MANAGEMENT’S DISCUSSION
AND ANALYSIS
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
Introduction
The following Management’s Discussion and Analysis (“MD&A”) of Geologix Explorations Inc. (the “Company” or “Geologix”) is for the period ended September 30, 2012, with additional information up to and as at November 6, 2012. This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements for the nine months ended September 30, 2012 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 www.sedar.com and the Company’s website at www.geologix.ca.
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 43-101, Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators (“NI 43-101”). 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
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 187.8 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 2012.
• Field studies in preparation for PFS and PFS engineering 90% completed 2nd quarter 2012. • Archeological Permit for construction granted by Mexican authorities.
Performance 3nd Quarter 2012
Project development and advancement work in the form of PFS activities is continuing on the Tepal gold-copper project with the intention of completing the study in the 3rd quarter of 2012. 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
updated resource estimation which was completed in March 2012. 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 4th quarter of 2012. 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 2012. 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 1st quarter of 2012. The acquisition by staking is a direct result of the property wide airborne geophysical survey that was completed in the 4th quarter of 2011. 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 3rd quarter of 2012. 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
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 4th 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, 2010.
All drill holes completed by the 4th 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, 2011. 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
of mineralization. This drill testing commenced in the 1st quarter of 2011 and was completed on May 25, 2011. 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 2nd quarter of 2011 and was completed in September 2011. 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, 2011. 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 2nd 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, 2012. 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.
Tepal Development 2012 PFS Study
A number of engineering and metallurgical studies were completed in the 2nd and 3rd 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.
2011-2012 Tepal Prefeasibility Work
A number of geological and engineering studies were initiated in the 1st 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. • 2012 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 3rd 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
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 4th 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, 2012. The results of this estimation will be imported into the PFS, scheduled to be completed in the 3rd quarter of 2012. 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 Estimate1 – March 2012
Category Tonnes (t.) Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq2 (oz.)
Measured 34,100,000 0.48 0.25 0.95 0.002 500,000 185,000,000 1,037,000
Indicated 153,700,000 0.26 0.19 1.67 0.004 1,300,000 628,000,000 3,003,000
Meas & Ind 187,800,000 0.30 0.20 1.54 0.004 1,800,000 813,000,000 4,040,000
Inferred 35,700,000 0.16 0.15 1.68 0.006 200,000 120,000,000 512,000
1The 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
2AuEq = 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.
The resources for the three main zones are shown in the tables below. North Zone - Resource Estimate1 – March 2012
Category Tonnes Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq2 (oz.)
Measured 14,100,000 0.50 0.29 0.78 0.002 228,000 89,000,000 473,000
Indicated 55,300,000 0.30 0.21 1.01 0.002 533,000 252,000,000 1,226,000
Meas & Ind 69,400,000 0.34 0.22 0.96 0.002 761,000 341,000,000 1,699,000
Inferred 900,000 0.22 0.21 1.21 0.003 7,000 4,000,000 18,000
South Zone - Resource Estimate1 – March 2012
Category Tonnes Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq2 (oz.)
Measured 20,000,000 0.47 0.22 1.07 0.002 300,000 96,000,000 564,000
Indicated 21,000,000 0.45 0.20 1.17 0.002 305,000 91,000,000 555,000
Meas & Ind 41,000,000 0.46 0.21 1.12 0.002 605,000 187,000,000 1,119,000
Inferred 400,000 0.40 0.16 0.95 0.002 5,000 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 Estimate1 – March 2012
Category Tonnes Au (g/t.) Cu (%) Ag (g/t.) Mo (%) Au (oz.) Cu (lbs.) AuEq2 (oz.)
Indicated 77,400,000 0.18 0.17 2.29 0.006 438,000 285,000,000 1,222,000
Inferred 34,400,000 0.15 0.15 1.70 0.007 170,000 115,000,000 486,000
Oxide and Sulphide Resources1 – March 2012
Category Tonnes (t.) Au (g/t.) Cu (%) Ag (g/t.) Mo(%) Au (oz.) Cu (lbs.) AuEq2(oz.)
Oxide Meas & Ind 21,100,000 0.34 0.21 1.18 0.002 233,000 96,000,000 497,000
Oxide Inferred 700,000 0.19 0.13 2.01 0.002 4,000 2,000,000 10,000
Sulphide Meas & Ind 166,700,000 0.29 0.20 1.59 0.004 1,571,000 717,000,000 3,543,000
Sulphide Inferred 35,000,000 0.16 0.15 1.67 0.007 177,000 118,000,000 502,000
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
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 $5.00 economic cut-off. The Whittle pit shell constraints utilized the following parameters:
Metallurgical Recoveries
North and South Zones Oxide: 78.4% Au, Cu 14.3% - Sulphide 60.7% Au, 87.4% Cu
Tizate Oxide: 68.8% Au, Cu 6.8% - Sulphide 66.2% Au, 85.3% Cu
Metals Used and Metal Prices ($USD)
Gold, Copper $1300 Au, $3.30 Cu
Operational Constraints
Pit Slope Angle 45 degrees
Operating Cost (Oxide and Sulphide) 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 www.geologix.ca. 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 EBITDA1 (undiscounted) +96%
• 3.48 million ounces gold equivalent2,3 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.
The PA resulted in the following economic estimates below:
PA Tepal NPV and IRR
Base Case ($1,000 Au, $16 Ag, $2.75 Cu ) and Variable Metal Prices
Case A Case B (Base) Case C
Tepal PA ($ Millions) $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 Basis4
OPEX per Au equivalent $/oz. Eq. Au payable $478
OPEX per Cu equivalent $/lb. Eq. Cu payable $1.31
4Base Case Operating Cost ("OPEX") per Equivalent Payable Metal
Total Project Capital Cost5
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 $346.7
5 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 4th quarter of 2010. 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.
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 3rd quarter testing the southwestern extension of the Sleeper Mine structure. Results of the drilling are available via a press release dated August 30, 2012. 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.
Results of Operations and Financial Condition Selected Annual Information
December 31, 2011 ¹December 31, 2010 ¹ December 31, 2009
IFRS IFRS Canadian GAAP
Interest Revenue 151,525 28,343 110,937 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
Year ended December 31,
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 September 30, 2012 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)
3rd Quarter - Three months ended September 30, 2012
During the three months ended September 30, 2012, 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 2011. Share-based compensation: $118,629 (2011 $139,142) – The Company granted no stock options during the 3nd 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 3rd quarter of 2012 and 2011. 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 2011. 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 2012.
(b) Depreciation: $9,004 (2011 $16,973) – Depreciation expense is lower in 2012 due to the sale of two trucks in Mexico in 2012.
(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 3rd 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 3rd quarter of 2012 compared to the same period in 2011.
(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 September 30, 2012
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 September 30, 2012 and 2011. 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 2011. 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 2012.
(b) Depreciation: $29,557 (2011 $52,036) – Depreciation expense is lower in 2012 due to the sale of two trucks in Mexico in the 1st quarter of 2012.
(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 2012.
(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 September 30, 2012 was $5,177,098 compared to $6,051,800 at December 31, 2011.
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, 2014.
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, 2014. 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
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, 2010.
For the nine months ended September 30, 2012, the Company issued 316,006 common shares for gross proceeds of $94,802 pursuant to the exercise of warrants.
For the nine months ended September 30, 2012, 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 September 30, 2012 is as follows:
NEVADA TOTAL
Tepal Consejo El Carmen La Carreta
TOTAL MEXICO
PROPERTIES Silver Cloud PROPERTIESALL
Acquisition and concession costs 270,274 53,920 2,024 10,882 337,100 127,557 464,657
Consulting 42,784 - - - 42,784 - 42,784
Drilling 264,393 - - - 264,393 - 264,393
Field wages and on-site costs 2,866,661 - - 25,048 2,891,709 1,147 2,892,856
Geochemical sampling and mapping 296,646 - - 3,314 299,960 - 299,960
Geophysics 1,216 - - - 1,216 - 1,216
Travel and accomodation 86,254 - - 1,975 88,229 - 88,229
Camp operating and equipment 1,549 - - - 1,549 - 1,549 Total 3,829,777 53,920 2,024 41,219 3,926,940 128,704 4,055,644
MEXICO
The Company has been successful in meeting its exploration capital requirements by completion of equity placements including the financing completed on August 2, 2012. The Company is in the exploration stage and is dependent on obtaining regular financings in order to continue its exploration programs. Despite
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 2012.
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 September 30, 2012 and 2011 are as follows:
September 30, 2012 September 30, 2011
Salaries and directors fees $ 764,583 $ 732,000
Share-based compensation (i) 475,830 587,250
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 September 30, 2012, the Company paid or accrued directors fees of $81,000 (included in consulting fees) (2011 - $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.
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 September 30, 2012 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.
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 September 30, 2012, 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 September 30, 2012, 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 September 30, 2012 and December 31, 2011, the Company’s financial assets were held in the following currencies:
(g) Fair Value (Cont’d) As at September 30, 2012
Canadian US Mexican Peruvian Total
Dollar Dollar Peso Soles
Carrying Value
Cash $ 38,770 $ 339,231 $ 127,536 $ 958 $ 506,495
Cash equivalents 2,992,027 - 2,243,850 - 5,235,877
Cash and cash equivalents $ 3,030,797 $ 339,231 $ 2,371,386 $ 958 $ 5,742,372
Investment $ 105,000 $ 9,837 $ - $ - $ 114,837
Reclamation Bond - 11,684 - - 11,684
Total other assets $ 105,000 $ 21,521 $ - $ - $ 126,521
Receivables $ 65,596 $ - $ 228,351 $ 779 $ 294,726
As at December 31, 2011
Canadian US Mexican Peruvian Total
Dollar Dollar Peso Soles
Carrying Value
Cash $ 437,142 $ 247,999 $ 208,349 $ 1,647 $ 895,137
Cash equivalents 5,899,910 - - - 5,899,910
Cash and cash equivalents $ 6,337,052 $ 247,999 $ 208,349 $ 1,647 $ 6,795,047
Investment $ 105,000 $ 10,170 $ - $ - $ 115,170
Reclamation Bond - 12,098 - - 12,098
VAT Receivable - - 2,681,822 - 2,681,822
Total other assets $ 105,000 $ 22,268 $ 2,681,822 $ - $ 2,809,090
Receivables $ 210,361 $ 47,718 $ 14,183 $ - $ 272,262
The estimated fair value of financial liabilities is equal to their carrying values due to the short-term nature of these instruments. At September 30 2012 and December 31, 2011 the Company’s financial liabilities were held in the following currencies:
As at September 30, 2012
Canadian US Mexican Peruvian Total
Dollar Dollar Peso Soles
Carrying Value
Accounts payable and accrued liabilities $ 347,005 $ 29,823 $ 565,681 $ 57 $ 942,566
As at December 31, 2011
Canadian US Mexican Peruvian Total
Dollar Dollar Peso Soles
Carrying Value
Accounts payable and accrued liabilities $ 581,639 $ 208,360 $ 334,458 $ 113 $ 1,124,570
Stated in Canadian Dollars
(h) Fair Value Hierarchy
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data
The fair value of cash and cash equivalents are measured based on level 1 of the fair value hierarchy. The fair value of long term investments are measured based on level 2 of the fair value hierarchy.
Outstanding Share Data
The Company has authorized an unlimited number of common shares without par value. As of the date of this MD&A, there were 148,916,893 shares issued and outstanding.
As of the date of this MD&A, the Company had 6,642,900 warrants outstanding. In addition, stock options, granted to key employees, directors, officers and consultants, to purchase 10,632,000 shares were outstanding at various exercise prices. If all of these securities were exercised, a total of 166,191,793 shares would be issued and outstanding and would result in additional gross proceeds of $5,863,880.
Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, have evaluated or caused to be evaluated the design and operating effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that evaluation, the Company’s management, Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of the Company’s disclosure controls and procedures were effective as of September 30, 2012, to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported, within the appropriate time periods and forms. It should be noted that while the Company’s certifying officers believe that the Company’s disclosure controls and procedures provide a reasonable level of assurance and that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Internal controls over Financial Reporting
The Company’s certifying officers acknowledge that they are responsible for designing internal controls over financial reporting, or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
There were no changes in these controls during the most recent interim period ending September 30, 2012 that had materially affected, or are reasonably likely to materially affect, such controls.
Limitations of Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any disclosure controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
Changes in Accounting Policies and Critical Accounting Estimates
Going Concern of Operations
These condensed consolidated interim financial statements have been prepared assuming the Company will continue on a going-concern basis. The Company has incurred losses since its inception and the ability of the Company to continue as a going-concern depends upon its ability to raise adequate financing and to develop profitable operations. However, the Company has sufficient cash resources to meet its obligations for at least twelve months from the end of the reporting period.
Management is actively targeting sources of additional financing through alliances with financial, exploration and mining entities, and other business and financial transactions which would assure continuation of the Company’s operations and exploration programs. In addition, management closely monitors commodity prices of precious metals, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company if favourable or adverse market conditions occur.
As the Company is in the exploration and evaluation stage, the Company has not identified a known body of commercial grade mineral on any of its properties. The ability of the Company to realize the costs it has incurred to date on these properties is dependent upon the Company identifying a commercial mineral body, to finance its development costs and to resolve any environmental, regulatory or other constraints which may hinder the successful development of the property. To date, the Company has not earned any revenues.
Statement of Compliance
These unaudited condensed consolidated interim financial statements, including comparatives have been prepared using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in accordance with International Accounting Standards (“IAS”) 34 Interim Financial Reporting.
The financial statements were authorized for issue by the Audit Committee and Board of Directors on November 6, 2012.
The unaudited condensed consolidated interim financial statements have been prepared on a historical cost basis, except for financial instruments classified as financial instruments at fair value through profit or loss, which are stated at their fair value. In addition, these financial statements have been prepared using the accrual basis of accounting except for cash flow information.
The preparation of these unaudited condensed consolidated interim financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the period. Actual results could differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Critical Accounting Estimates
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
1. the recoverability of receivables which are included in the condensed consolidated statements of financial position;
2. the carrying value and the recoverability of exploration and evaluation assets, which are included in the condensed consolidated statements of financial position;
3. the estimated useful lives of equipment which are included in the condensed consolidated statements of financial position and the related depreciation included in profit or loss;
4. the inputs used in the accounting for share-based compensation expense included in profit or loss. Critical Accounting Judgements
The following are key assumptions concerning the future and other key sources of estimation uncertainty that have significant risk of resulting in a material adjustment to carrying amount of assets and liabilities within the next financial year.
1. going concern of operations;
2. the accounting policy for exploration and evaluation assets; 3. the classification of financial instruments;
4. the determination of functional currency.
The preparation of the financial data is based on accounting principles and practices consistent with those used in the preparation of the audited financial statements as at December 31, 2011. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2011.
New standards not yet adopted
The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”) in its entirety with IFRS 9 – Financial Instruments (“IFRS 9”) in three main phases. IFRS 9 will be the new standard for the financial reporting of financial instruments that is principles-based and less complex than IAS 39. In November 2009 and October 2010, phase 1 of IFRS 9 was issued and amended, respectively, which addressed the classification and measurement of financial assets and financial liabilities. IFRS 9 requires that all financial assets be classified as subsequently measured at amortized cost or at fair value based on the Company’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified as subsequently measured at amortized cost except for financial liabilities classified as at FVTPL, financial guarantees and certain other exceptions. In response to delays to the completion of the remaining phases of the project, on December 16, 2011, the IASB issued amendments to IFRS 9 which deferred the mandatory effective date of IFRS 9 from January 1, 2013 to annual periods beginning on or after January 1, 2015. The amendments also provided relief from the requirement to restate comparative financial statements for the effects of applying IFRS 9.
The Company does not anticipate a significant impact on its condensed consolidated interim financial statements upon application.
In May of 2011, the IASB issued the following IFRS with an effective date for annual periods beginning on or after January 1, 2013, with early adoption permitted:
i. IFRS 10, Consolidated Financial Statements
ii. IFRS 11, Joint Arrangements supersedes IAS31, Interests in Joint Ventures and SIC-13, Jointly Controlled Entities – Non-monetary Contributions by Venturers
iii. IFRS 12, Disclosure of Interests in Other Entities iv. IFRS 13, Fair Value Measurement
The Company intends to adopt these new IFRS in its financial statements for the annual period beginning on January 1, 2013. The Company anticipates that the application of these standards will not have a material impact on the results and financial position of the Company.
Improvements to IFRS (issued in May 2011) - The IASB issued Improvements and amendments. i. IFRS 3, Business Combinations
ii. IAS 1, Presentation of Financial Statements
iii. IAS 27, Consolidated and Separate Financial Statements iv. IAS 28, Investments in Associates and Joint Ventures
v. IAS 34, Interim Financial Reporting
The adoption of these standards had no impact on these unaudited condensed consolidated interim financial statements.
