The following management discussion and analysis of financial condition and
results of operations should be read in connection with the accompanying
unaudited condensed financial statements and related notes thereto included
elsewhere in this report and the audited consolidated financial statements and
notes thereto included in the Company's Form 10-K for the fiscal year ended
December 31, 2019, as filed with the SEC on March 2020.
Cautionary Notice Regarding Forward Looking Statements
Readers are cautioned that the following discussion contains certain
forward-looking statements and should be read in conjunction with the "Special
Note Regarding Forward-Looking Statements" appearing at the beginning of this
Quarterly Report.
The information contained in this Item 2 contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
may materially differ from those projected in the forward-looking statements as
a result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual results
will not be different from expectations expressed in this report.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated,
the terms "Company," "we," "us," and "our" refer to Standard Metals Processing,
Inc. and our wholly-owned subsidiary, Tonopah Milling and Metals Group, Inc.
("TMMG"), and TMMG's wholly-owned subsidiaries Tonopah Custom Processing, Inc.
("TCP") and Tonopah Resources, Inc. ("TR"). Unless otherwise specified, all
dollar amounts are expressed in United States dollars.
Corporate History
We were incorporated in the State of Colorado on July 10, 1985 and re-domiciled
in Nevada in March 2013. In 2011, we closed a series of transactions, whereby we
acquired certain assets of Shea Mining & Milling, LLC, which assets include
land, buildings, a dormant milling facility, abandoned milling equipment, water
permits, mine tailings, mine dumps and the assignment of a note payable, a lease
and a contract agreement with permits. We completed the Shea Exchange Agreement
in order to offer toll milling services of precious minerals. Toll milling is a
process whereby mined material is crushed and ground into fine particles to ease
the extraction of any precious minerals contained therein, such as gold, silver,
and platinum group metals. Custom milling and refining can include many
different processes to extract precious metals from carbon or concentrates.
These toll-processing services also distill, dry, mix, or mill chemicals and
bulk materials on a contractual basis and provide a chemical production
outsourcing option for industrial companies which lack the expertise, capacity,
or regulatory permits for in-house production.
Overview of the Company
We have a office in Gadsden, Alabama and, through a subsidiary, a property in
Tonopah, Nevada. Our business plan is to purchase equipment and build a facility
on the Tonopah property to serve as a permitted custom processing toll milling
facility which includes an analytical lab, pyrometallurgical plant, and
hydrometallurgical recovery plant. We are required to obtain several permits
before we can begin construction of a small-scale mineral processing facility
and the required additional buildings to conduct permitted processing toll
milling activities and commence operations.
Water Pollution Control Permit with Nevada Department of Environmental
Protection
Through the Company's wholly owned subsidiaries, a Water Pollution Control
Permit ("WPCP") Application was filed with the Nevada Department of
Environmental Protection ("NDEP") Bureau of Mines and Mining Reclamation
("BMMR") for the approval of the permits necessary for a small-scale mineral
processing facility planned for the Tonopah property. The plant will perform
laboratory testing, pilot testing, and custom processing of precious metal ores
and concentrates from mining industry clients. Processing of ore materials will
employ standard mineral processing techniques including gravity concentration,
froth flotation and chemical leaching and carbon stripping.
The WPCP must be approved prior to commencing the planned construction of our
processing plant in Tonopah, Nevada.
12
In connection with our WPCP application, NDEP suggested that we take the
following actions: (i) retain a Nevada Certified Environmental Manager ("CEM"),
(ii) perform Meteoric Profile II water testing on ground water directly below
the mill as well as surrounding wells located off site, and (iii) determine
baseline values of water using the Meteoric Profile II results. NDEP regulations
require that the Company delay any new construction planned for "metal
extraction" until after the permits are in place.
Advanced Surveying & Professional Services, a Professional Land Surveyor
("PLS"), completed surveys and testing of the Tonopah property required for the
application of our required permits. After completion of the survey, it was
determined the property is 1,186 acres. The scope of work the PLS completed
includes: (i) setting a total of 19 permanent monuments at angle points along
lines, (ii) setting eight permanent monuments locating US Hwy 95, (iii)
recording a professional map indicating longitude and latitude for all corners,
and (iv) providing a digital map accessible in Auto Cad software.
Site Preparation
We have completed the initial grading of specific designated areas on the 40
undisturbed acres of land including clearing all vegetation, removing of all
scrap metal, and the excavation of the building pad for preparation of the our
planned new 21,875 square foot processing plant and have completed the removal
of all the extra and unnecessary materials and old equipment that has
accumulated on the land. We have also refurbished a trailer that will act as our
construction office.
Business Plan
The Company is reexamining its next steps for developing a processing facility.
In an effort to move the Company's business plan forward, the Company may
evaluate opportunities to acquire, license, or joint venture with other parties
involved in toll milling, processing, or mining related activities, which may
include Granite Peak Resources, LLC and its affiliated entities including, but
not limited to, Sustainable Metal Solutions, LLC (f/k/a Nederland Mining Group,
LLC), NovaMetallix, Inc, and Black Bear Natural Resources, LTD (f/k/a Calais
Resources, Inc.).
On March 27, 2020 TR engaged NovaMetallix, Inc. ("NMX"), a member of the
Sustainable Metal Solutions Group, a GPR affiliate, to conduct a study of the
quantity and quality of our historic mine tailings, and the economic feasibility
of processing them to reclaim their residual content of gold, silver, and other
valuable metals. NMX, a firm comprised of world class mining, geological and
metallurgical engineering professionals, is the leading force in the rapidly
developing field of sustainable metals. NMX has agreed to conduct the study of
the Company's tailings at its cost and expense in exchange for the exclusive
right to process the tailings should their economic assessment prove
positive. The terms of such processing to be mutually agreed upon in the future
based on the results of the assessment.
On April 10, 2020, Tonopah Resources, Inc. ("TR") and Sustainable Metal
Solutions, LLC ("SMS"), an affiliate of GPR, agreed to form a joint venture
styled Esmeralda Renewal Energy Zone ("EREZ") (effective date April 17, 2020).
TR has agreed to contribute the solar energy rights attributable to the land in
Esmeralda County, NV that will not be utilized for mineral processing to EREZ in
exchange for SMS's agreement to develop, manage and underwrite the EREZ venture.
This agreement has been approved by the Company and its senior secured Lender,
Granite Peak Resources LLC.
Products and Services
We plan to establish ourselves as a custom processing and permitted toll milling
service provider. Our business plan is to build a facility on our Tonopah
property, which includes an analytical lab, pyrometallurgical, and
hydrometallurgical recovery plant.
13
The Company's intention is to become a full service permitted custom toll
milling and processing company that facilitates the extraction of precious and
strategic minerals from mined material. The Company is in the process of
obtaining the permits needed for construction and operation of our permitted
custom processing toll milling facility with state of the art equipment capable
of processing gold, silver and platinum metal groups. Many junior miners do not
have the capital or the ability to permit a processing facility, yet they have a
large supply of mined material that requires milling be performed. It is often
cost prohibitive or impractical for these mine operators to send their materials
to processing mills owned by the large mining companies, or to other customers
with badly needed milling and processing services.
While Nevada has a historic role as a mining center with good proximate geology
and ample mined product, very little custom processing toll milling capacity
remains in the state. During the last several decades, other processing
facilities have been shuttered due to high costs of regulations and the vertical
integration of milling within large mining companies leaving junior miners with
few options for local milling services. As a result, we are in a unique position
among processing facilities because we are capable of true permitted custom
processing. We have the only ball mill located within a custom toll milling
facility within 300 miles allowing us to serve miners in the western United
States, Canada, Mexico, and Central America.
Many junior miners are undercapitalized, have limited access to capital markets
and have a large supply of mined material that requires milling be performed.
Many large mining companies reserve their milling capacity for their inventory,
which does not make providing third party services worthwhile. This provides the
Company with an opportunity to provide these potential customers with badly
needed milling and processing services. Some of our mining customers will be
able to take their tailings (the material left over after the desired minerals
have been extracted) from the material they deposited with the Company and put
it back in the exact same mines those particular tailings came from. This
eliminates the need for the Company to dispose of those tailings.
Results of Operation
Comparison of Three Months Ended March 31, 2020 to Three Months Ended March 31,
2019
Revenues
We had no revenues from any operations for the three months ended March 31, 2020
and 2019. Furthermore, we do not anticipate any significant future revenue until
we have sufficiently funded construction and begin operations.
General and Administrative Expenses
General and administrative expenses were $52,220 for the three months ended
March 31, 2020, as compared to $1,643 for the same period in 2019. For the three
months ended March 31, 2020, general and administrative expenses declined to
minimal office costs due to lack of funding. In the three months ended March 31,
2020, the $52,220 total related principally to resumption of normal accounting
and legal costs in addition to office expenses. We anticipate that that
operating expenses will increase for fiscal 2020 as we continue to access more
funding support.
Other Income and Expenses
We receive monthly lease payments of from American Tower Corporation for a
cellular tower located on our Tonopah land. As such Other Income for the three
months ended March 31, 2020 was $2,099 compared to $2,433 for the respective
period in 2019.
Interest expense for the three months ended March 31, 2020 was $194,330,
compared to $169,250 for the same period in 2019. Interest expense in 2020 and
the 2019 amounts relate primarily to the interest due at rates ranging from 6%
to 10% on our notes payable due related parties.
Liquidity and Capital Resources
Liquidity is a measure of an entity's ability to secure enough cash to meet its
contractual and operating needs as they arise. We have funded our operations and
satisfied our capital requirements through the issuance of convertible debt
during the three months ended March 31, 2020 and 2019. We do not anticipate
generating sufficient net positive cash flows from our operations to fund the
next twelve months. We had a working capital deficit of $10,148,410 at March 31,
2020. Cash was $2,603 at March 31, 2020, as compared to cash of $1,945 at
December 31, 2019.
14
Our cash reserves will not be sufficient to meet our operational needs and thus,
we need to raise additional capital to pay for our operational expenses and
provide for capital expenditures. Our basic operational expenses are currently
estimated at approximately $20,000 per month. Above the basic operational
expenses, we estimate that we need approximately $10,000,000 to begin limited
toll milling operations. If we are not able to raise additional working capital,
we may have to cease operations altogether.
Recent Financings
During the three months ended March 31, 2019, a related party advanced $18,500
which it used to pay directly, on the Company's behalf, $8,500 to reduce certain
accounts payable and $10,000 to reduce one of the outstanding convertible
promissory notes. The advance was made by Granite Peak Resources, LLC ("GPR"), a
related party which intends to convert the advance into a convertible promissory
note.
On March 16, 2020 the Company executed a Line of Credit ("LOC") with GPR, a
related party, evidenced by a convertible promissory note. The LOC is for up to
$2,500,000, matures over three years, bears interest at 10% per annum, is
convertible into shares of the Company's common stock at a per share price of
$0.04, and will be secured by the real and personal property GPR already has
under lien. The LOC is for funding operating expenses critical to the Company's
redirection and all requests for funds may be approved or disapproved in GPR's
sole discretion.
Going Concern
The condensed consolidated financial statements contained in this quarterly
report on Form 10-Q have been prepared assuming that the Company will continue
as a going concern. The Company has accumulated losses from inception through
the period ended March 31, 2020 of $104,106,578, and a working capital deficit
of $10,148,410, as well as negative cash flows from operating activities.
Presently, the Company does not have sufficient cash resources to meet its debt
obligations in the twelve months following the date of this filing. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management is in the process of evaluating various financing
alternatives in order to finance its capital requirements, as well as for
general and administrative expenses. These alternatives include raising funds
through public or private equity markets and either through institutional or
retail investors. Although there is no assurance that the Company will be
successful with its fund-raising initiatives, management believes that the
Company will be able to secure the necessary financing as a result of ongoing
financing discussions with third party investors and existing shareholders.
The consolidated financial statements do not include any adjustments that may be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent on its ability to obtain
additional financing as may be required and ultimately to attain profitability.
If the Company raises additional funds through the issuance of equity, the
percentage ownership of current shareholders could be reduced, and such
securities might have rights, preferences or privileges senior to the rights,
preferences and privileges of the Company's common stock. Additional financing
may not be available upon acceptable terms, or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may not be able
to take advantage of prospective business endeavors or opportunities, which
could significantly and materially restrict its future plans for developing its
business and achieving commercial revenues. If the Company is unable to obtain
the necessary capital, the Company may have to cease operations.
Working Capital Deficiency
March 31, December 31,
2020 2019
Current assets $ 2,604 $ 1,945
Current liabilities 10,151,014 9,905,904
Working capital deficiency $ (10,148,410 ) $ (9,903,959 )
15
The balance and components of current assets are fairly consistent between
periods. The increase in current liabilities is primarily due to accrual of
interest on settlement of lawsuits and notes due related parties.
Cash Flows
Three Months Ended
March 31,
2020 2019
Net cash provided by (used in) operating activities $ 659 $ 791
Net cash provided by financing activities
--- ---
Increase (Decrease) in cash $ 659 $ 791
Operating Activities
Net cash provided by operating activities was $659 and $791 for the three months
ended March 31, 2020 and 2019, respectively. Cash was provided by operating
activities during both periods primarily due to payments for legal and
accounting services and normal office expenses being dramatically cut due to
lack of funding. Additionally, the net loss in both periods was offset by
increases in accrued expenses.
Financing Activities
For the three months ended March 31, 2020, net cash provided by financing
activities was $-0-. For the three months ended March 31, 2019, net cash
provided by financing activities was also $-0-.
Off-Balance Sheet Arrangements
During the three months ended March 31, 2020, we did not engage in any
off-balance sheet arrangements as defined in item 303(a)(4) of the SEC's
Regulation S-K.
Effects of Inflation
We do not believe that inflation has had a material impact on our business,
revenues or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our
financial statements included herein for the three months ended March 31, 2020
and in the notes to our audited consolidated financial statements included in
our Annual Report on Form 10-K for the year ended December 31, 2019. We believe
that the accounting policies below are critical for one to fully understand and
evaluate our financial condition and results of operations.
Impairment of Long-lived Assets
We review our property and mining and mineral rights subject to amortization and
other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset class may not be
recoverable. Indicators of potential impairment include: an adverse change in
legal factors or in the business climate that could affect the value of the
asset; an adverse change in the extent or manner in which the asset is used or
is expected to be used, or in its physical condition; and current or forecasted
operating or cash flow losses that demonstrate continuing losses associated with
the use of the asset. If indicators of impairment are present, the asset is
tested for recoverability by comparing the carrying value of the asset to the
related estimated undiscounted future cash flows expected to be derived from the
asset. If the expected cash flows are less than the carrying value of the asset,
then the asset is considered to be impaired and its carrying value is written
down to fair value, based on the related estimated discounted cash flows. During
the three months ended September, however, we decided to combine the carrying
value of our mining and mineral assets as they are inseparable and depend upon
each other in value creation. See Note 3. There were no impairment charges in
the three months ended March 31, 2020,
16
Recent Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers,"
which requires an entity to recognize the amount of revenue to which it expects
to be entitled for the transfer of promised goods or services to customers. ASU
2014-09 will replace most existing revenue recognition guidance in U.S. GAAP
when it becomes effective. The new standard is effective for annual reporting
periods for public business entities beginning after December 15, 2017,
including interim periods within that reporting period. The new standard permits
the use of either the retrospective or cumulative effect transition method. The
Company adopted ASU 2014-09 January 1, 2018, and as there have been no revenues
to date, the adoption did not have a material impact on the Company's financial
position or results of operations, and no transition method was necessary upon
adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The
standard requires all leases that have a term of over 12 months to be recognized
on the balance sheet with the liability for lease payments and the corresponding
right-of-use asset initially measured at the present value of amounts expected
to be paid over the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an operating or
a financing lease. Costs of an operating lease will continue to be recognized as
a single operating expense on a straight-line basis over the lease term. Costs
for a financing lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and interest expense
(for interest on the lease liability). This standard will be effective for our
interim and annual periods beginning January 1, 2019 and must be applied on a
modified retrospective basis to leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial
statements. Early adoption is permitted. The Company adopted this standard
during 2018, but as the Company does not have any significant leases, it does
not expect it to have a material impact on its financial position or results of
operations.
During the three months ended March 31, 2020 and through the date of this
filing, there were several new accounting pronouncements issued by the Financial
Accounting Standards Board. Each of these pronouncements, as applicable, has
been or will be adopted by the Company. Management does not believe the adoption
of any of these accounting pronouncements has had or will have a material impact
on the Company's consolidated financial statements.
© Edgar Online, source Glimpses
AMERICAN CLEAN RESOURCES GROUP, INC. 