Geologix gets back on its feet (October 11, 2010)

Losing a key asset is never an easy thing for a company to rebound from.

But Geologix Explorations (GIX-T, GXEXF-O), after having just such a thing happen to it early last year, is back at it again, looking to rebuild through the mineral wealth of Mexico.

The company’s big loss came when it decided not to make a final payment to Silver Standard Resources (SSO-T, SSRI-Q) to acquire the San Agustin polymetallic project in Mexico. That decision came after the company spent the better part of two years drilling up and defining the project.

But with credit conditions still tight going into 2009, the terms Geologix would have had to accept to get the US$34.3-million capital were just too steep, and so the company chose to walk away and find something new.

That amounted to a gift to Silver Standard, which, as per the option agreement signed between the companies in 2006, took back the project along with all of the information Geologix compiled on it free of charge.

It was a bitter pill for Geologix to swallow considering it had left the project– located 85 km north of Durango City — with a resource of 122.2 million tonnes grading 0.41 gram gold per tonne, 12.3 grams silver per tonne, 0.49% zinc and 0.06% lead in the indicated category. That works out to 1.61 million oz. gold, 48.3 million oz. silver, 161 million lbs. lead and 1.3 billion lbs. zinc.

But rather than cry in its pillow, Geologix got back up, dusted the sand off of its jeans, and went looking for other prospective projects in the country.

“Because we still had $7 million in cash at the time, a decision was made to take that cash and our technical team would focus on finding another project,” Jeff Wilson, Geologix’s vice-president of corporate communications says. “We were still in a distressed market at that time and there were some nice opportunities since, not unlike the situation we were in, there were a lot of companies with limited cash trying to maintain their assets.”

And while Wilson says the company was open to looking at projects globally, it had a bias towards staying in Mexico due to its familiarity with the geology, people and government there.

Its search led it to Arian Silver’s (AGQ-V, AGQ-L) Tepal project, 70 km west of Apatzigan in Mexico’s Michoacan state.

Arian, in its quest to build itself into a pure-play silver producer, had recently tested the gold and copper project for silver content. Silver grades, however were insignificant — leaving the door open for Geologix, which was looking for a project with a resource already compiled on it.

After completing due diligence on the property it struck a deal with Arian in November of last year. It can take a full interest in Tepal by paying $3.8 million in cash and shares next year, which works out to a purchase price of US$2.60 per oz. gold in the existing resource estimate.

The project currently has 24.9 million tonnes grading 0.54 gold and 0.267% copper in the indicated category and 54.9 million tonnes grading 0.41 gram gold and 0.219% copper in the inferred category.

Wilson says anticipated revenues from a future mine would be generated almost equally by gold and copper production.

To get a firmer handle on just what such a mine might look like, Geologix is in the midst of finishing a preliminary economic assessment on the project, which it expects to release in mid-October.

It is also drilling the ground with an eye towards expanding resources. Currently there are two drill rigs on the site completing a 5,000-metre program. Wilson says results from the program should be out by mid-October as well.

And while Tepal looks promising so too does a discovery made on a property jointly held with Riverside Resources (RRI-V).

The property is known as La Libertad and it sits 250 km northwest of Hermosillo, in western Mexico.

Geologix managed to bring in some significant results on just its first two holes drilled with highlight assays of 26 metres of 1.02 grams gold and 65.1 grams silver, and 50.80 metres of 0.51 gram gold and 32.30 grams silver.

Mineralization was hit in the two holes at 46 metres and 49 metres, respectively, which has the two companies thinking about the project’s future open-pit potential.

The tested anomaly stretches more than 1.5 km, and while results came from the northern portion of the structure the next eight holes in the 2,000-metre program traced the structure along strike to the south. Results from those holes are due soon.

As for the terms of its agreement with Riverside, Geologix has met its first year commitment and by spending $3 million and paying Riverside $400,000 over four years it can earn 60% of the project.

After that, Geologix can earn an additional 25% by spending another $2 million on project and paying Riverside $500,000.

As of June 30 the company had $2.9 million in cash and equivalents but then completed a private placement in late August which raised it another $2.3 million by issuing 10.45 million units at 22¢ apiece. The units came with a share and a half warrant with a strike price of 30¢.

In Toronto on Sept. 29 the company’s shares closed at 35¢.