EXHIBIT 99.2
proteus Information Summary - October 2004
capital corp -----------------------------------------------------------------
INFORMATION MEMORANDUM
WESTERN GOLDFIELDS, INC.
An Emerging North American Gold Producer
[GRAPHIC OMITTED]
Aerial view of Mesquite, California looking south
OCTOBER 2004
SEE IMPORTANT NOTICE ON PAGE 2
PROTEUS CAPITAL CORP IS AS AN ADVISOR TO WESTERN GOLDFIELDS, INC.
DOUGLAS NEWBY, PRESIDENT OF PROTEUS, IS A DIRECTOR OF WESTERN GOLDFIELDS, INC.
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proteus capital corp o 120 Broadway, Suite 1010 o New York, NY 10271
Tel: (646) 879-5970 o Fax (646) 365-3230 o E-mail: proteuscapital@aol.com
www.proteuscapital.com
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EXHIBIT 99.2
proteus Information Summary - October 2004
capital corp -----------------------------------------------------------------
IN THIS REPORT, CURRENCY IS US FUNDS, UNITS ARE SHORT TONS, AND
TROY OUNCES UNLESS STATED OTHERWISE
IMPORTANT NOTICE
This Memorandum has been prepared solely for information purposes from materials
supplied to Proteus Capital Corp. ("Proteus") by Western Goldfields, Inc. (the
"Company"). The information contained herein has been prepared to assist parties
in their evaluation of the Company. Neither Proteus nor the Company makes any
representation or warranty as to the accuracy or completeness of this
information and shall have no liability for any representations (express or
implied) contained in, or for any omissions from, this presentation or any other
written or oral communication transmitted to the recipient whether or not
Proteus or the Company knew or should have known of any such errors or omissions
or was responsible for or participated in its inclusion in or omission from the
Memorandum.
This Memorandum includes certain estimates, projections and "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended that have been provided by the Company with respect to its
anticipated future performance. Such forward looking statements reflect various
assumptions by the Company concerning anticipated results, which assumptions may
or may not prove to be correct. No representations are made as to the accuracy
of such statements, estimates or projections. These forward-looking statements
are made pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. While these statements are made to convey the
Company's progress, business opportunities and growth prospects, such
forward-looking statements represent management's opinion. Whereas management
believes such representations to be true and accurate based on information and
data available to the Company at this time, actual results may differ materially
from those described. The Company's operations and business prospects are always
subject to risk and uncertainties.
This Memorandum does not constitute or form part of an offer of, or invitation
to acquire any financial instruments in the Company or any company associated
therewith. Proteus is not a registered investment advisor under the Securities
Act of 1940. Any investment in any security mentioned herein should be made only
after consulting and analyzing financial statements and other documentation
received directly from the issuer of the security or securities involved.
PROTEUS HAS PROVIDED CORPORATE ADVISORY SERVICES TO THE COMPANY FOR WHICH IT HAS
BEEN PAID IN THE FORM OF CASH, STOCK AND STOCK OPTIONS. DOUGLAS NEWBY, PRESIDENT
AND CONTROL PERSON OF PROTEUS, IS A DIRECTOR OF THE COMPANY.
(C)Copyright 2004 by Proteus Capital Corp., all rights reserved. It is a
violation of United States copyright laws to duplicate or reprint this report
without written consent of Proteus Capital Corp., except that limited portions
may be excerpted for inclusion in other publications provided credit is given
along with the name and address of the publisher. All subsequent written or oral
opinions expressed by Proteus Capital Corp., its associates and staff are
expressly qualified in their entirety by this notice.
CONTACTS
WESTERN GOLDFIELDS PROTEUS CAPITAL CORP
Toby Mancuso Douglas Newby
President President
961 Matley Road, Suite 120 120 Broadway, Suite 1010
Reno, Nevada 89502 New York, NY 10271
Tel: (775) 337-9433 (646) 879-5970
Fax: (775) 337-9441 (646) 365-3230
e-mail: tmancuso@westerngoldfields.net djnewby@proteuscapital.com
Web: www.westerngoldfields.com www.proteuscapital.com
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Western Goldfields, Inc. Page ii
EXHIBIT 99.2
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CONTENTS
Overview 1
Western Goldfields 4
Mesquite 4
Mine Extensions 8
Big Chief North 9
Economic Analysis 10
Other Expansions 11
High grade Potential 12
Leach Production 13
Other Opportunities 13
Acquisition Summary 14
Mesquite Background 14
Cahuilla Gold Project 18
Sunny Slope Gold Mine 20
Lincoln Hill Mine 22
Other Exploration Projects 24
Financial Statements 25
Management 27
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WESTERN GOLDFIELDS OVERVIEW
WESTERN GOLDFIELDS, INC. ("WGI" OR THE "COMPANY") IS AN EMERGING NORTH AMERICAN
GOLD PRODUCER. DURING THE FIRST SIX MONTHS OF 2004, THE COMPANY PRODUCED AT AN
ANNUALIZED RATE OF 31,000 OUNCES OF GOLD FROM ITS 100% OWNED MESQUITE GOLD MINE
("MESQUITE") LOCATED IN IMPERIAL COUNTY, CALIFORNIA.
WGI IS CURRENTLY FOCUSED ON EXPANDING PRODUCTION BY EXTENDING THE EXISTING PITS
WITHIN CURRENT OPERATING PERMITS. THE PLANNED MINE EXPANSION HAS THE POTENTIAL
TO ADD MORE THAN 50,000 OUNCES OF ANNUAL PRODUCTION. IN ADDITION, THE COMPANY
CONTINUES TO OPTIMIZE PRODUCTION FROM THE 154 MILLION TONS OF ORE THAT WAS
STACKED ON THE LEACH PADS BY PREVIOUS OPERATORS. THE COMPANY'S GOAL IS TO
EXPAND ANNUAL PRODUCTION TO APPROXIMATELY 250,000 OUNCES OF GOLD WITHIN FIVE
YEARS.
In November 2003, WGI joined the ranks of North American gold producers through
its acquisition of the Mesquite from Newmont Mining Corporation ("Newmont").
Mesquite has produced approximately three million ounces of gold during the past
twenty years. Continuing production from the leach pads provides an operational
and financial foundation upon which the Company can build expansions of the
existing pits and contemplate reprocessing of higher grade sections of the pads.
The acquisition of Mesquite distinguishes WGI from most smaller gold producing
companies because:
- WGI immediately became a producing company.
- Based on an independent review of data compiled by Newmont, there was
an inventory of mineralized material totaling 43 million tons
averaging 0.021 ounces of gold per ton that was within pit expansions
covered by existing operating permits.
- WGI believed that there was the potential to add further mineralized
material in extensions both laterally and at depth from the structures
identified by Newmont.
During the past eleven months, WGI has made considerable progress, including:
- Completing a positive internal scoping study for an initial expansion
of the pits within existing operating permits.
- Completing a positive internal scoping study for re-processing leach
pad material.
- Identifying high grade development potential, including extensions at
depth.
- Assuming day-to-day responsibility for all operations at Mesquite.
- Completing construction of a refinery in order to pour gold on-site.
- Retrofitting the gold recovery circuit.
WGI supported the acquisition through a combination of a $6 million project debt
facility, a $10 million equity private placement, and an innovative
environmental insurance policy. By October 31, 2004 WGI expects to have repaid
half the loan.
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Exchange OTC BB Shares out (9.28.04) (millions) 38.258
Symbol WGDF Float (%) 78%
Price (9.28.04) ($) 0.630 Options & warrants (millions) 29.456
52 week: high (9.30.03) ($) 1.900 Average exercise price ($) 0.937
low (9.23.04) ($) 0.580 Cash (6.30.04) ($ mm) 2.560
Cash on option/warrant exercise ($ mm) 27.594
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There are four aspects to development of the Mesquite Gold Mine:
- Pit expansion covering some or all of the 42.9 million tons of
mineralized material that was subject to mine plans prepared by
Newmont. This material, grading 0.021 ounces of gold per ton, is
located in four expansions to the existing pits that are covered by
current mine expansion permits.
- Review and analysis of additional material within a total of 50.1
million tons of mineralized material grading 0.027 ounces of gold per
ton identified within a mineralized envelop of 120.7 million tons
grading 0.018 ounces of gold per ton.
- Review of high grade structures identified that extend both laterally
and at depth - in the numbers above, all high grade intercepts were
cut to 0.1 ounces of gold per ton.
- Selective reprocessing of some of the 154 million tons of ore stacked
on the leach pads by previous operators.
It has often been said that the best place to find a new gold mine is next to an
existing one. During the past twenty years, production at Mesquite establishes
it as a major North American gold mine. Mesquite has been a successful and
highly profitable operation. However, WGI believes that the mine operations
were never fully optimized, probably as a result of the fact that the mine has
been through five owners in the approximately twenty years of operations. The
mine was discovered and developed by Goldfields Mining Corporation, then a
subsidiary of Consolidated Goldfields plc, which was acquired by Hanson
Industries plc, which then sold the gold operations to Santa Fe Pacific Gold,
which was in turn acquired by Newmont, which then sold Mesquite to WGI.
Until WGI acquired Mesquite in 2003, the mine became of lesser importance upon
each change of ownership. Indeed, WGI now believes that significant lessons
were forgotten during the latter years of operations. In particular, the
Company believes that operations may be significantly enhanced by selective
mining and processing of the high grade material that many have observed and
recognized throughout the history of operations at Mesquite.
WGI has three immediate plans:
- Commence expansion of the Big Chief pit to the north where the Company
has identified a mineralized zone of 19.7 million tons grading 0.022
ounces per ton within which its internal scoping study has established
a mineable area of 5.2 million tons grading 0.032 ounce of gold per
ton (using a cutoff of 0.012 ounces of gold per ton).
- Complete a thorough review of all the permitted expansion areas, in
addition to Big Chief North, that in total are covered by
approximately 2,700,000 feet of drilling in more than 6,200
exploration holes and 650,000 blast holes.
- Complete a third-party review of the potential to increase production
from 154 million tons of ore stacked on the leach pads by prior
owners.
The Company also holds an extensive portfolio of advanced exploration projects,
including Cahuilla, Sunny Slope and Lincoln Hill. The Company's overall
objectives are to expand production at Mesquite to an annualized rate of at
least 50,000 ounces in the second half of 2005 and, with Mesquite and other
operations, to ramp up total production to approximately 250,000 ounces a year
within five years.
On the corporate front, the Company has become a fully reporting issuer under
the US Securities & Exchange Commission, obtained a quotation on the OTC
bulletin board, and is pursuing plans to have its shares listed on a recognized
Canadian exchange and a senior US exchange, both of which it anticipates by
early 2005.
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WESTERN GOLDFIELDS PROPERTY LOCATION MAP
[GRAPHIC OMITTED]
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WESTERN GOLDFIELDS, INC.
Western Goldfields was incorporated in Idaho in 1924 as Bismarck Mining Company.
In July 2002 the Company acquired all of the issued and outstanding shares of
Calumet Mining Company, a private Idaho corporation operated by the present
management of the Company that held most of the current exploration properties.
The primary objective of Western Goldfields is to develop or acquire ore
reserves in the Western U.S. and Mexico that will support early mine
development. In addition to a portfolio of properties including near-term
development projects, in November 2003 the Company acquired the Mesquite gold
mine from Newmont Mining Corporation.
This transaction will establish Western as a low-cost gold production company,
provide early expansion potential, and is expected to become the foundation
stone for achieving the company's initial targets of 100,000 ounces of annual
production and a reserve life of at least ten years.
MESQUITE
Mesquite is located south of the Chocolate Mountains in Imperial County,
southern California in the Mojave Desert, approximately 35 miles east of Brawley
and 45 miles northwest of Yuma, Arizona. Yuma is an established city of
approximately 85,000 people located just north of the Mexican boarder.
Mesquite is well supported by existing infrastructure, including state highway
78 that passes close to the mine, grid electric power and the Southern Pacific
Rail Road.
There has been intermittent mining in the area since the late 1800s. Modern
development started in the early 1980s - the mine was opened in 1986 and
operated continuously until May 2001. Since then, gold production from the
leach pads has continued without interruption.
During its twenty year operating life, Mesquite has been owned by five different
companies. Gold Fields Mining Corporation, the US arm of UK-based mining house
Consolidated Goldfields, developed the mine in the early-mid 1980s. Shortly
after Mesquite opened, an attempted hostile takeover of Newmont Mining, an
affiliate of Consolidated Goldfields, resulted in that company increasing its
holding in Newmont to 49% and focusing its efforts on restructuring Newmont.
In weakened form, Consolidated Goldfields then became the target of a hostile
takeover attempt by Minorco, the international arm of the Anglo American group.
Hanson, the UK-based conglomerate, acted as white knight - Mesquite was
transferred to Hanson Natural Resources. However, Hanson was never really
interested in precious metals and subsequently exchanged the wholly owned gold
operations for assets held by Santa Fe. At the same time, Hanson's interest in
Newmont was exchanged for other assets held by Sir James Goldsmith.
In 1997, Newmont acquired Santa Fe Gold. Presentations at the time indicated
that the acquisition was centered on Santa Fe's Nevada projects and extensive
property portfolio.
Thus, in the space of eleven years, ownership of Mesquite passed from
Consolidated Goldfields to Hanson, to Santa Fe, and then to Newmont.
Furthermore, during the first three years its owners were caught-up in rebuffing
two attempted hostile takeovers. For this reason, the mine became something of
an orphan.
Since 1986, Mesquite has produced approximately three million ounces of gold
from an estimated four million ounces placed on the leach pads. After mining
ceased in May 2001 and ore stacking was completed in August of that year,
production has continued from ore previously placed on the leach pads.
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MESQUITE LOCATION MAP
[GRAPHIC OMITTED]
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Mining took place in three major pits - Big Chief to the northwest of the
property, Rainbow to the northeast, and Vista to the southeast. Mine
infrastructure was based in the center of the property, feeding three distinct
areas of leach pads located to the south on the pediment. Gold recovery and
leach pad infrastructure is located to the northeast of the three pad areas, to
the south of the mine infrastructure.
Mesquite mined a total of 446 million tons of rock, comprising 154 million tons
of ore and 292 million tons of waste, including 5 million tons of clay
stockpiled for future activities. The average strip ratio, including clay as
waste, was 1.89:1 and the average ore grade was 0.026 oz/t.
Total gold production through August 31, 2004 was 2.991 million ounces of gold.
During the first half of 2004, WGI reported production of 15,500 ounces, or an
annualized rate of more than 30,000 ounces.
AERIAL VIEW OF MESQUITE MINE
(CIRCA 1998)
[GRAPHIC OMITTED]
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Western Goldfields, Inc. Page 6
MESQUITE OPERATIONS
Total rock Clays Contained
mined stockpiled Strip ratio Ore mined Ore grade gold
(t) (t) (t) (oz/t) (oz)
MINING OPERATIONS
BIG CHIEF
Crushed oxide 43,354,329 0.039 1,697,965
Crushed sulfide 2,612,111 0.064 166,529
ROM oxide 40,991,395 0.016 645,699
ROM sulfide 1,691,552 0.027 45,017
------------ ---------- ----------
262,769,800 808,571 1.96 88,649,387 0.029 2,555,210
RAINBOW
Crushed oxide 9,363,134 0.025 234,110
Crushed sulfide 1,317 0.021 28
ROM oxide 4,402,445 0.013 58,814
ROM sulfide 26,905 0.040 1,075
------------ ---------- ----------
26,385,724 - 0.91 13,793,801 0.021 294,027
VISTA
Crushed oxide 16,127,307 0.030 481,814
Crushed sulfide 250,072 0.040 9,904
ROM oxide 30,530,254 0.016 483,684
ROM sulfide 2,989,616 0.037 109,214
------------ ---------- ----------
150,436,264 3,973,819 2.01 49,897,249 0.022 1,084,616
CHEROKEE
Crushed oxide 6,261,247 - 2.75 1,671,247 0.031 52,392
TOTAL
Crushed oxide 70,516,017 0.035 2,466,281
Crushed sulfide 2,863,500 0.062 176,461
ROM oxide 75,924,094 0.016 1,188,197
ROM sulfide 4,708,073 0.033 155,306
------------ ---------- ----------
445,853,035 4,782,390 1.89 154,011,684 0.026 3,986,245
GOLD PRODUCTION TO 6/30/03 2,976,513
Recovery to date 74.7%
Existing reclamation and closure bonds total $7.0 million, comprising $2.5
million for reclamation and $4.5 million closure costs. Newmont estimated the
actual cost of remediation conducted in-house to be approximately $5.4 million.
These reclamation and closure costs are covered by an environmental insurance
policy with AIG, one of the world's largest insurance companies, that provides
coverage for costs up to $14 million and enables WGI to fund reclamation from
the policy - i.e., WGI fully funded the ultimate reclamation and closure of upon
acquisition of the mine.
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MINE EXTENSIONS
Newmont identified six mine expansions and developed mine plans for four of
them. After closing the acquisition, WGI commenced a review of the data
collected during the previous twenty years. WGI's approach has been to focus on
areas that offer the potential for rapid payback. In contrast, Newmont was
seeking sufficient tonnage that it could achieve a 200,000 ounce a year
production level.
MESQUITE MINE EXPANSION PLANS
[GRAPHIC OMITTED]
WGI has focused its attention on the northern extension to the Big Chief pit,
where it has completed a positive internal scoping study and is now moving to
independent feasibility with production anticipated by mid-2005. This was one
of the areas where Newmont did not complete a full mine plan. Indeed, WGI plans
additional drilling to further delineate the resource in the area.
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BIG CHIEF NORTH
There are three zones within Big Chief North - high grade, lower grade, and
areas where there is insufficient data to classify the material. In addition,
to the west of Big Chief North wide spaced drilling indicates the potential for
further expansion.
BIG CHIEF NORTH GRADE MODEL
[GRAPHIC OMITTED]
In an internal report completed in August 2004, WGI calculated mineralized
material totaling 9.6 million tons grading 0.033 ounces of gold per ton in zones
1 and 2 within an overall mineralized envelop of 19.7 million tons grading 0.022
ounces of gold per ton. Of the 9.6 million tons in zones 1 and 2, WGI estimates
that 5.2 million tons grading 0.032 ounces of gold per ton are mineable at a
strip ratio of 2.91:1. This includes a "starter pit" totaling 1.6 million tons
grading 0.038 ounces of gold per ton.
These numbers highlight several areas for additional potential:
- Additional drilling may enable more of the 9.6 million tons of
mineralized material to be included within the mine plan.
- Some of the zone 3 material may be mineable, which would reduce the
strip ratio and increase the projected production.
- The high grade zone 1 was capped at 0.4 ounces of gold per ton, which
may not fairly reflect the high grade potential.
- Selective mining and processing of the high grade material may result
in enhanced recovery from these areas.
WGI has completed an internal scoping study that contemplates mining Big Chief
North. This internal study is currently being verified by an independent
technical report to Canadian National
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Instrument 43-101 standards that should be completed by the end of 2004 at which
time the Company will make a formal decision about proceeding with the project.
Upon receiving a positive receommendation, the definitive operating plan will be
submitted to the regulatory authorities and the Company anticipates starting
mining at Big Chief North within six months.
WGI's current evaluation indicates that North Big Chief can be placed into
production for a capital cost of less than $10 million. Most of the capital
cost is the acquisition of a two-stage crushing system and a conveyor and radial
stacker. All of this equipment will be used in further mine expansions.
Indeed, the only capital directly related to Big Chief North comprises pad
expansions (approximately $1.5 million), drilling and pre-strip at Big Chief
North (approximately $2.25 million).
In its economic analysis, WGI has amortized the total capital over anticipated
production of approximately 128,000 ounces. The potential for further
enhancements comes from:
- Amortization of much of the capital over additional production.
- Expansion of Big Chief North.
- Transfer of "waste" to "ore" within the initial mine plan at Big Chief
North.
- Selective mining and processing of high grade material.
- Reduction in unit operating costs.
ECONOMIC ANALYSIS
Even on the current assumptions that exclude the upside potential outlined
above, Big Chief North appears to be economically viable on a stand-alone basis.
It is important to understand that this economic analysis allocates mine site
general and administrative costs of $165,000 per month to Big Chief North,
although the expenditure reflects both the continuing leach operations and
preparation for additional expansions. As previously stated, as much as 60% of
the capital costs should be allocated across the whole project, and not just to
Big Chief North. Combined, these "project" costs represent a burden of as much
as $10 million against Big Chief North.
Even with these burdens, the initial economics indicate that Big Chief North has
the potential at a gold price of $400 per ounce to return a profit of
approximately $8.5 million after payback of capital. If 50% of the project
costs were allocated to Big Chief North - which may still be conservative given
the scale of the other expansion projects - the return after payback could be in
excess of $11.5 million.
Cash operating costs, excluding royalties, are projected to be at approximately
$230 per ounce in the first three months of commercial production and the Big
Chief North operations are projected to pay back twice the investment and to
generate a better than 60% internal rate of return.
Even on a stand-alone basis, the internal scoping study indicates total costs,
including amortization of all capital and expensing of all direct costs at
Mesquite, of approximately $340 per ounce. Again, in view of the other
potential expansions at Mesquite, we consider this to be an unfairly
conservative number but it indicates that Big Chief North has the potential to
more than fully pay for itself and fully support other developments at Mesquite.
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SUMMARY OPERATING AND ECONOMIC ANALYSIS
BIG CHIEF NORTH - STAND ALONE BASIS
Input Q2 Q3 Q4 Q1 Q2 Q3 Q4
OPERATIONS
Rock mined - 2,653,430 2,653,430 2,653,430 2,653,430 2,653,430 2,653,430
Ore mined - 153,794 538,965 710,248 801,238 637,266 693,908
Waste mined - 2,499,636 2,114,465 1,943,182 1,852,192 2,016,164 1,959,522
Strip ratio - 16.25 3.92 2.74 2.31 3.16 2.82
One stage crush 50.0% - 76,897 269,483 355,124 400,619 318,633 346,954
Two stage crush 95.0% - 73,052 256,008 337,368 380,588 302,701 329,606
--------------------------------------------------------------------------------
Total screened/crushed - 149,949 525,491 692,492 781,207 621,334 676,560
--------------------------------------------------------------------------------
Gold grade -
Mined gold - 0.049 0.032 0.037 0.031 0.030 0.030
Gold produced - 3,282 11,256 17,692 20,334 15,653 15,337
Residual Leach gold production - 3,807 3,264 2,798 2,398 2,056 1,763
--------------------------------------------------------------------------------
Total gold production - 7,089 14,519 20,491 22,732 17,709 17,100
--------------------------------------------------------------------------------
Gold revenue 400 - 2,835,679 5,807,763 8,196,297 9,092,737 7,083,729 6,840,073
CA royalty 5.000 - 35,446 72,597 102,454 113,659 88,547 85,501
Other royalties 5.3% - 150,291 307,811 434,404 481,915 375,438 362,524
Net revenue - 2,649,942 5,427,355 7,659,440 8,497,163 6,619,745 6,392,048
COSTS
Drill & blast 0.188 - 498,845 498,845 498,845 498,845 498,845 498,845
Mining -- ore 0.900 - 138,415 485,069 639,223 721,114 573,539 624,517
Mining -- waste 0.780 - 1,949,716 1,649,283 1,515,682 1,444,710 1,572,608 1,528,427
--------------------------------------------------------------------------------
Total mining - 2,586,976 2,633,196 2,653,750 2,664,669 2,644,992 2,651,789
--------------------------------------------------------------------------------
Crush (each stage) 0.285 - 63,555 222,727 293,510 331,112 263,350 286,757
Rehandle 0.025 - 3,845 13,474 17,756 20,031 15,932 17,348
Convey and stack 0.170 - 26,145 91,624 120,742 136,210 108,335 117,964
--------------------------------------------------------------------------------
Total crushing/stacking 0.676 - 93,545 327,825 432,008 487,353 387,617 422,070
--------------------------------------------------------------------------------
Leach, excluding cyanide 0.316 - 48,599 170,313 224,438 253,191 201,376 219,275
Cyanide 0.224 - 34,450 120,728 159,096 179,477 142,748 155,435
Residual Leach - 525,000 525,000 525,000 525,000 525,000 525,000
Precipitation 0.802 - 123,343 432,250 569,619 642,593 511,087 556,514
Refinery 1.909 - 13,533 27,718 39,117 43,395 33,807 32,644
--------------------------------------------------------------------------------
Total - 744,925 1,276,009 1,517,270 1,643,656 1,414,018 1,488,869
--------------------------------------------------------------------------------
Mine administration - 570,000 570,000 570,000 570,000 570,000 570,000
--------------------------------------------------------------------------------
TOTAL COSTS - 3,995,446 4,807,030 5,173,028 5,365,678 5,016,627 5,132,728
--------------------------------------------------------------------------------
OPERATING CASH FLOW - (1,345,503) 620,325 2,486,412 3,131,485 1,603,117 1,259,321
--------------------------------------------------------------------------------
Cumulative - (1,345,503) (725,179) 1,761,233 4,892,718 6,495,835 7,755,156
--------------------------------------------------------------------------------
CAPITAL EXPENDITURE
Crusher/conveyor 3,445,000 - - - - - -
Pad construction 767,500 767,500 - - - - -
Other 550,000 - - - - - -
--------------------------------------------------------------------------------
Total 4,762,500 767,500 - - - - -
--------------------------------------------------------------------------------
Environmental & Reclamation 1,114,856 - - - - - -
Exploration drilling 200,520 - - - - 240,000 160,000
--------------------------------------------------------------------------------
Total 1,315,376 - - - - 240,000 160,000
--------------------------------------------------------------------------------
6,077,876 767,500 - - - 240,000 160,000
--------------------------------------------------------------------------------
OPERATING FREE CASH (6,077,876) (2,113,003) 620,325 2,486,412 3,131,485 1,363,117 1,099,321
--------------------------------------------------------------------------------
Total
Q2'05-
Q1 Q2 Q2'07
OPERATIONS
Rock mined 2,653,430 1,744,118 20,318,128
Ore mined 866,664 794,630 5,196,713
Waste mined 1,786,766 949,488 15,121,415
Strip ratio 2.06 1.19 2.91
One stage crush 433,332 397,315 2,598,357
Two stage crush 411,665 377,449 2,468,439
---------------------------------
Total screened/crushed 844,997 774,764 5,066,795
---------------------------------
Gold grade
Mined gold 0.027 0.032 0.032
Gold produced 18,222 21,214 128,098
Residual Leach gold production 1,018 - 20,389
---------------------------------
Total gold production 19,240 21,214 148,487
---------------------------------
Gold revenue 7,695,832 8,485,593 59,394,761
CA royalty 96,198 106,070 742,435
Other royalties 407,879 449,736 3,147,922
---------------------------------
Net revenue 7,191,755 7,929,786 55,504,404
---------------------------------
COSTS
Drill & blast 498,845 327,894 3,819,808
Mining -- ore 779,998 715,167 4,677,042
Mining -- waste 1,393,677 740,601 11,794,704
---------------------------------
Total mining 2,672,520 1,783,662 20,291,553
---------------------------------
Crush (each stage) 358,149 328,381 2,147,542
Rehandle 21,667 19,866 129,918
Convey and stack 147,333 135,087 883,441
---------------------------------
Total crushing/stacking 527,148 483,334 3,160,901
---------------------------------
Leach, excluding cyanide 273,866 251,103 1,687,067
Cyanide 194,133 177,997 1,195,808
Residual Leach 350,000 - 3,500,000
Precipitation 695,065 637,293 4,298,155
Refinery 36,728 40,497 280,893
---------------------------------
Total 1,549,791 1,106,891 10,961,923
---------------------------------
Mine administration 570,000 570,000 4,700,000
---------------------------------
TOTAL COSTS 5,319,460 3,943,886 39,114,377
---------------------------------
OPERATING CASH FLOW 1,872,295 3,985,900 16,390,026
---------------------------------
Cumulative 9,627,451 13,613,351 16,390,026
---------------------------------
CAPITAL EXPENDITURE
Crusher/conveyor - - 3,445,000
Pad construction - - 1,535,000
Other - - 550,000
---------------------------------
Total - - 5,530,000
---------------------------------
Environmental & Reclamation - - 1,738,091
Exploration drilling - - 600,520
---------------------------------
Total - - 2,338,611
---------------------------------
- - 7,868,611
---------------------------------
OPERATING FREE CASH 1,872,295 3,985,900 8,521,415
---------------------------------
OTHER EXPANSIONS
WGI is currently completing comparably detailed analyses of the other expansion
areas. This work program should be completed before the end of 2004, at which
time the Company will select the next area for independent engineering. The
target areas include both western and southeastern extensions to the Big Chief
pit, eastern and western extensions to Vista, and northern and eastern
extensions to Rainbow.
In its December 2003 Technical Report to Canadian National Instrument 43-101
standards, Mine Development Associates (MDA) of Reno, Nevada reported in situ
mineralized material comprising 42.9 million tons averaging 0.021 ounces of gold
per ton. This analysis excluded Big Chief North, described above, as well as
Big Chief West and the extensions to Vista. WGI is processing all of the
exploration and blast hole data, mining and geological records in order to
prioritize its analysis and then focus on detailed mine modeling of each
prospective area. The experience at Big Chief North indicates the potential to
upgrade both tonnage and grade in large part through careful geological
interpretation that was not used in prior models.
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HIGH GRADE POTENTIAL
WGI's review of the comprehensive data accumulated by previous owners through
twenty years of exploration and operation has already identified numerous high
grade zones throughout Mesquite. As was typical at open pit heap leach mines
developed during the 1980s, prior operators treated Mesquite ore as if it were
homogeneous. However, as other operators have discovered elsewhere in the
western US, what was considered to be homogeneous often included high grade
material that could be processed separately to achieve significantly higher
recovery with minimal additional cost. WGI's management is experienced in
precisely this reinterpretation and is bringing this new perspective to its
understanding of Mesquite.
In one area - Big Chief South/Bay Horse - the Company has found numerous
intercepts in drilling conducted by previous operators that exceed 1.0 ounces of
gold per ton. Examples include:
- MR-3052 - 80 feet averaging 0.67 ounces of gold per ton including 30
feet averaging 1.71 ounces of gold per ton.
- SM-1404 - 50 feet averaging 0.96 ounces of gold per ton including 10
feet averaging 4.41 ounces of gold per ton.
- SM-1970 - 10 feet averaging 3.88 ounces of gold per ton including 5
feet averaging 7.50 ounces of gold per ton.
- MR-2793 - 50 feet averaging 0.37 ounces of gold per ton including 10
feet averaging 1.74 ounces of gold per ton.
These drill hole locations are shown on the map below.
[GRAPHIC OMITTED]
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The Company intends to evaluate these and similar zones, primarily by drilling,
to determine whether grade control in open pit mining and/or development of
underground reserves may be possible. This approach has not been considered in
the past, and could add substantially to future production.
LEACH PRODUCTION
Gold production from the existing heap leach pads has continued longer, and
total gold recovery is greater than originally expected. Extensive review of
the operating data indicates several factors that contribute to the stable
production profile:
- A significant fraction of gold is coarse, and some is visible to the
naked eye, which will require extended leaching for full recovery.
- Blast holes that assayed greater than 0.10 oz/t gold were cut to a
0.10 oz/t. Western is reviewing this data to understand the potential
underestimation of the ore grade placed on the leach pads.
- Blast hole assays were conducted using a partial dissolution analysis
(MIBK) instead of a fire assay. This method tends to underestimate
grade since not all of the gold in the sample is digested, especially
when there is coarse gold. Tests at Mesquite indicate that the MIBK
assays may be less than 95% of fire assays. If this error applies to
all the ore mined, the total gold placed on the pads may have been at
least 200,000 ounces more than currently estimated.
- When the crushing plant was operating before switching to 100%
run-of-mine ore, there were problems with sampling that may have
resulted in the underestimation of gold grade to the pads.
- Several engineers estimated and revised ore reserves over the many
years of operation. Many different tonnage factors were used but they
generally appear to be high, thus underestimating the amount of ore
placed on the heaps that, in turn, would underestimate the amount of
gold placed in the pads.
OTHER OPPORTUNITIES
During its ownership of Mesquite, Hanson recognized that southern California is
a facing a challenge to find landfills for residential, non-hazardous waste.
Hanson developed an initial concept of filling the Mesquite pits with waste,
which could then be covered and sealed.
The plan has evolved during the past decade. The County Sanitation District of
Los Angeles County has developed and permitted a plan to create a 100-year
landfill that, when completed, will be the largest residential waste disposal in
the United States. Waste will be dumped on lined pads on the pediment to the
southeast of the Mesquite pits, ultimately including the southern sections of
the leach pads. The waste dumps will utilize much of the material mined at
Mesquite as liner and seal - each cell of the landfill will be sealed as it is
completed. The area of the landfill is shown in pale blue on the claim map on
Page 17 of this report.
Mine operations have preferential rights throughout the property until 2078.
The landfill has numerous potential benefits for Mesquite, including contract
mining and processing of material such as clay, waste and leached ore. Much of
the infrastructure at the property is likely to be retained by the landfill, and
on-going monitoring will be taken over by the landfill once Mesquite has met
certain reclamation standards. Western is in the early stages of fully defining
the potential economic benefits of the landfill development.
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MESQUITE ACQUISITION SUMMARY
WGI's acquisition of Mesquite was a cashless transaction involving the
assumption by WGI of reclamation and closure liabilities and the issuance of
stock by WGI to Newmont. WGI secured a comprehensive environmental policy from
AIG that supports the closure costs and provides reclamation bonding. Most of
the policy is provided in a single premium policy. The premium was funded
through a project financing facility from RMB Resources, the merchant banking
arm of one of South Africa's largest financial institutions, together with some
of the proceeds from an equity raise of $10 million comprising 12.5 million
units each consisting of two shares and one warrant to buy a share at $1.00.
More specifically:
- WGI assumed reclamation and closure liability at Mesquite, estimated
at approximately $6.0 million.
- WGI posted bonds totaling $7.8 million, since reduced to $7.0 million,
in reclamation and closure bonds with the appropriate State and
Federal agencies. These bonds were provided as part of a comprehensive
environmental insurance policy with AIG and do not require cash
backing by Western.
- WGI agreed to pay to Newmont 50% of the operating profits derived from
gold produced from material on the leach pads as at closing.
- WGI agreed to pay to Newmont a royalty of between 0.5% and 2.0%,
depending on specific location, on gold produced from newly mined ore.
- WGI issued to Newmont 3.4 million shares of common stock plus warrants
to acquire 8.1 million shares of WGI's common stock at $1.00 per share
The AIG reclamation and closure policy will fund the costs of closing the
operations. Under these policies, AIG is responsible for cost overruns but any
cost saving compared with AIG's budget will be returned to WGI. In addition,
AIG provides support for the associated bonds and, under separate policies,
provides comprehensive environmental liability insurance to cover past or future
risks.
MESQUITE BACKGROUND
GEOLOGY
Mesquite is comprised of two sub-parallel, Oligocene-age ore bodies. Gold
mineralization is hosted in Mesozoic gneisses that are intruded by
biotite/muscovite rich granites. The district is covered by up to 200 feet of
Tertiary and Quaternary sediments, shed from the south slope of the Chocolate
Mountains. Gold mineralization is bound by post mineral faulting related to the
Neogene San Andreas fault system.
STRATIGRAPHY
Mesquite is hosted by a Jurassic-aged gneiss and pluton terrain. The
stratigraphic sequence is (from bottom to top): mafic, hornblende-biotite, and
biotite gneiss overlain by Bay Horse Quartzite, and Muscovite Schist. These
units have been crosscut by a number of quartz, feldspar, biotite and
muscovite-rich granite sills, plutons, and dikes. The gneiss units are present
in a shallowly dipping stratigraphic sequence, offset by numerous high and low
angle faults. This package is locally overlain by up to 400 feet of Tertiary
lithified silts, sands, and gravels; and unconsolidated Quaternary gravels.
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STRUCTURE
There are three main structural components; in order of decreasing age:
- Northwest strike, shallow dip to the southwest, reverse faults
consisting of a 5-10 foot thick zone of pale green gouge and commonly
separate mineralized, strongly fractured gneiss in the hanging wall
and un-mineralized gneiss in the footwall. These structures appear to
predate alluvium deposition.
- East-west strike, near vertical, right-lateral strike slip faults
between which dilational extension probably occurred. These faults
show evidence of reactivation, and offset the Tertiary-Bedrock
contact.
- Northwest strike, near vertical faults with relatively small offsets,
which reflect the primary distribution of gold mineralization.
- Northeast strike, near vertical normal faults that offset all other
structural elements and the alluvial overburden.
These structures have provided both conduits and offsets to the ore bodies found
at Mesquite. The high-angle northwest structures appear to have the greatest
control on gold distribution, while the high-angle northeast faults have offset
the ore bodies in a stair step fashion. Finally, the system is bounded the
northwest-southeast striking San Andreas parallel structures that terminate
known mineralization to the southwest and northeast.
MINERALIZATION
Gold mineralization at Mesquite was deposited in an epithermal setting, within
500-1000 feet of the surface. The majority of economic mineralization is found
in the biotite gneiss and hornblende biotite gneiss, while mafic gneiss and
intrusive rocks are generally less mineralized. Gold mineralization is both
disseminated and vein-stockwork hosted within these units. The majority of the
vein-stockwork types are fault controlled, with moderate to steep dip.
Gold occurs as both submicron disseminated and coarse gold. All documented gold
occurrences are native gold, and classification has been based on silver content
and grain size. A silver-free native gold is the most common type in the
oxidized zone. It occurs in particles less then 5 microns in size, although
clusters up to 100 microns are common in fault zones.
A second type is the silver-bearing (5-20%) coarse (10-600 microns) gold. The
average size is 30-50 microns and it is typically found in the unoxidized zone,
and only occasionally in the oxidized zone. Silver-bearing gold is associated
with quartz-adularia pyrite veins containing arsenopyrite, magnetite, and
chalcopyrite.
Visible gold has been identified throughout Mesquite. Small flakes, less than
50 micron, of free "flour" gold have been found within the oxidized gouge and
clay fault zones. The flour gold is thought to be a result of re-mobilization
during oxidation and is supergene in nature. Gold is typically associated with
titanium oxides (rutile) and hematite. These zones are limited in extent but can
be extremely high grade - typical gold values range from 1.0 to 2.0 oz/t gold;
with a high of 36 oz/t Au recorded.
Coarse-grained hypogene gold has also been noted with more frequency and larger
size in the unoxidized portion of the deposits. Recent test work on
non-oxidized ore indicates that 65-78% of the gold is liberated free milling
gold, 13% is associated with refractory sulfide minerals, and the remainder is
associated with iron oxides and carbonates. Coarse gold generally occurs as
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electrum within quartz veins (occluded and void fill), while the refractory
portion is found within overgrowth rims of arsenopyrite, chalcopyrite, and
pyrite.
MINING METHODS
In 1986, the first full year of mining, a total of 8.7 million tons of material
was mined at an average rate of approximately 30,000 tons per day. Production
increased to a peak of 45 million tons in 1997, a rate of 132,000 tons per day.
Mining ceased in May 2001.
Benches, 30 feet in height, were drilled with rotary blasthole drills on a
24-foot square grid. 7-7/8" diameter holes were drilled to a depth of 35 feet
allowing five feet of sub-drill to adequately break the toe. Once the holes
were loaded and back-filled with drill cuttings, the holes were "tied in" using
non-electric surface delay detonators. A timed delay between firing of adjacent
holes reduces the energy released at any one time and is necessary to minimize
damage to the pit wall. Approximately one fifth of a pound of blasting agent
was required for every ton of rock blasted.
Loading was accomplished with two 24-cubic yard capacity hydraulic shovels. A
fleet of up to 150-ton haulage trucks transported ore to leach pads
approximately three miles away. Waste material was transported to a nearby
in-pit overburden/waste stockpile or backfilled into sterilized pits.
ORE CONTROL
Ore zone determination was accomplished by interpolation of the 24-foot spaced
blasthole assay values. Samples were collected for each blasthole using a
through-the-deck rocket sampler. Approximately 30 pounds of drill cuttings were
collected from each blasthole and were assayed for total gold using MIBK method.
Hole locations were surveyed before blasting and were matched with the assay
value.
This data was then assigned a value of one (ore) if the assay value met the
economic pit cutoff or zero (waste) if the value did not meet the economic pit
cutoff. Ordinary Kriging was used to interpolate the ore/waste probability
value. This provided a mathematical tool to determine the ore/waste split.
Interpolating a value between 0 and 1 in the blocks of the model allows
discrimination within a probability contour. An interpolated ore/waste value of
..5 equates to a 50 percent probability that the block is ore. Values between .3
and .4 were used for contour generation. The ore control block model consisted
of 25' x 25' x 30' blocks.
Once the ore/waste value was interpolated, blocks that met the ore/waste
probability value were interpolated again using the gold assay values with
inverse distance interpolation to determine the gold grade in the ore blocks.
Only blast hole values found within the blocks determined to be ore in the
ore/waste interpolation were used to determine the grade of these blocks.
Mineable polygons were drawn around the ore blocks and were staked in the pit
and mined appropriately. Target was a run-of-mine property, therefore ore
control determinations are ore or waste. Mintec's MEDSYSTEM software mining
package was used at Mesquite.
PROCESS FLOW
Mesquite placed run-of-mine ore in heaps on double-lined designed pads. The
total heap height exceeds two hundred feet, consisting of up to seven,
thirty-foot lifts. Each layer was leached for an initial duration of about 120
days. Following the initial leach, the heap rests and was considered inactive.
The leach solution continued extracting residual gold values not recovered
during the primary leach. When subsequent lifts were placed above these
inactive ores and
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leached, the leach solution passing down through the resting ore collected the
residual gold along with the gold recovered through the primary leaching of the
topmost ore heap.
In 1996, the Mesquite crusher circuit was deactivated following several
large-scale column and pilot heap leach tests that indicated gold recovery from
run-of-mine ore was similar to that obtained from crushed ore.
Leach solution is applied to ores using a matrix of drip emitter tubing that
distributes the leach solution evenly over the heap. The emitters are spaced on
thirty-inch centers. Typically, there are between three and four million square
feet under leach, for an application rate of between .001 and .002 gallons per
minute per square foot, which allows even leaching of the gold ore reducing the
effects of the solution channeling through the heap or ponding on top of the
heap.
The gold solutions that drain from the heaps are divided into two streams:
higher-grade stream flows to the pregnant pond, and then pumped to one of three
sets of carbon columns. The amount of heap drainage diverted to the pregnant
ponds is equivalent to the total flow capacity of the three column trains. Any
excess solution draining from the heaps reports to the intermediate pond and is
re-circulated directly back to the leach heap.
MESQUITE CLAIMS
[GRAPHIC OMITTED]
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While the leach solution cascades down one of three, five-column trains, the
carbon advances counter-current or up the column train. The carbon is removed
from the top columns when the gold loading is between 100 and 150 oz. per ton.
Gold is removed from the carbon using a hot cyanide-caustic strip solution that
flows into electro winning chambers where the gold is deposited on stainless
steel mesh cathodes. Periodically, the "sludge" is removed from the cathodes,
dried, mixed with flux and smelted into a gold-rich dor .
CAHUILLA GOLD PROJECT
PROPERTY AND OWNERSHIP
On June 3, 2003, Western Goldfields announced it had secured a letter of intent
for the Cahuilla gold project in Imperial County, California, the majority of
which is situated on the Torres Martinez Desert Cahuilla Indian Reservation.
The Company has the sole right to explore and develop the Tribal lands and may
use the assistance of a joint venture partner if necessary. Currently, the
Cahuilla project contains a mineral resource of approximately 856,000 ounces of
gold that will most likely be expanded significantly by additional exploration,
as the mineralization is completely open in all directions along strike and at
depth.
[GRAPHIC OMITTED]
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GEOLOGY & MINERALIZATION
The Cahuilla project is localized along the western edge of the Salton Trough,
which is characterized by active crustal extension within the San
Andres-Modoc-San Jacinto fault system. The Modoc Fault is the most important
geologic feature at Cahuilla, and Jurassic quartz monzonite comprises the
footwall block in the project area. The hanging wall is composed of the
Quaternary Palm Springs Formation, a succession of fine- to coarse-grained
clastic sediments, rhyolite, siliceous sinter and fanglomerates.
Both the quartz monzonite and Palms Springs Formation host ore-grade
mineralization. The northwest to east-west trending Modoc Fault along with
north-south and east-west trending subvertical faults host higher grade
mineralization and represented pathways for the hydrothermal precious metal-rich
solutions.
An extensive, disseminated lower-grade halo surrounds the higher-grade gold
values. Mineralization is known to extend for approximately two miles along the
strike of the Modoc Fault and more than mile south of this important geologic
feature.
Two dominant styles of gold mineralization are recognized at Cahuilla and
include: 1) flat, tabular, extensive bodies disseminated in Palm Springs
sediments and volcanics; and 2) structurally controlled, stockwork-associated,
higher-grade sheeted quartz veins along fault zones. Intense, widespread
silicification commonly accompanies precious metal mineralization.
Argillization occurs along the Modoc fault zone, which resulted from both
paleo-hot springs activity and younger supergene alteration of unsilicified
material.
[GRAPHIC OMITTED]
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PREVIOUS EXPLORATION
Historically, gold was produced from several mines located in the vicinity of
Cahuilla beginning in 1897. Mining activities are believed to have originated
in the Cahuilla deposit area as early as 1912. Since the late 1980's, an
estimated $5 million has been spent on gold exploration in the Cahuilla area,
with work performed by companies including Homestake, Newmont and Kennecott.
Homestake and Newmont conducted exploration on private lands adjacent to the
Reservation but were unable to reach an agreement with the Torres Martinez
Indians to lease Tribal lands. Kennecott was successful in executing an
exploration/mining agreement with the Tribe but relinquished the project when
Rio Tinto PLC acquired the company.
The Torres Martinez Tribe is credited with drilling the discovery hole which
contains 240 feet at a grade of 0.112 oz/t gold from 85 to 325 feet including
two high-grade intercepts of 45 feet of 0.359 oz/t gold and 15 feet of 0.314
oz/t gold. A total of 215 drill holes have been completed on the project to
date.
In 1996, Kennecott engaged MDA to perform an independent mineral resource
estimation. Calculations based on a 0.010 oz/t gold cut-off-grade indicate that
the Cahuilla deposit currently contains approximately 856,000 ounces of gold
resources. However, higher-grade mineralization appears to be under-represented
because its extent was severely limited due to the wide spaced drill coverage.
DEVELOPMENT PROGRAM AND BUDGET
The many significant high-grade gold intercepts and extensive disseminated
nature of mineralization at Cahuilla clearly demonstrate the potential for the
development of both an open-pit and underground mining operation. It is also
important to note that the Torres Martinez Reservation is a sovereign nation and
is pro-mineral resource development, a factor which, in the judgment of
management, should greatly assist in obtaining the necessary permits for gold
exploration and ultimate mine development.
Western Goldfields has budgeted $1,000,000 for continued development of the
Cahuilla gold project, which will be focused on developing the higher-grade
resource and spent over the next two years. The Company may also seek a joint
venture partner for exploration and development of the extensive, more capital
intensive open-pit target.
SUNNY SLOPE GOLD MINE
PROPERTY AND OWNERSHIP
Western Goldfields owns a 100% interest in the Sunny Slope gold mine, which
consists of 240 acres of unpatented claims located in Mineral County, Nevada.
The Company has outlined a program to put the mine into production and has
entered into a letter of intent with 321 Gold Inc whereby 321 Gold Inc can earn
a 70% interest in the project by funding it into production; WGI retains certain
back-in rights. There are no underlying royalties on the property.
The project is situated at an elevation of about 6,200 feet and is accessible
year round by paved and maintained dirt roads. A power line that services a
radio tower on the crest of the range to the east passes directly through the
Sunny Slope claim block. The mine site also has a sufficiently large area that
was prepared for past mining operations; therefore, only minimal surface impacts
will be required to construct a new processing plant and other necessary mine
facilities.
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GEOLOGY & MINERALIZATION
The Sunny Slope gold mine is a high-grade, quartz-gold vein system hosted in
metamorphosed sedimentary, volcanic and intrusive rocks of the Excelsior
Formation. At least two gold-bearing brecciated quartz veins have been
identified along northwest trending fault zones. The veins, which are poorly
exposed on the surface but easily mapable underground, appear to extend for many
hundreds of feet in strike length. The vertical extent of the high-grade veins
is unknown because the property has not yet been drill tested.
Although the Sunny Slope gold mine has never been drilled, existing underground
exposures of high-grade veins indicate that mineralization is relatively
continuous, visually discernible and may be mined efficiently at reasonably low
production costs. In addition, the deposit is open at depth and to the
northwest and southeast, where high-grade gold may be present beneath a thin
layer of colluvium, which currently conceals the entire area.
In addition to the high-grade quartz-gold veins that occur at Sunny Slope, a
second target has been identified. The high-grade veins may actually represent
the surface manifestation of a much larger gold porphyry system that is
concealed beneath the surface. Significant copper-gold porphyry deposits that
are associated with Jurassic intrusives are common in the area. Regional
geologic mapping suggests that this same intrusive may underlie the rocks that
host precious metals at Sunny Slope.
Gold-copper porphyry deposits that are recognized in the area include the
Yerington, Pumpkin Hollow and Northern Lights mines. The Yerington Mining
District, the most prolific in the area, is approximately 19 miles
west-northwest of Sunny Slope and hosts a future copper reserve of greater than
one billion tons of 0.4% copper. Anaconda operated the Yerington Mine from the
mid-1950s to 1978 and produced 162 million tons of 0.55% copper. The Pumpkin
Hollow deposit lies 15 miles northwest of Sunny Slope and hosts a significant
high-grade underground copper-gold resource. The Northern Lights Mine, located
approximately eight miles north of Sunny Slope, produced copper and precious
metals intermittently during the 1900s. Each of these deposits, including Sunny
Slope, is situated along a general northwest-trending lineament characterized by
many anomalous to ore grade copper-gold occurrences.
In September 1999, Western Goldfields collected channel samples from the vein
and structural zone which returned strongly anomalous gold values, including a
four-foot sample assaying 0.242 ounces of gold per ton. A separate two-foot
channel sample taken from the sheared hanging wall contact of the vein contained
24.752 ounces of gold per ton.
Recent underground exploration and development work conducted in February 2003
identified a new style of mineralization hosted in a three-foot thick shear zone
that contained no visible quartz. The channel sample collected across this zone
assayed 1.758 ounces of gold per ton. Previous underground mining operations
apparently did not recognize this structure as an ore host because the majority
of the shear zone remains intact.
Surface and underground geologic mapping indicates that the mineralized veins
and shear zones are open both along strike and down dip. The existing
underground workings encompass a relatively small area that measures
approximately 300 feet laterally by 200 feet vertically. Surface alteration has
been recognized for a distance of at least 2,500 feet along the northwest strike
of the veins and the quartz veins continue to extend below the deepest
underground workings. Therefore, the Company believes both surface and
underground exploration drilling will be paramount in delineating additional
high-grade ore.
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PREVIOUS EXPLORATION
Numerous shafts, adits and prospect workings are found in the Sunny Slope
project area as well as a well-preserved, historic stamp mill. This relatively
large mill facility suggests that the mine was of sufficient size and value to
support a substantial mining operation which may have pre-dated the 1900s.
Small-scale underground mining has been conducted in the project area since the
early 1900s although no specific records of past production could be located.
In the mid-1990s, Kennecott Corporation ("Kennecott") carried out a surface and
underground geochemical sampling program on the Sunny Slope gold mine that
returned gold values as high as 11.0 ounces of gold per ton in one sample of
vein material. Numerous other hand samples assayed more than 1.0 ounces of gold
per ton. Kennecott showed significant interest in the property and was planning
to conduct a more detailed surface and underground exploration program, however
following the Company's acquisition by Rio Tinto in 1995, the mine did not
fulfill the minimal size requirements of the new company and therefore was not
acquired.
PRODUCTION PROGRAM AND BUDGET
Western Goldfields' primary objective for the Sunny Slope Gold Mine is to
develop an underground mining operation as rapidly as possible. The mine's
high-grade gold mineralization is readily accessible on the surface and is
complimented by excellent infrastructure. In addition, minimal surface impacts
are required to initiate mining operations; therefore, permitting activities
should be relatively simple and inexpensive. Because of Sunny Slope's superior
geological and operational merits, the Company expects lead time to production
to be about 18 months.
LINCOLN HILL MINE
PROPERTY & OWNERSHIP
The Lincoln Hill Mine project is a high-grade, quartz-gold-tourmaline stockwork
overprinting a large, moderate-grade, disseminated replacement precious metal
mineralizing system. The project consists of one patented and 34 unpatented
claims covering 700 acres in the Rochester Mining District and is approximately
12 miles north of Lovelock, Nevada and two miles west of Coeur Rochester's
Nenzel Hill gold-silver deposit. The claims were acquired from Mountain Gold
Exploration and a private individual under a standard lease option which
included a payment of $5,000, a first year work commitment of $10,000 and a 2%
net smelter return royalty upon production. WGI entered into a Letter of Intent
with Coolcharm Ltd. whereby that company can earn a 60% interest in Lincoln Hill
through certain expenditures.
Access to the Lincoln Hill property is via Interstate 80 to Coeur Rochester's
paved mine access road followed by light duty dirt roads from the mouth of
Rochester Canyon. The project is situated between 5,800 feet and 7,000 feet ASL
and is accessible year round.
The property has a well-developed infrastructure established during past mining
activities, which includes numerous roads, drill pads and a nearby power line.
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GEOLOGY & MINERALIZATION
Precious metal mineralization at Lincoln Hill is hosted in Permian age Rochester
Rhyolite, which is intensely altered over an extensive area. Multiple
gold-silver-bearing mineralizing events have been identified including early
regional silicification, pyritization and the introduction of disseminated gold
and silver. Later high-grade, coarse gold-bearing quartz-tourmaline stockwork
veins and hematitic-clay zones were the focus of previous underground mining
operations.
Within the extensively silicified area of disseminated precious metal
mineralization, bonanza-grade free gold occurs as pockets, void fillings and
disseminations within saccharoidal quartz stockwork-veining and tectonic fault
zones. Visible gold specimens can be found on several of the mine dumps. In
addition, placer gold deposits have been worked below Lincoln Hill in High Grade
Canyon.
Rock chip samples collected by Western Goldfields in 1999 over an extensive area
confirmed high-grade gold values hosted in the quartz-tourmaline stockwork veins
and hematitic clay zones. Assays ranged from anomalous to 2.04 ounces of gold
per ton. Random surface grab samples collected from pervasively silicified
outcrops that were void of stockwork mineralization returned assays ranging from
anomalous to 0.134 ounces of gold per ton.
PREVIOUS EXPLORATION
The earliest prospecting activity occurred in the Lincoln Hill area during the
late 1860's, and in 1912 prospectors discovered very rich, quartz-gold-bearing
rock scattered along the flanks of Lincoln Hill. Although specific precious
metal production figures are unavailable, the more than 3,000 feet of
underground workings demonstrate that a substantial underground mining operation
was once in existence.
Many mining companies have conducted significant surface and underground
geochemical sampling and geologic mapping programs at Lincoln Hill including
Newmont Mining, Coeur d'Alene Mines, Anglo Gold and MK Gold. Multiple
high-grade quartz-tourmaline stockwork veins and hematitic clay zones, which
were the focus of past underground operations, were identified. These
high-grade zones were found to be surrounded by an extensive regional
silicification event that deposited widespread disseminated gold and silver
mineralization.
Currently, Western Goldfields is compiling a geologic data package based on the
results of previous work completed on the property and is conducting a thorough
review of the technical information. The Company believes the Lincoln Hill
property has the potential to develop into a large, open pit mine as well as a
high-grade underground operation.
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OTHER EXPLORATION PROJECTS
Western holds several other exploration properties in Nevada, including:
- Pyramid, 100%-owned, is a high-grade silver-gold-lead-zinc vein system
hosted in altered volcanic rocks within the prolific Walker Lane
structural zone in Churchill County, Nevada. Underground exploration
conducted in the 1990s encountered multiple high-grade faces ranging
from anomalous to over three ounces of gold per ton and nearly 500
ounces of silver per ton.
- Koegel Hills, 100%-owned, consists of 70 unpatented claims
encompassing 1,400 acres located in Mineral County, Nevada. The
project is an extensive copper-gold bearing porphyry system manifested
by intense surface alteration that extends for more than six square
miles.
- Corral Canyon, 100%-owned, located in Churchill County, Nevada, was
originally discovered in 1861. Gold and other precious and base metal
exploration and production have occurred throughout the area. On the
Corral Canyon claim block, mining was conducted for gold and titanium
in the 1920's and 1930's, and again in the 1970's.
- Gold Star, 100%-owned, is a high-grade precious and base metal deposit
located in Humboldt County, Nevada. Two types of mineralization have
been encountered, free gold and copper associated with a skarn and
high-grade silver-lead-zinc mineralization hosted in a major east-west
trending fault zone.
- Golden Mile, 100%-owned, comprises a significant portion of a
high-grade precious and base metal skarn deposit. Three modes of
mineralization are recognized in the district: contact replacement
deposits, shear zones containing high-grade gold mineralization; and,
disseminated mineralization.
In addition to these Nevada properties, Western Goldfields also controls three
properties in northern Idaho, in the eastern portion of the historic Coeur
d'Alene Mining District. Mining has been conducted in the Coeur d'Alene Mining
District for more than 100 years and is one of the few documented mining areas
worldwide to have produced over one billion ounces of silver. The estimated
value (in historic prices) of the district's metal production through 1999 is in
excess of $5.5 billion dollars. Major producing and past producing mines in the
district include the Bunker Hill, Sunshine, Lucky Friday, Galena, Coeur, Page,
Standard-Mammoth, Interstate, Hecla, Hercules and Star-Morning.
Western Goldfields also holds a 100% interest in the unpatented claims of the
Gold Point project located in Sierra County, California. Prospecting began in
the project area during the early 1900's while ore production from the Gold
Point vein reportedly began in 1918. According to the California State Mining
Report of April 1923, "the mine was processing 60 to 75 tons per day with the
ore averaging 0.5 ounces of gold per ton." It is estimated that approximately
100,000 tons of ore were mined through 1948 averaging about 0.30 ounces of gold
per ton.
From 1984 to 1990 over $1.5 million was spent on the Gold Point project on
underground mine rehabilitation, more than 10,000 feet of diamond drilling and
500 feet of drifting. The majority of this work was conducted by Sierra Gold
Development Inc., a subsidiary of Battle Mountain Gold Company. Battle Mountain
completed approximately 40 diamond drill holes from different "stations" to
cross cut the vein at various locations for delineating mineral resources.
Eight core holes were drilled; seven encountered anomalous gold mineralization.
Intercepts ranged from 8.48 feet of 0.081 oz/t gold to 5.39 feet of 1.212 oz/t.
Exploration and development drilling indicated that the Gold Point vein is open
down dip and that strike potential also remains.
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FINANCIAL STATEMENTS
WESTERN GOLDFIELDS, INC
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003
(Unaudited)
------------ --------------
ASSETS
CURRENT ASSETS
Cash $ 2,560,217 $ 373,500
Restricted cash held by investment company - 3,897,229
Accounts receivable 53,463 17,050
Loan receivable, net of allowance of $10,000 - 40,000
Inventories 2,448,861 2,221,627
Prepaid expenses 428,212 534,440
Deposits 4,196 585,000
------------ --------------
TOTAL CURRENT ASSETS 5,494,949 7,668,846
Mineral Properties - -
Property, plant, and equipment, net of
accumulated depreciation 6,299,106 6,150,509
Construction in progress 222,453 13,303
Investments - remediation and reclamation 6,059,254 5,998,994
Investments - other 43,000 98,510
Long-term deposits 304,999 300,000
Long-term prepaid expenses 1,387,257 1,482,921
Deferred loan fees and expenses, net of amortization 626,522 829,041
------------ --------------
TOTAL ASSETS $20,437,540 $ 22,542,124
============ ==============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 416,631 $ 677,585
Accrued expenses 479,590 257,699
Accrued expenses - related party - 22,500
Accrued interest 54,375 65,920
Loan payable, current portion 3,000,000 3,000,000
------------ --------------
TOTAL CURRENT LIABILITIES 3,950,596 4,023,704
------------ --------------
LONG-TERM LIABILITIES
Loan payable, net of current portion 1,500,000 3,000,000
Reclamation and remediation liabilities 5,998,994 5,998,994
------------ --------------
TOTAL LONG-TERM LIABILITIES 7,498,994 8,998,994
------------ --------------
PROVISION FOR FORWARD SALES DERIVATIVE MARKED -
TO-MARKET 243,980 855,788
------------ --------------
COMMITMENTS AND CONTINGENCIES - -
------------ --------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 25,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $0.01 par value, 100,000,000 shares authorized;
38,258,077 and 38,149,078 shares issued
and outstanding, respectively 382,584 381,491
Additional paid-in capital 10,143,492 10,057,384
Stock options and warrants 4,167,232 3,601,478
Accumulated deficit (5,718,358) (4,584,552)
Accumulated other comprehensive income (loss) (230,980) (792,163)
TOTAL STOCKHOLDERS' EQUITY 8,743,970 8,663,638
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,437,540 $ 22,542,124
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WESTERN GOLDFIELDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- ---------------- -------------- ---------------
REVENUES
Gross revenue $ 2,426,685 $ - $ 5,343,414 $ -
Royalties (299,204) - (586,435) -
-------------- ---------------- -------------- ---------------
Net revenue 2,127,481 - 4,756,979 -
-------------- ---------------- -------------- ---------------
COST OF GOODS SOLD
Mine operating costs 1,773,648 - 3,675,746 -
Mine site administration 568,027 - 949,902 -
Selling, transportation, and refining 7,814 - 65,341 -
Depreciation, depletion & amortization 294,778 - 488,379 -
Inventory adjustment (137,479) - (656,563) -
-------------- ---------------- -------------- ---------------
Total cost of goods sold 2,506,788 - 4,522,805 -
-------------- ---------------- -------------- ---------------
GROSS PROFIT (LOSS) (379,307) - 234,174 -
-------------- ---------------- -------------- ---------------
EXPENSES
General and administrative 424,603 126,622 1,087,006 245,774
Exploration - other 56,803 15,375 189,564 28,747
-------------- ---------------- -------------- ---------------
Total expenses 481,406 141,997 1,276,570 274,521
-------------- ---------------- -------------- ---------------
OPERATING LOSS (860,713) (141,997) (1,042,396) (274,521)
-------------- ---------------- -------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 40,997 - 78,897 -
Interest expense (85,236) - (186,705) -
Gain on sale of assets - 27,132 6,177
Loss on sale of investments (10,734) - (10,734) -
-------------- ---------------- -------------- ---------------
Total other income (expense) (54,973) - (91,410) 6,177
-------------- ---------------- -------------- ---------------
LOSS BEFORE INCOME TAXES (915,686) (141,997) (1,133,806) (268,344)
INCOME TAXES - - - -
-------------- ---------------- -------------- ---------------
NET LOSS (915,686) (141,997) (1,133,806) (268,344)
-------------- ---------------- -------------- ---------------
OTHER COMPREHENSIVE INCOME (LOSS)
Change in market value of securities (21,315) 2,448 (50,625) (785)
Provision for forward sales derivative marked-to-market 690,148 - 611,808 -
-------------- ---------------- -------------- ---------------
Total other comprehensive income (loss) 668,833 2,448 561,183 (785)
-------------- ---------------- -------------- ---------------
NET COMPREHENSIVE LOSS $ (246,853) $ (139,549) $ (572,623) $ (269,129)
============== ================ ============== ===============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.02) $ (0.03) $ (0.03)
============== ================ ============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 38,258,077 9,165,888 38,215,494 9,112,071
-------------- ---------------- -------------- ---------------
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MANAGEMENT
THOMAS K. (TOBY) MANCUSO, PRESIDENT, has several years of mining experience and
was involved in the successful start-up of four mines in the United States.
From 1997 to 2002 Mr. Mancuso and his consulting firm, Mancuso Resource
Development Services, were responsible for mineral project generation,
marketing, development and management for various mineral companies, Indian
Tribes and private individuals throughout the western United States, Canada and
Mexico. He served as Vice President and Chief Operating Officer of Trend Mining
Company from March 2001 to September 2002.
From 1997 to 1998, Mr. Mancuso served as the Vice President of Corporate
Development for BioHeap Technologies, Inc., which provides biotechnology
resources to mining companies and was Manager of Geology and Business
Development for Oxidor Gold Corporation.
From 1987 to 1997 he held various positions with Kennecott Corporation including
Chief Geologist responsible for the management of multiple precious metal
exploration and development projects. He served as Technical Superintendent at
Kennecott's Flambeau mine from 1992 to 1993 with responsibilities that included
mine start-up and supervision of the engineering, operations and geology
departments.
As Chief Geologist at Kennecott's Rawhide Mine from 1987 to 1992 he was
responsible for project planning, mine start-up and management of all mine
geology and exploration programs. Mr. Mancuso also worked for Freeport McMoRan
as a Senior Mine Geologist at the Jerritt Canyon Mine and at FRM Minerals'
Getchell project as a mine development consultant. Mr. Mancuso holds a B.S. in
geology from Bowling Green State University and a M.S. in geology from the Idaho
School of Mines at the University of Idaho.
THOMAS CALLICRATE, DIRECTOR AND CONSULTING GEOLOGIST, specializes in developing
and managing generative precious metal exploration programs, conducting property
evaluations and discovering economic mineral deposits. Mr. Callicrate has over
twenty years experience in domestic and international mineral exploration for
platinum group elements, lode and placer gold, silver, base metals, diamond,
gemstone deposits and industrial rock products. Most recently he was Vice
President of Exploration for Trend Mining Company where he was responsible for
initiating a new PGE exploration program throughout the Western U.S., Alaska,
Canada and Central and South America. The majority of his experience has
involved managing or conducting successful grass-root generative and advanced
stage gold-silver exploration programs and property evaluations in the Great
Basin region of Nevada, California, Arizona and Oregon. Mr. Callicrate is
responsible for the discovery of multiple precious metal deposits in the western
United States. He has worked for or been engaged as a consultant for numerous
major and junior companies including Kennecott Exploration Company, Newmont Gold
Company, U.S. Borax & Chemical Corporation, FMC Gold Corporation, Romarco
Minerals, Inc., MK Gold Company, Golconda Resources LTD, J.D. Welsh and
Associates, Duke Canyon Mines, Inc., Nevada Land and Resource Company, Nevada
Star Resource Corporation, Nevada Gold, and AZCO Mining.
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LARRY O'CONNOR, VICE-PRESIDENT OPERATIONS, has over 20 years experience in the
natural resources industry spanning exploration and production geology, mine
engineering, process management, and operations general management, including
crucial roles involving mine start-up. Prior to co-founding Nevada Colca Gold,
Larry spent three-and-a-half years in Mexico as General Manager of Eldorado Gold
Corporation's La Colorada mine, where he grew output from 20,000 ounces per year
to nearly 60,000 ounces per year. He has operated successfully in Mexico, East
Africa and the United States. Mr. O'Connor brings to the company a solid
understanding of mine operations, in addition to effectively conducting business
in Mexico.
MARK SHONNARD, CHIEF FINANCIAL OFFICER, SECRETARY & TREASURER, brings over 18
years experience in Finance/Administrations and Operations of natural resource
and construction companies. Prior to co-founding Nevada Colca Gold, Mark was
Controller and Assistant Secretary of a Peruvian subsidiary of BHP-Magma (now
Billiton). He was also the Division Controller for Magma in Arizona, Controller
for ABM Mining's Pine Tree Project in California, and Controller for Lacana at
its open pit gold operation in Nevada.
He has extensive experience in establishing and managing efficient and
cost-effective administrative functions. He has managed international treasury
and metal sales functions, and the metallurgical accounting systems to maintain
tight control on product flow. He has successfully negotiated tax settlements,
including a $750,000/year reduction in property tax assessments in the Western
US, and has generated multi-million dollar tax planning strategies for
operations. He has installed and managed state-of-the-art computer and
operating systems in both open pit and underground operations in the U.S. and
South America.
INDEPENDENT DIRECTORS
JAMES MANCUSO, CHAIRMAN AND DIRECTOR, is a highly experienced geologist and is
currently a Director of TSX-listed Queenstake Resources, Inc., a precious metals
exploration and production company, and Chairman and Director of Monterrico
Metals plc, listed on the London Stock Exchange. Previously, Mr. Mancuso was
President of Chevron Minerals, responsible for exploration, evaluation,
development and operations of mineral projects, including the Stillwater
platinum/palladium mine, Montana; the East Boulder PGM project, Montana; the
Collahuasi copper project, Chile; and the Lisheen zinc deposit, Ireland. From
1985 to 1990, Mr. Mancuso was Vice President, Exploration for Chevron Resources
Company where he was responsible for worldwide exploration and acquisition of
mineral deposits.
Before joining Chevron, Mr. Mancuso held senior positions with Western Minerals
Exploration, Exxon Minerals Company, Bear Creek Mining Company (Kennecott) and
Eagle Picher Company. He has experience in all aspects of minerals exploration,
foreign country mineral assessments, major agreement negotiations with
governments and mineral companies, property acquisitions, commodity studies,
economic evaluations and mining geology. Mr. Mancuso has been involved in a
number of major ore deposit discoveries during his career in the mining
business. He completed his B.A. Geology at Carleton College, Northfield,
Minnesota in 1953 and his M.S. Geology and Mining Engineering at South Dakota
School of Mines, Rapid City, South Dakota in 1955.
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DOUGLAS NEWBY, DIRECTOR, has more than twenty years experience in international
finance. He started his career in London, where he became a top-ranked gold and
mining equity analyst and head of international mining research at James Capel &
Co. In 1985, he joined Morgan Grenfell & Co. to set up and run a mining
equities, sales, research and trading group, relocating to New York in 1988 when
Morgan Grenfell acquired the C.J. Lawrence, a leading research brokerage house.
He subsequently joined S.G. Warburg.
In 1991 he co-founded a privately held corporate advisory firm with offices in
New York, Dallas, Denver and London that focused on international resource
industries. In 1998, he left that firm to build a broader practice under
Proteus Capital Corp., expanding the focus to new media, information technology,
biotechnology and medical technology. Since 2001, his focus has reverted to
natural resources, especially precious metals.
GERALD RUTH, DIRECTOR, has diverse capital markets experience covering corporate
finance, mergers and acquisitions, listed company oversight and market
regulation. Since 2003, Mr. Ruth has provided corporate finance and capital
markets advisory services to private and public companies on business strategy,
going public, financing activities, mergers and acquisitions, corporate
governance, corporate disclosure, financial reporting, market regulation, and
exchange policies and procedures.
He acquired extensive knowledge and expertise at the center of Canada's capital
markets while at the Toronto Stock Exchange for over 15 years. As the head of
the Listings group for more than 6 years he was responsible for leading all
operations, policy development and general management within the group. Mr.
Ruth has had extensive dealings with senior officials representing all key
market constituents on reporting issuer matters, policy development, joint
industry initiatives and other regulatory matters. Prior to joining the
Listings group he was an Investigator within Member Regulation where he was
responsible for investigating possible failures to comply with Exchange
requirements.
Mr. Ruth began his career in public accounting focusing primarily on audit, tax,
forensic accounting and litigation support. He obtained his designation as a
Chartered Accountant in 1983.
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