season is short, generally from
June to August. Annual rainfall averages 0.8 metres per year; however, average
monthly evaporation exceeds average monthly precipitation in every month of the
year.
Given the remote location of the project and the steep rugged terrain,
extensive site development work will be required. The only existing facilities
at site are the exploration camp and a helipad.
HISTORY
The district has been a historic producer of over 350 million ounces of
silver, but has essentially been inactive since the Mexican revolution of 1912.
Resurgence in exploration activity began with the discovery of gold
mineralization at the El Sauzal Project by Francisco in August 1995.
GEOLOGICAL SETTING
The El Sauzal Project is located along the western edge of the Sierra Madre
Occidental physiographic (SMO) province of Northern Mexico. The SMO comprises
thick sequences of Cretaceous and Tertiary volcanic and volcaniclastic strata,
overlapping an older Mesozoic sedimentary/volcanic succession, Paleozoic marine
strata and, in places, Precambrian metamorphic basement. These strata are cut by
numerous plutons and smaller intrusions, mainly contemporaneous with the
Cretaceous and younger volcanic rocks. The El Sauzal Project occurs within the
upper part of this package, in the Cretaceous to Tertiary volcanic-dominated
strata.
The stratified rocks at the El Sauzal Project represent three major
sequences (1, 2, 3), each consisting of volcanic and volcaniclastic rocks of
varied composition and, in some instances, their intrusive equivalents. Sequence
1 rocks pre-date gold mineralization and are host to nearly all of the gold
resource at the El Sauzal Project. Sequence 2 rocks overlie sequence 1 rocks
along a regional angular unconformity, undergo rapid lateral variations in both
thickness and lithologic content, and display field relationships indicating
contemporaneous formation with mineralization. Sequence 3 rocks post-date
mineralization, are not significantly altered and have stratification slightly
discordant to that in sequence 2, suggesting an unconformable relationship.
Structural features are typical of those formed by brittle extensional
deformation at shallow crustal levels. Deformation is dominated by displacement
on several generations of mesoscopic to megascopic extensional to oblique-slip
faults, accompanied by tilting of fault blocks and development of broad fracture
zones.
15
Cross-cutting generations of faults, changes in slip direction during fault
reactivation and variable levels of tilting within different parts of the
stratigraphic succession all contribute to the complex present-day structural
geometry. Overall, the deposit occurs within several blocks containing
moderately to steeply, east- to northeast-dipping strata, bounded by
northwest-to northeast-striking, gently west-dipping to subvertical faults.
EXPLORATION
No exploration activities are currently underway at the El Sauzal Project,
however, definition drilling in the proposed open pit area along with some
condemnation and geotechnical drilling is currently underway.
MINERALIZATION
The El Sauzal Project is comprised of three principal zones of
mineralization, known as the East Zone, West Zone and West Lip Zone. All three
feature a near-surface oxide unit, which contains the majority of the known gold
resource. Zone boundaries are defined by a combination of fault displacement,
alteration zones, structural features and present-day topography. Although
mineralization was continuous between the three zones prior to fault
displacement and erosion, each zone contains unique structural, stratigraphic
and mineralization characteristics.
SAMPLING AND DRILLING
The mineral resources and mineral reserves at the El Sauzal Project are
based on 20,274 samples from 187 diamond drill holes (27,514 metres) and 1,835
surface sample composites. This sample data is spread over an area of
approximately 70 hectares.
Most drill hole setups were helicopter assisted on level platforms built by
local labour. Due to the very steep topography in the project area, drillhole
locations and orientations are not on regular grids or patterns. Therefore, the
relationship between sample length and true thickness is variable and is not
readily reportable.
All drill hole collar positions were surveyed using differential global
positioning satellite measurements location. The field results are reproducible
to within a few centimetres. The diamond drill core samples were split, with
one-half sent for assay and the other half retained for future use. In addition,
sampling crews obtained surface samples by placing a collecting cloth at the
base of the sample before chipping down, or along, the length of the channel
cut. The rock channel samples weighed between 6 and 8 kilograms each. The
nominal length of the surface samples is 2.7 metres.
All core samples were prepared by ALS Chemex Laboratories ("Chemex") in
Hermosillo, Mexico, and assayed for gold in Chemex's Vancouver facilities using
a number of standard analytical assaying methods. All samples were fire-assayed
with an atomic absorption finish. If an assay was greater than 10,000 parts per
billion gold, the sample was re-assayed with gravimetric finish. Approximately
88% of the drill holes were assayed for silver content.
Unused core is available for inspection on site. Numerous check assay
programs on samples have been carried out over the last few years, including
most recently by Glamis. No significant errors were reported.
MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
The following table summarizes the mineral resources of the El Sauzal
Project as set forth in the El Sauzal Report, using a cut-off grade of 0.50
grams of gold per tonne:
EL SAUZAL MINERAL RESOURCES
GRADE CONTAINED(7)
GRAMS OUNCES
CATEGORY(1) TONNES GOLD/TONNE GOLD
----------- ---------- ---------- ------------
Measured(2)................................................. 9,000,000 3.14 900,000
Indicated(3)................................................ 25,500,000 2.08 1,700,000
Inferred(4)................................................. 16,500,000 1.3 700,000
16
The following table summarizes the mineral reserves of the El Sauzal
Project as set forth in the El Sauzal Report, using a cut-off grade of 0.8 grams
of gold per tonne:
EL SAUZAL MINERAL RESERVES
GRADE CONTAINED(7)
GRAMS OUNCES
CATEGORY(1) TONNES GOLD/TONNE GOLD
----------- ---------- ---------- ------------
Proven(5)................................................... 7,000,000 3.72 800,000
Probable(6)................................................. 11,500,000 3.24 1,200,000
---------- ---- ---------
Total....................................................... 18,500,000 3.37 2,000,000
========== ==== =========
---------------
(1) The reserves and resources above have been calculated in accordance with
definitions adopted in National Instrument 43-101 of the Canadian Securities
Administrators. These calculations are based on an assumed long-term gold
price of $300 per ounce and incorporate expected operating costs at the El
Sauzal Project.
(2) Measured mineral resource means that part of a mineral resource for which
quantity, grade or quality, densities, shape, and physical characteristics
are so well established that they can be estimated with confidence
sufficient to allow the appropriate application of technical and economic
parameters, to support production planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed and reliable
exploration, sampling and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and
drill holes that are spaced closely enough to confirm both geological and
grade continuity.
(3) Indicated mineral resource means that part of a mineral resource for which
quantity, grade or quality, densities, shape, and physical characteristics
can be estimated with confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning
and evaluation of the economic viability of the deposit. The estimate is
based on detailed and reliable exploration, sampling and testing information
gathered through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes that are spaced closely enough for
geological and grade continuity to be reasonably assumed.
(4) Inferred mineral resource means that part of a mineral resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
(5) Proven mineral reserves means the economically mineable part of a measured
mineral resource demonstrated by at least a preliminary feasibility study.
The study must contain adequate information on mining, processing,
metallurgical, economic and other relevant factors that demonstrate at the
time of reporting, that economic extraction can be justified.
(6) Probable mineral reserves means the economically mineable part of an
indicated and in some circumstances a measured mineral resource demonstrated
by at least a preliminary feasibility study. The study must contain adequate
information on mining, processing, metallurgical, economic and other
relevant factors that demonstrate at the time of reporting, that economic
extraction can be justified.
(7) The ounces of gold that will actually be recovered will depend on actual
gold grades encountered and recovery rates.
Resources that are not reserves either do not meet drilling density
requirements or do not have demonstrated economic viability.
PERMITTING
The extraction of the reserves of the El Sauzal Project is dependent upon
Glamis obtaining the necessary regulatory permits and is subject to the normal
risks of mining (see "Risk Factors -- Government regulations significantly
affect Glamis' mining operations"). This permitting process has begun and Glamis
expects that its main permitting application document will be submitted in
November 2002. Subject to the timely receipt of permits, construction is
scheduled to begin in the second half of 2003 and is scheduled for completion in
the first quarter of 2005.
PROPOSED MINING OPERATIONS
Based on the El Sauzal Report, the ultimate open pit for the project
consists of two zones, east and west, and will be mined by open pit in eight
phases over the life of the mine. The phases are planned to facilitate building
roads to provide access to the deposit maintained throughout the mine life.
The El Sauzal Report provides for the open pit to be a conventional
truck-and-shovel operation. The current mine plan is based on delivering 5,500
tonnes per day of ore to the process plant (the "Mill") at a cut-off grade of
0.8 grams per tonne of gold. The blasted waste rock will be used to construct
haul roads, with excess material placed in designated waste dumps around the
ultimate pit.
17
The major mining fleet for the operation is planned to consist of four 100
tonne trucks, two 10 cubic metre front-end loaders and two blasthole drills
working two shifts of 10.5 hours each per day, with Sundays idle. Support
equipment is planned to include track dozers and motor graders to maintain the
road surfaces, dumps and operating benches, and an excavator to maintain
collection ditches and support ore loading.
PROPOSED PROCESSING OPERATIONS
The Mill has been designed to treat a nominal 1.82 million tonnes per year
of ore to produce approximately 190,000 ounces per year of gold. Ore will be fed
through a primary jaw crusher prior to being put through the Mill. Milling will
be conducted in a semi-autogenous grinding mill/ball mill circuit. The final
product produced by the milling will be subjected to gravity concentration to
remove coarse gold, followed by leaching of the ore with cyanide. Precious metal
values generated in the leaching process will be recovered onto activated
carbon. Gold and silver will be removed from the carbon by pressurized stripping
and further concentrated by electrowinning and smelting to generate dore bars.
Tailings from the leaching process will be thickened, detoxified, and filtered.
The resulting "dry" tailings will be transported and placed in an engineered
disposal area.
INFRASTRUCTURE
An existing road that accesses the El Sauzal Project from the north is
currently passable by four-wheel drive vehicles. This northern access route is
one alternative being considered for upgrade and establishment as the primary
access to the project. Travel time from Chihuahua City would be approximately 10
hours.
Another alternative under consideration is a southern access road
connecting to Choix in Sinaloa State, which would allow access to the Port of
Los Mochis, on the west coast. This would require pioneering a new route.
However, the ultimate travel time to Los Mochis would be five hours, a
considerable advantage during project construction and operation. Glamis
estimates that the capital costs for either the northern or southern routes will
be similar. Subject to obtaining necessary government approvals, Glamis prefers
the southern route as the primary access to the project.
The railway line between Chihuahua and Los Mochis follows essentially the
same route as the northern access road alternative up to Bahuichivo. The railway
station at Bahuichivo is well developed. Rail transport of a portion of
equipment and supplies for the project is one option under consideration.
Electrical power for the El Sauzal Project may involve the construction of
a new transmission line either from Divisadero (the northern route) or from
Choix (the southern route). Glamis is currently conducting technical and
economic evaluations of the proposed routes. Also self-generation with the use
of diesel generators is an alternative under consideration.
A 120-person pre-manufactured trailer-type camp will be provided for
employees throughout the operating life of the mine. Freshwater is expected to
be obtained from the Rio Urique, approximately two kilometres from and 300
metres below the plant site. Septic tanks and leach fields will be provided at
the plant site and camp site.
The southwestern part of the State of Chihuahua does not have a large
mining industry. As such, much of the senior work force and some key labour for
the El Sauzal Project will be drawn from other established mining districts in
Mexico. Local hires will be trained as required to supplement the labour force.
18
ECONOMICS
The following are the current projected economic parameters for the El
Sauzal Project as set forth in the El Sauzal Report (calculated at a $300 per
ounce gold price):
Initial capital expenditures (including $10 million
contingency).............................................. $101 million
Total tonnes mined.......................................... 41.7 million
Strip ratio (waste:ore)..................................... 1.3:1
Average grade of gold....................................... 3.37 grams/tonne
Process rate (tonnes/day)................................... 5,500
Average annual gold ounces produced......................... 190,000
Mine life................................................... 10 years
Total cash costs per ounce.................................. $110
Total ounces gold to be produced............................ 1.9 million
Internal rate of return..................................... 25%
Optimization and detailed design for the El Sauzal Project is continuing
and certain of the project parameters may change as such work progresses. The
initial capital required to bring the El Sauzal Project into production will be
funded from existing cash balances, future cash flows and a portion of the
proceeds of the Offering. See "Use of Proceeds." Glamis estimates total cash
cost of production in accordance with the Gold Institute Production Cost
Standard. Total cash cost of production is comprised of all direct mining and
processing costs, refining and transportation costs, royalties and production
taxes.
MARLIN PROJECT, GUATEMALA
Glamis acquired the Marlin Project through the acquisition of Francisco.
The information in this section is based upon the "Marlin Project Technical
Report" dated November 8, 2002 (the "Marlin Report"), prepared under the direct
supervision of Mr. James S. Voorhees, P.Eng., Vice-President Operations and
Chief Operating Officer of Glamis.
PROPERTY DESCRIPTION AND LOCATION
The project consists of one exploration concession consisting of 10,000
hectares or 39 square miles.
Fifty hectares of surface rights that cover the mineral resource at the
Marlin Project have been purchased by Glamis and steps are currently being taken
to have title to the surface rights registered in Glamis' name. All of the
surface rights in the vicinity of the project area are believed to be privately
controlled, but few of the owners possess written title to their land. Glamis
believes that at least 100 additional hectares must be acquired prior to placing
a mine into production.
The mineral resources described below are exclusively contained in the Main
Zone which is a gently west plunging, near surface, mineralized system that is
associated with multiple south-dipping thrust faults and a sub-vertical feeder
fault partially bounding it to the south. Other mineralized zones exist in the
Marlin area as described below.
Access to the Marlin Project is by 50 kilometres of road running southwest
of the town of Huehuetenango in western Guatemala. Huehuetenango is 300
kilometres by road and approximately a six hour drive from Guatemala City. There
are three choices for access to the project from Huehuetenango with the easiest
consisting of a one hour or 50 kilometre drive on paved road followed by another
hour or 30 kilometres on gravel road.
ACCESSIBILITY, CLIMATE, INFRASTRUCTURE, PHYSIOGRAPHY
Two mountain chains traverse Guatemala from west to east, dividing the
country into three major regions: the mountainous western highlands, where the
Marlin Project is located; the Pacific coast, south of the mountains; and the
Peten region, north of the mountains. These areas vary in climate, elevation,
and landscape, providing dramatic contrasts between dense tropical lowlands and
highland peaks and valleys.
The Marlin Project is in the municipality of San Miguel Ixthuacan, which
has a village of the same name with approximately 8,000 inhabitants as well as
several smaller villages. The office/campsite of the Marlin Project can
19
house over a dozen people and is located in the village of San Miguel Ixthuacan.
Power and water are available in this village along with several stores and
small restaurants.
Surface water is available near the project and should be adequate for the
project's needs. Adequate power is available within approximately 20 kilometres
of the project. A new power line to the project will be required. An improved
access road will be required to allow equipment and deliveries to reach the
project. The existing road will require an upgrade over approximately 20
kilometres.
HISTORY
The Marlin Project was discovered through regional grass-roots exploration
in 1998 by Montana Exploradora de Guatemala, S.A. ("Montana"), which was
purchased by Francisco in 2000.
GEOLOGICAL SETTING
The geological setting for the country of Guatemala can be described as
being split into two terrains as the result of the convergence of two major
tectonic plates. The northern half of Guatemala is on the North American plate
and the southern half is on the Caribbean plate. Three major east-west trending
transcurrent faults form at the collision boundary. These are the northern
Polochic, middle Montagua and southern Jocotan fault systems. The Marlin deposit
is on a projection of a southern splay off of the Polochic fault system. The
northern side of the Polochic fault system contains Paleozoic metasediments,
schist and gneiss. The south side of the Polochic fault contains a series of
Tertiary mafic volcanic eruptive events composed mostly of dacitic to andesitic
tuff, lahar and andesitic to basaltic flows. These eruptive units are separated
by thin beds of waterlain sediments composed mostly of shale and tuffaceous
shale. These older volcanics are covered by thick eruptive units of Quaternary
and recent dacitic volcanic ash. The Marlin deposit is within the Tertiary mafic
eruptive unit. This deposit trends in the same direction as the Polochic fault
system. The mineralization at the Marlin Project occurs in a Tertiary age,
quartz-adularia (bonanza) epithermal system. This mineralization lies on the
eastern portion of a two kilometre east-west trending vein system which is only
one of several parallel vein systems identified in the Marlin district.
EXPLORATION
Although exploration has occurred in and around the Marlin Project since
1996 by some land owners, it was not until 1998 that the current mineralization
was discovered by Montana through regional grass-roots exploration.
Numerous surface samples have been found within the Marlin Project area
that contain gold values in excess of one gram per tonne. Within this area,
on-going exploration has identified an extensive network of faults and fractures
which exist for over 10 kilometres along strike from the main zone of
mineralization (the "Main Zone") at the Marlin Project. Detailed surface work
has delineated four additional drill targets outside of the Main Zone.
The first target, Don Tello -- Los Tomates, is a structural corridor known
to extend for a distance of over 1.5 kilometres and is 10 to 50 metres wide. Don
Tello -- Los Tomates is located 300 metres south of the Main Zone and hosts
sub-vertical quartz-calcite veins and adjoining stockwork zones. The average
grade of 140 rock-chip and 4 trenches sampled across this target is 3.5 grams
per tonne gold and 183 grams per tonne silver. The target is open-ended along
strike in both directions.
The second target is the Los Cochis trend, a northwest trending structural
corridor, 40 to 50 metres wide, that has been traced for more than 700 metres
northwest of the Main Zone. Eighty-two rock chip samples taken on the Los Cochis
trend returned an average gold grade of 1.15 grams per tonne and 12 grams per
tonne silver. More recently, 8 trenches were hand dug covering a strike length
of more than 400 metres. Along this tested length, mineralization encountered in
the trenches ranged from 6 to 54 metres in width, and up to 4.4 grams per tonne
gold equivalent.
The third and fourth targets are located to the north and west of the Main
Zone. These targets are argillized zones called the La Hamaca and Ajel zones.
Both targets host similar structural and alteration characteristics as those
found at the Main Zone. The La Hamaca and Ajel targets are located 2 kilometres
south and 2 kilometres west, respectively, of the Main Zone.
The mineralizing system at the Marlin Project strikes northwest and dips
gently south near the surface and steeply at depth. Most of the mineralization
is in quartz veins and quartz vein stockwork within a Tertiary-age, dacitic,
lithic tuff of the locally designated Marlin formation. A small part of the
mineralization is in calcite veins. This vein zone intersects with a secondary
vein zone on the east end and at depth, called the Don Tello vein zone
20
that strikes N70E and dips steeply to the north. Drilling to date has confirmed
continuity along strike to include the Cochis target, through the Main Zone and
extending to the southeast (now referred to as the "Southeast Extension"). The
mineralization is consistent over an east-west distance of 1,200 metres and is
up to 300 metres wide forming the Marlin deposit. A 150 metre by 75 metre on
surface layer of weathered vein material overlies the Main Zone at Marlin. Clay
alteration consisting of illite and kaolinite forms adjacent to the veins
although not abundant. Post mineralization faults have produced shear zones
within the mineralization. Approximately one third of the mineralization found
to date is oxide. The remaining is transition and sulfide. The sulfide
mineralization contains pyrite at concentrations of one to three percent.
Preliminary metallurgical testing performed at Kappes, Cassidy and Associates of
Reno, Nevada using conventional cyanidation at a 200 mesh grind has yielded
recoveries in excess of 90 percent for gold and 85 percent for silver for all
samples listed.
SAMPLING AND DRILLING
As of October 31, 2002, drilling at the Marlin Project consisted of 100
core and 194 reverse circulation holes, for a total of 294 drill holes. Of these
drill holes, 221 consisting of 23,387 metres of sampling were used in the
mineral resource calculation for the project. Over the Main Zone and along the
newly discovered extensions, drilling has delineated a near surface, high-grade
mineralized zone approximately 1,200 metres long and up to 300 metres wide. The
Main Zone remains open to the southeast, to the northwest and also at depth
along the main feeder.
Drill density is typically 25 metres by 50 metres in the Main Zone and 50
metres by 50 metres on the extensions and other targets. Additional infill and
extensional drilling is planned.
All sample data used in the Marlin Project mineral resource calculation was
produced by either diamond or reverse circulation drilling. Sample recovery in
the first six holes used conventional core with somewhat poor recovery. The
recovery problems were due to extreme fracturing of the host rocks. A triple
tube core barrel method was subsequently implemented and this technique
dramatically improved core recovery.
Assay data verification is done by routinely checking the computer database
against the original assay data sheets. Mathematical statistics and "flier"
searches are performed on the assay data to help verify data integrity.
"Missing" or "duplicate" data is also screened prior to entry to the database. A
check assay program consisting of re-assaying pulp rejects and second splits of
core samples is in place. These assays are conducted by an independent assay
laboratory.
The core was collected and placed in boxes on site. All reverse circulation
samples were collected, split and placed in bags at the drill site. One split
was sent for assay and the second split was retained for inspection or
additional tests as warranted. All core and reverse circulation samples were
prepared either in Chemex's Hermosillo, Mexico laboratory or in the Guatemala
City sample preparation facility of Inspectorate America Corporation
("Inspectorate") and assayed for gold in either Inspectorate's laboratory in
Sparks, Nevada, Rocky Mountain Geochemical's Laboratory in Reno, Nevada or
Chemex's facilities in Vancouver, B.C. Standard analytical assaying methods were
employed. All samples were reported using fire assay with an atomic absorption
finish. Approximately 98% of the drill holes were assayed for silver content.
Unused core and reverse circulation samples are available for inspection on
site.
MINERAL RESOURCE ESTIMATES
The following are the mineral resource estimates for the Marlin Project as
stated in the Marlin Report:
CONTAINED
CONTAINED CONTAINED EQUIVALENT
GRAMS OUNCES OF GRAMS OUNCES OF OUNCES OF
RESOURCE TYPE(1) TONNES GOLD/TONNE GOLD SILVER/TONNE SILVER GOLD(5)
---------------- ---------- ---------- --------- ------------ ---------- ----------
Measured(2).................. 21,100,000 1.74 1,180,000 28.1 19,090,000 1,500,000
Indicated(3)................. 12,500,000 1.67 670,000 29.8 11,970,000 870,000
Inferred(4).................. 17,500,000 1.21 680,000 22.7 12,770,000 890,000
---------------
(1) The resources above have been calculated in accordance with definitions
adopted in National Instrument 43-101 of the Canadian Securities
Administrators. Mineral resources are not classed as mineral reserves as
they do not meet drilling density requirements or do not demonstrate
economic viability.
(2) Measured mineral resource means that part of a mineral resource for which
quantity, grade or quality, densities, shape, and physical characteristics
are so well established that they can be estimated with confidence
sufficient to allow the appropriate application of technical
21
and economic parameters, to support production planning and evaluation of
the economic viability of the deposit. The estimate is based on detailed and
reliable exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes that are spaced closely enough to confirm both
geological and grade continuity.
(3) Indicated mineral resource means that part of a mineral resource for which
quantity, grade or quality, densities, shape, and physical characteristics
can be estimated with confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning
and evaluation of the economic viability of the deposit. The estimate is
based on detailed and reliable exploration, sampling and testing information
gathered through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes that are spaced closely enough for
geological and grade continuity to be reasonably assumed.
(4) Inferred mineral resource means that part of a mineral resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
(5) The conversion of silver ounces to gold equivalent ounces is at a ratio of
60 silver ounces to one gold equivalent ounce.
No mineral reserve estimates have been completed for the Marlin Project at
this time.
EXPLORATION AND DEVELOPMENT
Exploration and development drilling is continuing at the Marlin Project.
As of the end of October 2002, Glamis had completed over 25,000 metres of
drilling, primarily as infill drilling of the Main Zone. A further 6,000 metres
of drilling is planned over the next six months. Glamis expects to spend
approximately $3 million on this drilling program.
The infill drilling program is designed to allow completion of an internal
feasibility study by early 2003. Environmental and permitting activities are in
progress for the project. Land acquisition for further exploration activities
and for eventual development of the site continues. Community relations and
assistance programs are in place, focusing on health, educational and employment
issues.
MARIGOLD MILLENNIUM EXPANSION PROJECT
Glamis holds a 66 2/3% interest in the Marigold Mine, with the remaining
33 1/3% interest being held by Barrick Gold Corporation. Glamis is the operator
of the property pursuant to a general partnership agreement.
The Marigold Mine is located in Humboldt County, Nevada, approximately 40
miles southeast of Winnemucca and four miles south of Valmy. The property
consists of approximately 28.9 square miles, including 13 square miles of leased
patented land and 15.9 square miles of unpatented lode mining claims and mill
sites.
Following completion of a major drilling program in 2000 and 2001, Glamis
completed an internal feasibility study for a major expansion of the Marigold
Mine known as the Marigold Millennium Expansion Project. This expansion includes
extension of the current mine area as well as expanding into the southern
portions of the property where the Millennium ore body was discovered. Following
approval of the project by the board of directors, Glamis began the expansion
program by ordering new equipment in 2001. A review of a Supplemental
Environmental Impact Statement (SEIS) is under way to allow the expansion to
disturb new ground in the southern area of the project. Glamis expects approval
of the new plan of operation by the Bureau of Land Management in the third
quarter of 2003.
Exploration and infill drilling at the Marigold Mine property is currently
in progress. Results are being evaluated and used to refine the planned pits in
the expansion area. No material change in reserves is expected based on the
results to date. Glamis had anticipated possible additions to reserves from
infill drilling in Section 30 of the expansion area, however, drill results to
date have not confirmed any additional reserves.
THE CERRO SAN PEDRO PROJECT, MEXICO
The Cerro San Pedro Project is located in San Luis Potosi State, Mexico.
Glamis' Mexican subsidiary has earned a 50% interest in this gold/silver
project, and is the operator of the work program. An exploitation permit has
been received for this project, however, Glamis has decided to defer development
pending discussions with its joint venture partner as to the optimal means of
proceeding to development of the project.
THE CERRO BLANCO PROJECT, GUATEMALA
The Cerro Blanco Project, located in Guatemala, was acquired in 1998
through the acquisition of Mar-West Resources Ltd. Results of this year's
eight-hole drill program on the main Cerro Blanco zone have yielded high-grade
gold mineralization at depth. The potential for a combination surface and
underground operation is in the
22
preliminary stages of evaluation. A Phase 2 drilling program is currently
underway with the goals of expanding the underground mineralization and testing
for continuity. Possible processing synergies with the Marlin Project to the
west are under consideration.
THE IMPERIAL PROJECT, CALIFORNIA
The Imperial Project is located in Imperial County, California. Glamis
continues its efforts to obtain necessary permits to commence development and
construction of the project. A local Native American tribe has opposed the
project. The Bureau of Land Management is currently reviewing the Environmental
Impact Statement for the project, which must be approved and finalized prior to
deciding whether to approve Glamis' plan of operations. Various regulatory and
legal hurdles remain. The Imperial Project is not included in Glamis' current
five-year plan and budget.
SIGNIFICANT ACQUISITION
ACQUISITION OF FRANCISCO GOLD CORP.
Effective July 16, 2002, Glamis completed the acquisition of Francisco by
way of a plan of arrangement. Pursuant to the plan of arrangement, each common
share of Francisco was exchanged for the right to receive 1.55 Common Shares,
one common share of Chesapeake Gold Corp., a new exploration company formed by
Francisco, and a right to receive an additional fraction of a Common Share upon
the cancellation of certain escrowed Common Shares. In addition, Francisco
transferred to Chesapeake cash of Cdn$1.50 per share for each issued share of
Francisco (for an aggregate of Cdn$25.0 million), certain early stage Nicaraguan
exploration assets and a 2% net smelter return royalty on Francisco's Guatemalan
projects outside of the Marlin project area. Glamis retains a right to acquire
887,670 common shares of Chesapeake through a three year share purchase warrant,
which represented approximately 5% of the issued shares of Chesapeake at the
time of closing. Francisco was principally engaged in the exploration for gold
in Mexico and Guatemala.
Glamis issued approximately 25.8 million Common Shares under the terms of
the plan of arrangement and issued 1,674,000 stock options to directors,
officers and employees of Francisco, exercisable at prices between Cdn$3.07 and
Cdn$4.04 per share, in exchange for their existing Francisco stock options.
Glamis' acquisition and transaction costs for the transaction came to
$138,419,000. The acquisition of Francisco has been accounted for using the
purchase method.
SELECTED SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following selected unaudited pro forma consolidated financial
information for Glamis is based on the assumptions described in the respective
notes to the Glamis unaudited pro forma combined statements of operations for
the nine month period ended September 30, 2002 and for the year ended December
31, 2001 included in this short form prospectus as Appendix A. As set forth in
note 2 of the notes to the unaudited pro forma combined financial statements,
the pro forma combined statement of operations for the nine month period ended
September 30, 2002 was prepared based on the assumption, among other things,
that the acquisition of Francisco occurred on January 1, 2002, and the pro forma
combined statement of operations for the year ended December 31, 2001 was
prepared on the assumption, among other things, that the acquisition of
Francisco occurred on January 1, 2001. THE PRO FORMA COMBINED FINANCIAL
STATEMENTS ARE NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS OF GLAMIS
THAT WOULD HAVE BEEN REPORTED, IF THE EVENTS REFLECTED THEREIN HAD BEEN IN
EFFECT ON THE DATES INDICATED, NOR DO SUCH STATEMENTS PURPORT TO PROJECT THE
FUTURE OPERATING RESULTS OF GLAMIS. The selected pro forma combined financial
information given below should be read in conjunction with the unaudited pro
forma combined financial statements of Glamis, the audited and unaudited
financial statements of Francisco included in this short-term prospectus as
Appendix B and the audited and unaudited financial statements of Glamis which
are incorporated in this short-term prospectus by reference.
23
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NINE MONTH
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------- ------------------
(expressed in thousands of U.S. dollars,
except per share amounts)
Revenues...................................... $58,379 $64,262
Cost of production............................ 30,150 40,452
Depreciation and depletion.................... 12,539 12,780
Reclamation................................... 970 1,240
General and administrative.................... 4,441 5,206
Exploration................................... 1,793 1,659
------- -------
Earnings from operations...................... 8,486 4,261
Interest and other income (expense)........... 917 1,088
------- -------
Earnings before income taxes.................. 9,403 5,343
Provision for income taxes.................... 1,970 1,338
------- -------
Net earnings.................................. $ 7,433 $ 4,005
======= =======
Basic earnings per share...................... $ 0.07 $ 0.04
======= =======
AUDITED AND UNAUDITED FINANCIAL STATEMENTS OF FRANCISCO GOLD CORP.
Included in this short form prospectus as Appendix B are the audited
consolidated financial statements of Francisco as at December 31, 2001 and 2000
and for each of the years in the three-year period ended December 31, 2001,
together with the auditors report thereon, and the unaudited consolidated
financial statements of Francisco as at June 30, 2002 and for each of the six
months ended June 30, 2002 and 2001, being the most recently completed interim
period of Francisco that ended before the date of acquisition, and notes
thereto.
DESCRIPTION OF SHARE CAPITAL
The authorized share capital of Glamis currently consists of 205,000,000
shares divided into 200,000,000 Common Shares without par value, of which
111,903,365 Common Shares were issued and outstanding as at October 31, 2002,
and 5,000,000 preferred shares having a par value of Cdn$10, issuable in series,
of which none are issued.
The holders of Common Shares are entitled to receive notice of any meeting
of shareholders of Glamis and to attend and vote on matters brought before the
meeting, except those meetings at which only the holders of shares of another
class or of a particular series are entitled to vote. Each Common Share entitles
its holder to one vote at meetings at which they are entitled to attend and
vote. The holders of Common Shares are entitled to receive on a pro rata basis
such dividends as the Board of Directors of Glamis may declare out of funds
legally available for the payment of dividends. In the event of the dissolution,
liquidation, winding-up or other distribution of the assets of Glamis, holders
of Common Shares are entitled to receive on a pro rata basis all of the assets
of Glamis remaining after payment of all of Glamis' liabilities and subject to
the prior rights attached to the preferred shares of Glamis to receive a return
of capital and unpaid dividends. The Common Shares carry no pre-emptive or
conversion rights.
The directors of Glamis may issue preferred shares from time to time in one
or more series with each series to consist of such number of preferred shares as
may be determined by the directors. Prior to the issuance of a series of
preferred shares, the directors may at their sole discretion determine the
designation, rights, privileges, restrictions and conditions attaching to the
series of preferred shares.
CHANGES IN SHARE CAPITAL
From December 31, 2001 to October 31, 2002, Glamis issued a total of
28,674,153 Common Shares, 25,843,808 in connection with the acquisition of
Francisco and 2,830,345 upon the exercise of director and employee share
purchase options and exercise of share purchase warrants. As at October 31,
2002, Glamis had outstanding share purchase options to purchase up to 3,571,800
Common Shares at prices ranging from Cdn$2.18 to Cdn$10.97. Also outstanding at
October 31, 2002 were warrants to purchase 90,000 Common Shares exercisable at
$2.00 to
24
June 25, 2003, issued in connection with the acquisition of the Cerro San Pedro
Project in May 2000, and an obligation to issue up to an additional 2,247,500
Common Shares (formerly 1,450,000 common shares of Francisco) on the basis of
2.6435 Common Shares (formerly 1.7 common shares of Francisco) for each
additional ounce of proven and probable gold equivalent mineral reserves at the
Marlin Project in excess of specified thresholds and under certain other
conditions. (See Note 3(b) to the audited financial statements of Francisco
attached to this short form prospectus as Appendix B.)
USE OF PROCEEDS
The net proceeds to be received by Glamis from the sale of the Offered
Shares after deducting the Underwriters' commission and costs of this Offering
are estimated to be Cdn$151,650,400.
Glamis will use these net proceeds together with any additional funds
received from the sale of Over-Allotment Shares, (i) to finance all or a portion
of the initial capital costs of the El Sauzal Project development and
construction program currently estimated at $101 million (including $10 million
for contingencies) (see "Recent Developments -- El Sauzal Project, Mexico"),
(ii) to fund further exploration and development of the Marlin Project,
depending upon results of the continuing exploration program (see "Recent
Developments -- Marlin Project, Guatemala") and (iii) for working capital and
other general corporate purposes. Pending the uses described above, Glamis may
invest all or a portion of the net proceeds in short-term interest-bearing
securities and other marketable securities.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Subject to the limitations described herein, the following discussion
describes the material United States federal income tax consequences to a holder
of the Common Shares, referred to for purposes of this discussion as a United
States holder, that is:
- a citizen or resident of the United States;
- a corporation created or organized in the United States or under the
laws of the United States or of any state thereof, including the
District of Columbia;
- an estate, the income of which is includable in gross income for United
States federal income tax purposes regardless of its source; or
- a trust, (i) if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have the authority to control all substantial
decisions of the trust or (ii) if it has elected to be treated as a
United States person under applicable United States Treasury
regulations.
This discussion does not purport to be a comprehensive description of all
of the United States federal income tax considerations that may be relevant to a
United States holder owning Common Shares. This summary considers only United
States holders that will own Common Shares as capital assets.
This discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended, current and proposed Treasury regulations promulgated
thereunder, and administrative and judicial decisions as of the date hereof, all
of which are subject to change, possibly on a retroactive basis. This discussion
does not address all aspects of United States federal income taxation that may
be relevant to any particular United States holder based on such United States
holder's particular circumstances. In particular, this discussion does not
address the potential application of the alternative minimum tax or United
States federal income tax consequences to United States holders that are subject
to special treatment, including:
- taxpayers who are broker-dealers;
- taxpayers who have elected mark-to-market accounting;
- tax-exempt organizations;
- qualified retirement plans, individual retirement accounts and other
tax-deferred accounts;
- financial institutions or "financial service entities";
- taxpayers who hold Common Shares as part of a straddle, "hedge" or
"conversion transaction" with other investments;
25
- dealers in foreign currency;
- holders who received Common Shares as compensation;
- holders of more than 10 percent of the Common Shares;
- insurance companies;
- partnerships or other pass through entities; and
- taxpayers whose functional currency is not the United States dollar.
In addition, this discussion does not address any aspect of state, local or
non-United States tax laws.
Certain material aspects of United States federal income tax relevant to a
holder other than a United States holder, referred to for purposes of this
discussion as a non-United States holder, are also discussed below.
EACH HOLDER OF COMMON SHARES IS ADVISED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
PURCHASING, HOLDING OR DISPOSING OF THE COMMON SHARES.
TAXATION OF COMMON SHARES
TAXATION OF THE DISPOSITION OF COMMON SHARES
Subject to the discussion of the passive foreign investment company rules
below, upon the sale, exchange or other taxable disposition of Common Shares, a
United States holder will recognize capital gain or loss in an amount equal to
the difference between the amount realized on the disposition and such United
States holder's adjusted tax basis in the Common Shares, which is usually the
cost of such shares (subject to certain adjustments). Capital gain from the
sale, exchange or other disposition of Common Shares held more than one year
will be as long-term capital gain which, in the case of non-corporate holders,
generally is subject to lower tax rates than ordinary income. Gains recognized
by a United States holder on a sale, exchange or other disposition of Common
Shares generally will be treated as United States source income for United
States foreign tax credit purposes. A loss recognized by a United States holder
on the sale, exchange or other disposition of Common Shares is allocated to
United States source income. The deductibility of a capital loss recognized on
the sale, exchange or other disposition of Common Shares is subject to
significant limitations.
If a United States holder sells Common Shares and receives Canadian
dollars, changes in the value of the United States dollar and the Canadian
dollar between the date of sale and the date of settlement can create United
States federal income tax consequences to the United States holder. A United
States holder that receives foreign currency, including Canadian dollars, upon
disposition of Common Shares and converts the foreign currency into United
States dollars subsequent to receipt will generally have foreign exchange gain
or loss based on any appreciation or depreciation in the value of the foreign
currency against the United States dollar, which will generally be United States
source ordinary income or loss.
TAXATION OF DIVIDENDS PAID ON COMMON SHARES
Subject to the discussion of the passive foreign investment company rules
below, in the event Glamis makes a distribution with respect to Common Shares, a
United States holder will be required to include in gross income as ordinary
income the amount of any distribution paid on Common Shares, including any
Canadian taxes withheld from the amount paid, on the date the distribution is
received to the extent the distribution is paid out of Glamis' current or
accumulated earnings and profits as determined for United States federal income
tax purposes. Distributions in excess of such earnings and profits will be
applied against and will reduce the United States holder's income tax basis in
the Common Shares and, to the extent in excess of such basis, will be treated as
gain from the sale or exchange of Common Shares. Distributions of current or
accumulated earnings and profits will be foreign source passive income for
United States foreign tax credit purposes and will not qualify for the dividends
received deduction available to corporations.
Distributions of current or accumulated earnings and profits paid in
Canadian dollars to a United States holder will be includable in the income of a
United States holder in a United States dollar amount calculated by reference to
the exchange rate on the date the distribution is received. A United States
holder that receives a Canadian dollars distribution and converts the Canadian
dollars into United States dollars subsequent to receipt will generally have
foreign exchange gain or loss based on any appreciation or depreciation in the
value of the Canadian dollars against the United States dollar, which will
generally be United States source ordinary income or loss.
26
United States holders generally will have the option of claiming the amount
of any Canadian income taxes withheld on a dividend distribution either as a
dollar-for-dollar credit against their United States federal income tax
liability or as a deduction from gross income. The amount of foreign income
taxes which may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by
each United States holder. These limitations include, among others, rules which
limit foreign tax credits allowable, with respect to specific classes of income,
to the United States federal income taxes otherwise payable with respect to each
such class of income. The total amount of allowable foreign tax credits in any
year cannot exceed the United States holder's regular United States tax
liability for the year attributable to foreign source taxable income. A United
States holder will be denied a foreign tax credit with respect to Canadian
income tax withheld from dividends received on the Common Shares to the extent
such United States holder has not held the Common Shares for at least 16 days of
the 30-day period beginning on the date which is 15 days before the ex-dividend
date or to the extent such United States holder is under an obligation to make
related payments with respect to positions in substantially similar or related
property. Any days during which a United States holder has diminished such
United States holder's risk of loss on the Common Shares are not counted toward
meeting the 16 day holding period required by the statute. An individual who
does not claim itemized deductions, but instead utilizes the standard deduction,
may not claim a deduction for the amount of the Canadian income taxes withheld.
BECAUSE THE TAX RULES THAT APPLY TO THE AVAILABILITY OR USE OF FOREIGN TAX
CREDITS AND DEDUCTIONS FOR FOREIGN TAXES ARE COMPLEX, UNITED STATES HOLDERS
SHOULD CONSULT WITH, AND RELY SOLELY UPON, THEIR PERSONAL TAX ADVISERS WITH
RESPECT TO SUCH MATTERS.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
Glamis believes that it is not a passive foreign investment company (a
"PFIC") and does not believe it will become a PFIC in the foreseeable future for
United States federal income tax purposes. However, Glamis cannot assure you
that it will not become a PFIC because this conclusion is a factual
determination made annually and thus is subject to change, and the principles
and methodology used in determining whether a company is a PFIC are not
completely clear.
In general, Glamis will be a PFIC with respect to a United States holder
if, for any taxable year in which the United States holder held Common Shares,
either:
- at least 75% of the gross income of Glamis for the taxable year is
passive income; or
- at least 50% of the value, determined on the basis of a quarterly
average, of the assets of Glamis is attributable to assets that produce
or are held for the production of passive income.
For purposes of the two PFIC tests above, passive income generally includes
dividends, interest, royalties, rents, other than rents and royalties derived in
the active conduct of a trade or business and not derived from a related person,
annuities, gains from certain commodities transactions and gains from assets
that produce passive income. There are a number of complex rules which apply in
determining the percentage of a foreign corporation's income that constitutes
passive income and it is possible that a foreign corporation can become a PFIC
even though it is conducting an active business. For example, passive income
includes the excess of gains over losses from certain commodities transactions,
including transactions involving gold and other precious metals. However, gains
and losses from commodities transactions generally are excluded from the
definition of passive income if (1) such gains or losses are derived by a
foreign corporation in the active conduct of a commodity business, and (2)
"substantially all" of such corporation's business is as an active producer,
processor, merchant, or handler of commodities of like kind.
If Glamis owns, directly or indirectly, at least 25% by value of the stock
of another corporation, Glamis generally will be treated for purposes of the two
PFIC tests above as owning its proportionate share of the assets of the other
corporation, and as receiving directly its proportionate share of the other
corporation's income.
If Glamis were treated as a PFIC in any taxable year and a United States
holder held Common Shares, such shareholder generally would be subject to
special rules with respect to "excess distributions" made by Glamis on the
Common Shares and with respect to gain from the disposition of Common Shares. In
addition, if Glamis is classified as a PFIC for any year in which a United
States holder held Common Shares, Glamis generally will continue to be treated
as a PFIC with respect to such United States holder in all succeeding years,
regardless of whether it continues to meet the PFIC income or asset test
described above.
27
In particular, if Glamis is treated as a PFIC, unless a United States
holder elects to have Glamis treated as a "qualified electing fund" under
applicable United States tax laws, or makes a "mark to market election," each of
which are described below, the following United States federal income tax
consequences will result:
1. Distributions with respect to Common Shares made by Glamis during a
taxable year to a United States holder that are "excess
distributions," defined generally as the excess of the amount
received with respect to the Common Shares in any taxable year over
125% of the average annual amount received in the shorter of either
the three previous years or the portion of the United States holder's
holding period before the taxable year, must be allocated ratably to
each day of the United States holder's holding period. The amounts
allocated to the current taxable year and to taxable years prior to
the first year in which Glamis was classified as a PFIC are included
as ordinary income in the United States holder's gross income for the
current taxable year. The amount allocated to each other prior
taxable year is taxed as ordinary income at the highest rate in
effect for the United States holder in that prior year and the tax is
subject to an interest charge at the rate applicable to deficiencies
in income taxes.
2. The entire amount of any gain realized upon the sale or other
disposition, including for these purposes a pledge, of Common Shares
will be treated as an excess distribution made in the year of sale or
other disposition and, as a consequence, will be treated as ordinary
income to the extent allocated to the current taxable year and to
taxable years prior to the first year in which Glamis was classified
as a PFIC and, to the extent allocated to other years prior to the
year of sale or disposition, will be subject to the highest ordinary
income tax rates in effect for the United States holder for such year
and the interest charge described above.
3. The adjusted tax basis in Common Shares acquired from a decedent who
was a United States holder generally will be equal to the lower of
the fair market value of such Common Shares or the decedent's
adjusted tax basis in such shares. A United States holder cannot
avoid this result by making the mark to market election described
below.
The special PFIC tax rules described above will not apply to a United
States holder if:
(1) the United States holder timely elects to have Glamis treated as a
"qualified electing fund" for all taxable years during which the
United States holder owns Common Shares and Glamis was a PFIC; and
(2) Glamis provides specific information to United States holders.
If Glamis is treated as a PFIC, it intends to notify United States holders
and to provide United States holders with such information as may be required to
make such qualified electing fund election. A United States holder that makes a
qualified electing fund election will be taxable currently on its pro rata share
of Glamis' ordinary earnings and net capital gain, at ordinary income and
capital gain rates, respectively, for each taxable year of Glamis during which
Glamis is treated as a PFIC regardless of whether or not distributions were
received. The United States holder's basis in the Common Shares will be
increased to reflect taxed but undistributed income. Distributions of income
that have previously been taxed will result in a corresponding reduction of
basis in the Common Shares and will not be taxed again as a distribution to the
United States holder.
Alternatively, a United States holder of stock in a PFIC that is treated as
"marketable stock" may make a mark to market election. A United States holder
that makes such election will not be subject to the "excess distribution" PFIC
rules described above. Instead, in general, an electing United States holder
will include in gross income each year as ordinary income the excess, if any, of
the fair market value of such stock at the end of the taxable year over its
adjusted tax basis. In addition, such United States holder will be permitted an
ordinary loss in respect of the excess, if any, of the adjusted tax basis of
such stock over its fair market value at the end of the taxable year, but only
to the extent of the net amount previously included in income as a result of the
mark to market election. The electing United States holders' basis in the stock
will be adjusted to reflect any such income or loss amounts. Any gain or loss on
the sale of the Common Shares will be ordinary income or loss, except that such
loss will be ordinary loss only to the extent of the previously included net
mark to market gain.
The mark to market election is only available with respect to stock that is
regularly traded on certain United States exchanges and other exchanges
designated by the United States Treasury. Glamis believes its Common Shares
would be treated as "regularly traded" since it is currently listed for trading
on the New York Stock Exchange. If in the future the Common Shares are not
listed for trading on the New York Stock Exchange but are
28
listed for trading on another stock exchange or the Nasdaq Stock Market at the
time such election is considered, United States holders are advised to consult
with their tax advisor to determine whether such United States holder's Common
Shares will be treated as "regularly traded."
A United States holder who owns Common Shares during any year that Glamis
is a PFIC must file Internal Revenue Service ("IRS") Form 8621. UNITED STATES
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF HOLDING COMMON SHARES IF GLAMIS IS A PFIC, INCLUDING
THE ADVISABILITY AND AVAILABILITY OF MAKING ANY OF THE FOREGOING ELECTIONS.
TAX CONSEQUENCES FOR NON-UNITED STATES HOLDERS OF COMMON SHARES
Except as described in "Information Reporting and Back-Up Withholding"
below, a non-United States holder of Common Shares will not be subject to United
States federal income or withholding tax on the payment of dividends on, or
proceeds from the disposition of, Common Shares, unless:
- such item is effectively connected with the conduct by the non-United
States holder of a trade or business in the United States and, in the
case of a resident of a country which has a treaty with the United
States, such item is attributable to a permanent establishment or, in
the case of an individual, a fixed place of business maintained by the
non-United States holder, in the United States;
- in the case of a disposition of Common Shares, the non-United States
holder is an individual who holds the Common Shares as a capital asset
and is present in the United States for 183 days or more in the taxable
year of the disposition and certain other conditions are met; or
- the non-United States holder is subject to tax pursuant to the
provisions of United States tax law applicable to United States
expatriates.
SUCH NON-UNITED STATES HOLDERS SHOULD CONTACT THEIR OWN TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING AND
DISPOSING OF COMMON SHARES.
INFORMATION REPORTING AND BACK-UP WITHHOLDING
Noncorporate United States holders generally are subject to information
reporting requirements and back-up withholding at a rate of 30% (subject to
reduction in future periods) with respect to proceeds paid from the disposition
of Common Shares and dividends paid in the United States on Common Shares.
Back-up withholding will not apply if a United States holder provides an IRS
Form W-9 or otherwise establishes an exemption from such withholding.
Non-United States holders generally are not subject to information
reporting or back-up withholding with respect to dividends paid on, or the
proceeds from the disposition of, Common Shares, provided that such non-United
States holder certifies under penalties of perjury as to its foreign status on
an IRS Form W-8 BEN (or an acceptable substitute), or otherwise establishes an
exemption from such requirements.
The amount of any back-up withholding generally will be allowed as a credit
against a United States holder's or non-United States holder's United States
federal income tax liability and may entitle such holder to a refund, provided
that certain required information is furnished to the IRS.
29
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the material Canadian federal income tax
consequences of acquiring Common Shares, that are generally applicable to a
"United States holder" who acquires Common Shares. For the purpose of this
summary, a "United States holder" is a person or entity who, at all material
times,
(a) for the purposes of the Income Tax Act (Canada) (the "Tax Act"), is
not resident in Canada, deals at arm's length with Glamis, holds all
Common Shares as capital property, and does not use or hold any such
shares in the course of carrying on, or otherwise in connection with,
a business in Canada, and
(b) for the purposes of the Canada-United States Income Tax Convention,
1980 (the "Treaty"), is a resident solely of the United States, has
never been a resident of Canada, and has not held or used Common
Shares in connection with a permanent establishment or fixed base in
Canada.
This summary further assumes that, at all material times,
(a) Glamis will be a "taxable Canadian corporation" and a "public
corporation" as defined for the purposes of the Tax Act, and
(b) the Common Shares will be listed on one or more Canadian or foreign
stock exchanges that are prescribed for the purposes of the Tax Act.
This summary does not apply to a United States holder who is a trader or
dealer in securities, limited liability company, tax-exempt entity, insurer,
financial institution, or any other United States holder to whom special
considerations may apply, nor to any person or entity who is not a United States
holder as defined herein.
This summary is based on the current provisions of the Tax Act (including
all regulations thereunder) and the Treaty, all proposed amendments to the Tax
Act and the Treaty publicly announced by the Government of Canada to the date
hereof, and the current published administrative practices of the Canada Customs
and Revenue Agency. It has been assumed that all currently proposed amendments
will be enacted substantially as currently proposed and that there will be no
other relevant change to any applicable law or administrative practice, although
no assurances can be given in these respects. This summary does not take into
account any provincial, United States, state, local, or other foreign income tax
law or practice.
The tax consequences applicable to any particular United States holder will
vary according to the status of the United States holder as an individual,
trust, corporation, partnership or other entity, the jurisdiction(s) in which
that holder is subject to taxation, and the holder's particular circumstances.
ACCORDINGLY, THIS SUMMARY IS NOT, AND IS NOT TO BE CONSTRUED AS, CANADIAN TAX
ADVICE TO ANY PARTICULAR UNITED STATES HOLDER, AND EACH UNITED STATES HOLDER IS
URGED TO CONSULT THE HOLDER'S OWN TAX ADVISERS WITH RESPECT TO THE CANADIAN
INCOME TAX CONSEQUENCE APPLICABLE TO SUCH HOLDER'S PARTICULAR CIRCUMSTANCES.
DIVIDENDS
Dividends paid or deemed to be paid on a Common Share to a United States
holder will be subject to Canadian withholding tax. Under the Treaty, the rate
of withholding tax on dividends paid to a United States holder is generally
limited to 15% of the gross amount of the dividend, and is reduced to 5% if the
United States holder is a corporation that beneficially owns at least 10% of
Glamis's voting shares. Glamis will be required to withhold the amount of
withholding tax from any such dividend payable to the United States holder, and
to remit the amount so withheld to the Canadian government for the United States
holder's account.
DISPOSITION
A United States holder who disposes of a Common Share in the open market
will not be subject to tax under the Tax Act in respect of any capital gain
thereby realized unless
(a) the share constitutes "taxable Canadian property" of the holder, and
(b) the holder is not entitled to relief from such tax under the Treaty.
A Common Share will not constitute taxable Canadian property of the United
States holder unless, at any time during the 60 months preceding the
disposition, the United States holder or persons with whom the United States
holder did not deal at arm's length alone or together owned, or had rights to
acquire, 25% or more of the shares of any class or series of shares in the
capital of Glamis.
30
A United States holder whose Common Shares do constitute taxable Canadian
property, and who might therefore be liable for Canadian tax under the Tax Act
in respect of any gain realized on disposition thereof in the open market, will
generally be relieved by the Treaty from such liability unless the value of
those shares at the time of disposition is derived principally from real
property situated in Canada. Management of Glamis believes that the value of the
Common Shares is not currently derived principally from real property situated
in Canada.
31
PLAN OF DISTRIBUTION
Under an underwriting agreement dated as of November 13, 2002 (the
"Underwriting Agreement") among Glamis, BMO Nesbitt Burns Inc., National Bank
Financial Inc., Yorkton Securities Inc., CIBC World Markets Inc., Merrill Lynch
Canada Inc., Research Capital Corporation and Sprott Securities Inc. (together,
the "Underwriters"), Glamis has agreed to issue and sell and the Underwriters
have agreed to purchase, subject to compliance with all necessary legal
requirements and the terms and conditions of the Underwriting Agreement, on
November 26, 2002 or such later date as Glamis and the Underwriters may agree,
but in any event not later than December 10, 2002 (the "Closing Date"), the
Purchased Shares at a price of Cdn$13.15 each, payable in cash to Glamis against
delivery of share certificates for the Purchased Shares. In addition, Glamis has
granted to the Underwriters the Offering Option, which was exercised on November
19, 2002, to purchase all or part of the Additional Shares at the Offering
Price.
Under the Underwriting Agreement, Glamis has also granted the Underwriters
the Over-Allotment Option exercisable no later than 30 days after the Closing
Date, to purchase the Over-Allotment Shares at the Offering Price and on the
same terms and conditions as apply to the purchase of the Offered Shares. The
Underwriters may exercise the Over-Allotment Option only to the extent required
to cover over-allotments made in connection with the sale of Offered Shares
under this short form prospectus.
The Underwriting Agreement provides for payment by Glamis of an aggregate
commission to the Underwriters in respect of the sale of the Offered Shares in
the amount of Cdn$6,364,600 or Cdn$0.526 per share, which will be paid out of
the general funds of Glamis. The aggregate commission payable to the
Underwriters will be Cdn$7,319,290 in the case of the full exercise of the
Over-Allotment Option. The Offering Price and the Underwriters' commission was
determined by negotiation between Glamis and the Underwriters.
The obligations of the Underwriters under the Underwriting Agreement may be
terminated at their discretion on the occurrence of certain stated events,
including the occurrence of a material change in the state of the financial
markets. The Underwriters are, however, obligated to take up and pay for all of
the Purchased Shares if any of them are purchased under the Underwriting
Agreement. The Underwriting Agreement also provides that Glamis will indemnify
the Underwriters and their directors, officers, employees and agents against
certain liabilities and expenses or will contribute to payments that the
Underwriters may be required to make in respect thereof.
The Offering is being made concurrently in all provinces of Canada, and in
the United States through the Underwriters' U.S. broker-dealer affiliates
pursuant to the multijurisdictional disclosure system implemented by securities
regulatory authorities in Canada and the United States. Subject to applicable
law, the Underwriters may offer the Offered Shares outside Canada and the United
States.
Pursuant to policies of certain Canadian securities regulatory authorities,
the Underwriters may not, throughout the period of distribution under this
Offering, bid for or purchase Common Shares. The foregoing restriction is
subject to certain exceptions, provided that the bid or purchase is not engaged
in for the purpose of creating actual or apparent active trading in or raising
the price of the Common Shares. These exceptions include a bid or purchase
permitted under the by-laws and rules of certain prescribed stock exchanges
relating to market stabilization and passive market making activities and a bid
or purchase made for and on behalf of a customer where the order was not
solicited during the period of distribution.
Subject to the foregoing, and in connection with this Offering, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Shares in compliance with Regulation M under the
United States Securities Exchange Act of 1934, as amended ("Exchange Act") and
applicable Canadian securities laws and policies. These transactions may include
short sales, syndicate covering transactions and stabilizing transactions. Short
sales involve syndicate sales of Common Shares in excess of the number of shares
to be purchased by the Underwriters in this Offering, which creates a syndicate
short position. "Covered" short sales are sales of Common Shares made in an
amount up to the number of shares represented by the Over-Allotment Option. In
determining the source of Common Shares to close out the covered syndicate short
position, the Underwriters will consider, among other things, the price of
Common Shares available for purchase in the open market as compared to the price
at which they may purchase the Over-Allotment Shares through the Over-Allotment
Option. Transactions to close out the covered syndicate short position involve
either purchases of the Common Shares in the open market after the distribution
has been completed or the exercise of the Over-Allotment Option. The
Underwriters must close out any naked short position by purchasing Common Shares
in the open
32
market. A naked short position is more likely to be created if the Underwriters
are concerned that there may be downward pressure on the price of the Common
Shares in the open market after pricing that could adversely affect investors
who purchase in this Offering. Stabilizing transactions consist of bids for or
purchases of Common Shares in the open market while this Offering is in progress
for the purpose of preventing or retarding a decline in the market price of the
Common Shares while this Offering is in progress. The Underwriters also may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in this Offering are reclaimed if
Common Shares previously distributed under this Offering are repurchased in
connection with stabilization transactions or otherwise. These activities by the
Underwriters may stabilize, maintain or otherwise affect the market price of the
Common Shares. As a result, the price of the Common Shares may be higher than
the price that might otherwise exist in the open market. If these activities are
commenced, they may be discontinued by the Underwriters at any time. These
transactions may be effected on the New York Stock Exchange, the Toronto Stock
Exchange or otherwise.
Glamis expects that delivery of the Common Shares will be made against
payment therefor on or about the closing date specified on the cover page of
this prospectus, which is the fourth business day following the date hereof
(this settlement cycle being referred to as "T+4"). Under Rule 15c6-1 of the SEC
under the Exchange Act, trades in the secondary market generally are required to
settle in three business days, unless the parties to that trade expressly agree
otherwise. Accordingly, purchasers who wish to trade Common Shares on the date
hereof will be required, by virtue of the fact that the Common Shares will
settle in T+4, to specify an alternative settlement cycle at the time of any
such trade to prevent a failed settlement and should consult their own advisor.
Purchasers will not be able to trade Common Shares on the Toronto Stock Exchange
or on the New York Stock Exchange until delivery of the Common Shares is made
and should therefore consult their own advisor regarding secondary trading
during the period prior to closing of this Offering.
Glamis has agreed in the Underwriting Agreement that, until 90 days after
the Closing Date, it will not, without the prior consent of the Underwriters,
issue or announce the issuance of any Common Shares or any securities
convertible into or exchangeable for or exercisable to acquire Common Shares,
except Common Shares required to be issued pursuant to share purchase options or
warrants now outstanding or pursuant to share purchase options granted after the
date of this short form prospectus issued in the ordinary course under Glamis'
Incentive Share Purchase Option Plan or any issuance of Common Shares or
securities convertible into Common Shares in connection with the acquisition of
any remaining interests in current mining properties of Glamis.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the Common Shares of Glamis is
Computershare Trust Company of Canada at its principal office in Vancouver,
British Columbia.
LEGAL MATTERS
In connection with this Offering certain Canadian legal matters will be
passed upon by Lang Michener and certain United States legal matters will be
passed upon by Neal, Gerber & Eisenberg on behalf of Glamis, and by Stikeman
Elliott and Dorsey & Whitney LLP as Canadian and United States counsel to the
Underwriters, respectively. As at the date hereof, the partners and associates
of Lang Michener as a group, the partners and associates of Neal, Gerber &
Eisenberg as a group, the partners and associates of Stikeman Elliott as a
group, and the partners and associates of Dorsey & Whitney LLP as a group, each
beneficially own, directly or indirectly, less than one percent of the
outstanding Common Shares.
AVAILABLE INFORMATION
Glamis files reports and other information with Canadian Provincial
securities commissions. These reports and information are available to the
public free of charge on the System for Electronic Document Analysis and
Retrieval (SEDAR) at www.sedar.com.
Glamis is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports and other information with the SEC.
Under a multi-jurisdictional disclosure system adopted by United States and
Canadian securities regulators, such reports and other information may be
prepared in accordance with the disclosure requirements of Canada, which
requirements are different from those of the United States. Glamis is exempt
from the rules under the Exchange Act prescribing the furnishing and content of
proxy statements, and its officers, directors and principal shareholders are
exempt from the reporting and short-swing profit
33
recovery provisions contained in Section 16 of the Exchange Act. Under the
Exchange Act, Glamis is not required to publish financial statements as
frequently or as promptly as United States corporations. Reports and other
information filed by Glamis may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Prospective investors may
call the SEC at 1-800-SEC-0330 for further information regarding the public
reference facilities or visit the SEC's website at www.sec.gov. Such reports and
other information concerning Glamis may also be inspected at the offices of The
New York Stock Exchange, 20 Broad Street, New York, N.Y. 10005.
The registration statement filed with the SEC concerning the offering
including exhibits, and Glamis' reports and other information filed under the
Exchange Act are available to the public free of charge at the SEC's website at
www.sec.gov.
EXPERTS
The audited consolidated financial statements of Glamis as at December 31,
2001 and 2000 and for each of the years in the three-year period ended December
31, 2001, incorporated by reference in this short form prospectus and included
in the registration statement on Form F-10 of which this short form prospectus
forms a part, have been so incorporated and included in reliance on the report
of KPMG LLP, independent chartered accountants, and the authority of such firm
as experts in auditing and accounting.
The audited consolidated financial statements of Francisco as at December
31, 2001 and 2000 and for each of the years in the three-year period ended
December 31, 2001, included in this short form prospectus and included in the
registration statement on Form F-10 of which this short form prospectus forms a
part, have been so included in reliance on the report of Moen and Company,
independent chartered accountants, and the authority of such firm as experts in
auditing and accounting.
The mineral reserve estimates of Glamis as at December 31, 2001 included
herein and included in Glamis' Annual Information Form for the year ended
December 31, 2001, which is incorporated herein by reference, have been so
incorporated and included in this short form prospectus and included in the
registration statement on Form F-10 of which this short form prospectus forms a
part, in reliance on the report of Mine Reserves Associates, Inc. given on their
authority as experts in mining, engineering and geology.
The mineral reserve and mineral resource estimates of Glamis and
information of an economic, scientific or technical nature for the El Sauzal,
Marlin, Marigold Millennium Expansion and Cerro San Pedro Projects and for the
San Martin, Marigold and Rand Mines that are included herein and included in
Glamis' Annual Information Form for the year ended December 31, 2001, which is
incorporated by reference have been so included in this short form prospectus
and included in the registration statement on Form F-10 of which this short form
prospectus forms a part, in reliance on reports prepared under the direct
supervision of Mr. James S. Voorhees, P.Eng., Vice-President Operations and
Chief Operating Officer of Glamis, given on his authority as an expert in
mining, engineering and geology. Mr. Voorhees is a "qualified person" within the
meaning of National Instrument 43-101 of the Canadian Securities Administrators.
ENFORCEABILITY OF CIVIL LIABILITIES
Glamis is a British Columbia, Canada corporation with its executive office
in Reno, Nevada. Some of Glamis' directors and certain experts named in this
short form prospectus are residents of Canada and a portion of the assets of
Glamis and of such persons are located outside of the United States.
Consequently, it may be difficult for security holders to effect service of
process within the United States upon certain of the Glamis directors or to
realize in the United States upon judgments against such persons granted by
courts of the United States predicated upon the civil liabilities under the U.S.
Securities Act. Investors should not assume that Canadian courts would enforce
judgments of United States courts obtained in actions against such persons
predicated upon the civil liability provisions of the United States federal
securities laws or the securities or "blue sky" laws of any state within the
United States or would enforce, in original actions, liabilities against Glamis
or such persons predicated upon the United States federal securities laws or any
such state securities or blue sky laws.
34
APPENDIX A
PRO FORMA COMBINED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
GLAMIS GOLD LTD.
SEPTEMBER 30, 2002
(UNAUDITED)
A-1
REFER TO NOTE 1 OF THE PRO FORMA
COMBINED FINANCIAL STATEMENTS FOR A
DESCRIPTION OF THE TRANSACTION, THE
ENTITIES INVOLVED AND WHAT THIS
PRO FORMA PRESENTATION SHOWS.
GLAMIS GOLD LTD.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
GLAMIS GOLD LTD. FRANCISCO GOLD CORP. GLAMIS GOLD LTD.
NINE MONTH PERIOD SIX MONTH PERIOD NINE MONTH PERIOD
ENDED SEPTEMBER 30, ENDED JUNE 30, PRO FORMA ENDED SEPTEMBER 30,
2002 2002 ADJUSTMENTS 2002
------------------- -------------------- ----------- -------------------
(note 1) (note 2)
Revenues....................... $58,379 $ -- $ -- $58,379
Cost of production............. 30,150 -- -- 30,150
------- ------- -------- -------
28,229 -- -- 28,229
Expenses:
Depreciation and depletion... 12,508 31 -- 12,539
Reclamation.................. 970 -- -- 970
General and administrative... 3,284 1,157 -- 4,441
Exploration.................. 1,793 -- -- 1,793
------- ------- -------- -------
18,555 1,188 -- 19,743
------- ------- -------- -------
Earnings (loss) from
operations................... 9,674 (1,188) -- 8,486
Interest and other income
(expense).................... 917 824 (824)(d) 917
------- ------- -------- -------
Earnings (loss) before income
taxes........................ 10,591 (364) (824) 9,403
Provision for income taxes..... 1,559 411 -- 1,970
------- ------- -------- -------
Net earnings (loss)............ $ 9,032 $ (775) $ (824) $ 7,433
======= ======= ======== =======
Basic earnings per share (note
3)........................... $ 0.10 $ 0.07
======= =======
See accompanying notes to pro forma combined financial statements.
A-2
GLAMIS GOLD LTD.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
GLAMIS GOLD LTD. FRANCISCO GOLD CORP. GLAMIS GOLD LTD.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
2001 2001 ADJUSTMENTS 2001
---------------- -------------------- ----------- ----------------
(note 1) (note 2)
Revenues........................... $64,262 $ -- $ -- $64,262
Cost of production................. 40,452 -- -- 40,452
------- ----- -------- -------
23,810 -- -- 23,810
Expenses:
Depreciation and depletion....... 12,703 77 -- 12,780
Reclamation...................... 1,240 -- -- 1,240
General and administrative....... 4,440 766 -- 5,206
Exploration...................... 1,659 -- -- 1,659
Recovery of investments and
properties.................... (1,336) -- -- (1,336)
------- ----- -------- -------
18,706 843 -- 19,549
------- ----- -------- -------
Earnings (loss) from operations.... 5,104 (843) -- 4,261
Interest and other income
(expense)........................ 1,088 969 (969)(d) 1,088
Interest and amortization of
financing costs.................. (6) -- -- (6)
------- ----- -------- -------
Earnings before income taxes....... 6,186 126 (969) 5,343
Provision for income taxes......... 1,338 -- -- 1,338
------- ----- -------- -------
Net earnings....................... $ 4,848 $ 126 $ (969) $ 4,005
======= ===== ======== =======
Basic earnings per share (note
3)............................... $ 0.07 $ 0.04
======= =======
See accompanying notes to pro forma combined financial statements.
A-3
GLAMIS GOLD LTD.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(TABLES EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
SEPTEMBER 30, 2002
1. PLAN OF ARRANGEMENT AND BASIS OF PRESENTATION:
The accompanying pro forma combined financial statements have been compiled
for purposes of inclusion in a registration statement on Form F-10 being
filed by Glamis Gold Ltd. ("Glamis"). The pro forma combined financial
statements give effect to the plan of arrangement between Glamis and
Francisco Gold Corp. ("Francisco") which resulted in Francisco becoming a
wholly owned subsidiary of Glamis effective July 16, 2002. Under the terms of
the arrangement agreement, Francisco created a new wholly owned subsidiary
company named Chesapeake Gold Ltd. ("Chesapeake"), and transferred cash from
Francisco's treasury in the amount of Cdn$1.50 per issued and outstanding
common share of Francisco (approximately Cdn$25 million) and all of
Francisco's rights, titles and interests in and to specified exploration
properties and assets located in Nicaragua to Chesapeake. The plan of
arrangement provided that Francisco shareholders exchange each of their
Francisco shares held for 1.55 common shares of Glamis and one common share
of Chesapeake. Glamis and Francisco also exchanged outstanding Francisco
share purchase options and other rights to Francisco shares under existing
agreements into Glamis and Chesapeake share purchase options and rights.
For accounting purposes, the transaction has been accounted for as an
acquisition of Francisco by Glamis using the purchase method.
These pro forma combined financial statements include:
(a) a pro forma combined statement of operations for the nine month period
ended September 30, 2002 prepared from the unaudited interim
consolidated statements of operations of Glamis for the nine month
period ended September 30, 2002 and Francisco for the six-month period
ended June 30, 2002; and
(b) a pro forma combined statement of operations for the year ended
December 31, 2001 prepared from the consolidated statement of
operations of each of Glamis and Francisco for the year ended December
31, 2001.
These pro forma combined financial statements are not necessarily indicative
of the future operating results of Glamis as a result of the transaction.
The pro forma combined financial statements should be read in conjunction
with the consolidated financial statements of Glamis and Francisco for each
of the periods ended June 30, 2002 and December 31, 2001. The consolidated
financial statements of Francisco used in these pro forma consolidated
financial statements have been translated into United States dollars at the
exchange rates in effect at June 30, 2002, during the six months ended June
30, 2002 and during the year ended December 31, 2001.
2. PRO FORMA ASSUMPTIONS:
The pro forma combined financial statements have been prepared based on the
consolidated financial statements of Glamis for the nine month period ended
September 30, 2002 and the year ended December 31, 2001 and of Francisco for
the six month period ended June 30, 2002 and the year ended December 31,
2001. The pro forma combined statement of operations for the nine month
period ended September 30, 2002 gives effect to the following transactions
and assumptions as if the plan of arrangement was effective on January 1,
2002:
(a) The transfer of approximately Cdn$25 million ($16,804,000) cash and all
of Francisco's rights, titles and interest in and to specified
exploration properties located in Nicaragua and certain other assets at
their book value, to Chesapeake and the subsequent distribution of
shares of Chesapeake to the shareholders of Francisco;
(b) The issuance of 25,843,808 common shares of Glamis to the shareholders
of Francisco at a price of Cdn$7.40 ($4.93) per common share, being the
quoted market price of common shares of Glamis at the time of
announcement of the plan of arrangement, plus estimated transaction
costs and obligations assumed, including the future income tax effect;
(c) The issuance of Glamis share purchase options and other rights to
Francisco option and right holders, on conversion of Francisco share
purchase options and rights, at their estimated fair value of
$5,870,000; and
(d) The reduction of investment income related to interest on the Cdn$25
million cash transferred from Francisco to Chesapeake.
The pro forma combined statement of operations for the year ended December
31, 2001 gives effect to assumption (d) above as if the transactions
described in (a) through (c) above had occurred on January 1, 2001.
3. EARNINGS PER SHARE:
The calculation of pro forma earnings per share in the pro forma combined
statement of operations for the nine month period ended September 30, 2002
and for the year ended December 31, 2001 is based on the weighted average
number of common shares of Glamis that would have been outstanding for the
nine month period ended September 30, 2002 and for the year ended December
31, 2001 had the transactions described in note 2 occurred on January 1, 2002
or January 1, 2001, respectively.
A-4
GLAMIS GOLD LTD.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(TABLES EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
SEPTEMBER 30, 2002
4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:
The unaudited pro forma combined financial statements are prepared in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP"). Significant differences to accounting principles generally accepted
in the United States ("US GAAP") are set forth below:
Pro forma Combined Statement of Operations:
PRO FORMA
GLAMIS GOLD LTD. FRANCISCO GOLD CORP. GLAMIS GOLD LTD.
NINE MONTH PERIOD SIX MONTH PERIOD NINE MONTH PERIOD
ENDED SEPTEMBER 30, ENDED JUNE 30, PRO FORMA ENDED SEPTEMBER 30,
2002 2002 ADJUSTMENTS 2002
------------------- -------------------- ----------- -------------------
Net earnings (loss)
Canadian GAAP....................... $ 9,032 $ (775) $ (824) $ 7,433
Adjustments:
Income taxes (a).................. (800) -- -- (800)
Exploration costs (b)............. -- (1,210) -- (1,210)
-------- -------- -------- --------
US GAAP............................. $ 8,232 $ (1,985) $ (824) $ 5,423
======== ======== ======== ========
Basic and diluted earnings per
share............................... $ 0.09 $ 0.05
======== ========
Pro forma Combined Statement of Operations:
YEAR ENDED DECEMBER 31, 2001
------------------------------------------------
PRO FORMA
GLAMIS FRANCISCO ADJUSTMENTS COMBINED
-------- --------- ----------- --------
Net earnings (loss)
Canadian GAAP............................................. $ 4,848 $ 126 $ (969) $ 4,005
Adjustments:
Income taxes (a)........................................ (744) -- -- (744)
Exploration costs (b) -- (2,345) -- (2,345)
-------- -------- -------- --------
US GAAP................................................... $ 4,104 $ (2,219) $ (969) $ 916
======== ======== ======== ========
Basic and diluted earnings per share........................ $ 0.06 $ 0.01
======== ========
---------------
(a) Income taxes:
At September 30, 2002 and for the nine-month periods ended September 30,
2002 and 2001, and at December 31, 2001 and for the year then ended,
accounting for income taxes under Canadian GAAP and United States GAAP is
substantially the same. However, under Canadian GAAP, the Company adopted
the Canadian standard for income taxes in 2000 without restating prior
years, which resulted in a charge to opening retained earnings (deficit).
Under United States GAAP, this charge would have been recorded as an
increase to the mineral properties at the time of the related business
acquisition, which excess, for United States GAAP purposes, will be
charged to earnings as depreciation and amortization expense on a
unit-of-production basis, or written-off if it is determined that the
deferred costs are no longer recoverable.
(b) Exploration costs:
Under Canadian GAAP, mineral property exploration costs can be deferred
if the Company believes the related mineral property has development
potential. Under United States GAAP, mineral property exploration costs
are required to be expensed as incurred until a commercially minable
deposit is determined to exist. As a result of the feasibility study on
Francisco's El Sauzal Project mineral property not being completed by
Francisco until mid-2002, and a feasibility study on Francisco's Marlin
Project mineral property not yet being completed, all of the deferred
exploration costs on the books of Francisco to June 30, 2002 would be
expensed as incurred under United States GAAP.
A-5
APPENDIX B
FINANCIAL STATEMENTS
OF
FRANCISCO GOLD CORP.
B-1
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
FRANCISCO GOLD CORP.
We have audited the Consolidated Balance Sheets of Francisco Gold Corp. as
at December 31, 2001, and December 31, 2000 and the Statements of Income,
Retained Earnings, Deferred Exploration Costs and Cash Flows for each of the
years in the three-year period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2001 and
December 31, 2000 and the results of its operations and the cash flows for each
of the years in the three-year period ended December 31, 2001 in accordance with
Canadian generally accepted accounting principles.
"MOEN AND COMPANY"
(Signed)
Chartered Accountants
Vancouver, British Columbia, Canada
April 16, 2002, except as to note 15, which is as of July 16, 2002.
B-2
FRANCISCO GOLD CORP.
CONSOLIDATED BALANCE SHEETS
(IN CANADIAN DOLLARS)
JUNE 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
----------- ------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and short term investments.......................... $30,495,756 $31,404,235 $34,185,284
Accounts receivable...................................... 301,791 277,741 218,804
Prepaid expenses......................................... 224,020 34,937 29,863
Marketable securities, at market value (note 13)......... 110,286 110,286 121,161
----------- ----------- -----------
31,131,853 31,827,199 34,555,112
----------- ----------- -----------
INVESTMENT IN MINERAL PROPERTIES, AT COST
Mineral concessions (note 3(b)).......................... 3,448,040 3,448,040 3,448,040
Deferred exploration costs............................... 27,270,051 25,415,934 21,725,475
----------- ----------- -----------
30,718,091 28,863,974 25,173,515
----------- ----------- -----------
DEFERRED TRANSACTION COSTS -- ARRANGEMENT AGREEMENT........ 1,000,000 -- --
----------- ----------- -----------
CAPITAL ASSETS, at cost less accumulated amortization (note
2(g)).................................................... 571,135 618,659 633,956
----------- ----------- -----------
$63,421,079 $61,309,832 $60,362,583
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued............................. $ 1,984,723 $ 522,376 $ 131,708
Due to related parties (note 6(f))....................... 20,971 38,647 175,845
Provision for income taxes............................... 630,000 -- --
----------- ----------- -----------
2,635,694 561,023 307,553
SHAREHOLDERS' EQUITY
Capital stock (note 5)
Authorized:
100,000,000 common shares without par value
Issued:
June 30, 2002 -- 16,673,425 common shares (December
31, 2001 -- 16,432,925 common shares; December 31,
2000 -- 16,355,425 common shares)................... 66,511,523 65,289,023 64,793,523
Deficit, accumulated during development stage (note
1).................................................. (5,726,138) (4,540,214) (4,738,493)
----------- ----------- -----------
60,785,385 60,748,809 60,055,030
----------- ----------- -----------
$63,421,079 $61,309,832 $60,362,583
=========== =========== ===========
APPROVED ON BEHALF OF THE BOARD
(signed) P. RANDY REIFEL (signed) GERALD L. SNEDDON
P. Randy Reifel, Director Gerald L. Sneddon, Director
See accompanying notes to consolidated financial statements.
B-3
FRANCISCO GOLD CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN CANADIAN DOLLARS)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------
2002 2001 2001 2000 1999
------------- ---------- ---------- ---------- ----------
(Unaudited)
INTEREST AND OTHER REVENUE, NET....... $ 1,262,395 $828,684 $1,527,999 $1,887,416 $1,985,797
GENERAL AND ADMINISTRATION EXPENSES
Accounting and legal................ 587,755 37,714 85,449 266,383 132,171
Filing and transfer agent fees...... 14,568 14,256 17,454 20,134 11,039
Finders' fees....................... 124,500 -- -- -- --
Management fees (note 6)............ 312,500 87,500 175,000 175,000 175,000
Management bonus.................... -- -- 225,000 -- --
Office and administration........... 72,076 83,916 130,618 72,734 61,404
Stock-based compensation (note
6(g))............................ 566,750 -- 495,500 -- --
Travel and public relations (note
8)............................... 93,428 51,684 80,091 42,175 63,281
----------- -------- ---------- ---------- ----------
1,771,577 275,070 1,209,112 576,426 442,895
----------- -------- ---------- ---------- ----------
PROFIT BEFORE BELOW ITEMS............. (509,182) 553,614 318,887 1,310,990 1,542,902
Amortization........................ (46,742) (60,240) (120,608) (94,007) (115,812)
Deferred exploration costs written
off.............................. -- -- -- (416,133) (1,293,500)
Cost of mineral concessions written
off.............................. -- -- -- -- (207,500)
Write down of marketable
securities....................... -- -- -- (4,432) 50,376
----------- -------- ---------- ---------- ----------
PROFIT BEFORE INCOME TAXES............ (555,924) 493,374 198,279 796,418 (23,534)
Provision for income taxes (note 10)
Current............................. (630,000) (159,000) (60,000) (414,000) --
Recoverable due to application of
prior losses..................... -- 159,000 60,000 414,000 --
----------- -------- ---------- ---------- ----------
NET PROFIT (LOSS) FOR THE PERIOD...... $(1,185,924) $493,374 $ 198,279 $ 796,418 $ (23,534)
=========== ======== ========== ========== ==========
PROFIT (LOSS) PER SHARE
Basic............................... $ (0.07) $ 0.03 $ 0.01 $ 0.05 $ (0.00)
=========== ======== ========== ========== ==========
Diluted............................. $ (0.07) $ 0.03 $ 0.01 $ 0.04 $ (0.00)
=========== ======== ========== ========== ==========
B-4
FRANCISCO GOLD CORP.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(IN CANADIAN DOLLARS)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
2002 2001 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Net profit (loss) for the
period........................ $(1,185,924) $ (493,374) $ 198,279 $ 796,418 $ (23,534)
Retained earnings (deficit),
beginning of period........... (4,540,214) (4,738,493) (4,738,493) (5,534,911) (5,511,377)
----------- ----------- ----------- ----------- -----------
Retained earnings (deficit), end
of period..................... $(5,726,138) $(4,245,119) $(4,540,214) $(4,738,493) $(5,534,911)
=========== =========== =========== =========== ===========
B-5
FRANCISCO GOLD CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN CANADIAN DOLLARS)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
2002 2001 2001 2000 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
FUNDS DERIVED FROM (APPLIED TO)
OPERATING ACTIVITIES
Net profit (loss) for the period.... $(1,185,924) $ 493,374 $ 198,279 $ 796,418 $ (23,534)
Items not requiring use of cash
Net operating assets of Montana
Gold Corp...................... -- -- -- 126,960 --
Amortization...................... 46,742 60,240 120,608 94,007 115,812
Deferred exploration costs written
off............................ -- -- -- 416,133 1,293,500
Stock-based compensation (note
6(g)).......................... 566,750 -- 495,500 -- --
Issuance of shares for finders
fees........................... 124,500 -- -- -- --
Write down of marketable
securities..................... -- -- -- -- (50,376)
Cost of mineral concessions
written off.................... -- -- -- -- 207,500
Changes in non-cash working capital
items............................. -- -- -- -- --
Accounts receivable decrease
(increase)..................... (24,050) (64,827) (58,937) (81,262) (81,996)
Accounts payable increase
(decrease)..................... 1,462,647 481,016 390,668 (353,255) 96,491
Deferred transaction costs --
included in accounts
payable...................... (1,000,000) -- -- -- --
Income taxes payable.............. 630,000 -- -- -- --
Prepaid expenses (increase)
decrease....................... (189,083) (3,716) (5,074) 62 39,698
----------- ----------- ----------- ----------- -----------
431,282 966,087 1,141,044 999,063 1,597,095
INVESTING ACTIVITIES
Deferred exploration costs........ (1,854,117) (2,217,658) (3,690,459) (3,403,654) (4,949,236)
Capital assets purchased.......... 782 (97,734) (105,311) (88,122) (2,291)
Notes receivable.................. -- -- -- -- 110,000
Marketable securities............. -- 10,875 10,875 43,167 (110,000)
----------- ----------- ----------- ----------- -----------
(1,853,335) (2,304,517) (3,784,895) (3,448,609) (4,951,527)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Common shares issued.............. 531,250 -- -- 560,000 96,000
Due to related parties............ (17,676) 2,550 (137,198) (61,751) (37,972)
----------- ----------- ----------- ----------- -----------
513,574 2,550 (137,198) 498,249 58,028
----------- ----------- ----------- ----------- -----------
CASH AND SHORT TERM INVESTMENTS:
DECREASE DURING THE PERIOD........ (908,479) (1,335,880) (2,781,049) (1,951,297) (3,296,404)
BALANCE, BEGINNING OF PERIOD...... 31,404,235 34,185,284 34,185,284 36,136,581 39,432,985
----------- ----------- ----------- ----------- -----------
BALANCE, END OF PERIOD............ $30,495,756 $32,849,404 $31,404,235 $34,185,284 $36,136,581
=========== =========== =========== =========== ===========
B-6
FRANCISCO GOLD CORP.
CONSOLIDATED STATEMENTS OF DEFERRED EXPLORATION COSTS
(IN CANADIAN DOLLARS)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
2002 2001 2001 2000 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
DEFERRED EXPLORATION COSTS
EL SAUZAL
Expenditures during the period
Assays............................ $ -- $ 11,497 $ 11,497 $ -- $ 92,956
Geographical surveys.............. -- -- -- -- 14,382
Contract labour, camp and
supplies....................... 100,468 57,344 159,869 124,259 481,015
Drilling.......................... -- 238,411 238,411 -- 1,037,859
Filing fees, permits and taxes.... 44,761 37,113 69,978 115,290 467,475
Geological and engineering........ 520,571 583,432 854,674 657,864 847,181
Helicopter rentals................ -- 44,640 61,640 -- 321,675
Exploration office,
administration................. 230,614 103,250 188,565 237,492 833,406
Road construction................. -- -- -- -- 26,948
Travel and accommodation.......... 3,798 36,986 41,568 29,153 56,415
----------- ----------- ----------- ----------- -----------
900,212 1,112,673 1,626,202 1,164,058 4,179,312
Mexican Value-Added Tax refund.... -- -- -- -- (191,719)
----------- ----------- ----------- ----------- -----------
900,212 1,112,673 1,626,202 1,164,058 3,987,593
Balance, beginning of period...... 21,528,212 19,902,012 19,902,012 18,737,954 14,750,361
----------- ----------- ----------- ----------- -----------
Balance, end of period............ 22,428,424 21,014,685 21,528,214 19,902,012 18,737,954
----------- ----------- ----------- ----------- -----------
EL SALVADOR
Expenditures during the period
Assays............................ -- -- -- 50,101 --
Geophysical surveys............... -- -- -- 42,707 --
Contract labour, camp and
supplies....................... -- -- -- 34,052 --
Geological consulting............. -- -- -- 233,168 --
Exploration office,
administration................. -- -- -- 34,962 --
Travel and accommodation.......... -- -- -- 21,143 --
----------- ----------- ----------- ----------- -----------
-- -- 416,133 --
Write off during period........... -- -- -- (416,133) --
----------- ----------- ----------- ----------- -----------
Balance, end of period............ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
GUATEMALA -- MARLIN
Expenditures during the period
Assays............................ 15,500 48,402 83,475 62,160 --
Drilling.......................... 222,786 439,520 623,713 343,367 --
Geological and engineering........ 171,992 317,250 470,512 658,376 --
Contract labour, camp and
supplies....................... 69,557 36,138 134,421 241,525 --
Travel and accommodation.......... 5,688 64,546 66,252 79,956 --
Filing fees, permits and taxes.... 23,266 50,314 96,672 206,156 --
Exploration office,
administration................. 101,519 80,959 162,354 184,833 --
----------- ----------- ----------- ----------- -----------
610,308 1,037,129 1,637,399 1,776,373 --
Balance, beginning of period........ 3,413,774 1,776,373 1,776,373 -- --
----------- ----------- ----------- ----------- -----------
Balance, end of period.............. 4,024,082 2,813,502 3,413,772 1,776,373 --
----------- ----------- ----------- ----------- -----------
REGIONAL AND OTHER EXPLORATION
Expenditures during the period
Assays............................ 54,299 -- 53,894 -- --
Property royalty payment.......... 16,000 -- -- -- --
Geological and engineering........ 273,298 67,856 372,964 47,090 --
----------- ----------- ----------- ----------- -----------
343,597 67,856 426,858 47,090 --
Balance, beginning of period........ 473,948 47,090 47,090 -- --
----------- ----------- ----------- ----------- -----------
Balance, end of period.............. 817,545 114,946 473,948 47,090 --
----------- ----------- ----------- ----------- -----------
BALANCE, END OF PERIOD.............. $27,270,051 $23,943,133 $25,415,934 $21,725,475 $18,737,954
=========== =========== =========== =========== ===========
B-7
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
NOTE 1. BUSINESS OPERATIONS
The Company is in its development stage in the resource industry and has not
generated any revenues from its planned operations. The deficit to June 30,
2002 has been accumulated during the development stage.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Minas de la Alta Pimeria S.A.
de C.V., a Mexican corporation, Montana Gold Corp., Nica Gold S.A., a
Nicaragua corporation, and the Company's 40.7% owned subsidiary, Goldeneye
Explorations Ltd. (see note 3).
b) Deferred Exploration Costs
The Company capitalizes all expenses that are associated with its
properties until such time as the properties are either placed into
production or title is lost or abandoned. When properties are brought into
production, associated costs are amortized over the useful life of the
properties. When title is lost or abandoned, the associated costs are
written off.
c) General and Administration Expenses
General and Administration expenses are written off to operations as
incurred.
d) Mineral Properties
Acquisition costs of mineral properties are capitalized by the Company,
and are dealt with in the same manner as deferred exploration costs in (b)
above. Mineral property sale proceeds or option payments received for
exploration rights are credited firstly to mineral property costs,
secondly, as a recovery of deferred exploration costs, and thereafter
recognized as a gain or loss in current operations.
e) Values
The amounts for deferred exploration costs and mineral properties
represent costs incurred to date and are not intended to reflect present
or future values. The recoverability of the amounts shown for mineral
properties and deferred exploration costs is dependent on the confirmation
of economically recoverable reserves, the ability of the Company to obtain
the necessary financing to successfully complete their development,
including compliance with the requirements of lenders who may provide this
financing from time to time, and upon future profitable operations.
f) Translation of Foreign Currency
The accounts of the Company are translated into Canadian dollars on the
following basis:
-- current assets and liabilities at the rate of exchange in effect at
the balance sheet date
-- deferred exploration costs and general and administration expenses at
the average rate in effect during the period
-- non-current assets and liabilities at rates prevailing when the
transaction occurred
-- exchange gains or losses on conversion are included with net interest
income.
g) Amortization
The Company amortizes its capital assets on the declining balance method
at the following rates:
Office equipment -- 20% per annum
Vehicles -- 30% per annum
Mining equipment -- 10% per annum
JUNE 30, 2002 DECEMBER 31, 2001
-------------------------------------- --------------------------------------
NET NET
ACCUMULATED BOOK ACCUMULATED BOOK
COST AMORTIZATION VALUE COST AMORTIZATION VALUE
---------- ------------ -------- ---------- ------------ --------
Office equipment................ $ 200,478 $125,345 $ 75,133 $ 200,161 $118,691 $ 81,470
Vehicles........................ 345,971 192,378 153,593 347,608 185,358 162,250
Mining equipment................ 547,921 205,512 342,409 547,383 172,444 374,939
---------- -------- -------- ---------- -------- --------
$1,094,370 $523,235 $571,135 $1,095,152 $476,493 $618,659
========== ======== ======== ========== ======== ========
B-8
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
h) Comparative figures
Certain disclosure of comparative figures has been revised to that as
shown in these financial statements.
NOTE 3. SUBSIDIARY COMPANIES
a) Goldeneye Explorations Ltd.
The Company has a 40.7% interest in Goldeneye Explorations Ltd.
("Goldeneye"). In 1998 Goldeneye abandoned and wrote off its interests in
all of its resource properties and related deferred exploration costs. In
2001, Goldeneye raised $260,000 by way of flow-through private placements.
The equity financing was for the exploration of various placer and
hardrock properties located in Northern B.C., allocated to flow-through
expenditures.
The shares of Goldeneye issued to June 30, 2002 are as follows:
SHARES %
--------- -----
To Francisco Gold Corp...................................... 3,500,000 40.7
To Private Shareholders..................................... 5,100,000 59.3
--------- -----
8,600,000 100.0%
b) Montana Gold Corp.
On December 7, 2000, the Company acquired all of the issued and
outstanding shares of Montana Gold Corp. ("Montana"), a private British
Columbia company which owns a 100% interest in a private Guatemala
company, Montana Exploradora de Guatemala S.A. ("MEG"). As at June 30,
2002, MEG owns, through staking, thirteen mineral concessions, which
comprise 87,850 hectares. To acquire Montana, Francisco issued 650,000
shares and would issue up to an additional 1.45 million shares per the
following conditions:
(i) if more than 650,000 ounces of proven and probably reserves of gold
equivalent (gold-silver) are discovered on Montana's Marlin
property, 1.7 shares will be issued for each additional reserve
ounce based upon filing with the TSX Venture Exchange an acceptable
geological report:
(ii) if a minimum deposit of 147,059 ounces of proven and probable
reserves of gold equivalent is discovered on any other target in
Montana's current portfolio, Francisco will issue 1.7 shares for
each ounce; and
(iii) in the event of a change of control of Francisco within three years
after closing the Montana acquisition, Francisco shall, within one
year after such change of control, expend not less than US$3
million in exploration drilling on the Marlin property and/or any
other property which is in Montana's current portfolio, failing
which an additional 350,000 shares will be issued.
Overall, on a fully diluted basis, Francisco has agreed to issue a total
of 2.1 million shares to former Montana shareholders should 1.5 million
ounces of proven and probable reserves of gold equivalent be drill
indicated on their properties. No provision has been made in these
financial statements for any additional shares that may be required to be
issued in accordance with (i) to (iii), inclusive, above. P. Randy Reifel,
President of Montana, originally founded Montana and owned approximately
30% of the outstanding shares of Montana.
Acquisition of 100% of shares of Montana Gold Corp. by issuance of
650,000 shares of Francisco Gold Corp. at a price of $5.50 per share for
$3,575,000 is made up as follows at the date of acquisition, on December
7, 2000:
Current Assets
Cash...................................................... $ 1,960
Accounts receivable....................................... 75,432
Prepaid expenses.......................................... 4,335
----------
81,727
Capital Assets.............................................. 56,938
Mineral Concessions......................................... 3,448,040
----------
3,586,705
Current Liabilities
Accounts payable.......................................... 11,705
----------
Purchase price of shares.................................. $3,575,000
----------
c) Minas de la Alta Pimeria, S.A. de C.V.
(i) By agreement dated July 27, 1993, the Company purchased a 100%
interest in Minas de la Alta Pimeria, S.A. de C.V. ("Alta Pimeria"),
a private Mexican company. In consideration for the acquisition of
Alta Pimeria, Francisco agreed to issue up to a
B-9
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
maximum of 500,000 treasury shares ("shares") to the former
principals ("Principals") of Alta Pimeria. The shares were issuable
on an installment basis of 100,000 shares in connection with each
property, founded by the Principals and subsequently acquired by
Alta Pimeria. To date 400,000 shares have been issued. Subject to
the approval of the regulatory authorities, the balance of 100,000
shares was reduced to 75,000 shares which have been subsequently
issued. The measurement date of these shares is July 27, 1993, at
which time the shares had a market value of $1.50 per share.
(ii) The acquisition of Alta Pimeria included a staged finder's fee of
40,000 treasury shares, of which 32,000 shares have been issued as
of June 30, 2002, issuable to Catherine McLeod-Seltzer, who
subsequently became a director of the Company. The balance of 8,000
shares have been subsequently issued. The measurement date of these
shares is July 27, 1993, at which time the shares had a market price
of $1.50 per share.
(iii) Property Acquisitions
Alta Pimeria owns 100% interest through staking, in nine mineral
concessions totaling 12,692 hectares located in the Batopilas Mining
District, Chihuahua State, Mexico. Title for all the concessions has
been issued to Alta Pimeria.
d) Nica Gold S.A.
In November 2001, the Company incorporated a wholly owned subsidiary
company in Nicaragua, Nica Gold S.A. ("Nica Gold"). Nica Gold has, through
staking, applications pending for twenty-one mineral concessions
comprising 685,000 hectares in Nicaragua. Title for three concessions have
been issued to Nica Gold and the applications pending for the remaining
eighteen concessions are awaiting issue.
NOTE 4. SEGMENTED INFORMATION
The Company's identifiable assets are located in the following countries:
JUNE 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
----------- ------------ ------------
Canada...................................................... $31,819,223 $39,044,780 $34,096,966
Mexico...................................................... 23,744,477 15,958,783 20,862,540
Guatemala................................................... 7,857,379 6,306,269 5,403,077
----------- ----------- -----------
$63,421,079 $61,309,832 $60,362,583
----------- ----------- -----------
NOTE 5. CAPITAL STOCK
a) Issued and outstanding:
JUNE 30, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------------- ------------------------- -------------------------
SHARES $ SHARES $ SHARES $
---------- ----------- ---------- ----------- ---------- -----------
Balance, December 31, 2001,
2000 and 1999............... 16,432,925 $65,289,023 16,355,425 $64,793,523 15,355,425 $60,658,523
---------- ----------- ---------- ----------- ---------- -----------
Issued during the period
Exercise of stock options..... 85,000 531,250 -- -- 350,000 560,000
Issuance for finders' fees.... 83,000 124,500 -- -- -- --
Stock-based compensation (note
6(g))
-- shares issued............ 72,500 566,750 -- -- -- --
-- shares to be issued...... -- -- 77,500 495,500 -- --
Issued for acquisition........ -- -- -- -- 650,000 3,575,000
---------- ----------- ---------- ----------- ---------- -----------
240,500 1,222,500 77,500 495,500 1,000,000 4,135,000
---------- ----------- ---------- ----------- ---------- -----------
Balance, June 30, 2002,
December 31, 2001 and
2000........................ 16,673,425 $66,511,523 16,432,925 $65,289,023 16,355,425 $64,793,523
========== =========== ========== =========== ========== ===========
b) There are 750,000 common shares in escrow subject to release upon
approval of regulatory authorities. The president and director of the
Company owns 375,000 escrow shares and ownership of the other 375,000
escrow shares is presently in litigation as between the president (on
behalf of the Company) and a former director of the company.
B-10
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
c) The following director and employee stock options are outstanding:
JUNE 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
--------- ------------ ------------
Stock options exercisable at $6.25 per share up to August
21, 2005.................................................. 885,000 970,000 1,135,000
Stock options exercisable at $7.75 per share up to February
22, 2007.................................................. 195,000 -- --
Stock options exercisable at $15.25 per share up to June 5,
2002...................................................... -- -- 470,000
--------- ------- ---------
1,080,000 970,000 1,605,000
========= ======= =========
d) Shares are reserved for future issuance on the exercise of incentive
stock options, stock bonuses (note 12) and for the acquisition of
certain mineral properties (note 3).
NOTE 6. RELATED PARTY TRANSACTIONS
a) Brant Investments Ltd., a company controlled by P. Randy Reifel,
President and a Director, provides management services to the Company at
the contract rate of $175,000 per year, representing $87,500 for the six
month period ended June 30, 2002 and a cash bonus of $225,000 was
approved by the Board of Directors on March 5, 2002 for total management
fees for the six month period ended June 30, 2002 of $312,500. The
amount of $16,084 is unpaid at June 30, 2002, included in (f) below. In
addition, stock-based compensation for past services of 45,000 common
shares at a market price of $8.50 per share for total cost of $382,500
was approved by the Board on March 5, 2002. For the year ended December
31, 2001, Brant Investments Ltd., provided management services to the
Company at the contract rate of $175,000 per year and a cash bonus of
$225,000 was approved by the Board of Directors on July 26, 2001. The
amount of $6,583 was unpaid at December 31, 2001, included in (f) below.
In addition, stock-based compensation for past services of 50,000 common
shares at a market price of $6.50 per share for total cost of $325,000
was also approved by the Board on July 26, 2001.
b) Mr. P. Randy Reifel is the President, Director as well as a principal
shareholder of Goldeneye Explorations Ltd.
c) Gerald L. Sneddon, Executive Vice President Operations and Director of
the Company, provided engineering consulting services totaling US$9,700
during the period ended June 30, 2002 and included expenses of US$6,638
incurred for the Company during the same period. As at June 30, 2002,
the accrued amount of US$3,153 ($4,887) was unpaid, included in (f)
below. Mr. Sneddon provided engineering consulting services totaling
US$36,075 during the year ended December 31, 2001 and included expenses
of US$19,616.64 incurred for the Company during the year. As at December
31, 2001, US$14,686.30 (equivalent to $22,764) was unpaid, included in
(f) below.
d) John Perston, Director of the Company and a company owned by him,
incurred expenses of US$3,362.29 for the Company during the year ended
December 31, 2001. As at December 31, 2001, US$6,000 (equivalent to
$9,300) was unpaid, included in (f) below.
e) Montana Gold Corp., which was acquired by the Company in December 2000,
following the approval of the TSX Venture Exchange, was owned
approximately 30% by private holding companies wholly-owned by P. Randy
Reifel, President and a Director of Francisco.
f) Summary of amounts due to related parties as at:
JUNE 30, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------- ----------------- -----------------
Brant Investments Ltd.................................. $16,084 $ 6,583 $ 82,874
Gerald L. Sneddon...................................... 4,887 22,764 29,545
John Perston........................................... -- 9,300 63,426
------- ------- --------
$20,971 $38,647 $175,845
======= ======= ========
B-11
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
g) Stock-based compensation
Stock-based compensation was approved during the six months ended June 30,
2002, as follows:
NUMBER OF MARKET
COMMON PRICE PER TOTAL
GRANT DATE GRANTEE SHARES SHARE COMPENSATION
---------- ------- --------- --------- ------------
1-Jan-02......................... Stephanie Denny -- Salary
Secretary of the Company 2,500 $6.70 $ 16,750
1-Jan-02......................... Alain Charest --
Consulting fee 25,000 $6.70 167,500
5-Mar-02......................... Beggar Pacific Holding Corp.
Management fee
Company wholly-owned by
P. Randy Reifel,
President and Director 45,000 $8.50 382,500
------ --------
72,500 $566,750
====== ========
Stock-based compensation was approved during the year ended December 31,
2001, as follows:
NUMBER OF MARKET
COMMON PRICE PER TOTAL
GRANT DATE GRANTEE SHARES SHARE COMPENSATION
---------- ------- --------- --------- ------------
18-May-01........................ Stephanie Denny -- Salary
Secretary of the Company 2,500 $6.20 $ 15,500
18-May-01........................ Alain Charest --
Consulting fee 25,000 $6.20 155,000
26-Jul-01........................ Brant Investments Ltd.
Management fee
Company wholly-owned by
P. Randy Reifel,
President and Director 50,000 $6.50 325,000
------ --------
77,500 $495,500
====== ========
On May 18, 2001, Francisco approved the payment of bonus shares to Alain
Charest (50,000 shares) and Stephanie Denny (5,000 shares) to be
distributed in two equal installments due to restrictions limiting the
number of shares that may be issued annually under the Francisco Employee
Stock Bonus Plan (note 12). Ms. Denny is employed by Francisco in Canada.
Mr. Charest (Vice President Exploration) is an officer and paid as a
consultant to Francisco. The first installment is disclosed above, and the
second installment of the stock award was granted effective January 1,
2002, at a market value of $6.70 per share for 25,000 shares to Alain
Charest and 2,500 shares to Stephanie Denny.
NOTE 7. LEGAL MATTERS -- ESCROW SHARES
The ownership of 375,000 escrow shares is in dispute. Litigation continues
between the president on behalf of the Company and a former director of the
Company. Judgment was rendered in October 1998 in favour of the former
director. This judgment was appealed to the British Columbia Court of Appeal.
In June 2001, the British Columbia Court of Appeal upheld the judgment in
favour of the former director. An application for leave to appeal this
decision was made to the Supreme Court of Canada and the application was
dismissed in June 2002. Application to the British Columbia Securities
Commission was also made by the Company for a Hearing and Review of the
Canadian Venture Exchange decision to release fifty percent of the escrowed
shares to the former director. The British Columbia Securities Commission
found in favour of the Company and overturned the Canadian Venture Exchange
decision to release fifty percent of the escrow shares. The decision by the
British Columbia Securities Commission is under appeal by the former
director. The Company has agreed to pay the costs of the litigation and the
escrow release application defence as it has a direct interest in the outcome
of these matters. The Company has incurred legal costs to June 30, 2002 of
approximately $950,000 relating to this dispute.
B-12
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
NOTE 8. TRAVEL AND PUBLIC RELATIONS
The travel and public relations expenses incurred are as follows:
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
2002 2001 2001 2000 1999
------- ------- ------- ------- -------
Printing, brochures, booth exhibition....................... $50,595 $15,664 $30,081 $16,628 $37,720
Travel expenses, conferences................................ 42,833 36,020 50,010 25,547 25,561
------- ------- ------- ------- -------
Total....................................................... $93,428 $51,684 $80,091 $42,175 $63,281
======= ======= ======= ======= =======
NOTE 9. FINANCIAL INSTRUMENTS
For cash and short-term investments, marketable securities, accounts
receivable, prepaid expenses and accounts payable and accrued liabilities,
and amounts due to related parties, the carrying amounts of these financial
instruments approximates their fair value due to their short term maturity or
capacity of prompt liquidation. Short term investments mature at various
dates from September 15, 2002 to November 15, 2002.
NOTE 10. INCOME TAXES
At June 30, 2002, a provision of $630,000 is recorded representing income
taxes for 2000 based upon proposed reassessment of the taxation years 1997,
1998 and 1999, resulting in elimination of losses available for those years.
The reassessment is being reviewed and challenged by the Company.
At December 31, 2001, income taxes on current income is disclosed in the
statement of income in the amount of $60,000 based on a rate of 35%. A
recovery of income taxes of $60,000 is recorded as a credit in these
financial statements by reason of utilizing losses for taxation purposes from
the preceding year.
NOTE 11. STOCK OPTION PLAN
The Board of Directors of the Company approved a Stock Option Plan for the
Company to be effective June 24, 1998. The stock option plan provides for
equity participation by its directors, officers, employees and consultants
through the acquisition of common shares pursuant to the grant of options to
purchase common shares. The plan provides for the following:
a) Maximum number of 2,800,000 common shares to be reserved and
authorized;
b) Options for not more than 10% of the outstanding shares of the Company
may be issued under the stock option plan for options to insiders of the
Company. No more than 5% of the number of outstanding shares may be
issued to any one person.
c) Exercise price will not be less than "fair market value" of the common
shares at the time of grant, but may not be less than the average
closing price of the common shares on the TSX Venture Exchange for the
ten trading days prior to the date of grant;
d) Options will be subject to vesting conditions at the discretion of the
Board of Directors;
e) Options will be exercisable for a term of up to 5 years (or up to 10
years if permitted by applicable stock exchanges) subject to earlier
termination in the event of death or the optionee's termination of
services on behalf of the Company;
f) Options will be non-assignable, except by will or by laws of descent
and distribution.
The plan is currently administered by the Board of Directors and such
administration may be delegated to the Compensation Committee.
NOTE 12. EMPLOYEE STOCK BONUS PLAN
The Board of Directors of the Company approved an Employee Stock Bonus Plan
for the Company to be effective June 24, 1998. Common shares may be issued as
a bonus under the stock bonus plan to any full-time or part-time employee or
dependent contractor (whether or not a director) of the Company or any of its
subsidiaries who has rendered services that contributed to the success of the
Company or any of its subsidiaries. The plan provides for the following:
a) Maximum number of 150,000 common shares to be issued and authorized;
b) In any calendar year the number of common shares issuable as a bonus is
limited to 1% of the total number of common shares which were issued and
outstanding at the end of the immediately preceding fiscal year, with no
more than 0.5% being issuable to insiders of the Company.
To June 30, 2002, 150,000 common shares have been granted by the Company as
bonuses under this Employee Stock Bonus Plan.
B-13
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
NOTE 13. MARKETABLE SECURITIES
In May 1999, Vanteck Technology Corp. ("Vanteck")(formerly New Venoro Gold
Corp.) agreed to settle a $140,000 debt plus accrued interest due to the
Company (pursuant to a promissory note dated October 24, 1995) for $110,000.
The debt was to be settled by the issuance of 733,333 common shares
("Shares") of Vanteck to the Company at a deemed price of $0.15 per share and
Vanteck received regulatory approval for the transaction in June 1999.
Vanteck has issued a certificate representing the Shares in the name of
Francisco but has delivered the certificate to Duneagle Capital Corp. which
is a company associated with Vanteck's president. Duneagle and Vanteck have
refused to deliver the Share certificate to the Company and Duneagle
commenced litigation against the Company claiming that an option agreement
exists whereby the Shares can now be purchased privately for $110,000 by
Duneagle. This litigation has subsequently been settled (see note 15(a)) and
until final resolution, this investment is carried in the books of the
Company as at June 30, 2002 at estimated net realizable value of $110,000
representing the initial reduced debt owing to the Company. As at June 30,
2002 and December 31, 2001, the market value of the Shares exceeded the cost
to Francisco. Other marketable securities total $286.
NOTE 14. PLAN OF ARRANGEMENT -- CHANGE OF CONTROL
a) Arrangement Agreement
The Company in March 2002, entered into an agreement with Glamis Gold
Ltd., a mining company listed on both the Toronto and the New York
Exchanges, whereby Glamis agreed to acquire all of the issued and
outstanding shares of the Company pursuant to a plan of arrangement
("Arrangement"). Under the Arrangement, Glamis has agreed to issue 1.55
Glamis common shares and one share in a new exploration company,
Chesapeake Gold Corp. ("Chesapeake") for each issued Francisco share. The
Company will transfer to Chesapeake approximately $25 million in cash
($1.50 per issued Chesapeake share), certain early stage Nicaraguan
exploration assets, the Goldeneye shares, the Vanteck shares, and a 2% net
smelter return royalty on the Company's Guatemalan projects outside the
Marlin Project area. Glamis will also have the right to acquire up to a 5%
interest in Chesapeake for a term of three years at a price of $1.50 per
Chesapeake share in the first year, $1.75 per share in the second year and
$2.00 per share in the third year of the term.
The Board of Directors of the Company on May 9, 2002 unanimously approved
the Arrangement and the transaction was approved by Francisco shareholders
at the Company's annual and extraordinary shareholder meeting on June 12,
2002. The transaction closed on July 16, 2002.
b) Corporate Advisory Services Agreement
By letter agreement dated February 21, 2002, the Company engaged Macquarie
North America Limited to advise on various corporate organization matters
and proposed major transactions. Macquarie agreed to provide a fairness
opinion with a fee payable upon delivery of Macquarie's first fairness
opinion with respect to the transaction, and a further fee payable for
each subsequent fairness opinion delivered in respect of an amended or
completed transaction.
The Company also agreed to pay Macquarie a completion fee based upon the
offer price where a third party (including parties acting in concert with
a third party) acquires 50 percent or more of the outstanding common
shares of the Company in one transaction or a series of transactions by
means of a takeover bid or other offer, private or open market
purchase(s), merger, amalgamation, arrangement or otherwise. The fairness
opinion fees are to be credited against any completion fees which may be
paid to Macquarie.
The minimum cost for these services is $1,000,000 which is recorded as an
accrued liability and deferred transaction costs as at June 30, 2002. The
balance of fees pursuant to this agreement will be recorded at the time
the transaction is completed.
NOTE 15. SUBSEQUENT EVENTS
a) Litigation Settlement
The Company has reached a settlement agreement on the litigation initiated
by Duneagle Capital Corp. ("Duneagle") concerning the 733,333 common
shares of Vanteck Technology Corp. ("Vanteck") that were issued to the
Company pursuant to a debt settlement (see note 13). Duneagle has agreed
to dismiss the lawsuit on the basis that the 733,333 common shares of
Vanteck be reissued into two certificates representing 650,000 common
shares and 83,333 common shares, respectively. Upon issuance, the Company
has agreed to deliver 83,333 common shares of Vanteck to Duneagle at no
cost. The Company will retain ownership in 650,000 common shares of
Vanteck.
b) Severance Payments
On the closing date of the Plan of Arrangement with Glamis Gold Ltd., the
Board of Directors by resolution dated May 9, 2002 have approved the
payment of severance to three of the Company's officers and/or their
holding company's totaling $815,000. The severance is payable to Brant
Investments Ltd., a company controlled by P. Randy Reifel (note 6(a)),
Alain Charest -- VP Exploration and Stephanie Denny -- Corporate Secretary
as to $525,000, $240,000 and $50,000, respectively.
c) The Arrangement Agreement outlined in note 14(a) above, subsequently
closed effective July 16, 2002.
B-14
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
NOTE 16. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Accounting practices under Canadian and United States ("U.S.") generally
accepted accounting principles ("GAAP"), as they affect the Company, are
substantially the same, except for the following:
a) Income taxes:
For the year ended December 31, 1999, the Company accounted for income
taxes by the deferral method whereby deferred income taxes are recognized
for differences in the timing of recognition in income for accounting and
income tax purposes. Statement of Financial Accounting Standards No. 109
("SFAS 109") in the U.S. requires the use of the asset and liability
method of accounting for income taxes whereby deferred tax assets or
liabilities are recognized for estimated future tax effects attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, measured
using the provisions of enacted tax laws, which is similar to Canadian
GAAP for fiscal 2000 and 2001. However, for the year ended December 31,
1999, the application of SFAS 109 to the Company's financial statements
does not result in any differences from the amounts reported under
Canadian GAAP, as the recognition criteria for future tax assets has not
been met.
For the years ended December 31, 2001 and 2000, the Company has accounted
for income taxes using the asset and liability method for both Canadian
and U.S. GAAP purposes.
b) Mineral property exploration and development expenditures:
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" in the U.S. requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the Company is to estimate the
future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is measured, equal to the excess
of the carrying amount over the fair value of the assets. United States
Securities and Exchange Commission staff have indicated that their
interpretation of SFAS 121 requires mineral property exploration and
development costs to be expensed as incurred until commercially minable
deposits are determined to exist within a particular property as cash
flows cannot be reasonably estimated prior to such determination.
Accordingly, for all periods presented, the Company has expensed
exploration costs incurred for U.S. GAAP purposes.
c) Stock-based compensation:
Statement of Financial Accounting Standards No. 123 ("SFAS 123") requires
that stock-based compensation be accounted for based on a fair value
methodology, although it allows the effects to be disclosed in the notes
to the financial statements rather than in the statement of operations.
SFAS 123 also allows an entity to continue to measure compensation costs
for employee stock-based compensation plans using the intrinsic value
based method of accounting as prescribed by APB Opinion No. 25 ("APB 25").
The Company has elected to measure compensation cost for those plans using
APB 25. Under U.S. GAAP, stock options granted to non-employees for
services rendered to the Company are required to be accounted for based on
the fair value of the services provided or the consideration issued. The
compensation cost is to be measured based on the fair value of stock
options granted, with the compensation cost being charged to operations as
earned.
The stock-based compensation expense in respect of stock options granted
to employees and vested during the period, under U.S. GAAP, based upon the
fair value of the options using an option pricing model, would be
$1,577,000 for the year ended December 31, 2001 (2000 -- $59,000; 1999 --
$1,786,000).
d) Impact of recent United States accounting pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.
143"). SFAS No. 143 requires a company to record the fair value of an
asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. A company would record a
corresponding asset which is amortized over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation,
the obligation would be adjusted at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying
the obligation. Companies are required to adopt SFAS No. 143 on January 1,
2003.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No.
144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount of the asset exceeds
the fair value of the asset. SFAS No. 144 also broadens the definition of
discontinued operations to include all distinguishable
B-15
FRANCISCO GOLD CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(IN CANADIAN DOLLARS)
components of an entity that will be eliminated from ongoing operations.
Companies are required to adopt SFAS No. 144 on January 1, 2002 on a
prospective basis.
The effect of the differences between Canadian GAAP and U.S. GAAP on the
balance sheet and statement of operations and deficit is summarized as
follows:
JUNE 30, DECEMBER 31,
------------ ----------------------------
2002 2001 2000
------------ ------------ ------------
(Unaudited)
Assets under Canadian GAAP.................................. $ 63,421,079 $ 61,309,832 $ 60,362,583
Adjustment for mineral property exploration costs........... (27,270,051) (25,415,934) (21,725,475)
------------ ------------ ------------
Assets under U.S. GAAP...................................... $ 36,151,028 $ 35,893,898 $ 38,637,108
============ ============ ============
Shareholders' equity under Canadian GAAP.................... $ 60,785,385 $ 60,748,809 $ 60,055,030
Adjustment for mineral property exploration costs........... (27,270,051) (25,415,934) (21,725,475)
------------ ------------ ------------
Shareholders' equity under U.S. GAAP........................ $ 33,515,334 $ 35,332,875 $ 38,329,555
============ ============ ============
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
2002 2001 2001 2000 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
Net profit (loss) for the year under
Canadian GAAP.......................... $(1,185,924) $ 493,374 $ 198,279 $ 796,418 $ (23,534)
Adjustment for deferred exploration
costs.................................. (1,854,117) (2,217,658) (3,690,459) (2,987,521) (3,655,736)
----------- ----------- ----------- ----------- -----------
Loss for the year under U.S. GAAP........ $(3,040,041) $(1,724,284) $(3,492,180) $(2,191,103) $(3,679,270)
=========== =========== =========== =========== ===========
Basic and diluted loss per share under
U.S. GAAP.............................. $ (0.18) $ (0.11) $ (0.21) $ (0.14) $ (0.24)
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding............................ 16,553,125 16,355,425 16,374,800 15,867,933 15,449,675
=========== =========== =========== =========== ===========
For Canadian GAAP, cash flows relating to mineral property exploration and
development expenditures are reported as investing activities. For U.S.
GAAP purposes, these costs would be characterized as operating activities.
Accordingly, the effect of this difference on the statements of cash flows
is summarized as follows:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
2002 2001 2001 2000 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
Cash provided by operations under
Canadian GAAP.......................... $ 431,282 $ 966,087 $ 1,141,044 $ 999,063 $ 1,597,095
Adjustment for deferred exploration
costs.................................. (1,854,117) (2,217,658) (3,690,459) (3,403,654) (4,949,236)
----------- ----------- ----------- ----------- -----------
Cash used in operations under U.S.
GAAP................................... $(1,422,835) $(1,251,571) $(2,549,415) $(2,404,591) $(3,352,141)
=========== =========== =========== =========== ===========
Cash used in investments under Canadian
GAAP................................... $(1,853,335) $(2,304,517) $(3,784,895) $(3,448,609) $(4,951,527)
Adjustment for deferred exploration
costs.................................. 1,854,117 2,217,658 3,690,459 3,403,654 4,949,236
----------- ----------- ----------- ----------- -----------
Cash provided by (used in) investments
under U.S. GAAP........................ $ 782 $ (86,859) $ (94,436) $ (44,955) $ (2,291)
=========== =========== =========== =========== ===========
B-16
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
12,100,000 COMMON SHARES
LOGO
GLAMIS GOLD LTD.
------------------------
PROSPECTUS
------------------------
BMO NESBITT BURNS CORP. NBC INTERNATIONAL (U.S.A.) INC. YORKTON CAPITAL INC.
CIBC WORLD MARKETS CORP. MERRILL LYNCH & CO.
RESEARCH CAPITAL USA INC. SPROTT SECURITIES (USA) LIMITED
November 20, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED
TO OFFEREES OR PURCHASERS
INDEMNIFICATION
Directors and officers of Glamis are entitled to indemnification in the
following circumstances:
(a) Under Section 128(1) of the Company Act (British Columbia), a
company may, with the approval of the Supreme Court of British Columbia,
indemnify a director of a company, a former director of a company or a
person who acts or acted at a company's request as a director of a body
corporate of which the company is or was a shareholder, and his or her
heirs and personal representatives, against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a
judgment, actually and reasonably incurred by him or her, including an
amount paid to settle an action or satisfy a judgement in a civil, criminal
or administrative action or proceeding to which he or she is made a party
by reason of being or having been a director of such company or body
corporate, including an action by or on behalf of the company or body
corporate to procure a judgment in its favor and under Section 19.1 of the
Articles of Incorporation of Glamis, Glamis is obligated to provide such
indemnification; and
(b) Under Section 19.1 of the Articles of Incorporation of Glamis,
Glamis is obligated to indemnify any person who is or was an officer,
employee or agent of Glamis or is or was serving at the request of Glamis
as an officer, employee or agent of another company or a partnership, joint
venture, trust or other enterprise, and the heirs and personal
representatives of any such person, against all costs, charges and expenses
actually incurred by such person, including an amount paid to settle an
action or to satisfy a judgment in any civil, criminal or administrative
action or proceeding, whether brought by Glamis, by such other company,
partnership, joint venture, trust or other enterprise or by any other
person, to which such person is made a party by reason of having so been or
having so served as an officer, employee or agent;
provided, in all cases, such person fulfills the condition that he or she (1)
acted honestly and in good faith with a view to the best interests of Glamis or
such other company, partnership, joint venture, trust or other enterprise, as
the case may be, and (2) in the case of a criminal or administrative action or
proceeding, had reasonable grounds for believing that his or her conduct was
lawful.
As contemplated by Section 128(4) of the Company Act (British Columbia),
Glamis has purchased directors' and officers' liability insurance which, under
certain circumstances, insures its directors and officers against the costs of
defense, settlement or payment of a judgment.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling Glamis pursuant
to the foregoing provisions, Glamis has been informed that in the opinion of the
United States Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1 * Form of Underwriting Agreement
3.1 Annual Information Form of Glamis dated March 22, 2002 for
the fiscal year ended December 31, 2001 (incorporated herein
by reference to Glamis' Form 40-F dated May 3, 2002 under
cover of Report of Foreign Private Issuer on Form 6-K dated
May 3, 2002, as amended by Form 40-F/A filed on October 8,
2002)
3.2 Audited consolidated financial statements of Glamis,
including notes thereto, as at December 31, 2001 and 2000
and for each of the years in the three-year period ended
December 31, 2001, together with the auditor's report
thereon, and Management's Discussion and Analysis of
Financial Condition, Results of Operations and Liquidity for
the fiscal year ended December 31, 2001, including a
reconciliation to United States Generally accepted
accounting principles (incorporated herein by reference to
Glamis' Report of Foreign Private Issuer on Form 6-K dated
May 3, 2002)
3.3 Management Information Circular (Proxy Statement) of Glamis
dated March 12, 2002 distributed in connection with the
annual general meeting of shareholders held on May 9, 2002
(incorporated herein by reference to Glamis Report of
Foreign Private Issuer on Form 6-K dated May 3, 2002)
3.4 Unaudited interim consolidated financial statements for the
three months and nine months ended September 30, 2002, and
notes thereto and management's discussion and analysis of
financial condition and results of operations for the three
months and nine months ended September 30, 2002
(incorporated herein by reference to Glamis' Report of
Foreign Private Issuer on Form 6-K dated November 12, 2002)
3.5 Material change report of Glamis dated March 13, 2002
relating to the proposed acquisition of Francisco Gold Corp.
(previously filed on Report of Foreign Private Issuer on
Form 6-K dated March 26, 2002)
3.6 Material change report of Glamis dated July 16, 2002
relating to the closing of the acquisition of Francisco Gold
Corp. (incorporated herein by reference to Glamis' Report of
Foreign Private Issuer on Form 6-K dated July 16, 2002)
3.7 Material change report of Glamis dated October 8, 2002
relating to the economic parameters of the El Sauzal Project
(incorporated herein by reference to Glamis' Report of
Foreign Private Issuer on Form 6-K dated October 8, 2002)
3.8 Material change report of Glamis dated November 12, 2002
relating to the mineral resource estimates for the Marlin
Project (incorporated herein by reference to Glamis' Report
of Foreign Private Issuer on Form 6-K dated November 13,
2002)
3.9 Material change report of Glamis dated November 14, 2002
relating to this Offering (incorporated herein by reference
to Glamis' Report of Foreign Private Issues on Form 6-K
dated November 15, 2002)
4.1 Consent of KPMG LLP, Chartered Accountants
4.2 Consent of Moen and Company, Chartered Accountants
4.3 Consent of Mine Reserves Associates, Inc., Professional
Engineer
4.4 Consent of James S. Voorhees, Professional Engineer
5.1 * Power of Attorney for A. Dan Rovig
5.2 * Power of Attorney for James R. Billingsley
5.3 * Power of Attorney for Ian S. Davidson
5.4 * Power of Attorney for Jean Depatie
5.5 * Power of Attorney for Leonard Harris
5.6 * Power of Attorney for Kenneth F. Williamson
5.7 * Power of Attorney for Gerald L. Sneddon
5.8 * Power of Attorney for P. Randy Reifel
---------------
* Previously filed
PART III
UNDERTAKING AND CONSENT TO
SERVICE OF PROCESS
ITEM 1. UNDERTAKING
The registrant undertakes to make available, in person or by telephone,
representatives to respond to inquires made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to the securities registered pursuant to Form F-10 or to transactions
in said securities.
ITEM 2. CONSENT TO SERVICE OF PROCESS
In connection with the filing of this Form F-10, the Registrant has
previously filed with the Commission a written irrevocable consent and power of
attorney on Form F-X.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-10/A and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Reno, Nevada, Country of United States of America on
November 20, 2002.
GLAMIS GOLD LTD.
By: /s/ C. KEVIN MCARTHUR
--------------------------------------
C. Kevin McArthur
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C. KEVIN MCARTHUR President, Chief Executive November 20, 2002
------------------------------------------------------- Officer and Director
C. Kevin McArthur (Principal Executive Officer)
/s/ CHERYL S. MAHER Vice-President Finance, Chief November 20, 2002
------------------------------------------------------- Financial Officer and
Cheryl S. Maher Treasurer (Principal Financial
and Accounting Officer)
/s/ A. DAN ROVIG* Chairman of the Board of November 20, 2002
------------------------------------------------------- Directors
A. Dan Rovig
/s/ JAMES R. BILLINGSLEY* Director November 20, 2002
-------------------------------------------------------
James R. Billingsley
/s/ IAN S. DAVIDSON* Director November 20, 2002
-------------------------------------------------------
Ian S. Davidson
/s/ JEAN DEPATIE* Director November 20, 2002
-------------------------------------------------------
Jean Depatie
/s/ LEONARD HARRIS* Director November 20, 2002
-------------------------------------------------------
Leonard Harris
/s/ KENNETH F. WILLIAMSON* Director November 20, 2002
-------------------------------------------------------
Kenneth F. Williamson
/s/ GERALD L. SNEDDON* Director November 20, 2002
-------------------------------------------------------
Gerald L. Sneddon
/s/ P. RANDY REIFEL* Director November 20, 2002
-------------------------------------------------------
P. Pandy Reifel
* /s/ C. KEVIN MCARTHUR November 20, 2002
-----------------------------------------------------
C. Kevin McArthur
Attorney-in-Fact
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
4.1 Consent of KPMG LLP, Chartered Accountants..................
4.2 Consent of Moen and Company, Chartered Accountants..........
4.3 Consent of Mine Reserves Associates, Inc., Professional
Engineer....................................................
4.4 Consent of James S. Voorhees, Professional Engineer.........