MANAGEMENT S DISCUSSION AND ANALYSIS

Transcription

1 MANAGEMENT S DISCUSSION AND ANALYSIS As at

2 Message to Shareholders During the 3rd Quarter of 2012, the Company further advanced the Tepal Project by continuing work on the Prefeasibility Study as well as field exploration on the 172 square kilometre area surrounding the current resource being utilized in the Prefeasibility Study. To date, exploration has defined seven areas within a three kilometre radius of the proposed Prefeasibility Study mill that warranted ground follow up. Five of these areas were prepared for drill testing with coincident geophysics, soil geochemistry and rock sampling outlining zones for a drill program. Drilling commenced on the zones in late August with a reverse circulation drill. Target areas were designed to have a first pass prospecting drill test and then followed by a second pass drilling program once the first pass analytical results were received. The first pass prospect drilling is completed and a second round follow up campaign is underway. The Prefeasibility Study is taking longer than expected to complete. Several areas under investigation during the study have indicated that there are some considerable benefits to the project through optimization of processes and scheduling. This requires some additional fine tuning test work, scheduling and modeling. The Company believes that it is better to complete a well thought out Prefeasibility Study at this point and appreciates the shareholders patience. The Prefeasibility Study is an important staircase step for the company as it initiates several downstream discussions for future project financing. The company is currently undertaking Bankable Feasibility Study work at this time. A bulk sample has been sent for pilot plant work in Canada. The high level of the Bankable Feasibility Study has reduced the quantity of work required for Bankable Feasibility Study and the Company expects that the work completed in the Prefeasibility Study should accelerate the Bankable Feasibility Study process. The discovery of any new zones of potentially economic mineralization through our current drill campaign will have to be incorporated into our Bankable Feasibility Study planning. During August, the company initiated a $2.0 million dollar private placement to fund the current exploration program and for general corporate use. This was oversubscribed to $2.5 million at which point the company closed the financing. Sincerely, Dunham Craig, President and CEO November 6, 2012 TSX: GIX Page 2

3 Introduction The following Management s Discussion and Analysis ( MD&A ) of (the Company or Geologix ) is for the period ended, with additional information up to and as at November 6, This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements for the nine months ended and 2011, and the related notes contained therein which have been prepared under International Financial Reporting Standards ( IFRS ). The following should also be read in conjunction with the audited consolidated financial statements, the related annual MD&A and Annual Information Form (the AIF ) for the year ended December 31, 2011, and all other disclosure documents of the Company. The information contained herein is not a substitute for detailed investigation or analysis on any particular issue. The information provided in this document is not intended to be a comprehensive review of all matters and developments concerning the Company. Additional information relevant to the Company s activities can be found on SEDAR at and the Company s website at All financial information in this MD&A related to 2012 and 2011 has been prepared in accordance with IFRS and all dollar amounts are quoted in Canadian dollars, the reporting and functional currency of the Company, unless specifically noted. Qualified Person The technical information contained in this MD&A has been approved by Geologix's Resource Geologist, Andrew Hamilton, B.Sc., P. Geo., a qualified person for the purpose of National Instrument , Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators ( NI ). He has verified the data disclosed, including sampling, analytical and test data. Quality Assurance & Control The Company has implemented a quality assurance and control ( QA/QC ) program to ensure sampling and analysis of all exploration work is conducted in accordance with the best possible practices. The drill core is sawn in half with half of the core samples shipped to ALS Chemex Laboratory Services Limited in Vancouver, British Columbia for analysis. The other half of the core is retained for future assay verification. The QA/QC policy includes the chain of custody monitoring, insertion of blanks, standards and duplicates in the initial samples submitted. The laboratory provides an additional internal control program. Forward Looking Statements This MD&A may include forward-looking statements that reflect current expectations and projections about future results, performance, prospects and opportunities. An attempt has been made to identify these forward looking statements by using words such as may, will, expect, anticipate, believe, intend, plan, estimate and other similar expressions. The forward looking statements are based on information currently available and are subject to a number of risks, uncertainties and other factors that could cause actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward looking statements. These risks, uncertainties and other factors include, but are not limited to, metal prices and price volatility, regulatory matters, cash flow, currency TSX: GIX Page 3

4 fluctuations, the nature and availability of financing, project development risks, risks and uncertainties relating to the interpretation of drill results and the estimation of any found mineral resources or reserves. Other matters, including unanticipated events and conditions, also may cause actual future results to differ materially from these forward looking statements. There is no assurance that such expectations will prove to be correct. Overview The Company is focused on the acquisition, exploration and development of mineral properties in North and South America. The Company is currently active in Mexico, Nevada and Peru and is an exploration company that has no operations from which to derive revenues. It raises equity capital through the sale of its common shares. It receives minor income from interest on cash balances. Overall Performance The primary asset and current focus of the Company is the continued development of the gold-copper Tepal Project ( Tepal Project ), located in Michoacán State, Mexico. Other mineral properties held by the Company are early stage and under exploration by either the Company or joint venture partners. Tepal 2012 milestones completed by the date of this report are: A reverse circulation ( RC ) drill program began on August 28, 2012 to test prospective zones of mineralization as outlined by geophysical, soil and rock chip sampling anomalies. To date 31 drill holes with a total meterage of 4,360 metres ( m. ) have been completed. The drilling is anticipated to be completed on or about November 15, 2012 with a program total of 5,000 m. Detailed mapping, extensive soil (1,064 samples) and rock chip (1,263 samples) sampling completed over seven airborne geophysical anomalies highlighting five high priority areas for exploration drill testing. March 2012 Resource Estimate containing Measured and Indicated category of million tonnes ( t. ) containing 1.80 million ounces ( oz. ) gold ( Au. ) and 813 million pounds ( lbs. ) copper ( Cu. ) for a gold equivalent of 4.04 million oz. and an Inferred category of 35.7 million t. containing 182,000 oz. gold and 120 million lbs. copper for a gold equivalent of 512,000 oz. Prefeasibility study ( PFS ) metallurgical & comminution laboratory work completed February Field studies in preparation for PFS and PFS engineering 90% completed 2 nd quarter Archeological Permit for construction granted by Mexican authorities. Performance 3 nd Quarter 2012 Project development and advancement work in the form of PFS activities is continuing on the Tepal goldcopper project with the intention of completing the study in the 3 rd quarter of This has been delayed. The Company has realized through the PFS work that there are several areas of design and process change that benefit the efficiency of the project from the original April 2011 Preliminary Economic Study ( PEA ). The company feels it is the best interest of the project and shareholders to complete this task to its most efficient design. This work includes advanced level economic evaluations utilizing the TSX: GIX Page 4

5 updated resource estimation which was completed in March Engineering, metallurgical, environmental, and geotechnical studies are being completed as part of the PFS. Complete permitting applications are being prepared and have in some instances already been approved by the Mexican Mining Ministry (e.g. archeological permit). Community relations strategies are being developed and implemented as part of the 2012 work program. Exploration activities on the Tepal project focused on the continuing evaluation and study of previously identified geophysical anomalies (see press release dated February 23, 2012). The airborne survey has identified seven strong anomalies throughout the entire project area. Of these seven anomalies, three are deemed to be high priority targets due to coincident anomalies from ground geophysical surveys as well as soil geochemistry in gold, copper, silver and molybdenum. A further two areas have now been upgraded to a drill ready stage. Drill testing, utilizing a RC drill, began on August 28, 2012 (see press release dated August 29, 2012). At the time of reporting a total of 31 holes were completed for a total metergae of 4,360 m. It is anticipated that the drill program will be completed on or about November 15, 2012 with a program total meterage of approximately 5,000 m. Analytical results are being received as the drilling continues and are guiding current drill plans. A complete set of analytical results is expected in the 4 th quarter of Drill targets are being defined by coincident anomalies from the 2011 airborne geophysical survey (magnetics, electromagnetics, radiometric) completed in October and November 2011, geological mapping, soil and rock chip sampling programs completed earlier in A total of 1,263 rock chip samples and 1,064 soil samples have been collected in these areas. Analytical results obtained have highlighted Target Area 3 as a high priority drill target (see press release dated June 13, 2012) with an area of 1,800 m. x 600 m. indicating widespread anomalous gold, copper, silver and molybdenum mineralization. Analytical results reach highs of 6.88 grams per tonne ( g/t. ) Au., 433 g/t. silver, 0.74% copper and 0.04% molybdenum. Results continue to be received and these are upgrading the quality of Target Area #3 (see press release dated July 16, 2012). The Company acquired additional mineral concessions in the Tepal project during the 1 st quarter of The acquisition by staking is a direct result of the property wide airborne geophysical survey that was completed in the 4 th quarter of An additional 10,000 hectares have been staked and registered to bring the total mineral holdings at Tepal to 272 square kilometres. Preliminary geological mapping and sampling was completed in these newly acquired concessions in the 3 rd quarter of Results are being evaluated to define additional exploration programs in the Tepal area. Overall Performance Conclusions Both last year and 2012 was a very dynamic period for the Company with the 100% acquisition of the Tepal Project and extensive drilling to test for expansion potential and to upgrade the categories of its mineralization in preparation for a PFS. In 2011, the Company successfully designed Tepal to be a potentially viable gold-copper open pit operation producing an average of 134,000 gold equivalent ounces and a year over a mine life of 18.1 years at a 23,000 tonnes per day ( tpd. ) throughput rate. The Preliminary Assessment Report ( PA ) mine plan produced an EBITDA (earnings before income taxes, depreciation and amortization) cash flow of $US749 million after payback and an EBITDA cash flow after payback of $US412 million at a 5% discount. Scoping work conducted by the PA consultant, SRK Consulting Canada Inc. ( SRK ), indicated that an accelerated mining rate of 35,000 tpd. (a 54% production increase from the Preliminary Economic Assessment previously reported in April 2011) was possible. This production rate is a minimum threshold target for PFS currently underway. TSX: GIX Page 5

6 Tepal Exploration & Development Exploration The Tepal Project is located in Michoacán State, Mexico near the town of Tepalcatepec. The property is 170 kilometres ( km. ) south of Guadalajara, one of the largest cities in Mexico. The average elevation on the property is 550 m. with a generally hot and arid climate with about 500 millimetres ( mm. ) of precipitation per annum. Mineralization on the property is characteristic of a porphyry gold-copper deposit and consists of structurally controlled zones of stockwork and disseminated gold and copper sulphide mineralization. Mineralization occurs within tonalite stocks composed of multiple intrusive phases of tonalite porphyry with tonalite porphyry intrusion breccia phases hosting the highest grade mineralization. To date three areas of distinct mineralization have been encountered, these being the North Zone, South Zone and the Tizate Zone. Exploration activities on the Tepal Project commenced during a due diligence period in the 4 th quarter of 2009 focusing on outlining and targeting gold and copper mineralized zones. The Company initiated metallurgical test work utilizing core from historical drilling, a geophysical Induced Polarization ( IP ) survey over the core mineral concessions covering 1,526 hectares, geological test work including geology, mineralization and alteration studies combined with preliminary economic viability studies. In order to obtain a geophysical signature of the known mineralization, the IP survey was conducted over the core parts of the claim group in the areas of the known resources. A total of 78.4 line km. of IP surveying was completed. Geological, geophysical and geochemical studies were completed along with a preliminary economic study to ensure that the Company is pursuing an economically viable project. An initial diamond drilling program was designed to test for additional resources in the near-resource environments of the North and South zones, as well as to test for additional mineralized areas that hold the potential for significant increases in economic tonnage proximal to known resource areas and in other sectors of the large concession holdings. This drill testing represented the first phase of drilling at Tepal by the Company and was aimed at identifying additional mineralization to expand the resource, hence increasing the scale and value of the project. In 2010, diamond drill testing commenced in June and 10,397 m. was completed by December. In the North and South zones, a total of 4,274 m. distributed over 20 diamond drill holes was completed outside the edge of known resource areas (North Zone and South Zone). Step out drilling 1,500 m. to the east successfully identified the new Tizate Zone. A total of 4,213 m. distributed over 22 holes was completed in the Tizate Zone by December 31, All drill holes completed by the 4 th quarter of 2010 were compiled and incorporated into an updated resource estimate for the project including a revised and updated resource estimate for the North and South Zones, and an initial estimate for the newly defined Tizate Zone. The resource estimate was prepared by the Vancouver office of SRK and was announced on March 16, The results of this estimation were imported into the PA. In 2011, due to the exploration success of outlining additional zones of mineralization in the Tizate Zone, a further 10,397 m. of diamond drilling in 41 holes was assigned to the Tizate Zone to increase the footprint TSX: GIX Page 6

7 of mineralization. This drill testing commenced in the 1 st quarter of 2011 and was completed on May 25, Results of this exploration drilling were published on July 20, 2011 (See press release). Step out drilling to identify the limits of the zone have now successfully extended the mineralization at Tizate to an outline measuring 1.2 km. by 500 m. The drilling identified additional mineralization well outside the previously known limits and substantially increased the area of the mineralized Tizate zone, with many of the recent holes intersecting mineralization at, or very near surface. Additional exploration during 2011 included detailed geological mapping in the resource areas to increase the understanding of geology and controls on mineralization. Regional scale mapping over the remaining parts of the 172 square km. property was completed to increase the regional understanding of geological controls (structures, intrusive related settings). A property wide stream sediment sampling survey was completed to detect and search for additional zones of mineralization and an airborne geophysical survey consisting of electromagnetic, magnetic and radiometric parameters was completed to locate and generate additional drill targets in the immediate resource areas as well as on other parts of the Company s mineral claim holdings. Additional soil sampling along the north-eastern strike extent of the Tizate zones has been conducted to evaluate the important structural setting within which all three known zones are situated. Geological mapping and prospecting on the large mineral holdings of the Tepal project commenced in the 2 nd quarter of 2011 and was completed in September Prospective alteration and mineralized units have been sampled and analyzed for potentially economic mineralization. A total of 129 litho-geochemical samples have been collected during this period. First pass regional silt sampling of streams and creeks was completed during the first two quarters of 2011 and a total of 201 silt samples were collected. Soil sampling along the north-eastern strike extent of the Tizate mineralization was completed. A total of 531 samples were collected as a first pass evaluation. Results clearly show that anomalous soils continue outbound from the Tizate zone in a north-easterly direction giving distinct areas of elevated gold, copper and molybdenum results in areas devoid of rock exposures. An airborne magnetic, electromagnetic and radiometric survey commenced on October 20, 2011 and was completed on November 4, A total of 1,551 line km. was flown during the airborne survey. Interpretation of airborne results by Intrepid Geophysics Ltd. of Vancouver, BC, Canada indicates seven areas to be prospective for locating additional zones of mineralization. Three of these identified areas are deemed high priority target areas requiring immediate ground follow-up. (See press release dated February 23, 2012). Utilizing soil and rock chip sampling over all geophysical anomalies, five of the seven airborne geophysical anomalies were upgraded to a drill ready stage in the 2 nd quarter of 2012 (see press releases dated June 13, 2012 and July 16, 2012). Drill testing of these high priority areas commenced on August 28, Drill targets are defined as coincident geophysical, geochemical and litho-geochemical anomalies in geologically favorable domains that show similarities to the known resource areas (North, South and Tizate zones). At time of reporting 31 drill holes were completed for a total of 4,360 m. The drill testing is anticipated to be completed on or about November 15, 2012 with a program total of approximately 5,000 m. Analytical results are being received as the drilling is on-going with results being used to refine any additional drill tests. TSX: GIX Page 7

8 Tepal Development 2012 PFS Study A number of engineering and metallurgical studies were completed in the 2 nd and 3 rd quarter of 2012 as a continuation of the Company s project development efforts. Due to the positive 2011 economic assessment completed by SRK Consulting (Canada) Inc., the Company decided to advance the project to the PFS stage. The PFS 2012 expanded resource estimate and project field work is completed. The PFS is comprised of resource definition and metallurgical drilling programs in the North, South and Tizate Zones as well as numerous engineering, metallurgical, hydrological, environmental, and economic studies related to the project. A program of resource expansion drilling in the immediate resource areas was designed and has been completed Tepal Prefeasibility Work A number of geological and engineering studies were initiated in the 1 st quarter of 2011 as part of the advanced efforts towards a PFS. Permits, field work and reports that have been completed in preparation for the PFS are: Archeological Permit Granted by the Mexican Authority INAH that the site is approved for construction. Mill, Heap Leach Facilities and Infrastructure Design & Costing Completed. Seismic Study Completed. The project area has been classified for design criteria. Hydrological Study Completed. Local aquifer capability, recharge rates and impact studies in preparation for application for the water licence. Environmental Baseline Study Completed. Geotechnical Field work completed. Drilling and pit test work for the pit design, heap leach pad and tailings management facility are complete with the report to be included in the PFS. PFS Metallurgical Sulphide and Oxide Test Work Completed. Bond Work Indices Test Work Completed. Sag Mill Comminution Test Work Completed. Electrical Substation Capacity Study Completed. Preliminary Mill and Infrastructure Layout Completed. Acid Rock Drainage Studies - Completed. Waste Management Preliminary Lay Out Design Completed Revised Resource Estimate Completed. At this time, remaining PFS work includes final optimization of pit design, processing method, mine scheduling, mining reserves, capital cost estimation and economic modeling. Additional drilling for PFS mineral resource estimation and metallurgical testing was initiated in May 2011 and continued through to April 2012 with drilling in all three resource areas. Geotechnical, structural, hydrological, and civil engineering type drilling commenced during the 3 rd quarter of 2011 as well as exploration expansion for defining untested areas of the North, South, and Tizate Zones. Between June and December 31, 2011 a total of 36,503 m. of diamond drilling was completed. These links are divided TSX: GIX Page 8

9 into 30,564 m. in resource expansion/definition and exploration drilling, 4,202 m. of metallurgical drilling, 1,737 m. of geotechnical drilling. The Company continues with the implementation of programs for additional environmental data collection and discussions with the local communities in an effort to continually assess the environmental, social and political risks or issues related to the project. The purpose of dialogue and consultation with all the stakeholders in the area during the quarter was to measure the effect of the transition from an early exploration program to the more advanced resource delineation phase. The studies determined there were no significant changes in the social and political risks. Community relations and education programs were initiated as a means of informing the immediately surrounding communities as to the status and progress of the project to date. Tepal 2012 Resource All drill holes completed by the end of the 4 th quarter of 2011 were compiled and incorporated into a new resource estimate for the project including revised estimates for all mineralized zones. The resource estimate was prepared by the Vancouver office of Micon International Ltd. ( Micon ) and released on March 27, The results of this estimation will be imported into the PFS, scheduled to be completed in the 3 rd quarter of This has been delayed. The Company has realized through the PFS work that there are several areas of design and process change that benefit the efficiency of the project from the original April 2011 PEA. The company feels it is the best interest of the project and shareholders to complete this task to its most efficient design. Resources are reported within three Whittle optimized resource pit shells utilizing metal prices, metallurgical recoveries, operating costs and pit slope angles (details below). Results from the update resource estimate are as follows: Updated Total Tepal Project Resource Estimate 1 March 2012 Category Tonnes (t.) Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq 2 (oz.) Measured 34,100, , ,000,000 1,037,000 Indicated 153,700, ,300, ,000,000 3,003,000 Meas & Ind 187,800, ,800, ,000,000 4,040,000 Inferred 35,700, , ,000, ,000 1 The in situ resource stated in the table conforms to CIM guidelines for reasonable potential for economic extraction and is not to be confused as reserves. Resource numbers above are rounded to nearest 100,000 t., 1,000 oz. Au,1,000,000 lbs. Cu and 1,000 oz. =AuEq 2 AuEq = gold equivalent and is calculated using gold and copper only using $1,000 Au, $2.75 Cu metal prices (AuEq = (lbs. Cu*$2.75/$1,000) + Au oz.). All dollar values stated are $USD. The March 2012 resource estimate now includes results for Ag and Molybdenum ( Mo. ) in the Tepal North and South Zones which were not consistently assayed in historic drill programs. Infill drilling and the re-assaying of 1,688 historic pulps supplied sufficient data to permit Ag and Mo to be estimated for these zones. TSX: GIX Page 9

10 The resources for the three main zones are shown in the tables below. North Zone - Resource Estimate 1 March 2012 Category Tonnes Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq 2 (oz.) Measured 14,100, ,000 89,000, ,000 Indicated 55,300, , ,000,000 1,226,000 Meas & Ind 69,400, , ,000,000 1,699,000 Inferred 900, ,000 4,000,000 18,000 South Zone - Resource Estimate 1 March 2012 Category Tonnes Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq 2 (oz.) Measured 20,000, ,000 96,000, ,000 Indicated 21,000, ,000 91,000, ,000 Meas & Ind 41,000, , ,000,000 1,119,000 Inferred 400, ,000 2,000,000 11,000 Below the South Zone pit shell, indicated and inferred material has been identified that has not had economic parameters applied and is not included in the resource estimate. This material totals 4.8 million tonnes grading 0.57 g/t. Au., 0.27 % Cu., 1.12 g/t. Ag. and 0.003% Mo. at a $20.00 equivalent cut-off which is considered a preliminary suitable equivalent value that could potentially give a reasonable prospect for economic extraction. However, an underground economic study needs to be completed to identify the appropriate cut-off. The material remains open in several directions and requires further drilling to identify size, grade and reasonable economic potential for inclusion into stated mineral resources. Tizate Zone - Resource Estimate 1 March 2012 Category Tonnes Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq 2 (oz.) Indicated 77,400, , ,000,000 1,222,000 Inferred 34,400, , ,000, ,000 Oxide and Sulphide Resources 1 March 2012 Category Tonnes (t.) Au (g/t.) Cu (%) Ag (g/t.) Mo(%) Au (oz.) Cu (lbs.) AuEq 2 (oz.) Oxide Meas & Ind 21,100, ,000 96,000, ,000 Oxide Inferred 700, ,000 2,000,000 10,000 Sulphide Meas & Ind 166,700, ,571, ,000,000 3,543,000 Sulphide Inferred 35,000, , ,000, ,000 The mineral resources were estimated using Datamine Studio V3 mining software. Grades for Au., Cu., Ag. and Mo. were interpolated by ordinary kriging into blocks that are 10 m. by 10 m. by 5 m. in height representing the mineralized envelopes. Grades were estimated inside the mineralized envelopes based on an $8.70 equivalent cut-off calculated using a $1,000 gold price and $2.75 copper price, designed by Geologix and validated by Micon. Mineral resources were further constrained within a Whittle resource TSX: GIX Page 10

11 pit shell based on $1,300 Au./oz. and $3.30/lb. for Cu. (Ag. and Mo. values were not included) and reported above a $5.00 economic cut-off. The Whittle pit shell constraints utilized the following parameters: North and South Zones Tizate Gold, Copper Pit Slope Angle Operating Cost (Oxide and Sulphide) Metallurgical Recoveries Oxide: 78.4% Au, Cu 14.3% - Sulphide 60.7% Au, 87.4% Cu Oxide: 68.8% Au, Cu 6.8% - Sulphide 66.2% Au, 85.3% Cu Metals Used and Metal Prices ($USD) $1300 Au, $3.30 Cu Operational Constraints 45 degrees Mining:$1.35/t., Processing: $4.30/t., G&A: $0.68/t. All assays were composited to a two metre length prior to block estimation, and composite grades were evaluated for outliers. After evaluation, capping was applied to both oxide and sulphide mineralization for Au, Cu, Ag and Mo, where needed. April 2011 Preliminary Assessment Report (SRK (Canada) Inc.) The 2011 PA study by SRK was the guidance tool for the company determining to initiate the 2012 PFS. The PA was set a 23,000 tpd mining rate. At the end of the study, it was determined that a 35,000 tpd mining rate was more cost effective. The current PFS will be set at 35,000 tpd. (a 54% increase) which will provide increased annual production. The 2011 PA is available for downloading in PDF format on the Company website Tepal Project page located at Highlights of the PA are outlined in the table below. Positive changes from previous studies were largely affected by the doubling of mine tonnage through exploration in the North and South Zones combined with discovery of the Tizate Zone and its inclusion in the PA. Significant highlights of the 2011 PA and mine plan are: Change from PEA $749 million net positive earnings EBITDA 1 (undiscounted) +96% 3.48 million ounces gold equivalent 2,3 in mine plan +69% 1.55 million ounces of gold mined in the life of mine ("LOM") plan +58% 677 million lbs. of copper mined in the LOM plan +93% 18.1 year mine life +118% 4.1 years of production to payback 96% of 2011 resource t. converts to the PA mine plan t. (diluted) 1 EBITDA: earnings before interest, taxes & depreciation allowance 2 Gold equivalent is estimated using the PA Base Case metal prices $1000/oz. Au, $16/oz. Silver and $2.75 Cu Gold equivalent conversion uses (Ag oz.* $16)/$1000 = gold oz., (Cu lbs.* $2.75)/$1000 = gold oz. 3 Gold equivalent ounces do not represent actual ounces of gold in the mine plan, but the calculated equivalent value. TSX: GIX Page 11

12 The PA resulted in the following economic estimates below: PA Tepal NPV and IRR Base Case ($1,000 Au, $16 Ag, $2.75 Cu ) and Variable Metal Prices Tepal PA ($ Millions) Case A Case B (Base) Case C $900 Au $16 Ag $2.75 Cu $1,000 Au $16 Ag $2.75 Cu $1,200 Au $16 Ag $3.50 Cu Project NPV (0% Discount Rate) Project NPV (5% Discount Rate) $653 M $347 M $749 M $412 M $1,320 M $786 M Project IRR 20% 22% 34% Base Case Average Operating Cost on a Co-Product Basis 4 OPEX per Au equivalent $/oz. Eq. Au payable $478 OPEX per Cu equivalent $/lb. Eq. Cu payable $ Base Case Operating Cost ("OPEX") per Equivalent Payable Metal Total Project Capital Cost 5 Year 0 Year 1 Year 2 Year 3-18 Year 19 Total Total Capital Cost (US $M) $133.5 $153.7 $25.3 $28.0 $6.6 $ Total capital is inclusive of initial, sustaining, EPCM and closure costs. A 10% contingency has been applied. The PA mine plan was designed and capital was estimated for a 23,000 tpd. processing plant facility and a 10,000 tpd. heap leach facility. SRK s closing comment in the PA was that the project would be more optimal at a higher tonnage rate. A preliminary internal study indicated that a 35,000 tpd. mining rate could be achieved and this is a current target production rate for the PFS. The PA incorporated the preliminary results from an Environmental Baseline Study ( EBL ) completed by Clifton Associates Inc. of Guadalajara, Mexico in the 4 th quarter of The EBL refers to the collection and generation of a preliminary inventory of the environmental background conditions within and in the immediately surrounding areas of the project. The preliminary environmental baseline information indicates that there are no environmental fatal flaws identified for the project area. The PA mine plan consists of conventional flotation concentration and smelting of 130,200,000 t. of sulphide ore, and heap leaching of 14,300,000 t. of the oxide cap. Metallurgical recoveries for the North and South pits are derived from the PEA and are based only on gold and copper recoveries. Silver and molybdenum mineralization are present in the North and South pits, however, historical sampling was not sufficient for silver and molybdenum estimates to be included in the PA. Silver and molybdenum recoveries for the Tizate Zone are derived from test work completed in 2011 and are in the March 2011 resource estimate. TSX: GIX Page 12

13 Secondary Assets: Peru Property The La Joya Property is joint ventured to Empresa Minera Los Quenuales S.A. ( EMLQ ), a subsidiary of Glencore International AG. EMLQ has completed trenching and has completed drilling 2,286 m. on the property. Exploration continued with ground geophysical surveys (IP) and diamond drill testing. The Company is awaiting final results from EMLQ. EMLQ may earn a 70% interest by carrying Geologix through to production. Nevada Properties The RO Property ( RO ), adjacent to the Sleeper Mine, is optioned to Montezuma Mines Inc. ( Montezuma ). Montezuma has completed its obligations to date with gas and soil geochemistry, ground magnetic surveying, IP surveying and selected gravity data collection. Between November 2011 and January 2012 Montezuma completed the first drill test on the property, drilling a total of 1,444 m. in five holes to partially test two of seven identified anomalous areas on the property. Results of the drilling are available via a press release dated February 19, 2012 of CMQ Resources Inc. Montezuma continued drill testing the property and completed a six hole, 1,614m core drilling program during the 3 rd quarter testing the southwestern extension of the Sleeper Mine structure. Results of the drilling are available via a press release dated August 30, In addition, Montezuma acquired by staking an additional 92 lode gold claims in the area of the RO project, 42 of which are subject to the option agreement with the Company. The Silver Cloud Property is held in good standing and is being marketed for joint venture. The property is 100% owned by Geologix and is subject to a 5% NSR. TSX: GIX Page 13

14 Results of Operations and Financial Condition Selected Annual Information Year ended December 31, December 31, 2011 ¹December 31, 2010 ¹ December 31, 2009 IFRS IFRS Canadian GAAP Interest Revenue 151,525 28, ,937 Expenses: General & administrative (3,902,551) (2,480,841) (2,609,468) Share-based compensation (852,845) (362,585) (1,268,544) Write down of exploration and evaluation assets (1,452,022) - (2,700,335) Gain on sale of assets - 21,547 - Unrealized loss on investments (16,363) (44,958) - Loss for the year (6,072,256) (2,838,494) (6,467,410) Net loss per share, basic and fully diluted (0.05) (0.04) (0.13) Total Assets 34,585,079 15,277,936 7,860,108 Shareholders' Equity 33,460,509 14,768,574 7,494,230 ¹ These amounts have been audited. Refer to Note 20 in the consolidated financial statements for the year ended December 31, 2011 and 2010 for a reconciliation of Canadian GAAP to IFRS. Summary of Quarterly Results The following quarterly financial data is derived from the unaudited condensed consolidated interim financial statements of Geologix as at (and for) the three month periods ended on the dates indicated below. The data should be read in conjunction with the Company s unaudited condensed consolidated interim financial statements for the nine months ended and the notes thereto. Sept 30, 2012 Jun 30, 2012 Mar 31, 2012 Dec 31, 2011 $ $ $ $ Interest earned 68,235 7,069 14,629 26,463 Loss before write down of exploration and evaluation assets (935,421) (1,103,737) (1,052,587) (995,413) Write down of exploration and evaluation assets (1,452,022) Loss for the period (935,421) (1,103,737) (1,052,587) (2,447,435) Net loss per share, basic and fully diluted (0.01) (0.01) (0.01) (0.02) Sept 30, 2011 Jun 30, 2011 Mar 31, 2011 Dec 31, 2010 $ $ $ $ Interest earned 39,936 58,110 27,016 5,155 Loss before write down of exploration and evaluation assets (1,139,478) (1,564,994) (920,349) (880,433) Write down of exploration and evaluation assets Loss for the period (1,139,478) (1,564,994) (920,349) (880,433) Net loss per share, basic and fully diluted (0.01) (0.01) (0.01) (0.01) TSX: GIX Page 14

15 3rd Quarter - Three months ended During the three months ended, the Company incurred losses of $935,421, ($0.01 loss per share) compared to a loss of $1,139,478 ($0.01 loss per share) for the same period in Share-based compensation: $118,629 (2011 $139,142) The Company granted no stock options during the 3 nd quarter of 2012 (2011: 75,000). The share-based compensation expense is primarily affected by the number of options granted and vesting during the period, the strike price at grant date and stock-price volatility calculations used in the Black-Scholes option pricing model. The Company recorded no write-off of exploration and evaluation assets in the 3 rd quarter of 2012 and Interest income of $68,235 (2011 $39,936) was earned during the quarter from short term deposits held with Canadian and Mexican financial institutions. The unrealized loss on investments of $244,155 (2011 $9,585) is due to the write down of the shares of Rae Wallace Mining Company. These were written down as Rae Wallace Mining Company was unable to complete their Initial Public Offering to commence trading on the Toronto Venture Exchange (TSX-V). The loss on investment of $16,995 (2011: nil) is due to expiry of the warrants of Rae Wallace Mining Company which were written down. Operating expenses (excluding share-based compensation) were $622,106 compared to $772,777 for the same period in Expense details are as follows: (a) Accounting and audit fees: $41,004 (2011 $62,265) Expenses reflect accrued expenses for the Company s annual external audits and quarterly reviews. The decrease is due to reduced audit and tax fees in Mexico due to the collection of the IVA in (b) Depreciation: $9,004 (2011 $16,973) Depreciation expense is lower in 2012 due to the sale of two trucks in Mexico in (c) Consulting: $28,182 (2011 $42,650) Consulting fees include directors fees, Peru accounting fees, software consulting fees and investor relation services. The decrease in the 3 rd quarter of 2012 is due to decreased software consulting fees. (d) Office and administration: $148,277 (2011 $174,095) The Company has decreased its travel and promotional related expenses during the 3 rd quarter of 2012 compared to the same period in (e) Foreign exchange loss: $1,774 (2011 $257,910) The decrease is due to the significant fluctuations in the Mexican Pesos to Canadian exchange rate. (f) Property investigation: $49,656 (2011 $45,944) Property investigation expense includes the allocation of senior project development employee salaries, travel and field work related costs in the investigation of potential new projects. (g) Travel: $20,528 (2011 $18,735) The increase in travel costs is mainly due to corporate travel to and within Mexico. Year to Date - Nine months ended During the nine months ended, the Company incurred losses of $3,091,745, ($0.02 loss per share) compared to a loss of $3,624,821 ($0.03 loss per share) for the same period in Share-based compensation: $698,203 (2011 $792,514) The Company granted 2,695,000 stock options during the nine months ended (2011 2,035,000). The stock based-compensation TSX: GIX Page 15

16 expense is primarily affected by the number of options granted and vesting during the period, the strike price at grant date and stock-price volatility calculations used in the Black-Scholes option pricing model. The Company recorded no write-offs of exploration and evaluation assets during the nine months ended and Interest income of $89,933 (2011 $125,062) was earned during the period from short term deposits held with Canadian and Mexican financial institutions. The unrealized loss on investments of $261,150 (2011 $15,154) is due to the write-down of the shares of Rae Wallace Mining Company. These were written down as Rae Wallace Mining Company was unable to complete their Initial Public Offering to commence trading on the Toronto Venture Exchange (TSX-V). The loss on investment of $16,995 (2011: nil) is due to expiry of the warrants of Rae Wallace Mining Company which were written down. Operating expenses (excluding share-based compensation) were $2,312,438 compared to $2,652,356 for the same period in Expense details are as follows: (a) Accounting and audit fees: $150,204 (2011 $137,856) Expenses reflect accrued expenses for the Company s annual external audits and quarterly reviews. The increase is due to the additional scope of the audit and tax planning fees for (b) Depreciation: $29,557 (2011 $52,036) Depreciation expense is lower in 2012 due to the sale of two trucks in Mexico in the 1 st quarter of (c) Consulting: $88,236 (2011 $165,707) Consulting fees include directors fees, Peru accounting fees, software consulting fees and investor relation services. The decrease in 2012 is due to decreased software consulting fees. (d) Office and administration: $543,019 (2011 $788,471) The Company has decreased its travel and promotional related expenses for (e) Foreign exchange gain: $111,565 (2011 loss of $289,859) The fluctuation is due to the significant fluctuations in the Mexican Pesos to Canadian exchange rate. (f) Property investigation: $129,693 (2011 $126,530) Property investigation expense includes the allocation of senior project development employee salaries, travel and field work related costs in the investigation of potential new projects. (g) Travel: $59,403 (2011 $68,253) The decrease in travel costs is mainly due to corporate travel to and within Mexico. Liquidity and Capital Resources The Company s working capital balance on was $5,177,098 compared to $6,051,800 at December 31, On August 2, 2012 the Company completed a private placement of 12,510,000 units at $0.20 per unit for gross proceeds of $2,502,000. Each unit consisted of one common share and one-half of one share purchase warrant. Each whole warrant is exercisable to purchase one common share at a price of $0.30 per share on or before August 5, The Company paid brokers commissions of $75,480 and issued 387,900 broker warrants. Each broker warrant is exercisable to purchase one common share at a price of $0.30 per share on or before August 5, The fair value of the brokers warrants of $25,054 was allocated to share capital and equity reserve. The weighted average assumptions used for the Black-Scholes valuation of warrants were annualized TSX: GIX Page 16

17 volatility of 80.32%, risk-free interest rate of 1.06%, expected life of 2 year, and a dividend rate of Nil. The Company incurred share issuance costs of $122,964 (inclusive of brokers commissions). On March 1, 2011 the Company completed, by way of short form prospectus, a bought deal public financing of 34,849,600 common shares at $0.66 per share for gross proceeds of $23,000,736. The Company paid commissions of 5.5% to the underwriters. The Company incurred share issuance costs of $1,507,651 (inclusive of underwriters commissions). On February 18, 2011, the Company issued 1,089,318 common shares at $0.70 per share for a value of $762,523, to satisfy the US$775,000 option payment due to Arian Silver Corporation pursuant to the option agreement signed on January 26, For the nine months ended, the Company issued 316,006 common shares for gross proceeds of $94,802 pursuant to the exercise of warrants. For the nine months ended, the Company issued 300,000 common shares for gross proceeds of $84,810 pursuant to the exercise of stock options. The Company granted stock options to key employees, officers and directors to purchase 2,695,000 shares. The Company continued its exploration activities in Mexico, incurring exploration and evaluation expenditures of $3,829,777 on the Tepal project, the Company s material mineral property. Year to date expenditures for all properties were $4,055,644. A summary of expenditures by major mineral property for the nine months ended is as follows: MEXICO NEVADA TOTAL TOTAL MEXICO PROPERTIES ALL PROPERTIES Tepal Consejo El Carmen La Carreta Silver Cloud Acquisition and concession costs 270,274 53,920 2,024 10, , , ,657 Consulting 42, ,784-42,784 Drilling 264, , ,393 Field wages and on-site costs 2,866, ,048 2,891,709 1,147 2,892,856 Geochemical sampling and mapping 296, , , ,960 Geophysics 1, ,216-1,216 Travel and accomodation 86, ,975 88,229-88,229 Camp operating and equipment 1, ,549-1,549 Total 3,829,777 53,920 2,024 41,219 3,926, ,704 4,055,644 The Company has been successful in meeting its exploration capital requirements by completion of equity placements including the financing completed on August 2, The Company is in the exploration stage and is dependent on obtaining regular financings in order to continue its exploration programs. Despite success in completing these financings, there is no guarantee of obtaining future financings. During the period the Company received approximately $3M in Value added tax ( VAT ) refunds from the Mexican government taxation authorities. TSX: GIX Page 17

18 The Company s basic working capital requirements are approximately $280,000 per month, although this amount can vary due to variations in the Company s exploration and other project related activities. Capital Resources The Company invested a total of $2 million on capital projects in 2011 in reference to the Tepal PFS including construction of a 65 person camp, and purchase of field equipment. There are no significant capital expenditures planned for The discovery, development and acquisition of mineral properties are in many instances unpredictable events. Future metal prices, the success of exploration programs and other property transactions can have a significant impact on capital requirements. The Company does not expect to receive any income from any of its properties within the foreseeable future. Should the Company decide to further develop any of its properties, the Company may fund its capital requirements by arranging further financings via private placements or other financial instruments deemed appropriate. Transactions with Related Parties The remuneration of directors and other key management personnel during the nine months ended and 2011 are as follows: September 30, 2011 Salaries and directors fees $ 764,583 $ 732,000 Share-based compensation (i) 475, ,250 $ 1,240,413 $ 1,319,250 (i) Share-based payments are the fair value of the options granted to directors and other key management personnel. During the nine months ended, the Company paid or accrued directors fees of $81,000 (included in consulting fees) ( $81,000) to directors or companies controlled by directors. Proposed Transactions In the normal course of business, the Company evaluates property acquisition transactions and in some cases makes proposals to acquire such properties. These proposals, which are usually subject to board, regulatory and sometimes shareholder approvals, may involve future payments, share issuances, and property work commitments. These future obligations are usually contingent in nature and generally the Company is only required to incur the obligation if it wishes to continue with the transaction. As of this date, the Company has a number of possible transactions that it is examining. Management is uncertain whether any of these proposals will ultimately be completed. TSX: GIX Page 18

19 Financial Instruments The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure. These risks include liquidity risk, credit risk, currency risk, and interest rate risk. Where material, these risks are reviewed and monitored by the Board of Directors. (a) Capital Management The Company manages its capital to safeguard the Company s ability to continue as a going concern, so that it can continue to provide adequate returns to shareholders and benefits to other stakeholders, and to have sufficient funds on hand for business opportunities as they arise. The Company considers the items included in share capital as capital. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares through short-form prospectuses and private placements, or return capital to shareholders. As at the Company does not have any debt and is not subject to externally imposed capital requirements. (b) Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company maintains sufficient cash balances to meet current working capital requirements. The Company is considered to be in the exploration and evaluation stage. Thus, it is dependent on obtaining regular financings in order to continue its exploration and evaluation programs. Despite previous success in acquiring these financings, there is no guarantee of obtaining future financings. The Company s cash and cash equivalents are invested in business accounts with quality financial institutions, are available on demand for the Company s programs, and are not invested in any asset backed commercial paper. (c) Credit Risk Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company s credit risk is primarily attributable to its liquid financial assets including cash and equivalents, other assets and receivables. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash and equivalents, and other assets with high-credit quality financial institutions. The majority of the Company s cash and cash equivalents are held with major Canadian based financial institutions. The reclamation bonds are held at a major US financial institution. (d) Currency Risk The Company s operations are in Canada, the United States, Mexico and Peru. The international nature of the Company s operations results in foreign exchange risk as transactions are denominated in foreign currency. TSX: GIX Page 19

20 The operating results and the financial position of the Company are reported in Canadian dollars. The fluctuations of the operating currencies in relation to the Canadian dollar will, consequently, have an impact upon the reported results of the Company and may also affect the value of the Company s assets and liabilities. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks at this time. As at, the Company is exposed to currency risk through the following assets and liabilities denominated in US dollars, Mexican pesos and Peruvian Soles: Based on the Company s net exposures as at, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the Canadian dollar against the US dollar would result in a decrease/increase of $33,094 in the Company s net earnings. Likewise, a 10% depreciation or appreciation of the Canadian dollar against the Mexican peso would result in a decrease/increase of $20,100 in the Company s net earnings, and a 10% depreciation or appreciation of the Canadian dollar against the Peruvian New Sol would result in a decrease/increase of $168 in the Company s net earnings. (e) Interest Rate Risk The Company s exposure to interest rate risk arises from the interest rate impact on its cash and cash equivalents, and reclamation bond. The Company s practice has been to invest cash at one year fixed rates of interest, in cash equivalents, in order to maintain liquidity, while achieving a satisfactory return for shareholders. There is minimal risk that the Company would recognize any loss as a result of a decrease in the fair value of any guaranteed bank investment certificates included in cash and cash equivalents, restricted cash and reclamation bond as they are generally held with large financial institutions. (f) Price risk The Company is exposed to price risk with respect to commodity and equity prices. The ability of the Company to explore its mineral properties and future profitability of the Company are directly related to the market price of gold and other precious metals. The Company monitors commodity prices to determine appropriate actions to be undertaken. (g) Fair Value The estimated fair value of financial assets is equal to their carrying values due to the short-term nature of these instruments. At and December 31, 2011, the Company s financial assets were held in the following currencies: TSX: GIX Page 20