San Agustin shaping up above and below ground

Vancouver — With trenching expanding the mineralized footprint and drilling pulling up good grades over considerable lengths, Geologix Explorations’ (GIX-V, GXEXF-O) polymetallic San Agustin project, in Durango, Mexico, is showing potential to develop into a significant open-pit mine.

San Agustin hosts a historical resource of 346,000 oz. gold and 4.6 million oz. silver within a larger mineralized dacite dome. Geologix optioned the property from Silver Standard Resources (SSO-T, SSRI-Q) based on its growth potential, and work to date indicates two models of mineralization expansion. Northeast of the historical resource, there appear to be high-grade gold-silver structures; to the southwest, the company has drilled and trenched a system of gold-silver-lead-zinc mineralization currently outlined at 1.4 km long and 700 metres wide.

Results from the company’s second exploration program in 2007 indicate continued potential for expansion while also confirming the existence of high-grade gold-silver structures.

Three drill holes collared along a southwest stepout line from the Main Zone toward Zone 2 intercepted a 250-metre-wide mineralized area with each hole returning elevated gold, silver, or zinc. Hole 102 returned 131 metres from surface grading 0.41 gram gold, 6.6 grams silver and 0.36% zinc, including 57 metres grading 1.35 grams gold, 7.59 grams silver and 0.69% zinc. And hole 104 cut 265 metres from surface grading 0.33 gram gold, 6.2 grams silver and 0.34% zinc, including 95 metres of 0.69 gram gold, 3.38 gram silver and 0.37% zinc.

Trenching around the Main Zone and Zone 2 has expanded the width of surface mineralization in both areas. In Zone 2, surface mineralization has been extended to 700 metres in width and traced for 500 metres along strike. Trenching directly north of the Main Zone expanded the mineralized width to 400 metres, with 2.2 km of strike outlined.

In the Main Zone, infill drilling has returned similar or better grades than historical drill results. Hole 107 cut 140 metres from surface grading 0.4 gram gold, 13.4 grams silver and 0.37% zinc, while hole 108 returned 223 metres from 74 metres depth grading 0.64 gram gold, 5.1 gram silver and 0.52% zinc.

And in the company’s most recent results, infill and stepout drilling in Zone 4 exceeded expectations. Hole 118 returned 122 metres of 0.55 gram gold, 15.04 grams silver and 0.76% zinc from 58 metres depth, and hole 120 cut 102 metres grading 0.32 gram gold, 9.86 grams silver and 1.03% zinc from 53 metres.

The results from Zone 4 boosted Geologix’s share price by 20 to close at $2.76. The company has a 52-week trading range of 43-$3.20 with 39.4 million shares issued.

Disseminated gold and silver mineralization at San Agustin is hosted in a sericite-pyrite-altered, locally brecciated, massive to flow-banded dome with some quartz and pyrite-manganese veining. Higher-grade mineralization appears to be structurally controlled.

According to a 2004 estimate, San Agustin hosts 11.22 million tonnes averaging 0.96 gram gold per tonne and 12.86 grams silver.

The 5.8-sq.-km San Agustin property lies 85 km north of the state capital Durango via paved road, and national power lines are 6 km east of the property. The Peoles zinc smelter is a 4-hour drive east.

In the late 1990s, Monarch Resources, now part of Hecla Mining (hl-n), explored San Agustin for a few years, and in 2003, Silver Standard picked up the project and worked on it for a year. The two companies’ combined exploration efforts left behind 14,290 metres of drilling in 93 holes.

Geologix signed an option agreement with Silver Standard in 2006, handing over 1 million shares in the first year and agreeing to spend at least $2 million and complete 15,000 metres of drilling within the first two years. In the next three months, Geologix has to prepare a resource estimate and then pay Silver Standard, on a sliding scale, for each ounce of gold and silver in the resource estimate. Based on current metal prices, Geologix would pay US$15 per oz. gold and US$1 per oz. silver for measured, indicated and inferred resources. Geologix’s $2 million in exploration spending would be deducted from the payment, as are the value of the shares issued to Silver Standard.

If all obligations are met, Geologix will hold San Agustin outright and Silver Standard will retain a 2.5% net smelter royalty, capped at 2 million oz. gold equivalent.