Resource World Magazine

Future Low-Cost Producers There may be no such thing as a risk-free mining project; however, there is definitely less risk when an economic assessment is completed with a positive bottom line. by Ellsworth Dickson W hen seeking value in advanced-stage resource companies, one needs to consider more than just how many ounces or pounds of metal the company has delineated in the ground. Besides such basic facts of what country or region the project is located, other factors must also be considered such as power, water, infrastructure, local support or opposition, friendly or unfriendly tax regimes, nationalism potential, ease of permitting as well as any environmental or archaeological issues. In addition, capital costs for a new mine are often more than $1 billion – can the company raise this kind of funding? One of the most important considerations is operating costs. It's all well and good to have several million ounces of gold defined, but what if it costs $1,300/oz to recover? When evaluating advanced-stage projects, the answer to this question can be found in pre-feasibility studies or preliminary economic assessment reports that have been prepared for the resource company by independent consultants. A favourable cash cost doesn't mean the investment is risk-free as some things are beyond the control of resource companies such as metal prices, changing governmental policies and prevailing market sentiment, but it does mean that risks have been lowered. Keep in mind that mineral resources are not mineral reserves and, therefore, have not been proven to have economic viability. As time goes by, additional drilling will hopefully upgrade resources into reserves. Generally speaking, there are two ways to report the cost of recovering metals – cash costs and all-in sustaining costs (AISC). The AISC method of reporting is gaining more acceptance as it includes other expenses such as general office spending and capital used in mine development and production. AISC calculations are supported by the World Gold Council. While there are a number of companies that fit the low cash cost model, we have chosen 10 to include in our review. GEOLOGIX EXPLORATIONS INC. [GIX-TSX; GIXEF-OTCQX; GF6-FSE] NPV (5% Discount).............. $421 million IRR (Post-Tax)..................................28% Payback Period...........................3.2 years Cash Costs (Au).......................US $238/oz All-in Sustaining Costs (Au)....US $290/oz Cash Costs (Cu)...................... US $0.77/lb All-in Sustaining Costs (Cu)........US $0.89 Capital Costs......................... $354 million Shares Outstanding............. 158.9 million Geologix Explorations Inc.'s flagship project is the Tepal Gold-Copper Porphyry Project in Michoacán State, Mexico. In March 2013, the company announced the completion of a positive Prefeasibility Study that indicated an 11.5-year mine life with payable production of 1.12 million oz gold and 503 million lbs copper. The project is envisaged as an open pit operation with an average sulphide ore milling rate of 38,700 tonnes per day with a sustaining capital cost of $44 million. Based on metallurgical studies, for the oxide ore milling process, recoveries would be 82% for gold and 62% for silver. For sulphide ore milling, recoveries would be 79% for gold, 54% for silver and 87% for copper. Sulphide ore represents about 90% of total ore with oxide ore about 10%. Using standard industry milling techniques the average concentrate grade would be 26% copper, 27 g/t gold and 110 g/t silver. The Tepal Project is near a major highway and has convenient access to both water and power. The gentle topography makes for easy construction with the surface ranch land privately owned. There are no protected areas or archaeological sites. In September 2013, Geologix submitted Tepal's environmental permit application and risk assessment to SEMARNAT, the Mexican regulatory agency responsible for mine permitting. The company is also planning a Bankable Feasibility Study and has engaged Auramet Metal Trading Inc. as a financial advisor. Geologix hopes to start mine construction in late 2014 or early 2015 with production to commence in 2016. Drilling operations at the Geologix Explorations Tepal gold-copper project located 170 km south of Guadalajara, Mexico. Photo courtesy Geologix Explorations Inc. 20 www.resourceworld.com RW December 2013.indd 20 DECEMBER/JANUARY 2014 12/11/2013 6:11 PM

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