ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement Concerning Forward-Looking Statements
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes included in this report. This report contains “forward-looking statements.” The statements contained in this report that are not historic in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements based on current expectations and assumptions.
Various risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from expectations include, but are not limited to, those set forth under the section “Risk Factors” set forth in this report.
The forward-looking events discussed in this report, the documents to which we refer you and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties, and assumptions about us. For these statements, we claim the protection of the “bespeaks caution” doctrine. All forward-looking statements in this document are based on information currently available to us as of the date of this report, and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements.
The Company
Mexus Gold US is an exploration stage mining company engaged in the evaluation, acquisition, exploration and advancement of gold, silver and copper projects in the State of Sonora, Mexico and the Western United States. Mexus Gold US is dedicated to protect the environment, provide employment and education opportunities for the communities that it operates in.
Our President and CEO, Paul Thompson, brings over 40 years experience in mining and mining development to Mexus Gold US. Mr. Thompson is currently recruiting additional management personnel for its Mexico, Nevada, and submarine Cable Recovery operations to assist in growing the company.
Our executive offices are located at, 1805 N. Carson Street, #150, Carson City, Nevada 89701. Our telephone number is (916) 776 -2166.
We were originally incorporated under the laws of the State of Colorado on June 22, 1990, as U.S.A. Connection, Inc. On October 28, 2009, we changed our domicile to Nevada and changed our name to Mexus Gold US to better reflect our new business operations. Our fiscal year end is March 31
st
.
Description of the Business of Mexus Gold US
Mexus Gold US is engaged in the evaluation, acquisition, exploration and advancement of gold exploration and development projects in the state of Nevada and Mexico, as well as, the salvage of precious metals from identifiable sources. Our main activities in the near future will be comprised of our mining operations in Nevada and Mexico and our cable salvage operations in Alaska and along the west coast of the United States.
Our mining opportunities located in the state of Nevada and the state of Sonora, Mexico will provide us with projects to recover gold, silver, copper and other precious metals. The cable salvage opportunity involves principally the recovery of copper and lead from abandoned cable previously utilized for communications purposes. Each of these opportunities is discussed further herein.
In addition, our management will look for opportunities to improve the value of the gold projects that we own or may acquire knowledge of or may acquire control through exploration drilling, introduction of technological innovations or acquisition with the goal of developing those properties into operating mines. We expect that emphasis on gold project acquisition and development will continue in the future.
Business Strategy
Our business plan was developed with the overriding goal of maximizing shareholder value through the exploration and development of our mineral properties, utilizing the extensive mining-related background and capabilities of our management and employees, and also through strategic partnerships. To achieve this goal, our business plan focuses on five strategic areas:
Lida Mining District, Nevada
We believe the Nevada properties represent the potential to provide the company with a viable project with the addition of additional geologic evaluation and the drilling of prospective areas. Our strategy for this project is to utilize geological data acquired through prior studies, confirm prior drilling results, expand the delineation of the possible ore body and identify reserves through our own geological evaluations.
Mexus Gold S.A. de C.V.
Effective March 31, 2011, we have acquired Mexus Gold S.A. de C.V. We begun funding the operations in Mexico and have begun shipping equipment to the mining sites. In addition, we have begun shipping raw materials from the mining areas for bulk processing and further analysis. We have also initiated an exploration drilling program to further identify the extent of the possible reserves now identified.
Joint Venture Project – Caborca, Sonora Mexico
On November 1, 2012, Mexus Enterprise S.A. de C.V., a subsidiary wholly owned by Mexus Gold US, entered into a Joint Venture Agreement, for a term of fifty years, with Minerals La Negra S. de R.L. de C.V. and Trinidad Pacifica S. de R.L. de C.V. on certain mining concessions, a part of which are currently in the extraction and commercialization of minerals, located in the Municipality of Caborca, State of Sonora, Mexico. Mexus will serve as operator and receive 60% ownership and net revenue participation from the concession presently under production and extraction operation and in the concessions, leasing rights, environmental authorizations including all of the assets situated on the remaining lands. In exchange for the mining concessions described above, the Company agreed to provide $1,500,000 in operating advances to the Joint Venture within 30 days of execution date of the Joint Venture Agreement and issue 1,000,000 shares of Mexus Gold US common stock valued at $400,000 ($0.40 per share) to the legal representative of Minerals La Negra S. de R.L. de C.V. and Trinidad Pacifica S. de R.L. de C.V. As of December 31, 2012, the Company has issued 1,000,000 shares valued at $400,000 and incurred total expense of $1,326,251 attributed to the Joint Venture.
Letter of Intent – Plomo mining properties
On October 8, 2012, Mexus Resources S.A. de C.V., a wholly owned subsidiary of Mexus Gold US entered into a Letter of Intent with Minera Fierrcel S.A. de C.V. for the purpose to form a strategic alliance to conduct mining operations on mining properties located in Plomo, State of Sonora, Mexico and owned by Fierrcel S.A. de C.V. Mexus Resources S.A. de C.V. will receive 51% ownership in the established mining area and the surrounding mining claims. Under the terms of the Letter of Intent, Mexus Gold US has agreed to cause a payment of 500,000 restricted shares of its common stock to be issued and a payment of $100,000 to Fierrcel S.A. de C.V. in exchange for acquiring the mining and exploration rights and to conduct the operational duties associated with the mining activities. As of December 31, 2012, the Company has decided against forming the strategic alliances.
Other Exploration Properties
Our Other Exploration Properties comprise earlier-stage exploration properties. We are currently conducting a number of activities in connection with our earlier-stage exploration properties. During 2009, additional unpatented mining claims were staked in Esmeralda County, Nevada. The evaluation includes compilation of all geologic data and land information for the properties in a geological information system data base. We also staked additional claims in the State of Sonora, Mexico in areas of interest to the company.
Mergers and Acquisitions
We will routinely review merger and acquisition opportunities. An appropriate merger and acquisition opportunity must be accretive to the overall value of Mexus Gold US. Our primary focus will be on those opportunities involving precious metal production or near-term production with a secondary focus on other resource-based opportunities. Potential acquisition targets would include private and public companies or individual properties. Although our preference would be for candidates located in the United States and Mexico. Mexus Gold US will consider opportunities located in other countries where the geopolitical risk is acceptable.
Mining Operations
We classify our mineral properties into three categories: “Development Properties”, “Advanced Exploration Properties”, and “Other Exploration Properties”. Development Properties are properties where a decision to develop the property into a producing mine has been made. Advanced Exploration Properties are those properties where we retain a significant ownership interest or joint venture and where there has been sufficient drilling and analysis to identify and report proven and probable reserves or other mineralized material. We currently do not have a Development Property or Advanced Exploration Property. Other Exploration Properties are those that do not fall into the other categories. Please see below for information about our Other Exploration Properties.
Other Exploration Properties
Our Other Exploration Properties consist of the following:
Mining Properties located in the state of Nevada
Lida Mining District
We have entered into agreements on lands located in Esmeralda County, Nevada. We hold an option on 150 acres of patented lands, 14 mining claims and two mill sites with water rights. We have also staked additional claims as a result of our initial geological evaluations. On July 9, 2011, we entered into an Agreement to extend the option period until July 7, 2012.
The lands are situated in an area of previous exploration and evaluation for precious metals. Past mine engineering reports have established indicated reserves through drilling and show both underground and open pit mining potential. Our plans are to conduct a drilling program to confirm the data presented in prior geological reports. Based on the results of our geological evaluation we will determine our future course of exploration and evaluation.
There have been several geological reports over the years regarding the properties. The following reports are under evaluation:
1. A 1977 report by Andrew J. Zinkle, Mining Engineer, the property was given 52,946 tons proven, 99,500 tons probable and 278,000 tons possible mineral bearing ore with grades estimated at 20 ounces per ton silver and .05 ounces per ton gold.
2. A report dated 1981 by E.R. Kruchowski, Mine Engineer gives the property 136,089 proven tons ore and 272,178 probable tons ore at average grades of 7.63 ounces silver per ton and .05 ounces gold per ton.
The previous Engineering reports mentioned are reported to us as covering only one third of the patented property. Additional patented claims have been included in the option agreement representing approximately 100 acres. The additional lands have no current geological evaluation; however, there are historical reports prior to 1939.
Mining Properties Located in Mexico
The following properties are located in Mexico and owned by Mexus Gold S.A. de C.V., our wholly owned subsidiary:
Caborca Project
On January 5, 2011, Mexus Gold Mining S.A. de C.V. entered into a Purchase Agreement to purchase the Caborca Project. The Caborca Project consists of 7,400 acres (3,000 hectares) about 50 kilometers northwest of the City of Caborca, Sonora State, Mexico. The Caborca Project lies on claims filed by the owners of the Santa Elena Ranch, which controls the surface rights over the project claims. The claims lie near 112
o
25' W, 31
o
7.5" N. These claims were visited near the end of January, 2011. On or about July 11, 2011, we acquired five additional claims surrounding the Caborca Project consisting of approximately 1,000 additional acres.
We have been unable to locate geologic maps of the area from the Government Geological Survey. However, pursuant to our investigation of the project, the claims were found to be underlain by an igneous complex. The rocks observed included many types of granitic rocks, exhibiting porphyrytic textures, gneissic and equigrannular textures. Quartz was variable. At times quartz "eyes" were observed, that is porphyrytic quartz which many workers consider to be indicative of a porphyry environment. In other localities, no quartz was evident. When no quartz was present, the rock was equigrannular. Quartz veining was evident throughout the claim group. A mine was developed along a major quartz vein, called the Julio 2 Mine with the vein being called the Julio Vein.
There are multiple exploration targets on the Caborca Project. The two most important are the quartz stockwork zone and the Julio vein system. The first target will be the quartz stockwork zone. At least four drill holes are expected to be drilled in this zone to test the mineral potential of this area. Additional holes will be completed to test the Julio vein system.
Ocho Hermanos
The main feature is a sulfide zone composed primarily of galena with some pyrite and arsenopyrite. Above this zone there is an oxide zone composed of iron and lead oxides. Recent grab samples taken indicate that values over 5,000 grams per ton of silver were encountered. These samples may not reflect the average grade. However, grab sample results indicate silver values over 3,000 grams per ton appear to be not unusual. Gold in the samples ranged from 1 gram per ton to over 5 grams per ton.
As of the date of this report, we have obtained all necessary permits to begin operations and as of June 30, 2011, we have completed the bypass water channel around the 8 brothers mine. All necessary milling equipment for the 8 brothers mine in now complete and ready to be shipped to Mexico to begin operations. Operations have not commenced as of December 31, 2012.
Los Laureles
Los Laureles is a vein type deposit mainly gold with some silver and copper. Recent assays from grab samples show gold values of 67.730 grams per ton gold, 38.4 grams per ton silver, 2,800 grams per ton copper.
As of the date of this Report, we have opened up old workings at the Los Laureles claim and have discovered a gold carrying vein running north and south into the mountain to the south.
370 Area and El Scorpion Project Area
The Company cancelled the lease on these properties during the quarter ended December 31, 2012.
Cessation Cable Salvage Operation
On September 18, 2012, we executed an Agreement to Terminate and Release whereby we agreed to terminate our July 8, 2010, Project Management Agreement with Powercom Services, Inc. a Georgia corporation. The Parties have agreed that the terms and conditions of the Project Management Agreement no longer address and benefit the cable pulling project in a manner that would mutually benefit either party to continue into the future. As compensation for the termination, we agreed to issue to Powercom Services, Inc. 1,000,000 restricted shares of our common stock in exchange for Powercom’s release and indemnification.
Employees
Mexus Gold US has no employees at this time. Consultants with specific skills are utilized to assist with various aspects of the requirements of activities such as project evaluation, property management, due diligence, acquisition initiatives, corporate governance and property management. If we complete our planned activation of the Nichols Property Exploration and Drilling Program, Cable Salvage Operations and operations of the Mexican mining properties, our total workforce will be approximately 30 persons. Mr. Paul D. Thompson is our sole officer and director.
Competition
Mexus Gold US competes with other mining companies in connection with the acquisition of gold properties. There is competition for the limited number of gold acquisition opportunities, some of which is with companies having substantially greater financial resources than Mexus Gold US. As a result, Mexus Gold US may have difficulty acquiring attractive gold projects at reasonable prices.
Management of Mexus Gold US believes that no single company has sufficient market power to affect the price or supply of gold in the world market.
Legal Proceedings
There are no legal proceedings to which Mexus Gold US or Mexus Gold S.A. de C.V. is a party or of which any of our properties are the subject thereof.
Property Interests, Mining Claims, and Risk
Property Interests and Mining Claims
Our exploration activities are conducted in the state of Nevada. Mineral interests may be owned in this state by (a) the United States, (b) the state itself, or (c) private parties. Where prospective mineral properties are owned by private parties, or by the state, some type of property acquisition agreement is necessary in order for us to explore or develop such property. Generally, these agreements take the form of long term mineral leases under which we acquire the right to explore and develop the property in exchange for periodic cash payments during the exploration and development phase and a royalty, usually expressed as a percentage of gross production or net profits derived from the leased properties if and when mines on the properties are brought into production. Other forms of acquisition agreements are exploration agreements coupled with options to purchase and joint venture agreements. Where prospective mineral properties are held by the United States, mineral rights may be acquired through the location of unpatented mineral claims upon unappropriated federal land. If the statutory requirements for the location of a mining claim are met, the locator obtains a valid possessory right to develop and produce minerals from the claim. The right can be freely transferred and, provided that the locator is able to prove the discovery of locatable minerals on the claims, is protected against appropriation by the government without just compensation. The claim locator also acquires the right to obtain a patent or fee title to his claim from the federal government upon compliance with certain additional procedures.
Mining claims are subject to the same risk of defective title that is common to all real property interests. Additionally, mining claims are self-initiated and self-maintained and therefore, possess some unique vulnerabilities
not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from an examination of the public real estate records and, therefore, it can be difficult or impossible to confirm that all of the requisite steps have been followed for location and maintenance of a claim. If the validity of a patented mining claim is challenged by the BLM or the U.S. Forest Service on the grounds that mineralization has not been demonstrated, the claimant has the burden of proving the present economic feasibility of mining minerals located thereon. Such a challenge might be raised when a patent application is submitted or when the government seeks to include the land in an area to be dedicated to another use.
Reclamation
We may be required to mitigate long-term environmental impacts by stabilizing, contouring, re-sloping and re-vegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts will be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies.
Risk
Our success depends on our ability to recover precious metals, process them, and successfully sell them for more than the cost of production. The success of this process depends on the market prices of metals in relation to our costs of production. We may not always be able to generate a profit on the sale of gold or other minerals because we can only maintain a level of control over our costs and have no ability to control the market prices. The total cash costs of production at any location are frequently subject to great variation from year to year as a result of a number of factors, such as the changing composition of ore grade or mineralized material production, and metallurgy and exploration activities in response to the physical shape and location of the ore body or deposit. In addition costs are affected by the price of commodities, such as fuel and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. A material increase in production costs or a decrease in the price of gold or other minerals could adversely affect our ability to earn a profit on the sale of gold or other minerals. Our success depends on our ability to produce sufficient quantities of precious metals to recover our investment and operating costs.
The Company is dependent upon outside financing to continue operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management’s plan to raise necessary funds through a private placement of its common stock to satisfy the capital requirements of the Company’s business plan. There is no assurance that the Company will be able to raise necessary funds or that if it is successful in raising the necessary funds, that the Company will successfully operate its business plan.
Distribution Methods of the Products
The end product of our operations will usually be doré bars. Doré is an alloy consisting of gold, silver and other precious metals. Doré is sent to refiners to produce bullion that meets the required market standard of 99.95% pure gold. Under the terms of refining agreements we expect to execute, the doré bars are refined for a fee and our share of the refined gold, silver and other metals are credited to our account or delivered to our buyers who will then use the refined metals for fabrication or held for investment purposes.
General Market
The general market for gold has two principal categories, being fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and jewelry. The supply of gold consists of a combination of current production from mining and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals.
Patents, trademarks, licenses, franchises, concessions, royalty agreements, or labor contracts, including duration;
We do not have any designs or equipment which is copyrighted, trademarked or patented.
Effect of existing or probable governmental regulations on the business
Government Regulation
Mining operations and exploration activities are subject to various national, state, provincial and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. We have obtained or have pending applications for those licenses, permits or other authorizations currently required to conduct our exploration and other programs. We believe that Mexus Gold US is in compliance in all material respects with applicable mining, health, safety and environmental statutes and the regulations passed thereunder in the Nevada and United States and in any other jurisdiction in which we will operate. We are not aware of any current orders or directions relating to Mexus Gold US with respect to the foregoing laws and regulations.
Environmental Regulation
Our gold projects are subject to various federal and state laws and regulations governing protection of the environment. These laws are continually changing and, in general, are becoming more restrictive. It is our policy to conduct business in a way that safeguards public health and the environment. We believe that the actions and operations of Mexus Gold US will be conducted in material compliance with applicable laws and regulations. Changes to current state or federal laws and regulations in Nevada, where we operate currently, or in jurisdictions where we may operate in the future, could require additional capital expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.
Research and Development
We do not foresee any immediate future research and development costs.
Costs and effects of compliance with environmental laws
Our gold projects are subject to various federal and state laws and regulations governing protection of the environment. These laws are continually changing and, in general, are becoming more restrictive. It is our policy to conduct business in a way that safeguards public health and the environment. We believe that our operations are and will be conducted in material compliance with applicable laws and regulations. The economics of our current projects consider the costs and expenses associated with our compliance policy.
Changes to current state or federal laws and regulations in Nevada, where we operate currently, or in jurisdictions where we may operate in the future, could require additional capital expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.
Results of Operations
The following management’s discussion and analysis of operating results and financial condition of Mexus Gold US is for the three and nine month periods ended December 31, 2012 and 2011 and for the period from September 18, 2009 (exploration stage re-entry) through December 31, 2011. All amounts herein are in U.S. dollars.
Three Months Ended December 31, 2012 compared with the Three Months Ended December 31, 2011 and September 18, 2009 (Exploration Stage Re-Entry) through December 31, 2012
We had a net loss during the three months ended December 31, 2012 of $2,408,153 compared to a net loss of $309,883 during the same period in 2011. Of the three months ended December 31, 2012 net loss $1,877,652 is attributable to Mexus Gold US and $530,501 is attributable to the non-controlling interest. We had a cumulative net loss of $7,415,582 for the period from September 18, 2009 (Exploration Stage Re-Entry) through December 31, 2012. Of this net loss $6,885,081 is attributable to Mexus Gold US and $530,501 is attributable to the non-controlling interest. This increase in net loss is attributable to an increase in exploration costs, exploration costs related to joint ventrue, stock-based compensation-consulting services and losses on the sale of equipment and the settlement of debt.
Revenue
For the three months ended December 31, 2012, we had revenues of $88,836 compared to $19,728 for the three months ended December 31, 2011. We recorded revenues of $505,475 for the cumulative period from September 18, 2009 (Exploration Stage Re-Entry) through December 31, 2012. During the three months ended December 31, 2012 we earned revenue from the sale of gold bars. The cumulative period from September 18, 2009 (Exploration Stage re-entry) through December 31, 2012 includes $150,000 of revenue from an option agreement.
Operating Expenses
Total operating expenses increased to $2,146,316 during the three months ended December 31, 2012, compared to $321,254 for the three months ended December 31, 2011. Total operating expenses for the period from September 18, 2009 (exploration stage re-entry) through December 31, 2012 were $8,120,000. The increase in operating expenses was due to an increase in exploration costs, exploration cost related to joint venture, stock-based compensation-consulting services and loss on the sale of equipment. The exploration costs related to joint venture many consist of labor cost of $394,771, small tool, chemicals and supplies of $356,238, diesel and gas of $93,738 and repair and maintenance of $66,503. These costs were used in locating areas of potential mineralization or evaluating properties or working interests with specific areas of potential mineralization were expensed as incurred.
We sold a barge for total cash proceeds of $190,000 and incurred a loss of $138,324 for the three months ended December 31, 2012.
Other Income (Expense)
We incurred $4,138 of interest expense during the three months ended December 31, 2012 compared to $7,066 during the same period in 2011. The decrease is attributable to a decrease in our borrowings during the three months ended December 31, 2012.
Nine months Ended December 31, 2012 Compared with the Nine months Ended December 31, 2011
We had a net loss during the nine months ended December 31, 2012 of $2,581,797 compared to a net loss of $829,602 during the same period in 2011. This increase in net loss is attributable to an increase in exploration costs, stock-based compensation and impairment of mineral property. The increase in operating costs was partially offset by a gain on settlement of debt.
Revenue
For the nine months ended December 31, 2012, we had revenues of $244,564 compared to $178,819 for the nine months ended December 31, 2011. During the nine months ended December 31, 2012 we earned revenue from the sale of gold bars. During the nine months ended December 31, 2011 we earned $150,000 from an option agreement.
Operating Expenses
Total operating expenses increased to $3,638,767 during the nine months ended December 31, 2012, compared to $966,406 for the nine months ended December 31, 2011. The increase in operating expenses was due to an increase in exploration costs, exploration costs related to joint venture, stock-based compensation-consulting services and impairment of mineral property.
We sold a barge and other fixed assets for total cash proceeds of $209,000 and incurred a loss of $156,922 for the nine months ended September 30, 2012.
Other Income (Expense)
The Company and Powercom Services Inc. agreed, effective August 8, 2012, to terminate and settle any and all claims created as a result of the Project Management Agreement for cable pulling operations. In consideration for cancelling the Agreement, the Company issued 1,000,000 shares of its common stock valued at $150,000 ($0.15 per share). As a result of the termination, the Company recorded a $650,000 gain on settlement of the $800,000 advance received under the Agreement.
We incurred $19,307 of interest expense during the nine months ended December 31, 2012 compared to $40,724 during the same period in 2011. The decrease is attributable to a decrease in our borrowings during the nine months ended December 31, 2012.
Liquidity and Capital Resources
At December 31, 2012, we had cash of $203,740 compared to $0 at March 31, 2012. This increase in cash is primarily due to cash from proceeds from the issuance of common stock.
Our equipment increased to $1,655,274 at December 31, 2012, compared to $1,131,097 at March 31, 2012. The increase in equipment during the nine months ended December 31, 2012 is due to the purchase heavy equipment for exploration activities.
Equipment under construction increased to $160,687 at December 31, 2012, compared to $158,907 at March 31, 2012. Our equipment under construction represents our process of fabricating and modifying equipment relating to mining and salvage operations. We anticipate equipment under construction will be used to perform bulk sampling projects on our exploration properties or will have the capacity of being placed into a production process pending a determination by management as to the most beneficial application of the equipment.
Our mineral properties increased to $1,339,993 at December 31, 2012, compared to $682,374 at March 31, 2012. Mineral properties were reduced by an $185,368 impairment charge recorded during the nine months ended December 31, 2012 on the 370 Area and El Scorpion Area properties. The increase in mineral properties was primarily due to the purchase mining concessions located in the Municipality of Caborca, Sonora, Mexico.
Total assets increased to $3,529,144 at December 31, 2012, compared to $1,980,797 at March 31, 2012. The majority of the increase in assets related to the purchase of equipment and mineral properties during the nine months ended December 31, 2012.
Our total liabilities decreased to $171,006 at December 31, 2012, compared to $1,303,029 as of March 31, 2012. This total includes current liabilities of $171,006 and long-term liabilities of $0 as of December 31, 2012. At March 31, 2011, current liabilities totaled $1,266,171 and long-term liabilities totaled $36,858. The decrease in liabilities during the nine months ended December 31, 2012 is primarily due to the settlement of accounts payable, advances and notes payable through issuance of our common stock.
In addition to anticipated revenues from operations, we believe that we have sufficient available cash and available loans from our sole officer and director and other individual sources to satisfy our working capital and capital expenditure requirements during the next 12 months. There can be no assurance, however, that cash and cash from loans will be sufficient to satisfy our working capital and capital requirements for the next 12 months or beyond.
Future goals
The Caborca Properties have become our primary focus after our installation of a small placer recovery plant to conduct tests on prospective placer areas and determine the viability of the placer deposits while we conducted evaluations of the other Mexico properties. The positive results of the placer mining project quickly became interesting and began to show a cash flow which allowed the project to become a breakeven endeavor. The decision was then made to add additional equipment which also was successful and will allow the continuation of mining operations of the placer deposits.
Therefore, our goal for the current year is to increase the cash flow of the placer mining operation, continue the drilling program begun during 2011, initialize mining operations on the Julio quartz deposit while we conduct a thorough geological study by an independent geological firm of the future potential of other vein deposits located near the Julio deposit.
Foreign Currency Transactions
The majority of our operations are located in United States and most of our transactions are in the local currency. We plan to continue exploration activities in Mexico and therefore we will be exposed to exchange rate fluctuations. We do not trade in hedging instruments and a significant change in the foreign exchange rate between the United States Dollar and Mexican Peso could have a material adverse effect on our business, financial condition and results of operations.
Off-balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.