Geologix’s loss is Silver Standard’s gain

Unable to get its hands on the money it needed, Geologix Explorations (GIX-T, GXEFX-O) must walk away from a project it has spent most of its resources on over the last two years.

The company couldn’t drum up the US$34.3 million it needed to pay Silver Standard Resources (SSO-T, SSRI-Q) to take a 100% interest in the San Agustin poly-metallic deposit in Mexico, leaving the project and all the information Geologix has compiled on it, to be handed over to Silver Standard free of charge.

And while the collapse of credit markets has injured so many exploration juniors, Geologix among them, Silver Standard stands as a rare benefactor.

A lack of credit and poor equity options left Geologix to try and find a partner that would finance the development of San Agustin with Geologix at the helm.

But despite having several unnamed companies perform due diligence on the project, in the end, none would step up to the plate.

That left Geologix to try and have Silver Standard extend the deadline past Feb. 10, arguing that it needed more time to refine some metallurgical tests and to secure long term land access agreements with the locals, but it was to no avail.

Silver Standards immobility on the issue likely came as no surprise to Geologix given the pressure Silver Standard applied to the company back in December of last year.

The option agreement between the two companies called for Geologix to deliver a resource estimate on a specifically defined area to Silver Standard by early December of last year.

Once delivered, Silver Standard had one month to audit the report, and then if approved, Geologix would have 60 days to raise the money required to earn into the project. The amount of money to be paid by Geologix was determined by metrics based on the ounces in the ground as laid out by the resource estimate.

But despite that estimate producing a cost to Geologix much lower than what had been expected – it was estimated to be between US$45 and US$55 million but came in at just US$34 million – Silver Standard said it would forgo the audit and accepted the report immediately starting the 60 day clock on Geologix.

That buzzer has now sounded and things have ended disappointingly for Geologix but it has all played out exceptionally well for Silver Standard, as it has basically received a free resource estimate on what has shape up to be a very large deposit.

Geologix’s most recent resource estimate put 122.2 million tonnes grading 0.41 gram gold per tonne, 12.3 grams silver, 0.49% zinc and 0.06% lead in the indicated category. That works out to 1.61 million oz. gold, 48.3 million oz. silver, 161 million lbs. lead and 1.3 billion lbs. zinc.

San Agustin is located 85 kilometers north of Durango City in Durango, Mexico.

The day after Geologix announced it was unable to raise the money, Silver Standard announced it had submitted a preliminary prospectus that would give it the option to raise up to US$150 million over the next two years. Funds that would, no doubt, come in handy towards the development of San Agustin.

As for Geologix, the company says it will focus on its claims that lie nearby to San Agustin.

“The Company does retain mineral rights on the adjacent Consejo and El Carmen claims where, from our mapping, sampling and geophysics, we consider significant exploration upside exists.” Dunham Craig, Geologix’s president and chief executive said in a statement.

For the period ending Sept. 30 of 2008 – the most recent financial filings – Geologix had $8.7 million in cash on its balance sheet.

At press time Geologix shares were trading for 13.5¢, down 44% from the 24¢ they were trading at before the news was released on Feb. 10. Silver Standard shares have gained 4.3% over that period and were trading for $25.46 at press time.