When using the terms "Silver Bull," or the "Company," management is referring to
Silver Bull Resources, Inc. and its subsidiaries, unless the context otherwise
requires. Management has included technical terms important to an understanding
of the Company's business under "Glossary of Common Terms" in its Annual Report
on Form 10-K for the fiscal year ended October 31, 2022.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the U.S. Private Securities
Litigation Reform Act of 1995, and "forward-looking information" within the
meaning of applicable Canadian securities legislation. Management uses words
such as "anticipate," "continue," "likely," "estimate," "expect," "may," "will,"
"projection," "should," "believe," "potential," "could," or similar words
suggesting future outcomes (including negative and grammatical variations) to
identify forward-looking statements. Forward-looking statements include
statements we make regarding:
º The sufficiency of the Company's existing cash resources to enable it to
continue operations for the next 12 months as a going concern;
º The prospects of a claim process, or award, under NAFTA;
º Prospects of entering the development or production stage with respect to
any of the Company's projects;
º Plans at the Sierra Mojada Project in 2023 and beyond;
º Whether any part of the Sierra Mojada Project will ever be confirmed or
converted into "proven or probable mineral reserves" as defined under Item
1300 of Regulation S-K;
º The requirement of additional power supplies for the Sierra Mojada Project
if a mining operation is determined to be feasible;
º The Company's ability to obtain and hold additional concessions in the
Sierra Mojada Project areas;
º Whether the Company will be required to obtain additional surface rights if
a mining operation is determined to be feasible;
º The possible impact on the Company's operations of the blockade by a
cooperative of miners on the Sierra Mojada Property;
º The potential acquisition of additional mineral properties or property
concessions;
º Testing of the impact of the fine bubble flotation test work on the
recovery of minerals and initial rough concentrate grade;
º The impact of recent accounting pronouncements on financial position,
results of operations or cash flows and disclosures;
º The impact of changes to current state or federal laws and regulations on
estimated capital expenditures, the economics of a particular project
and/or activities;
º The ability to raise additional capital and/or pursue additional strategic
options, and the potential impact on the business, financial condition and
results of operations of doing so or not;
º The impact of changing foreign currency exchange rates on the Company's
financial condition;
º The impairment of concessions and likelihood of further impairment of other
long-lived assets;
º Whether using major financial institutions with high credit ratings
mitigates credit risk;
º The impact of changing economic conditions on interest rates;
º Expectations regarding future recovery of value-added taxes ("VAT") paid in
Mexico; and
º The merits of any claims in connection with, and the expected timing of
any, ongoing legal proceedings.
17
These statements are based on certain assumptions and analyses made by us in
light of management's experience and perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, and the actual results could differ from
those expressed or implied in these forward-looking statements as a result of
the factors described under "Risk Factors" in the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 2022, including without
limitation, risks associated with the following:
º The ability to obtain additional financial resources on acceptable terms to
(i) fund the Company's NAFTA claim (ii) maintain its property concessions
in Mexico and (iii) maintain general and administrative expenditures at
acceptable levels;
º The ability to acquire additional mineral properties or property
concessions;
º The ability of the Company to maintain its assets in Mexico given the
performance of the Mexican government at various levels, including those
described in PART II, ITEM 1A RISK FACTORS;
º Worldwide economic and political events affecting (i) the market prices for
silver, zinc, lead, copper and other minerals that may be found on the
Company's exploration properties (ii) interest rates and (iii) foreign
currency exchange rates;
º The amount and nature of future capital and exploration expenditures;
º Volatility in the Company's stock price;
º The inability to obtain required permits;
º Competitive factors, including exploration-related competition;
º Timing of receipt and maintenance of government approvals;
º Unanticipated title issues;
º Changes in tax laws;
º Changes in regulatory frameworks or regulations affecting our activities;
º The ability to retain key management, consultants and experts necessary to
successfully operate and grow the business; and
º Political and economic instability in Mexico and other countries in which
the Company conducts its business, and future potential actions of the
governments in such countries with respect to nationalization of natural
resources or other changes in mining or taxation policies.
These factors are not intended to represent a complete list of the general or
specific factors that could affect the Company.
All forward-looking statements speak only as of the date made. All subsequent
written and oral forward-looking statements attributable to the Company, or
persons acting on its behalf, are expressly qualified in their entirety by the
cautionary statements. Except as required by law, management undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which it is made or to reflect the occurrence of
anticipated or unanticipated events or circumstances. Readers should not place
undue reliance on these forward-looking statements.
18
Cautionary Note Regarding Exploration Stage Companies
Silver Bull is an exploration stage company and does not currently have any
known reserves and cannot be expected to have reserves unless and until a
feasibility study is completed for the Sierra Mojada concessions that shows
proven and probable reserves. There can be no assurance that these concessions
contain proven and probable reserves, and investors may lose their entire
investment. See the sections titled "Risk Factors" in this Form 10-Q and in our
Annual Report on Form 10-K for the fiscal year ended October 31, 2022.
Business Overview
Silver Bull, incorporated in Nevada, is an exploration stage company, engaged in
the business of mineral exploration, and its primary objective is to define
sufficient mineral reserves on the Sierra Mojada Property to justify the
development of a mechanized mining operation. The Company conducts its
operations in Mexico through its wholly-owned Mexican subsidiaries, Minera
Metalin S.A. de C.V. ("Minera Metalin") and Minas de Coahuila SBR S.A. de C.V.
On August 26, 2021, the wholly-owned Mexican subsidiary, Contratistas de Sierra
Mojada S.A. de C.V. merged with and into Minera Metalin. As noted above, the
Company has not established any reserves at the Sierra Mojada Property, and it
is in the exploration stage, and may never enter the development or production
stage.
On August 12, 2020, the Company entered into an option agreement (the "Beskauga
Option Agreement") with Copperbelt AG, a corporation existing under the laws of
Switzerland ("Copperbelt Parent"), and Dostyk LLP, an entity existing under the
laws of Kazakhstan and a wholly-owned subsidiary of Copperbelt Parent (the
"Copperbelt Sub," and together with Copperbelt Parent, "Copperbelt"), pursuant
to which it had the exclusive right and option (the "Beskauga Option") to
acquire Copperbelt's right, title and 100% interest in the Beskauga property
located in Kazakhstan (the "Beskauga Property"), which consists of the Beskauga
Main project (the "Beskauga Main Project") and the Beskauga South project (the
"Beskauga South Project," and together the Beskauga Main Project, the "Beskauga
Project"). The transaction contemplated by the Beskauga Option Agreement closed
on January 26, 2021.
On February 5, 2021, Arras Minerals Corp. ("Arras") was incorporated in British
Columbia, Canada, as a wholly-owned subsidiary of Silver Bull. On March 19,
2021, pursuant to an asset purchase agreement with Arras, the Company
transferred its right, title and interest in and to the Beskauga Option
Agreement, among other things, to Arras in exchange for 36,000,000 common shares
of Arras. On September 24, 2021, Silver Bull distributed to its shareholders one
Arras common share for each Silver Bull share held by such shareholders, or
34,547,838 Arras common shares in total (the "Distribution"), and Arras became a
stand-alone company.
Silver Bull's principal office is located at 777 Dunsmuir Street, Suite 1605
Vancouver, BC, Canada V7Y 1K4, and the telephone number is 604-687-5800.
Recent Developments
Commencement of Legacy North American Free Trade Agreement ("NAFTA") Claim
On March 2, 2023, the Company filed the NAFTA Notice of Intent. The Company has
been unable to access the project since the illegal blockade commenced in
September 2019. Despite numerous demands and requests for action by the Company,
Mexican governmental agencies have allowed this unlawful behaviour to continue
and, as such, failed to protect the Company's investment. Silver Bull will be
seeking to recover no less than US$178 million in damages that it has suffered
as a result of Mexico's breach of its NAFTA obligations.
19
Properties Concessions and Outlook
Sierra Mojada Property
The focus of the Company for the remainder of the 2023 calendar year is to
continue the claim process under NAFTA in relation to the blockade at the Sierra
Mojada Property.
Resultsof Operations
Three Months Ended January 31, 2023 and January 31, 2022
For the three months ended January 31, 2023, we experienced a net loss of
$346,000, or approximately $0.01 per share, compared to a net loss of $330,000,
or approximately $0.01 per share, during the comparable period last year. The
$16,000 increase in net loss was primarily due to a $22,000 increase in
exploration and property holding costs, which was offset by $4,000 in other
income compared to $4,000 in other expense compared to the same period last year
as described below.
Exploration and Property Holding Costs
Exploration and property holding costs increased $22,000 to $136,000 for the
three months ended January 31, 2023, compared to $114,000 for the comparable
period last year. This increase was mainly due to a $16,000 concessions'
impairment as a result the Company's decision to withdraw certain concessions'
applications and write off the capitalized property concession balance for the
three months ended January 31, 2023.
General and Administrative Expenses
The Company recorded general and administrative expenses of $212,000 for the
three months ended January 31, 2023 as compared to $211,000 for the comparable
period last year. The $1,000 increase was mainly the result of a $15,000
increase in directors' fees and a $2,000 increase in the provision for
uncollectible VAT, which was offset by a $3,000 decrease in personnel costs and
an $12,000 decrease in professional services as described below.
Stock-based compensation was a factor in the fluctuations in general and
administrative expenses. The Company recorded $53,000 in stock-based
compensation included in general and administrative expense for the three months
ended January 31, 2023 compared to $nil for the comparable period last year as a
result of no stock options were granted and vested to employees, directors and
consultants.
Personnel costs decreased $3,000 to $89,000 for the three months ended January
31, 2023 as compared to $92,000 for the comparable period last year. This
decrease was mainly due to a $44,000 decrease in salaries due to revised
agreements with the Company's management in January 2022, which was offset by a
$41,000 increase in stock-based compensation compared to the same period last
year.
Office and administrative costs of $35,000 for the three months ended January
31, 2023 were similar to the $35,000 in such costs for the comparable period
last year.
Professional fees decreased $12,000 to $47,000 for the three months ended
January 31, 2023 compared to $59,000 for the comparable period last year. This
decrease was mainly due to a $14,000 decrease in legal fees, which was offset by
a $2,000 increase in accounting fees.
Directors' fees increased $15,000 to $34,000 for the three months ended January
31, 2023 as compared to $19,000 for the comparable period last year. This
increase was primarily due to a $12,000 increase in stock-based compensation and
a $3,000 increase in directors fee compensation as a result of revised chairman
fees compared to the same period last year.
We recorded a $8,000 provision for uncollectible VAT for the three months ended
January 31, 2023 as compared to a $6,000 provision for uncollectible VAT in the
comparable period last year. The allowance for uncollectible VAT was estimated
by management based upon a number of factors, including the length of time the
returns have been outstanding, responses received from tax authorities, general
economic conditions in Mexico and estimated net recovery after commissions.
20
Other Income (Expenses)
We recorded other income of $4,000 for the three months ended January 31, 2023
as compared to other expenses of $4,000 for the comparable period last year. The
significant factors contributing to other income was $6,000 in interest income
for the three months ended January 31, 2023. The significant factors
contributing to other expense was a $4,000 foreign currency transaction loss for
the comparable period last year.
Material Changes in Financial Condition; Liquidity and Capital Resources
Cash Flows
During the three months ended January 31, 2023, we primarily utilized cash and
cash equivalents to fund general and administrative expenses and exploration
activities at the Sierra Mojada Property. As a result of the exploration
activities and general and administrative expenses, cash and cash equivalents
decreased from $887,000 at October 31, 2022 to $746,000 at January 31, 2023.
Cash flows used in operating activities for the three months ended January 31,
2023 were $141,000, as compared to $436,000 for the comparable period in 2022.
This decrease was mainly due to the decreased general and administrative
expenses and the timing of certain payments.
Cash flows provided by investing activities for the three months ended January
31, 2023 were $nil. Cash flows provided by investing activities for the three
months ended January 31, 2022 were proceeds of $470,000 from the sale of 600,000
Arras common shares at a price of $CDN 1.00 per share.
Cash flows provided by financing activities for the three months ended January
31, 2023 and 2022 were $nil.
Capital Resources
As of January 31, 2023, the Company had cash and cash equivalents of $746,000,
as compared to cash and cash equivalents of $887,000 as of October 31, 2022. The
decrease in liquidity and working capital were primarily the result of the
exploration activities at the Sierra Mojada Property and general and
administrative expenses.
Since the Company's inception in November 1993, it has not generated revenue and
have incurred an accumulative deficit of $137,740,000. Accordingly, Silver Bull
has not generated cash flows from operations, and since inception has relied
primarily upon proceeds from private placements and registered direct offerings
of the Company's equity securities, warrant exercises, sale of investments, and
funding from South32 as the primary sources of financing to fund our operations.
Based on the Company's limited cash and cash equivalents, and history of losses,
there is substantial doubt as to whether its existing cash resources are
sufficient to enable it to continue operations for the next 12 months as a going
concern. Management plans to pursue possible financing and strategic options,
include, but are not limited to, obtaining additional equity financing and the
exercise of warrants by warrantholders. However, there is no assurance that the
Company will be successful in pursuing these plans.
Anyfuture additional financing in the near term will likely be in the form of
the issuance of equity securities, which will result in dilution to Silver
Bull's existing shareholders. Moreover, the Company may incur significant fees
and expenses in the pursuit of a financing or other strategic transaction, which
will increase the rate at which its cash and cash equivalents are depleted.
Capital Requirements and Liquidity; Need for Additional Funding
The Company's management and board of directors monitor overall costs, expenses,
and financial resources and, if necessary, will adjust planned operational
expenditures in an attempt to ensure that the Company has sufficient operating
capital. Management continues to evaluate the Company's costs and planned
expenditures, including for the Sierra Mojada Property, as discussed below.
The aforementioned NAFTA claim process will require the Company to incur
significant expense and devote significant resources. Outcomes in NAFTA
arbitration and the process for recovering funds, even if there is a successful
outcome in NAFTA arbitration, can be lengthy and unpredictable. Furthermore,
there is a risk that the Company will be unable to secure the necessary funding
to advance its claim.
21
In January 2023, Silver Bull's board of directors approved a calendar year 2023
budget of $0.3 million for the Sierra Mojada Propertyand $0.7 million for
general and administrative expenses for calendar year 2022. The focus of the
Company's 2023 calendar year program at the Sierra Mojada Property will be to
maintain its property concessions in Mexico. As of February 28, 2023, the
Company had approximately $0.7 million in cash and cash equivalents. To maintain
the Sierra Mojada Property and NAFTA claim ultimately will require the Company
to raise additional capital, identify other sources of funding or identify
another strategic partner.
Management will continue to evaluate the Company's ability to obtain additional
financial resources, and will attempt to reduce or limit expenditures on the
Sierra Mojada Property as well as general and administrative costs if determined
that additional financial resources are unavailable or available on terms that
management determine are unacceptable. However, it may not be possible to reduce
costs, and even if management is successful in reducing costs, the Company still
may not be able to continue operations for the next 12 months as a going
concern. Ifthe Company is unable to fund future operations by obtaining
additional financial resources, including an equity offering or other strategic
transaction, management do not expect to have sufficient available cash and cash
equivalents to continue the Company's operations for the next 12 months as a
going concern.
Critical Accounting Policies
The critical accounting policies are defined in our Annual Report on Form 10-K
for the year ended October 31, 2022 filed with the SEC on January 26, 2023.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force) and the SEC did not or are not expected to have a
material impact on the Company's present or future consolidated financial
statements.
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SILVER BULL RESOURCES, INC. 
