ITEM 1. DESCRIPTION OF BUSINESS
Pacific Metals Corp. (Pacific Metals, or the Company) was incorporated in Nevada on June 28, 2006.
The main objective of Pacific Metals is to explore, identify, and develop commercially viable mineral deposits in the claims over which the company has rights that could potentially produce revenues.
Pacific Metals owns federal mining claims in Southwest Colorado. The Company staked the claims it owns in August 2006.
The Company should be considered an exploration stage company. The Company does not have any reserve analysis reports in respect of its claims. The Company is not in actual development or production of any mineral deposits.
JOBS Act
Recently the United States Congress passed the Jumpstart Our Business Startups Act of 2012, which provides for certain exemptions from various reporting requirements applicable to public companies that are reporting companies but not emerging growth companies. Because the characterization of emerging growth companies is available to us, we have elected to be treated as this category of company. This status will permit us not to provide an annual auditor attestation report required by Section 404 of the Sarbanes-Oxley Act, to avail ourselves of reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and to not present to our shareholders a nonbinding advisory vote on executive compensation or obtain approval of any golden parachute payments not previously approved. Additionally, we have elected not to have to comply with new or revised accounting standards while we are an emerging growth company.
The status of being an emerging growth company extends for five years, until May 2017. We may lose the status of an emerging growth company earlier than 2017 if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million.
Description of Property
The Company owns 24 unpatented federal lode mining claims, PMC 30-46 and PMC 48-54, Colorado Mining Claim numbers 259820-259843, in San Juan and Dolores Counties, Colorado, staked in August 2006; immediately southeast of Bolam Pass. The lead claim file number for the file is San Juan County 145097 and Delores County 00150911.The claims are located within the San Juan Mountains, north of Durango, Colorado. The claims are situated on federal land. They cover approximately 480 acres of very rugged, mountainous terrain. The claims are subject to an annual renewal fee of $140 each, paid yearly by the Company to the BLM prior to September 1
st
of each year along with a notice of intent to hold the claims. The mining claims were acquired by staking land owned by the BLM. The staking process involved a physical visit to the site using a GPS to locate USGS corner posts and then placer location monuments at the 4 corners of each prospective claim. Subsequently a field map is prepared and then the claim location notices are filed with the proper county of location and once stamped by the county the claims are then submitted to the Colorado BLM with the appropriate location fee and advance renewal fee of $140 per claim for the subsequent year.
The claims are located at an elevation of 11,000 feet above mean sea level and are accessible by a dirt road that is maintained during the summer months by the United States Forest Service. The property, which is referred to as the Graysill Property, encompasses the historic Graysill Mine, a past producer of vanadium and uranium ore. Based on generally available public information, the Graysill Mine is known to have produced vanadium and by-product uranium during a period of approximately twenty years after World War II. It is generally estimated that before the mine ceased production in the early 1960s, approximately 32,000 tons of ore were mined with a reported grade of approximately 2.41% vanadium pentoxide and 0.09% uranium oxide. No assurance can be given that these reportable grades will be matched in future explorations and operations if commenced.
Vanadium is primarily used as a steel additive to strengthen it.
Vanadium also is compatible with titanium, therefore vanadium foil is used in cladding titanium to steel. Vanadium also is a suitable material for the inner structure of a fusion reactor. Several vanadium alloys show superconducting behavior. Certain vanadium oxides are used in chemical reactions for the production of other products, such as sulfuric acid, ceramics and glass coatings.
Uranium has many uses, notably in the energy and military sectors. Medical and scientific uses are also important within the uranium industry, including for medical diagnostics, cell and medical research and scientific dating.
3
The property is underlain by a gently dipping assemblage of Paleozoic and Mesozoic sedimentary rocks within which vanadium and uranium occurs in many of the rock units in a stratabound manner, exhibiting little or no apparent relationship to regional structural trends. Although vanadium and uranium occurrences are ubiquitous and are known to exist in over 20 distinctly different sedimentary units in the vicinity of the property of American Uranium, the Pennsylvanian-Permian Rico Formation and the Upper Jurassic Entrada Sandstone are the only formations which have been mined previously for vanadium and uranium. Most of the past production has come from the Entrada Sandstone. Historically, there have been a number of uraniferous vanadium deposits developed in the Entrada Sandstone along a sinuous trend extending in a north-south direction for over 100 miles. This trend coincides with a major structural feature representing a transitional zone between the Colorado Plateau and the Southern Rocky Mountain physiographic provinces.
There is no modern determination of mineral reserves, which means there is no current evaluation of the economic or legally extractable or producible mineral deposits within the claims owned by the Company.
The Company has not completed any work on the property aside from an on site inspection by a mining engineer.
There are currently no usable facilities or infrastructure on the property.
The Company has begun its exploration and development program as outlined below under the heading Business Plan.
No sources of water or power have yet been secured or identified, by the Company, at the property.
To date the Company has spent approximately $50,000 on the project claims.
4
Business Plan
The Company engaged a geologist consulting firm, World Industrial Minerals in April 2012, to perform various evaluations of the Graysill uranium - vanadium mine located in Dolores and San Juan Counties Colorado USA. The engagement is broken into several phases, set forth below, and each is dependent on the successful completion of the earlier phases and the existence of positive results that justify the next phases. The engagement of the above firm is on the basis of a general work order for specific tasks. In the case of phase one, the Company and the consulting firm agreed upon the work to be done and the time frame. There is no long term contract. The Company is not obligated to continue to engage the above firm for future phases of the evaluation process, and the Company believes that there are other firms available to carry out all or portions of the continued evaluative work. Therefore, investors should understand that at any point in the geological evaluation, it may be determined not to proceed, and in that case the expense of the evaluation will not be recoverable.
5
·
Phase 1: Detailed research of the existing mine, including the geology and potential for ultimate production. This phase will include location and assessment of all available literature on the existing mine and provision of a summary report of the findings. This report will include recommendations about the future work to be performed in respect of the exploration and production of the property. This report will also suggest budgeting requirements for the subsequent phases.
·
Phase 2: Field Evaluation of property and mine during summer field season. This work will be directed by results of research phase.
·
Phase 3: Exploration program drilling, sampling of old workings. This work will be directed by results of the field evaluation. Because of the short field season, it is possible that certain samplings by drilling may take place before the commencement of phase two.
·
Phase 4: Prepare NI-43-101 Report of exploration efforts.
Phase one was completed in May 2012, and the Company is now evaluating the report assessing the availability of information about the claims and the recommendations for the next phases of work that needs to be done. On the basis of the Company evaluation, the undertaking of the next phases and the completion dates for those phases will be determined, which will in part depend in part on the summer field season and availability of access to the property and expenses of the later phases.
The costs for phases two through four will each be dependent on the results of the prior phase of work being completed and the recommendations of the consultant geologists.
After assessment of the phase one report, , together with the test results, the Company will then develop and amend from time to time the more robust exploration program and budget for exploration. Thereafter, it will have to pursue fund raising activities to fund the exploration it plans to implement. Because it is very early stages of the exploration phases and the overall viability of the mining property has not been assessed, the Company has not developed a full plan or budget. Investors should be aware that as an early exploratory Company, there may not be any conclusive results or the results of the initial exploration will indicate that the mining property is not viable. Therefore, investors will not be able to realize any gain on their investment.
Competition
Currently, we do not have any direct competition with respect to the specific claims that the Company owns. Within the industry of vanadium and uranium, if we were to develop production capacity, the Company would compete with other suppliers of these minerals. Because minerals are sourced world-wide, our competition would include companies operating in diverse locations such as Africa, Australia, the Peoples Republic of China and the Americas. The companies that commonly are producing minerals of this nature are large capitalization companies, with established mining clams and operations. Their deposits are often refined and sold through related parties or to and through companies with which they have long standing relationships. In some countries which are seeking to develop their mineral resource capabilities, there are direct and indirect subsidies and supports that give these producers market advantage. In the United States, we will also have to face the competitive differential imposed by a body of sophisticated, comprehensive environmental laws that cover mining, transportation, refining and distribution of minerals. Additionally, since there are dangerous aspects to the operation of shaft mining and associated with vanadium and uranium, there is a body of worker protection and similar laws that we will have to comply with. These may be more restrictive and costly rules than our competitors have to follow, which would make our operations more expensive and less competitive in the world market.
In terms of developing our business plan and conducting exploration and later mineral deposit development, we also expect to compete for qualified geological and environmental experts to assist us in our exploration of mining prospects, as well as any other consultants, employees and equipment that we may require in order to conduct our operations.
Currently, there is significant competition for financial capital to be deployed in mining and mineral extraction, particularly in relation to the oil and gas extractive industries. Therefore, it is difficult for smaller mineral companies such as Pacific Metals to attract investment for its exploration activities. We cannot give any assurances that we will be able to compete for capital funds, and without adequate financial resources management cannot assure that the Company will be able to compete in exploration activities and ultimately in mineral deposit development, production and sales.
6
Regulation
The exploration and development of a mining prospect is subject to regulation by a number of federal and state government authorities. These include the United States Environmental Protection Agency and the Bureau of Land Management as well as the various state environmental protection agencies. The regulations address many environmental issues relating to air, soil and water contamination and apply to many mining related activities including exploration, mine construction, mineral extraction, ore milling, water use, waste disposal and use of toxic substances. In addition, we are subject to regulations relating to labor standards, occupational health and safety, mine safety, general land use, export of minerals and taxation. Many of the regulations require permits or licenses to be obtained and the filing of Notices of Intent and Plans of Operations, the absence of which or inability to obtain will adversely affect the ability for us to conduct our exploration, development and operation activities. The failure to comply with the regulations and terms of permits and licenses may result in fines or other penalties or in revocation of a permit or license or loss of a prospect.
For the purposes of exploration drilling, the Company will be subject to the approval of a plan of operations submitted to the US Forest Service and/or the BLM. Additionally, the plan of operations for exploration drilling will have to be approved by the Colorado Division of Reclamation, Mining and Safety and the Colorado Department of Public Health and Environment. Once the plan of operations is approved by these agencies, the Company must post a bond with the state prior to commencing any exploration work that disturbs the ground in a material manner, which bond amount will cover reclamation and other costs in the event the Company fails to act in accordance with its plan.
The preparation and filing of the plan of operations for exploration drilling and the associated permitting is not difficult process because of the limited intrusion into the land. The Company believes that once it has the necessary reports that it will be able to formulate a plan and obtain the necessary permits. The permits related to the number of drill sites, the location, and the extent of the drilling, as well as the expected disruption to the land and the necessary steps for reclamation.
In the future, if an when the Company progresses to establishing a mining operation, in order to begin operating a mine, the Company must have an approved plan of operations with the US Forest Service and/or BLM, an approved Air permit with the Colorado Department of Public Health and Environment, an approved water pollution control permit with the Colorado Department of Public Health and Environment, an approved and acceptable bond with the Colorado Department of Public Health and Environment and US Forest Service and/or BLM, any business license required by the relevant counties and must also abide by al Mine Safety and Health Agency regulations. The Colorado Division of Reclamation has permitting oversight on all reclamation plans. Since the minerals include some that are may be radioactive, the Company will also have to comply with the regulation of radioactive materials of the State of Colorado, which will be an added permitting process within the overall plan of operations for an operating mine. Before the plan of operations will be filed, the Company will have to arrange for a source of water, develop a water pollution control system, and develop a air pollution control system, in addition to all the other aspects of opening a mine for operations.
We must comply with the annual staking and patent maintenance requirements of the State of Colorado and the United States Bureau of Land Management, which included the payment of the annual renewal fee for each claim. We must also comply with the filing requirements of our proposed exploration and development, including Notices of Intent and Plans of Operations. In connection with our exploration and assessment activities, we have pursued necessary permits where exemptions have not been available although, to date, most of these activities have been done under various exemptions. We will need to file for water use and other extractive-related permits in the future.
Employees
We currently employ one person, our chief executive officer Mr. Mitchell Geisler. Mr. Geisler is employed without a written employment agreement. Currently, Mr. Geisler does not draw a salary, and the Company only reimburses him for his expenses. Notwithstanding the current arrangement, the Company may pay Mr. Geisler a salary or other compensation on a bonus basis in the future, in amounts determined in the discretion of the Company or as negotiated with Mr. Geisler, which compensation may take the form of cash, stock issuances, employee options and promissory notes.
We do not have any other employees at this time. In the future, when we need other persons for aspects of the exploratory work and other functions, we will hire persons under service agreements as consultants, part-time and full time employees as necessary. We do not have any arrangements for the hiring of any persons at this time.
Executive Offices
Our principal executive offices are located at 848 North Rainbow Blvd #2987, Las Vegas, Nevada 89107. Our telephone number is (416) 214-1483.
7
ITEM 1A. RISK FACTORS
We are an "emerging growth company" under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards.
We will remain an emerging growth company for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30.
Our status as an emerging growth company under the JOBS Act of 2012 may make it more difficult to raise capital as and when we need it. Because of the exemptions from various reporting requirements provided to us as an emerging growth company and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
We have elected not to have to comply with new and revised accounting standard while we are an emerging growth company until such standards apply to private companies, which means our financial statements may not be comparable to other public companies.
The JOBS Act affords us the ability to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. This election, which we have made, is irrevocable. The result of this election means that our financial statements may not be comparable to other public companies that comply with the accounting standards when effective.
There is substantial doubt as to whether we can continue as a going concern.
Our auditors have included an explanatory paragraph in their opinion that accompanies our audited financial statements as of and for the year ended December 31, 2012, indicating that our negative cash flows from operations, net capital deficiency, and current liquidity position raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We do not have a long history of running our business upon which investors may evaluate our performance, and therefore investors bear all the risks of a company beginning to implement its business plan.
We are implementing our business plan for the company which is in the earlier stages. We have engaged in activities of obtaining mining claims by staking a prospect area, conducting preliminary analysis and only the earliest of exploratory activities, and obtaining existing geological and engineering information. The preliminary analysis conducted by the Company included a site visit by a mining engineer to the claim site, letter requests to the Bureau of Land Management for historical information on the past mining activities on the claims as well as reviewing any publicly available historical reports that discussed the claim area. We will only increase these activities once we have obtained sufficient funds to implement a meaningful and longer term business plan for the exploration of the mining claims. There is a significant amount of additional work and investment necessary for us to demonstrate the efficacy of our overall business plan. You should consider our business future based on the risks associated with our stage of development and our short operating history. An investment in the company is speculative.
8
If we are not able to face and solve one or more of the challenges that a developing company in the mining industry typically encounters, we will not succeed in implementing our business plan.
We expect to face many challenges in our business. These will include, but are not limited to:
Ø
Engaging and retaining the services of qualified geological, engineering and mining personnel and consultants;
Ø
Establishing and maintaining budgets;
Ø
Implementing appropriate financial controls;
Ø
Acquiring relevant mineral deposit data efficiently;
Ø
Staking and evaluating appropriate prospects;
Ø
Establishing initial exploration plans for mining prospects;
Ø
Obtaining and verifying studies to determine mineral deposit levels on our prospects;
Ø
Ensuring the necessary exploratory and operational permits are filed on a timely basis, and the necessary permits are maintained and approved by the federal and state authorities; and
Ø
Adhering to regulatory requirements.
The failure to address one or more of these above factors may impair our ability to carry out our business plan. In that event, an investment in the company would be substantially impaired.
We will be dependent on locating and hiring, at economical rates, independent consultants and occasional workers for the implementation of our business plan without whom we will not meet the expected timing of implementation of our business plan.
To locate, obtain and evaluate prospects and to conduct initial testing and later on any excavation and processing, we will rely on consultants and occasional workers in addition to our own staff. We may not be able to locate, employ or retain persons with the appropriate experience and skills to successfully execute our business plan. The inability to do the proposed actions on a timely basis or at all may result in the delay of implementing our business plan, thereby causing additional expense or our business failure.
Mineral extraction has many risks associated with it, which risks may make our business more costly or more difficult to pursue. We may have to curtail our operations if we are not able to surmount any issues that we encounter.
Mineral exploration has significant risks. Some of the exploratory risks include the following:
Ø
It is dependent on locating commercially viable mineral deposits in staked and leased prospects and skillful management of prospects once found or located.
Ø
Mineral deposits may vary substantially in a prospect, rendering what was initially believed a profitable deposit of little or no value.
Ø
Mineral exploration and ultimate exploitation may be affected by unforeseen changes including:
Changes in the value of minerals,
Changes in regulations, including mining and environmental regulations,
Environmental concerns about mining are area or in general, particularly in relation to minerals in the rare earth category,
Technical issues relating to extraction, such as rock falls, subsidence, flooding and weather conditions, and
Labor issues.
Any of these individually or together could delay or halt implementation of the business plan or raise costs to levels that may make it unprofitable or impractical to pursue our business objectives.
Our business future is dependent on finding prospects with sufficient mineral grade and consistency without which it may not be practical to pursue the business plan, and investors will lose their investment.
Our business model depends on locating prospects with commercially sufficient amounts of vanadium and uranium. Until actual extraction and processing is undertaken, we will not know if our prospects have commercially viable mineral deposits of metals that can be profitably marketed. Even if initial reports about a particular prospect are positive, subsequent activities may determine that the prospect is not commercially viable. Thus, at any stage in the exploration and development process, we may determine there is no business reason to continue, and at that time, our financial resources may not enable us to continue exploratory operations and will cause us to terminate our current business plan. If we do substantially curtail or terminate our business, investors will lose their entire investment.
9
Because of limited evaluation, the mining properties held by the company nay not ultimately have any value.
The company has relied on its agents and consultants to stake the claims, which included their physically walking the property. The sole officer has not actually walked the property as part of the staking process. The company has relied on a mining engineer to make the initial evaluation of the mining property and pursue the registration of the claims, and only recently engaged a geologist to perform further evaluation of the mining property. Because the company has relied and is relying on its agents and consultants, it is possible that the claims may not be as represented or anticipated by the company, and therefore, senior management may not be aware of any faults or mistakes in the ownership.
Our senior management does not have mining engineering and geological training, but will rely on consultants and employees for these skills.
Our management does not have educational or practical training as mining engineers or geologists. Rather they are managers with experience in the mining industry directing the operations of mining properties and extraction and processing of minerals. The company will rely on consultants and employees to provide engineering and geological services. The lack of technical skills by management may result in limitations on their ability to assess a technical situation or resolve a technical problem. Additionally, the senior management persons, despite having operated other mining properties in Oregon and Nevada, may not be aware of business requirements generally or specifically arising in Colorado, which could adversely impact the operations of the company. Therefore, the operations, earnings and ultimate financial success may suffer due to senior managements lack of experience in the industry.
The mining claims held by the company may not have any of the mineral deposits sought by the company or if there are such mineral deposits, they may not be commercially viable, therefore causing a total loss of investment in the company.
The probability of the mining properties held by the company having mineral deposits of uranium and vanadium that are commercially viable is remote, considering the property has been previously exploited and the current costs associated with extractive industries in more remote locations. The fact that mining is a capital intensive and operationally an expensive business, and natural resources are subject to market volatility, makes commercial viability difficult to assess and obtain. Therefore, the exploration activities may result in a final decision that there is no commercial point in pursing the mining properties. In that event, investors will lose their investment in the company with no prospect of realizing on their investment.
Regulatory compliance is complex and the failure to meet all the various requirements could result in loss of a staked prospect, fines or other limitations on the proposed business.
We will be subject to regulation by numerous federal and state governmental authorities, but most importantly, by the Federal Environmental Protection Agency, the Federal Department of the Interior, the Bureau of Land Management, and the Forest Service, and comparable state agencies. The failure or delay in making required filings and obtaining regulatory approvals or licenses will adversely affect our ability to explore for viable mineral deposits and carry out subsequent aspects of our business plan. The failure to obtain and comply with any regulations or licenses may result in fines or other penalties, and even the loss of our rights over a prospect. We expect compliance with these regulations to be a substantial expense in terms of time and cost. Therefore, compliance with or the failure to comply with applicable regulation will affect our ability to succeed in our business plan and ultimately to generate revenues and profits.
Among the various regulations are permitting and licensing requirements. These cover a large number of the activities in which a mining operation must engage, such as environmental related permitting and licensing relating to mineral extraction, reclamation, waste disposal and water use and disposal. To the extent there are toxic substances used in the mining and processing of minerals, there are usually permitting requirements for the use, storage and disposal of such substances. The company will be required to provide bonds for certain of the activities associated with mining, such as for reclamation. Before operations may commence, including certain drilling and testing activities, notices must be provide to the state including scope of activities statements that must be reviewed and approved. If any of these necessary permits, licenses and approvals are not obtained, or not obtained on a timely basis, then the company operations will be adversely affected. Delays will be costly and may even restrict proposed operations.
For the purposes of exploration drilling, the company will be subject to the approval of a plan of operations submitted to the US Forest Service and/or the BLM. Additionally the plan of operations will have to be approved by the Colorado Division of Reclamation, Mining and Safety and the Colorado Department of Public Health and Environment. Once the plan is approved by these agencies the Company must post a bond with the state, as outlined in its suggested plan, prior to commencing any exploration work that disturbs the ground in a material manner to cover the costs associated with reclamation if the company fails to satisfactorily comply with the reclamation requirements of the plan and the state regulation.
10
In order to begin operating a mine the Company must have an approved Plan of Operations with the US Forest Service and/or BLM, an approved Air permit with the Colorado Department of Public Health and Environment, an approved water pollution control permit with the Colorado Department of Public Health and Environment, an approved and acceptable bond with the Colorado Department of Public Health and Environment and US Forest Service and/or BLM, any business license required by the relevant counties and must also abide by al Mine Safety and Health Agency regulations. The Colorado Division of Reclamation has permitting oversight on all reclamation plans. The State of Colorado has primacy for the regulation of radioactive materials in the State of Colorado.
Our business plan is premised on the price of minerals in the global markets.
Our business plan depends on the price of minerals in the global markets. The viability of any commercialization of minerals will depend on the cost of recovery versus the market price of the mineral and whether or not it has uses in the markets. An increase in market use and price will encourage industry interest in United States mine development of smaller operations such as our prospects and improve the likelihood of our overall success. If the price and/or use of minerals do not increase appreciably, then it is the belief of Pacific Metals that current sources of the minerals we are seeking will remain adequate for market supply and sources like those we are attempting to identify and explore will become marginalized. The viability of our business plan is also dependant on the price of minerals remaining at least at current prices. If prices fall substantially from the current levels, then our costs will be such that there will be insufficient profit margins and incentives to pursue our business plan. In that event, Pacific Metals will have to curtail its business plan and investors will lose their investment.
The company faces competition from established mining operations and competition may develop among the junior mining companies, which will be better able to locate, stake and explore new mineral sources more cost effectively and quicker than Pacific Metals.
There are many established mining companies that command greater resources than those available to the company. These established companies have adequate financing, established claims, operations that are working and established means of extracting, processing and distribution. Additionally, there are numerous junior mining, exploration and production companies in existence that may be attracted to the mining businesses if the use of and demand for vanadium and uranium develops or prices for these resources increase. These smaller companies may be more established and have resources unavailable to Pacific Metals, which will provide them advantage in their exploration, development and extraction activities. These companies likely would be able to reach production stages sooner than Pacific Metals and obtain market share before us. If our competition is such that we cannot compete and generate a sufficient return on our investment and operations, we may be forced to curtail our operations, resulting in a loss to investors.
Pacific Metals will compete with other mining enterprises for appropriate consultants and employees.
Pacific Metals will compete in the hiring of appropriate geological, engineering, permitting, environmental and other operational experts to assist with the location, exploration and development of staked prospects and implementation of its business plan. We believe we will have to offer or pay appropriate cash compensation and options to induce persons to be associated with an early-stage exploration company. If Pacific Metals is unable to make appropriate compensation packages available to induce persons to be associated with it because of its limited resources, we will not be able to hire the persons we need to carry out our business plan. In that event, investors will have their investment impaired or it may be entirely lost.
Pacific Metals will require additional capital to fund expanded operations, without which we will have to curtail our plans and investors, may lose the potential of their investment
.
The current working capital is sufficient for our planned immediate operational needs, but will not cover our longer-term estimated exploration and operating requirements. To commence our business plan, we will need additional capital. We believe we will need substantial amounts of equity investment in the early stages of our business plan. If we encounter unexpected expenses, the initial amounts of working capital will have to be increased, therefore, we may need additional capital sooner than expected during the exploratory stages of the business plan. For Pacific Metals to expand its operations in its current prospects and acquire additional prospects, it is anticipated that it will need additional capital. The mining business, in all of its aspects, requires significant capital. Without additional capital Pacific Metals will have to curtail or substantially modify its overall business plan or abandon elements of it.
As of December 31, 2012 Pacific Metals had approximately $122,479 in debt, which if it cannot repay when due, will permit the holders to seek renegotiation or bankruptcy alternatives, the result of which could terminate implementation of the business plan.
Pacific Metals has approximately $122,479 of debt due to its single stockholder, and a related party entity. From time to time, the company may also have trade debt and equipment financing outstanding. If Pacific Metals is unable to repay any of its obligations when due, the creditor could put the company into bankruptcy or force renegotiation of the terms of outstanding debt on terms that may be substantially less favorable. In either event, the ability of Pacific metals to pursue its business plan will be impaired and the equity of the company will become worthless.
11
To settle existing debt and any other debt outstanding from time to time, Pacific Metals may seek agreement with the holder to exchange the debt or obligation for shares of capital stock. In that case, there may be dilution experienced by investors in the company. The management cannot predict whether it will be able to use any capital stock in this manner or the amount of capital stock that may have to be issued.
Pacific Metals does not have any identified sources of additional capital, the absence of which may prevent it from continuing its operations.
Pacific Metals does not have any arrangements with any investment banking firms or institutional lenders. Because we will need additional capital in the future, we will have to expend significant effort to raise operating funds. These efforts may not be successful, and they may be disruptive to our executives other responsibilities and our operations. In the absence of necessary capital, Pacific Metals will have to limit or curtail operations.
A majority stockholder has the ability to control our business direction
.
Because our majority stockholder is our parent company and owns 76% of the shares of common stock, it is in a position to control the election of our board of directors and the selection of officers, management and consultants. This stockholder and its related parties have also lent the company a significant amount of working capital. Therefore, investors will be entirely dependent on its judgment in implementing the business plan of Pacific Metals Corp.
There is not an active trading market for our common stock, and if a market for our common stock does not develop, our investors may be unable to sell their shares.
Our common stock is currently quoted on the Pink Sheets trading system. The Pink Sheets is not a listing service or exchange, but is instead a dealer quotation service for subscribing members. The securities that trade on the Pink Sheets tend to be highly illiquid, and there is a greater chance of market volatility for securities that trade on the Pink Sheets. In addition, the value of our common stock could be affected by many factors such as the following, some of which we may not be able to control or influence:
Actual or anticipated variations in our operating results;
Changes in the market valuations of other companies operating in our industry;
Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
Additions or departures of key personnel;
Sales of our common stock or other securities in the open market; and
Conditions or trends in the market in which we operate
In a volatile market, investors may experience wide fluctuations in the market price of our securities. These fluctuations may prevent investors from obtaining a market price equal to the purchase price upon an attempt to sell our securities in the open market. In these situations, investors may be required either to sell our securities at a market price which is lower than the purchase price, or to hold our securities for a longer period of time than planned. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies, assets or technologies by using common stock as consideration.