Company Quick10K Filing
Santa Fe Gold
Price0.20 EPS0
Shares305 P/E7
MCap61 P/FCF-57
Net Debt4 EBIT10
TEV65 TEV/EBIT7
TTM 2017-06-30, in MM, except price, ratios
10-K 2019-06-30 Filed 2020-07-15
10-K 2017-06-30 Filed 2018-07-05
10-Q 2017-03-31 Filed 2018-03-26
10-Q 2016-12-31 Filed 2018-01-25
10-Q 2016-09-30 Filed 2017-12-18
10-K 2016-06-30 Filed 2017-11-14
10-Q 2016-03-31 Filed 2017-10-27
10-Q 2015-12-31 Filed 2017-10-27
10-Q 2015-09-30 Filed 2017-10-18
10-K 2015-06-30 Filed 2017-06-30
10-Q 2015-03-31 Filed 2015-05-20
10-Q 2014-12-31 Filed 2015-02-24
10-Q 2014-09-30 Filed 2014-11-28
10-K 2014-06-30 Filed 2014-10-22
10-Q 2014-03-31 Filed 2014-05-20
10-Q 2013-12-31 Filed 2014-02-14
10-Q 2013-09-30 Filed 2013-11-14
10-K 2013-06-30 Filed 2013-09-30
10-Q 2013-03-31 Filed 2013-05-10
10-Q 2012-12-31 Filed 2013-02-11
10-Q 2012-09-30 Filed 2012-11-09
10-K 2012-06-30 Filed 2012-09-28
10-Q 2012-03-31 Filed 2012-05-09
10-Q 2011-12-31 Filed 2012-02-08
10-Q 2011-09-30 Filed 2011-11-09
10-K 2011-06-30 Filed 2011-09-13
10-Q 2011-03-31 Filed 2011-05-10
10-Q 2010-12-31 Filed 2011-02-09
10-Q 2010-09-30 Filed 2010-11-09
10-K 2010-06-30 Filed 2010-09-28
10-Q 2010-03-31 Filed 2010-05-17
10-Q 2009-12-31 Filed 2010-02-16
8-K 2019-03-04
8-K 2019-01-09
8-K 2018-12-28
8-K 2018-11-19
8-K 2018-10-12
8-K 2018-10-05
8-K 2018-09-19
8-K 2018-07-16
8-K 2018-04-02

SFEG 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Common Equity, Related Stockholder Matters and Purchase of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1 - Nature of Operations
Note 2 - Summary of Significant Accounting Policies
Note 3 - Accrued Liabilities
Note 4 - Derivative Instrument Liabilities
Note 5 - Completion Guarantee Payable
Note 6 - Convertible Notes Payable
Note 7 - Notes Payable
Note 8 - Shares Subject To Mandatory Redemption By Related Party
Note 9 - Fair Value Measurements
Note 10 - Contingencies and Commitments
Note 11 - Stockholders' Deficit
Note 12 - Income Taxes
Note 13 - Related Party Transactions
Note 14 - Summary of Gain (Loss) on Debt Extinguishment
Note 15 - Legal Proceedings
Note 16 - Subsequent Events
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive and Director Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.Certain Relationships and Related Transactions
Item 14Principal Accounting Fees and Service
Part IV
Item 15. Exhibits, Financial Statement and Schedules
Item 16. Exhibits
EX-3.3 sfeg_ex3z3.htm
EX-10.2 sfeg_ex10z2.htm
EX-10.3 sfeg_ex10z3.htm
EX-10.4 sfeg_ex10z4.htm
EX-10.5 sfeg_ex10z5.htm
EX-21.1 sfeg_ex21z1.htm
EX-31.1 sfeg_ex31z1.htm
EX-32.1 sfeg_ex32z1.htm

Santa Fe Gold Earnings 2019-06-30

Balance SheetIncome StatementCash Flow
352311-1-13-252011201320152018
Assets, Equity
10.07.04.01.0-2.0-5.02011201320152018
Rev, G Profit, Net Income
2.31.50.7-0.1-0.9-1.72011201320152018
Ops, Inv, Fin

10-K 1 sfeg_10k.htm 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

 

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal years ended June 30, 2019, 2018 and 2017 (As Restated)

 

Or 

 

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transaction period from ___________ to _________

 

Commission File No. 001-12974

 

SANTA FE GOLD CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

84-1094315

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3544 Rio Grande Blvd., NW, Albuquerque, NM 87107

(Address of principal executive offices, Zip Code)

 

 (505)255-4852

 (Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 None

(Title of each class)

 

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.002 par value

SFEG

OTC PINK

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes    x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes    x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o Yes    x No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ¨ Yes    x No 


1



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting company)

Emerging growth company

¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes    x No

 

The aggregate market value of voting Common Stock held by non-affiliates of the registrant at the end of the second fiscal quarter ended December 31, 2018, was approximately $20,978,990 based on the last reported sale price of the registrant’s common stock as reported on the OTC Marketplace operated by OTB Market Group, Inc. on December 31, 2018.  

 

As July 8, 2020, there were 415,957,718 shares of registrant’s common stock outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

None


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TABLE OF CONTENTS

Cautionary Note Regarding Forward-Looking Statements

Explanatory Note

 

 

Page

 

 

 

 

PART I

 

 

 

 

ITEM 1:

BUSINESS

6

ITEM 1A:

RISK FACTORS

12

ITEM 1B:

UNRESOLVED STAFF COMMENTS

21

ITEM 2:

PROPERTIES

21

ITEM 3:

LEGAL PROCEEDINGS

32

ITEM 4:

MINE SAFETY DISCLOSURES

33

 

 

 

 

PART II

 

 

 

 

ITEM 5:

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

34

ITEM 6:

SELECTED FINANCIAL DATA

37

ITEM 7:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

37

ITEM 7A:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

41

ITEM 8:

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

42

ITEM 9:

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

46

ITEM 9A:

CONTROLS AND PROCEDURES

46

ITEM 9B:

OTHER INFORMATION

47

 

PART III

 

 

 

 

ITEM 10:

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

47

ITEM 11:

EXECUTIVE AND DIRECTOR COMPENSATION

50

ITEM 12:

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

52

ITEM 13:

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

54

ITEM 14:

PRINCIPAL ACCOUNTING FEES AND SERVICES

54

 

 

 

 

PART IV

 

ITEM 15:

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

55

 

 

 

SIGNATURES

 

56


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EXPLANATORY NOTE

 

Unless the context requires otherwise, references to “Santa Fe Gold,” “Santa Fe,” “we,” “us,” our and the “Company” refer to Santa Fe Gold Corporation and its consolidated subsidiaries.

Financial Information Included in this 10-K

This is the first Annual Report filed by Santa Fe Gold after the original filed 10-K for fiscal year ended June 30, 2017, filed on July 5, 2018,with the Securities and Exchange Commission(“ the SEC or Commission”) Readers should be aware that several aspects of this report differ from previous Annual Reports on Form 10-K, as it covers three annual years of the Company. This Annual Report on Form 10-K for the year ended June 30, 2019, also contains our audited Consolidated Financial Statements for the years ended June 30, 2018 and 2017 (As Restated), which have not previously been filed (except for 2017 which are being restated hereby).

We have not filed and do not intend to file an amendment to any of our previously filed Annual Report on Form 10-K for the fiscal years ended prior to June 30, 2017. Prior to the filing of this Annual Report, the Company has filed amended Quarterly Reports on Form 10-Q for the quarters ended September 30, 2016 and December 30, 2016, and the quarter ended March 31, 2017. Concurrent with this filing, or as soon as practical, we are filing Quarterly Reports with the SEC on Form 10-Q for each of the quarters ended September 30,2017 and December 31, 2017; March 31, 2018, September 30, 2018 and December 31, 2018; March 31, 2019, September 30, 2019 and December 31, 2019 and March 31, 2020.

 

Non-Reliance on Previously Issued Financial Statements or a Related Audit Report

On October 1, 2018, we disclosed in a Form 8-K that the board of directors formed a special committee in September 2018 to investigate and analyze certain financial transactions in the aggregate amount of approximately $1 million that occurred primarily between July 2016 and March 2018 involving Tom Laws (our former chief executive officer).  The special committee investigation determined that Mr. Laws initially owes the Company $1,197,198 excluding penalty and accrued interest, of which $485,966 has been received by the Company to date and the Company has proceeded against Mr. Laws to collect the balance. The Company does not anticipate collection a material portion of the amount due us, See Item 3, “Legal Proceedings

The Company concluded that these financial transactions materially impacted the previously issued consolidated financial statements for, and financial information relating to, the fiscal year ended June 30, 2017.  These financial statements for the fiscal year ended June 30, 2017 previously filed should not be relied upon. The Company’s financial statements for the fiscal year ended June 30, 2017, have been restated and are included herewith.

 

ADDITIONAL INFORMATION

 

Descriptions of agreements or other documents contained in this Annual Report filed on Form 10-K are intended as summaries and are not necessarily complete. Please refer to the agreements or other documents filed or incorporated herein and furnished herewith as exhibits for more complete descriptions of the terms and conditions set forth therein. Please see the exhibit index at the end of this report for a complete list of those exhibits.

 

We are required to comply with the United States Securities and Exchange Commission Industry Guide 7 under the United States Securities Act of 1933, as amended (the “Securities Act”), with respect to disclosures related to our mineral properties. The terms “mineralized material”, “mineralization” or similar terms as used in this Annual Report on Form 10-K does not indicate “reserves” by SEC Industry Guide 7 standards. We cannot be certain that any part of mineralized material or mineralization will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”. Investors are cautioned not to assume that all or any part of the mineralized material will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This Annual Report may contain certain “forward-looking” statements as such term is defined by the Commission in its rules, regulations and releases, which represent the Company’s expectations or beliefs, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict,” “strategy” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.  Forward-looking statements, many assuming that the Company secures adequate financing and is able to continue as a going concern, including statements regarding the following uncertainties, among other things:


4



·our ability to continue as a going concern;  

·our ability to acquire financing to allow us to remain in business, engage in mining operations and/or develop any mines;  

·projections regarding capital costs, expenditures, potential revenues, operating costs, production and economic returns may differ significantly from those that we have anticipated;  

·exposure to all of the risks associated with mining operations, if any development of one or more of our projects is found to be economically feasible;  

·title to some of our mineral properties may be uncertain or defective;  

·land reclamation and mine closure may be burdensome and costly;  

·significant risk and hazards associated with mining operations;  

·the requirements that we obtain, maintain and renew environmental, construction and mining permits, which is often a costly and time-consuming process and may be opposed by local environmental group;  

·our anticipated needs for working capital;  

·claims , investigations, enforcement actions and other legal proceedings against us, and consequences therefrom;  

·our lack of necessary financial resources to complete development of our projects and the uncertainty of our future best efforts financing plans,  

·our exposure to material costs, liabilities and obligations as a result of environmental laws and regulations (including changes thereto) and permits;  

·changes in the price of silver and gold;  

·extensive regulation by the U.S. government as well as state and local governments;  

·developments in the Department of Justice (“DOJ”) and SEC investigations; 

·any projected revenues;  

·our growth strategies,  

·anticipated trends in our industry;  

·unfavorable weather conditions;  

·the commercial and economic viability of any mines;  

·availability of materials and equipment;  

·failure of equipment to process or operate in accordance with specifications, including expected throughput, which could prevent the production of commercially viable output; and  

·our ability to seek out and acquire high quality gold, silver and/or copper properties.  

Actual events or results may differ materially from those discussed in forward-looking statements as as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described herein generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur. We caution you not to place undue reliance on these forward-looking statements.  Do not invest in our common stock based on forward-looking statements.  We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 


5



PART I

ITEM 1.  BUSINESS

Overview of Events

We are a mining company engaged in the business acquiring and developing metal and mineral properties that may contain recoverable gold and/or silver deposits.  Although management is optimistic about its plans for developing certain such properties, to date, minimal mining activities have commenced and there can be no assurance that they will or that if they do commence, that the Company’s mining activities will be profitable.  After the dismissal from bankruptcy in June 2016, we had no assets and approximately $20 million of indebtedness was reinstated.

The properties we currently own were acquired subsequent to our dismissal from bankruptcy proceedings.  We are in the process of raising capital that is required, in part, to begin development of our current mining properties and to help meet our working capital requirements. There can be no assurances that we will be successful in raising the capital necessary to implement our business plan or if we are successful, that there may not be additional or superseding demands on our capital resources. Although the Company has been successful in meeting its capital requirements in the past, since emerging from Bankruptcy and management is optimistic about being able to secure needed funding, any failure to do so or any unforeseen expenses or other demands on the Company’s capital could result in the need to curtail or cease operation, resulting in losses to investors.

We are an exploration company that owns certain mining leases and other mineral rights. None of our properties contain any proven and probable reserves under SEC Industry Guide 7, and all of our activities on all of our properties are exploratory in nature.

Company Organizational Chart

 

 

Overview of Recent Developments

Old New Mexico Properties Acquisitions

In August 2017, the Company acquired the Malone Mine claims, Playa Hidalgo Placer claims. On October 23, 2017, the Pinos Altos claims were purchased for an aggregate of $500. These mining claims are located in Grant County and Hidalgo County, New Mexico. 

Alhambra Acquisition

Pursuant to a stock purchase agreement dated August 2017, the Company acquired all the capital stock of Bullard’s Peak Corporation and the related patented unpatented claims in the Black Hawk district of New Mexico from Black Hawk Consolidated Mines Company for a purchase price of $3,115,365.  The Company granted the seller a 2% net smelter return in perpetuity on all patented and unpatented claims.  The net smelter return is the greater of (i) all monies the Company receives for or from any and all ore removed from the property comprising the mining claims whether for exploration, mining operations or any other reason, and (ii) the fair market value of removed ore from the property comprising the mining claims.  


6



Based upon the Company’s review of FASB’s Business Combinations (Topic 805) Update amendment and the acquisition and outside independent documentation for this acquisition, it does not meet the requirements of acquiring a business or a business combination. All assets acquired are concentrated in a single identifiable asset, Land. The Company relies on Sections 805-10-55-5, 805-10-55-5A and 805-10-55-5B that identify the acquisition is not considered a business or business combination.

There were no mining operations being conducted on the property on the date of acquisition.  Based on the Company’s analysis and understanding of documents obtained from outside sources and the sellers’ representations, no mining operations have been conducted on the property for the last five years.  This is based on records from the New Mexico Department of Mines reflecting that they have no records of mining or exploration permits having ever been issued to any entity called Bullard’s Peak Corporation. A review of filed corporate tax returns also reflects no operational activities. To further assist the Company to determine if it acquired a business or a business combination, it looked to Accounting Standards Update 2017-01 Business Combinations (Topic 805).

Based upon the Company’s review of FASB’s Business Combinations (Topic 805) Update amendment and the acquisition and outside independent documentation for this acquisition, it does not meet the requirements of acquiring a business or a business combination. All assets acquired are concentrated in a single identifiable asset, Land. The Company relies on Sections 805-10-55-5, 805-10-55-5A and 805-10-55-5B that identify the acquisition is not considered a business or business combination.

To date, there have been no mining or exploration activities at this mine site. With limited information, the Company has done an initial economic feasibility study and will need to complete future exploration activity on the property prior to developing a proper mining plan for the site. The Company currently considers the location as an exploration property with required geological work yet to be performed.

British Columbia Properties

On November 30, 2017, the Company entered into substantially identical agreements with Fortune Graphite, Inc. and Worldwide Graphite Producers, Ltd. to acquire a total of four placer claims for aggregate consideration of Can$400,000 and the issuance of 10,000,000 shares of Company common stock.  Title to these claims remains in trust with the sellers until payment in full. To date, the Company has paid Can$260,000.  The Company owes the sellers Can$140,000 and 10,000,000 shares of Company common stock. Based upon our subsequent scrutiny and analysis of the transaction, the Company in February 2019 initiated an arbitration proceeding against the seller to void and rescind the purchase of these British Columbia properties. In addition to voiding and rescinding the transaction, the Company is seeking additional remedies.  The Company cannot predict the outcome of this arbitration, and there is no assurance that the Company will not lose its interest in these claims, or owe seller the remaining outstanding amounts. In connection with this arbitration, the Company’s legal position is to void the transaction and, due to the uncertainty of the outcome, has provided an impairment of the amount at June 30, 2019, in the amount of $210,116.

Agreement for Two New Mexico Mining Properties

The Company formed a wholly-owned subsidiary, Minerals Acquisitions, LLC, that entered into an Agreement with a mining operator in January 2019 to purchase two properties in western New Mexico, known as the Billali Mine and the Jim Crow Imperial Mine (the “Billali Agreement” and the “Jim Crow Agreement.”) The purchase price for all rights and interests to be conveyed is $2,500,000 for the Billali Mine and $7,500,000 for the Jim Crow Imperial Mine, each documented as separate definitive agreements, with aggregate consideration for both definitive agreements payable as follows pursuant to the third amendment to the aforementioned agreements dated effective May 1, 2020:

*$500,000 paid to date as of the filing date; 

*buyer to pay $50,000 monthly commencing   July 1, 2020 and continuing for the next subsequent 19 months; 

*commencing 30 days after the last payment above, and continuing for the for an additional 48 subsequent payments, buyer to make each 30 days  a payment in the amount of  $175,000; 

* after the final payment above and 30 days thereafter, the buyer will make the final payment of $100,000 completing the purchase. 

*each payment made hereunder will be allocated twenty-five per cent (25%) to the Billali and seventy-five percent (75%) to the Jim Crow, Imperial. 

The Agreement has a 5% net smelter return (NSR) royalty on the nine patented Lode Claims up $650,000, and a 3% NSR royalty thereafter.

Title and all rights and interest in the properties will be conveyed under the agreements upon completion of the payments of the purchase prices of the properties. The Company has the right to cancel the Agreement at any time.


7



Minerals Acquisitions, LLC was transferred the Jim Crow mine permit on August 20, 2019, from the selling party. The Company leases water rights for the mine site. The Company began initial site mining preparations at the Jim Crow mine during the last calendar quarter of 2019 and anticipates the first shipment of processed mineralized ore in the third calendar quarter of 2020 to our smelter. There can be no assurance of continued shipments of our processed mineralized ore until the Company enters into a long-term contract with the smelter, upon acceptance of our mineralized ore.

Due to Covid-19 the smelter and all laboratories are on a very slow pace. We sent a sample to a laboratory, designated by our potential smelter, was taking four to six weeks to provide an analysis of the ore sample submitted.  Upon receipt of successful laboratory results, the smelter will discuss an initial contract for our material.

There were no mining operations being conducted on the property on the date of purchase.  Based on the Company’s analysis and understanding of annual filed reports filed by the sellers, no mining operations have been conducted on the properties in the last four or five years.  A review of the tax returns for the calendar years ended 2016-2018 support this position. The Company has inquired with the New Mexico Mining and Minerals Division to obtain the last few years of filings on Form 7, Annual Report Metal and Mill Concentrate Operations. The current reports obtained from the Division, reflect no mining operations have occurred in the years 2014 to 2018. Accordingly, (i) there were no revenue-producing activities and (ii) in connection with the acquisition, no employee base was associated with the acquisition, no market distribution system was associated with the acquisition, no sales force or customer base was associated with the acquisition, and no production techniques or actual production was associated with the acquisition of the properties. The Company believes that the physical facilities need various improvements prior to beginning mining operations.

To further assist the Company to determine if it acquired a business or a business combination, it looked to Accounting Standards Update 2017-01 Business Combinations (Topic 805). Based upon the Company’s review of the purchase agreement that provides for only the purchase of patented and unpatented mining claims as detailed in the agreement. Ownership transfers of these claims are not to transferred until the full amount specified in the agreement is paid in full. The Company has reviewed the tax returns of the sellers for their calendar tax years 2016-2018, which indicate no operations have occurred in those years. Based upon the Company’s review of FASB’s Business Combinations (Topic 805) Update amendment and the review of the acquisition documentation, this acquisition does not meet the requirements of acquiring a business. All assets to be acquired are concentrated in a single identifiable asset or group of similar identifiable assets, patented mining leases, as descripted in the Agreement. The Company relies on Sections 805-10-55-5, 805-10-55A and 805-10-55-5B that identify the acquisition is not considered a business or a business combination.

The Company considers this property to be an exploration property. The Company will capitalize the payments under the Agreement as made to the sellers for the mineral interest. Initial activities on the sites will be to complete limited exploration activities and required mine development projects with the intent to start limited mining activities in the first half of calendar 2020. These activities may be delayed based on the current outbreak of Covid-19 situation and current unknown factors at this time.

When the Company begins receiving revenue stream from these projects, the Company will amortize the capitalized payment balance each quarter thereafter. Companies that have reserves under Guide 7 typically capitalize these costs, and subsequently depreciate or amortize them on a units-of-production basis as reserves are mined. Unlike these other companies, on properties that have no reserves we will depreciate or amortize any capitalized costs based on the most appropriate amortization method, which includes straight-line or units-of-production method over the estimated life of the mine, as determined by our geologist. As we have no reliable information to compute a units of production methodology, we will amortize our capitalized costs on a straight-line basis. Because of these and other differences, our financial statements may not be comparable to the financial statements of mining companies that have established reserves on their properties.

Competition

The mining industry is highly competitive.  We will be competing with numerous companies, substantially all of which have far greater resources available to them that we are likely to when we commence operations.  We therefore may be at a significant disadvantage in the course of obtaining materials, supplies, labor, and equipment from time to time.  Additionally, we are and will continue to be an insignificant participant in the business of mining exploration and development.  

Compliance with Government Regulations

Overview

Continuing to acquire and explore mineral properties in the State of New Mexico will require the Company to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the State of New Mexico and the United States.

The mining industry, (specifically the activities of exploration, drilling) operate in a legal environment that requires permits to conduct virtually all operations. Thus, permits are required by local, state and federal government agencies.   Local authorities, usually counties,


8



also have control over mining activity.  The various permits address such issues as prospecting, development, production, labor standards, taxes, occupational health and safety, toxic substances, air quality, water use, water discharge, water quality, noise, dust, wildlife impacts, as well as other environmental and socioeconomic issues.  

Like all other mining companies doing business in the United States, we are subject to a variety of federal, state and local statutes, rules and regulations designed to protect the quality of the air and water, and to protect threatened or endangered species, in the vicinity of our mining operations. These include “permitting” or “pre-operating approval” requirements that are designed: (i) to ensure the environmental integrity of a proposed mining facility, (ii) to ensure operating plans are designed to mitigate the effects of discharges into the environment during exploration, mining operations, and reclamation and (iii) that post-operation plans are designed to remediate the lands affected by a mining facility once commercial mining operations have ceased.

United States.  Mining in the State of New Mexico is subject to federal, state and local law. Three types of laws are of particular importance to the Company’s U.S. mineral properties: those affecting land ownership and mining rights; those regulating mining operations; and those dealing with the environment.

Land Ownership.  On Federal Lands, mining rights are governed by the General Mining Law of 1872 (General Mining Law) as amended, 30 U.S.C. §§ 21-161 (various sections), which allows the location of mining claims on certain Federal Lands upon the discovery of a valuable mineral deposit and proper compliance with claim location requirements. A valid mining claim provides the holder with the right to conduct mining operations for the removal of locatable minerals, subject to compliance with the General Mining Law and Nevada state law governing the staking and registration of mining claims, as well as compliance with various federal, state and local operating and environmental laws, regulations and ordinances. As the owner or lessee of the unpatented mining claims, the Company has the right to conduct mining operations on the lands subject to the prior procurement of required operating permits and approvals, compliance with the terms and conditions of any applicable mining lease, and compliance with applicable federal, state, and local laws, regulations and ordinances.

Mining Operations

The exploration of mining properties and development and operation of mines is governed by both federal and state laws.  The State of New Mexico likewise requires various permits and approvals before mining operations can begin, although the state and federal regulatory agencies usually cooperate to minimize duplication of permitting efforts.  The State of New Mexico Mining and Minerals Division requires mine permits for each mining location. The permit has an Annual Permit Fee that is due by April 30 of each year. The Annual Permit Fee for minimal impact mines is currently $250.

Prior to receiving the necessary permits to explore or mine, the operator must comply with all regulatory requirements imposed by all governmental authorities having jurisdiction over the project.  Generally, in order to obtain the requisite permits, the operator must have its land reclamation, restoration or replacement plans pre-approved. Specifically, the operator must present its plan to restore or replace the affected area. Often these requirements result in delays and/or costly studies or changes in the proposed activities; which may extend the time to completion. Although this may be necessary in order to mitigate the negative impact of certain aspects of an initial plan.  All of these factors make it more difficult and costly to operate; and have a negative, and sometimes fatal, impact on the economic viability of the exploration or mining operation at issue. Finally, it is possible that future changes in laws or regulations could have a significant impact on our business, requiring the planned activities to be economically reevaluated at that time.

Environmental Law

Federal legislation in the United States and implementing regulations adopted and administered by the Environmental Protection Agency, the Forest Service, the Bureau of Land Management, the Fish and Wildlife Service, the Army Corps of Engineers and other agencies—in particular, legislation such as the federal Clean Water Act, the Clean Air Act, the National Environmental Policy Act, the Endangered Species Act, the National Forest Management Act, the Wilderness Act, and the Comprehensive Environmental Response, Compensation and Liability Act—have a direct bearing on domestic mining operations. These federal initiatives are often administered and enforced through state agencies operating under parallel state statutes and regulations.

The Clean Water Act.  The Federal Clean Water Act is the principal Federal environmental protection law regulating mining operations in the United States as it pertains to water quality.

At the state level, water quality is regulated by the New Mexico Environment Department.  If our exploration or any future development activities could affect a ground water aquifer, we are required to apply for a ground water discharge permit in compliance with the groundwater regulations. If exploration affects surface water, then compliance with surface water regulations is required.

The Clean Air Act.  The Federal Clean Air Act establishes ambient air quality standards, limits the discharges of new sources and hazardous air pollutants and establishes a Federal air quality permitting program for such discharges. Hazardous materials are defined


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in the Federal Clean Air Act and enabling regulations adopted under the Federal Clean Air Act to include various metals. The Federal Clean Air Act also imposes limitations on the level of particulate matter generated from mining operations.

National Environmental Policy Act (“NEPA”).  NEPA requires all governmental agencies to consider the impact on the human environment of major federal actions as therein defined.

Endangered Species Act (“ESA”).  The ESA requires federal agencies to ensure that any action authorized, funded or carried out by such agency is not likely to jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of their critical habitat. In order to facilitate the conservation of imperiled species, the ESA establishes an interagency consultation process. When a federal agency proposes an action that “may affect” a listed species, it must consult with the USFWS and must prepare a “biological assessment” of the effects of a major construction activity if the USFWS advises that a threatened species may be present in the area of the activity.

National Forest Management Act.  The National Forest Management Act, as implemented through Title 36 of the Code of Federal Regulations, provides a planning framework for lands and resource management of the National Forests. The planning framework seeks to manage the National Forest System resources in a combination that best serves the public interest without impairment of the productivity of the land, consistent with the Multiple Use Sustained Yield Act of 1960.

Wilderness Act.  The Wilderness Act of 1964 created a National Wilderness Preservation System composed of Federally owned areas designated by Congress as “wilderness areas” to be preserved for future use and enjoyment.

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). CERCLA generally imposes joint and several liabilities, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the current owner or operator of a contaminated facility, a former owner or operator of the facility at the time of contamination and those persons that disposed or arranged for the disposal of the hazardous substance. Under CERCLA and comparable state statutes, such persons may be subject to strict joint and several liabilities for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. Governmental agencies or third parties may seek to hold the Company responsible under CERCLA and comparable state statutes for all or part of the costs to clean up sites at which such “hazardous substances” have been released.

The Resource Conservation and Recovery Act (“RCRA”). RCRA was designed and implemented to regulate the disposal of solid and hazardous wastes. It restricts solid waste disposal practices and the management, reuse or recovery of solid wastes and imposes substantial additional requirements on the subcategory of solid wastes that are determined to be hazardous. Like the Clean Water Act, RCRA provides for citizens’ suits to enforce the provisions of the law.

National Historic Preservation Act.  The National Historic Preservation Act was designed and implemented to protect historic and cultural properties. Compliance with the Act is necessary where federal properties or federal actions are undertaken, such as mineral exploration on federal land, which may impact historic or traditional cultural properties, including native or Indian cultural sites.

Effect of Existing or Potential Government Regulations

Mineral exploration, including mining operations are subject to governmental regulation. Our operations may be affected in varying degrees by government regulation such as restrictions on production, price controls, tax increases, expropriation of property, environmental and pollution controls or changes in conditions under which minerals may be marketed. An excess supply of certain minerals may exist from time to time due to lack of markets, restrictions on exports, and numerous factors beyond our control. These factors include market fluctuations and government regulations relating to prices, taxes, royalties, allowable production and importing and exporting minerals. The effect of these factors cannot be accurately determined, and we are not aware of any probable government regulations that would impact the Company at this time, although there can be no assurances that regulations may not arise in the future. To the extent that government regulations do arise in the future, they may have a negative effect on our operations, which may in turn, result in losses to investors.  This section is intended as a brief overview of the laws and regulations described herein and is not intended to be a comprehensive treatment of the subject matter.

Reclamation

We generally will be required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping and revegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts would be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies. As soon as we have a mining operation, we will be required to arrange and pledge certificates of deposits for reclamation with the state regulatory agencies. At this time no reclamation cost is calculated or carried forward.


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Employees

We currently have two full time employees as of our current fiscal year end.  In order to implement our business plan, we will be required to employ or retain qualified consultants with the technical expertise to evaluate and mine our mineral properties and for administrative duties as required. We initially planned to employ approximately ten to twelve miners upon commencing our initial mining operations in New Mexico in late 2019. Thereafter, we hired approximately thirteen and as of the most recent date hereof, we have eight employees working on our mining operations in New Mexico in June 2020. The reduction in employees is due to the continuing effects of Covid-19.

Insurance

We currently maintain liability and workmen’s compensation insurance coverage to cover losses or risks incurred in the ordinary course of business.  

Exploration

The Company has spent only nominal amounts during each of the last three fiscal years on exploration and mine development.

Seasonality

We have no properties at this time that are subject to material restrictions on our operations due to seasonality.

Office Facilities

Our principal executive offices are located at 3544 Rio Grande Blvd. NW, Albuquerque, NM 87107. Our telephone number is (505) 255-4852.

Dismissal of Bankruptcy Proceeding and Emergence from Voluntary Reorganization

In August 2015, the Company filed for Chapter 11 bankruptcy protection in Delaware in order to secure the existing assets from creditor actions, Case No. 15-11761 (MFW).  Jakes Jordaan, our former chief executive officer, filed an affidavit in support of the first day motion that we had only one remaining option (plan) to have an orderly sale of all assets to satisfying qualified debt without any plan thereafter and he began working with an investment banker to assist with these efforts. The “asset sale” took place in February 2016 and left Santa Fe and its subsidiaries without any assets but with the remaining debt.

After the dismissal of the bankruptcy case, the Company had limited assets, but remained liable for all commitments and debts that then were outstanding.  Santa Fe Gold Barbados, The Lordsburg Mining Company and AZCO are subsidiaries of the Company with nominal assets and all of their commitments and debts remain. The bankruptcy court set up a trust fund funded by the activities of the Summit mine (main asset sold in bankruptcy proceedings) for five years from the inception of mine production at the Summit mine, with the funds held in trust distributed by an independent trustee to certain unsecured creditors.

Santa Fe failed to provide a plan of reorganization in connection with its petition under Chapter 11of the United States Bankruptcy Code. The significant transactions that occurred upon emergence from bankruptcy were as follows:

·The approximately $20 million of indebtedness outstanding on account of the Company’s senior notes and unsecured claims were reinstated; and 

·The courts established a trust in April 2016 for the benefit of certain creditors. A profit interest was attached to the Summit mine for the benefit of certain creditors holding unsecured claims filed by each creditor.  

The Company received Bankruptcy Court confirmation of the dismissal in June 2016, and subsequently emerged from bankruptcy. The only funds available for the future administrative costs were prepaid insurance funds of approximately $49,000. The Company subsequently began selling on a best-efforts basis equity for the cash needed for working capital purposes. Currently we have no continuing commitment from any party to provide working capital, and there is no certainty that the Company will be able to continue its current business plan.

At the end of the Company’s fiscal year ended June 30, 2019, the Company wrote off debt and related, accrued interest in the aggregate amount of $12,506,540. The write off of debt was related to two finance facilities that were outside of the British Columbia statutes of limitations. The Company retained legal services in British Columbia to research the British Columbia statutes of limitations on the collectability of the finance facilities. Legal counsel reviewed all related documents, records of proceedings and all records and


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documents deemed relevant to the two finance facilities. It was determined that the finance facilities were subject to the laws of the Providence of British Columbia and the federal laws of Canada. The Company received a written legal opinion from legal counsel, with respect to the two finance facilities and any sums due there under.  Our counsel determined, after researching the Limitations Act (British Columbia) and relevant case law in the Provence of British  Columbia, that the sums the Company had been carrying on its books and records related to those two finance facilities were time barred from any collection efforts because they are outside of statute of limitations period allowed under British Columbia law.  Stated differently, the statutes of limitations has run for the two finance facility liabilities pursuant to the Limitations Act (British Columbia) and no future claims can be commenced in the Providence of British Columbia for collection thereunder.  Therefore, the Company has no outstanding legal obligation on the two finance facilities.

Available Information  

We make available, free of charge, on or through our Internet website, at www.santafegoldcorp.com, our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934. Our Internet website and the information contained therein or connected thereto are not intended to be, and are not, incorporated into this report on Form 10-K.

You can read our SEC filings, including this annual report as well as our other periodic and current reports, on the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

ITEM 1A.  RISK FACTORS

The Company operates in a rapidly changing environment that involves numerous risks and uncertainties involving precious metal prices, explorations costs and government oversight. Investors should carefully consider the risks described below before purchasing the Company’s common shares. The occurrence of any of the following events could negatively affect our business operations and our results of operations. If these events occur, the trading price of the Company’s common shares could decline, and shareholders may lose part or even all of their investment.

Risk Associated with Our Business

All of our properties are in the exploration stage. There can be no assurance that we will establish the existence of any metal or mineral resource on any of our properties in commercially exploitable quantities. Until we can do so, we are not likely to earn any revenues from these properties, and our business could fail.

We have not established that any of our mining properties contain commercially viable mineral or metal reserves.  Our ability to conclude that an individual prospect has any viable mineral or metal reserves requires further efforts and any funds that we spend on exploration may be lost. Even if we do eventually discover commercially viable mineral or metal reserves on one or more of our properties, there can be no assurances that we will develop producing mines and extract those resources. Both mineral exploration and development involve a high degree of risk and few properties, which are explored and mined, are ultimately developed into commercially viable producing mines.

The commercial viability of an established mineral deposit will depend on a large number of factors including, by way of example, the size, grade and other attributes of the mineral or metal deposit, the proximity of the resource to infrastructure, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified metal or mineral resource unprofitable.

Even if commercial viability of a mineral or metal deposit is established, we may be required to expend significant resources until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to both establish proven and probable reserves as well as those required to implement permitting and drilling operations. Because of these uncertainties, investors have no assurances that our drilling programs will result in commercially viable operations nor that we will be successful in the establishment or expansion of any resources or reserves. Any failure in our ability to successfully execute on the forgoing will adversely impact our business results of operations, in turn leading to losses for investors.

Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are not defined terms under SEC Industry Guide 7 and are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of potential mineral deposits that may be considered mineral resources will ever be converted into reserves. Our mineral resources have a great amount of


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uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. Our properties currently do not contain any known proven or probable ore reserves under SEC Industry Guide 7 reporting standards. Investors are cautioned not to assume that any mineral resources will ever be converted into SEC Guide 7 compliant reserves.

If we establish the existence of commercially viable mineral or metal resources on any of our properties in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will not be able to exploit the resource, and our business could suffer.

If we do discover mineral and metal resources in commercially exploitable quantities on any of our properties, we will be required to expend substantial sums of money to establish the extent of the resource, engage in drilling operations and develop extraction and processing facilities (or effect acceptable shipping arrangements therefor) and infrastructure. We do not have adequate capital to develop necessary facilities and infrastructure and will need to raise additional funds.  Although we may derive substantial benefits from the discovery of commercially exploitable deposits, there can be no assurance that such a resource will be large enough to justify commercial operations or that we will be able to raise the funds required for development and/or processing on a timely basis. If we cannot raise the necessary capital or complete the necessary facilities, infrastructure, development, processing or related activities, our business may fail and we may be forced to curtail or cease operations.

Our exploration and extraction activities may not be commercially successful. 

While we believe there are positive indicators that our properties contain commercially exploitable minerals and metals, such belief has been based solely on preliminary tests that we have conducted and data provided by third parties. There can be no assurance that the tests and data upon which we have relied are correct or accurate.  Moreover, mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive.  Unusual or unexpected geologic formations and the inability to obtain suitable or adequate machinery, equipment or labor are risks involved in the conduct of most exploration programs.  The success of mineral exploration and development is determined in part by the following factors:

·the identification of potential mineralization based on analysis; 

·the availability of permits; 

·the quality of our management and our geological and technical expertise; and 

·the capital available for mining operations. 

Substantial expenditures and time are required to establish existing proven and probable reserves through drilling and analysis, and to develop the mines and facilities and infrastructure at any site chosen for mining.  Whether a mineral or metal deposit will be commercially viable depends on a number of factors, which include, without limitation: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection; and general economic factors, which include, without limitation, market prices for certain minerals or metals, labor costs, the impact of technological innovations on the supply and demand for the commodities we mine.  If our exploration and extraction activities are not successful, our business will likely fail.

There may be challenges to the title of our mineral properties.

The Company has acquired certain rights to its properties by unpatented claims, ownership of land or by lease from those owning the property and its patented claims are limited.  The validity of title to many types of natural resource property depends upon numerous circumstances and factual matters (many of which are not discoverable of record or by other readily available means) and is subject to many uncertainties of existing law and its application.  There can be no assurance that the validity of our titles to our properties will be upheld or that third parties will not otherwise seek to invalidate those rights. In the event the validity of our title to any of these properties are not upheld, such events would have a material adverse effect on us.

Mineral operations are subject to applicable law and government regulations. Even if we discover a mineral resource in a commercially exploitable quantity, these laws and regulations could restrict or prohibit the exploitation of them. If we cannot exploit any mineral resources that we discover on our properties, our business may fail.

Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.  


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Companies, such as ours that plan to engage in exploration and extraction activities, often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Issuance of permits for our activities is subject to the discretion of government authorities, and we may be unable to obtain or maintain such permits.  Permits required for future exploration or development may not be obtainable on reasonable terms, on a timely basis or at all.  There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration or development of our mineral properties or for the construction and operation of a mine on our properties at economically viable costs. If we cannot accomplish these objectives, our business could face difficulty and/or fail.

We believe that we are in compliance with all material laws and regulations that currently apply to our activities but there can be no assurance that we can continue to do so. Current laws and regulations could be amended and we might not be able to comply with them, as amended. Further, there can be no assurance that we will be able to obtain or maintain all permits necessary for our future operations, or that we will be able to obtain them on reasonable terms. To the extent such approvals are required and are not obtained, we may be delayed or prohibited from proceeding with planned exploration or development of our mineral properties.

Environmental hazards unknown to us, which have been caused by previous or existing owners or operators of the properties, may exist on the properties in which we hold an interest.  It is possible that our properties could be located on or near the site of a Federal Superfund cleanup project. Although we endeavor to avoid such sites, it is possible that environmental cleanup or other environmental restoration procedures could remain to be completed or mandated by law, causing unpredictable and unexpected liabilities to arise. We are not currently aware of any environmental issues or litigation relating to any of our current or former properties but if they were to arise, we could face significant liability that would negatively impact our operations that would cause our business to fail.

Competition in the mining industry is intense, and we have limited financial and personnel resources with which to compete. 

Competition in the mining industry for desirable properties, investment capital, equipment and personnel are intense. Numerous companies headquartered in the United States, Canada and elsewhere throughout the world compete for properties on a global basis. We are currently an insignificant participant in the mining industry due, in part, to our limited financial and personnel resources. We may be unable to: i) attract the necessary investment capital or a joint venture partner to fully develop our mineral properties,  ii) acquire other desirable properties, iii) attract and hire necessary personnel, or iv) purchase necessary equipment.

The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses. 

The business of exploring for and extracting minerals and metals involves a high degree of risk. Few properties are ultimately developed into producing mines. Whether a mineral deposit can be commercially viable depends upon a number of factors, including the particular attributes of the deposit, including size, grade and proximity to infrastructure, metal prices, which can be highly variable, and government regulation, including environmental and reclamation obligations. These factors are not within our control. Uncertainties as to the metallurgical amenability of any minerals discovered may not warrant the mining of these metals or minerals on the basis of available technology. Our operations are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral or metal properties, such as, but not limited to:

·encountering unusual or unexpected formations; 

·environmental pollution; 

·personal injury, flooding and landslides; 

·variations in grades of minerals or metals; 

·labor disputes; and 

·a decline in the price of gold, silver or copper. 

We currently have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write-down on our investment in such property interests.  All of these factors may result in losses in relation to amounts spent which are not recoverable.  The payment of any liabilities that arise from any such occurrence would have a material, adverse impact on our Company.


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Our exploration and development activities are subject to environmental risks, which could expose us to significant liability and delay, suspension or termination of our operations. 

The exploration, possible future development and production phases of our business will be subject to federal, state and local environmental regulation. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set out limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments, and a heightened degree of responsibility for companies and their officers, directors and employees. Future changes in environmental regulations, if any, may adversely affect our operations. If we fail to comply with any of the applicable environmental laws, regulations or permit requirements, we could face regulatory or judicial sanctions. Penalties imposed by either the courts or administrative bodies could delay or stop our operations or require a considerable capital expenditure. Although we intend to comply with all environmental laws and permitting obligations in conducting our business, there is always a possibility that those opposed to exploration and mining may attempt to interfere with our operations, whether by legal process, regulatory process or otherwise.

We could be subject to environmental lawsuits.  

Neighboring landowners, other third parties and governmental entities could file claims based on environmental statutes and common law for personal injury and property damage allegedly caused by the release of hazardous substances or other waste material into the environment on or around our properties.  There can be no assurance that our defense of such claims will be successful.  A successful claim against us could have an adverse effect on our business prospects, financial condition and results of operation.

Risks Associated with our Company

Litigation with respect to Mr. Laws may not result in additional funds being obtained to reduce his indebtedness owed to the Company.

The Company has determined by its records that Mr. Laws initially owes us $1,197,198 ; after deducting the sum of $485,966 collected from him, the total amount Laws owed prior to collection of the Company is  $711,232 (the “Missing Funds”) plus penalties, professional fees and accrued interest. The Company has commenced litigation and collection efforts, including foreclosure on pledged assets to collect these funds.  Mr. Laws filed a petition for protection under the U.S. Bankruptcy Code and has sought to use that proceeding to challenge the Company’s rights to foreclose on certain property that was pledged as security in connection with a promissory note he provided to the Company. That promissory note was issued by Mr. Laws when it was discovered that he owed the Company and payment of the amount he owed the Company was demanded. Based on the position our legal counsel has taken, we believe that Mr. Laws’ challenge to the Company’s security interest will not be supported, nevertheless there can be no assurances that the Company will be able to collect the balance of the Missing Funds from Mr. Laws.  Failure to collect the balance of funds from Mr. Laws will adversely impact the Company’s financial condition, including the impact from loss of the funds themselves, although that adverse effect has already been realized and the Company has been operating without the balance of the Missing Funds since they were absent in 2017. As a result of Mr. Laws’ actions, the Company will have the additional expenses associated with the restating of its financial statements, which is included in this filing made on Form 10-K.  There were also expenses associated with engaging the special committee to conduct a forensic review of the Company’s books and records in connection with the transactions giving rise to the Missing Funds. Additionally, the Company incurred and may continue to incur the costs associated with engaging counsel to represent the Company in this matter and in the investigations.  That is, the investigation(s) or “pre-investigation(s)” that have been conducted or may be conducted by the SEC and DOJ; as well as the costs to settle any matters related thereto, may be significant.  The Missing Funds together with the additional expenses that may arise as a result of Mr. Laws’ actions in the aggregate are likely to be substantial.  To the extent that they are substantial and that the Company is unable to collect any further sums from Mr. Laws, the Company’s business and results of operations will be adversely affected.  

The DOJ and the SEC investigated or are currently investigating the Company, including financial transactions involving Thomas Laws.

 

The U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) have, or may have, each initiated investigation into the Company, its officers, directors, and potentially others, resulting from the Laws transactions.  The SEC has obtained a formal order to investigate the Company with respect to Laws, and while we understand that the DOJ investigation lead to Mr. Laws plea of guilty to various charges, including charges based on his actions alleged by the Company, we also understand that Mr. Laws is currently awaiting sentencing in connection with his plea(s) of guilty.   The Company does not anticipate collecting a material amount due from Mr. Laws in his criminal proceedings.  However, it believes that if it is ultimately successfully in recovering any further sums from Mr. Laws, beyond what it has already recovered, that any additional recovery will be determined by the U.S. Bankruptcy Court.


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The SEC investigation surrounding the financial transactions involving Thomas Laws may result in other officers, directors or third-parties or the Company being subject to related or different enforcement actions.

None of funds that Mr. Laws owes the Company were ever received by anyone other than Mr. Laws, nor was there ever any evidence found (after a forensic review of the Company’s books and records by an independent special committee) that anyone else benefited in any way from the Laws transaction(s). However, notwithstanding the forgoing, the SEC continues to investigate this matter, and the Company is aware that one of our officers is the subject of the investigation and that officer is in settlement discussions with the Commission to bring closure to the investigation.  If settlement terms are not reached by the parties, there would likely be an adversarial proceeding commenced by the Commission. Balanced against the certainty that defending would be time consuming and costly, settlement (under reasonable terms) is seen as preferable. There is no assurance that this investigation will not include other affiliates of the Company or the Company itself, and it can’t be predicted as to where this investigation may lead or what the Commission might ultimately decide to seek in terms of judicial relief.  If the Commission brings an enforcement action against any of the forgoing, it would likely have a material adverse effect on the Company and its operations. 

The SEC could take the position that we have paid impermissible finders’ fees or that we aided and abetted a violation of the registration requirements by paying compensation to an individual acting as an unregistered broker dealer.

In the past, we paid finders’ fees in connection with the placement of certain shares of our common stock to an individual who is a non-U.S. resident. While the Company is confident that it met the factors set forth in the SEC Paul Anka No Action Letter (Issued July 24, 1991) (the seminal No Action Letter where transaction based compensation for finders has been approved by the Commission), by definition, the facts set forth in the aforementioned No Action Letter vary from those facts in all other situations including those that were present when finder’s fees were paid by the Company. As such, the SEC is not compelled to find the letter applicable in other situations and with other fact patterns.   Nevertheless, we believe that the facts in the Company’s case are more compelling that those set forth in the Anka letter. The issuer in the Anka Letter did not have a pre-existing relationship with investors, whereas the Company not only had a pre-existing relationship with investors, the investors were almost entirely existing shareholders of the Company. Although, (a) the finder did not have involvement in negotiating or structuring transactions with investors (the Company’s investors had already determined to purchase, no sales material was provided by the finder with the sole exception of a blank subscription agreement that the finder was provided by the Company and that was provided along with the per share price to the investor as a courtesy); (b) the finder did not value or opine as to the Company’s common stock’s value and did not participate in negotiating on behalf of the investor or the Company; (c) the finder was not in the business of brokering transactions and its activity, as a finder, was isolated to helping the Company and again, (d) although fees were paid in connection with the sales of the Company’s common stock, this was disclosed on the subscription agreements and the other items were as limited or more limited than those that were present that gave rise to the SEC’s Paul Anka No-Action Letter. Further out of an abundance of caution, no commissions or finder’s fees have been paid in connection with the placement of common stock subsequent to August 2018. Nevertheless, if the SEC were to disagree with the Company’s analysis, the Company would be in a position to where it would be required to defend its position or to reach a settlement with the Commission, either of which could be costly and have a negative impact on the Company and its results of operations.

There can be no assurance the Company will successfully implement its plans.

We have historically incurred net losses from operations and we expect losses in the future periods.  Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business which seeks to obtain funds to finance its operations in a highly competitive environment.  There can be no assurance that we will successfully implement any of our plans (including without limitation production of any mine, shipping ore to a smelter or otherwise commercially exploit our properties) in a timely or effective manner or that we will ever be profitable.  In addition, there can be no assurances that we will choose to continue to develop any of our current properties because we intend to consider and, as appropriate, to divest ourselves of properties that may no longer be a strategic fit to our business strategy or that we lack the necessary capital to develop.  If we lack the capital to implement our plans, we will be forced to curtail or cease operations.

Mineral exploration and development inherently involves significant and irreducible financial risks. We may suffer from the failure to find and develop profitable mineral deposits.

 

The exploration for and development of mineral deposits involves significant financial risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Unprofitable efforts may result from the failure to discover mineral deposits. Even if mineral deposits are found, such deposits may be insufficient in quantity and quality to return a profit from production, or it may take a number of years until production is possible, during which time the economic viability of the project may change. Few properties which are explored are ultimately developed into producing mines. Mining companies rely on consultants and others for exploration, development, construction and operating expertise.


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Substantial expenditures are required to establish ore reserves, extract metals from ores and, in the case of new properties, to construct mining and processing facilities. The economic feasibility of any development project is based upon, among other things, estimates of the size and grade of ore reserves, proximity to infrastructures and other resources (such as water and power), metallurgical recoveries, production rates and capital and operating costs of such development projects, and metals prices. Development projects are also subject to the completion of favorable feasibility studies, issuance and maintenance of necessary permits and receipt of adequate financing.

 

Once a mineral deposit is developed, whether it will be commercially viable depends on a number of factors, including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; government regulations including taxes, royalties and land tenure; land use, importing and exporting of minerals and environmental protection; and mineral prices. Factors that affect adequacy of infrastructure include: reliability of roads, bridges, power sources and water supply; unusual or infrequent weather phenomena; sabotage; and government or other interference in the maintenance or provision of such infrastructure. All of these factors are highly cyclical. The exact effect of these factors cannot be accurately predicted, but the combination may result in not receiving an adequate return on invested capital.

 

Significant investment risks and operational costs are associated with our exploration activities. These risks and costs may result in lower economic returns and may adversely affect our business.

 

Mineral exploration, particularly for gold, involves many risks and is frequently unproductive. If mineralization is discovered, it may take a number of years until production is possible, during which time the economic viability of the project may change. Development projects may have no operating history upon which to base estimates of future operating costs and capital requirements. Development project items such as estimates of reserves, metal recoveries and cash operating costs are to a large extent based upon the interpretation of geologic data, obtained from a limited number of drill holes and other sampling techniques, and feasibility studies. Estimates of cash operating costs are then derived based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other factors. As a result, actual cash operating costs and economic returns of any and all development projects may materially differ from the costs and returns estimated, and accordingly, our financial condition and results of operations may be negatively affected.

 

Any of our future acquisitions may result in significant risks, which may adversely affect our business.

 

An important element of our business strategy is the opportunistic acquisition of operating mines, properties and businesses or interests therein within our geographical area of interest. While it is our practice to engage independent mining consultants to assist in evaluating and making acquisitions, any mining properties or interests therein we may acquire may not be developed profitably or, if profitable when acquired, that profitability might not be sustained. In connection with any future acquisitions, we may incur indebtedness or issue equity securities, resulting in increased interest expense, or dilution of the percentage ownership of existing shareholders. We cannot predict the impact of future acquisitions on the price of our business or our common stock. Unprofitable acquisitions, or additional indebtedness or issuances of securities in connection with such acquisitions, may impact the price of our common stock and negatively affect our results of operations.

 

Our ability to find and acquire new mineral properties is uncertain. Accordingly, our prospects are uncertain for the future growth of our business.

 

Because mines have limited lives based on proven and probable ore reserves, we may seek to replace and expand our future ore reserves, if any. Identifying promising mining properties is difficult and speculative. Furthermore, we encounter strong competition from other mining companies in connection with the acquisition of properties producing or capable of producing gold. Many of these companies have greater financial resources than we do. Consequently, we may be unable to replace and expand future ore reserves through the acquisition of new mining properties or interests therein on terms we consider acceptable. As a result, our future revenues from the sale of gold or other precious metals, if any, may decline, resulting in lower income and reduced growth.

 

Delaware law and our by-laws protect our directors from certain types of lawsuits.

 

Delaware law provides that our directors will not be liable to us or our stockholders for monetary damages except for certain types of conduct as directors. Our by-laws require us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our directors caused by their negligence, poor judgment, or other circumstances. The indemnification provisions may require us to use our assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.


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We are in the preliminary stages of mining the Jim Crow Mine.

The Company is in the preliminary stages of mining operations in the Jim Crow Mine and anticipates the first shipment of ore during the second or third quarter of calendar 2020.  The Company currently does not have a long-term shipping contract and there can be no assurances that shipping to this smelter will continue in future periods or that the Company will receive revenue therefrom.  There can be no assurances of continued mining operations at the Jim Crow Mine or the shipment of ore to the smelter, any of which would adversely impact investors.

Dismissal of Bankruptcy Proceeding and Emergence from Voluntary Reorganization did not result in the elimination of Company liabilities.

After the dismissal of the bankruptcy petition in June 2016 and the sale of the Company’s significant assets, the Company emerged with nominal assets and remained liable for all commitments and debts that then were outstanding.  Santa Fe Gold Barbados, The Lordsburg Mining Company and AZCO are subsidiaries of the Company with nominal assets and all of their commitments and debts remain outstanding.  The bankruptcy court set up a trust fund, funded by the activities of the Summit mine (main asset sold in bankruptcy proceedings) for five years and the trust funds will be distributed to certain unsecured creditors by an independent trustee. The Company failed to provide a plan of reorganization with the filing for protection under the Bankruptcy Code and as such, its debts were not discharged.  The significant transactions that occurred upon emergence from bankruptcy were as follows:

·The approximately $20 million of indebtedness outstanding on account of the Company’s senior notes and unsecured claims were reinstated; and 

·The courts established a trust in April 2016 for the benefit of certain creditors. A profit interest was attached to the Summit mine with the benefit for certain creditors holding unsecured claims filed by each creditor.  

Accordingly, there can be no assurance that the Company liabilities remaining after the emergence from bankruptcy will not materially impact the Company.  The Company has no continuing commitment from any party to provide working capital, and there is no certainty that the Company will be able to raise sufficient capital to fund any or all existing liabilities as well as to fund its current business plan.  The failure to raise needed capital may result in the curtailment or cessation of our business. Notwithstanding the emergence from Bankruptcy with the aforementioned liabilities, a significant portion of them became time barred from collection by virtue of the 2 year limitation period imposed by statute of limitations for the Provence of British Columbia and as such, upon receipt of a legal opinion coving the same, were written off and are no longer required to be reflected in the Company’s financial statements as an enforceable liability. (See Item I Business – “Dismissal of Bankruptcy Proceeding and Emergence from Voluntary Reorganization.”)

We have a history of operating losses and expect to incur substantial operating losses and negative operating cash flows for the foreseeable future, and we may never achieve or maintain profitability.

We have had no revenues during the last two fiscal years, may not generate revenues this current fiscal year, and we are not currently profitable.  We do not have sufficient capital to fund operations through June 30, 2020 and will need to raise additional funding to implement our business strategy.  Even if we succeed in developing any of our properties, we expect to incur operating losses for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future.  As the Company has no commitment for debt or equity financing, the Company will be reliant upon best efforts fund raising activities to provide sufficient working capital to fund current and future needs.  There can be no assurance that the Company will be successful in its best efforts capital raising efforts, and the failure to raise needed capital will result in the curtailment or cessation of our business.

We have a limited operating history on which to base an evaluation of our business and properties.

Any investment in the Company’s securities should be considered a high-risk investment because investors will be placing funds at risk in an early stage business with unforeseen costs, expenses, competition, a history of operating losses and other problems, to which start-up ventures are often subject. Investors should not invest in the Company’s securities unless they can afford to lose their entire investment.  Your investment must be considered in light of the risks, expenses, and difficulties encountered in establishing a new business in a highly competitive and mature industry.  Our operating history does not provide a meaningful basis for an evaluation of our current prospects.  Other than through conventional and typical exploration methods and procedures, we have no additional way to evaluate the likelihood of whether other properties contain commercial quantities of mineral or metal reserves or, if they do, if they will be operated successfully.


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If we cannot raise additional funding, we will be unable to implement our business plan.

Since we do not generate any revenues, we may not have sufficient financial resources ourselves, to undertake all planned development activities relating to our business plan.  There can be no assurances that additional financing will be available to us or that if available, that it would be on terms acceptable to us.  We do not have any commitments for debt or equity financing at this time, nor do we have credit facilities available with financial institutions or other third parties, and investors may lose their all of their investment if we are unable to secure such financing in a timely manner.  As the Company has no commitment for debt or equity financing, the Company will be reliant upon its own best efforts fund raising activities to provide sufficient working capital to fund its current and future needs, as well as on the potential cash flow from operations.  There can be no assurances that the Company will be successful in its best efforts capital raising or receive significant cash flow from operations; and the failure to generate needed working capital may result in the curtailment or cessation of its business, and losses for investors.

Our resources may not be sufficient to manage our expected growth; failure to properly manage our potential growth would be detrimental to our business.

Even if we obtain funding for operations, we may fail to adequately manage our anticipated future growth. Any growth in our operations will place a significant strain on our administrative, financial and operational resources, and increase demands on our management, as well as our operational and administrative systems, controls and other resources. There can be no assurances that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future; or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. There can be no guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems.

If we are unable to manage growth effectively, our business, operating results and financial condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.

The loss of key personnel could adversely impact the Company.

The nature of our business, including our ability to continue our current activities depends, in large part, on the efforts of our key personnel, the loss of any of which could have a material adverse effect on our business. As previously mentioned, the SEC instituted a formal investigation against our former CEO and if it were to continue to seek enforcement action(s) against other individuals that are important to the Company, we could effectively lose the services of those individuals.  This is because frequently with enforcement actions, the SEC seeks to bar individuals from serving as officers or directors or otherwise participating in certain activities for or on behalf of public companies, often five years and occasionally on a permanent basis.  When the SEC seeks a “bar” against an individual, consent to a bar is generally one of the required terms of settlement insisted upon by the Commission.  

We may be unable to continue as a going concern.

As a result of our financial condition, our auditors have expressed doubt as to our ability to continue as a going concern which may have an adverse impact on our relationship with third parties with whom we do business, and could make it challenging and difficult for us to raise additional debt or equity financing, all of which could have a material adverse impact on our business, results of operations, financial condition and future prospects.  The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

A substantial or extended decline in gold and silver prices would have a material adverse effect on the value of our assets, on our ability to raise capital and could result in lower than estimated economic returns.

The value of our assets, our ability to raise capital and any future economic returns are substantially dependent on the prices of gold and silver. Gold and silver prices fluctuate on a daily basis and are affected by numerous factors beyond our control. Factors tending to influence gold prices, for example, include:

·gold sales or leasing by governments and central banks or changes in their monetary policy, including gold inventory management and reallocation of reserves; 


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·speculative short positions taken by significant investors or traders in gold; 

·the relative strength of the U.S. dollar; 

·expectations of the future rate of inflation; 

·interest rates; 

·changes to economic activity in the United States, China, India and other industrialized or developing countries; 

·geopolitical conflicts; 

·changes in industrial, jewelry or investment demand; 

·changes in supply from production, disinvestment and scrap; and 

·Forward sales by producers in hedging or similar transactions. 

Risks Related to our Common Stock

Our common stock is thinly traded, and there is no guarantee as to the prices at which the shares may trade. 

Trading of our common stock is quoted by OTC Markets Group, Inc., under the ticker symbol “SFEG.”  Since the Company has not been current in its filings with the SEC, the Company has a “stop sign” associated with its trading symbol.  Although, it will be removed when we are current in our SEC filings, in the interim period while this “stop sign” is posted by OTC Markets Group, it adversely impacts our ability to raise capital and provide for meaningful trading.  We are in the process of filing past-due reports with the SEC and plan to become current in our filing obligations as soon as practicable. Thus, management views this as a short-term issue as of the date of the filing of this set of periodic reports filed on Form 10-K.   Additionally, not being listed for trading on an established securities exchange has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions, number of market makers and lack of security analysts’ research coverage of the Company.  This may result in systemically lower prices for your common stock than might otherwise be obtained if the Company had been listed on the NYSE or NASDAQ exchanges and could also result in a larger spread between the bid and ask prices that are quoted for our common stock.  Historically, our common stock has been thinly traded, and there is no guarantee of the prices at which the shares will trade, or that there will be sufficient volume to allow stockholders to sell their shares without having an adverse effect on market prices.  

Because our common stock is currently a “penny stock,” it may be difficult to sell shares at times and prices that are acceptable. 

Our common stock is a “penny stock.” Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser’s written agreement to the purchase. The penny stock rules may make it difficult for you to sell your shares of our common stock. Because of these rules, many brokers choose not to participate in penny stock transactions and there is less trading in penny stocks overall as a result. Accordingly, you may not always be able to resell shares of our common stock in ordinary transactions at times and prices that you feel are appropriate.

The sale of our common stock by existing stockholders may depress the price of our common stock due to the limited trading market that exists.

Any sales of a significant amount of common stock by existing shareholders may depress the price otherwise causing the price of our common stock may decline.

A small number of existing shareholders own a significant portion of our common stock, which could limit your ability to influence the outcome of any shareholder vote.

A relatively small number of shareholders hold large concentrations of shares and under our certificate of incorporation and Delaware law, the vote of a majority of the shares outstanding is generally required to approve most shareholder actions. As a result, these individuals and entities will be able to influence the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our certificate of incorporation or proposed mergers or other significant corporate transactions.    


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The Company’s stock price and volume is highly volatile, limited and sporadic.

The market price of our common stock has fluctuated historically and may continue to fluctuate in the future.  These fluctuations may be exaggerated since the trading volume is volatile, limited, and sporadic.  These fluctuations may or may not be based upon any business or operating results.  Our common stock may experience similar or even more dramatic price and volume fluctuations in the future.

The Company will not pay dividends on its common stock.

We have never paid any cash dividends on any shares of our capital stock, and we do not anticipate that we will pay any dividends in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion of our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors, and will be dependent upon our financial condition, results of operations, capital requirements and other factors as our board of directors may deem relevant at that time. If we do not pay cash dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

 

Outstanding shares that are eligible for future sale could adversely impact a public trading market for our common stock.

 

We have offered and sold and will continue to offer and sell shares without registration under the Securities Act, through exemptions available under the Securities Act. All such shares are "restricted securities" as defined by Rule 144 ("Rule 144") when issued under available exemptions from registration under the Securities Act, and cannot be resold without registration except in reliance on Rule 144 or another applicable exemption from registration. In general, under Rule 144, our non-affiliates (who have not been affiliates within the past 90 days) can sell restricted shares held for at least six months, subject only to the requirement that we make current information available publicly as required by Rule 144. Our affiliates can sell restricted securities after they have been held for six months, subject to compliance with manner of sale, volume restrictions, Form 144 filing and current public information requirements.

 

No prediction can be made as to the effect, if any, that future sales of restricted shares of common stock, or the availability of such common stock for sale, will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of such common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing market price of the common stock.

 

Risk Factors Related to the COVID-10 Pandemic

 

An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

ITEM 2.  PROPERTIES   

Patented Mining Claims

 

We hold eight (8) patented claims related to the Jim Crow Imperial Mine and the one (1) for the Billali Mine, all of which are held by our wholly owned subsidiary, Minerals Acquisitions, LLC together with thirteen (13) for the Alhambra Mine held by our wholly owned subsidiary, Bullard’s Peak Corporation.  Patented mining claims, such as the ones located in our Jim Crow Imperial Mine, our Billali Mine and our Alhambra Mine, are mining claims on federal lands that are held in fee simple by the owner. No maintenance fees or royalties are payable to the BLM; however, payments and royalties with third parties are applicable on some of these claims.

 

Unpatented Mining Claims:  The Mining Law of 1872

 

Except for the eight (8) patented claims held for the Jim Crow Imperial Mine, two (2) are unpatented and the one (1) patented claim for the Billali Mine, held by our wholly owned subsidiary, Minerals Acquisitions, LLC; and the thirteen (13) patented claims, eighty nine (89) of our claims for the Alhambra Mine held by our wholly owned subsidiary, Bullard’s Peak Corporation, are considered “unpatented.” Thus, our mining rights consist of agreements covering “patented” and "unpatented" mining claims created and


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maintained in accordance with the U.S. General Mining Law of 1872, or the “General Mining Law.” Unpatented mining claims are unique U.S. property interests and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain. The validity of an unpatented mining claim, in terms of both its location and its maintenance, is dependent on strict compliance with a complex body of federal and state statutory and decisional law that supplement the General Mining Law. Also, unpatented mining claims and related rights, including rights to use the surface, are subject to possible challenges by third parties or contests by the federal government. In addition, there are few public records that definitively control the issues of validity and ownership of unpatented mining claims. We have not filed a patent application for any of our unpatented mining claims that are located on federal public lands in the United States and, under possible future legislation to change the General Mining Law, patents may be difficult to obtain.

 

Our exploration, development and mining rights relate to patented and unpatented mining claims covering federal and State lands in the State of New Mexico.  Location of mining claims under the General Mining Law, is a self-initiation system under which a person physically stakes an unpatented mining claim on public land that is open to location, posts a location notice and monuments the boundaries of the claim in compliance with federal laws and regulations and with state location laws, and files notice of that location in the county records and with the Bureau of Land Management (“BLM”). Mining claims can be located on land as to which the surface was patented into private ownership under the Stock raising Homestead Act of 1916, 43 U.S.C. §299, but the mining claimant cannot injure, damage or destroy the surface owner's permanent improvements and must pay for damage to crops caused by prospecting. Discovery of a valuable mineral deposit, as defined under federal law, is essential to the validity of an unpatented mining claim and is required on each mining claim individually. The location is made as a lode claim for mineral deposits found as veins or rock in place, or as a placer claim for other deposits. While the maximum size and shape of lode claims and placer claims are established by statute, there are no limits on the number of claims one person may locate or own. The General Mining Law also contains provision for acquiring five-acre claims of non-mineral land for mill site purposes. A mining operation typically is comprised of many mining claims.

 

The holder of a valid unpatented mining claim has possessory title to the land covered thereby, which gives the claimant exclusive possession of the surface for mining purposes and the right to mine and remove minerals from the claim. Legal title to land encompassed by an unpatented mining claim remains in the United States, and the government can contest the validity of a mining claim. The General Mining Law requires the performance of annual assessment work for each claim, and subsequent to enactment of the Federal Land Policy and Management Act of 1976, 43 U.S.C. §1201 et seq., mining claims are invalidated if evidence of assessment work is not timely filed with BLM. However, in 1993 Congress enacted a provision requiring payment of a small claim maintenance fee in lieu of performing assessment work, subject to an exception for small miners having less than 10 claims. No royalty is paid to the United States with respect to minerals mined and sold from a mining claim The General Mining Law provides a procedure for a qualified claimant to obtain a mineral patent (i.e., fee simple title to the mining claim) under certain conditions. It has become much more difficult in recent years to obtain a patent. Beginning in 1994, Congress imposed a funding moratorium on the processing of mineral patent applications which had not reached a designated stage in the patent process at the time the moratorium went into effect. Additionally, Congress has considered several bills in recent years to repeal the General Mining Law or to amend it to provide for the payment of royalties to the United States and to eliminate or substantially limit the patent provisions of the law.

 

Mining claims are conveyed by deed or leased by the claimant to the party seeking to develop the property. Such a deed or lease (or memorandum of it needs to be recorded in the real property records of the county where the property is located, and evidence of such transfer needs to be filed with BLM. It is not unusual for the grantor or lessor to reserve a royalty, which as to precious metals often is expressed as a percentage of net smelter returns.


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Overview of Mining Properties Locations                                   

Picture 1 

 

Steeple Rock District, Grant County New Mexico – Project Description

Properties - The Jim Crow, Imperial and Billali Mines

Santa Fe’s properties consist of the Jim Crow group of patented and unpatented claims in the southern part of the district and the Billali patented claim in the northern. The Jim Crow group is made up of 7 patented and 2 unpatented mining claims. The Billali consists of one patented mining claim.

Patented Lode Claims

  

Name

MS No.

1

Imperial Lode

MS 1012 A

2

Jim Crow Lode

MS 1012 B

3

Gold King Lode

MS 1012 C

4

Portal Lode

MS 1012 D

5

Gold Bug Lode

MS 1012 E

6

Red Prince Lode

MS 1012 F

7

Three Brothers Lode

MS 1012 G

8

Contention Lode

MS 1012 H

 


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Unpatented Lode Claims 

 

Name

BLM Serial Number

1

Papoose No 1 Lode

Leslie Billingsley – claimant

1

Papoose No 2 Lode

Leslie Billingsley – claimant

Location and Access

The Steeple Rock mining district in the western part of Grant County New Mexico. The district lies approximately 45 miles east of the town of Safford, Arizona and approximately 10 miles northeast of Duncan, Arizona. The district is reached by well-maintained county roads from Duncan.

Picture 1 


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Picture 1 

 

District Historical and Prior Operations

The Steeple Rock district was discovered in 1860’s and was in production until the so-called “silver panic” of 1893.  Since 1893, there has been little activity.  We believe that the Steeple Rock district was reopened at different times in the 1950’s, 1960’s and the 1970’s, but no sustained development or production is believed to have occurred.  There has been some trenching and surface geochem work done at various times. During the time of elevated precious metal prices after 1980 there was considerable activity including a project at the Imperial-Jim Crow by Queenstake Resources in the early 1980’s and work by ASARCO also in the 1980’s. The Billali was explored by Biron Bay Resources in 1990-1993 and again in 2013-2014 by Shooting Star Mining Co. In 2010 the Summit mine was successfully developed and operated but closed in 2013.

Title and Ownership of the Billali and Jim Crow and Imperial Mines Project

The Company determined the Agreement with the sellers of the properties is a lease at its inception and provides for grant of use. The Company has the right to cancel the Agreement at any time. The Company considers the properties to be exploration  properties. The Agreement gives the Company surface, mining, and access rights. These are subject only to any limitations imposed by federal, state and local regulations, the free, unrestricted and uninterrupted right of access, ingress and egress to the Billali, Jim Crow and Imperial Mines over existing roads or alternate routes approved by Seller and the right to enter upon and occupy the Billali, Jim Crow and Imperial Mines for all purposes reasonably incident to exploring for, developing, mining (by underground mining, surface mining, strip mining or any other surface or subsurface method, including any method later developed), extracting, milling, smelting, refining, stockpiling, storing, processing, removing and marketing there from all ores, metals, minerals, mineral products (including intermediate products) and materials of every nature or sort, and the right to place, construct, maintain, use and thereafter remove such structures, facilities, equipment, roadways, haulage ways, utility lines, reservoirs and water courses, and other improvements as may be necessary, useful or convenient for the full enjoyment of all of the rights granted under this Agreement. Buyer shall have sole and exclusive custody, possession, ownership and control of all ore, rock, drill core and other mineral substances extracted or removed from the Billali, and Jim Crow and Imperial Mines and may sell or otherwise dispose thereof. The right to use any of Seller’s water rights, which rights are hereby assigned, on, about, under or appurtenant to the Billali and Jim Crow to facilitate the exploration, mining and processing rights granted in this Agreement. Until the total price under the Agreement is paid, title on all owned properties and unpatented property remain in the name of the seller under the Agreement.  


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Mineralization and Geology

The Steeple Rock district is classified as a high level, epithermal gold and silver bearing quartz vein system hosted principally in andesite lava flow rock which comprises the lower part of the Tertiary volcanic section in the region. Other rocks exposed within the district are Precambrian igneous and metamorphic rocks, Paleozoic sedimentary rocks, and Mesozoic igneous and sedimentary rocks. The veins trend northwesterly and northerly. Most of the historic production has been from the northwest trending set of veins. Veins within the district are numerous and only a few of them have undergone systematic development.

The ore in the Steeple Rock district appears to be controlled by rock lithology, with the host rock being a coarse-grained quartz diorite. Vein boundaries are sharp and the vein filings are generally recognizable visually. Mineralization in the Steeple Rock mining district consists of numerous narrow carbonate veins containing varying amounts of cobalt and nickel, silver, uranium, and arsenic.  This is a geologic type of mineral deposit generally called “five element veins.”

Description of the Jim Crow and Imperial Mines

The Jim Crow group covers approximately 4,000 feet strike length on the north trending Imperial vein and approximately 2,600 feet strike length of the northwest trending Jim Crow vein system. The Imperial mine occupies the southernmost 1,000 feet of the Imperial vein at which point the Jim Crow system branches to the northwest. The north trending Imperial continues another 3,050 to the property end line.  The Jim Crow trend consists of three, possibly more, sub-parallel veins converging to the northwest.

The Jim Crow mine is well equipped and in good working order. It is served by a 320 feet deep inclined shaft with a well-designed steel headframe. The hoist is equipped with up to date safety devices. The shaft is capable of lifting 30 tons per hour and can handle both ore and waste at the same time. The mine has three levels, 50 feet, 200 feet and 300 feet, all with air, water and ventilation services installed. Broken muck is moved to the shaft by scrapers on the 50 and 200 levels and by 2 feet gauge rail on the 300 level.

The location of the Jim Crow mine is highly advantageous in that the unexplored and undeveloped segments of the Imperial and Jim Crow veins can be easily accessed from the mine. The lower 300 -foot level can be extended to the south to explore and develop the Imperial vein below it lowermost 200-foot level in the area intercepted by the encouraging drill holes. It can also be extended to the northwest to explore the northwest extension of the Jim Crow vein and its parallel “wall” veins and the area where these veins “intersect”. The unexplored north trending segment of the Imperial vein could also be readily accessed from the Jim Crow Mine.

Description of the Billali Mine

The Billali property consists of one patented mining claim. It covers 1,200 feet of vein length and is situated approximately 3,000 feet northwest of the Summit mine.

The principal working on the Billali is a 12’ x12’ decline driven at grade of -20% for approximately 1120 feet.  The decline was started on the northeast flank of the vein zone, driven across it for approximately 260 feet and then turned southeast and continued straight along the zone for another approximately 580 feet. The present water level is at approximately 800’.  From that point it extended in an irregular manner for another 650 feet to its present head approximately, 260 feet vertically below the portal. A lateral level was driven 300 feet northeast across the vein zone from the bottom of the decline. The first 856 feet of the decline is set up for rail haulage using a winch stationed on the surface.

 

The Billali occupies the northwest extension of the Summit vein. In the 1990-1992 time period Byron Bay Resources, a Canadian mining company, conducted an extensive exploration program on the Summit vein including the Billali mine. Data in the mine owner’s archives are poorly documented and drill hole collars are not definitely located. Diamond drilling was done on the Billali claim in 1990, 1991 and 1992. Partial data is available for twenty of these drill holes. Byron Bay Resources company reports dated 1990 and 1991 describe a vein zone approximately 350 feet wide with discontinuously mineralized footwall and hanging wall quartz veins, ranging from 3 to 15 feet true width. Biron Bay Resources, in a report dated 25 Nov 1991 cite vein intercepts for drill hole B-91-15 with interval of 5’ (core length) of .24 oz/ton Au and 12.63 oz/ton Ag. Drill hole B-91-16 is cited 14.5’ (core length) at .301 oz/ton Au and 21.8 oz/ton Ag.

 

In 2013 and 2014 Shooting Star Mining Co. optioned the property and continued development. Their intention was to expand on the previous work of Biron Bar Resources and to “in fill” the drill intercepts of that 1990-90 project. They drove the decline to explore the drill intercepts of Biron Bay. The company completed 21 underground diamond drill holes. The Shooting Star drilling failed to establish horizontal continuity for the earlier drilling but did establish that high grade mineralization over economically viable widths was present. They concluded that the prospect would not support a conventional mine-mill operation.

 

The work by these two companies has demonstrated that, although the vein is not consistently mineralized enough to support a large-scale operation, there are numerous lenses and pockets of high-grade rock that could be profitably extracted by careful development and mining.


26



Exploration Status

We have not established that our Billali Mine and Jim Crow Mine rights contain proven or probably reserves, as defined under SEC Industry Guide 7.  Minimal exploration activities have commenced to date and minimal exploration costs have been incurred or paid. To date, the Company has not (i) commenced or adopted plans to conduct any exploration, (ii) prepared drilling plans, proposals, timetables or budgets for exploration work, or (iii) identified engineers and other personnel that will conduct or assist in any exploration work.  The Company will need to raise funds to conduct exploration work and it currently lacks firm commitment financing for any exploration activities.  

The Company commenced development of the Jim Crow mine in late 2019. Work to date has consisted of upgrading the surface facilities, rehabilitating the shaft, expanding the hoisting capability and underground development on three levels. A crushing plant was purchased and installed at Duncan, Arizona, in late 2019.

The Company will need to further develop the properties for sustained production. Such work will consist of exploration drilling from surface and underground, mine development to include drifting, raising and stope development, and further improvement of the surface facilities and crushing plant. Additional equipment will be needed to be purchased or leased.  The Company currently lacks the capital to fund these expenditures.

Current Billali Exploration and Status

Exploration and development work done in the 1990’s and in the 2011-14 time period suggest there are potentially mineable pipe-like high grade zones with indications of vertical continuity distributed throughout the length of the property. These can be in any of the three or more veins that are presently identified within the approximately 350 foot wide structural zone that makes up Billali vein zone.

Santa Fe is currently mining one of these gold-silver bearing pipe-like bodies that has recently been discovered approximately 180 feet from the portal. Long hole drilling in the overlying Hoover Tunnel some 70 feet above suggest that this zone is continuous for at least that far. The mined high silica vein rock is being stockpiled and will be sent as a trial shipment to a nearby smelter pending the aggregation of 500 tons. Assuming acceptance of the trial shipment and execution of a contract with the smelter, the mine will be developed on three levels approximately 100 vertical feet apart. These levels will crosscut the entire vein zone and the veins will be developed by a series of lateral workings from these crosscuts.  The mineralized high silica rock will be shipped directly, with no processing, as flux to the smelter.  

Because of the advanced stage of development of this property and the existing infrastructure, and the opportunity to market the product directly to a nearby smelter, these pipe-like bodies can be exploited for relatively low cost.

Power and Water

The Company will be required to use water from the mine, to be stored in a water tank to be placed on the property, for its water source.  It is believed that this water will be sufficient for any development purposes.  The Company will be required to place a generator on the property for electricity.

Development Plans

Santa Fe Gold believes that a profitable operation can be established and sustained in the Steeple Rock district by careful development and mining the high silica, gold and silver bearing vein rock thought to be present in both the Jim Crow and Billali mines. The district has a long record of producing high quality smelter flux ores that were directly shipped to nearby copper smelters. Both the Jim Crow and Billali mines are well developed with services in place. Both can be commissioned with relatively little development cost. By taking advantage of existing development and by carefully mining and shipping this vein material directly to a smelter we expect to realize an acceptable return and avoid the high capital expense usually associated with the development of a mine-mill complex.

Description of Black Hawk Project

Property Location and Access

The Black Hawk district, also called the Bullard’s Peak district in some references, is located approximately 15 miles west-southwest of Silver City New Mexico. Santa Fe Gold Corp. owns 13 patented and 82 unpatented mining claims covering approximately 72% of the known extent of the district. This property includes four of the five mines with recorded production among which are the two largest, the Black Hawk and the Alhambra. The property is reached by truck on a private dirt road that turns left off a paved highway, which access road is approximately 15 miles west-southwest of Silver City.  The claims are all located within approximately 1,900 acres.


27



Picture 1 

 

Property Description

The Black Hawk district, sometimes referred to as the Bullard Peak district, is located in Grant County, New Mexico, approximately 15 miles by road west of Silver City, New Mexico, the terminus of a branch line of the Atchison, Topeka and Santa Fe Railway.  The district is in the northeastern foothills of the Big Burro Mountains at an altitude of approximately 5,450 to 6,150 feet.  Scattered junipers, scrub oak, small pines, and brush cover the hillsides.  Most of the district is drained by way of Black Hawk Canyon which bisects the area and flows northward to Mangas Creek, but the eastern part is drained by tributaries of Silver Dale Creek, which flows northeastward to Mangas Creek.  Mangas Creek flows into the Gila River about 9 miles northwest of the mouth of Black Hawk Canyon.  


28



The ore in the Black Hawk district appears to be controlled by rock lithology, with the host rock being a coarse-grained quartz diorite.  Vein boundaries are sharp and the vein filings are generally recognizable visually. Mineral property claims are as follows:

Patented Lode Claims

  

Name

MS No.

1

Alhambra Lode

MS 869

2

Kent County Lode

MS 778

3

Blackhawk Lode

MS 364A

4

Bullernat Lode

MS 546

5

Little Rhody Lode

MS 365A

6

Extension Lode

MS 772

7

Pumpkin Lode

MS 548

8

Silver Glance Lode

MS 366A

9

Good Hope Lode

MS 480

10

Chicago Lode

MS 771

11

Surprise Lode

MS 367A

12

Cornucapia Lode

MS 770

13

Stonewall Lode

MS 547


29



Unpatented Lode Claims

 

 

Name

BLM Serial Number

1

Alhambra Extension – Lode

NMMC 50356

2

Easy Days – Lode

NMMC 50357

3

Old Hobson – Lode

NMMC 50358

4

Argentine No. 5 – Lode

NMMC 85992

5

Argentine No. 6 – Lode

NMMC 85993

6

Argentine No. 7 – Lode

NMMC 85994

7

Argentine No. 8 – Lode

NMMC 85995

8

Argentine No. 9 – Lode

NMMC 85996

9

Argentine No. 17 – Lode

NMMC 86004

10

Argentite #1 – Lode

NMMC 64721

11

Argentite #2 – Lode

NMMC 64722

12

Argentite #3 – Lode

NMMC 64723

13

Argentite #4 – Lode

NMMC 64724

14

Argentite #10 – Lode

NMMC 64725

15

Argentite #11 – Lode

NMMC 64726

16

Argentite #12 – Lode

NMMC 64727

17

Argentite #13 – Lode

NMMC 64728

18

Argentite #14 – Lode

NMMC 64729

19

Argentite #15 – Lode

NMMC 64730

20

Argentite #16 – Lode

NMMC 64731

21

Argentite #18 – Lode

NMMC 64732

22

Argentite #19 – Lode

NMMC 64733

23

Argentite #20 – Lode

NMMC 64734

24

Argentite #21 – Lode

NMMC 64735

25

Argentite #22 – Lode

NMMC 64736

26

Contention #1 – Lode

NMMC 64719

27

Contention #2 – Lode

NMMC 64720

28

No Show #1 – Lode

NMMC 106382

29

No Show #2 – Lode

NMMC 106383

30

No Show #3 – Lode

NMMC 106384

31

No Show #4 – Lode

NMMC 106385

32

No Show #5 – Lode

NMMC 106386

33

No Show #6 – Lode

NMMC 106387

34

No Show #7 – Lode

NMMC 106388

35

No Show #8 – Lode

NMMC 106389

36

No Show #9 – Lode

NMMC 106390

37

No Show #10 – Lode

NMMC 106391

38

No Show #11– Lode

NMMC 106392

39

No Show #12 – Lode

NMMC 106393

40

No Show #13 – Lode

NMMC 106394

41

No Show #14 – Lode

NMMC 106395

42

No Show #15 – Lode

NMMC 106396

43

No Show #16 – Lode

NMMC 106397

44

No Show #17 – Lode

NMMC 106398


30



45

No Show #18 – Lode

NMMC 106399

46

No Show #19 – Lode

NMMC 106400

47

No Show #20 – Lode

NMMC 106401

48

Rhonda #1 – Lode

NMMC 106402

49

Rhonda #2 – Lode

NMMC 106403

50

Rhonda #3 – Lode

NMMC 106404

51

Rhonda #4 – Lode

NMMC 106405

52

Rhonda #5 – Lode

NMMC 106406

53

Rhonda #6 – Lode

NMMC 106407

54

Rhonda #7 – Lode

NMMC 106408

55

Rhonda #8 – Lode

NMMC 106409

56

Rhonda #9 – Lode

NMMC 106410

57

Rhonda #10 – Lode

NMMC 106411

58

Rhonda #11 – Lode

NMMC 106412

59

Rhonda #12 – Lode

NMMC 106413

60

Rhonda #13 – Lode

NMMC 106414

61

Rhonda #14 – Lode

NMMC 106415

62

Rhonda #15 – Lode

NMMC 106416

63

Rhonda #16 – Lode

NMMC 106417

64

Rhonda #17 – Lode

NMMC 106418

65

Rhonda #18 – Lode

NMMC 106419

66

Pec-II #1 – Lode

NMMC 106420

67

Barite – Lode

NMMC 109082

68

Barite No. 2 – Lode

NMMC 109083

69

Barite No. 3 – Lode

NMMC 109084

70

Jody #1 – Lode

NMMC 115276

71

Jody #2 – Lode

NMMC 115277

72

Jody #3 – Lode

NMMC 115278

73

Jody #4 – Lode

NMMC 115279

74

Jody #5 – Lode

NMMC 115280

75

Jody #7 – Lode

NMMC 115281

76

Jody #8 – Lode

NMMC 115282

77

Jody #9 – Lode

NMMC 115283

78

Jody #10 – Lode

NMMC 115284

79

Stonewall Surprise – Lode

NMMC 193678

80

Alhambra Extension 2 – Lode

NMMC 193679

81

No Show No. 21 – Lode

NMMC 193680

82

No Show No. 23 – Lode

NMMC 193681


31



History and Prior Operations

The Black Hawk district was discovered in 1881 and was in production until the so called “silver panic” of 1893. Since its main productive period, ending in its closure in late 1893 or early 1894, there has been little activity in the Black Hawk district. One of the mines, the Black Hawk was reopened in 1917 and some development done in the upper levels. Both the Black Hawk and the Alhambra were reopened at different times in the 1950’s, 1960’s, and the 1970’s but no sustained development or production was achieved.  There has been some trenching and surface geochem work done at various times.  

Project  Status and Exploration Activities

We have not established that our Black Hawk and Bullard Peak rights contain proven or probably reserves, as defined under SEC Industry Guide 7.  No exploration activities have commenced to date and no exploration costs have been incurred or paid.  To date, the Company has not (i) commenced or adopted plans to conduct any exploration, (ii) prepared drilling plans, proposals, timetables or budgets for exploration work, or (iii) identified engineers and other personnel that will conduct or assist in any exploration work.  The Company will need to raise funds to conduct exploration work and it currently lacks firm commitment financing for any exploration activities.

The Company will need to prepare the property for exploration and drilling activities, including building infrastructure, installing facilities, and purchasing equipment. Future exploration drilling on any of our properties that consist of BLM land will require us to either file a Notice of Intent (NOI) or a Plan of Operations with the BLM, depending upon the amount of new surface disturbance that is planned. A Notice of Intent is required for planned surface activities that anticipate less than 5.0 acres of surface disturbance, and usually can be obtained within a 30 to 60-day time period. 

The Company currently lacks sufficient capital to fund these expenditures and is currently allocating working capital to the Jim Crow and Billali project.

Mineralization and Geology

Mineralization in the Black Hawk mining district consists of numerous narrow carbonate veins containing varying amounts of cobalt and nickel, silver, uranium, and arsenic. It is one of a well-known, but poorly understood, geologic type of mineral deposit generally called “five element veins”. They are also rich in uranium, nickel and, of interest today, cobalt. In the Black Hawk district, the host is a coarse-grained quartz diorite. Mining conditions within the veins are good. The lack of strong alteration results in stable walls requiring minimum support, only occasional faults or gouge zones require timber. Vein boundaries are sharp and the vein fillings are easily recognizable visually.

The Silver City quadrangle covers approximately 20,650 square kilometers chiefly in the southern basin and range province of southwestern New Mexico and southeastern Arizona.  Bedrock of the ranges includes Precambrian igneous and metamorphic rocks, Paleozoic sedimentary rocks, Mesozoic igneous and sedimentary rocks, and Cenozoic igneous rocks.  The intervening basins, which constitute about 65% of the quadrangle’s surface area, are filled with Late Cenozoic (Pliocene-Pleistocene) sedimentary deposits in places to depths of more than 1,000 meters.  The geology of each range is generally different, and most rock units and pre-basin and range structures cannot be correlated across the basin areas.  The principal hydrothermal ore-forming processes in the quadrangle are believed to be attributable to subduction-related events including complex eruptive systems during two distinct periods in the development of the western orogenic continental margin: (i) a medium-potassium calcium/alkaline volcanic arc system in late Cretaceous/early Tertiary time (the Laramide orogeny 80/50 million years ago); and (ii) a high-potassium calcium/alkaline volcano-plutonic arc system in middle Tertiary time (30/15 million years ago).  The hydrothermal-magmatic vein and pegmatite type deposits are probably Precambrian in age and the syngenetic sedimentary and volcanic deposits range in age from Cambrian to late Tertiary (or younger).

Although there is some local variation in some of the districts, the five metal types of deposits in the Black Hawk district are fissure veins where the carbonate and the ore minerals fill open space caused by the fracturing.  The ore generally occurs in small high-grade pods or shoots randomly distributed within the fracture zone.  The location of these open spaces is the sole recognized control of ore distribution.  The favorability of the host seems to be governed by its fracturing characteristics rather than any chemical factor. Generally, in these deposits there is one favored rock type that accounts for most of the production.  At the Black Hawk district, the preferred host rock is the coarse-grained quartz diorite.

The project requires further evaluation of its mineralogical makeup and economic modeling to determine the appropriate course for any potential future development.  The Company has not conducted a preliminary economic assessment of the project at the time of filing this report. Upon completion of the preliminary economic assessment of the project, the Company will prepare an impairment analysis of the project to determine if an impairment is required at that time.


32



Power and Water

The Company will be required to use water from the mine, to be stored in a water tank to be placed on the property, for its water source. It is believed that this water will be sufficient for any development purposes.  The Company will be required to place a generator on the property for electricity.

ITEM 3.  LEGAL PROCEEDINGS

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business.

The DOJ and the SEC have each initiated investigation into the Company and certain other individuals, resulting from the Laws transactions.  The SEC has obtained a formal order to investigate the Company.  The DOJ investigation is still preliminary.  These types of investigations are expensive, time-consuming for management, and unpredictable – often resulting in other aspects of the Company’s operations becoming subject to regulatory scrutiny.  These investigations are ongoing and no prediction can be made regarding the timing or outcome of such matters including remedial action pursued against the Company and others, including its officers and directors.  (See Item IA Risk Factors.)

Boart Long year Company v. Lordsburg Mining Company, Case No. D-2-2-CV-2015- 06048, County of Bernalillo, NM; Boart Longyear Company v. Lordsburg Mining Company, Case No. D-721-CV-2015- 00058, County of Sierra, NM; and Boart Longyear Company v. Lordsburg Mining Company, Case No. D-608-CV- 201500165, County of Quintero, NM.  There are a series of collection cases by Boart Longyear Company, a company that obtained Utah judgments for equipment delivered to Lordsburg Mining Company in the aggregate amounts of $158,480 and has an interest rate of 5.25% per annum. The Company accrued back interest on judgement during the quarter ended December 31, 2016, of $13,860 and recorded $21,454 in legal fees awarded in the judgement. For the years ended June 30, 2019, 2018 and 2017, as restated, interest expense on the obligation was $8,320, $8,320 and $17,985, respectively. The court appointed trust made a payment in December 2016 of $6,287 which was applied against accrued interest. At June 30, 2019 and 2018 and 2017, as restated, accrued interest on the obligation was $28,338, $20,018 and $11,698, respectively.

Santa Fe Gold Corporation v. Tyhee Gold Corp., Brian K. Briggs, SRK Consulting (US), Inc., and Bret Swanson, Case No: 14CV032866, District Court, Denver County, Colorado.  Santa Fe is seeking damages for breach of the Confidentiality Agreement as well as for conversion of Santa Fe’s confidential information. Tyhee Gold Corp. has filed a counter-claim for tortuous interference with prospective contractual relationships with Koza Gold. On July 31, 2017, this case was dismissed with prejudice.

Wagner Equipment Co. v. Lordsburg Mining Company, Case No. D-2014-02372, County of Bernalillo, NM 28 is a collection case by Wagner equipment, who obtained judgment for equipment delivered to Lordsburg Mining Company in the amount of $115,789 and has a rate of interest of 8.75% per annum. The Company accrued back interest on judgement during the quarter ended December 31, 2016, of $23,677. For the year ended June 30, 2019, 2018 and 2017, as restated, interest expense was $10,131, $10,132, and $31,899 respectively. The court appointed trust made a payment in December 2016 of $4,591 which was applied against accrued interest. Accrued interest on the obligation at June 30, 2019, 2018 and 2017 was $47,571, $37,440 and $27,308.

In November 2018, Santa Fe filed a complaint in Luna County District Court, State of New Mexico, requesting a $930,000 money judgment against Mr. and Mrs. Laws, in addition to foreclosing on the mortgage Mr. and Ms. Laws granted to Santa Fe on real property to secure the promissory note located in Luna County, New Mexico. Mr. Laws has pleaded guilty to various charges brought against him by government officials, which include the Company allegations. Mr. Laws is currently awaiting sentencing on the pleaded to charges. The Company attorneys have filed all required documents for future monetary settlements to be determined by the court.

In November 2018, Santa Fe filed a similar complaint in Grant County District Court, State of New Mexico, as Mr. and Mrs. Laws and XYZ Ranch Estates, LLC granted Santa Fe a deed of trust and a mortgage, respectively, on several pieces of real property in Grant County, New Mexico. Mr. Laws also granted Santa Fe a security agreement on an airplane located in Grant County, New Mexico.  The complaint in Grant County requested a money judgment in the amount of $930,000 against Mr. and Mrs. Laws, in addition to a request to foreclose on the assets pledged to us located in Grant County, New Mexico.  

In November 2017, the Company entered into substantially identical agreements with Fortune Graphite, Inc. and Worldwide Graphite Producers, Ltd. to acquire a total of four placer claims for aggregate consideration of Can$400,000 and the issuance of 10,000,000 shares of Company common stock.  The Company owes the sellers Can$140,000 and 10,000,000 shares of Company common stock. Based upon our subsequent scrutiny and analysis of the transaction, the Company in February 2019 initiated an arbitration proceeding against the seller to void and rescind the purchase of these British Columbia properties, including requesting additional remedies.  The Company cannot predict the outcome of this arbitration, and there can be no assurance that the Company will not lose its interest in these claims, or owe seller the remaining outstanding amounts. In connection with this arbitration, the Company’s legal position is to void the transaction and, due to the uncertainty of the outcome, has provided an impairment of the amount at June 30, 2019, in the amount of $210,116.   


33



With the completion of the bankruptcy in June 2016, all pending legal actions were reinstated and debts at the time of the bankruptcy are currently due and in default, but none of the then existing litigation has to date resulted in subsequent legal proceedings.  There can be no assurance that subsequent legal proceedings will not materialize.  After the dismissal of the bankruptcy case, the Company had limited assets, but remained liable for all commitments and debts that then were outstanding.  Santa Fe Gold Barbados, The Lordsburg Mining Company and AZCO are subsidiaries of the Company with nominal assets and all of their commitments, debts and legal proceedings remain.  The bankruptcy court set up a trust fund funded by the activities of the Summit mine (main asset sold in bankruptcy proceedings) for five years from reopening of the mine and the trust funds will be distributed by an independent trustee to certain unsecured creditors of record.

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

ITEM 4.  MINE SAFETY DISCLOSURES

Pursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the fiscal years ended June 30, 2019, 2018 and 2017, our U.S. exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) as no mining activity had commenced.


34



 

PART II

ITEM 5.   MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASE OF EQUITY SECURITIES

Market Information

Our common stock trades over-the-counter and is quoted by OTC Markets Group, Inc. under the symbol “SFEG.”  Currently, OTC has placed a “stop sign” on the trading symbol because the Company is not current in its filings with the SEC.  The table below sets forth the high and low bid prices for our common stock as reflected on by OTC Markets for the period described.  Trading is sporadic and limited. Quotations represent prices between dealers, do not include retail markups, markdowns, or commissions, and do not necessarily represents at which actual transactions were affected.

OTCBB

 

 

              (U.S. $)

 

 

HIGH

 

 

LOW

Fiscal 2020

 

 

 

 

 

Quarter ended September 30, 2019

 

0.0940

 

 

0.0650

Quarter ended December 31, 2019

 

0.0950

 

 

0.0401

 

 

 

 

 

 

Fiscal 2019

 

 

 

 

 

Quarter ended September 30, 2018

 

0.1060

 

 

0.0522

Quarter ended December 31, 2018

 

0.0859

 

 

0.0401

Quarter ended March 31, 2019

 

0.1380

 

 

0.0490

Quarter ended June 30, 2019

 

0.1050

 

 

0.0510

 

 

 

 

 

 

Fiscal 2018

 

 

 

 

 

Quarter ended September 30, 2017

 

0.1250

 

 

0.0801

Quarter ended December 31, 2017

 

0.1971

 

 

0.0700

Quarter ended March 31, 2018

 

0.1950

 

 

0.1100

Quarter ended June 30, 2018

 

0.1430

 

 

0.0850

 

 

 

 

 

 

Fiscal 2017

 

 

 

 

 

Quarter ended September 30, 2016

 

0.0700

 

 

0.0115

Quarter ended December 31, 2016

 

0.0800

 

 

0.0250

Quarter ended March 31, 2017

 

0.2323

 

 

0.0441

Quarter ended June 30, 2017

 

0.1820

 

 

0.0710

Holders of Common Equity

As of June 30, 2020, we had approximately 846 holders of record of our common stock.  

Transfer Agent

Colonial Stock Transfer Co. is the transfer agent for our common stock. The principal office of Colonial Stock Transfer Co. is located at 66 Exchange Place, Salt Lake City, Utah 84111 and the telephone number is (801) 355-5740.

Dividend Policy

We have never declared or paid dividends on our common stock. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for expansion.

Securities Authorized for Issuance under Equity Compensation Plans

We do not have any effective equity compensation plan, whether approved by shareholders or not.

Recent Sales of Unregistered Securities

Unless otherwise indicated below, the following securities were offered and sold by the Company in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”) and, with respect to foreign


35



investors, Regulation S promulgated under the Securities Act.  In connection with transactions referenced below, other than issuances to the Company’s officers, directors, employees and consultants for services, the Company obtained representations that (i) such investor was an “accredited investor” within the meaning of Rule 501 of Regulation D, (ii) such investor was acquiring the securities for its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (iii) such investor understands that the purchased securities or shares underlying such securities are subject to transfer restrictions under the Securities Act and any applicable state securities laws, (iv) such investor has knowledge and experience in financial and business matters such that such investor is capable of evaluating the merits and risks of an investment in us, and (v) such investor has considered the risk factors contained in SEC filings. In connection with sales of our equity securities for cash between July 2016 through August 2018, an aggregate of $705,042 cash was paid as finders fees on sales to existing shareholders who had already made their purchase decisions prior to purchasing. These sales were made fees paid in a manner consistent with the SEC’s Paul Anka No Action Letter (Issued July 24, 1991). That is, (a) the finder did not have involvement in negotiating or structuring transactions with investors (they had already made the decisions to purchase based on their own criteria, no sales material was provided by the finder with the sole exception of a blank subscription agreement that the finder was provided by the Company and that was provided along with the per share price to the investor as a courtesy); (b) the finder did not value or opine as to the Company’s common stock’s value and did not participate in negotiating on behalf of the investor or the Company; (c) the finder was not in the business of brokering transactions and its activity, as a finder, was isolated to helping the Company and (d) although fees were paid in connection with the sales of the Company’s common stock, this was disclosed on the subscription agreements and the other items were as limited or more limited than those that were present that gave rise to the SEC’s Paul Anka No-Action Letter. (Id.)  Further, not only did the investors have a pre-existing relationship with the finder but in the Anka No-Action Letter none of the prospective investors was an existing shareholder. No commissions or finder’s fees were paid in connection with the placement of common stock subsequent to August 2018.


36



Date

Description

Number of Shares

Purchaser

Proceeds ($)

Consideration

July 2016

Common Stock and Warrants

32,000,000

Investors

212,000

Cash

July 2016

Common Stock

1,000,000

Consultant

Nil

Advisory Services

September 2016

Common Stock

2,300,000

Consultants

Nil

Advisory Services

September 2016

Common Stock and Warrants

3,625,000

Investors

145,000

Cash

October 2016

Common Stock and Warrants

1,250,000

Investor

50,000

Cash

December 2016

Common Stock and Warrants

1,049,500

Investor

41,980

Cash

December 2016

Common Stock

5,638,725

Consultants

Nil

Advisory Services

January 2017

Common Stock

426,635

Consultants

Nil

Advisory Services

January 2017

Common Stock and Warrants

13,879,340

Investors

555,174

Cash

February 2017

Common Stock and Warrants

10,924,132

Investors

436,965

Cash

March 2017

Common Stock and Warrants

12,607,558

Investors

713,388

Cash

April 2017

Common Stock and Warrants

5,098,920

Investors

453,925

Cash

June 2017

Common Stock and Warrants

1,250,300

Investors

100,024

Cash

June 2017

Common Stock

5,665,360

Investor

Nil

Advisory Services

July 2017

Common Stock and Warrants

187,187

Investors

14,975

Cash

August 2017

Common Stock and Warrants

14,764,793

Investors

1,181,183

Cash

September 2017

Common Stock and Warrants

16,863,344

Investors

1,349,068

Cash

October 2017

Common Stock and Warrants

975,688

Investors

78,055

Cash

November 2017

Common Stock

2,000,000

Investor

Nil

Advisory Services

December2017

Common Stock and Warrants

12,507,872

Investors

1,000,631

Cash

January 2018

Common Stock and Warrants

4,222,265

Investors

337,781

Cash

February 2018

Common Stock and Warrants

500,000

Investors

40,000

Cash

March 2018

Common Stock and Warrants

815,575

Investors

65,246

Cash

April 2018

Common Stock

1,000,000

Investor

Nil

Advisory Services

April 2018

Common Stock and Warrants

499,688

Investors

39,975

Cash

May 2018

Common Stock

526,484

Investor

Nil

Advisory Services

May 2018

Common Stock and Warrants

253,932

Investors

20,315

Cash

June 2018

Common Stock

600,0000

Investor

Nil

Advisory Services

August 2018

Common Stock

2,500,000

Investors

200,000

Cash

August 2018

Common Stock

200,000

Investor

Nil

Advisory Services

November 2018

Common Stock

1,250,000

Investor

100,000

Cash

December 2018

Common Stock

625,000

Investor

50,000

Cash

January 2019

Common Stock

2,050,000

Investors

164,000

Cash

January 2019

Common Stock

179,134

Investor

Nil

Advisory Services

February 2019

Common Stock

2,425,000

Investors

194,000

Cash

February 2019

Common Stock

1,000,000

Investor

Nil

Advisory Services

March 2019

Common Stock

833,333

Investors

50,000

Cash

April 2019

Common Stock

177,901

Investor

Nil

Advisory Services

April 2019

Common Stock

6,816,667

Investors

404,000

Cash

June 2019

Common Stock

1,500,000

Investor

Nil

Advisory Services

June 2019

Common Stock

8,899,720

Investors

499,980

Cash

July 2019

Common Stock

181,466

Investor

Nil

Advisory Services

August 2019

Common Stock

12,285,714

Investors

860,000

Cash

October 2019

Common Stock

178,512

Investors

Nil

Advisory Services

November 2019

Common Stock

2,500,000

Investors

175,000

Cash

December 2019

Common Stock

2,500,000

Investors

175,000

Cash

January 2020

Common Stock

175,439

Investors

Nil

Advisory Services

January 2020

Common Stock

3,000,000

Investors

210,000

Cash

March 2020

Common Stock & Warrants

3,000,000

Investors

150,000

Cash

April 2020

Common Stock & Warrants

4,000,000

Investors

200,000

Cash

April 2020

Common Stock

230,404

Investors

Nil

Advisory Services

April 2020

Common Stock

3,500,000

Investors

210,000

Cash

May 2020

Common Stock

2,166,667

Investors

130,000

Cash


37



 

ITEM 6.  SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Readers are cautioned that the following discussion contains certain forward-looking statements and should be read in conjunction with the “Cautionary Statement on Forward-Looking Statements” appearing at the beginning of this Annual Report. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the Financial Statements of the Company and notes thereto included elsewhere in the Annual Report. See “Financial Statements”. Our actual future results may be materially different from what we currently expect.

Overview

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. If the Company becomes unable to continue as a going concern, it may be unable to realize the carrying value of its assets or to meet its liabilities as they become due.

At the end of the Company’s fiscal year ending June 30, 2019, the Company wrote off debt and related accrued interest aggregating $12,507,540. The write off of debt was related to two finance facilities governed by and enforceable under British Columbia statutes. The Company retained legal services in British Columbia to research the British Columbia statutes of limitations on the collectability of the finance facilities. Legal counsel reviewed all related documents, records of proceedings and all records and documents deemed relevant to the two finance facilities. It was determined that the finance facilities were subject to the laws of the Providence of British Columbia and the National laws of Canada. The Company received a written legal opinion from legal counsel that any liability under the two finance facilities because of the Limitations Act (British Columbia) and any relevant case law in British Columbia, were no longer enforceable.  That is, because the statute of limitations had run for the two finance facility liabilities pursuant to the Limitations Act (British Columbia) that no future claims can be commenced in the Providence of British Columbia and therefore, the Company has no outstanding legal obligation on the two finance facilities.

The Company paid off a note payable settlement with a note holder and recorded a forgiveness of debt aggregating $112,625 on the debt extinguishment.

We have a total accumulated deficit of $93,478,670 at June 30, 2019. To continue as a going concern, we are dependent on continued fund raising and future cash flow from operations. However, currently we have no commitment in place from any party to provide additional capital and there is no assurance that such funding will be available, or if available, that its terms will be favorable or acceptable to us or that sufficient cash flow will be obtained in our 2020 fiscal year, to allow us to meet our obligations as the come due, or otherwise allow us to meet our business plan.  All current funding is on a best-efforts basis, by the Company


38



 

Results of Operations

The following table sets forth selected Consolidated Statements of Operations data for the periods presented:

 

 

 

For the Year Ended June 30,

 

 

 

2019

 

 

2018

 

 

2017  (As Restated)

 

Revenues

 

$

 

 

 

$

 

 

 

$

 

 

Exploration and mine related

 

 174,329 

 

 

 

 43,302 

 

 

 

89,374 

 

 

General and administrative

 

 2,669,351 

 

 

 

 1,603,947 

 

 

 

2,020,462 

 

 

Impairment of asset

 

 210,116 

 

 

 

 

 

 

 

 

Total expenses from operations

 

 3,053,796 

 

 

 

 1,647,249 

 

 

 

2,109,836 

 

 

Loss from Operations

 

 (3,053,796)

 

 

 

 (1,647,249)

 

 

 

(2,109,836)

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) gain on debt extinguishment

 

 12,620,165 

 

 

 

 (18,824)

 

 

 

4,416,668 

 

 

Gain on trust debt extinguishment

 

 

 

 

 

 

 

464,763 

 

 

Recovery (misappropriation) of funds

 

 458,427 

 

 

 

 (226,099)

 

 

 

(971,099)

 

 

Miscellaneous income

 

 638 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

 

 

 

(71,181)

 

 

(Loss) on derivative instruments liability

 

 

 

 

 

 

 

(26,974)

 

 

Financing costs-commodity supple agreement

 

 (588,082)

 

 

 

 (30,415)

 

 

 

291,166 

 

 

Interest expense

 

 (902,648)

 

 

 

 (674,147)

 

 

 

(1,012,298)

 

 

Total Other Income (Expense)

 

 11,588,500

 

 

 

 (949,485)

 

 

 

3,091,045 

 

 

Net Profit (Loss)

 

$

 8,534,704

 

 

 

$

 (2,596,734)

 

 

 

$

981,209 

 

 

Significant changes in our results of operations are more fully described below.

Fiscal Year Ended June 30, 2019 Compared to Fiscal Year Ended June 30, 2018

Revenue

During the fiscal years ended June 30, 2019 and 2018, the Company had no revenue during the fiscal years from an accounting perspective reported in this filing , although it continued analyzing mining opportunities during that period.

Operating Costs and Expenses

Our operating cost incurred in our fiscal year ended June 30, 2019, increased $1,406,547 from $1,647,249 in the fiscal year ended June 30, 2018 to $3,053,796 for the fiscal year ended June 30, 2019. Details of the significant changes are as follows:

Exploration and mine related costs: The increase in the current year of measurement aggregated $131,027. The increase consisted mainly of initial startup costs incurred at the Jim Crow Mine of $163,411. General and administration increased $1,065,404 in the current year of measurement from $1,603,947 for the year ended June 30, 2018, to $2,669,351 for the year ended June 30, 2019. The increase was mainly a result increases in the following: option expense of $1,497,985, legal fees of $146,432 and transfer agent fees of $22,952. These increases were offset by decreases in the following: compensation costs of $83,964 and consulting fees of $418,854.

Other Income (Expense)

Other income and (expense) for the fiscal year ended June 30, 2019, was $11,588,500 as compared to $(949,485) for the fiscal year ended June 30, 2018, an increase in other income of $12,537,985. The net increase in other income for the current year of measurement is mainly comprised of the increases in the following components: gain on debt forgiveness of $12,620,165 and recovered misappropriated funds of $458,427 as compared to a loss in the prior year of measurement of $(226,099). These increases were offset by increased expenses in financing costs-commodity supply agreement of $557,667 and interest expense of $228,501.

Subsequent to our fiscal year ended June 30, 2017, on October 1, 2018, we disclosed in a Form 8-K that the board of directors formed a special committee on September 26, 2018, to investigate and analyze certain financial transactions in the aggregate amount of


39



approximately $1 million that occurred primarily between July 2016 and March 2018 involving Mr. Laws (our former chief executive officer). The special committee investigation determined that Mr. Laws currently owes the Company approximately $1,1,197,198 excluding penalty and accrued interest, of which $485,966 has been received by the Company and the Company is proceeding against Mr. Laws to collect the balance. The amount determined to be misappropriated for the fiscal year ended June 30, 2018 and 2017, was $226,099 and $971,099, respectively, exclusive of interest, penalties and future legal and forensic accounting services incurred.

Fiscal Year Ended June 30, 2018 Compared to Fiscal Year Ended June 30, 2017 (As Restated)

Revenue

During the fiscal years ended June 30, 2018 and 2017 (As Restated), the Company had no operations during the fiscal years reported in this filing.

Operating Costs and Expenses

Our operating cost incurred in our fiscal year ended June 30, 2018, decreased $462,587 from $2,109,836 in the fiscal year ended June 30, 2017 (As Restated). Details of the significant changes are as follows.

Exploration and mine related costs: The decrease in the current year of measurement aggregated $46,072. The decrease mainly consisted of and decreased property taxes of $38,000 in our fiscal year ended June 30, 2018.

General and administration decreased from $2,020,462 for the year ended June 30, 2017 (As Restated), to $1,603,947 for the year ended June 30, 2018. This decrease was mainly a result of decreased costs in consulting fees of $589,781, legal fees of $15,983, director fees of $15,000, judgement costs of $21,454 and transfer agent fees of $9,403. These decreases are offset by increases in compensation costs of $112,176, audit and accounting fees of $90,803 and loss on wage conversion to equity of $24.824

Other Income (Expense)

Other income and (expense) for the fiscal year ended June 30, 2018, was $(949,485) as compared to $3,091,045 for the fiscal year ended June 30, 2017 (As Restated), an increase in other expense of $4,040,530. The net increase in other expense for the current year of measurement is mainly comprised of the following components: decreased gain on debt extinguishment of $4,440,492, a decrease gain on trust debt forgiveness of $464,763, and an increase loss on financing costs - commodity supply agreement of $321,581. These increases in expense items were offset by decreases in the following: misappropriation of funds of $745,000, loss on foreign currency translation of $71,181, loss on derivative financial instruments of $26,974 and interest expense of $338,151. Further information regarding the changes in the various components of Other Income (Expense) are discussed below.

On June 30, 2016, the total outstanding principle and accrued interest on the IGS Secured Convertible Notes totaled $3,545,940 in US dollars on our balance sheet. The loan and accrued interest are denominated in Australian dollars (A$). This reduced loss on foreign currency translation in the current year of measurement is the result of this loan obligation being paid off in fiscal year 2017.

For the fiscal year ended June 30, 2018, financing costs – commodity supply agreement totaled an increase expense of $321,581 from the fiscal year ended June 30, 2017 and resulted in an expense in the current fiscal year of $30,415. The financing costs for commodity supply agreement relate directly to production for the period and the subsequent delivery of refined precious metals to Sandstorm. These financing costs are adjusted period-to-period based upon the total number of undelivered gold and silver ounces outstanding at the end of each period. The increase other expense in the current fiscal year is driven by an increase in precious metals prices.

For the year ended June 30, 2017, the loss on derivative instruments liabilities totaled $26,974. The Company had no gain or loss on derivative instrument liabilities the current year of measurement. The changes in derivative financial instruments are non-cash items and arise from adjustments to record the derivative financial instruments at fair values. These changes are attributable mainly to adjustments to record the change in fair value for the embedded conversion feature of derivative financial instruments, warrants previously issued under our registered direct offerings, fluctuation in the market price of our common stock, which is a component of the calculation model, and the issuance of additional warrants resulting in derivative treatment. We use the Black-Scholes option pricing model to estimate the fair value of the derivative financial instruments. Because Black-Scholes uses our stock price, fluctuation in the stock prices will result in volatility to the earnings (losses) in future periods as we continue to reflect the derivative financial instruments at fair values. When required to arrive at the fair value of derivatives associated with the convertible note and warrants, a Monte Carlo model is utilized that values the Convertible Note and Warrant based on average discounted cash flow factoring in the various potential outcomes by a Chartered Financial Analyst (‘CFA”). In determining the fair value of derivatives, the CFA assumed that the Company’s business would be conducted as a going concern. The Company had no derivative instruments in the fiscal year ended June 30, 2018

For the fiscal year ended June 30, 2018 interest expense was $674,147 as compared to June 30, 2017 (As Restated) of $1,012,298 a decrease of $338,151. The decrease is mainly attributable to a decrease in loan discounts expensed as interest expense of $161,814 and


40



decreased interest on convertible debt of $163,848 incurred in the prior period of measurement and this debt was retired during fiscal year.

Recent Equity Financings and Debt Settlements

Below summarizes equity financing and debt settlements in our fiscal years ended June 30, 2019, 2018 and 2017 (As Restated) as follows:

 

 

 

For the Year Ended June 30,

 

 

 

2019

 

 

2018

 

 

2017  (As Restated)

 

Restricted common stock sold to accredited investors

 

 

25,399,720

 

 

 

 

51,590,344

 

 

 

 

81,681,038

 

 

Gross proceeds from equity financings

 

$

1,661,980

 

 

 

$

4,127,228

 

 

 

$

2,708,168

 

 

Note proceeds

 

 

239,750

 

 

 

 

 

 

 

 

 

 

Note proceeds from related party

 

 

61,848

 

 

 

 

 

 

 

 

 

 

Cash payments on notes payable

 

 

(210,000)

 

 

 

 

(50,000)

 

 

 

 

(284,783)

 

 

Cash used for working capital

 

$

1,753,578

 

 

 

$

4,077,228

 

 

 

$

2,423,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt amount

 

$

12,620,165

 

 

 

$

23,824

 

 

 

$

4,684,740

 

 

Shares issued for settlement

 

 

 

 

 

 

(47,648)

 

 

 

 

 

 

Gain on trust debt extinguishment

 

 

 

 

 

 

 

 

 

 

464,763

 

 

Write off balance of settled debt in prior fiscal year

 

 

 

 

 

 

5,000

 

 

 

 

 

 

Cash payment on negotiated debt

 

 

 

 

 

 

 

 

 

 

(268,072)

 

 

Gain on debt extinguishment

 

$

12,620,165

 

 

 

$

(18,824)

 

 

 

$

4,881,431

 

 

 

Significant changes in our results of operations are more fully described below.

Liquidity and Capital Resources; Plan of Operation

As of June 30, 2019, we had cash of $264,900 and a working capital deficit of $4,116,324. At June 30, 2019, we were in arrears on old debt aggregating approximately $3,700,000 that was incurred prior to our bankruptcy filing.

At June 30, 2018 and 2017 (As Restated), we were in arrears on payments totaling approximately $7.57 million and $7.37 million under a gold stream agreement (the “Gold Stream Agreement”) with Sandstorm in the Santa Fe Gold Barbados subsidiary, and other cash debt approximating $10.86 million, and $7.93 million, respectively. In our fiscal year 2019 we were able to write of old debt that exceeded the statute of limitations that aggregated $12,620,165. The Company retained legal services in British Columbia to research the British Columbia statutes of limitations on the collectability of the liabilities due under the finance facilities. Legal counsel reviewed all related documents, records of proceedings and all records and documents deemed relevant to the two finance facilities. It was determined that the finance facilities were subject to the laws of the Providence of British Columbia and the laws of Canada. The Company received a written legal opinion from legal counsel that the two researched finance facilities and any liabilities due thereunder, based on the applicable Limitations Act (British Columbia) and relevant case law in British Columbia, were no longer enforceable. That is, the statute of limitations has run for the two finance facility liabilities pursuant to the Limitations Act (British Columbia) relevant case law, therefore, no future claims can be commenced in the Providence of British Columbia so the Company has no outstanding legal obligation on either of the two finance facilities. Subsequent to our fiscal year ended June 30, 2019, during the fiscal year ended June 30, 2020, the Company raised $2,080,000 from the sale of common stock to accredited shareholders for working capital to continue implementing the Company business plan.

We have had no revenues since emerging from bankruptcy, and we are not currently profitable.  We currently do not have sufficient capital to fund operations through our fiscal year ending June 30, 2020 and will need to raise additional funding to implement our business strategy. Currently we are in the preliminary process of putting the Jim Crow mine into production, but there can be no assurance of any revenue from this mine. Even if we are successful in developing any of our properties, we expect to incur operating losses for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future.  As the Company has no commitment for debt or equity financing, the Company will be reliant upon its own best efforts fund raising activities to provide sufficient working capital to


41



fund current and immediate future needs.  There can be no assurance that the Company will be successful in its capital raising efforts, and the failure to raise needed capital will likely result in the curtailment or cessation of our business which would adversely affect investors.

Cash Flows from Investing Activities

The Company continues to build our asset base with capital expenditures. In fiscal 2019 net cash expenditures of $500,543 and consisted of the final payments on the Bullard’s Peak/Alhambra mine acquisition of $500,000, $25,543 for mine equipment and a return of $25,000 on a joint venture investment. In fiscal 2018 we had cash expenditures were $2,735,116 and consisted of $2,500,000 payment on the Bullard’s Peak/Alhambra mine acquisition, a $25,000 in a joint venture that was refunded in fiscal 2019 and payments of  $210,116 towards the British Columbia placer mining claims which we impaired in fiscal 2019. There were no expenditures in fiscal 2017 (As Restated).

Cash Flows from Financing Activities

In fiscal 2019, 2018 and 2017 (As Restated), the Company received proceeds from stock subscriptions from accredited investors of $1,661,980, $4,127,228 and $2,708,168. In fiscal 2019 the Company received funds advanced from two shareholders, one of which was a related party, aggregating $301,598 and the non-related party was repaid $40,000. In fiscal 2019, 2018 and 2017 (As Restated), payments were made on other note payable of  $170,000, 50,000 and $284,783, respectively.

Factors Affecting Future Operating Results

Currently we have no continuing commitment from any party to provide additional working capital, or if one becomes available, there is no certainty that its terms will be favorable or acceptable to the Company. Until positive cash flow is generated from operations, we will be dependent upon future working capital facilities or equity financing arrangements, to meet our expenses and to fund execution on our business plan.

Off-Balance Sheet Arrangements

During the fiscal years ended June 30, 2019, 2018 and 2017 (As Restated), we did not engage in any off-balance sheet arrangements as set forth in Item 303(a) (4) of the Regulation S-K.

Critical Accounting Policies

Our discussion and analysis of our consolidated financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses for each period. Critical accounting policies are defined, as policies that management believes are the most important to the portrayal of our consolidated financial condition and results of operations. These policies may require us to make difficult, subjective or complex judgments, commonly about the effects of matters that are inherently uncertain.

Our significant accounting policies are described in the audited consolidated financial statements and notes thereto. See Note 2, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements for the fiscal year June 30, 2019, 2018 and 2017 (As Restated), these describe our significant accounting policies which are reviewed by management on a regular basis.

We believe our most critical accounting policies relate to asset retirement obligations, derivative instruments and variables used in the Black-Scholes option pricing model and in the Monte Carlo, model utilized by the Chartered Financial Advisor, estimates utilized and stock-based compensation.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This section is not required to be completed by smaller reporting companies.


42



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

 

SANTA FE GOLD CORPORATION

 CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Years ended June 30, 2019, 2018 and 2017 (As Restated)


43



                                            

SANTA FE GOLD CORPORATION

 

TABLE OF CONTENTS

 

Final page numbers on last draft

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

20 

 

 

 

 

 

FINANCIAL STATEMENTS:

 

 

 

 

 

 

 

         Consolidated Balance Sheets

 

21

 

 

 

 

 

         Consolidated Statements of Operations 

 

22

 

 

 

 

 

         Consolidated Statement of Stockholders' Deficit

 

23

 

 

 

 

 

         Consolidated Statements of Cash Flows

 

24

 

 

 

 

 

         Notes to the Consolidated Financial Statements

 

25

 


44



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors,

Santa Fe Gold Corp.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Santa Fe Gold Corp. (the “Company”) as of June 30, 2019, 2018, and 2017, the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019, 2018, and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

Restatement of Previously Issued Financial Statements

 

As discussed in Notes 2 to the consolidated financial statements, the June 30, 2017 consolidated financial statements have been restated to correct a misstatement. 

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

 

/s/ TAAD LLP

 

 

We have served as the Company’s auditor since 2018

 

Diamond Bar, California

July 15, 2020


45



SANTA FE GOLD CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended June 30,

 

 

 

 

 

 

2017

 

 

2019

 

2018

 

(As Restated)

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

 264,900 

 

 

$

 18,897 

 

 

$

 392,375 

 

Prepaid expenses and other current assets

 

 76,921 

 

 

 11,680 

 

 

 39,838 

 

Total Current Assets

 

 341,821 

 

 

 30,577 

 

 

 432,213 

 

Equipment, net

 

 25,543 

 

 

 

 

 

Mineral properties

 

 3,315,365 

 

 

 

 

 

Deposits on acquisition contracts

 

 

 

 2,500,000 

 

 

 

Deposit on mineral leases

 

 

 

 210,116 

 

 

 

Deposit in joint venture

 

 

 

 25,000 

 

 

 

  Total Assets

 

$

 3,682,729 

 

 

$

 2,765,693 

 

 

$

 432,213 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 3,151,035

 

 

$

 3,026,976

 

 

$

 3,276,699 

 

Advance from related party

 

 

 

 35,000 

 

 

 

Accrued liabilities

 

 645,068 

 

 

 6,906,930 

 

 

 6,289,033 

 

Notes payable, current portion

 

 598,543 

 

 

 2,326,407 

 

 

 2,376,407 

 

Notes payable and accrued interest to related party

 

 63,499 

 

 

 

 

 

Subscribed common stock

 

 

 

 2,772,191 

 

 

 

Completion guarantee payable

 

 

 

 3,359,873 

 

 

 3,359,873 

 

   Total Current Liabilities

 

 4,458,145 

 

 

 18,427,377 

 

 

 15,302,012 

 

LONG TERM DEBT:

 

 

 

 

 

 

 

 

 

Shares subject to mandatory redemption by related party

 

 

 

 1,638,000 

 

 

 

Total Liabilities

 

$

 4,458,145 

 

 

$

 20,065,377 

 

 

$

 15,302,012 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT:

 

 

 

 

 

 

Common stock, $0.002 par value, 550,000,000, 300,000,000 and 300,000,000 authorized, respectively;  379,775,217, 300,000,000, 295,601,634 shares issued and outstanding, respectively

 

 759,550 

 

 

 600,000 

 

 

 591,204 

 

Additional paid in capital

 

 91,943,704 

 

 

 84,113,690 

 

 

 83,955,637 

 

Accumulated deficit

 

 (93,478,670)

 

 

 (102,013,374)

 

 

 (99,416,640)

 

Total Stockholders’ Deficit

 

 (775,416)

 

 

 (17,299,684)

 

 

 (14,869,799)

 

Total Liabilities and Stockholders’ Deficit

 

$

 3,682,729 

 

 

$

 2,765,693 

 

 

$

 432,213 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the audited consolidated financial statements.


46



SANTA FE GOLD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

Years Ended June 30,

 

 

 

 

 

 

2017

 

 

2019

 

2018

 

(As Restated)

SALES, net

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

OPERATING COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Exploration and mine related

 

  174,329 

 

 

  43,302 

 

 

  89,374 

 

General and administrative

 

  2,669,351 

 

 

  1,603,947 

 

 

  2,020,462 

 

Impairment of mineral lease deposits

 

  210,116 

 

 

 

 

 

Total Operating Costs and Expenses

 

  3,053,796 

 

 

  1,647,249 

 

 

  2,109,836 

 

LOSS FROM OPERATIONS

 

  (3,053,796)

 

 

  (1,647,249)

 

 

  (2,109,836)

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Gain (loss) on debt extinguishment

 

  12,620,165 

 

 

  (18,824 

 

 

  4,416,668 

 

Gain on trust debt extinguishment

 

 

 

 

 

  464,763 

 

Recovery (misappropriation) of funds

 

  458,427 

 

 

  (226,099)

 

 

  (971,099)

 

Miscellaneous income

 

  638 

 

 

 

 

 

Foreign currency translation

 

 

 

 

 

  (71,181)

 

       (Loss) on derivative instrument liabilities

 

 

 

 

 

  (26,974)

 

Financing costs-commodity supply agreement

 

  (588,082)

 

 

  (30,415)

 

 

  291,166 

 

Valuation change as interest on loaned shares from related

 

 

 

 

 

 

 

 

 

   party

 

  (127,800)

 

 

 

 

 

Interest expense

 

  (774,848)

 

 

  (674,147)

 

 

  (1,012,298)

 

Total Other income (Expense)

 

  11,588,500 

 

 

  (949,485)

 

 

  3,091,045 

 

INCOME LOSS BEFORE PROVISION FOR INCOME TAXES

 

  8,534,704 

 

 

  (2,596,734)

 

 

  981,209 

 

PROVISION FOR INCOME TAXES

 

 

 

 

 

 

NET(LOSS) INCOME

 

$

  8,534,704 

 

 

$

  (2,596,734)

 

 

$

 981,209 

 

Net income (loss) per common share:

 

 

 

 

 

 

Basic

 

$

  0.03 

 

 

$

  (0.01)

 

 

$

 0.00 

 

Diluted

 

$

  0.03 

 

 

$

  (0.01)

 

 

$

 (0.01)

 

Weighted-average number of shares used in per share calculation - Common Stock:

 

 

 

 

 

 

Basic

 

  329,903,520 

 

 

  298,364,663 

 

 

  263,709,360 

 

Diluted

 

  333,688,299 

 

 

  298,364,663 

 

 

  305,300,315 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the audited consolidated financial statements


47



SANTA FE GOLD CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 2019, 2018 and 2017 (As Restated)

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

Paid-in 

 

 

Accumulated 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Deficit)

 

 

Total

 

Balance, June 30, 2016

 

221,799,662 

 

$

443,599 

 

$

80,033,944 

 

$

(100,397,849)

 

$

(19,920,306)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock for cash

 

 40,840,519 

 

 

 81,682 

 

 

 1,272,402 

 

 

 - 

 

 

 1,354,084 

 

Exercise of warrants for cash

 

 40,840,519 

 

 

 81,682 

 

 

 1,272,402 

 

 

 - 

 

 

 1,354,084 

 

Common stock returned for compensation

 

 (15,956,748)

 

 

 (31,914)

 

 

 31,914 

 

 

 - 

 

 

 - 

 

Common stock issued for consulting

 

 15,030,720 

 

 

 30,062 

 

 

 997,318 

 

 

 - 

 

 

 1,027,380 

 

Common stock returned from shareholder

 

 (6,956,750)

 

 

 (13,914)

 

 

 13,914 

 

 

 

 

 

 - 

 

Shares issued for fees

 

 3,712 

 

 

 7 

 

 

 281 

 

 

 - 

 

 

 288 

 

Derivative settlement due to conversions

 

 - 

 

 

 - 

 

 

 333,462 

 

 

 - 

 

 

 333,462 

 

Net income

 

 - 

 

 

 - 

 

 

 - 

 

 

 981,209 

 

 

 981,209 

 

Balance, June 30, 2017 (As Restated)

 

 295,601,634 

 

 

 591,204 

 

 

 83,955,637 

 

 

 (99,416,640)

 

 

 (14,869,799)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock for cash

 

 11,199,183 

 

 

 22,398 

 

 

 873,535 

 

 

 - 

 

 

 895,933 

 

Exercise of warrants for cash

 

 11,199,183 

 

 

 22,398 

 

 

 873,535 

 

 

 - 

 

 

 895,933 

 

Common stock issued for consulting

 

 3,650,000 

 

 

 7,300 

 

 

 381,881 

 

 

 - 

 

 

 389,181 

 

Common stock returned

    from related party

 

 (18,000,000)

 

 

 (36,000)

 

 

 (1,726,200)

 

 

 - 

 

 

 (1,762,200)

 

Conversion of salary to equity

 

 476,484 

 

 

 953 

 

 

 46,695 

 

 

 - 

 

 

 47,648 

 

Subscribed shares for cash

 

 29,191,978 

 

 

 58,385 

 

 

 2,276,977 

 

 

 - 

 

 

 2,335,362 

 

Subscribed capital - unissued

 

 (33,318,462)

 

 

 (66,638)

 

 

 (2,705,553)

 

 

 - 

 

 

 (2,772,191)

 

Value of warrants issued

 

 - 

 

 

 - 

 

 

 12,983 

 

 

 - 

 

 

 12,983 

 

Change in valuation of returned shares from related party

 

 

 

 

 

 

 

 124,200 

 

 

 - 

 

 

 124,200 

 

Net loss

 

 - 

 

 

 - 

 

 

 - 

 

 

 (2,596,734)

 

 

 (2,596,734)

 

Balance, June 30, 2018

 

 300,000,000 

 

 

 600,000 

 

 

 84,113,690 

 

 

 (102,013,374)

 

 

 (17,299,684)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  consulting

 

 3,057,035 

 

 

 6,114 

 

 

 285,494 

 

 

 - 

 

 

 291,608 

 

Issuance of shares loaned from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  related party

 

 18,000,000 

 

 

 36,000 

 

 

 1,854,000 

 

 

 - 

 

 

 1,890,000 

 

Sale of common stock for cash

 

 25,399,720 

 

 

 50,798 

 

 

 1,611,182 

 

 

 - 

 

 

 1,661,980 

 

Issuance of subscribed stock

 

 33,318,462 

 

 

 66,638 

 

 

 2,705,553 

 

 

 - 

 

 

 2,772,191 

 

Change in valuation of returned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   shares from related party

 

 - 

 

 

 - 

 

 

 (124,200)

 

 

 - 

 

 

 (124,200)

 

Value of options issued

 

 - 

 

 

 - 

 

 

 1,497,985 

 

 

 - 

 

 

 1,497,985 

 

Net profit

 

 - 

 

 

 - 

 

 

 - 

 

 

 8,534,704 

 

 

 8,534,704 

 

Balance, June 30, 2019

 

 379,775,217 

 

$

 759,550 

 

$

 91,943,704 

 

$

 (93,478,670)

 

$

 (775,416) 

 

 

 

The accompanying notes are an integral part of the audited consolidated financial statements.


48




 

SANTA FE GOLD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended June 30,

 

 

 

 

 

2017

 

2019

 

2018

 

(As Restated)

Operating Activities

 

 

 

 

 

Net income (loss)

$

 8,534,704

 

 

$

 (2,596,734)

 

 

$

 981,209 

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

Stock-based compensation

 291,608 

 

 

 389,181 

 

 

 1,027,380 

Warrant/option expense from derivative liability

 1,497,985 

 

 

 12,983 

 

 

Amortization of discounts on notes payable

 

 

 

 

 161,814 

Loss (gain) on derivative instruments liabilities

 

 

 

 

 26,974 

Shares issued for fees

 

 

 

 

 288 

Financing costs -commodity supply agreement

 588,082 

 

 

 30,415 

 

 

 (291,166)

(Gain) on debt forgiveness

 (12,620,165)

 

 

 (5,000)

 

 

 (4,416,668)

Loss on debt conversion to equity

 

 

 23,824 

 

 

Trust debt payments

 

 

 

 

 (464,763)

Impairment of mineral deposit

 210,116 

 

 

 

 

Valuation change as interest on loaned shares from related party

 127,800 

 

 

 

 

Foreign currency translation

 

 

 

 

 71,181 

Changes in operating assets and liabilities:

 

 

 

 

 

Prepaid expenses and other assets

 (65,241)

 

 

 28,158 

 

 

 (35,363)

Accounts payable and accrued expenses

 743,444 

 

 

 401,583 

 

 

 905,289 

Net cash used in by operating activities

 (691,667)

 

 

 (1,715,590)

 

 

 (2,033,825)

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Payments on mineral leases

 (200,000)

 

 

 (210,116)

 

 

Purchase of equipment

 (25,543)

 

 

 

 

Refund (payment) of joint venture investment

 25,000 

 

 

 (25,000)

 

 

Payments on mineral property purchase agreements

 (615,365)

 

 

 (2,500,000)

 

 

Net cash used in investing activities

 (815,908)

 

 

 (2,735,116)

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Proceeds from the issuance of common stock

 1,661,980 

 

 

 895,933 

 

 

 1,354,084 

Proceeds from the exercise of stock options

 

 

 895,933 

 

 

 1,354,084 

Proceeds from stock subscriptions

 

 

 2,335,362 

 

 

Note payable proceeds

 239,750 

 

 

 

 

Loan proceeds from related parties

 61,848 

 

 

 

 

Payment on notes payable

 (210,000)

 

 

 (50,000)

 

 

Payments on convertible notes payable

 

 

 

 

 (284,783)

Net cash provided by financing activities

 1,753,578 

 

 

 4,077,228 

 

 

 2,423,385 

Net increase (decrease) in cash and cash equivalents

 246,003 

 

 

 (373,478)

 

 

 389,560 

Cash and cash equivalents at beginning of year

 18,897 

 

 

 392,375 

 

 

 2,815 

Cash and cash equivalents at end of year

$

 264,900 

 

 

$

 18,897 

 

 

$

 392,375 

 


49



 

Years Ended June 30,

 

 

 

 

 

2017

 

2019

 

2018

 

(As Restated)

Supplemental cash flow disclosures:

 

 

 

 

 

Interest paid

$

 100,000

 

 

$

 

 

$

 

Income taxes paid

$

 

 

$

 

 

$

 

 

 

 

 

 

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

Shares loaned to the Company by related party

$

 

 

$

 1,762,200

 

 

$

 

Change in valuation on loaned shares from related party

$

 (124,200)

 

 

$

 124,200

 

 

$

 

Settlement of derivative liabilities through conversion

$

 

 

$

 

 

$

 333,462

 

Common stock returned and canceled

$

 

 

$

 

 

$

 45,828

 

Loaned shares returned to related party

$

 1,890,000 

 

 

$

 

 

$

 

 

The accompanying notes are an integral part of the audited consolidated financial statements.


50



SANTA FE GOLD CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019, 2018 AND 2017 (As Restated)

NOTE 1 – NATURE OF OPERATIONS

Santa Fe Gold Corporation (the “Company”, “our” or “we”) is a U.S. mining company incorporated in Delaware in August 1991. Our general business strategy is to acquire, explore, develop and mine mineral properties. The Company elected on August 26, 2015, to file for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) and that case was dismissed on June 15, 2016. The Summit Silver-Gold Project, the Lordsburg Copper Project, Black Canyon Mica Project, Planet MIO Project, all claims and other assets were lost in the process. After the Company emerged from the bankruptcy with a management team of two with no assets, we developed a business plan to raise equity funds to acquire new mining claims, a potential processing plant or arrangements with a processing plant in an acceptable geographic location to potential new mining claims.  

Misappropriation of Funds and Entry into a Material Definitive Agreement

As disclosed in the Company’s Form 8-K filed on October 1, 2018, a director and former Chief Executive Officer of the Company, Mr. Thomas H. Laws, entered into a secured promissory note and security agreement in the principal amount of $930,000 in favor of the Company on September 19, 2018, bearing interest at the annual rate of 4% and maturing September 30, 2018 (“Secured Promissory Note”).  The Company requested the former chief executive to execute the Secured Promissory Note and security agreement as a result of the matters discussed below, prior to the completion of the special committee investigation. The security interests include certain real estate and a Cessna model 182G airplane. The Secured Promissory Note also contains late fee and default provisions under the deeds of trust, Security Agreement, and other agreements.

The board of directors formed a special committee on September 26, 2018 to investigate and analyze certain financial transactions in the aggregate amount of approximately $1 million that occurred primarily between July 2016 and March 2018 involving Mr. Laws. The special committee investigation determined initially that Mr. Laws initially owed the Company $1,197,198, excluding penalty and accrued interest, of which $485,966, has been received by the Company at the time of filing this Form 10-K.

The Company has restated the previously issued the three quarterly consolidated financial statements for, and financial information relating to, the fiscal year ended June 30, 2017, the most recent financial statements of the Company filed with the Securities and Exchange Commission. The audited year end consolidated financial statements for our fiscal year ended June 30, 2017 (As Restated), are incorporated into this 10-K filing.

Subsequent review of these transactions for the fiscal year ended June 30, 2017, resulted in a restatement of assets and operating costs in the amount of $971,099 and charged to the former Chief Executive Officer. Subsequent professional costs including legal, auditing, forensic accounting and related filing costs related to this event have been added to the amounts owed by Mr. Laws. At the time of filing this report, we have determined costs associated with Mr. Laws action currently aggregates $1,652,863, of which we have collected $485,966.

Mr. Laws was terminated as the at-will chief executive officer of the Company on September 24, 2018.  Currently no interim chief executive officer has been named to replace Mr. Laws.  

In November 2018, Santa Fe filed a complaint in Luna County District Court, State of New Mexico, requesting a $930,000 money judgment against Mr. and Mrs. Laws, in addition to foreclosing on the mortgage Mr. and Ms. Laws granted to Santa Fe on real  estate property to secure the promissory note located in Luna County, New Mexico. 

In November 2018, Santa Fe filed a similar complaint in Grant County District Court, State of New Mexico, as Mr. and Mrs. Laws and XYZ Ranch Estates, LLC granted Santa Fe a deed of trust and a mortgage, respectively, on several pieces of real property in Grant County, New Mexico. Mr. Laws also granted Santa Fe a security agreement on an airplane located in Grant County, New Mexico.  The complaint in Grant County requested a money judgment in the amount of $930,000 against Mr. and Mrs. Laws, in addition to a request to foreclose on the assets pledged to us located in Grant County, New Mexico. 

As of the filing of this report, Mr. Laws has pleaded guilty to various charges brought against him by government officials, which include the Company allegations. Mr. Laws is currently awaiting sentencing on the pleaded to charges. The Company attorneys have filed all required documents for future monetary settlements to be determined by the court.


51



Investments in Mineral Properties

Bullard’s Peak Corporation (Alhambra) Acquisition

Pursuant to a stock purchase agreement dated August 2017, the Company acquired all the capital stock of Bullard’s Peak Corporation and the related patented unpatented claims in the Black Hawk district of New Mexico from Black Hawk Consolidated Mines Company for a purchase price of $3,115,365. The mine property is known as the Alhambra mine site. The transaction was finalized and closed in December 2019. The Company granted the seller a 2% net smelter return in perpetuity on all patented and unpatented claims.  The net smelter return is the greater of (i) all monies the Company receives for or from any and all ore removed from the property comprising the mining claims whether for exploration, mining operations or any other reason, and (ii) the fair market value of removed ore from the property comprising the mining claims.  We have not established that our Black Hawk and Bullard Peak rights contain proven or probably reserves, as defined under SEC Industry Guide 7.  No exploration activities have commenced to date and no exploration costs have been incurred or paid.  To date, the Company has not (i) commenced or adopted plans to conduct any exploration, (ii) prepared drilling plans, proposals, timetables or budgets for exploration work, or (iii) identified engineers and other personnel that will conduct or assist in any exploration work.  The Company will need to raise funds to conduct exploration work and it currently lacks firm commitment financing for any exploration activities. The Company currently lacks the capital to fund these future expenditures. The Company currently considers the location as an exploration property with required geological work to be done once cash flow is achieved from the Jim Crow mine and at the time of this filing is at the inception stage of production.

Based upon the Company’s review and assessment of FASB’s Business Combinations (Topic 805) Update amendment and the acquisition and outside independent documentation for this acquisition, it does not meet the requirements of acquiring a business or a business combination. All assets acquired are concentrated in a single identifiable asset, Mineral property. The Company relies on Sections 805-10-55-5, 805-10-55-5A and 805-10-55-5B that identify the acquisition is not considered a business or business combination

Billali Mine and the Jim Crow Imperial Mine Mineral Interest

In January 2019 the Company has acquired rights to two properties in western New Mexico, consisting of eight (8) patented claims and two unpatented claims, all located in the Steeple Rock Mining District, Grant County, New Mexico and a related water rights lease agreement.

The Company entered into a purchase agreement with a mining operator in January 2019 to purchase two properties in western New Mexico, the Billali Mine, and the Jim Crow Imperial Mine. The purchase price for all rights and interests to be conveyed is $2,500,000 for the Billali Mine and $7,500,000 for the Jim Crow Imperial Mine, with aggregate consideration for both definitive agreements payable as follows per Amendment Three that is effective as of May 1, 2020:

*$500,000 paid to date as of the filing date; 

*buyer to pay $50,000 monthly commencing   July 1, 2020, and continuing for the next subsequent 19 months; 

*commencing 30 days after the last payment above, and continuing for the for an additional 48 subsequent payments, buyer to make each 30 days  a payment in the amount of  $175,000; 

*after the final payment above and 30 days thereafter, the buyer will make the final payment of $100,000 completing the purchase. 

*each payment made hereunder will be allocated twenty-five per cent (25%) to the Billali and seventy-five percent (75%) to the Jim Crow, Imperial. 

The Agreement has a 5% net smelter return (NSR) royalty on the nine patented Lode Claims with a royalty limit up to $650,000, and a 3% NSR thereafter.

Title and all rights and interest in the properties will be conveyed under the agreements upon completion of the payments of the purchase prices of the properties.

There were no mining operations being conducted on the property on the date of purchase.  Based on the Company’s analysis and understanding of annual filed reports filed by the sellers, no mining operations have been conducted on the properties in the last four-five years.  A review of the tax returns for the years calendar years ended 2016-2018 support this position. The Company has inquired with the New Mexico Mining and Minerals Division to obtain the last few years of filings on Form 7, Annual Report Metal and Mill Concentrate Operations. The current reports obtained from the Division, reflect no mining operations have occurred in the years 2014-2018.  


52



Accordingly, (i) there were no revenue-producing activities and (ii) in connection with the acquisition, no employee base was associated with the acquisition, no market distribution system was associated with the acquisition, no sales force or customer base was associated with the acquisition, and no production techniques or actual production was associated with the acquisition of the properties.  The Company believes that the physical facilities need various improvements prior to beginning mining operations.

To further assist the Company to determine if it acquired a business or a business combination, it looked to Accounting Standards Update 2017-01 Business Combinations (Topic 805). Based upon the Company’s review of the purchase agreement that provides for only the purchase of patented and unpatented mining claims as detailed in the agreement. Ownership transfer of these claims are not transferred until the full amount specified in the agreement is paid in full. The Company has reviewed the tax returns of the sellers for their calendar tax years 2016-2018, which indicate no operations have occurred in those years.

Based upon the Company’s review of FASB’s Business Combinations (Topic 805) Update amendment and the review of the acquisition documentation, this acquisition does not meet the requirements of acquiring a business. All assets to be acquired are concentrated in a single identifiable asset or group of similar identifiable assets, patented mining leases, as descripted in the Agreement. The Company relies on Sections 805-10-55-5, 805-10-55A and 805-10-55-5B that identify the acquisition is not considered a business or a business combination.

The Company has the right to cancel the Agreement at any time. The Company considers this property to be an exploration property and as  an exploration company under Industry Guide 7.

British Columbia Properties

On November 30, 2017, the Company entered into substantially identical agreements with Fortune Graphite, Inc. and Worldwide Graphite Producers, Ltd. to acquire a total of four placer claims for aggregate consideration of Can$400,000 and the issuance of 10,000,000 shares of Company common stock.  Title to these claims remains in trust with the sellers until payment in full.  To date, the Company has paid Can$260,000.  The Company owes the sellers Can$140,000 and 10,000,000 shares of Company common stock. Based upon our subsequent scrutiny and analysis of the transaction, the Company in February 2019 initiated an arbitration proceeding against the seller to void and rescind the purchase of these British Columbia properties, including requesting additional remedies.  The Company cannot predict the outcome of this arbitration, and there can be no assurance that the Company will not lose its interest in these claims or owe seller the remaining outstanding amounts. In connection with this arbitration, the Company’s legal position is to void the transaction and, due to the uncertainty of the outcome, has provided an impairment of the amount at June 30, 2019, in the amount of $210,116.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Restatement Effect on Financial Statements

The following table illustrates the impact of the restatement of funds advanced to a related party and the restated audited consolidated balance sheet, the audited statement of operations and audited statement of cash flows for the fiscal year ended June 30, 2017. Additional information is disclosed in NOTE 13, RELATED PARTY TRANSACTIONS, Entry into a Material Definitive Agreement.

Effects on the previously issued financial statements are as follows:  

(A)Reclassification of expenditures for mine equipment, net of depreciation to misappropriated funds expense. 

(B)Increased net loss for the period due to reclassification of misappropriated funds to expense. 

(C)Reclassification of expenditures for operating expenses and depreciation expense to misappropriated funds expense. 

(D)Accrued interest and penalties on judgements, accrued interest added to note principle and interest rate change on note payable. 

(E)Restatement of cash funds regarding related party transactions and misappropriated funds. 

(F)Share issuance correction for consulting. 

(G)Rounding correction 


53



 

 

 

As Previously
Reported

 

 

Adjustment

 

 

Restated

 

Consolidated Balance Sheet at June 30, 2017:

 

 

 

 

 

 

 

 

 

 

Cash

E

 

$

441,806 

 

 

$

(49,431)

 

 

$

392,375 

 

Escrow deposit  

E

 

$

500,000 

 

 

$

(500,000)

 

 

$

 

Total Current Assets

 

 

$

981,644 

 

 

$

(549,431)

 

 

$

432,213 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mine Equipment, net of depreciation of $21,799

A

 

$

245,933 

 

 

$

(245,933)

 

 

$

 

Total Assets

 

 

$

1,227,577 

 

 

$

(795,364)

 

 

$

432,213 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

D

 

$

3,244,368 

 

 

$

32,331 

 

 

$

3,276,699 

 

Accrued liabilities

D

 

$

6,216,348 

 

 

$

72,685 

 

 

$

6,289,033 

 

Payable to related party

E

 

$

49,420 

 

 

$

(49,420)

 

 

$

 

Notes payable, current portion

G

 

$

2,376,406 

 

 

$

 

 

$

2,376,407 

 

Total Current Liabilities

 

 

$

15,246,415 

 

 

$

55,597 

 

 

$

15,302,012 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

F

 

$

579,873 

 

 

$

11,331 

 

 

$

591,204 

 

Additional paid in capital

F

 

$

83,414,595 

 

 

$

541,042 

 

 

$

83,955,637 

 

Accumulated deficit

B

 

$

(98,013,306)

 

 

$

(1,403,334)

 

 

$

(99,416,640)

 

Stockholders’ Deficit

 

 

$

(14,018,838)

 

 

$

(850,961)

 

 

$

(14,869,799)

 

Total Liabilities and Stockholders’ Deficit

 

 

$

1,227,577 

 

 

$

(795,364)

 

 

$

432,213 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Operations for the fiscal year
ended June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration and other mine related costs

E

 

$

255,917 

 

 

$

(166,543)

 

 

$

89,374 

 

General and administration

E,F

 

$

1,450,797 

 

 

$

569,665 

 

 

$

2,020,462 

 

Depreciation and amortization  

C

 

$

21,799 

 

 

$

(21,799)

 

 

$

 

Total Operating Expenses

 

 

$

1,728,513 

 

 

$

381,323 

 

 

$

2,109.836 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Misappropriated funds

E

 

$

 

 

$

(971,099)

 

 

$

(971,099)

 

Interest expense

D

 

$

(961,386)

 

 

$

(50,912)

 

 

$

(1,012,298)

 

Total Other Income and (Expense)

 

 

$

4,113,056 

 

 

$

(1,022,011)

 

 

$

3,091,045 

 

Net Income

 

 

$

2,384,543 

 

 

$

(1,403,334)

 

 

$

981,209 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows for fiscal year
ended June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

2,384,543 

 

 

$

(1,403,334)

 

 

$

981,209 

 

Depreciation and amortization

C

 

$

21,799 

 

 

$

(21,799)

 

 

$

 

Stock issued for services

F

 

$

475,007 

 

 

$

552,373 

 

 

$

1,027,380 

 

Accounts payable and accrued liabilities

D

 

$

1,002,960 

 

 

$

(97,671)

 

 

$

905,289 

 

Net Cash Used in Operating Activities

 

 

$

(1,063,394)

 

 

$

(970,431)

 

 

$

(2,033,825)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of equipment

A

 

$

(267,732)

 

 

$

267,732 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Escrow deposit on mineral property

E

 

$

(500,000)

 

 

$

500,000 

 

 

$

 

Net Cash Used in Investing Activities

 

 

$

(767,732)

 

 

$

767,732 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments to related party for expenses paid on behalf of Company

E

 

$

(153,268)

 

 

$

153,268 

 

 

$

 

Net Cash Provided by Financing Activities

 

 

$

2,270,117 

 

 

$

153,268 

 

 

$

2,423,385 

 

Increase in cash and cash equivalents

E

 

$

438,991 

 

 

$

(49,431)

 

 

$

389,560 

 


54



Basis of Presentation and Going Concern

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due.

Below presents summary financial information at the three fiscal years presented in this 10-K filing.

 

 

 

 

June 30,

 

 

 

 

 

2019

 

 

 

2018

 

 

 

2017

 

Cash on hand

 

 

$

 264,900

 

 

$

18,897 

 

 

$

 392,375

 

Working capital deficit

 

 

$

 4,116,324

 

 

$

18,396,800 

 

 

$

 14,869,799

 

Stockholder deficit

 

 

$

 775,416

 

 

$

17,299,684 

 

 

$

 14,869,799

 

Current year net income  (loss)

 

 

$

 8,534,704

 

 

$

(2,596,734)

 

 

$

 981,209

 

On August 26, 2015, Santa Fe filed for Chapter 11 Bankruptcy protection, Case # 15-11761 (MFW) in Delaware. With the dismissal of our bankruptcy case in June 15, 2016, all assets of the Company were sold. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. 

To continue as a going concern, the Company is dependent on continued capital financing for project development, repayment of various debt facilities and payment of current operating expenses until the Company has implemented production at one of our recently acquired mine sites and generating substantial cash flow from operations and an acceptable source to process the mineralized ore to generate revenue. We have no commitment from any party to provide additional working capital and there is no assurance that any funding will be available as required, or if available, that its terms will be favorable or acceptable to the Company.

As of the fiscal years ending June 30, 2019, 2018 and 2017, the Company was in default on debt facility payments as follows:

 

 

 

 

June 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

2017

Amount due under the Gold Stream Agreement

 

 

$

 

 

$

7,572,653

 

 

$

 7,365,848

Other notes payable

 

 

$

 398,793

 

 

$

2,326,407

 

 

$

 2,376,407

Accrued other note payable interest

 

 

$

 110,618

 

 

$

3,031,677

 

 

$

 2,318,524

Notes payable and accrued interest to related party

 

 

$

 

 

$

 

 

$

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries AZCO Mica, Inc., a Delaware corporation, The Lordsburg Mining Company, a New Mexico corporation, Santa Fe Gold Barbados Corporation, a Barbados corporation, Santa Fe Acquisitions Company, a New Mexico Limited Liability Company, Minerals Acquisitions, LLC, a New Mexico Limited Liability Company and Bullard’s Peak Corporation, a New Mexico corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

On July 19, 2016, a new company was formed, Santa Fe Acquisition LLC (“SFA”) with Tom Laws, our CEO at the time, as the signer, for the sole purpose of acquiring assets for Santa Fe Gold (“SFG”). On September 25, 2017, with an effective date of July 23, 2016, the CEO assigned ownership of SFA to Santa Fe Gold whereby SFG became to sole member of SFA resulting in SFA becoming a wholly owned subsidiary of SFG.  Any major purchases were made through the SFA Company for the benefit of SFG, with the funding provided by SFG.

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates under different assumptions or conditions.

Significant estimates are used when accounting for the Company’s carrying value of mineral properties, useful life of fixed assets, depreciation and amortization, accruals, derivative instrument liabilities, taxes and contingencies, asset retirement obligations, revenue recognition, and stock-based compensation which are discussed in the respective notes to the consolidated financial statements.


55



Fair Value of Financial Instruments

The carrying values of cash, miscellaneous receivables, accounts and notes payable and accrued liabilities approximated their related fair values as of June 30, 2019, 2018 and 2017 (As Restated), due to the relatively short-term nature of these instruments.

Cash and Cash Equivalents

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash balances.

Mine Development

Mine development costs include engineering and metallurgical studies, drilling, and other related costs to delineate an ore body, and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure in an underground mine. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as exploration expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at obtaining additional information on the ore body or converting non-reserve mineralization to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of costs applicable to sales.

Mine development is amortized using the units-of-production method based upon estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore body. Currently, with no claims or mines in our possession, no development costs are incurred.

As of June 30, 2019, the Company has not established proven or probable reserves or established the commercial feasibility of any of our exploration projects and all exploration costs are being expensed.

Mineral Rights

Mineral properties are capitalized at their fair value at the acquisition date, either as an individual asset purchase or as part of a business combination. When it is determined that a mineral property can be economically developed as a result of establishing reserves, subsequent mine development is capitalized and are amortized using the units of production method over the estimated life of the ore body based on estimated recoverable tonnage in proven and probable reserves.

The Company’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. The Company has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material.

Costs of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. The Company expenses all mineral exploration costs as incurred as it is still in the exploration stage. If the Company identifies proven and probable reserves in its investigation of its properties and upon development of a plan for operating a mine, it would enter the development stage and capitalize future costs until production is established.

When a property reaches the production stage, the related capitalized costs are amortized on a units-of-production basis over the proven and probable reserves following the commencement of production. The Company assesses the carrying costs of the capitalized mineral properties for impairment under ASC 360-10, “Impairment of long-lived assets”, and evaluates the carrying value under ASC 930-360, “Extractive Activities - Mining”, annually. An impairment is recognized when the sum of the expected undiscounted future cash flows is less than the carrying amount of the mineral properties. Impairment losses, if any, are measured as the excess of the carrying amount of the mineral properties over its estimated fair value.

 

To date, the Company has not established the commercial feasibility of any exploration prospects; therefore, all exploration costs are expensed as incurred. 

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. As described in NOTE 4, the Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether


56



there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.

Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized as a one-day derivative loss, in order to initially record the derivative instrument liabilities at their fair value.

The discount from the face value of the convertible debt or equity instruments resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

When required to arrive at the fair value of derivatives associated with the convertible notes and warrants, a Black Scholes and a Monte Carlo models are utilized that values the Convertible Note and Warrant based on average discounted cash flow factoring in the various potential outcomes by a Chartered Financial Analyst (‘CFA”). In determining the fair value of the financial derivatives, the CFA assumed that the Company’s business would be conducted as a going concern.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

Reclamation and Asset Retirement Costs

Reclamation obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to accretion expense. The asset retirement cost is capitalized as part of the asset’s carrying value and depreciated over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The reclamation obligation is based on when spending for an existing disturbance will occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site in accordance with ASC guidance for reclamation obligations. No reclamation costs were required for the end of our fiscal 2019, 2018 or 2017.

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. A valuation allowance is recorded when it is more likely than not that deferred tax assets will be unrealizable in future periods. As of June 30, 2019, 2018 and 2017, the Company has recorded a valuation allowance against the full amount of its net deferred tax assets. The inability to foresee taxable income in future years makes it more likely than not that the Company will not realize its recorded deferred tax assets in future periods.

Net Earnings (Loss) Per Share

Basic earnings (loss) per share are calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share are calculated by dividing net income by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation. For the fiscal year ended June 30, 2018, the impact of outstanding stock equivalents has not been included as they would be anti-dilutive.


57



A reconciliation of the weighted average shares outstanding used in the basic and diluted earnings per share computation (“EPS”) for the fiscal years ended June 30, 2019 and 2017 is as follows:

 

June 30, 2019: 

 

 

 

 

Net Income

(Numerator)

 

 

Weighted

Average

Common Shares

(Denominator)

 

 

 

 

Per Share

Amount

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

 

 $ 8,534,704

 

 

 

 329,903,520

 

 

 

 $ 0.03

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of options

 

 

 

 

 

 3,784,779

 

 

 

 

Income available to common stockholders plus assumed exercise of

options and warrants

 

 

 $ 8,534,704

 

 

 

 333,688,299

 

 

 

 $ 0.03

 

The number of warrants excluded from the calculation of diluted earnings per share for the year ended June 30, 2019, was 100,000, because their inclusion would have been anti-dilutive.

 

June 30, 2017:

 

 

 

 

Net Income

(Numerator)

 

 

Weighted

Average

Common Shares

(Denominator)

 

 

 

 

Per Share

Amount

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

 

$ 981,209 

 

 

 

 263,709,360

 

 

 

 $ 0.00 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Gain on derivatives on convertible notes

 

 

  (153,538)

 

 

 

 

 

 

 

Interest expense on convertible notes

 

 

  269,776 

 

 

 

 

 

 

 

Loss on foreign currency translation

 

 

  71,181 

 

 

 

 

 

 

 

Gain on debt extinguishment

 

 

  (4,068,901)

 

 

 

 

 

 

 

Dilutive effect of options

 

 

 

 

 

 40,085

 

 

 

 

Dilutive effect of convertible notes