Forward-Looking Statements
This Form 10-Q contains certain "forward-looking" statements as such term is
defined by the Securities and Exchange Commission in its rules, regulations and
releases, which represent the Company's expectations or beliefs, including but
not limited to, statements concerning the Company's strategy, operations,
economic performance, financial condition, resource drilling 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" 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. This Form 10-Q contains forward-looking statements, many assuming
that the Company secures adequate financing and is able to continue as a going
concern, including statements regarding, among other things: our ability to
continue as a going concern;
•exploration for minerals is highly speculative and involves greater risk than
many other businesses; as such, most exploration programs fail to result in the
discovery of economic mineralization;
•our mineralized material calculations at various projects are only estimates
and are based principally on historic data;
•actual capital costs, operating costs, production and economic returns may
differ significantly from those that we have anticipated;
•exposure to all of the risks associated with restarting and establishing new
mining operations, if the
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development of one or more of our mineral 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;
•we will require additional financing in the future to develop a mine at any
other projects;
•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;
•our ability to secure financing;
•claims and legal proceedings against us;
•our lack of necessary financial resources to complete development of our
projects and the uncertainty of our future financing plans;
•our exposure to material costs, liabilities and obligations because 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;
•our projected sales and profitability;
our business growth strategies;
•anticipated trends in our industry;
the lack of commercial acceptance of our product or by-products;
•problems regarding 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.
The Company does not intend to undertake to update the information in this Form
10-Q if any forward-looking statement later turns out to be inaccurate.
The following discussion summarizes the results of our operations for the three
and the six months ending December 31, 2017 and 2016 (As Restated), but with the
knowledge that Santa Fe Gold with all its subsidiaries filed for Bankruptcy -
Chapter 11 in August 2015 and the case was dismissed from bankruptcy on June 15,
2016.
Basis of Presentation and Going Concern
The consolidated unaudited 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. As a result of
these circumstances, management concluded that there is substantial doubt
regarding the Company's ability to continue as a going concern as it is
currently structured.
The future of the Company is discussed in the 10-K filings for the fiscal year
ended June 30, 2017.
Santa Fe Gold Corporation ("Santa Fe", "the Company", "our" or "we") is a U.S.
mining company, incorporated in 1991 in the state of Delaware. Our general
business strategy is to acquire explore, develop and to create shareholder
value.
The Company has recorded a loss of $3,051,288 for the six months ended December
31, 2017, and has a total accumulated deficit of $102,467,928 and a working
capital deficit at December 31, 2017 of $16,706,523. The Company currently has
no source of generating revenue.
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 acquired new mining
claims and an acceptable source to process the mineralized ore to generate
revenue. We have no commitment from any party to provide additional
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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.
On December 31, 2017, the Company was in default on payments of approximately
$7.63 million under a gold stream agreement (the "Gold Stream Agreement") with
Sandstorm Gold Ltd. ("Sandstorm") and other notes payable principle aggregating
$2,376,406 and accrued interest on the notes of $1,683,266.
The results of operations in the past reflected a continued under-capitalization
of our projects which required additional funding to be able to achieve full
project performance and sustained potential profitability. We currently are
dependent on additional financing to resume any mining operations and to
continue our exploration efforts in the future if warranted.
Operating Results for the Three Months Ended December 31, 2017 and 2016 (As
Restated)
Sales, net
During the three months ended December 31, 2017 and 2016 (As Restated), the
Company had no revenue in the periods of measurements.
Operating Costs and Expenses
Our operating cost incurred in three months ended December 31, 2017, decreased
$29,444 from $530,759 in the three months ended December 31, 2016 (As Restated),
to $501,315 for the current period of measurement. The decrease in operating
costs in the current period of measurement is attributable decreased exploration
and mine related costs of $37,358.
Decrease in exploration and mine related costs were due mainly due a decrease in
property tax expense in the current period of measurement of $38,000.
Other Income (Expense)
Other income (expense) for three months ended December 31, 2017, was
$(1,697,098) as compared to $1,360,368 for three months ended December 31, 2016
(As Restated), an increase in other expense of $3,057,466. The net increase in
other expense for the current period measurement is mainly comprised of the
following components: increased losses on misappropriation of funds of $47,454,
financing costs - commodity supply agreement of $684,333 and interest on
mandatory redemption shares by related party of $1,440,000. Other income in the
current period of measurement had decreases comprised of the following
components: foreign currency translation of $210,695; gain on derivative
instruments of $326,994, gain on trust debt extinguishment of $472,831 and a
reduction in interest expense of $124,841.
For the three months ended December 31, 2017, there were no derivative financial
instruments or related derivative gain or loss and in the current reporting
period. The prior reporting period had a gain of $326,994 on derivative
instruments. 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 associated
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 the derivatives, the CFA assumed that the Company's business would be
conducted as a going concern.
For the three months ended December 31, 2017, financing costs - commodity supply
agreements had an increased loss of $684,333 from the comparable period of
measurement, which had income of $655,031. The financing costs for commodity
supply agreements relate directly to production delivery of refined precious
metals to Sandstorm in the prior period of measurement. The 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 increased in the
current period of measurement is driven by an increase in precious metals
prices.
The interest on mandatory redemption shares by related party of $1,440,000 is a
result of each subsequent period measurement closing, the shares will be valued
at the current market price and any increase in valuation from the initial
valuation will be recorded as a designated interest expense. Any decrease in
valuation from the initial valuation will be recorded to Addition Paid in
Capital as the obligation is to a related party of the Company.
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The decrease in interest expense for the current period of measurement was
$124,841, and is mainly a result of a decrease in loan discounts expensed as
interest expense of $55,568 and no convertible debt interest in the current
period of measurement.
Operating Results for the Six Months Ended December 31, 2017 and 2016 (As
Restated)
Sales, net
During the six months ended December 31, 2017 and 2016 (As Restated), the
Company had no revenue in the periods of measurements.
Operating Costs and Expenses
Our operating cost incurred in six months ended December 31, 2017, increased
$130,700 from $864,552 in the six months ended December 31, 2016 (As Restated),
to $995,252 for the current period of measurement. The increase in operating
costs in the current period of measurement is attributable increased general and
administrative of $136,077.
The increases in general and administrative in the current period of measurement
are mainly attributable to wages of $32,353, accounting and financial reporting
of $20,608, consulting of $77,380 and legal of $27,324. The increases were
offset by a decrease in director fees of $15,000.
Other Income (Expense)
Other income (expense) for six months ended December 31, 2017, was $(2,056,036)
as compared to $552,632 for six months ended December 31, 2016 (As Restated), an
increase in other expense of $2,608,668. The net increase in other expense for
the current period measurement is mainly comprised of the following components:
increased losses on misappropriation of funds of $24,245, financing costs
- commodity supply agreement of $829,360 and interest on mandatory redemption
shares by related party of $1,477,000 and an offset in a reduction of a loss on
derivative instruments of $54,237. Other income in the current period of
measurement had decreases comprised of the following components: foreign
currency translation of $101,554, gain on debt extinguishment of $14,599, gain
on trust debt extinguishment of $472,831 and a reduction in interest expense of
$257,484.
For the six months ended December 31, 2017, there were no derivative financial
instruments or related derivative gain or loss and in the current reporting
period. The prior reporting period had a loss of $54,237 on derivative
instruments. 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 associated
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 the derivatives, the CFA assumed that the Company's business would be
conducted as a going concern.
For the six months ended December 31, 2017, financing costs - commodity supply
agreements had an increased loss of $829,360 from the comparable period of
measurement, which had income of $648,540. The financing costs for commodity
supply agreements relate directly to production delivery of refined precious
metals to Sandstorm in the prior period of measurement. The 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 increased in the
current period of measurement is driven by an increase in precious metals
prices.
The interest on mandatory redemption shares by related party of $1,477,800 is a
result of each subsequent period measurement closing, the shares will be valued
at the current market price and any increase in valuation from the initial
valuation will be recorded as a designated interest expense. Any decrease in
valuation from the initial valuation will be recorded to Addition Paid in
Capital as the obligation is to a related party of the Company.
The decrease in interest expense for the current period of measurement was
$257,484, and is mainly a result of a decrease in loan discounts expensed as
interest expense of $116,115 and no convertible debt interest in the current
period of measurement.
Liquidity and Capital Resources; Plan of Operation
As of December 31, 2017, we had cash of $853,343 and we had a working capital
deficit of $16,706,523.
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At December 31, 2017, the Company was in defaults on payments of approximately
$7.64 million under a gold stream agreement (the "Gold Stream Agreement") with
Sandstorm Gold Ltd. ("Sandstorm"), other notes payable principle aggregating
approximating $2.38 million, accrued liabilities of approximately $2.47 million
and accounts payable approximating $3.03 million.
The Company upon emergence resorted to selling equity for cash so as to proceed
on reviving the Company. Currently we have no continuing commitment from any
party to provide necessary additional working capital, or if one becomes
available, there is no certainty that its terms will be favorable or acceptable
to the Company to continue its current business plan.
On July 19, 2016, a new company was formed: Santa Fe Acquisition LLC ("SFA")
with Tom Laws, our CEO, 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. All major purchases were made through the SFA Company for the benefit of
SFG, with the funding provided by SFG.
During the six months ending December 31, 2017, the Company continued to
implement its initial plan to emerge from the bankruptcy proceedings. The
Company raised $3,623,912 from the sale of common stock subscriptions and the
exercise of attached warrants. The funds were used as working capital to
implement the Company business plan.
On August 18, 2017, the Company signed the Bullard's Peak Agreement and
delivered $100,000 towards the purchase price. The Agreement is to purchase
Bullard's Peak Corporation and Black Hawk Consolidated Mines Company and acquire
100% of the issued and outstanding capital stock for a cash purchase price in
the aggregate amount of $3,000,000, to be paid with installments stated in the
Bullard's Peak Agreement. As of December 31, 2017, we have paid to the seller
$2.000,000. Title to the claims and transfer of the issued and outstanding
shares will be transferred upon receipt by seller of the full purchase price.
The final payment was made on April 2, 2019 and the final purchase price with
related costs was $3,115,365.
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SANTA FE GOLD CORPORATION 
